Pajuyo v. CA GR No.

146364 June 3, 2004

FACTS:

 Colito Pajuyo entrusted a house to Eddie Guevara for the latter's use provided he should
return the same upon demand and with the condition that Guevara should be
responsible of the maintenance of the property.
 Upon demand Guevara refused to return the property to Pajuyo.
 The petitioner then filed an ejectment case against Guevara with the MTC who ruled in
favor of the petitioner.
 On appeal with the CA, the appellate court reversed the judgment of the lower court on
the ground that both parties are illegal settlers on the property thus have no legal right
so that the Court should leave the present situation with respect to possession of the
property as it is, and ruling further that the contractual relationship of Pajuyo and
Guevara was that of a commodatum.
CA:
1. Pajuyo and Guevarra are squatters and illegally occupied the contested lot which the
government owned.
2. Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had
no right or title over the lot because it is public land. The assignment of rights between
Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any
legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will
leave them where they are.
3. Reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and
Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court
of Appeals ruled that the Kasunduan is not a lease contract but a commodatum because
the agreement is not for a price certain.
CLAIMS:
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION:
1. Inruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum,
instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that “the
ejectment case filed against defendant-appellant is without legal and factual basis”.
2. In
reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943
and in holding that the parties are in pari delicto being both squatters, therefore, illegal
occupants of the contested parcel of land.
3. Indeciding the unlawful detainer case based on the so-called Code of Policies of the National
Government Center Housing Project instead of deciding the same under the Kasunduan
voluntarily executed by the parties, the terms and conditions of which are the laws between
themselves.
ISSUE:

 Whether or not the contractual relationship of Pajuyo and Guevara that of a

commodatum

RULING:

 The Supreme Court ruled in the negative and granted the petition.
 The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid of
merit.
 In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.
 An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain period.
Thus, the bailor cannot demand the return of the thing loaned until after expiration of
 the period stipulated, or after accomplishment of the use for which the commodatum is
constituted.
 If the bailor should have urgent need of the thing, he may demand its return for
temporary use. If the use of the thing is merely tolerated by the bailor, he can demand
the return of the thing at will, in which case the contractual relation is called a
precarium.
 Under the Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that
the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous.
 While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain
the property in good condition.
 The imposition of this obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from that of a
commodatum.
 Case law on ejectment has treated relationship based on tolerance as one that is akin to
a landlord-tenant relationship where the withdrawal of permission would result in the
termination of the lease. The tenant’s withholding of the property would then be
unlawful.
Producers Bank of the Philippines vs CA (2003)
FACTS:
 Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s
friend, Doronilla (will be the debtor in this case) in incorporating Doronilla’s business
“Sterela Marketing and Services”. This “help” basically involved Vives depositing a certain
amount of money in Strela’s bank account for purposes of incorporation (rationale:
Doronilla had to show that he had sufficient funds for incorporation).
 This amount shall later be returned to Vives.
 Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a
check of P200,00 in favor of Sterela and deposited the same into Setrela’s newly-opened
bank account (the passbook was given to the wife of Vives and the passbook had an
instruction that no withdrawals/deposits will be allowed unless the passbook is
presented).
 Later on, Vives learned that Sterela was no longer holding office in the address previously
given to him. He later found out that the funds had already been withdrawn leaving only a
balance of P90,000. The Vives spouses tried to withdraw the amount, but it was unable to
since the balance had to answer for certain postdated checks issued by Doronilla.
 Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of
which were dishonored.
 Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and
Producer’s Bank.
 TC & CA: ruled in favor of Vives.
ISSUE/s:
(1) WON the transaction is a commodatum or a mutuum. COMMODATUM.
(2) WON the fact that there is an additional P 12,000 (allegedly representing interest) in the
amount to be returned to Vives converts the transaction from commodatum to mutuum.
NO.
(3) WON Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the
transaction between Vives and Doronilla. YES.
RULING:
(1) The Supreme Court ruled that the the transaction is a commodatum and denied the
petition, affirming the ruling of the Court of Appeals.
 Civil Code 1933 (the provision distinguishing between the two kinds of loans) seem to
imply that if the subject of the contract is a consumable thing, such as money, the contract
would be a mutuum.
 However, there are instances when a commodatum may have for its object a consumable
thing. Such can be found in Civil Code 1936 which states that “consumable goods may be
the subject of commodatum if the purpose of the contract is not the consumption of the
object, as when it is merely for exhibition”.
 In this case, the intention of the parties was merely for exhibition. Vives agreed to deposit
his money in Sterela’s account specifically for purpose of making it appear that Sterela had
sufficient capitalization for incorporation, with the promise that the amount should be
returned within 30 days.
(1) CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not
its fruits”. In this case, the additional P 12,000 corresponds to the fruits of the lending of the
P 200,000.
(2) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of
Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will
be permitted except upon the production of the passbook (recall in this case that the
passbook was in the possession of the wife of Vives all along).
Hence, this only proves to show that Atienza allowed the withdrawals because he was party
to Doronilla’s scheme of defrauding Vives. By virtue of Civil Code 2180, Producer’s Bank, as
employer, is held primarily and solidarily liable for damages caused by their employees
acting within the scope of their assigned tasks. Atienza’s acts, in helping Doronilla, a
customer of the bank, were obviously done in furtherance of the business of the bank, even
though in the process, Atienza violated some rules.
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE VS. COURT OF APPEALS, HEIRS OF
EGMIDIO OCTAVIANO AND JUAN VALDEZ
FACTS:

 Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application
for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic
Church building, convents, high school building, school gymnasium, school dormitories,
social hall, stonewalls, etc.
 The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title
thereto since their predecessors’ house was borrowed by petitioner Vicar after the
church and the convent were destroyed
 The house was never asked to be returned but when the heirs allowed its free use, they
became bailors in commodatum, the petitioner, the bailee.
 After trial on the merits, the land registration court promulgated its Decision in favor of
Vicar confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
 The Heirs of Juan Valdez appealed the decision of the land registration court to the then
Court of Appeals. The Court of Appeals reversed the decision
o by reason that Vicar did not meet the occupational requirement of 30 years for
acquisitive prescription over lots 2 and 3, neither did it satisfy the requirement of
10 years possession for ordinary acquisitive prescription because of the absence of
just title. (1945-1951)
o There was also no documentary evidence to support the claim and the alleged
purchases of the lot were not mentioned in the application for registration.
 Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of
the decision of the Court of Appeals dismissing his application for registration of Lots 2
and 3.
ISSUE:

 Whether or not the failure to return the subject matter of commodatum constitutes an
adverse possession.
RULING:

 The Supreme Court ruled in the negative and affirmed the decision of the CA.
 The bailees’ failure to return the subject matter of commodatum to the bailor did not
mean adverse possession on the part of the borrower.
 The bailee held in trust the property subject matter of commodatum. Catholic Vicar was
in possession as borrower in commodatum up to 1951, when it repudiated the trust by
declaring the properties in its name for taxation purposes.
 When he applied for registration of Lots 2 and 3 in 1962, it had been in possession in
concept of owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription
requires 30 years.
 The Court found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3.
 Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title.
 Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for
the return of the house, but when they allowed its free use, they became bailors in
commodatum and the petitioner the bailee.
 The bailees' failure to return the subject matter of commodatum to the bailor did not
mean adverse possession on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim of petitioner came only in
1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by
such adverse claim could not ripen into title by way of ordinary acquisitive prescription
because of the absence of just title.
EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR G.R.NO. 171545, December 19, 2007
FACTS:

 On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or
reformation of documents and contracts against Equitable PCI Bank and its employees.
 They claimed that they were induced by the bank to avail of its peso and dollar credit
facilities by offering low interests so they accepted and signed Equitable’s proposal.
 They alleged that they were unaware that the documents contained escalation clauses
granting Equitable authority to increase interest without their consent. These were
rebutted by the bank, asserting that the respondent knowingly accepted all the terms and
conditions contained in the promissory notes.
 In fact they have availed and benefitted from the petitioner’s credit facilities for five years.
 RTC invalidated the escalation clause as it violated the mutuality principle of contracts,
declaring the existence of extraordinary deflation and ordered the use of the 1996 dollar
exchange rate in computing respondent’s dollar-denominated loans.
 The petitioner and respondents filed their notice of appeal but were denied for failure to
submit proof of payment of the appeal,
 The RTC ruling became final and executor and a writ of execution was issued and the
petitioner filed a petition for certiorari with application for an injunction to enjoin the
execution to the CA.,
 CA granted the Bank’s application for injunction but the properties were sold to public
auction and later to respondents.
 Petitioners moved to annul the sale was set aside, hence the petition.
ISSUE:

 Whether or not there was an extraordinary deflation

 Whether or not the promissory notes were valid
 Whether or not the escalation clause was valid
RULING:

 Negative. Extraordinary inflation exists when there is an unusual decrease in the

purchasing power of currency and such decrease could not be reasonably foreseen or was
beyond the contemplation of the parties at the time of the obligation. Deflation is an
inverse situation. Despite the devaluation of the peso, BSP never declared a situation of
extraordinary inflation. Respondents should pay their dollar denominated loans at the
exchange rate fixed by the BSP on the date of maturity. Decision of lower courts are
reversed and set aside.
 Affirmative. A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party. The participation of the other party is limited to affixing his signature
or his "adhesion" to the contract. For this reason, contracts of adhesion are strictly
construed against the party who drafted it. It is erroneous, however, to conclude that
contracts of adhesion are invalid per se. They are, on the contrary, as binding as ordinary
contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes
void only when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing.
o That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But
they did not. Instead, they continuously availed of Equitable's credit facilities for
five long years.
 Negative. Equitable dictated the interest rates if the term (or period for repayment) of the
loan was extended. Respondents had no choice but to accept them. This was a violation of
Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not contain
the necessary provisions for validity, that is, it neither provided that the rate of interest
would be increased only if allowed by law or the Monetary Board, nor allowed de-
escalation. For these reasons, the escalation clause was void.
o For this reason, we have consistently held that a valid escalation clause provides:
o 1. that the rate of interest will only be increased if the applicable maximum rate of
interest is increased by law or by the Monetary Board; and
o 2. that the stipulated rate of interest will be reduced if the applicable maximum
rate of interest is reduced by law or by the Monetary Board (de-escalation
clause).69
REPUBLIC PLANTERS BANK vs. COURT OF APPEALS and FERMIN CANLAS
FACTS:

 Defendant Shozo Yamaguchi and private respondent Fermin Canlas were

President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.
 The respondents were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/trust
receipts accommodations.
 Petitioner bank issued nine promissory notes which were signed by the respondents.
However, on December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to
change its corporate name to Pinch Manufacturing Corporation.
 Petitioner bank filed a complaint for the recovery of sums of money covered among
others, by the nine promissory notes with interest thereon, plus attorney's fees and
penalty charges. The complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its
place.
 Canlas appealed and contended that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not
be held personally liable for such authorized corporate acts that he performed. It is now
the contention of the petitioner Republic Planters Bank that having unconditionally
signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally,
defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine
notes.
ISSUE:

 Whether private respondent Fermin Canlas is solidarily liable with the other defendants,
namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory
notes
RULING:

 Yes, and reversed the decision of the CA. The promissory notes are negotiable
instruments and must be governed by the Negotiable Instruments Law.
 Under the Negotiable lnstruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such. By signing the notes, the maker
promises to pay to the order of the payee or any holder according to the tenor thereof.
 In the case at bar, the solidary liability of private respondent Fermin Canlas is made
clearer and certain, without reason for ambiguity, by the presence of the phrase "joint
and several" as describing the unconditional promise to pay to the order of Republic
Planters Bank.
 A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit. A joint and several obligation
in common law corresponds to a civil law solidary obligation; that is, one of several
debtors bound in such wise that each is liable for the entire amount, and not merely for
his proportionate share.
 By making a joint and several promise to pay to the order of Republic Planters Bank,
private respondent Fermin Canlas assumed the solidary liability of a debtor and the
payee may choose to enforce the notes against him alone or jointly with Yamaguchi and
Pinch Manufacturing Corporation as solidary debtors.
 Further, a change in the corporate name does not make a new corporation, and whether
affected by special act or under a general law, has no effect on the identity of the
corporation, or on its property, rights, or liabilities. The corporation continues, as before,
responsible in its new name for all debts or other liabilities which it had previously
contracted or incurred.
 Where the agent signs his name but nowhere in the instrument has he disclosed the fact
that he is acting in a representative capacity or the name of the third party for whom he
might have acted as agent, the agent is personally liable to take holder of the instrument
and cannot be permitted to prove that he was merely acting as agent of another and
parol or extrinsic evidence is not admissible to avoid the agent's personal liability.
Philippine National Bank v CA, Remedios Jayme-Fernandez, and Amado Fernandez GR 107569, 8
November 1994; Second Division, Puno, J.
FACTS:

 Remedios and Amado are owners of a NACIDA-registered enterprise. On 7 April 1982

they obtained a loan in the amount of PhP 50,000.00 from PNB. The interest for the loan
was initially pegged at 12% per annum.
 To secure the loan, (private respondents) executed a Real Estate Mortgage and a Chattel
Mortgage.
 The agreement authorized the PNB to raise the rate of interest, at any time without
notice, beyond the stipulated rate of 12% but only "within the limits allowed by law."
 During the term of the agreement, PNB on several occasion imposed interest rate of 25%
per annum to 30% to 42% on Private Respondents plus a penalty of 6% per annum on
past dues."
 Private respondents defaulted in paying their obligation hence the foreclosure of the
mortgage was scheduled.
 Private respondents filed a suit against petitioner PNB and the NACIDA alleging they
have no cause of action because of the Usury Law.
 The trial court dismissed private respondents' complaint.
 The Court of Appeals reversed the dismissal with respect to petitioner bank, and
disallowed the increases in interest rates.
 Petitioner bank now contends that "respondent Court of Appeals committed grave error
when it
o ruled (1) that the increase in interest rates are unauthorized.
ISSUE:

 Whether or not a creditor may raise the rate of interest based solely on a certain clause
in the contract and without the consent of the debtor as to the amount and rate of such
increase
RULING:

 Negative, ruling of the CA is affirmed. A creditor cannot raise the rate of interest based
solely on a certain clause in the contract and without the consent of the debtor as to the
amount and rate of such increase.
 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, any change in the contract must be made with the consent of the contrac- ting
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.
 In the case at hand, the escalation clause in the contract gives PNB an unbridled right to
unilaterally and upwardly adjust the interest on the loan of Remedios and Amado. Such
unbridled right would completely take away from them the right to assent to an
important modification in their agreement. Furthermore, it would negate the element of
mutuality in contracts.
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents
Ponente: J. Peralta JTP Nacar v Gallery Frames, 2013
SUBJECT MATTER: Usurious Transactions
CASE SUMMARY:
The Labor Arbiter (LA) ruled that Gallery frames dismissed without just or valid cause Dario Nacar,
PETITIONER. It ordered Gallery Frames to pay Nacar a total of PhP 158,920 for backwages and
separation pay (NOTE: computed: A. backwages (monthly wage * no. of months from date of
dismissal (1997) to date of LA decision 1998 and B. separation pay (monthly wage * no. of months
from hiring (1990) to date of LA decision (1998).
General frames appealed decision up to the SC. In 2002, SC ruled that 1998 decision is upheld and
this became final and executory. However, the award for damages also increased because
multipler in the formula changed (from 1998, reckoning point became 2005). General Frames
appealed the increased award to Nacar and argued that if 1998 decision is final and executor then
the amount of monetary damages should also be the same.
SC ruled that in labor cases, if they uphold lower court rulings they only uphold the issue of
whether or not there is illegal dismissal but they can modify the amount of damages. This does
not violate finality of decisions rule. (MOST Relevant) It also held that respondent should pay
interest and because the parties did not stipulate amount of interest, the SC stipulated the
interest based on former court rulings and existing guidelines by BSP.
DOCTRINES:
(until June 30, 2013) In the 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 be twelve percent (12%) per annum.
Above guideline changed by Monetary Board, amount of legal interest is only 6% (to be applied
from July 1, 2013 onwards)
FACTS:
 Petitioner Dario Nacar filed a complaint for constructive dismissal before the National
Labor relations Commission (NLRC) against Gallery Frames.
Labor Arbiter (LA)
 In 1998, the Labor Arbiter (LA) ruled that Nacar was dismissed from employment
without just or valid cause. The LA also awarded him with backwages and separation
pay with a total amount of PhP 158,919.92.
 The reckoning date for the computation was based on his date of hiring (for separation
pay) and date of dismissal (for backwages). It was computed thru monthly wage times
no. months month until the date of the promulgation of the decision which is OCTOBER
15, 1998.
 Gallery frames appealed. However, the NLRC sustained the decision of the Labor
Arbiter. Court of Appeals also upheld the decision.
 The Supreme Court also dismissed the respondent’s appeal. Issued an entry of judgment
that the decision became final and executory on May 27, 2002. The case was referred
back to the Labor Arbiter.
LA (Second time)
 Petitioner filed a petition to correct the computation arguing that he is entitled to
wages until May 2002 (date of SC resolution) and not just until October 1998. Upon
recomputation, he was awarded PhP 471,320 (second amount).
 Labor Arbiter ordered Sheriff to collect this amount from Gallery Frames.
  Gallery frames argued that amount should no longer have been increased (i.e. amount
should be based on Oct 1998 decision as this was the reference of the SC decision that
became final and executory. This was denied by Labor Arbiter.
NLRC
 Ruled in favor of Gallery frames. Another recomputation ensued which arrived at an
amount of PhP 147, 560 (third amount).
 LA issued a writ of execution. After this, petitioner received the 147k. However, he then
requested that he was entitled to receive interest payments.
 LA did not rule on interest payments but nonetheless awarded Nacar an additional 11k
(difference between first amount and third amount). Nacar was not contented and still
appealed the decision before the CA
CA
 Ruled that the 1998 Decision is already final and executor and its correction is no longer
allowed. Nacar appealed this decision before the Supreme Court.
ISSUE/S:
1. (NOT Relevant) What is reckoning point of computation: (a) 1998 decision of the LA or (b)
SC resolution in 2002? 2002 Decision. (REVERSED CA Decision)
2. WON he is entitled to payment of interest from finality of decision until full payment by
the respondents? YES
RULING:
1. General frames’ actions to appeal the 1998 LA decision also has some risks which is the
adjustment of the reckoning point for computation. Hence, since they continuously
appealed the decisions, Nacar also became entitled to backwages from the date of LA
decision until the SC decision. This does not violate the immutability or finality of
decisions rule.
In illegal dismissal cases, if the SC holds that the ruling of lower courts stands or is final and
executory, what is upheld is whether or not there is illegal dismissal but the computation of
monetary awards in the original decision can still be recomputed and adjusted.
2. Guidelines for payment of interest as laid out in Eastern Shipping Lines v CA:

a. When obligation is breached and it is in nature a payment of money, e.g. loan- legal
interest is accrued from the time it is judicially demanded. In the absence of
stipulated interest rate, default is 12% per annum.
b. When the nature of an obligation is unlike that in case A, interest on damages maybe
imposed at the discretion of the court but at 6% per annum. It shall start from time
claim is made judicially or extra judicially. If date of demand is not certain, it shall
begin from date of judgment of the court.
c. When judgment of court awarding a sum of money becomes final and executor, legal
interest is 12% either in Case A or B.
These guidelines were modified in June 30, 2013 by the Monetary Board (MB):
a. In the absence of a stipulated rate, default interest shall be 6% per annum. This is to be applied
in loans, forbearance of money, goods or credits.
Kindly refer to the dispositive for amount of interest. MB guidelines applied prospectively.
DISPOSITIVE:
CA Decision Reversed. Petitioner entitled to backwages to be computed until 2002 SC Decision.
Interest rate is 12% for interest payment earned from 2002 until 2013 (MB Guidelines). For
interest earned beyond July 1, 2013, rate to be applied .
Ligutan vs. CA G.R#138677
FACTS:

 Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a
promissory note binding themselves, jointly and severally, with an interest of 15.189%
per annum upon maturity and to pay a penalty of 5% every month on the outstanding
principal and interest in case of default and also a 10% attorney’s fees if the matter were
indorsed to a lawyer for collection.
 The obligation matured, the petitioners were not able to settle the obligation; The bank
gave an extension, still the same happened. Since the petitioners still defaulted, the
former filed a complaint for recovery of the due amount.
 RTC ruled in favor of the bank against the petitioners. Unsatisfied they interposed an
appeal assailing the imposition of 2% service charge, 5% per month penalty charge and
10% attorney’s fees.
 The CA affirmed the decision of the trial court but removed the 2% service charge and
also reduced the penalty charge to 3%.
 Hence the petition by the petitioner, contending that the interest and penalty of 36%
per annum imposed by the bank on petitioner’s loan obligation are exorbitant,
iniquitous and unconscionable.
ISSUE:

 Whether the interest and penalty charge imposed by private respondent bank on
petitioners’ loan are manifestly exorbitant, iniquitous and unconscionable?
RULING:

 Negative. Petition Denied. According to the Supreme Court, the obligor would then be
bound to pay the stipulated indemnity without the necessity of proof on the existence
and on the measure of damages caused by the breach.
 Although a court may not at liberty ignore the freedom of the parties to agree on such
terms and conditions as they see fit that contravene neither law nor morals, good
customs, public order or public policy, a stipulated penalty, nevertheless, may be
equitably reduced by the courts if it is iniquitous or unconscionable or if the principal
obligation has been partly or irregularly complied with.
 The question of whether a penalty is reasonable or iniquitous can be partly subjective
and partly objective. Its resolution would depend on such factors as, but not necessarily
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.
 The CA exercised good judgment in reducing the stipulated penalty interest from 5% to
3% a month. It was also been held that the 15.189% per annum stipulated interest and
the 10% attorney’s is reasonable and not excessive. The interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the core of a
bank's existence.
Herrera vs. Petrophil
G.R. No. L-48349 December 29, 1986
Plaintiff-appellant: FRANCISCO HERRERA Defendant-appellee: PETROPHIL CORPORATION
FACTS:

 On December 5, 1969, a "Lease Agreement" was entered into by Francisco Herrera and
ESSO Standard Eastern. Inc., (substituted by Petrophil Corporation) for twenty (20) years
with a condition that monthly rentals should be paid and there should be advance
payment of rentals for the first eight years of the said contract.
 Pursuant to the said contract, Petrophil paid the advance rentals for the first eight
years, subtracting the amount of P101,010.73, the amount it computed as constituting
the interest or discount for the first eight years, in the total sum P180,288.47.
 On August 20, 1970, the Petrophil, explained that there had been a mistake in
computation, paid to Herrera the additional sum of P2,182.70, thereby reducing the
deducted amount to only P98,828.03.
 Subsequently, On October 14, 1974, the Herrera sued the defendant for the sum of
P98,828.03, with interest, claiming this had been illegally deducted from him in violation
of the Usury Law.
 Petrophil argued that the amount deducted was not usurious interest but a given to it
for paying the rentals in advance for eight years. The judgment was in favor of the
defendant.
 Herrera now prays for the reversal of the judgment ruling that the interest is

ISSUE:

 WON the contract is a loan

RULING:

 Negative. As its title plainly indicates, the contract between the parties is one of lease
and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the
contract is there any showing that the parties intended a loan rather than a lease.
 The provision for the payment of rentals in advance cannot be construed as a repayment
of a loan because there was no grant or forbearance of money as to constitute an
indebtedness on the part of the lessor. On the contrary, the defendant-appellee was
discharging its obligation in advance by paying the eight years rentals, and it was for this
advance payment that it was getting a rebate or discount.


 There is no usury in this case because no money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use its money already in his possession.
 There was neither loan nor forbearance but a mere discount which the plaintiff-appellant
allowed the defendant-appellee to deduct from the total payments because they were
being made in advance for eight years.
 The discount was in effect a reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount, would not contravene the Usury
Law.
 The difference between a discount and a loan or forbearance is that the former does not
have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury.
 To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to
interest allowed by law."

the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties
that the money lent shall or may be returned; that for such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to
take more than the legal rate for the use of money loaned. Unless these four things concur in
every transaction, it is safe to affirm that no case of usury can be declared.
 NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC vs PHILIPPINE NATIONAL BANK
G.R. No. 148753 | July 30, 2004
FACTS
1. NSB
approved Board Resolution No. 05, s. 89 authorizing the company to apply for or secure a
Commercial Loan with PNB (P8M) under such terms agreed by the Bank and NSB:
 Mortgaged the Real Estate Property of NSB’s President/Chairman of the Board
 Authorized Petitioner-Spouses to secure the loan and sign any/all documents that may be
required by PNB
2. PNBapproved NSB’s request. The P8M loan was broken down into a Revolving Credit Line of
P7.7M and an Unadvised Line of P 300K.
 Revolving Credit Line: a line of credit where the customer pays a commitment fee to a
financial institution to borrow money, and is then allowed to use the funds when needed.
Usually used for operating purposes and the amount drawn can fluctuate each month
depending on the customer's current cash flow needs.
 Unadvised Line: a line of credit approved by bank. Until some specific event happens
unadvised line of credit is not disclosed to the borrower. When the event happens line of
credit is informed to the customer. Usually it is a request for funding from the borrower.
3. NSB’s loan was secured by a mortgage on REP and Promissory Note. NSB also signed the
Credit Agreement relating to the Revolving Credit Line and Unadvised Line
4. NSB failed to comply with its obligations under the PN.

5. Eduardo Dee wrote PNB for a request of a 90-day extension for thepayment of interests and the
restructuring of its loan for another term. NSB then tendered a P1M payment to PNB through 3
checks.
6. PNB’s bank manager wrote to Dee informing him that NSB’s proposal was acceptable provided
that the total payment should be different.
7. Dee wrote back the PNB branch manager reiterating his proposals for the settlement of NSB’s
past due loan (P7M).
8. 2 post-dated checks were dishonored.

9. PNB wrote to Dee informing him to make good the dishonored checks or else consequences
will arise.
10. NSB failed to pay their loan obligations within the timeframe given them. Thus,
foreclosure proceedings were instituted resulting in the public auction of the mortgaged REP
(P10.3M).
11. Later on, PNB informed NSB that the proceeds of the sale were insufficient to cover its
total claim of P12.5M and thus demanded that NSB to pay the deficiencies but NSB refused.
RTC

 An action was filed by the respondents, but was dismissed PNB’s petition: No cause of
action.
CA

 Reversed RTC ruling: NSB did not avail of PNB’s Debt Relief Package; Increased in PNB’s
loan rates were authorized by law and the Monetary Board; and The increases were
binding upon NSB having been freely and voluntarily entered into via the signing of the
Credit Agreements.
ISSUES:
1. WON the loan accounts are bloated
2. WON the extrajudicial foreclosure and subsequent claim for deficiency are valid and
proper
SUPREME COURT RULING
1. AFFIRMATIVE. NSB’S LOAN ACCOUNT WAS BLOATED WITH INTERESTS, PENALTIES, AND
OTHER CHARGES
FIRST: PROMISSORY NOTES
NSB’s accessory duty to pay interests on the loan DID NOT give PNB unrestrained freedom to
charge any rate other than that agreed upon. No interest shall be due unless expressly stipulated
in writing. It would be the zenith of farcicality to specify and agree upon rates that could be
subsequently upgraded at whim by only one party.

 The unilateral determination and imposition of increased rates is violative of the

principle of mutuality of contracts. These one-sided impositions do not have the force of
law between the parties because such impositions are not based on the parties’
essential equality.
 Although Escalation Clauses are valid, giving PNB unbridled right to adjust the interest
independently and upwardly would completely take away NSB’s right to assent to an
important modification in their agreement and negate the element of mutuality in their
contracts.
While the Usury Law ceiling on interest rates was lifted by CBC Circular No. 905, nothing in said
Circular grants lenders carte blanche authority to raise interest rates to levels which would either
enslave their borrowers or lead to a hemorrhaging of their assets.
Assent to the increase cannot be implied from their request for loan restructuring or their lack of
response to the statements of accounts sent by PNB. Such request does not indicate any
agreement to an interest increase. No one receiving a proposal to modify a loan contract
(specifically interest rate) is obliged to answer such proposal.
Aside from sending demand letters, PNB did not at all exercise its option to enforce collection nor
did it renew or extend the account. No complaint for collection was filed with the courts. Instead
a Petition for Sale of Mortgaged Properties was filed with the Provincial Sheriff.
PNB did not follow the stipulation in the PN providing for conversion of the portion that remained
unpaid after 730 days from date of original release – into a medium-term loan (subject to the
applicable rate to be applied from the dates of original release). Also, PNB did not supply the
interest rate to be charged on medium-term loans granted by automatic conversion. Because of
this, the legal rate of 12% per annum on loans and forbearance of money shall be used as
prescribed by CB Circular 416.
SECOND: CREDIT AGREEMENTS
The First Credit Agreement cannot be given weight because it was not signed by PNB through its
branch manager, it was objected to by NSB, and there was no attached annex that contained the
General Stipulations.
The Second Credit Agreement provided the prime rate plus applicable spread on the Revolving
Credit Line. However, it did not state any provision on its increase or decrease. It was not the
agreement but the Credit Line that expired. Thus, the T&C continued to apply even if drawdowns
could no longer be made. (Gradual accessing of credit funds; Drawdown happens when the loan
monies are taken up by the borrower. The loan will appear in the balance sheet as a liability. The
loan period will determine whether this is a long; medium or short term liability.) The rate of
21.5% agreed upon in the 2nd PN continued to apply until its conversion into a medium-term loan.
The Third Credit Agreement provided for the same rate of interest as that in the 2 nd Agreement
but since there was no mention in the 3 rd Agreement of any stipulation in increases or decreases
in interest, there would be no basis in for imposing amounts higher than the prime rate plus
spread.
THIRD: DISCLOSURE STATEMENTS

 The DS furnished by PNB set forth the interest rates as those respectively indicated in
the PN. However, the three DS as well as the two Credit Agreements did not provide for
any increase in the specified interest rates. Thus, none would be permitted.

UNJUSTIFIED PENALTIES OR INCREASES

 When the borrower is not clearly informed of the DS prior to the consummation of the
availment or drawdown, the lender will have NO RIGHT to collect upon such charge or
increase thereof, even if stipulated in the Notes. Since Notes are considered as contracts
of adhesion, not invalid per se, any apparent ambiguity in the loan contract shall be
construed against the one who caused it.

OTHER CHARGES UNWARRANTED

 Since the penalty rate has again been unilaterally increased by PNB to 36% without its
consent, the liquidated damages intended as penalty shall be equitably reduced by the
Court to zilch for being iniquitous and unconscionable.
DEBT RELIEF PACKAGE NOT AVAILED OF
NSB failed to establish satisfactorily that it had been seriously and directly affected by the
economic slowdown in the peripheral areas of the then US military bases. For short-term loans,
there is still a need to conduct a thorough review of the borrower’s repayment possibilities.

NSB has neither shown enough margin of equity based on the latest loan value of hard collaterals
to be eligible for the DRB. The branch manager’s recommendation to restructure the loan not
exceeding P8M is not final but subject to the approval of PNB’s Branches Department Credit
Committee to be reported to its BOD.
Under the GBL, banks shall grant loans and other credit accommodations only in amounts and for
periods of time essential to the effective completion of operations to be financed consistent with
safe and sound banking practices.
2. EXTRAJUDICIAL FORECLOSURE IS VALID BUT DEFICIENCY CLAIMS ARE EXCESSIVE
■ The Bid Price is Adequate: It may be lower than the property’s fair market value. A low
bid price will make it subsequently easier for the owner to redeem their properties.
As no redemption was exercised within a year after the date of registration of the Certificate of
Sale with the RD, petitioner-spouses shall lose all their rights to the properties.

■ No Deficiency Claim Receivable: After the foreclosure and sale of the mortgaged
properties, the REM is extinguished. Although the mortgagors, being third persons, are
not liable for any deficiency in the absence of a contrary stipulation, the action for
recovery of such amount – being clearly sureties to the principal obligation – may still be
directed against them. However, PNB may only impose the 19.5% and 21.5% on the
respective availments and further reduced to the 12% legal rate revision upon automatic
conversion into medium-term loans.
The payments made by NSB were pro-rated. On the basis of rates, the deficiency claim receivable
amounting to P2.1M vanishes. Instead, there is an overpayment by more than P3.6M as shown in
the Schedules.
Under solutio indebiti, there is no deficiency receivable in favor of PNB but rather an excess claim
or surplus payable by PNB to petitioner-spouses.
CAROLYN M. GARCIA vs. RICA MARIE S. THIO G.R. No. 154878, March 16, 2007
FACTS:

 On February 1995, Rica Marie Thio received from Carolyn M. Garcia a US$100,000 check
payable to the order of a certain Marilou Santiago.
 Carolyn then received from Rica every month US$3,000 (on March, April, June and July
1995) and P76,500 (July, August, September and October, 1995).
 Rica then received another check worth P500,000, dated June 29, 1995, also payable to
the order of Marilou Santiago. Carolyn then received from Rica the amount of P20,000
every month on August, September, October and November, 1995
 However, Rica failed to pay the principal amounts due.
 On February 24, 1996, Carolyn filed a complaint for a sum of money and damages in the
RTC of Makati City against Rica, seeking to collect the sums of US$100,000, with interest
at 3% a month from October 26, 1995 and P500,000, with interest at 4% a month from
November 5, 1995.
 Carolyn claims that Rica borrowed money from her. Rica paid the stipulated monthly
interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.
 Rica denied that she contracted the two loans with Carolyn and said that it was Marilou
Santiago to whom Carolyn lent the money. She claimed she was merely asked by Carolyn
to give the crossed checks to Santiago.
 She issued the checks for P76,000 and P20,000 not as payment of interest but to
accommodate Carolyn's request that Rica use her own checks instead of Santiagos.
 The RTC ruled in favor of Carolyn stating that there was a contract of loan.
 On appeal, the Court of Appeals reversed the RTC's decision and stated that there was
no contract of loan between the parties.
ISSUE:

 Whether there was a contract of loan between Carolyn and Rica

HELD:

 YES. A loan is a real contract, not consensual, and as such is perfected only upon the
delivery of the object of the contract. This is evident in Art. 1934 of the Civil Code which
provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.

 Upon delivery of the object of the contract of loan (in this case the money received by
the debtor when the checks were encashed) the debtor acquires ownership of such
money or loan proceeds and is bound to pay the creditor an equal amount.
  It is undisputed that the checks were delivered to Rica. However, these checks were crossed and
payable not to the order of Rica but to the order of a certain Marilou Santiago. Thus the main
question to be answered is: who borrowed money from Carolyn, Rica or Santiago?
Carolyn argues that once Rica received the checks, Rica had possession and control of them such that she had
the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them
to Carolyn.

 The Supreme Court holds that the CA committed reversible error when it ruled that Rica
did not borrow the amounts of US$100,000 and P500,000 from Carolyn. It agreed with
the ruling of the RTC making Rica liable for the principal amounts of the loans.

 Delivery is the act by which the res or substance thereof is placed within the actual or constructive
possession or control of another. Although Rica did not physically receive the proceeds of the checks,
these instruments were placed in her control and possession under an arrangement whereby she
actually re-lent the amounts to Santiago.
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, vs. CA and THE PHILIPPINE BANK OF
COMMERCE, respondents.
FACTS:

 Honesto Bonnevie filed on January 26, 1971 a complaint with CFI against Philippine Bank of
Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of
the Philippine Bank of Commerce by the spouses Jose and Josefa Lozano as security for a loan
obtained by the spouses from the bank as well as the extrajudicial foreclosure made on September 4,
1968.
 He alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the mortgage
was executed by one who was not the owner of the mortgaged property. Respondents specifically
denied most of the allegations.
 Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that
respondent Bank should have accepted petitioner's offer to redeem the property under the principle
of equity said justice.
 On the other hand, the answer of defendant Bank, raised the following affirmative defenses:
o (a) that the defendant has not given its consent, much less the requisite written consent, to the
sale of the mortgaged property to plaintiff and the assumption by the latter of the loan secured
thereby;
o (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address;
o (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano
mortgage;
o (d) that the law on contracts requires defendant's consent before Jose Lozano can be released
from his bilateral agreement with the former and doubly so, before plaintiff may be substituted
for Jose Lozano and Alfonso Lim;
o (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain
unpaid despite countless reminders and demands;
o (f) of that the property in question remained registered in the name of Jose M. Lozano in the
land records of Rizal and there was no entry, notation or indication of the alleged sale to
plaintiff;
o (g) that it is an established banking practice that payments against accounts need not be
personally made by the debtor himself; and
o (h) that it is not true that the mortgage, at the time of its execution and registration, was
without consideration as alleged because the execution and registration of the securing
mortgage, the signing and delivery of the promissory note and the disbursement of the
proceeds of the loan are mere implementation of the basic consensual contract of loan.
 Subsequently, petitioner Raoul SV Bonnevie filed a motion for intervention. The intervention was
premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in favor of petitioner
Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the subject
property.
 The intervention was ultimately granted in order that all issues be resolved in one proceeding to
avoid multiplicity of suits.
 The lower court dismissed the compliant. CA affirmed the decision of the lower court.
ISSUE/s:

 Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was
validly and legally executed.
  Whether petitioners had a right to redeem the foreclosed property.
RULING:

 Affirmative. The Supreme Court affirmed the decision of the Court of Appeals. From the recitals of
the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition
of the loan granted to the Lozano spouses.
 The fact that the latter did not collect from the respondent Bank the consideration of the mortgage
on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein
contract of loan was perfected at the same time the contract of mortgage was executed.
 The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does
not indicate lack of consideration of the mortgage at the time of its execution.
 The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not
being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not
aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner
Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred and
assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and
respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not
entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor.

 On the question of whether or not the petitioners had a right to redeem the property, We hold
that the Court of Appeals did not err in ruling that they had no right to redeem. No consent
having been secured from respondent Bank to the sale with assumption of mortgage by
petitioners, the latter were not validly substituted as debtors. In fact, their rights were never
recorded and hence, respondent Bank is charged with the obligation to recognize the right of
redemption only of the Lozano spouses. But even granting that as purchaser or assignee of
the property, as the case may be, the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by law. Thru certificate of sale
in favor of appellee was registered on September 2, 1968 and the one year redemption period
expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto
Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September
29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioners.
Herrera vs. Petrophil
G.R. No. L-48349 December 29, 1986
Plaintiff-appellant: FRANCISCO HERRERA Defendant-appellee: PETROPHIL CORPORATION
FACTS:

 On December 5, 1969, a "Lease Agreement" was entered into by Francisco Herrera and ESSO
Standard Eastern. Inc., (substituted by Petrophil Corporation) for twenty (20) years with a condition
that monthly rentals should be paid and there should be advance payment of rentals for the first
eight years of the said contract.
 Pursuant to the said contract, Petrophil paid the advance rentals for the first eight years, subtracting
the amount of P101,010.73, the amount it computed as constituting the interest or discount for the
first eight years, in the total sum P180,288.47.
 On August 20, 1970, the Petrophil, explained that there had been a mistake in computation, paid to
Herrera the additional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03.
 Subsequently, On October 14, 1974, the Herrera sued the defendant for the sum of P98,828.03, with
interest, claiming this had been illegally deducted from him in violation of the Usury Law.
 Petrophil argued that the amount deducted was not usurious interest but a given to it for paying the
rentals in advance for eight years. The judgment was in favor of the defendant.
 Herrera now prays for the reversal of the judgment ruling that the interest is
ISSUE:

 WON Usury is present in the case

RULING:

 Negative. There is no usury in this case because no money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use its money already in his possession.
 There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed
the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years.
 The discount was in effect a reduction of the rentals which the lessor had the right to determine, and
any reduction thereof, by any amount, would not contravene the Usury Law.
 The difference between a discount and a loan or forbearance is that the former does not have to be
repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on
usury.
 To constitute usury, "there must be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all events; and something must be
exacted for the use of the money in excess of and in addition to interest allowed by law."

Negative. As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is
clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties
intended a loan rather than a lease.
The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because
there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals,
and it was for this advance payment that it was getting a rebate or discount.
the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the
money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall
be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for
the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case
of usury can be declared.
First Metro Investment vs. Estate of Del Sol (2001)
Petitioners: FIRST METRO INVESTMENT CORPORATION
Respondents: ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA.
ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO
M. LADORES, VICENTE M. DE VERA, JR., AND FELIPE B. SESE
FACTS:
- FMIC loaned Este del Sol P7.3M for the construction of a resort in Montalban, Rizal with 16%
interest per annum, subject to
• (a) a one‐time penalty of 20% of the amount due which shall bear interest at the highest
rate permitted by law from the date of default until full payment,
• (b) liquidated damages at 2% per month compounded quarterly on the unpaid balance and
accrued interests together with all the penalties, fees, expenses or charges until the
balance is fully paid, and
• (c) Attorney’s fees equivalent to 25% for the sum sought to be recovered. The loans were
released on a staggered basis.
- On the same day, as provided in the loan agreement, the parties also entered into an
Underwriting Agreement, (a) whereby FMIC shall underwrite on a best-efforts basis the public
offering of 120,000 common shares of Este del Sol's capital stock for a one-time underwriting fee of
P200,000.00; (b) an annual supervision fee of P200,000 for four consecutive years to be paid to
FMIC for supervising the public offering of the shares; (c) and a consultancy fee of P332,500.00 per
annum for 4 consecutive years to FMIC.
- Simultaneously, a Consultancy Agreement was executed whereby Estedel Sol engaged FMIC’s
services for a fee as consultant to render general consultancy services
• FMIC billed Este del Sol for the underwriting (P200k) and supervision fees (P200k), as well as
P1.3M worth of consultancy fees for 4 years. These were all deducted from the first release
of the loan.
• Este del Sol failed to meet the payment schedules, incurring P12.6M due to FMIC.
• FMIC caused the foreclosure of P7.5M worth of properties mortgaged by Este del Sol. Of
the P9M from the foreclosure and auction, P3.1M was deducted for attorney’s fees and
P5.8M for interests and penalties, and partly on the principal.
• FMIC initiated a collection suit against respondents-sureties for the remaining P6.8M owed
by Este del Sol.
- The respondents argued that the Underwriting and Consultancy Agreements were integral parts of
the Loan Agreement and were merely “subterfuges” to camouflage the usurious interest charged by
FMIC.
- The trial court sided with FMIC and ordered respondents to pay the P6.8M balance.
- The CA reversed. It found and declared that the fees provided for in the Underwriting and
Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest
charged by FMIC on the loan of Este del Sol; and that the stipulated penalties, liquidated damages
and attorney's fees were "excessive, iniquitous, unconscionable and revolting to the conscience.” It
declared that in lieu thereof, the stipulated one time 20% penalty on the amount due and 10% of the
amount due as attorney's fees would be reasonable and suffice to compensate FMIC for those items.
Thus, it ordered FMIC to pay or reimburse Este del Sol P971,000.00 representing the difference
between what is due to FMIC and what is due to Este del Sol.
- Thus, this appeal by FMIC, assailing the factual findings and conclusion of the CA. (SC:
We are not a trier of facts.)
ISSUES:
 WoN the Underwriting and Consultancy Agreements were merely camouflages for usurious interest

RULING:
 YES. First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 905 which
took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured
loans, regardless of maturity, should be applied retroactively to a contract executed on January 31,
1978, as in this case, while the Usury Law was in full force and effect.
 It is an elementary rule of contracts that the laws, in force at the time the contract was made and
entered into, govern it. More significantly, Central Bank Circular No. 905 did not repeal nor in any
way amend the Usury Law but simply suspended the latter's effectivity.
o Second, the form of the contract is not conclusive for the law will not permit a
usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written
document though legal in form was in fact a device to cover usury.
o Several facts and circumstances taken altogether show that the Underwriting and
Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by FMIC to
conceal and collect excessively usurious interest:
▪The Underwriting and Consultancy Agreements were executed
simultaneously with the Loan Agreement and were set to mature or shall remain effective during the same
period of time.
The P1.3M for four years’ worth of consultancy fees was charged in
▪
February 1978 when the agreement is for P332.5K for every year.
▪The P1.3M, along with the underwriting and supervision fees, were charged from the
first release of the loan. Thus, P1.73M reverted to FMIC as part of the loan to Este del
Sol.
▪ FMIC failed to comply with its underwriting and consultancy obligations,
notwithstanding the fact that these were not necessary since Este del Sol’s marketing arm and officers were
more than capable.
o The underwriting and consultancy agreements were essential conditions for the
grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for
the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the
lender’s services which are of little value or which are not in fact to be rendered.
o Art. 1957: “Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the
laws on usury.
o In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as
to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the
interest.
▪ Angel Jose Warehousing Co., Inc. v. Child Enterprises: In simple loan
with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause
of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that
is illegal.

NOTES: To constitute usury, "there must be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the
use of the money in excess of and in addition to interest allowed by law."
the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the
money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall
be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for
the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case
of usury can be declared.
 Advocates for Truth in Lending, Inc. vs. BSP, et. al.
G.R. No. 192986 / January 15, 2013
FACTS:

 Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer filed Petition
for Certiorari seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board
(BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by virtue of R.A. No.
7653, has no authority to continue enforcing Central Bank Circular No. 905, issued by
the CB-MB in 1982, which "suspended" the Usury Law of 1916 (Act No. 2655).
 R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the
CB- MB to, among others, set the maximum interest rates which banks may charge for
all types of loans and other credit operations, within limits prescribed by the Usury
Law.
 In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982.
Section 1 of the Circular, under its General Provisions, removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits.
 On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing
the Bangko Sentral ng Pilipinas (BSP) to replace the Cental Bank.

ISSUES:
1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which
removed all interest ceilings and thus suspended Act No. 2655 as regards usurious interest
rates.
2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular No. 905.

RULING:

 Negative. Petition dismissed. The CB-MB merely suspended the effectivity of the
Usury Law when it issued CB Circular No. 905. The power of the CB to effectively
suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and
upheld in many cases.
 As the Court explained in the landmark case of Medel v. CA, citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for] only a
law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law has
been rendered ineffective;" and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."
By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of
contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code,
under which 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.
YES. The BSP-MB has authority to enforce CB Circular No. 905. Section 1 of CB Circular No. 905
provides that, "The rate of interest, including commissions, premiums, fees and other charges, on a
loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or juridical, shall not
be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." It does not
purport to suspend the Usury Law only as it applies to banks, but to all lenders. Petitioners contend
that, granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not retain this
power of its predecessor, in view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not reenact a provision similar to Section 109 of
R.A. No. 265. A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money,
goods or credits, including those for loans of low priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB
to prescribe different maximum rate or rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries. Act No. 2655, an earlier law, is much broader
in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by
banks and other financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act
No. 2655, it would have so stated in unequivocal terms.
Further, the lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest. It is settled that nothing in CB Circular No.
905 grants lenders a carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets. Stipulations authorizing
iniquitous or unconscionable interests have been invariably struck down for being contrary to
morals, if not against the law.
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, vs. CA and THE PHILIPPINE
BANK OF COMMERCE, respondents.
FACTS:

 Honesto Bonnevie filed on January 26, 1971 a complaint with CFI against Philippine
Bank of Commerce for the annulment of the Deed of Mortgage dated December 6,
1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose and
Josefa Lozano as security for a loan obtained by the spouses from the bank as well as
the extrajudicial foreclosure made on September 4, 1968.
 He alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the
mortgage was executed by one who was not the owner of the mortgaged property.
Respondents specifically denied most of the allegations.
 Granting the validity of the mortgage and the extrajudicial foreclosure, it finally
alleged that respondent Bank should have accepted petitioner's offer to redeem the
property under the principle of equity said justice.
 On the other hand, the answer of defendant Bank, raised the following affirmative
defenses:
o (a) that the defendant has not given its consent, much less the requisite written
consent, to the sale of the mortgaged property to plaintiff and the assumption
by the latter of the loan secured thereby;
o (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at
his address;
o (c) that it was notified for the first time about the alleged sale after it had
foreclosed the Lozano mortgage;
o (d) that the law on contracts requires defendant's consent before Jose Lozano
can be released from his bilateral agreement with the former and doubly so,
before plaintiff may be substituted for Jose Lozano and Alfonso Lim;
o (e) that the loan of P75,000.00 which was secured by mortgage, after two
renewals remain unpaid despite countless reminders and demands;
o (f) of that the property in question remained registered in the name of Jose M.
Lozano in the land records of Rizal and there was no entry, notation or indication
of the alleged sale to plaintiff;
o (g) that it is an established banking practice that payments against accounts
need not be personally made by the debtor himself; and
o (h) that it is not true that the mortgage, at the time of its execution and
registration, was without consideration as alleged because the execution and
registration of the securing mortgage, the signing and delivery of the promissory
note and the disbursement of the proceeds of the loan are mere implementation
of the basic consensual contract of loan.
 Subsequently, petitioner Raoul SV Bonnevie filed a motion for intervention. The
intervention was premised on the Deed of Assignment executed by petitioner Honesto
Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of
petitioner Honesto Bonnevie over the subject property.
 The intervention was ultimately granted in order that all issues be resolved in one
proceeding to avoid multiplicity of suits.
 The lower court dismissed the compliant. CA affirmed the decision of the lower court.
ISSUE/s:

 Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
 Whether petitioners had a right to redeem the foreclosed property.
RULING:

 Affirmative. The Supreme Court affirmed the decision of the Court of Appeals. From
the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was
executed for and on condition of the loan granted to the Lozano spouses.
 The fact that the latter did not collect from the respondent Bank the consideration of
 the mortgage on the date it was executed is immaterial. A contract of loan being a
consensual contract, the herein contract of loan was perfected at the same time the
contract of mortgage was executed.
 The promissory note executed on December 12, 1966 is only an evidence of
indebtedness and does not indicate lack of consideration of the mortgage at the time
of its execution.
 The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent
Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly
claim that it was not aware of the same and hence, it may not be obliged to notify
petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice
because as of May 14, 1968, he had transferred and assigned all his rights and interests
over the property in favor of intervenor Raoul Bonnevie and respondent Bank not
likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to
notice. Most importantly, Act No. 3135 does not require personal notice on the
mortgagor.

 On the question of whether or not the petitioners had a right to redeem the
property, We hold that the Court of Appeals did not err in ruling that they had no
right to redeem. No consent having been secured from respondent Bank to the
sale with assumption of mortgage by petitioners, the latter were not validly
substituted as debtors. In fact, their rights were never recorded and hence,
respondent Bank is charged with the obligation to recognize the right of
redemption only of the Lozano spouses. But even granting that as purchaser or
assignee of the property, as the case may be, the petitioners had acquired a right
to redeem the property, petitioners failed to exercise said right within the period
granted by law. Thru certificate of sale in favor of appellee was registered on
September 2, 1968 and the one year redemption period expired on September 3,
1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first
wrote respondent and offered to redeem the property. Moreover, on September
29, 1969, Honesto had at that time already transferred his rights to intervenor
Raoul Bonnevie.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.
 CHUA vs. TIMAN
(G.R. No. 170452, August 13, 2008)
Subject Matter: Simple Loan or Mutuum Case Doctrine:
1.Excessive Interest Rates on Loan; C.B. Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity but nothing in the said circular could possibly be read as granting carte
blanche authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets.
2.Lender should not compound the Interest Rate absence any stipulation to that effect.
FACTS:

 Petitioners Chua granted loan to the respondents evidenced by promissory

notes with interest of 7% per month, which was later reduced to 5% per
month.
 Respondents paid the loans initially at 7% interest rate per month until
September 1999 and then at 5% interest rate per month from October to
December 1999.
 Sometime in March 2000, respondents offered to pay the principal amount
of the loans through a Philippine National Bank manager’s check worth
P764,000, but petitioners refused to accept the same insisting that the
principal amount of the loans totalled P864,000.
 There being no settlement, Petitioners filed a Collection suit before the
RTC,
 Respondents then deposited the amount of P864,000 with the Clerk of
Court. As partial judgment of the RTC, it released the total sum to the
Petitioners.
 However, it its final judgment it ruled that the original stipulated interest
rates of 7% and 5% per month were excessive. It further ordered petitioners
to refund to respondents all interest payments in excess of the legal rate of
1% per month or 12% per annum.
 On appeal, the CA declared illegal the stipulated interest rates of 7% and
5% per month for being excessive, iniquitous, unconscionable and
exorbitant.
 Accordingly, the CA reduced the stipulated interest rates of 7% and 5% per
month (equivalent to 84% and 60% per annum, respectively) to a fair and
reasonable rate of 1% per month or 12% per annum.
 The CA also ordered petitioners to refund to respondents all interest payments in
excess of 12% per annum.

ISSUE: (1) Whether or not the CA erred in ruling that the original stipulated interest rates of 7%
and 5%, equivalent to 84% and 60% per annum, are unconscionable, and in ordering petitioners
to refund to respondents all payments of interest in excess of 12% per annum?;
(2) Whether or not the imposition of 5.5% Interest rate on the loan is usurious?
RULING: (1) No. The stipulated interest rates of 7% and 5% per month imposed on respondents’
loans must be equitably reduced to 1% per month or 12% per annum. While C.B. Circular No.
905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates
for both secured and unsecured loans, regardless of maturity, nothing in the said circular could
possibly be read as granting carte blanche authority to lenders to raise interest rates to levels
which would either enslave their borrowers or lead to a hemorrhaging of their assets.

Also, respondent BPI should not compound the interest in the instant case absent a stipulation
to that effect.
(2) The stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive,
iniquitous, unconscionable and exorbitant. However, it cannot consider the rate "usurious"
because Circular No. 905 of the Central Bank has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now legally inexistent.