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PEOPLE OF THE PHILIPPINES vs TERESITA PUIG and ROMEO PORRAS, 2009 July 30,

Facts: On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before RTC in Dumangas, Iloilo,
112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were
the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. It was alleged
in the information that Teresita Puig and Romeo Porras took away P15,000 without the consent of the
owner Bank to the prejudice and damage of the bank. The RTC dismissed the case for insufficiency of the
information ruling that the real parties in interest are the depositors-clients and not the bank because the
bank does not acquire ownership of the money deposited in it. Hence petitioner Rural Bank went directly
to the court via petition for certiorari. Petitioner explains that under Article 1980 of the New Civil
Code, "fixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that
"a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the
depositors who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as belonging to
the bank.
Issue: Whether or not the Bank acquired ownership of the money deposited in it to be able to hold the
respondents liable for qualified theft which requires that there must be taking of the money without the
consent of the owners.
Held: The petition is meritorious. Banks where monies are deposited, are considered the owners thereof.
This is very clear not only from the express provisions of the law, but from established jurisprudence. The
relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953
and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953.A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, the Court has firmly established the nature of possession
by the Bank of the money deposits therein, and the duties being performed by its employees who have
custody of the money or have come into possession of it. The Court has consistently considered the
allegations in the Information that such employees acted with grave abuse of confidence, to the damage
and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient
to make out a case of Qualified Theft. In summary, the Bank acquires ownership of the money deposited
by its clients; and the employees of the Bank, who are entrusted with the possession of money of the
Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore,
sufficiently allege all the essential elements constituting the crime of Qualified Theft.
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders
dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal cases No. 05-3054 to 05-3165 are
REVERSED and SET ASIDE.
PEOPLE V. PUIG AND PORRAS
(Simple Loan)

Depositors who place their money with the bank are considered creditors of the bank. The bank
acquires ownership of the money deposited by its clients, making the money taken by respondents as
belonging to the bank.

The relationship between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. (supra)

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in
them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.

BPI vs Court of Appeals, 538 SCRA 184,


November 23, 2007
Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The said amount used
to open these accounts is traceable to a check issued by Tevesteco. The funding for the P2,000,000.00
check was part of the P80,000,000.00 debited by BPI from FMICs account (with a deposit of
P100,000,000.00) and credited to Tevestecos account pursuant to an Authority to Debit which was
allegedly forged as claimed by FMIC.
Tevesteco effected several withdrawals already from its account amounting to P37,455,410.54 including
the P2,000,000.00 paid to Franco.
Franco issued two checks which were dishonored upon presentment for payment due to garnishment of
his account filed by BPI.
BPI claimed that it had a better right to the amounts which consisted of part of the money allegedly
fraudulently withdrawn from it by Tevesteco and ending up in Francos account. BPI urges us that the legal
consequence of FMICs forgery claim is that the money transferred by BPI to Tevesteco is its own, and
considering that it was able to recover possession of the same when the money was redeposited by
Franco, it had the right to set up its ownership thereon and freeze Francos accounts.
Issue: WON the bank has a better right to the deposits in Francos account.
Held: No. Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived
of a movable to recover the exact same thing from the current possessor, BPI simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs
account and credited to Tevestecos, and subsequently traced to Francos account.
Money bears no earmarks of peculiar ownership, and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone awry. Its primary function is to pass from
hand to hand as a medium of exchange, without other evidence of its title. Money, which had been passed
through various transactions in the general course of banking business, even if of traceable origin, is no
exception.

Cebu International Finance Corporation v. Court of Appeals, October 12, 1999


Facts:
Petitioner is a quasi-banking institution involved in money market transactions. Alegre invested
with petitioner P500,000. Petitioner issued then a promissory note, which would mature approximately
after a month. The note covered for Alegres placement plus interest. On the maturity of the note,
petitioner issued a check payable to Alegre, covering the whole amount due. It was drawn from
petitioners current account in BPI. When the wife of Alegre tried to deposit the check, the bank
dishonored the check.
Petitioner was notified of this matter and Alegre demanded the immediate payment in cash.
In turn, petitioner promised to replace the check on the impossible premise that the first issued be
returned to them. This prompted Alegre to file a complaint against petitioner and petitioner in turn, filed
a case against BPI for allegedly unlawfully deducting from its account counterfeit checks. The trial
court decided in favor of Alegre.
ISSUE: Whether or not the Negotiable Instruments Law
transaction held between petitioner and Alegre?

is

applicable

to

the

money

market

HELD:
Considering the nature of the money market transaction, Article 1249 of the CC is the applicable
provision should be applied. A money market has been defined to be a market dealing in
standardized short-term credit instruments where lenders and borrowers dont deal directly with

each other but through a middleman or dealer in the open market. In a money market transaction, the
investor is the lender who loans his money to a borrower through a middleman or dealer.
In the case at bar, the transaction is in the nature of a loan. Petitioner accepted the check but
when he tried to encash it, it was dishonored. The holder has an immediate recourse against the
drawer, and consequently could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money may be paid in money, which
is the legal tender or, by the use of a check. A check is not legal tender, and therefore cannot constitute
valid tender of payment.

Commissioner of Public Highways vs. Burgos


Facts:
On 1924, the government took private respondent Victor Amigable's land for road-right-of-way purpose.
On 1959, Amigable filed in the Court of First Instance a complaint to recover the ownership and
possession of the land and for damages for the alleged illegal occupation of the land by the government
(entitled Victor Amigable vs. Nicolas Cuenco, in his capacity as Commissioner of Public Highways and
Republic of the Philippines).
Amigable's complaint was dismissed on the grounds that the land was either donated or sold by its owners
to enhance its value, and that in any case, the right of the owner to recover the value of said property was
already barred by estoppel and the statute of limitations. Also, the non-suability of the government was
invoked.
In the hearing, the government proved that the price of the property at the time of taking was P2.37 per
square meter. Amigable, on the other hand, presented a newspaper showing that the price was P6.775.
The public respondent Judge ruled in favor of Amigable and directed the Republic of the Philippines to pay
Amigable the value of the property taken with interest at 6% and the attorney's fees.
Issue:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount
of compensation to be paid to private respondent Amigable for the property taken.
Held:
Not applicable.
Article 1250 of the NCC provides that the value of currency at the time of the establishment of the
obligation shall be the basis of payment which would be the value of peso at the time of taking of the
property when the obligation of the government to pay arises. It is only when there is an agreement that
the inflation will make the value of currency at the time of payment, not at the time of the establishment,
the basis for payment.
The correct amount of compensation would be P14,615.79 at P2.37 per square meter, not P49,459.34,
and the interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court
rendered its decision as was awarded by the said court should accordingly be reduced.

TELENGTAN BROTHERS (LA SUERTE CIGAR) V. COURT OF APPEALS


Facts
Telengtan is a domestic corporation doing business under the name and Style La Suerte Cigar and
Cigarette Factory.
US Lines is a foreign corporation engaged in the business of overseas shipping.
Important to note in this case (for purposes of the liability issue) is the effectivity of Far East
Conference Tariff No. 12
o This rule makes consignees who fail to take delivery of their containerized cargo within 10 days
liable to pay demurrage charges
USL is suing Telengtan for collection of these charges, plus interest and damages.

They allege that between 1979 and 1980, Telengtan loaded goods onto USLs vessels, which
arrived in Manila from US Ports
Thus, these goods are subject to the requirements of the Tariff mentioned above
o Take note of the dates! 1979 and 1980, but this case was decided in 2006. This will become
important because of the discussion on inflation, and I think Atty. Balane will ask it.
o USL alleges that House/House Containers-Shippers Load, Stowage and Count an
was unable to withdraw its goods from the containers, making it liable in the amount of
P94,000.
Telengtan answers that it never entered into a contract nor signed an agreement to be bound by any
rules of demurrage.
o They also say that there was no proper or legal demand, so they are justified in refusing to pay.
In any case, the RTC ruled for USL. In the dispositive portion, they found Telengtan liable for P
99,408.00, bearing interest, plus attorneys fees.
o The RTC further held that all of this would be recomputed as of the date of payment in
accordance with the provisions of Article 1250 of the Civil Code.
In deciding for USL, the RTC held that Telengtan had actually been paying demurrage to USL, many
times in the past. It was thus estopped from claiming that it did not know or did not agree to any
payment of demurrage to USL.
o This is the basic and essential reason why Telengtan was liable. Well now move on to the
discussion on Article 1250.
o There is a discussion on Bills of Lading and factual circumstances regarding why Telengtan was
liable. I really think this isnt important for our purposes, but Ill past narin the discussion at the
end of the digest to soothe everyones mind.
ISSUE
whether or not the CA erred In affirming the RTCs order for the recomputation of the judgment award
in accordance with Article 1250 of the Civil Code.
HELD
On this issue, the SC found the RTC and CA to be in error when they ordered the recomputation as of
the date of payment.
In asking for the application of 1250, USL urged that judicial notice be taken of the devaluations of the
peso against the dollar since the proceedings begain in 1981. According to USL, the computation of the
amount should factor in the devaluation so theyre asking for more money, since the peso is a lot
weaker than it was 20 years before (remember, theyre a foreign corporation)
Article 1250 provides that -- In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the obligation shall be
the basis of payment, unless there is an agreement to the contrary.
Extraordinary inflation or deflation exists when there is an unusual increase or decrease in the
purchasing power of the Philippine Peso which is beyond the common fluctuation in value of the said
currency, and such increase or decrease could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the obligation.
Extraordinary inflation must be PROVEN, and is never assumed.
In this case, the SC ruled that there had been no extraordinary inflation within the meaning of Article
1250.
o Thus, there is no plausible reason for ordering the payment of an obligation in an amout
different from what has been agreed upon because of the purported supervention of
extraordinary inflation.
o In other words, USL is entitled to the same peso amount it was in 1981, even if that amount
means a lot less by 2006.
USL is unable to prove the occurrence of extraordinary inflation since 1981.
o The record has no evidence to prove inflation, much less extraordinary inflation.
o Even if the price of goods and services may have increased, this alone may not be considered
as extraordinary inflation.
o The erosion of value of the Php in the past 3 to 4 decades is characteristic of most currencies.
o While the Court may take judicial notice of the decline of the purchasing power of the Philippine
Currency, such downward trend cannot be considered as the extraordinary inflation
contemplated by Art. 1250.
o

Further, absent an official pronouncement or declaration by competent authorities of the


existence of extraordinary inflation during a given period, the effects of such will not be applied
(labo, so kailangan muna ng declaration? So why did the court look for evidence on the
record on the part of USL? Kung walang declaration, hindi ba dapat madali nalang un?
Why ask for proof pa and say all that stuff about inflation being proven? Weird)
Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the value of the peso
at the time of the establishment of the obligation shall control and be the basis of payment of the
contractual obligation, unless there is "agreement to the contrary."
o It is only when there is a contrary agreement that extraordinary inflation will make the value of
the currency at the time of payment, not at the time of the establishment of obligation, the
basis for payment.
o Take a look at the provision again even if there is extraordinary inflation, General Rule is still
value at establishment. It is only when there is inflation AND AN AGREEMENT where it
becomes value at payment.
In other words, an agreement is needed for the effects of an extraordinary inflation to be taken into
account to alter the value of the currency at the time of the establishment of the obligation which, as a
rule, is always the determinative element.
So aside from the factual circumstances of extraordinary inflation, you also need an agreement saying
that in such cases, the value of the currency would be at paytment, and not at establishment. There
was no such agreement in this case.
o

"House/House Containers-Shippers Load, Stowage and Count" basis. This shipping arrangement
means that the shipping companys container vans are to be brought to the shipper for loading of its
goods; that from the shippers warehouse, the goods in container vans are brought to the shipping
company for shipment; that the shipping company, upon arrival of its ship at the port of destination, is to
deliver the container vans to the consignees compound or warehouse; and that the shipper (consignee) is
supposed to load, stow and count the goods from the container van. Likewise undisputed is the fact that
the container vans containing the goods covered by three (3) of the aforesaid B/Ls, particularly those with
Shippers Reference Nos. S-17748, S-17750 and S-17751, were delivered to a warehouse, stripped of
their contents and the contents deposited thereat.
*******
HELD:
Payment of demurrage
La Suerte's contention is that the bill of lading does not provide for the payment of container demurrage,
as Clause 23 of the bill of lading only says "demurrage," i.e., damages for the detention of vessels. Here
there is no detention of vessels. It invokes a case where SC defined "demurrage" as follows:
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery Whatever may be the merit of petitioner's contention, the
fact is that clause 29(a) also of the bill of lading, in relation to Rule 21 of the Far East Conference Tariff ,
specifically provides for the payment by the consignee of demurrage for the detention of containers and
other equipment after the so-called "free time."
A bill of lading is both a receipt and a contract. As a contract, its terms and conditions are conclusive on
the parties, including the consignee. The enforcement of the rules of the Far East Conference and the
Federal Maritime Commission is in accordance with R.A. 1407 which declares that the Philippines, in
common with other maritime nations, recognizes the international character of shipping in foreign trade
and existing international practices in maritime transportation and that it is part of the national policy to
cooperate with other friendly nations in the maintenance and improvement of such practices. Period of
Demurrage With respect to the period of La Suertes liability, La Suerte cannot be held liable for
demurrage starting June 27 on the 10 containers because the delay in obtaining release of the goods was
not due to its fault.
The evidence shows that the Bureau of Customs refused to give an entry permit to petitioner because the
manifest issued by K-Line stated only 10 containers whereas the bill of lading also issued by the K-Line
showed there were 12 containers. For this reason, petitioner's broker had to see Smith, Bell & Co. on June
22, but the latter did not immediately do something to correct the manifest. Smith, Bell & Co. was asked

to "amend" the manifest, but it refused to do so on the ground that this would violate the law. It was only
on June 29 that it thought of adding instead a footnote, by which time the "free time" had already expired.
Now June 29 was a Friday. Again it is probable the correct manifest was presented to the Bureau of
Customs only on Monday, July 2, and therefore it was only on July 3 that it was approved.
It was therefore only from July 3 that La Suerte could have claimed its cargo and charged for any delay
With respect to the other two containers, demurrage was properly considered to have accrued on July 10
since the "free time" expired on July 9. The period of delay, however, for all the 12 containers must be
deemed to have stopped on July 13, because on this date petitioner paid P47,680.00. If it was not able to
get its cargo from the container vans, it was because of the breakdown of the shifter or cranes of the
arrastre service operation. It would be unjust to charge demurrage after July 13, since the delay in
emptying the containers was not due to the fault of La suerte In sum, we hold that petitioner can be held
liable for demurrage only for the period July 3-13, 1979 and that in accordance with the stipulation in its
bill of lading.

EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR

December 19, 2007

FACTS: Respondent Ng Sheung Ngor, Ken Appliance Division, Inc and Benjamin E. Go filed an action for
annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel Apas.
1. Respondents claimed that Equitable induced them to avail of its peso and dollar credit facilities by
offering low interest rates so they accepted the propodal and signed the banks printed promissory
notes on various dates beginning 1996. But they were unaware that the documents contain identical
escalation clause granting Equitable authority to increase interest rates without their consent
2. Equitable asserted that respondents knowingly accepted all the terms and conditions contained in the
promissory notes, also they continuously availed of and benefited from Equitables credit facilities for
five years.
3. The trial court upheld the validity of the promissory notes however it invalidated the escalation clause
for it violated the principle of mutuality of contracts. It also took judicial notice of the steep
depreciation of the peso during the intervening period and declared the existence of extraordinary
deflation
4. RTC ordered the use of the 1996 dollar exchange rate in computing respondents dollar denominated
loans and awarded moral and exemplary damages.
5. Equitable filed an MR, while respondents prayed for the issuance of a writ of execution.
6. RTC issued an omnibus order denying MR and ordered the issuance of the motion of a writ of execution
in favor of respondents.
7. Three real properties of Equitable were levied upon and were sold in a public auction. Respondents
were the highest bidder and certificates of sale were issued.
8. Equitable filed a petition for certiorari with an application for an injunction in the CA to enjoin the
implementation and execution of the omnibus order. CA granted Equitables application for injunction
was granted.
9. Despite the injunction, Equitables properties previously levied were sold in a public auction to
respondent. Equitable moved to annul the auction sale. CA dismissed the petition for certiorari, hence
this petition.
ISSUE: What is the relationship between the bank and its depositor?
HELD: The relationship between the bank and its depositor is that of creditor and debtor. For this reason,
a bank has the right to set off the deposit in its hands for the payment of a depositors indebtedness.
Respondent indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its
legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately)
concluded that Equitable acted fraudulently or in bad faith or in wanton disregard of its contractual
obligations despite the absence of proof. The undeniable fact was that, whatever damage respondents
sustained was purely the consequence of their failure to pay their loans. There was therefore absolutely no
basis for the award of moral damages to them.
EQUITABLE PCI BANK V. NG SHEUNG NGOR (2007)

FACTS: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or reformation
of documents and contracts against Equitable and its employees. They claimed that they were induced by
the bank to avail of its peso and dollar credit facilities by offering low interests so they accepted and
signed Equitables proposal. They alleged that they were unaware that the documents contained escalation
clauses granting Equitable authority to increase interest without their consent. These were rebutted by the
bank. RTC ordered the use of the 1996 dollar exchange rate in computing respondents dollardenominated loans. CA granted the Banks application for injunction but the properties were sold to public
auction.
ISSUE: Whether or not there was an extraordinary deflation
RULING: Extraordinary inflation exists when there is an unusual decrease in the purchasing power of
currency and such decrease could not be reasonably foreseen or was beyond the contemplation of the
parties at the time of the obligation. Deflation is an inverse situation.
Despite the devaluation of the peso, BSP never declared a situation of extraordinary inflation. Respondents
should pay their dollar denominated loans at the exchange rate fixed by the BSP on the date of maturity.
Decision of lower courts are reversed and set aside.

Almeda vs. Bathala Marketing Industries,Inc.


FACTS:
On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Almeda
several loan/credit accommodations totalling P18.0 Million pesos payable in a period of six years at an
interest rate of 21 % per annum. To secure the loan, the spouses Almeda executed a Real Estate Mortgage
Contract covering a 3,500 square meter parcel of land, together with the building erected thereon (the
Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila.
The credit agreement between the 2 parties contains a special condition that PNB reserves the right to
increase the interest rate within the limits allowed by law at any time depending on whatever policy it
may adopt in the future; provided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by
the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect
on the effectivity date of the increase or decrease of the maximum interest rate.
Between 1981 and 1984, the spouses made several partial payments on the loan totalling P7,735,004.66,
a substantial portion of which was applied to accrued interest. On March 31, 1984, PNB, over petitioners
protestations, raised the interest rate to 28%, allegedly pursuant to its credit agreement. Said interest
rate thereupon increased from 21% to a high of 68% between March of 1984 to September, 1986.
The spouses protested the increase in interest rates, to no avail. Before the loan was to mature, the
spouses filed a petition praying for a writ of preliminary injunction and temporary restraining order with
the RTC. In said petition, the spouses sought clarification as to whether or not the PNB could unilaterally
raise interest rates on the loan, pursuant to the credit agreements escalation clause, and in relation to
Central Bank Circular No. 905. As a preliminary measure, the lower court, issued a writ of preliminary
injunction enjoining PNB from enforcing an interest rate above the 21% stipulated in the credit
agreement. By this time the spouses were already in default of their loan obligations.
ISSUE: Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as
68% under the credit agreement.
HELD:
No. The bank is not authorized to do so.
PNB vigorously denied that the increases in the interest rates were illegal, unilateral, excessive and
arbitrary, it argues that the escalated rates of interest it imposed was based on the agreement of the
parties. The binding effect of any agreement between parties to a contract is premised on two
settled principles: (1) that any obligation arising from contract has the force of law between the parties ;
and (2) that there must be mutuality between the parties based on their essential equality. Any contract
which appears to be heavily weighed in favor of one of the parties so as to lead to an

unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.
It is plainly obvious from the facts of the case PNB unilaterally altered the terms of its contract by
increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that No
interest shall be due unless it has been expressly stipulated in writing. What has been stipulated in
writing from a perusal of interest rate provision of the credit agreement signed between the parties is
that petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-escalation,
when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law;
and 3) upon agreement. Indeed, the interest rate which appears to have been agreed upon by the parties
to the contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this is in
fact readily resolved by a careful reading of the credit agreement because the same plainly uses the
phrase interest rate agreed upon, in reference to the original 21% interest rate.
In PNB v. CA it was held that unilaterally raising the interest rate in the borrowers loan violated
the principle of mutuality of contracts expressed in Article 1308 of the Civil Code.
ART. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law between the parties,
there must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one
of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming
that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license
to increase the interest rate at will during the term of the loan, that license would have been null and void
for being violative of the principle of mutuality essential in contracts.
Apart from violating the principle of mutuality of contracts, there is authority for disallowing the interest
rates imposed by respondent bank, for the credit agreement specifically requires that the increase be
within the limits allowed by law. Under PD 1684 (Usury Law), escalation clauses to be valid should
specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the
stipulated interest in the event that the applicable maximum rate of interest is reduced by law or by the
Monetary Board.
The spouses never agreed in writing to pay the increased interest rates demanded by PNB in contravention
to the tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is
excessive and unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount
equivalent to virtually half of the entire principal (P7,735,004.66) which was applied to interest alone. By
the time the spouses tendered the amount of P40,142,518.00 in settlement of their obligations,
respondent bank was demanding P58,377,487.00 over and above those amounts already previously paid
by the spouses.
Escalation clauses are not basically wrong or legally objectionable so long as they are not
solely potestative but based on reasonable and valid grounds. Here, as clearly demonstrated
above, not only the increases of the interest rates on the basis of the escalation clause patently
unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the
increases are anchored.

SIGA-AN vs. VILLANUEVA, GR. No. 173227, January 20, 2009


FACTS: Herein respondent Alicia Villanueva is engaged in supplying office materials and equipments to
the Philippine Navy Office (PNO) where herein Sebastian Siga-an works as a military officer and
comptroller. Villanueva alleged that Siga-an offered to loan her the amount of P540,000.00. Having
needed capital for her business transactions with the PNO, Villanueva accepted petitioners proposal. The
loan agreement was not reduced in writing and there was no stipulation as to the payment of interest for
the loan. Villanueva issued two checks worth P500,000.00 and P200,000.00. Siga-an wanted to apply the
payment of P540,000.00 to the principal amount and the excess amount of P160,000.00 would be applied
for the interest. He demanded from Villanueva to pay additional interest with a threat to block or
disapprove her transactions with the PNO if she would not comply with his demand thus respondent paid
additional amounts as interests for the loan. Villanueva asked Siga-an for receipt but petitioner refused to
give as it was not necessary as there was mutual trust and confidence between them. The total amount
paid by Villanueva totalled P1,200,000.00. When Villanueva was advised by her lawyer that she made an

overpayment, she sent a demand letter to Siga-an asking for the return of the excess amount of
P660,000.00. Siga-an just ignored Villanuevas claim for reimbursement. Hence, Villanueva instituted a
complaint for sum of money against herein petitioner Sebastian Siga-an. After trial of the case, the Trial
Court ordered petitioner Siga-an to refund the excess amount to Villanueva pursuant to the principle of
solutio indebiti. On appeal of the case, the appellate court affirmed the decision of the RTC. Petitioner filed
a motion for reconsideration but this was denied. Hence, the instant petition.

ISSUE: Whether or not there was interest due to petitioner.


HELD: There was no interest due to petitioner. Article 1956 of the Civil Code, which refers to monetary
interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in
writing. Payment of monetary interest is allowed only if there was an express stipulation for the payment
of interest; and the agreement for the payment of interest was reduced in writing. The concurrence of the
two conditions is required for the payment of monetary interest. Thus, the collection of interest without
any stipulation therefore in writing is prohibited by law. 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. 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.

SIGA-AN V. VILLANUEVA, (2009)


(Compensatory, Penalty or Indemnity Interest)
Interests:
a)
Monetary interest is a compensation fixed by the parties for the use or forbearance of money.
b)
Compensatory interest - imposed by law or by courts as penalty or indemnity for damages.
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.
Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing.
I. Hence, payment of monetary interest is allowed only if:
1) there was an express stipulation for the payment of interest; and
2) the agreement for the payment of interest was reduced in writing.

The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have
held that collection of interest without any stipulation therefor in writing is prohibited by law.
Monetary interest is due only when these requirements are present.

II. However, 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% (now 6%) per annum may be imposed as indemnity for damages if no stipulation on
the payment of interest was agreed upon. (Compensatory interest)
This interest 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. This applies only to
compensatory interest and not to monetary interest.
Solutio Indebiti
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied.
Article 2154 provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.

HELD: It was duly established that respondent paid interest to petitioner. Respondent was under no duty
to make such payment because there was no express stipulation in writing to that effect. There was no
binding relation between petitioner and respondent as regards the payment of interest. The payment was
clearly a mistake. Since petitioner received something when there was no right to demand it, he has an
obligation to return it.
Sebastian Siga-an, vs. Alicia Villanueva,
January 20, 2009
Facts: Respondent filed a complaint for sum of money against petitioner. Respondent claimed that
petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00 of which the
loan agreement was not reduced in writing and there was no stipulation as to the payment of interest for
the loan. Respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. She
then issued another check in the amount of P200,000.00 to petitioner as payment of the remaining
balance of the loan of which 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 and
threatened to block or disapprove her transactions with the PNO if she would not comply with his demand.
Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for
receipt for the payments but was told 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 to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation to
petitioner and that the latter should refund the excess amount to the former. It ratiocinated that
respondents obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests
due should not be included in the computation of respondents total monetary debt because there was no
agreement between them regarding payment of interest. It concluded that since respondent made an
excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the
said amount to respondent pursuant to the principle of solutio indebiti. Also, petitioner should pay moral
damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner
should pay exemplary damages by way of example or correction for the public good, plus attorneys fees
and costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio indebiti
applies to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan and no interest was due on the loan because there
was no written agreement as regards payment of interest. Article 1956 of the Civil Code, which refers to
monetary interest, specifically mandates that no interest shall be due unless it has been expressly
stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is
allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement
for the payment of interest was reduced in writing. The concurrence of the two conditions is required for
the payment of monetary interest. Thus, we have held that collection of interest without any stipulation
therefor in writing is prohibited by law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as interest.
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article
2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something
is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasicontract whereby the payor becomes the creditor who then has the right to demand the return of payment
made by mistake, and the person who has no right to receive such payment becomes obligated to return
the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall
enrich himself unjustly at the expense of another. The principle of solutio indebiti applies where (1) a
payment is made when there exists no binding relation between the payor, who has no duty to pay, and

the person who received the payment; and (2) the payment is made through mistake, and not through
liberality or some other cause. We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the
award of exemplary damages is appropriate so as to deter petitioner and other lenders from committing
similar and other serious wrongdoings.
GSIS vs. COURT OF APPEALS, GR. No. L-52478, October 20, 1986
FACTS: In 1961, herein private respondents spouses Nemencio R. Medina and Josefina G. Medina applied
with the herein petitioner Government Service Insurance System for a loan of P600,000.00. The approved
loan amount was only P350,000.00 at the rate of interest of 9% per annum compounded monthly and the
rate of 9%/12% per month for any installment or amortization that remains due and unpaid. The
approved loan amount was further reduced to P295,000.00. The Medinas accepted the reduced amount
and executed a promissory note and a real estate mortgage in favor of GSIS. Subsequently, upon
application by the Medinas, the GSIS approved an additional loan of P230,000.00 on the security of the
same mortgaged properties to bear interest at 9% per annum compounded monthly and repayable in ten
years. However, in 1965, the Medinas defaulted in the payment of the monthly amortization on their loan
despite several demands from petitioner. Hence, the GSIS imposed 9%/12% interest on instalments that
are due and unpaid. The Medinas opposed to this contending that the interest rates on the loan accounts
are usurious. After trial of the case, the trial court ordered the Medinas full payment of their obligation to
the GSIS plus interest at 9% per annum. Aggrieved, the Medinas appealed before the Court of Appeals but
the latter affirmed the lower courts decision.
ISSUE: Whether or not the interest rates on the loan accounts of respondent-appellee Medina spouses are
usurious.
HELD: It has already been settled that the Usury Law applies only to interest by way of compensation for
the use or forbearance of money. Interest by way of damages is governed by Article 2209 of the Civil Code
of the Philippines which provides that 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. The Civil Code permits the agreement upon a penalty apart
from the interest. Should there be such an agreement, the penalty does not include the interest, and as
such the two are different and distinct things which may be demanded separately. The stipulation about
payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law.

ADVOCATES FOR TRUTH IN LENDING V. BSP [2013]


Facts
"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation organized to engage
in pro bono concerns and activities relating to money lending issues. It was incorporated on July 9,
2010,and a month later, it filed this petition, joined by its founder and president, Eduardo B. Olaguer,
suing as a taxpayer and a citizen.
HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST RATES
1. R.A. No. 265, which created the Central Bank on June 15, 1948, empowered the CB-MB toset the
maximum interest rates which banks may charge for all types of loans and other credit operations.
2. The Usury Law was amended by P.D.1684, giving the CB-MB authority to prescribe different maximum
rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money,
goods or credits, provided that the changes are effected gradually and announced in advance. Section 1-a
of Act No. 2655 now reads:

3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular No. 905, Series of
1982, effective on January 1, 1983. It removed the ceilings on interest rates on loans or forbearance of
any money, goods or credits:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended.
4. R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of this Act, Republic
Act No. 265, as amended, the provisions of any other law, special charters, rule or regulation issued
pursuant to said Republic Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Note: R.A. 7653 the law that created BSP to replace CB Note: this law did not retain the same
provision as that of Section 109 in RA 265.
PETITIONERS ARGUMENTS
To justify their skipping the hierarchy of courts petitioners contend the transcendental importance of
their Petition:
a) CB-MB statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury
Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all
interest ceilings and thus suspended Act No. 2655 as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB
was authorized only to prescribe or set the maximum rates of interest for a loan or renewal thereof or
for the forbearance of any money, goods or credits, and to change such rates whenever warranted by
prevailing economic and social conditions, the changes to be effected gradually and on scheduled
dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest on all
credit transactions, when it issued CB Circular No. 905. They further insist that under Section 109 of
R.A. No. 265, the authority of the CB-MB was clearly only to fix the banks maximum rates of interest,
but always within the limits prescribed by the Usury Law.
CB Circular No. 905, which was promulgated without the benefit of any prior public hearing, is void
because it violated NCC 5 which provides that "Acts executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity."
weeks after the issuance of CB Circular No. 905, the benchmark 91-day Treasury bills shot up to 40%
PA, as a result. The banks followed suit and re-priced their loans to rates which were even higher than
those of the "Jobo" bills.
CB Circular No. 905 is also unconstitutional in light of the Bill of Rights, which commands that "no
person shall be deprived of life, liberty or property without due process of law, nor shall any person be
denied the equal protection of the laws."
R.A. No. 7653 did not re-enact a provision similar to Section 109 of RA 265, and therefore, in view of
the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the power
either to prescribe the maximum rates of interest which banks may charge for different kinds of loans
and credit transactions, or to suspend Act No. 2655 and continue enforcing CB Circular No. 905.
Ruling
CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury Law but simply suspended
its effectivity; that a Circular cannot repeal a low; that by virtue of CB the Usury Law has been rendered
ineffective; that the Usury has been legally non-existent in our jurisdiction and interest can now be
charged as lender and borrow may agree upon.

Circular upheld the parties freedom of contract to agree freely on the rate of interest citing Art. 1306
under which the contracting parties may establish such stipulations, clauses terms and conditions as they
may deem convenient provided they are not contrary to law, morals, good customs, public order or public
policy.
BSP-MB has authority to enforce CB Circular No. 905.
RA 265 covered only banks while Section 1-a of the Usury Law, empowers the Monetary Board, BSP for
that matter, to prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the later merely supplemented the former
as it provided regulation for loans by banks and other financial institutions. RA 7653 was not unequivocally
repealed by RA 765.
CB Circular 905 is essentially based on Section 1-a of the Usury Law and the Usury Law being broader in
scope than the law that created the Central Bank was not deemed repealed when the law replacing CB
with the Bangko Sentral was enacted despite the non-reenactment in the BSP Law of a provision in the CB
Law which the petitioners purports to be the basis of Circular 905. Magulo ba? Hahaha. Basta the present
set up is: The power of the BSP Monetary Board to determine interest rates emanates from the Usury Law
[which was further specified by Circular 905].
Granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not retain this power of
its predecessor, in view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The
petitioners point out that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas
under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 been
intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws existing pertaining to the subject.An implied repeal
is predicated upon the condition that a substantial conflict or repugnancy is found between the new and
prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be construed as repealing
a prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and old
laws. We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
#generalia specialibus non derogant
The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
In Castro v. Tan, the Court held that the imposition of unconscionable interest is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property repulsive to the common
sense of man.
They are struck down for being contrary to morals, if not against the law, therefore deemed inexistent and
void ab initio. However this nullity does not affect the lenders right to recover the principal of the loan nor
affect the other terms thereof.
ADVOCATES FOR TRUTH IN LENDING, INC. AND OLAGUER V. BS-MB
(Usury)
Relevant Laws:
RA 2655, or the Usury Law of 1916.

R.A. No. 265 - created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the
CB-MB to, among others, set the maximum interest rates which banks may charge for all types of
loans and other credit operations, within limits prescribed by the Usury Law.
P.D. No. 1684 Amended the Usury Law was amended on March 17, 1980, giving the CB-MB
authority to prescribe different maximum rates of interest which may be imposed for a loan or
renewal thereof or the forbearance of any money, goods or credits, provided that the changes are
effected gradually and announced in advance.
CB Circular No. 905, Series of 1982 issued by the CB-MB, effective on January 1, 1983. Section 1
of the Circular, under its General Provisions, removed the ceilings on interest rates on loans or
forbearance of any money, goods or credits.
RA 7653 established BSP to replace CB. Repealed RA 265.

CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latters
effectivity. By virtue of CB Circular No. 905, the Usury Law has been rendered ineffective and legally nonexistent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.
Effect of PD 1684 and CB 905 suspending the effectivity of the Usury Law
1. Lifted interest ceiling.
2. Upheld the parties freedom of contract to agree freely on the rate of interest.
The BSP-MB has authority to enforce CB Circular No. 905
Under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.
The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being
(void) contrary to morals, if not against the law.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right to recover
the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the
right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the
debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a
legal interest of 12% (now 6%) per annum will be added in place of the excessive interest formerly
imposed.

Antonio Tan vs. Court of Appeals/CCP


FACTS:
TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM CCP.
Executed a promissory note in amount of P3,411,421.32; payable in 5 installments.
TAN failed to pay any installment on the said restructured loa.
In a letter, TAN requested and proposed to respondent CCP a mode of paying the restructured loan
1. 20% of the principal amount of the loan upon the respondent giving its conformity to his proposal
2. Balance on the principal obligation payable 36 monthly installments until fully paid.
TAN requested for a moratorium on his loan obligation until the following year allegedly due to a
substantial deduction in the volume of his business and on account of the peso devaluation.
1. No favorable response was made to said letters.
2. CCP demanded full payment, within ten (10) days from receipt of said letter P6,088,735.03.
CCP FILED COMPLAINT collection of a sum of money
TAN interposed the defense that he accommodated a friend who asked for help to obtain a loan from
CCP.

1. Claimed that cannot find the friend.


TAN filed a Manifestation wherein he proposed to settle his indebtedness to CCP by down payment of
P140,000.00 and to issue1 2 checks every beginning of the year to cover installment payments for one
year, and every year thereafter until the balance is fully paid.
1. CCP did not agree to the petitioners proposals and so the trial of the case ensued.
TRIAL COURT ORDERED TAN TO PAY CCP 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.
REASONS:
i.
Reason of loan for accommodation of friend was not credible.
ii.
Assuming, arguendo, that the TAN did not personally benefit from loan, he should have filed a 3rdparty complaint against Wilson Lucmen
iii.
3 times the petitioner offered to settle his loan obligation with CCP.
iv.
TAN may not avoid his liability to pay his obligation under the promissory note which he must comply
with in good faith.
v.
TAN is estopped from denying his liability or loan obligation to the private respondent.

TAN APPEALED TO CA, asked for the reduction of the penalties and charges on his loan obligation.
Judgment appealed from is hereby AFFIRMED.
1. No alleged partial or irregular performance.
2. However, the appellate court modified the decision of the trial court by deleting exemplary damages
because not proportionate to actual damage caused by the non-performance of the contract
ISSUES:
1. WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty
and attorneys fees.
And if penalty is to be awarded, TAN asking for non-imposition of interest on the surcharges because
compounding of these are not included in promissory note.
No basis in law for the charging of interest on the surcharges for the reason that the New Civil Code is
devoid of any provision allowing the imposition of interest on surcharges.
WON interest may accrue on the penalty or compensatory interest without violating ART 1959: Without
prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal,
shall earn new interest.
TAN- No legal basis for the imposition of interest on the penalty charge for the reason that the law only
allows imposition of interest on monetary interest but not the charging of interest on penalty. Penalties
should not earn interest.
2. WON TAN can file reduction of penalty due to made partial payments.
Petitioner contends that reduction of the penalty is justifiable under ART 1229: The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
HELD
CA DECISION AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%) per
month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent
(12%) per annum starting from August 28, 1986. With costs against the petitioner.
WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and
attorneys fees. YES. WITH LEGAL BASES.
ART 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for damages 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
fulfillment of the obligation.
i.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.
CASE AT BAR: promissory note expressed the imposition of both interest and penalties in case of default
on the part of the petitioner in the payment of the subject restructured loan.
PENALTY IN MANY FORMS:

i.
If the parties stipulate penalty apart monetary interest, two are different and distinct from each other
and may be demanded separately.
ii.
If stipulation about payment of an additional interest rate partakes of the nature of a penalty clause
which is sanctioned by law:
1. 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 per cent per
annum.
CASE AT BAR: Penalty charge of 2% per month began to accrue from the time of default by the petitioner.
i.
No doubt petitioner is liable for both the stipulated monetary interest and the stipulated penalty
charge.
1. PENALTY CHARGE = penalty or compensatory interest.
WON interest may accrue on the penalty or compensatory interest without violating ART 1959.
Penalty clauses can be in the form of penalty or compensatory interest.
i.
Thus, the compounding of the penalty or compensatory interest is sanctioned by and allowed
pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering that:
1. There is an express stipulation in the promissory note (Exhibit A) permitting the compounding of
interest.
a.
5th paragraph of the said promissory note provides that: Any interest which may be due if not paid
shall be added to the total amount when due and shall become part thereof, the whole amount to bear
interest at the maximum rate allowed by law..
2.
Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve percent
(12%) per annum, in the absence of express stipulation on the specific rate of interest, as in the case at
bar.
ART 2212: Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
CASE AT BAR: interest began to run on the penalty interest upon the filing of the complaint in court by
CCP.
i.
Hence, the courts did not err in ruling that the petitioner is bound to pay the interest on the total
amount of the principal, the monetary interest and the penalty interest.
WON TAN can file reduction of penalty due to made partial payments. YES. BUT NOT 10% REDUCTION
AS SUGGESTED BY PETITIONER.
REDUCED TO 2% REDUCTION:
i.
PARTIAL PAYMENTS showed his good faith despite difficulty in complying with his loan obligation due
to his financial problems.
1. However, we are not unmindful of the respondents long overdue deprivation of the use of its money
collectible.
The petitioner also imputes error on the part of the appellate court for not declaring the suspension of the
running of the interest during period when the CCP allegedly failed to assist the petitioner in applying for
relief from liability
Alleges that his obligation to pay the interest and surcharge should have been suspended because the
obligation to pay such interest and surcharge has become conditional
i.
Dependent on a future and uncertain event which consists of whether the petitioners request for
condonation of interest and surcharge would be recommended by the Commission on Audit.
1. Since the condition has not happened due to the private respondents reneging on its promise, his
liability to pay the interest and surcharge on the loan has not arisen.
COURT ANSWER:
i.
Running of the interest and surcharge was not suspended.
ii. CCP correctly asserted that it was the primary responsibility of petitioner to inform the Commission on
Audit of his application for condonation of interest and surcharge.

RCBC v. CA - Insurance Proceeds


289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit facility
in the amount of P30 million was initially granted. Upon GOYU's application increased GOYU's credit facility
to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of RCBC,
which were registered with the Registry of Deeds at. Under 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.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester
Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued
nine endorsements in favor of RCBC seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently,
GOYU submitted its claim for indemnity.
> 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.
> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors, also
filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also
denied for the same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the trial court,
as well as the Court of Appeals, concluded that the endorsements are defective and held that RCBC has no
right over the insurance proceeds.
Issue:Whether or not RCBC has a right over the insurance proceeds.
Held: RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole benefit.
There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance policies naming itself as the
sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
It is to be noted that 9 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. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC
had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester
would not have known of GOYU's intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of
mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the
circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons
who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the
benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it
was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of
said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from
assailing their operative effects.
To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy
the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement
pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing,
good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar
circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the
insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable
principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is
made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken
out. Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The
mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than
a sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover
the mortgaged properties.
This Court cannot over stress the fact that upon receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC
accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the
various insurance policies obtained by GOYU. The intention of the parties will have to be given full force
and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC,
which under the factual circumstances of the case, is truly the person or entity for whose benefit the
policies were clearly intended.

FIRST FIL-SIN LENDING CORPORATION VS. GLORIA PADILLO

January 12, 2005

Facts: Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending
Corp. and subsequently obtained another P500,000.00 loan from the same. In both instances, respondent
executed a promissory 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.
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. In sum, respondent paid a total of P792,500.00 for the first loan
and P775,000.00 for the second loan. Thereafter, respondent filed an action for sum of money against
petitioner 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. The trial court dismissed respondents
complaint. On appeal, the appellate court ruled that, based on the disclosure statements executed by
respondent, the interest rates should be imposed on a monthly basis but only for the 3-month term of the
loan. Thereafter, the legal interest rate will apply. The court also found the penalty charges pegged at 1%
per day of delay highly unconscionable as it would translate to 365% per annum. Thus, it was reduced to
1% per month or 12% per annum.
Petitioner maintains that the interest rates are to be imposed on a monthly and not on a per annum basis.
However, it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding
obligations have been fully paid.
As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the Court of
Appeals in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms
and conditions as they may deem proper.
Respondent avers that the interest on the loans is per annum as expressly stated in the promissory notes
and disclosure statements. The provision as to annual interest rate is clear and requires no room for
interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure statements
should not favor petitioner since the loan documents were prepared by the latter.
Issue: Whether or not the applicable interest should be the legal interest of twelve percent (12%) per
annum despite the clear agreement of the parties on another applicable rate.

Held: Perusal of the promissory notes and the disclosure statements pertinent to the 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 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.
First Fil-Sin Lending vs. Padillo
Facts: Padillo obtained two loans from First Fil-SinLending. For the first loan (P500,000.00),, PAdillo made
13 monthly interst payments before she settled the loan. For the second loan (P500,000.00), Padillo made
11 monthly interest payment before she paid the loan. In sum, Padillo paid P792,500.00 for the first loan
and P775,000.00 for the second loan.
Padillo filed an action for sum of money against Fil-Sin alleging that she only agreed to pay interest
at the rates of 4.5% and 5% per annum, respectively, and not 4.5% and 5% per month, Padillo sought to
recover the amounts she alledgely paid in excess of her actual obligations.
Issue:
Held: the provision as to the annual interest rate is clear and requires no room for interpretation.
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 understood literally as they appear on
the face of the contract.
Notably, Fil-Sin even admitted thatit was solely responsible for the preparation of he loan
documents, and that it failed to correct the pro forma note p.a. to per month . Since the mistake is
exclusively attributed to the petitioner, the same should be charged against it. This unilateral mistake
cannot be taken against Padillo 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 form asserting a contrary intention to that contained therein.

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