CASE Jardenil vs.

Salas

FACTS This is an action for foreclosure of mortgage. Jardenil mortgage his property to Salas. Promissory Note of Jardenil: debt :(P2,4000.0) To be paid: (31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa, por via de primera hipoteca

ISSUE WON defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected? This question is, in our opinion controlled by the express stipulation of the parties.

RULING Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties was that no interest should be paid during the period of grace. What reason the parties may have therefore, we need not here seek to explore. PARASParas, dissenting: Under the facts stated in the decision of the majority, I come to the conclusion that interest at the rate of 12 per cent per annum should be paid up to the date of payment of the whole indebtedness is made. Payment of such interest is expressly stipulated. True, it is stated in the mortgage contract that interest was to be paid up to March 31, 1934, but this date was inserted merely because it was the date of maturity. The extension note is silent as regards interest, but its payment is clearly implied from the nature of the transaction which is only a renewal of the obligation. In my opinion, the ruling of the majority is anomalous and at war with common practice and everyday business usage It is well settled that, under Article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; AND rests for the computation of compound interest can certainly be made monthly, as well as quarterly, semi-annually, or annually. BUT in the absence of express stipulation for the accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed , and then the rate at which interest upon accrued interest must be computed is fixed AT 6 PER CENT PER ANNUM. In the present case, however, the language which we have quoted above DOES NOT JUSTIFY THE CHARGING OF INTEREST UPON INTEREST, so far as interest on the capital is concerned. The provision quoted merely requires the debtor to pay interest monthly at the end of each month, such interest to be computed upon the capital of the loan not yet paid. Clearly this provision does not justify the charging of compound

Cu Unjieng vs. Mabalacat Sugar Co.

Case was Instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the purpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to more than P163.00, with interest, and to foreclose a mortgage given by the debtor to secure the same, as well as to recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff for insurance upon the mortgaged property, with incidental relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a surety of the Mabalacat Sugar Company, and as having a third mortgage on the mortgaged property. The Philippine National Bank was also joined by reason of its interest as second mortgagee of the land covered by the mortgage to the

WON it is correct for interest charges be made by the plaintiff by estimating the amount of the indebtedness?

plaintiff. Cu Unjieng e Hijos, agreed to extend the time for payment of the indebtedness until June 30, 1929, with certain interim payments prior to the contemplated final liquidation of the whole indebtedness. But the debtor party failed to make the interim payments due and failed altogether to pay the balance due, according to the terms of this extension, on June 30, 1929. it is insisted for the appellant that this agreement for the extension of the time of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of the debt by non-compliance with the terms of the mortgage Under the second clause of the mortgage, interest should be calculated upon the indebtedness at the rate of 12 per cent per annum. In the same clause, but in a separate paragraph, there is another provision with respect to the payment of interest expressed in Spanish. In English this provision reads substantially as follows: "Interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month."

interest upon the interest accruing upon the capital monthly . It is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the interest can be thus COMPUTED UPON SUMS which the creditor would have to pay out (a) to maintain insurance upon the mortgaged property, (b) to pay the land tax upon the same property, and (c) upon disbursements that might be made by the mortgagee to maintain the property in good condition. BUT THE CHIEF THING IS THAT INTEREST CANNOT BE THUS ACCUMULATED ON UNPAID INTEREST ACCRUING UPON THE CAPITAL OF THE DEBT. The exhibit referred to is merely a receipt showing that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in excess of 12 per cent which is allowed to be charged , under section 2 of the Usury Law, when a debt is secured by mortgage upon real property.

GSIS vs. Appeals

Court

of

A surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the Banks. Agreement: DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE FUND, are held and firmly bound unto the OBLIGEES for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2) year lease of a Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered into by the parties. This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated, ----When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan

proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of [5] Westmont Bank. The Banks filed a complaint before the RTC of Makati against Domsat and GSIS. RTC- the Court did not find merit in the motion. CA- declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank Secrecy Law.

Ligutan vs. CA

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120, 000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding them, jointly and severally, to pay the sum borrowed 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. In addition, petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981. Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114, 416.10. RTC- rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff CA- appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective [4] motions for reconsideration. Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable.

WON the imposed interest to the mortgage loan precludes the creditor from imposing a penalty stipulation?

The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and unconscionable. Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, DOES NOT APPEAR AS BEING THAT EXCESSIVE. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest , if there is an agreement to that [18] effect, the two being distinct concepts which may separately be demanded. What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the nonpayment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.

Tan vs. CA

On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the principal amount of Two Million Pesos (P2, 000,000.00), or in the total principal amount of Four Million Pesos (P4, 000,000.00) from respondent Cultural

WON computation of the private respondent whereby the interest, surcharge and the principal were added together and that on the total

We find no merit in the petitioners contention. Article 1226 of the New Civil Code provides that: In obligations with a penal clause, the penalty shall substitute the indemnity for damages

Center of the Philippines (CCP, for brevity) evidenced by two (2) promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he had the loans restructured by respondent CCP, and petitioner accordingly executed a promissory note on August 31, 1979 in the amount of Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) payable in five (5) instalments. Petitioner Tan failed to pay any instalment on the said restructured loan. Petitioner requested and proposed to respondent CCP a mode of paying the restructured loan, i.e., (a) twenty percent (20%) of the principal amount of the loan upon the respondent giving its conformity to his proposal; and (b) the balance on the principal obligation payable in thirty-six (36) equal monthly instalments until fully paid. No favorable response was made to said letters. Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt of said letter. RTC-rendered in favor of plaintiff and against defendant, ordering defendant to pay plaintiff, the amount of P7,996,314.67, representing defendants outstanding account as of August 28, 1986, with the corresponding stipulated interest and charges thereof, until fully paid, plus attorneys fees in an amount equivalent to 25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs CA- Given the circumstances of the case, plus the fact that plaintiff was represented by a government lawyer, We believe the award of 25% as attorneys fees and P500,000.00 as exemplary damages is out of proportion to the actual damage caused by the non-performance of the contract and is excessive, unconscionable and iniquitous.

sum interest is VALID?

and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfilment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. In the case at bar, the promissory note (Exhibit A) expressly provides for the imposition of both interest and penalties in case of default on the part of the [6] petitioner in the payment of the subject restructured loan. The pertinent portion of the promissory note (Exhibit A) imposing interest and penalties provides that: For value received, I/We jointly and severally promise to pay to the CULTURAL CENTER OF THE PHILIPPINES at its office in Manila, the sum of THREE MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED + PESOS (P3,411,421.32) Philippine Currency, xxx. xxx xxx xxx

With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof until paid. PLUS THREE PERCENT (3%) SERVICE CHARGE. In case of non-payment of this note at maturity/on demand or upon default of payment of any portion of it when due, I/We jointly and severally agree to payadditional penalty charges at the rate of TWO per cent (2%) per month on the total amount due until paid, payable and computed monthly. Default of payment of this note or any portion thereof when due shall render all other installments and all existing promissory notes made by us in favor of the CULTURAL CENTER OF THE PHILIPPINES immediately due and demandable. (Underscoring supplied) xxx xxx xxx

The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan constitutes the monetary interest on the note and is allowed under Article [7] 1956 of the New Civil Code. On the other hand, the stipulated two percent (2%) per month penalty is in the form of penalty charge which is separate and distinct from the monetary interest on the principal of the loan.

RCBC vs. CA

GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. Credit facility in the amount of P30 million was initially granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs executive committee increased GOYUs credit facility to P50 million, then to P90 million, and finally to P117 million. For its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages. Each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. On April 27, 1992, one of GOYUs factory bu ildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. Manila RTC rendered judgment in favor of GOYU The Court of Appeals partly granted GOYUs appeal, but sustained the findings of the trial court with respect to MICO and RCBCs liabilities. RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal of the above dispositions of the Court of Appeals.

Whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss? WON payment of interest should be included in the insurance to be paid by MICO?

It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. The need for the payment of interest due upon the principal amount of the obligation, which is the cost of money to RCBC, the primary end and the ultimate reason for RCBCs existence and being, was duly recognized by the trial court when it ruled favorably on RCBCs counterclaim, ordering GOYU to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p. 479). Regarding defendant RCBCs commitment not to charge additional interest, penalties and surcharges, the same does not require that it be embodied in a document or some form of writing to be binding and enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and effective than a written one . And the existence of such a verbal agreement has been amply established by the evidence in this case. In any event, regardless of the existence of such verbal agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties considering the latters pitiful situation . The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeals outright deletion of the payment of interest as agreed upon in the respective promissory notes. This constitutes gross error. There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial court in its decision (pp.470 and 471, Record) such agreed interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted above. On the issue of payment of surcharges and penalties, we partly agree that GOYUs pitiful situation must be taken into account. We do not agree, however, that payment of any amount as surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy

Chun Bing, may have relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower courts fi nding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and penalties is another. Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides: ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case, may be totally just and equitable in another. This provision of law will have to be applied to the established facts of any given case. Given the circumstances under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYUs offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit BB), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward. Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU.

Eastern Shipping Lines vs. CA

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurersubrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake.

Whether or not 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?

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point. But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof then, interest "should be from the date of the decision."
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that 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 twelve (12%) percent per annum. This Circular shall take effect immediately.

Whether or not the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%)?

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. 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, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the

discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof

First Fil-Sin Lending Corp. vs. Padillo

On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00 loan from petitioner. In both instances, respondent executed a promissory [2] note and disclosure statement. For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she settled the P500,000.00 outstanding principal obligation on February 2, 1999. As regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal loan of P500,000.00 on [3] February 2, 1999. In sum, respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan. On January 27, 2000, respondent filed an action for sum of money against herein petitioner before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month, respondent sought to recover the amounts she allegedly paid in excess of her actual obligations. trial court dismissed respondents complaint, and on the counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3, 1999 until fully paid plus 10% of the amount [5] due as attorneys fees and costs of the suit. The trial court ruled that by issuing checks representing interest payments at 4.5% and 5% monthly interest rates, respondent is now estopped from questioning the provisions of the promissory notes. On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo (1) ordering First Fil-Sin Lending Corporation to return the amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of attorneys fees in favor of appellee. Other claims and counterclaims are dismissed for lack of sufficient causes. No pronouncement as to cost.

WON THE APPLICABLE INTEREST SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE.

We agree with respondent. Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be [8] understood literally just as they appear on the face of the contract. It is only in instances when the language of a contract is ambiguous or obscure that courts ought to apply certain established rules of construction in order to ascertain the supposed intent of the parties. However, these rules will not be used to make a new contract for the parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and ambiguities within the framework of [9] the agreement. The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement. The former was prepared exclusively by petitioner and merely summarizes the payments made by respondent and the income earned by petitioner. There was no mention of any interest rates and having been prepared exclusively by petitioner, the same is self serving. On the contrary, the Disclosure Statements were signed by both parties and categorically stated that interest rates were to be imposed annually, not monthly. As such, since the terms and conditions contained in the promissory notes and disclosure statements are clear and unambiguous , the same must be given full force and effect. The expressed intention of the parties as laid down on the loan documents controls. Also, reformation cannot be resorted to as the documents have not been assailed on the ground of mutual mistake. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the [10] courts by what their own notions of justice or equity may dictate. Notably, petitioner even admitted that it was solely responsible for the preparation of the loan documents, and that it failed to correct the pro forma note [11] p.a. to per month. Since the mistake is exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro forma loan agreements. As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein. The checks issued by respondent do not clearly and convincingly

prove that the real intent of the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the parties. The same promissory note provides that x x x any and all remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid. The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured until the same has been fully paid on February 2, [12] 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals, in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default. interest rates on the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and upon their respective maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding obligations from date of default until full payment

Integrated Corp. vs. PNB

Realty

Raul L. Santos made a time deposit with Overseas Bank of the Philippines in the amount of P500,000.00.Santos also made a time deposit with OBM in the amount of P200,000.00. Integrated Realty Corporation, thru itsPresident ---- Raul L. Santos, applied for a loan and/or credit line in the amount of P700,000.00 with PNB. To secure the said loan, Santos executed a Deed of Assignment of the two time deposits in favor of plaintiff. OBM gave its conformity to the assignment. However, OBM, after the due dates of the time deposit certificates, did not pay PNB. PNB demanded payment from IRC and Santos and OBM. IRC and Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates.- On April 6, 1969, PNB filed a complaint to collect from IRC and Santos the loan of P700,000.00 with interest as well as attorney's fees. In its answer to the complaint, OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does not appear' in its books of account. The trial court ordered IRC and Santos to pay the plaintiff jointly and solidarily, the total amount of P700,000 plus interest. OBM was also ordered to pay cross IRC and Santos whatever amount the latter will pay to PNB. The CA affirmed but deleted the portion of the judgment ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with interest from the date of payment.

WON the 1-1/2% interest imposed by PNB was illegal? WON OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business?

Held: No Ratio: - We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for the first time in this petition. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution, but not the veracity or validity thereof. Held: No Ratio: - It is a matter of common knowledge, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it cancarry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

Bataan Seedling Assoc. Vs. Republic

Petitioner entered into a contract with respondent, represented by the DENR for the reforestation of a forest land within a period of 3 years. Petitioner undertook to report to DENR any event or condition which delays or may delay the project. With the contract was the release of mobilization fund but the fund was to be returned upon completion or deducted from periodic release of mhoneys to petitioner. Believing that petitioners failed to comply with their obligations, respondent sent a notice of cancellation. Petitioners failed to respond to the notice, thus, respondent filed a complaint for damages against petitioners. The RTC held that respondent had sufficient grounds to cancel the contract but saw no reason why the mobilization fund and the cash advances should be refunded or that petitioners are liable for liquidated damages. Both parties appealed to the CA, which affirmed the trial court and that the balnce of the fund should be returned with 12% interest.

Whether the order to refund the balance of the fund with 12% interest pa is proper.

No. Interest at the rate of 12% per annum is impossible if there is no stipulation in the contract. Herein subject contract does not contain any stipulation as to interest. However, the amount due to respondent does not represent a loan or forbearance of money. The word forbearance is defined, within, the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. In the absence of stipulation, the legal interest is 6% pa on the amount finally adjudged by the Court.

Catungal vs. Hao

On December 28, 1972, the original owner, Aniana Galang, leased a three-storey building situated at Quirino Avenue, Baclaran, Paraaque, Metro Manila, to the Bank of the Philippine Islands (BPI) for a period of about fifteen (15) years, to expire on June 20, 1986. During the existence of the lease, BPI subleased the ground floor of said building to respondent Doris Hao. On August 24, 1984, Galang and respondent executed a contract of lease on the second and third floors of the building. The lease was for a term of four (4) years commencing on August 15, 1984 and ending on August 15, 1988. On August 15, 1986, petitioner spouses Ernesto and Mina Catungal bought the property from Aniana Galang. Invoking her right of first refusal purportedly based on the lease contract between her and Aniana Galang, respondent filed a complaint for Annulment of Sale with Damages docketed as Civil Case No. 88-491 of the Regional Trial Court (RTC) of Makati, Metro Manila. Meanwhile, the lease agreement between BPI and Galang expired. Upon expiration of the lease agreements, petitioner spouses sent demand letters to respondent for her to vacate the building. The demand letters were unheeded by respondent causing petitioners to file two complaints for ejectment, docketed as Civil Cases Nos. 7666 and 7667 of the Metropolitan Trial Court (MeTC) of Paraaque, Metro Manila. The institution of the ejectment cases prompted respondent to file an action for injunction RTC of Makati- granting the injunction and annulling the contract of sale between Aniana Galang and petitioners. Court of Appeals reversed and set aside the decision of the RTC and the complaints in Civil Cases Nos. 88-491 and 90-758 were accordingly dismissed.

The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it is settled jurisprudence that courts may take judicial notice of the general increase in rentals of lease contract renewals much more with business [18] establishments. Thus, We held in Manila Bay Club Corporation vs. Court of Appeals: It is worth stressing at this juncture that the trial court had the authority to fix the reasonable value for the continued use and occupancy of the leased premises after the termination of the lease contract, and that it was not bound by the stipulated rental in the contract of lease since it is equally settled that upon termination or expiration of the contract of lease, the rental stipulated therein may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of the change or rise in values. Moreover, the trial court can take judicial notice of the general increase in rentals of real estate especially of business establishments like the leased building owned [19] by the private respondent. The increased award of rentals ruled by the RTC is reasonable given the circumstances of the case at bench. We note that respondent was able to deny petitioners the benefits, including possession, of their rightful ownership over the subject property for almost a decade. The Court also awards interest in favor of petitioners. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we gave the following guidelines in the award of interest: xxx II 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, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon in twelve percent (12%) per annum from the time of extrajudicial demand on September 27, 1988.

Banco Filipino vs. CA

Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the Promissory Note executed by the spouses in favor of the said bank. To secure payment of said loans, the spouses executed Real Estate Mortgages in favor of the appellants (Banco Filipino) over their parcels of land. The appellee spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the appellees filed a complaint for Annulment of the Loan Contracts, Foreclosure Sale with Prohibitory and Injunction which was granted by the RTC. Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC.

Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription

The court held that the petition is unmeritorious. Petitioners claim that the action of the private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action where there is no special provision which ordains otherwise shall be counted from the day they may be brought. Thus the period of prescription of any cause of action is reckoned only from the date of the cause of action accrued. The period should not be made to retroact to the date of the execution of the contract, but from the date they received the statement of account showing the increased rate of interest, for it was only from the moment that they discovered the petitioners unilateral increase thereof

Consolidated Bank vs. CA

Mendoza vs. CA

Petitioner was granted by respondent PNB a credit line for 500H and 1M for LoC/TR line. As security, the former mortgaged properties. The REM provided for an escalation clause that rate of interest charged on the obligation secured shall be subject to such increase, during the life of the contract, within the rates allowed by law. Two PNs were executed for the credit line and stipulated therein : with interest thereon at the rate of 12% pa, until paid, with interest rate the Bank may, at any tie, without notice, raise within the limits allowed by law xxx. Thereafter, PNB advised Mendoza that the bank raised its interest rates to 14% pa, in ine with CBMB Reso No 2126. Petitioner failed to payand requested for restructuring of loans. Two promissory notes were signed by Mendoza and his wife. Petitioner testified that respondent allegedly inserted in first promissory note No. 127/82 an interest rate of 21% instead of 18% covering the principal amount,and on the second promissory note 128/82 the interest of 18% instead of 12% representing accrued interest.

Whether or not the interests provided by respondent is proper?

No. it appears that respondent bank increased the interest rates on the 2 promissory notes without prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest. As held in several cases, the unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts ordained in Art. 1308 of the CC.

First Metro Investments Corp. vs.

FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban, Rizal. Under the agreement, the interest was 16% pa based on the diminishing balance. In case of default, an acceleration clause was provided and the amount due is subject to 20% one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law. respondent executed a REM, individual continuing suretyship and an underwriting agreement whereby FMIC shall underwrite the public offering of one P120,000 common shares of respondents capital stock for one-time underwriting fee of P200,000. For failure to pay its obligation, FMIC caused the foreclosure of the REM. At the public auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency balance against respondents since it failed to collect from the sureties, plus interest at 21% pa. the trial court ruled in favor of FMIC. Respondents appealed before the CA which held that the fees provided for in the Underwriting and Consultacy Agreements were mere subterfuges to camouflage the excessively usurious interest charged. The CA ordered FMIC to reimburse petitioner representing what is ue to petitioner and what is due to respondent.

Whether or not the interests are lawful?

No. an apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract for the payment by the borrower for the lenders services which re of little value or which are not in fact to be rendered. Article 1957 clearly provides: contracts and stipulations, under any cloak or device whatever, intended to circumvent the law against usury shall be void. The borrower may recover in accordance with the laws on usury.

Frias vs. San DiegoSison

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila. Frias as First party and Dra. San Diego-Sison as Second Party. The parties agreed for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land together within the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice to the FIRST PARTY of the intention to nd purchase the same, the 2 party has a period of another six months within which to pay the remaining balance of P3.4 million. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to purchase the above-mentioned property, the FIRST PARTY may still offer the said property to other persons who may be interested to buy the same provided that the amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND PARTY shall be paid to the latter including interest based on prevailing compounded bank interest plus the amount of the sale in excess of P7,000,000.00 should the property be sold at a price more than P7 million. If FIRST PARTY has no other buyer within the first six months from the execution, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that on the sixth month the SECOND PARTY would decide not to purchase, the FIRST PARTY has a period of another six months within which to pay the sum of P3 million pesos provided that the said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be considered as the security for the mortgage . Respondent decided not to purchase the property and notified petitioner through a letter, reminding petitioner of their agreement that the amount of two million pesos which petitioner received from respondent should be considered as a loan payable within six months. Petitioner subsequently failed to pay respondent the amount of two million pesos.

While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is 23 flawed since a simple loan may be gratuitous or with a stipulation to pay interest, we find no error committed by the CA in awarding a 25% interest per annum on the twomillion peso loan even beyond the second 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 25 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. In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We agree with and adopt the CAs interpretation of the phrase in this wise: Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellants (petitioner's) property. The second six -month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiffappellee decided not to buy the subject property in which case interest will be charged "for the last six months only", referring to the second six-month period. This means that no interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months only". Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-appellant an 27 eternity to pay the loan. The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the 29 debtor at the expense of the creditor. Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer assailed.

Siga-an vs. Villanueva

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for theP540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount she paid to petitioner for the loan and interest accumulated 7 to P1,200,000.00. Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was no agreement between her and petitioner regarding payment of interest. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to the former Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision affirming in toto the RTC Decision

Whether or not THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER?

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts 18 as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there convincing proof of written agreement between the two regarding the payment of interest. Respondent testified that although she accepted petitioners offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan. Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after paying the total amount of loan, petitioner 28 ordered her to pay interest. Respondent did not categorically declare in the same case that she and respondent made an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was an express stipulation in writing for the payment of interest. There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to 29 compensatory interest and not to monetary interest. The case at bar involves petitioners claim for monetary interest. Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest.

Carpo vs. Chua