Republic v.

Grijaldo
FACTS: In 1943, Jose Grijaldo obtained five loans from the Bank of Taiwan in Bacolod City, in the total
sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are
evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., all
notes without due dates, but because the loans were due one year after they were incurred. To secure
the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot
No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, and under the authority provided for in the Trading with the Enemy
Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States,
these assets, including the loans in question, were subsequently transferred to the Republic of the
Philippines by the Government of the United States under Transfer Agreement. These assets were
among the properties that were placed under the administration of the Board of Liquidators created under
Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and
477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines made a written extrajudicial demand
upon the appellant for the payment of the account in question. The record shows that the appellant had
actually received the written demand for payment, but he failed to pay. The aggregate amount due as
principal of the five loans in question was P889.64; and the interest due thereon at the rate of 6% per
annum compounded quarterly, computed as of December 31, 1959 was P2,377.23.
The Republic of the Philippines filed a complaint but the Justice of the Peace Of Hinigaran, after hearing,
dismissed the case on the ground that the action had prescribed. The CFI reversed ordering the payment
of the sum of P2,377.23.
ISSUE: W/N the Republic has a cause of action, and is privy to the contract? Yes.
It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant
and the Bank of Taiwan was a private contract of loan. However, the assets of the Bank of Taiwan, Ltd.
were transferred to and vested in the Republic of the Philippines. The successive transfer of the rights
over the loans in question from the Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the Philippines, made the Republic of the
Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of contract
between the appellee and the appellant.
ISSUE: W/N the obligation to pay the loans was extinguished because the crops used to secure the loan
were destroyed? No.
The appellant likewise maintains that because the loans were secured by a chattel mortgage on the
standing crops on a land owned by him and these crops were lost or destroyed through enemy action, his
obligation to pay the loans was thereby extinguished. This argument is untenable. The terms of the
promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan,
Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory
notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or
the value of the crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing the amount of money representing the total sum of the five loans, with interest. The
transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple
loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money
or other consumable thing upon the condition that the same amount of the same kind and quality shall be
paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes
evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money a clear
case of an obligation to deliver, a generic thing.

Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the
fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be paid from other sources aside from the
mortgaged crops.

Martinez v. Ramos
FACTS: On May 2, 1900, Antonino Ramos signed an obligation to the following effect in favor of Pedro
Martinez:
I hereby declare to be a fact that by order of my father, Julian Ramos, I have received from Pedro
Martinez one thousand nine hundred pesos ($1,900) as a loan without interest, which I will return
within three years, and I sign. Manila, May 2, 1900. (Sgd.) Antonino Ramos.
Antonino Ramos was appointed judicial administrator of Julians estate. Pedro Martinez filed suit against
Antonino for the fulfillment of that obligation, for Antonino Ramos alleged that by order of his father he
had contracted it and that subsequently he had transferred to some of his coheirs the business started
with the money. The committee of appraisal of the estate decided that this was not a debt against the
estate, but against the heirs who had acknowledged it when presented to them.
Antonino Ramos appealed from the decision of the committee; suit was instituted in the CFI and carried
forward to judgment whereby he was sentenced to pay to the plaintiff the sum of 1,450 pesos Mexican
currency, reduced to its equivalent in conant at the rate of 30 per cent, the final rate fixed for the official
exchange of the former money with the latter, with legal interest from the filing of the complaint until total
payment, and the costs, the estate of the deceased Julian Ramos being absolved from the complaint. A
sum paid on account was deducted in the judgment from the total of the obligation.
ISSUE: W/N the obligation was a personal obligation?
HELD: One who receives as a loan money or other fungible thing, acquires ownership thereof and is
bound to return to his creditor an equal amount of the same kind and quality.
The contract consists in that Antonino, and nobody else, will return to Pedro Martinez in the time
stipulated the 1,900 pesos; and the allegations set up are of no avail against the wording of the contents
of the instrument.1awphil.net
Obligation arising from contracts have legal force between the contracting parties and must be fullfilled in
accordance with their stipulations. (Civil Code, art. 1091.)
Contracts that may have been made subsequent to the one under consideration, either between Antonio
Ramos and his parents or between himself and his coheirs, wherein the lender Pedro Martinez has not
intervened, cannot be alleged against the plaintiff Pedro Martinez, on the principle that the force of the
law of contrast cannot be extended to parties who do not intervene therein.

Jardinel v. Solas
FACTS: This is an action for foreclosure of mortgage.
ISSUE: Is 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? Up to date of maturity.
HELD: This question is, in our opinion controlled by the express stipulation of the parties.
Paragraph 4 of the mortgage deed recites:
In consideration that even that sum payable P2,4000.00, Mr. Hepti Solas agrees to pay Mr. Jardenil on or
before the day 31 March 1934 , with the interest on that sum at the rate of 12% per year starting from
date until the maturity date, by this, Mr. Hepti Solas relents and transferred, by way of first mortgage in
favor of Mr. Jardenil , his heirs and assigns, the parcel of land described in paragraph first ( 1st ) of this
writing.
Solas 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."
A writing must be interpreted according to the legal meaning of its language, and only when the wording
of the written instrument appears to be contrary to the evident intention of the parties that such
intention must prevail. (Article 1281, Civil Code.) 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, 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 therefor, we need not here seek to explore.
Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to
express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced
evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule.
We hold therefore, that as the contract is clear and unmistakable and the terms employed therein
have not been shown to belie or otherwise fail to express the true intention of the parties and that the
deed has not been assailed on the ground of mutual mistake which would require its reformation, same
should be given its full force and effect. When a party sues on a written contract and no attempt is
made to show any vice therein, he cannot be allowed to lay any claim more than what its clear
stipulations accord. His omission, to which the law attaches a definite warning as an in the instant case,
cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400
from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial demands have been
made which we may assume to have been so made on the expiration of the year of grace, he shall be
entitled to legal interest upon the principal and the accrued interest from April 1, 1935, until full
payment.

Royal Shirt v. Co Bon Tic (outright sale of P7/pair)

FACTS: The present appeal involves an action originally brought in the Municipal Court of Manila by the
plaintiff, the ROYAL SHIRT COURT, INC., to recover from defendant CO BON TIC the sum of P1,422
said to represent the balance of the purchase price of 350 pairs of "Balleteenas" shoes at P7 a pair,
with interest at 12 per cent per annum from August 27, 1948, and 25 per cent of said sum as attorney's
fees, and costs.
The principal issue was the nature of the sale: whether it was an outright sale as contended by the
plaintiff, or a sale merely on consignment as claimed by the defendant who wanted to return the
shoes not yet sold by him. There was also involved the question of the amount already paid by the
defendant to the plaintiff.
The MTC held that the contract was of sale on consignment; that of the 207/350 pairs were sold at
the rate of P8 a pair, amounting to a total of P1,656; and that defendant had paid the sum of P1,028 to
plaintiff on account of the purchase price of the shoes sold, excluding the amount of P420, value of Check
No. 790264 issued by defendant as payment but returned to him by the plaintiff and not replaced with
cash. Judgment was rendered sentencing the defendant to pay plaintiff the sum of P628 with interest
thereon at the legal rate from the date of the filing of the complaint, and to return to plaintiff the 143 pairs
of shoes still unsold, unless he preferred to retain and pay for them at the rate of P8 a pair within a period
of fifteen days from receipt of a copy of the decision.
The CFI held that the transaction involved was one of outright sale at P7 per pair of shoes, sales
tax included. The defendant had 9 days from delivery of the shoes to make his choice of the two
alternatives, that is to consider the sale of the 350 pairs of shoes closed at the flat rate of P7 per pair,
sales tax included, or, at the expiration of 9 days to pay for the shoes sold at P8 per pair, and to return the
remaining unsold ones to plaintiff; and that, inasmuch as defendant, at the expiration of the 9 days
stipulated, failed to return the shoes, and actually began making partial payments on account of the
purchase price agreed upon, the transaction in the nature of a straight sale, was considered closed. The
court also found as did the Municipal Court that the amount of P420 represented by Check No. 790624
was never replaced or exchanged for cash by the defendant upon its return to him, and consequently, it
may not be considered as part payment.
Judgment was rendered in favor of the plaintiff and against the defendant and the latter was ordered to
pay to the former the sum of P1,422, the unpaid balance of the sales price of 350 pairs of shoes in
question, with interest on the amount due at the rate of 12 per cent per annum from August 27, 1948 until
final payment plus the amount of 25 per cent of the same sum for attorney's fees as stipulated, and costs.
ISSUE: was it an absolute sale or a sale on consignment?
HELD: Exhibit A of the plaintiff which was accepted, admitted and considered by the Court of First
Instance of Manila is an order slip which lists down and classifies the 350 shoes in question according to
color, and contains the following condition of the sale in the handwriting of Mr. Chebat, the agent of the
plaintiff who sold the shoes to the defendant
CONDICION (Terms) After 9 days, pay all at the rate of the pair P7 or P8 per pair sold.
It meant that the defendant could either consider the sale as one on consignment, sell as many
shoes as he could at any price, pay for them at P8 a pair and at the end of nine days return the shoes
unsold to the plaintiff, or, consider the sale of the 350 shoes as absolute at P7 a pair; and that since
the defendant did not return any of the shoes at the expiration of 9 days he must be held to have
chosen the second alternative, namely, that he bought the whole stock of shoes at P7 a pair. It will be
noted, however, that Exhibit "A" was never accepted much less signed by the defendant, and
therefore, cannot bind the defendant and so is but a self-serving evidence which should not have
been admitted and considered by the trial court.

Disregarding Exhibit "A", the nature of the transaction must be judged by other evidence, including the
conduct of the parties at the time of making the contract and subsequent thereto. Exhibit "B" of the
plaintiff is an invoice of the same 350 pairs of shoes whose price including sales tax is listed as
P2,450. It was evidently not only accepted by the defendant but on it he noted down in his own
handwriting the different partial payments of P500, P528 and lastly of the controversial P420 by
check. It will also be noticed that the defendant in making said notations of payment considered the full
purchase price of the 350 pairs of shoes at P7.00 or P2,450, and it was against said total that he had
been making the payments, putting down the balance after each payment. In other words, he
obviously accepted the straight sale to him on credit of the whole 350 pairs of shoes for P2,450 and
made partial payments on account thereof. In making said partial payments, he made no mention
whatsoever of the number of shoes sold by him and the number of shoes remaining unsold, which
he should have done had the sale been on the consignment basis. On the other hand, he merely
mentioned the balance of the purchase price after deducting the several partial payments made by
him. Furthermore, if the sale had been on consignment, a stipulation as to the period of time for the
return of the unsold shoes should have been made; but evidently that had not been done and
defendant kept the shoes unsold more or less indefinitely, but giving the same excuse that he could not
return them to the plaintiff because he did not know where to return them. The plaintiff Royal Shirt
Factory, Inc., is quite well-known. Is has a store at the Escolta and according to the invoice (Exhibit B), it
is an importer, wholesaler and manufacturer, and it could not have been hard, much less impossible for
the defendant to return the shoes unsold by him had the transaction really been a sale on consignment.
So, on this issue of the nature of the transaction between the parties, we agree with the trial court that it
was a straight sale at the rate of P7 per pair of shoes.
As regards Check No. 790264 of the China Banking Corporation, Exhibit F, in the amount of P420 with
which defendant attempted to make another partial payment as appears in Exhibit 'B', both parties agree
that since the check was postdated, it was returned by the plaintiff to the defendant who however
claims that he replaced it with cash. This was stoutly denied by plaintiff. After a careful review of the
evidence, we agree with the trial court that the preponderance thereof is to the effect that the amount of
said check of P420 was never replaced by the defendant.
The decision appealed from the sentences the defendant to pay to the plaintiff P1,422 with interest at 12
percent per annum from August 27, 1948, plus 25 per cent of the same sum for attorney's fees,
besides costs. This rate of interest and the 25 per cent for attorney's fees appears in Exhibit "B" in printed
form as terms or conditions. In Exhibit "A", the order slip, the conditions of sale also printed provide for 20
per cent only as attorney's fees and no rate of interest in case of litigation. Had the defendant signed
Exhibit "A", which he did not, he would have been bound by it and would be liable to 20 per cent of any
amount due from him, but because of the absence of stipulation as to the rate of interest he would be
paying only the legal rate of 6 per cent per annum. Anyway, neither did the defendant sign Exhibit "B". If
we hold defendant bound by Exhibit "B" at all, it is because of his tacit acceptance of the total value of
350 pairs of shoes and by his notation against it of his partial payments. We do not think it fair for him to
be bound also by the printed terms of the conditions of sale. Moreover, we find under said printed form
the clause in pencil: "as agreed with Mr. Chebat." We may even say that said clause in handwriting may
be considered as having overruled what was printed as to the rate of interest and the attorney's fees. We
therefore hold that the defendant should only pay 6 per cent interest on the amount due him from
the date of the filing of the complaint, with costs, and nothing for attorney's fees. It is also
interesting to note that this was the same ruling of the Municipal Court on this point.

Arwood Industries v. DM Consunji Inc.

FACTS: Petitioner and respondent, as owner and contractor, respectively, entered into a Civil, Structural
and Architectural Works Agreement (Agreement) for the construction of petitioner's Westwood
Condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the
condominium project aggregated P20,800,000.00.
Despite the completion of the condominium project, the amount of P962,434.78 remained unpaid by
petitioner. Repeated demands by respondent for petitioner to pay went unheeded.
Respondent specifically prayed for the payment of the (a) amount of P962,434.78 with interest of 2% per
month or a fraction thereof, from November 1990 up to the time of payment; (b) the amount of P250,000
as attorney's fees and litigation expenses; (c) amount of P150,000 as exemplary damages and (d) costs
of suit.
The RTC resolved to grant the relief to the respondent. The CA upheld the trial court decision. In Article
6.03 of the Agreement concerning the imposition of the 2% interest:
Payment shall be made by the OWNER to the CONTRACTOR within fifteen (15) calendar days after
receipt of the Construction Manager's Certificate. In the event OWNER delays the payments (i.e.
beyond the stipulated time) to the CONTRACTOR of monthly progress billings, the CONTRACTOR shall
have the option to either suspend the works on the Project until such payments have been
remitted by the OWNER or continue the work but the OWNER shall be required to pay the interest
at a rate of two (2%) percent per month or the fraction thereof in days of the amount due for
payment by the OWNER. The same interest shall be added to the billing of the following month.
Furthermore, the progress payments shall be reduced by a portion of the downpayment made by the
OWNER corresponding to the value of the work completed.
ISSUE: W/N respondent entitled to 2% interest? Yes.
HELD: Petitioner reasons that while there was a formal offer of the Agreement and its sub-markings, the
provision on interest was neither sub-marked nor formally offered in evidence. Hence, the imposition of
interest is wanting in basis as it is not even explicitly alleged in the complaint before the trial court.
The Agreement or the contract between the parties is the formal expression of the parties rights, duties
and obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an
agreement have been reduced to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence of such terms other than
the contents of the written agreement.
Consequently, upon the fulfillment by respondent of its obligation to complete the construction
project, petitioner had the correlative duty to pay for respondents services. However, petitioner
refused to pay the balance of the contract price. From the moment respondent completed the
construction of the condominium project and petitioner refused to pay in full, there was delay on
the part of petitioner. This delay was never disputed.
Delay in the performance of an obligation is looked upon with disfavor because, when a party to a
contract incurs delay, the other party who performs his part of the contract suffers damages thereby.
Dilationes in lege sunt idiosae. Obviously, respondent suffered damages brought about by the failure
of petitioner to comply with its obligation on time. Damages take the form of interest. Accordingly, the
appropriate measure of damages in this case is the payment of interest at the rate agreed upon,
which is 2% interest for every month of delay. Neither can petitioner impugn the Agreement to which it
willingly gave its consent. From the moment petitioner gave its consent, it was bound not only to fulfill
what was expressly stipulated in the Agreement but also all the consequences which, according to their
nature, may be in keeping with good faith, usage and law.

Petitioner argues that the amount of P962,434.78 claimed by respondent and later awarded by the lower
courts does not refer to monthly progress billings, the delayed payment of which would earn interest at
2% per month.
Monthly progress billings certainly form part of the contract price. Petitioner has shown any effort to clarify
the meaning of monthly progress billings to support its position. This leaves us no choice but to agree
with respondent that the phrase monthly progress billings refers to a portion of the contract price
payable by the owner (petitioner) of the project to the contractor (respondent) based on the
percentage of completion of the project or on work accomplished at a particular stage. It refers to
that portion of the contract price still to be paid as work progresses, after the downpayment is made.
Respondents claim, it must be noted, includes payment of the sum of P962,474.78, exclusive of
damages. Petitioner had all the opportunity to squarely meet the issue on interest at the pre-trial as it was
deemed included in the phrase exclusive of damages. The appeal to the respondent court on the matter
of interest was, therefore, a belated effort to object to the contents of the Agreement. Petitioner cannot
resort to this sneaky scheme. Objection to evidence cannot be raised for the first time on appeal;
when a party desires the court to reject the evidence offered, he must so state in the form of objection.
And, since there was no timely objection to the contents of the Agreement, the Agreement and its
contents form part of the evidence of the case. All the parties to the case, therefore, are considered
bound by any favorable or unfavorable effects resulting from the evidence.
Needless to state, it is not indispensable that Article 6.03 of the Agreement be sub-marked and formally
offered in evidence during the pre-trial before said provision may take effect. For one, the provision on the
payment of monthly interest is included in the Agreement, the existence and validity of which, to reiterate,
were not objected to by petitioner. For another, the payment of interest as penalty is a necessary
consequence of petitioners failure to exercise diligence in the discharge of its obligation under the
contract.
Moreover, even assuming that there was a default of stipulation or agreement on interest, respondent
may still recover on the basis of the general provision of law, which is Article 2209 of the Civil Code, thus:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.
Article 2209 of the Civil Code, as abovementioned, specifies the appropriate measure of damages where
the obligation breached consisted of the payment of sum of money. Article 2209 was, in extent, explicated
by the Court in State Investment House, Inc. vs. Court of Appeals, which provides:
The appropriate measure for damages in case of delay in discharging an obligation consisting of
the payment of a sum of money, is the payment of penalty interest at the rate agreed upon; and in
the absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest
at a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum.
Hence, even in the absence of a stipulation on interest, under Article 2209 of the Civil Code, respondent
would still be entitled to recover the balance of the contract price with interest. Respondent court,
therefore, correctly interpreted the terms of the agreement which provides that the OWNER shall be
required to pay the interest at a rate of two percent (2%) per month or the fraction thereof in days of the
amount due for payment by the OWNER.

Overseas Bank v. Cordero

FACTS: This is a petition for review on certiorari of the decision of the CA which affirmed the judgment of
the CFI, holding petitioner bank liable to respondent Vicente Cordero in the amount of P80,000.00
representing the latter's time deposit with petitioner, plus interest thereon at 6% per annum until fully paid,
and costs.
On July 20, 1967, private respondent opened a one-year time deposit with petitioner bank in the amount
of P80,000.00 to mature on July 20, 1968 with interest at the rate of 6% per annum. However, due to its
distressed financial condition, petitioner was unable to pay Cordero his said time deposit together with the
interest. To enforce payment, Cordero instituted an action in the Court of First Instance of Manila.
Petitioner raised as special defense the finding by the Monetary Board of its state of insolvency, which
authorized the suspension of all its operations and Resolution ordering the Superintendent of Banks to
take over the assets of petitioner for purposes of liquidation.
ISSUE: Petitioner stands firm on its contentions that the suit filed by respondent Cordero for recovery of
his time deposit is barred or abated by the state of insolvency of petitioner as found by the Monetary
Board of the Central Bank of the Philippines; and that the judgment rendered in favor of respondent would
in effect create a preference in his favor to the prejudice of other creditors of the bank.
Certain supervening events, however, have rendered these issues moot and academic. The first of
these supervening events is the letter of Julian Cordero, brother and attorney-in-fact of respondent
Vicente Cordero, addressed to the Commercial Bank of Manila (Combank), successor of petitioner
Overseas Bank of Manila. In this letter, it appears that respondent Cordero had received from the
Philippine Deposit Insurance Company the amount of P10,000.00.
The second is a Manifestation by the same Julian Cordero dated July 3, 1981, acknowledging receipt of
the sum of P73,840.00. Said Manifestation is in the nature of a quitclaim.
ISSUE: whether respondent is entitled to (1) interest on his time deposit during the period that petitioner
was closed and (2) to attorney's fees. No.
HELD: The pronouncement made by this Court, per Justice Barredo, in the recent case of Overseas Bank
of Manila vs. Court of Appeals is explicit and categorical:
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 can carry on as a depository obligated to pay stipulated interest. ...
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.
We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has
been subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no
alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical
significance of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner
was totally crippled from then on from earning the income needed to meet its obligations to its depositors.
If such a situation cannot, strictly speaking be legally denominated as "force majeure" as maintained by
private respondent, We hold it is a matter of simple equity that it be treated as such.
The same formula that exempts petitioner from the payment of interest to its depositors during the whole
period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the

decision as well as the approval of a formula of rehabilitation by this Court, should be, as a matter of
consistency, applicable or followed in respect to all other obligations of petitioner which could not be paid
during the period of its actual complete closure.
Neither can respondent Cordero recover attorney's fees. The trial court found that herein petitioner's
refusal to pay was not due to a wilful and dishonest refusal to comply with its obligation but to restrictions
imposed by the Central Bank. Since respondent did not appeal from this decision, he is now barred from
contesting the same.

Ramos v. CB
Facts: This involves question as to applicability of Tapia ruling wherein the Court held 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," to loans and advances
by the Central Bank.
Held: Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its
Resolution at bar that the Tapia ruling is fully applicable to the non-payment of interest, during the period
of the bank's forcible closure, on loans and advances made by respondent Central Bank.
Respondent Central Bank itself when it was then managing the Overseas Bank of Manila (now
Commercial Bank of Manila) under a holding trust agreement, held the same position in Idelfonso D. Yap
vs. OBM wherein it argued that "(I)n a suit against the receiver of a national bank for money loaned to the
Bank while it was a going concern, it was error to permit plaintiff to recover interest on the loan after the
bank's suspension"
A significant development of the case, the Government Service Insurance System (GSIS) has acquired
ownership of 99.93% of the outstanding capital stock of COMBANK. The Court's Resolution manifestly
redounds to the benefit of another government institution, the GSIS, and to the preservation of the
banking system.
J. melencio-herrera
I agree with the Solicitor General that loans and advances made by the Central Bank to the then
Overseas Bank of Manila OBM can not be treated in the same manner as deposits made by ordinary
depositors. The Tapia ruling, to my mind, is doctrinal only insofar as it holds that payment of interest on
deposits ceases the moment the operation of the bank is completely suspended by the Central Bank, but
not when it applies said ruling to interest on loans and advances made by the Central Bank, that
point not having been in issue since the Central Bank was not a party therein. As a matter of fact,
the paragraph extending its application "to all other obligations of OBM which could not be paid during the
period of its complete closure" (p. 62) is prefaced by the term " parenthetically.
Moreover, interest payment on the loans and advances "made by the Central Bank was the subject of
explicit agreement between the parties at a time when the OBM had already closed, the rehabilitation
plan already agreed upon and, in fact, was one of the terms and conditions for the resumption of banking
operations of OBM (now COMBANK). Significantly, too, as brought out during the hearing, held on
October 23, 1984, the interest due has been determined and the moneys therefor held in escrow.

Lirag v. SSS

SSS (respondent) and Lirag Textile Mills (Petitioner) entered into a Purchased Agreement which
Respondent agreed to purchase preferred stocks of Petitioner worth P1 million subject to conditions:
o For Petitioner to repurchase the shares of stocks at a regular interval of one year and to
pay dividends.
o Failure to redeem and pay the dividend, the entire obligation shall become due and
demandable and it shall be liable for an amount equivalent to 12% of the amount then
outstanding as liquidated damages.
Basilio Lirag (Basilio) as President of Lirag Textile Mills signed the Agreement as a surety to
guarantee the redemption of the stocks, the payment of dividends and other obligations.
Pursuant to the Agreement, Respondent paid Petitioner P500,000 on two occasions and the latter
issued 5,000 preferred stocks with a par value of P100 as evidenced by Stock Certificate Nos. 128
and 139.
After sending Respondent sent demand letters, Petitioner and Basilio still made no redemption nor
made dividend payments.
Respondent filed an action for specific performance and damages against Petitioner:
Petitioner contends that there is no obligation on their part to redeem the stock certificates since
Respondent is still a preferred stock holder of the company and such redemption is dependent upon
the financial ability of the company.
On the part of Basilio, he contends that his liability only arises only if the company is liable and does
not perform its obligations under the Agreement.

Issue:
1) Whether or not the Purchase Agreement entered into by the Parties is a debt instrument?
2) If so, Is Basilio liable as surety?
3) Whether or not Lirag is liable for the interest as liquidated damages?
Held:
1) YES, the Purchase Agreement is a debt instrument. The terms and conditions of the Agreement
show that parties intended the repurchase of preferred shares on the respective scheduled
dates to be an absolute obligation, which does not depend on the financial ability of the
corporation.
o This absolute obligation on the part of the Petitioner corporation is made manifest by the fact that
a surety was required to see to it that the obligation is fulfilled in the event the principal debtors
inability to do so.
o It cannot be said that SSS is a preferred stockholder. The rights given by the Purchase
Agreement to SSS are not rights enjoyed by ordinary stockholders. Since there was a condition
that failure to repurchase the stocks on the scheduled dates renders the entire obligation due and
demandable with interest. These features clearly show that intent of the parties to be bound
therein as debtor and creditor and not as a corporation and stockholder.
2) YES, Basilio is liable as surety. Thus it follows that he cannot deny liability for Lirags default. As
surety, he is bound immediately to pay SSS the amount then outstanding.
3) The award of liquidated damages represented by 12% of the amount then outstanding is correct,
considering that the petitioners in the stipulation of facts admitted having failed to fulfill their
obligations under the Agreement. The grant of liquidated damages is expressly provided for the
Purchase Agreement in case of contractual breach.
Since Lirag did not deny its failure to redeem the preferred shares and the non-payment of dividends
which are overdue, they are bound to earn legal interest from the time of demand, in this case,
judicial i.e. the time of filing the action

Angel Jose Warehousing Co., Inc. v. Chelda Enterprisesand David Syjueco

Keywords: Case for recovery of unpaid loans. W/N creditor may recover the principal of the loan
in a loan with a usurious interest? Yes. since it is a divisible contract. But the whole stipulation
for interest is void. -- In case of demand for the payment of the debt, and the debtor incurs in
delay, the debt earns interest from the date of the demand not due to the void stipulation, but the
obligation to pay.
FACTS: Plaintiff corporation filed suit in CFI against the partnership Chelda Enterprises and David
Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total amount of P20,880.00,
with legal interest from the filing of the complaint, plus attorney's fees. Alleging that post dated checks
issued by defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram
I. Mohinani, had left the country, and that defendants have removed or disposed of their property, or are
about to do so, with intent to defraud their creditors, preliminary attachment was also sought.
Defendants averred that they obtained 4 loans from plaintiff in the total amount of P26,500.00, of which
P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged and deducted from
the loan usurious interests thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff
has no cause of action against defendants and should not be permitted to recover under the law.
The court found that there remained due from defendants an unpaid principal amount of P20,287.50; that
plaintiff charged usurious interests, of which P1,048.15 had actually been deducted in advance by plaintiff
from the loan; that said amount of P1,048.15 should therefore be deducted from the unpaid principal of
P20,287.50, leaving a balance of P19,247.35 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred from collecting the principal of the
loan or its balance of P19,247.35.
ISSUE: In a loan with usurious interest, may the creditor recover the principal of the loan? Yes.
HELD: Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of
pari delicto expressed in Article 1411 applies so that neither party can bring action against each other.
Appellants add that the rule is modified as to the borrower, by express provision of the law (Art. 1413,
New Civil Code), allowing the borrower to recover interest paid in excess of the interest allowed by the
Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract.
So the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with
usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious
contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent
with this Code."
Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to
the interest. Appellants fail to consider that a contract of loan with usurious interest consists of principal
and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest
thereon. Said two stipulations are divisible in the sense that the former can still stand without the latter.

Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter may be enforced." 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 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.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the Usury Law, in Sec.
6, any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in said
law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid in
excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon
from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed by
the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of P20% per
annum P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest, not
just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow
division. The whole stipulation as to interest is void, since payment of said interest is the cause or
object and said interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code,
is not to provide for the recovery of the interest paid in excess of that allowed by law, which the Usury
Law already provided for, but to add that the same can be recovered "with interest thereon from the date
of payment."
The foregoing interpretation is reached with the philosophy of usury legislation; to discourage stipulations
on usurious interest, said stipulations are treated as wholly void, so that the loan becomes one without
stipulation as to payment of interest. It should not, however, be interpreted to mean forfeiture even of
the principal, for this would unjustly enrich the borrower at the expense of the lender. Furthermore,
penal sanctions are available against a usurious lender, as a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus be recovered by
judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest
from the date of the demand (in this case from the filing of the complaint). Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that
in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages
(Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal
debt with interest thereon at the legal rate, from the date of filing of the complaint.

Cu-Unjieng v. Mabalacat Sugar Co.

FACTS: This action was instituted in the CFI by Cu Unjieng e Hijos, for the purpose of recovering from the
Mabalacat Sugar Company an indebtedness amounting to more than P163, 534.73 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
plaintiff. The court ruled in favor of plaintiff.
ISSUE: The propriety of the interest charges made by the plaintiff in estimating the amount of the
indebtedness. 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: "Interest, to be computed upon the
still unpaid capital of the loan, shall be paid monthly, at the end of each month."
HELD: 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, semiannually, 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 already paid. Clearly this provision does not justify the
charging of compound interest upon the interest accruing upon the capital monthly. It is true that in
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 trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the
Mabalacat Sugar Company, which the court considered as an interpretation by the parties to the contract
and a recognition by the debtor of the propriety of compounding the interest earned by the capital. But 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 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. The Exhibit 1 therefore adds
no support to the contention of the plaintiff that interest upon interest can be accumulated in the manner
adopter by the creditor in this case. The point here ruled is in exact conformity with the decision of this
court in Bachrach Garage and Taxicab Co. vs. Golingco, where this court held that interest cannot be
allowed in the absence of stipulation, or in default thereof, except when the debt is judicially claimed; and
when the debt is judicially claimed, the interest upon the interest can only be computed at the rate of 6
per cent per annum.
It results that the appellant's second assignment of error is well taken, and the compound interest must be
eliminated from the judgment. With respect to the amount improperly charged, we accept the estimate
submitted by the president and manager of the Mabalacat Sugar Company, who says that the amount
improperly included in the computation made by the plaintiff's bookkeeper is P879.84, in addition to the
amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had
the right to charge interest, in the manner adopted by it, upon insurance premiums which it had paid out;

and if any discrepancy of importance is discoverable by the plaintiff in the result here reached, it will be at
liberty to submit a revised computation in this court, upon motion for reconsideration, wherein interest
shall be computed in accordance with this opinion, that is to say, that no accumulation of interest will
be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall
draw interest at the rate of 6 per cent from the date of the institution of the action.

Velez v. Balzarra
FACTS: Plaintiff in an amended complaint prayed for the return of certain parcels of land which she
alleged had been sold by the defendants to plaintiff's deceased husband, Ramon Neri San Jose,
with right of repurchase. She further alleged that defendants had remained in possession of said
land under a contract of lease, but that for over two years defendants had not paid the agreed rentals;
in the distribution of the estate of the deceased Ramon Neri San Jose the said lands were adjudicated as
share of the herein plaintiff.
Defendants alleged that the real agreement was loan secured by a mortgage of those lands; and that
whereas the amount borrowed was only P2,400, defendants had however already paid P4,420.88.
Defendants therefore prayed for the return of the excess, or P2,029.88.
The trial court ruled for the defendants and found that the total amount loaned on various dates by the
deceased Neri to the defendants, was P3,067; that defendants paid P4,429.88, of which P3,997.25 was
received by Neri and P432.63 by plaintiff; that these payments were not made by way of interests or
rents, but as payment for the principal; that defendants overpaid the amount of P1,362.88.
ISSUE: W/N it was a sale or a contract of loan? Loan.
HELD: Exhibit A purports to be sale of four parcels of land for the price of P600, with a right of repurchase
within three years. Exhibit D likewise purports to be a sale of three parcels of land for P400, with a right of
repurchase within three years. . Each of these two contracts has the following stipulation: "El comprador
Ramon Neri San Jose toma posession delas fincas vendidas, y el sera quien cosechara todos los
productos que dan o puedan dar las fincas aqui vendidas durante el plazo de rectracto y puede hacer y
ejercitar todos los actos de dominio con tal que no este en pugna con el derecho de recompra de los
vendedores."
Exhibits B, C, and E are contracts of loan for various amounts from Neri to defendants. Each of these
three documents recites that defendants received a certain amount from Neri; that on November 23,
1927, defendants sold three parcels of land to Neri; and that defendants have promised to Neri; that upon
return of the amount mentioned in said document of November 23, 1927, defendants will return the sum
borrowed by means of the present contract.
Evidently all these five loans appearing in Exhibits A to E were secured by the mortgage of the seven
parcels of land. These transactions being loans, according to the stipulation of facts, the question is
whether the payments were intended to be applied to the principal, as contended by defendants,
or were considered as either rents or interest, upon the theory advanced by plaintiff.
The payments could not have been intended as rents because in accordance with a clause in the
contract, Neri took possession of the lands, and collected the fruits thereof. The creditor having enjoyed
the beneficial use of lands delivered as security of loan, it appears to have been the intention of the
parties that the creditor should be compensated thereby. Furthermore, in none of the contracts offered in
evidence is there any promise made by defendants to pay rents. It would have been strange for such a
clause to appear in Exhibits A and D wherein it was stipulated that the creditor took possession of the
lands and would reap the fruits of the same. It is true that in the receipts signed by Neri and by plaintiff
these payments are called rents. But these receipts have been prepared by Neri and by plaintiff, and
defendants in their ignorance did not look into the wording, being merely satisfied that they were proofs of
payment.
If these payments were not rents, plaintiff-appellant maintains they must have been interests. Neither is
this contention tenable because no interest is due unless it is expressly stipulated. (Article 1755, Civil
Code.), Moreover, as under the contract the lender took possession of the lands and reaped the
fruits thereof, it must have been thought by the parties that it was unfair to make the borrower pay
interest in addition. It is also significant that the borrower paid a total of P1,143.50 up to August 5, 1929

(a period of 1 year, 8 months and 13 days from the initial loan) when the debt up to that date was only
P2,100. If such amount of P1,143.50 was collected as interests, then out and out usury was committed by
the lender, which cannot be presumed.
Article 1756 of the Civil Code comes into view. It provides that, "The borrower who has paid interests
without their being stipulated, cannot recover them nor apply them to the principal." It seems plausible to
argue that although the parties originally intended no interests when the loans were made, nevertheless if
defendants wished to pay and did pay interests, according to said article 1756 they can neither recover
the amounts nor apply them to the principal. However, the trial court found as a fact that "the payments
made were not either by way of interests nor of rents but as payments for the principal." The court further
found that "the question would have been different if the defendants had admitted, or if it had been proved
that the payments made by the defendants were by way of interests."
The liability of plaintiff to return the excess payments is in keeping with article 1895 of the Civil Code
which provides that "when something is received which there is no right to collect, and which by mistake
has been unduly delivered, the obligation to restore it arises." The two requisites are present: (1) there is
no right to collect these excess sums; as (2) the amounts have been paid through mistake by defendants.
Such mistake is shown by the fact that the parties in their contracts never intended that either rents or
interests should be paid, and by the further fact that when these payments were made, they were
intended by defendants to be applied to the principal, but they overpaid the amounts loaned of them.
Article 1895 of the Civil Code above quoted, is therefore applicable. This legal provision, which
determines the quasi-contract of solutio indebiti, is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another.
As for the amount to be returned by plaintiff, the trial court held that the plaintiff should return only the
excess sum she actually received (P432.63) but not the over-payment made to the deceased Neri.
If the defendants had appealed from the latter phase of the judgment, perhaps the application of section
749 of the Code of Civil Procedure (now Rules 89, section 5 of the new Rules of Court) might have been
studied. Under that provision, contingent claims which become absolute after the settlement of the estate
of a deceased person may be enforced proportionately against the distributees of the estate, and in the
instant case this claim against Neri did not become absolute till the discovery of the mistake, after the
distribution of his estate. But defendants not having appealed, this aspect of the case will not be passed
upon.