OBLIGATION TO PAY INTEREST

A. Conventional/Monetary Interest
Civil Code of the Article 1993 By the contract of loan,
Philippines one of the parties delivers
to another, either
something not consumable
so that the latter may use
the same for a certain time
and return it, in which case
the contract is called a
commodatum; or money or
other consumable thing,
upon the condition that the
same amount of the same
kind and quality shall be
paid, in which case the
contract is simply called a
loan or mutuum.

Commodatum is
essentially gratuitous.

Simple loan may be

gratuitous or with a
stipulation to pay interest.

In commodatum the bailor

retains the ownership of
the thing loaned, while in
simple loan, ownership
passes to the borrower.
Article 1956 No interest shall be due
unless it has been
expressly stipulated in
writing.
Article 1306 The contracting parties
may establish such
stipulations, clauses, terms
and conditions as they may
deem convenient, provided
they are not contrary to
law, morals, good
customs, public order, or
public policy.
Article 1253 If the debt produces
interest, payment of the
principal shall not be
deemed to have been made
until the interests have
been covered.
Article 1258 Consignation shall be
made by depositing the
things due at the disposal
of judicial authority,
before whom the tender of
payment shall be proved,
in a proper case, and the
announcement of the
consignation in other
cases.

The consignation having

been made, the interested
parties shall also be
notified thereof.
Article 1960 If the borrower pays
interest when there has
been no stipulation
therefor, the provisions of
this Code concerning
solutio indebiti, or natural
obligations, shall be
applied, as the case may
be.
Article 2154 If something is received
when there is no right to
demand it, and it was
unduly delivered through
mistake, the obligation to
return it arises.
Article 1423 Obligations are civil or
natural. Civil obligations
give a right of action to
compel their performance.
Natural obligations, not
being based on positive
law but on equity and
natural law, do not grant a
right of action to enforce
their performance, but
after voluntary fulfillment
by the obligor, they
authorize the retention of
what has been delivered or
rendered by reason
thereof. Some natural
obligations are set forth in
the following articles.
Article 1959 Without prejudice to the
provisions of Article 2212,
 interest due and unpaid
shall not earn interest.
However, the contracting
parties may by stipulation
capitalize the interest due
and unpaid, which as
added principal, shall earn
new interest.
Article 2212 Interest due shall earn
legal interest from the time
it is judicially demanded,
although the obligation
may be silent upon this
point.
Article 1308 The contract must bind
both contracting parties; its
validity or compliance
cannot be left to the will of
one of them.
Usury Law Section 1 The rate of interest for the
loan or forbearance of any
money, goods, or credits
and the rate allowed in
judgments, in the absence
of express contract as to
such rate of interest, shall
be fix per centum per
annum or such rate as may
be prescribed by the
Monetary Board of the
Central Bank of the
Philippines for that
purpose in accordance
with the authority hereby
granted.
Section 7 In any case, however, the
maker of said note shall
have the right to recover
from said original holder
the whole interest paid by
him thereon and, in case of
litigation, also the costs
and such attorney's fees as
may be allowed by the
court.
Section 7 - a
Section 5 No pawnbroker or
pawnbroker's agent shall
directly or indirectly
stipulate, charge, demand,
 take or receive any higher
rate or greater sum or
value for any loan or
forbearance than two and
one-half per centum per
month when the sum lent
is less than one hundred
pesos; two per centum per
month when the sum lent
is one hundred pesos or
more, but not exceeding
five hundred pesos; and
fourteen per centum per
annum when it is more
than the amount last
mentioned; or the
maximum rate or rates
prescribed by the
Monetary Board and in
force at the time the loan
or forbearance is granted.
A pawnbroker or
pawnbroker's agent shall
be considered such, for the
benefits of this Act, only if
he be duly licensed and
has an establishment open
to the public.

"It shall be unlawful for a

pawnbroker or
pawnbroker's agent to
divide the pawn offered by
a person into two or more
fractions in order to collect
greater interest than that
permitted by this section."

"It shall also be unlawful

for a pawnbroker or
pawnbroker's agent to
require the pawner to pay
an additional charge as
insurance premium for the
safekeeping and
conservation of the article
pawned."
BSP Circular No. 799, Section 1. The rate of
Series of 2013 interest for the loan or
forbearance of any money,
 goods or credits and the
rate allowed in
judgements, in the absence
of an express contract as to
such rate of interest, shall
be six percent (6%) per
annum.
Section 2. In view of the
above, Subsection X305.1
of the Manual of
Regulations for Banks and
Sections 4305Q.1, 4305S.3
and 4303P.1 of the Manual
of Regulations for Non-
Bank Financial Institutions
are hereby amended
accordingly.

CASE DIGEST
Frias v San Diego-Sison
FACTS:
Bobie Rose Frias owns a house and lot that she bought through a Deed of Sale
from Island Masters Reality and Development Corporation (IMRDC) and is covered
by a transfer certificate of title (TCT) in IRMDC's name. Frias, as the Leader of the
First Party, and Dra. The Second Party, Flora San Diego-Sison, signed a
Memorandum of Agreement (MOA) over the land. Frias got P2 million in cash and a
P1 million post-dated cheque from San Diego-Sison on February 28, 1990, rather than
1991, making the check stale. Frias subsequently delivered IRMDC the TCT and the
Deed of Absolute Sale of the property.

San Diego-Sison chose not to buy the property and told Frias by letter,
reminding him of the arrangement that the P2 million would be deemed a debt due in
six months. Frias, on the other hand, did not pay San Diego-Sison, who later filed a
case for unpaid wages with a preliminary attachment. Frias also allegedly sought to
deprive San Diego-Sison of the loan's security by falsely reporting the loss of her
owner's copy of the TCT and having a new owner's duplicate copy of the title issued
to her.

Due to the compounded interest provided in the MOA, the trial court ordered
Frias to pay San Diego-Sison the sum of P2 million plus interest at the rate of 32
percent per annum commencing December 7, 1991. The appeal court upheld the trial
court's verdict but reduced the interest rate from 32 percent to 25% effective June 7,
1991, as the interest rate in 1991 was between 25 and 32 percent per annum and the
P2 million was regarded a loan in June 1991. Frias claimed that the interest rate was
in violation of the MOA since it stated that if San Diego-Sison decides not to buy the
property, Frias has another six months to pay the loan with compounded bank interest.

ISSUE:
Whether CA committed error in awarding 25% interest per annum on the
2million peso loan even beyond the second 6 months stipulated period.
 RULING:
The Court found no error in awarding 25% interest per annum on the
P2Million loan even beyond the six months stipulated period. “The general rule is that
if the terms of an agreement are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations shall prevail. It is further
required that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly.” Besides, Frias and San Diego-Sison agreed and as stipulated in the contract
that the loaned amount shall earn compounded bank interests.

Siga-an v. villanueva
FACTS:
Petitioner was sued by the respondent for a quantity of money. Respondent
stated that petitioner contacted her within the PNO and offered to loan her
P540,000.00, claiming that the loan agreement was not reduced in writing and that
there was no provision about interest payment. As partial payment of the loan,
respondent handed petitioner a cheque for P500,000.00. She then issued a second
check to petitioner in the amount of P200,000.00 as payment for the remaining
balance of the loan, with the excess amount of P160,000.00 being applied as interest.

Petitioner pressed her to pay more interest after being dissatisfied with the
amount applied as interest and threatened to block or disapprove her transactions with
the PNO if she did not comply with his demand. As a result, she paid additional
interest on the loan in cash and cheques. She requested a receipt for the money from
the petitioner, but was assured that it was unnecessary because they had mutual trust
and confidence. According to her calculations, she paid P1,200,000.00 to petitioner
for the loan and interest.

The RTC issued a decision finding that respondent overpaid petitioner on her
loan obligation and that the latter should reimburse the excess to the former. It was
ratiocinated that respondent's responsibility was solely to pay the lent sum of
P540,000.00, and that the purported interest due should not be included in the
computation of respondent's total monetary debt since the parties had not reached an
agreement on interest payment. It was determined that, because respondent made an
excess payment to petitioner in the sum of P660,000.00 by mistake, petitioner shall
repay the money to respondent under the solutio indebiti concept.

In addition, petitioner shall pay moral damages for respondent's restless nights
and hurt sentiments. In addition, petitioner shall pay exemplary damages as a public
good example or corrective, as well as attorney's fees and costs of litigation.

ISSUE:
Whether or not interest was due to petitioner.

RULING:
No. Compensatory interest is not chargeable in the instant case because it was
not duly proven that respondent defaulted in paying the loan and no interest was due
on the loan because there was no written agreement as regards payment of interest.
Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated in
writing. As can be gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor
in writing is prohibited by law.

De la Paz v L&J Development Company

Rolando de la Paz loaned L&J, a property developer with Atty. Rolando de la

Paz lent 350KPhp to L&J, a property developer with Atty. Its President and General
Manager was Esteban Salonga. The loan, which had no set maturity date, had a
monthly interest rate of 6%. Respondent paid petitioner a total of 576KPhp in
representinginterest costs from December 2000 to August 2003. Petitioner filed a suit
for money collection against respondent after he failed to pay despite repeated
demands. The inability to pay was owing to a fortunate incident, namely, financial
difficulties brought on by the economic crisis; the 6 percent monthly interest could
not be imposed since it was unconscionable, according to the respondent. Petitioner
stated that it was respondent who insisted on paying the above mentioned interest as
they asserted that the loan was merely a short-term one.

The MeTC ordered respondent to pay petitioner 350,000 pesos plus 12 percent
interest per year calculated from the filing of the complaint until complete payment of
the obligation. The RTC upheld the MeTC judgment in its entirety. The CA
overturned and overturned the RTC ruling. The parties did not agree to the imposition
of interest on the loan in writing. As a result, no interest will be required under Art.
1956 of the Civil Code. Even though the interest payment is still established in paper,
the 6% monthly interest is still unlawful and immoral since it is against morality.

ISSUE:
Whether or not no interest rate shall be due on the loan for lack of a written
stipulation.

RULING:
YES. Under Article 1956 of the Civil Code, no interest shall be due unless it
has been expressly stipulated in writing. Here, it is undisputed that the parties did not
put down in writing their agreement. Thus, no interest is due. The collection of
interest without any stipulation in writing is prohibited by law.

Regardless of Atty. Salonga’s profession, Rolando who is an architect and an

educated man himself could have been a more reasonably prudent person under the
circumstances. To top it all,he admitted that he had no prior communication with
Atty. Salonga. Despite Atty. Salonga being a complete stranger, he immediately
trusted him and lent his company 350KPhp, a significant amount. Moreover, as the
creditor, he could have requested or required that all the terms and conditions of the
loan agreement, which include the payment of interest, be put down in writing to
ensure that he and L&J are on the same page.

Sps. Juico v. China Banking Corporation

FACTS:
 Sps. Ignacio and Alice Juico took out a loan from China Banking Corporation,
as indicated by two Promissory Notes for Php 6,216,000 and Php 4, 139,000, both
dated October 6, 1998, and backed by a Real Estate Mortgage on their White Plains
home. Sps. CBC sought full payment of the remaining sum plus accumulated monthly
interests after Juico failed to pay the monthly amortizations due. The mortgaged
property was auctioned off, with CBC being the top bidder for P10,300,000. Sps.
CBC sent Juico a demand letter demanding payment of P8,901,776.63, the amount of
the deficit after the foreclosure sale profits were applied to the mortgage obligation.
Respondent filed a collection suit in the trial court after its demand went unheeded.

Sps. Juico acknowledged the obligation, but claimed that the complaint lacks
cause of action because the principle of the loan had already been paid when the
mortgaged property was repossessed extrajudicially. Sps' account was handled by
Annabelle Yu, a Senior Loans Assistant at CBC. Juico stated that the interest rate
varies every month based on the market rate, and that she informed petitioners of the
current rate by phoning them monthly before their account became past due.

Ignacio Juico confessed that he was asked to sign a blank promissory note
before the loan could be released, and that he was told that the loan's interest rate
would be determined by market rates. He further stated that he is a Doctor of
Medicine and that he read the promissory notes and was aware of his obligations
under them prior to signing them. The RTC found in CBC's favor. CA concurred.
When the profits of an extrajudicial foreclosure of a mortgage are inadequate to cover
the obligation, the CA acknowledged respondent's right to seek the deficit from the
debtor.Also, it ruled as legal the clause in the promissory notes that interest shall be
based on the prevailing rate. The parties agreed on an interest rate, which was not
imposed unilaterally by the bank but was the daily rate given by all commercial banks
as approved by the Monetary Board. Having signed the promissory notes, the CA
decided that petitioners are bound by the terms contained therein.

ISSUE:
Whether or not the interest rates imposed by CBC are valid?

RULING:
No. The appeal is partly meritorious.

The binding effect of any agreement between parties to a contract is premised
on two settled principles: (1) that any obligation arising from contract has the force of
law between the parties; and (2) that there must be mutuality between the parties
based on their essential equality. Any contract which appears to be heavily weighed in
favor of one of the parties so as to lead to an unconscionable result is void. Escalation
clauses refer to stipulations allowing an increase in the interest rate agreed upon by
the contracting parties. There is nothing inherently wrong with escalation clauses
which are valid stipulations in commercial contracts to maintain fiscal stability and to
retain the value of money in long term contracts. Hence, such stipulations are not void
per se. Nevertheless, an escalation clause "which grants the creditor an unbridled right
to adjust the interest independently and upwardly, completely depriving the debtor of
the right to assent to an important modification in the agreement" is void. A
stipulation of such nature violates the principle of mutuality of contracts. Here, the
escalation clause is void because it grants respondent the power to impose an
increased rate of interest without a written notice to petitioners and their written
consent. Respondent’s monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement based on the
new imposed interest with corresponding computation of the total debt should have
been provided by the respondent to enable petitioners to make an informed decision.
An appropriate form must also be signed by the petitioners to indicate their
conformity to the new rates. Compliance with these requisites is essential to preserve
the mutuality of contracts. Modifications in the rate of interest for loans pursuant to an
escalation clause must be the result of an agreement between the parties. Unless such
important change in the contract terms is mutually agreed upon, it has no binding
effect. In the absence of consent on the part of the petitioners to the modifications in
the interest rates, the adjusted rates cannot bind them. Any interest in excess of 15%
(the interest rate imposed on the first year) is invalid.

Sps. Silos v Philippine National Bank

FACTS:
To achieve such an arrangement, Spouses Silos acquired a credit line with
PNB, which included a Credit Agreement and an amortgage. To offset their payment,
the couples issued a number of promissory notes. Escalation clauses/provisions were
included in all papers, allowing PNB to unilaterally raise or lower interest rates. The
concept of contract mutuality was determined to be violated in these cases.

ISSUE:
Whether or not the interest rate provision in the Credit Agreement and the
Amendment to Credit Agreement is null and void for giving PNB the sole power to
fix the rates.

RULING:
Yes, The provision giving PNB the sole unilateral determination to fix the
interest is void.

It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting on
the part of the one who contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind. Similarly, contract changes must be
made with the consent of the contracting parties. The minds of all the parties must
meet as to the proposed modification, especially when it affects an important aspect of
the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make or break a capital venture. Thus,
any change must be mutually agreed upon, otherwise, it is bereft of any binding
effect.

Abella v. Abella
FACTS:
Respondents Spouses Romeo and Annie Abella were sued by petitioners
Salvador and Alma Abella for a sum of money and damages, alleging that
respondents got a loan from them in the amount of P500,000. An acknowledgement
receipt dated March 22, 1999 served as proof of the loan, which was due within one
(1) year. Respondents were able to pay a total of P200K—P100K on two consecutive
occasions—leaving a P300K outstanding debt, according to petitioners.
 Respondents claimed in their Answer that the money involved was part of the
capital for a joint venture involving the lending of money when they were approached
by petitioners who proposed that if respondents were to "undertake the management
of whatever money petitioners would give them, petitioners would get 2.5 percent a
month with a 2.5 percent service fee to respondents," petitioners would get 2.5
percent a month with a 2.5 percent service fee to respondents.

Furthermore, they stated that the full P500,000.00 was spent in compliance
with their agreed-upon terms and conditions, and that petitioners dissolved the joint
venture, causing them to seek repayment from the joint venture's borrowers.
However, they were only able to collect P200,000.00; so, the remaining P300,000.00
remained unpaid. The RTC found in favor of petitioners. The Court of Appeals found
on respondents' appeal that, while they had engaged into a simple loan with
petitioners, they were no longer obliged to pay the outstanding sum of P300,000.00.

ISSUE:
Whether or not the Court of Appeals erred in completely striking off interest
despite the parties’ written agreement stipulating it, as well as in ordering them to
reimburse and pay interest to respondents.

RULING:
Yes. As noted by the Court of Appeals and the Regional Trial Court,
respondents entered into a simple loan or mutuum, rather than a joint venture, with
petitioners.

Respondents’ claims, as articulated in their testimonies before the trial court,

cannot prevail over the clear terms of the document attesting to the relation of the
parties. “If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control.”

B. Compensatory Interest
Civil Code The future spouses may in
the marriage settlements
agree upon absolute or
relative community of
property, or upon complete
separation of property, or
upon any other regime. In
the absence of marriage
Article 119
settlements, or when the
same are void, the system
of relative community or
conjugal partnership of
gains as established in this
Code, shall govern the
property relations between
husband and wife.
Article 2209 If the obligation consists in
the payment of a sum of
 money, and the debtor
incurs in delay, the
indemnity for damages,
there being no stipulation
to the contrary, shall be the
payment of the interest
agreed upon, and in the
absence of stipulation, the
legal interest, which is six
per cent per annum.
In obligations with a penal
clause, the penalty shall
substitute the indemnity
for damages and the
payment of interests in
case of noncompliance, if
there is no stipulation to
the contrary. Nevertheless,
damages shall be paid if
Article 1226
the obligor refuses to pay
the penalty or is guilty of
fraud in the fulfillment of
the obligation.
The penalty may be
enforced only when it is
demandable in accordance
with the provisions of this
Code.
Interest may, in the
discretion of the court, be
Article 2210 allowed upon damages
awarded for breach of
contract.
Interest cannot be
recovered upon
unliquidated claims or
Article 2213
damages, except when the
demand can be established
with reasonably certainty.
Liquidated damages are
those agreed upon by the
Article 2226 parties to a contract, to be
paid in case of breach
thereof.
Article 2227 Liquidated damages,
whether intended as an
indemnity or a penalty,
shall be equitably reduced
if they are iniquitous or
unconscionable.
 If the obligation consists
in the payment of a sum of
money, and the debtor
incurs in delay, the
indemnity for damages,
there being no stipulation
Article 2209
to the contrary, shall be the
payment of the interest
agreed upon, and in the
absence of stipulation, the
legal interest, which is six
per cent per annum.
Interest due shall earn
legal interest from the time
it is judicially demanded,
Article 2212
although the obligation
may be silent upon this
point.
The rate of interest for the
loan or forbearance of any
money, goods, or credits
and the rate allowed in
judgments, in the absence
of express contract as to
such rate of interest, shall
be fix per centum per
Usury Law Section 1
annum or such rate as may
be prescribed by the
Monetary Board of the
Central Bank of the
Philippines for that
purpose in accordance
with the authority hereby
granted.
BSP Circular No. 799, Section 1. The rate of
Series of 2013 interest for the loan or
forbearance of any money,
goods or credits and the
rate allowed in
judgements, in the absence
of an express contract as to
such rate of interest, shall
be six percent (6%) per
annum.
Section 2. In view of the
above, Subsection X305.1
of the Manual of
Regulations for Banks and
Sections 4305Q.1, 4305S.3
and 4303P.1 of the Manual
 of Regulations for Non-
Bank Financial Institutions
are hereby amended
accordingly.

CASE DIGEST
Ligutan v. Court of Appeals
Tolomeo Ligutan and Leonidas dela Llana, petitioners, received a
P120,000.00 loan from Security Bank and Trust Co. The obligation was about to
expire, so the bank agreed to extend it. Despite the Bank's repeated efforts, petitioners
failed to pay the debt, which totaled P114,416.10. The Bank sent a final demand
letter, but the petitioners failed to meet their obligations. The Bank then filed a lawsuit
to retrieve the money owed to them. Instead of presenting their evidence, petitioners
had the timetable reset twice in a row. The trial court decided to evaluate the matter
filed for determination on the third hearing date.

Petitioners submitted a move for reconsideration two years later, but the trial
court refused it. Petitioners then interposed an appeal with the Court of Appeals, the
appellate court affirmed the judgement of the trial court except the 2% service charge
which was deleted pursuant to Central Bank Circular No. 763. The two parties filed
requests for reconsideration, and the Court of Appeals decided that interest and
penalty payments should begin on the day the obligation became due, and that a
penalty of 3% per month would sufficient. The petitioners filed an omnibus move for
reconsideration, but the Court of Appeals refused it.

ISSUE:
Whether or not the 15.189% interest and the penalty of 3% per month (36%
per annum) is exorbitant, iniquitous, and unconscionable.

RULING:
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution will depend on such factors as, but not
confined to, the type, extent and purpose of the penalty, the nature of the obligation,
the mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court.

Eastern Shipping Lines, Inc. v. Court of Appeals

FACTS:
This is an action filed by the insurer-subrogee who paid the consignee the
value of such losses/damages against defendants' shipping firm, arrastre operator, and
broker-forwarder for damages suffered by a shipment while in defendants' custody.
The losses/damages occurred while defendants' carrier, arrastre operator, and broker
were in their respective and/or consecutive custody and control. Plaintiff was forced
to pay the consignee P19,032.95 under the aforesaid marine insurance policy as a
result of the damages experienced, and as a result, it became subrogated to all of the
consignee's rights of action against defendants. Damages were to be paid jointly and
severally by the trial court. The trial court's decision was upheld by the CA.
ISSUE:
 Whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed
from is rendered.

RULING:
When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages. With regard particularly to an
award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed.

Nacar v Gallery Frames

FACTS:
Dario Nacar filed a constructive dismissal lawsuit against respondents Gallery
Frames with the National Labor Relations Commission's (NLRC) Arbitration Branch.
The Labor Arbiter issued Decision 3 in favor of the petitioner, finding that he was
fired without reason. As a result, petitioner was given P158,919.92 in back wages and
separation compensation in lieu of reinstatement. Respondents filed an appeal with
the NLRC, but it was denied. The respondents' petition for review at the CA was
denied. Respondents sought redress at the Supreme Court, but it was also refused. The
SC later issued an Entry of Judgment declaring that the resolution became final and
executory on May 27, 2002.

Petitioner submitted a Motion for Correct Computation, requesting that his

backwages be computed from the date of his discharge until May 27, 2002.
Respondent was ordered to pay P471,320.31 by the Labor Arbiter. Respondents filed
an appeal, and the LA held that the October 15, 1998 Decision should be implemented
because it was the one that became final and executory. The petitioner was enraged
and filed an appeal with the CA, but his petition was dismissed. As a result, this
petition for certiorari has been filed.

ISSUE:
Whether or not the computation of the LA on October 15, 1998’s decision be applied
on Nacar’s backwages.

RULING:
No. The SC ruled that since the finality of the decision was on May 27, 2002,
backwages computed from the time petitioner was illegally dismissed on January 24,
1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332
became final and executory shall be applied. Likewise, since there is an absence of an
express stipulation as to the rate of interest that would govern the parties, the rate of
legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%) per annum — as
reflected in the case of Eastern Shipping Lines 40 and Subsection X305.1 of the
Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by
BSP-MB Circular No. 799 — but will now be six percent (6%) per annum effective
July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Thus, interest of twelve percent (12%) per annum
of the total monetary awards, computed from May 27, 2002 to June 30, 2013 and six
percent (6%) per annum from July 1, 2013 until their full satisfaction shall be applied.

Estores v. Spouses Supangan

FACTS:
Petitioner Hermojina Estores and respondent-spouses Arturo and Laura
Supangan signed a Conditional Deed of Sale in which petitioner offered to sell a plot
of land and respondent-spouses offered to buy it. Despite the payment of P3.5 million
by respondent-spouses, petitioner has failed to fulfill her contractual obligations over
seven years after the contract was signed. The respondent-spouses sought that the
P3.5 million be returned within 15 days of receipt of the letter... The P3.5 million was
recognized by the petitioner, who agreed to refund it within 120 days. The
respondent-spouses agreed to the idea if a 12 percent compounded yearly interest rate
was imposed on the P3.5 million.

When petitioner failed to return the money despite repeated demands,

respondent-spouses were forced to file a Complaint against him. The RTC issued a
Decision finding respondent-spouses entitled to interest, but only at a rate of 6% per
annum. The CA issued the assailed Decision affirming the RTC's ruling, finding that
the imposition of 6% interest was proper. The same, however, will begin to run only
when the respondent-spouses have formally claimed the return of their money, not
when the contract was inked, as the RTC claims. Petitioner claims she is not obligated
to pay interest on the P3.5 million since the Conditional Deed of Sale only required
her to repay the downpayment if she did not follow the terms of the agreement.
Respondent-spouses argue that interest should be imposed on the amount they paid
because petitioner neglected to return the money when demanded and was utilizing
the P3.5 million for her own profit.

ISSUE:
Whether or not the imposition of interest and attorney's fees is proper.

RULING:
The petition lacks merit.

We sustain the ruling of both the RTC and the CA that it is proper to impose
interest notwithstanding the absence of stipulation in the contract. Article 2210 of the
Civil Code expressly provides that "interest may, in the discretion of the court, be
allowed upon... damages awarded for breach of contract." In this case, there is no
question that petitioner is legally obligated to return the P3.5 million because of her
failure to fulfill the obligation under the Conditional Deed of Sale, despite demand.

Anent the interest rate, the general rule is that the applicable rate of interest
"shall be computed in accordance with the stipulation of the parties.

Absent any stipulation, the applicable rate of interest shall be 12% per annum "when
the obligation arises out of a loan or a forbearance of money, goods or credits. In
other cases, it shall be six percent (6%)."
 In this case, the parties did not stipulate as to the applicable rate of interest.
The only question remaining... therefore is whether the 6% as provided under Article
2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

Lara's Gifts and Decors, Inc. v. Midtown Industrial Sales

FACTS:
Petitioner Lara's Gifts & Decors, Inc. manufactures, sells, and exports
handcraft items. Respondent Midtown Industrial Sales, Inc., on the other hand, is in
the business of selling industrial and construction products, and petitioner is a
customer of respondent. Respondent claimed that from January 2007 to December
2007, petitioner spent P1,263,104.22 on various industrial and construction products
from respondent. The purchases were made on a sixty (60)-day credit period, with the
caveat that all accounts that were past due would be charged 24 percent interest per
annum, as specified on the sales invoices. Petitioner paid for its goods by writing
multiple postdated checks to respondent from Chinabank.

When respondent deposited the replacement checks on their maturity dates,

they were also dishonored for being "Drawn Against Insufficient Funds," and then for
being "Account Closed." Respondent sent petitioner a demand letter informing
petitioner of the bounced checks and demanding that petitioner settle its accounts,
which petitioner did. Respondent filed a Complaint for Sum of Money with Prayer for
Attachment against petitioner after the latter failed to pay.

Petitioner stated in its Answer that from January 2007 to December 2007, it
acquired P1,263,104.22 worth of industrial and construction goods from respondent
on a 60-day credit term. The petitioner, on the other hand, alleged that the majority of
the deliveries were substandard and of poor quality. Because not all of the supplies
given by respondent were received in excellent order and condition, petitioner
claimed that the checks it issued for payment were not for value. As a result, when
petitioner employed the raw materials, the completed product allegedly failed to meet
the requirements of petitioner's US customers, who rejected the items. Furthermore,
following orders placed by petitioner's US buyers were canceled due to the economic
downturn in the United States.

ISSUE:
WHETHER OR NOT THE INTEREST RATE FIXED AT 24% PER
ANNUM IS VOID.

RULING:
In Asian Construction and Development Corporation v. Cathay Pacific Steel
Corporation,[17] the Court upheld the validity of interest rate fixed at 24% per annum
that was expressly stipulated in the sales invoices. The Court held that petitioner
construction company is presumed to have full knowledge of the terms and conditions
of the contract and that by not objecting to the stipulations in the sales invoice, it also
bound itself to pay not only the stated selling price but also the interest of 24% per
annum on overdue accounts and the 25% of the unpaid invoice for attorney's fees.

In the present case, petitioner, which has been doing business since 1990 and
has been purchasing various materials from respondent since 2004, cannot claim to
have been misled into agreeing to the 24% interest rate which was expressly stated in
the sales invoices. Besides, this Court has already ruled in several cases that an
interest rate of 24% per annum agreed upon between the parties is valid and
binding[18] and not excessive and unconscionable.[19] Thus, the stipulated 24%
interest per annum is binding on petitioner.

Finance Charges
Truth in Lending Act Section 4 Any creditor shall furnish
to each person to whom
credit is extended, prior to
the
consummation of the
transaction, a clear
statement in writing setting
forth, to the extent
applicable
and in accordance with
rules and regulations
prescribed by the Board,
the following information:
(1) the cash price or
delivered price of the
property or service to be
acquired;
(2) the amounts, if any, to
be credited as down
payment and/or trade-in;
(3) the difference between
the amounts set forth
under clauses (1) and (2);
(4) the charges,
individually itemized,
which are paid or to be
paid by such person in
connection with the
transaction but which are
not incident to the
extension of credit; (5) the
total amount to be
financed;
(6) the finance charge
expressed in terms of
pesos and centavos; and
(7) the percentage that the
finance bears to the total
amount to be financed
expressed as a
simple annual rate on the
outstanding unpaid
balance of the obligation.
Section 6 (a) Any creditor who in
connection with any credit
transaction fails to disclose
to any
person any information in
violation of this Act or any
regulation issued
thereunder shall be liable
to
such person in the amount
of P100 or in an amount
equal to twice the finance
charged required by
such creditor in connection
with such transaction,
whichever is the greater,
except that such liability
shall not exceed P2,000 on
any credit transaction.
Action to recover such
penalty may be brought by
such person within one
year from the date of the
occurrence of the
violation, in any court of
competent jurisdiction. In
any action under this
subsection in which any
person is entitled to a
recovery, the creditor shall
be liable for reasonable
attorney's fees and court
costs as determined by
the court.
(b) Except as specified in
subsection (a) of this
section, nothing contained
in this Act or any
regulation contained in this
Act or any regulation
thereunder shall affect the
validity or
enforceability of any
contract or transactions.
(c) Any person who
willfully violates any
provision of this Act or
any regulation issued
thereunder shall be fined
by not less than P1,00 or
more than P5,000 or
 imprisonment for not
less than 6 months, nor
more than one year or
both.
(d) No punishment or
penalty provided by this
Act shall apply to the
Philippine Government
or any agency or any
political subdivision
thereof.
(e) A final judgment
hereafter rendered in any
criminal proceeding under
this Act to the effect
that a defendant has
willfully violated this Act
shall be prima facie
evidence against such
defendant in an action or
proceeding brought by any
other party against such
defendant
under this Act as to all
matters respecting which
said judgment would be an
estoppel as
between the parties
thereto.

United Coconut Planters Bank v. Samuel & Beluso

FACTS:
In April 1997, the Belusos created a real estate mortgage on land parcels in
addition to promissory notes. Three of their promissory notes were repeatedly
renewed. As a result, spouses failed to comply with UPCB's demand for payment.
Their mortgage was foreclosed as a consequence. UCPB was sued by the spouses in a
Petition for Annulment, Accounting, and Damages. The trial court found in the
spouses' favor. The identical ruling was upheld by CA.

ISSUE:
Whether or not the contract between the spouses Beluso and UPCB is valid.

RULING:
No. Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
The provision stating that the interest shall be at the “rate indicative of DBD retail rate
or as determined by the Branch Head” is indeed dependent solely on the will of
petitioner UCPB. Under such provision, petitioner UCPB has two choices on what
the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an
opportunity for UCPB to fix the rate at will, the bank can easily choose such an
option, thus making the entire interest rate provision violative of the principle of
mutuality of contracts.