CHAVES VS GONZALES
Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner.
Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and servicing of the said typewriter but the latter was not
able to finish the job. During October 1963, the plaintiff gave the amount of P6.00 to the
defendant which the latter asked from the plaintiff for the purchase of spare parts, because of
the delay of the repair the plaintiff decided to recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff reached their home he opened it and examined that
some parts and screws was lost. That on October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D).
The following day, the defendant returned to the plaintiff some of the missing parts, the interior
cover and the P6.00. The plaintiff brought his typewriter to Freixas Business Machines and the
repair cost the amount of P89.85. He commenced this action on August 23, 1965 in the City
Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and
P500.00 as attorney’s fees. The defendant made no denials of the facts narrated above, except
the claim of the plaintiff that the cost of the repair made by Freixas Business Machines be fully
chargeable against him.
Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?
Ruling: No, he is not liable for the total cost of the repair made by Freixas Business Machines
instead he is only liable for the cost of the missing parts and screws. The defendant contravened
the tenor of his obligation in repairing the typewriter of the plaintiff that he fails to repair it and
returned it with the missing parts, he is liable under “ART. 1167. If a person obliged to do
something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone.”
JUAN NAKPIL & SONS v. CA
To be exempt from liability due to an act of God, the engineer/architect/contractor must not have
been negligent in the construction of the building.
FACTS: Private respondents – Philippine Bar Association (PBA) – a non-profit organization
formed under the corporation law decided to put up a building in Intramuros, Manila. Hired to
plan the specifications of the building were Juan Nakpil & Sons, while United Construction was
hired to construct it. The proposal was approved by the Board of Directors and signed by the
President, Ramon Ozaeta. The building was completed in 1966.
In 1968, there was an unusually strong earthquake which caused the building heavy damage,
which led the building to tilt forward, leading the tenants to vacate the premises. United
Construction took remedial measures to sustain the building.
PBA filed a suit for damages against United Construction, but United Construction subsequently
filed a suit against Nakpil and Sons, alleging defects in the plans and specifications.
PBA moved for the demolition of the building, but was opposed. PBA eventually paid for the
demolition after the building suffered more damages in 1970 due to previous earthquakes. The
Commissioner found that there were deviations in the specifications and plans, as well as
defects in the construction of the building.
ISSUE: Whether or not an act of God (fortuitous event) exempts from liability parties who would
otherwise be due to negligence?
HELD: Article 1723 dictates that the engineer/architect and contractor are liable for damages
should the building collapse within 15 years from completion.
Art. 1174 of the NCC, however, states that no person shall be responsible for events, which
could not be foreseen. But to be exempt from liability due to an act of God, the ff. must occur:
1) cause of breach must be independent of the will of the debtor
2) event must be unforeseeable or unavoidable
3) event must be such that it would render it impossible for the debtor to fulfill the obligation
4) debtor must be free from any participation or aggravation of the industry to the creditor.
In the case at bar, although the damage was ultimately caused by the earthquake which was an
act of God, the defects in the construction, as well as the deviations in the specifications and
plans aggravated the damage, and lessened the preventive measures that the building would
otherwise have had.
NATIONAL POWER CORPORATION vs. THE COURT OF APPEALS
G.R. No. 96410 July 3, 1992
NOCON, J.:
FACTS: In the early morning hours of October 27, 1978, at the height of typhoon "Kading", a
massive flood covered the towns near Angat Dam, particularly the town of Norzagaray, causing
several deaths and the loss and destruction of houses, farms, plants, working animals and other
properties of the people residing near the Angat River. Private respondents blamed the sudden
rush of water to the reckless and imprudent opening of all the three (3) floodgates of the Angat
Dam spillway, without prior warning to the people living near or within the vicinity of the dam. In
view of these, an action for damages was filed by respondents. The trial court ruled in favor of
the latter. Likewise the Court of Appeals affirmed with said decision. Hence, a petition for review
on certiorari was instituted by the National Power Corporation (NPC) and Benjamin Chavez,
Plant Superintendent of NPC.
Petitioners denied private respondents' allegations and, by way of defense, contended that they
have maintained the water in the Angat Dam at a safe level and that the opening of the spillways
was done gradually and after all precautionary measures had been taken. Petitioner NPC further
contended that it had always exercised the diligence of a good father in the selection of its
officials and employees and in their supervision. It also claimed that written warnings were
earlier sent to the towns concerned, and that there was no direct causal relationship between the
alleged damages suffered by the respondents and the acts and omissions attributed to the
former. That it was the respondents who assumed the risk of residing near the Angat River, and
even assuming that respondents suffered damages, the cause was due to a fortuitous event and
such damages are of the nature and character of damnum absque injuria, hence, respondents
have no cause of action against them.
ISSUE: Whether petitioners can escape civil liability by invoking force majeure as the proximate
cause of the loss and damage.
HELD: No. Petitioners cannot escape liability because their negligence is the proximate cause
of the loss and damage. Act of God or force majeure, by definition, are extraordinary events not
foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are
inevitable. It is therefore not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. 7 As a
general rule, no person shall be responsible for those events which could not be foreseen or
which though foreseen, were inevitable.
However, the principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from creating
or entering into the cause of the mischief. When the effect is found to be in part the result of the
participation of man, whether due to his active intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the rules applicable to the acts of God.
Generally it cannot be said that damage, injury or loss is due to an act of God where it was
caused merely by excessive or heavy rainfall, storms and to weather conditions which are not
unusual in character, those which could have been reasonably anticipated or where the injury
complained of is due rather to the negligence or mismanagement of man than to the disturbance
of the elements or where such damage, injury or loss might have been mitigated or prevented by
diligence exercised after the occurrence.
In the case at bar, although the typhoon "Kading" was an act of God, petitioners can not escape
liability because their negligence was the proximate cause of the loss and damage. The Court of
Appeals found that the defendants failed to take the necessary safeguards to prevent the danger
that the Angat Dam posed in a situation of such nature as that of typhoon "Kading". The
representative of the "PAG-ASA" who testified in these proceedings, Justo Iglesias, Jr., stated
that based on their records the rainfall on October 26 and 27, 1978 is classified only as
moderate, and could not have caused flash floods. He testified that flash floods exceeds 50
millimeters per hour and lasts for at least two (2) hours. He stated that typhoon "Yaning" which
occurred on October 7 to 14, 1978 gave a much heavier rainfall than "Kading", and so did other
previous typhoons.
Also, despite of the announcements of the newspaper of the expected occurrence of a powerful
typhoon code-named "Kading", the water level in the dam was maintained at its maximum from
October 21, until midnight of October 26, 1978.
It has been held in several cases that when the negligence of a person concurs with an act of
God producing a loss, such person is not exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt he must be free from any previous
negligence or misconduct by which the loss or damage may have been occasioned.
WHEREFORE, finding no reversible error in the Decision appealed from, the same is hereby
affirmed in toto, with cost against petitioner.
REPUBLIC VS LUZON STEVEDORING CORPORATION
FACTS:
- Barge L-1892 owned by Luzon. was being towed down the Pasig river by two tugboats
"Bangus" and "Barbero” (also owned by Luzon).
- The barge rammed against one of the wooden piles of Nagtahan bailey bridge, smashing the
posts and causing the bridge to list. At the time, the river’s current was swift and the water was
high due to heavy rains in Manila.
- The Republic sued the company for the actual and consequential damages caused
(P200,000).
- Luzon disclaimed liability, on the grounds that it had exercised due diligence in the selection
and supervision of its employees; that the damages to the bridge were caused by force majeure;
that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to
navigation.
- CFI held Luzon liable for the damage caused by its employee and ordered it to pay the actual
cost of the repair of the Nagtahan bailey bridge (P192,561.72), with legal interest thereon from
the date of the filing of the complaint.
- Luzon appealed directly to SC, raising questions both of fact and of law.
ISSUES:
 WON the collision of Luzon’s barge with the supports or piers of the Nagtahan bridge
was in law caused by fortuitous event or force majeure
o NO. Considering that the Nagtahan bridge was an immovable and
stationary object and provided with adequate openings for the passage of
water craft, including barges, it is undeniable that the unusual event that the
barge, exclusively controlled by appellant, rammed the bridge supports
raises a presumption of negligence on Luzon’s part or its employees
manning the barge or the tugs that towed it. For in the ordinary course of
events, such a thing does not happen if proper care is used. In Anglo
American Jurisprudence, the inference arises by what is known as the "res
ipsa loquitur" rule.
o Luzon strongly stresses the precautions taken by it: that it assigned two of
its most powerful tugboats to tow down river its barge; that it assigned to the
task the more competent and experienced among its patrons, had the
towlines, engines and equipment double-checked and inspected; that it
instructed its patrons to take extra precautions; and concludes that it had
done all it was called to do, and that the accident, therefore, should be held
due to force majeure or fortuitous event.
o These very precautions, however, completely destroy the appellant's
defense. For caso fortuito or force majeure (which in law are identical in so
far as they exempt an obligor from liability) by definition, are extraordinary
 events not forseeable or avoidable, "events that could not be foreseen, or
which, though foreseen, were inevitable" (A1174, NCC). It is, therefore,
not enough that the event should not have been fore seen or
anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same.
Facts: A barge being towed by tugboats "Bangus" and "Barbero" all owned by Luzon
Stevedoring Corp. rammed one of the wooden piles of the Nagtahan Bailey Bridge due to the
swollen current of the Pasig after heavy rains days before. The Republic sued Luzon
Stevedoring for actual and consequential damages. Luzon Stevedoring claimed it had exercised
due diligence in the selection and supervision of its employees; that the damages to the bridge
were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey
bridge is an obstruction to navigation.
Issue: Whether or not the collision of appellant's barge with the supports or piers of the
Nagtahan bridge was in law caused by fortuitous event or force majeure.
Held: There is a presumption of negligence on part of the employees of Luzon Stevedoring, as
the Nagtahan Bridge is stationary. For caso fortuito or force majeure (which in law are identical
in so far as they exempt an obligor from liability) by definition, are extraordinary events not
foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. Luzon Stevedoring knew the perils posed by the swollen
stream and its swift current, and voluntarily entered into a situation involving obvious danger; it
therefore assured the risk, and cannot shed responsibility merely because the precautions it
adopted turned out to be insufficient. It is thus liable for damages.
PHILCOMSAT VS GLOBE TELECOM
FACTS:
- Globe had been engaged in the coordination of the provision of various communication
facilities for the US Military Bases in Clark and Subic at Cubi Point. The communication facilities
were for the exclusive use of the US Defense Communications Agency (USDCA) and were
operated only by its personnel or American companies contracted by it to operate the facilities.
- The USDCA contracted with these American companies, which then contracted with Globe to
provide the communication facilities. Globe then contracted with PHILCOMSAT for the provision
of these facilities.
- On May 7, 1991, PHILCOMSAT and Globe entered into an agreement whereby
PHILCOMSAT would establish, operate and provide an Earth Station for USDCA for five years
while Globe would pay PHILCOMSAT monthly rentals for each leased circuit involved.
- At the time of the execution of the Agreement, both parties knew that the Military Bases
Agreement between the Republic of the Philippines and the US (MBA), the basis for the
occupancy of the bases in Clark and Subic, was to expire in 1991. Under Section 25, Article
XVIII of the 1987 Constitution, foreign military bases, troops or facilities shall not be allowed in
the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority
of the votes cast by the people in a national referendum when the Congress so requires, and
such new treaty is recognized as such by the US Government.
- Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of it.
- On September 16, 1991, Senate passed a resolution expressing its decision not to concur in
the ratification of an extension of the MBA.
- On December 31, 1991, the PH government sent a Note Verbale to the US government of the
termination of the MBA on December 31, 1992, and that all US military forces should complete
its withdrawal by that date.
- On August 6, 1992, Globe notified PHILCOMSAT of its intention to discontinue the use of the
earth station effective November 8, 1992. It used the basis of Section 8 of the agreement
between Globe and PHILCOMSAT:
- “Neither party shall be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from performing its obligation until such force
majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure
shall mean circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national emergencies,
war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.”
- PHILCOMSAT replied by referring to Section 7 of the agreement: “…Notwithstanding the non-
use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual
number of T1 circuits in use, but in no case shall be less than the first two T1 circuits, for the
remaining life of the agreement.”
- After the US military forces left Subic, Philcomsat sent Globe a letter dated 24 November 1993
demanding payment of its outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed
Philcomsat’s demand.
- On 27 January 1995, Philcomsat filed with the RTC Makati a Complaint against Globe, praying
that the latter be ordered to pay liquidated damages under the Agreement, with legal
interest, exemplary damages, attorney’s fees and costs of suit.
- Globe insisted that it was constrained to end the Agreement due to the termination of the MBA
and the non-ratification by the Senate of its extension, which events constituted force majeure
under the Agreement. Thus, it was exempted from paying rentals for the remaining period of the
Agreement.
- RTC ruled in favor of Globe, except for the rental for December 1992, which it must pay to
PHILCOMSAT.
- Before CA, Philcomsat claimed that the RTC erred in ruling that: (1) the non-ratification of the
treaty extending the MBA constitutes force majeure which exempts Globe from complying with
its obligations under the Agreement; and (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement.
- CA ruled that the non-ratification of the MBA extension, and the termination by the Philippine
Government of the RP-US MBA effective 31 December 1991 as stated in the Philippine
Government’s Note Verbale to the US Government, are acts, directions, or requests of the
Government of the Philippines which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete
withdrawal of all US military forces and personnel from Cubi Point, which prevented further use
of the earth station under the Agreement.
- Philcomsat argues that the termination of the RPUS Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8 should be deemed ineffective
because it is contrary to A1174, NCC.
- Globe asserts that Section 8 of the Agreement is not contrary to A1174 because it does not
prohibit parties to a contract from providing for other instances when they would be exempt from
fulfilling their contractual obligations. Globe also claims that the termination of the MBA
constitutes force majeure and exempts it from complying with its obligations under the
Agreement.
ISSUES:
 WON the termination of the MBA, the non-ratification of the treaty extending it, and the
consequent withdrawal of US military forces and personnel from Cubi Point constitute
force majeure which would exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat
o YES. A1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable,
but also to those which are foreseeable, but inevitable.
o There is nothing in the enumeration in Section 8 of the Agreement that runs
contrary to, or expands, the concept of a fortuitous event under A1174.
o Also cited: A1306, 1159
o Not being contrary to law, morals, good customs, public order, or public
policy, Section 8 of the Agreement which Philcomsat and Globe freely
agreed upon has the force of law between them.
o In order that Globe may be exempt from noncompliance with its obligation to
pay rentals under Section 8, the concurrence of the following elements must
be established: (1) the event must be independent of the human will; (2)
the occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor.
o The requisites are present here. Philcomsat and Globe had no control over
the nonrenewal of the term of the MBA when it expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent withdrawal
of the US military forces and personnel from Cubi Point in December 1992.
YOBIDO VS CA
Facts: On April 26 1988, spouses Tito and Leny Tumboy and their minor children boarded a
Yobido Liner bus. On their way, the left front tire of the bus exploded and the bus fell into a
ravine which resulted to the death of Tito and physical injuries of the other passengers. The wife
( Leny Tumboy stated that the bus is running fast on a uncemented road while it is raining. On
the other hand the petitioner contended that the explosion of the tire was due to a fortuitous
event and the tire is new at the time of the accident. The trial court ruled in favor of the petitioner
that the explosion was due to a fortuitous event. The Court of Appeals ruled otherwise stating
that the explosion is not fortuitous just because the tire is a new Goodyear tire and such fact is
not sufficient to discharge defendant’s burden.
Issue: Is the explosion of the newly installed tire of passenger vehicle is a fortuitous event that
exempts the carrier from liability for the death of a passenger?
Held: No, the explosion of the newly installed tire is not a fortuitous event because the fact that
the tire is new it does not imply that it was entirely free from manufacturers defect or that it was
properly mounted to the vehicle. Moreover, a common carrier may not be absolved from liability
in case of force majeure or fortuitous event. The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an accident. Therefore the decision of the
Court of Appeals is affirmed.
Characteristic of fortuitous event:
The cause of the unforeseen and unexpected occurrence, or failure of the debtor to comply with
his obligations, must be independent of human will;
It must be impossible to foresee the event which constitute the caso fortuito, or if it is foreseen it
is impossible to avoid;
The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner;
The obligor must be free from any participation in aggravation of the injury resulting to the
creditor.
BACOLOD-MURCIA MILLING VS CA
Facts:
1. Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar central
in Bacolod.
2. Alonso Gatuslao (Gatuslao) is a registered plantor of the Bacolod-Muria Mill District.
 3. BMMC and Gatuslao executed an “Extension and Modification of Milling Contract.
4. From crop year 1957-1958 up to crop year 1967-1968, Gatuslao has been milling all
the sugarcane grown and produced with the Mill of BMMC.
5. From crop year 1920-21 to crop year 1967-68, the canes of planters adhered to the
mill of BMMC were transported from the plantation to the mill by means of cane cars
and through railway system operated by BMMC.
6. BMMC has been hauling planter Gatuslao’s sugar cane to its mill or factory
continuously until crop year 1967 – 1968.
7. The milling contract between BMMC and owners of the hacienda Helvetica expired at
the end of the 1964-1965 crop year.
8. The portion of the railway traversing the hacienda Helvetica was closed as per
decision of the court.
9. The use of the railroad tracks(traversing hacienda Helvetica) was temporarily allowed
due to the intervention of the President of the Philippines, which is until 1967-1978
milling season only.
10. Gatuslao loaded their cut cranes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-MACMA) during 1968-1969
crop year.
11. BMMC had not been able to use its cane cars and railway system for the cargo crop
year 1968-1989.
Issue/s:
1. Whether or not the termination of petitioner’s right of way over the hacienda Helvetica
caused by the expiration of its amended milling contracts with the landowners of the
land in question is fortuitous event or force majeure which will exempt petitioner
BMMC from fulfillment of its contractual obligation.
2. Whether or not BMMC was able to provide adequate and efficient transportation
facilities of the canes of Gatuslao and the other planters milling with BMMC during the
crop year 1968-69.
Ruling:
1. No. The terms of the milling contracts were clear and undoubtedly there was no
reason for BMMC to expect otherwise. The closure of any portion of the railroad track,
not necessarily in the hacienda Helvetica but in any of the properties whose owners
decided not to renew their milling contracts with the Central upon their expiration, was
foreseeable and inevitable.
Despite its awareness that the conventional contract of lease would expire in crop year 1964-
1965 and that refusal on the part of any one of the landowners to renew their milling contracts
and the corresponding use of the right of way on their lands would render impossible compliance
of its commitments, BMMC took a calculated risk that all the landowners would renew their
contracts.
The closure of the railway lines was not an act of God nor it constitute force majeure. It was due
to the termination of the contractual relationships of the parties, for which BMMC is charged with
knowledge. Owners of the hacienda Helvetica notified BMMC as far back as August 1965 of its
intention not to allow the passage of the railway system thru its land after the aforesaid crop
year. Adequate measures should have been adopted by BMMC to forestall such paralyzations
but the records show none.
2. No, BMMC failed to provide adequate transportation facilities to Gatuslao and other
adherent parties.
The inadequacies of the reparto or trailer allotment as well as the state of unpreparedness on
the part of BMMC to meet the problem posed by the closure of the railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers arrived and
when two trailers finally arrived on October 1968 after several unheeded requests, they were left
on the national highway about one kilometer away from the loading station, the means of
transportation provided by BMMC is very inadequate to answer the needs of Gatuslao.
AUSTRIA VS CA
FACTS:
- Maria Abad received from Austria one pendant with diamonds valued at P4,500 to be sold on a
commission basis or to be returned on demand. On 1
- On 1 February 1961, however, while walking home to her residence in Mandaluyong, Rizal,
Abad was said to have been accosted by two men, one of whom hit her on the face, while the
other snatched her purse containing jewelry (including the pendant) and cash, and ran away.
The incident became the subject of a criminal case filed in CFI Rizal against certain persons
(People vs. Rene Garcia, et al.)
- Austria, upon Abad’s failure to return the jewelry or pay for its value notwithstanding demands,
filed an action against her and her husband for recovery of the pendant or of its value,
and damages.
- CFI Manila ordered Abads, jointly and severally, to pay Austria P4,500.00, with legal interest
thereon, plus P450.00 as reasonable attorneys' fees, and the costs. It held that Abads failed to
prove the fact of robbery, or, if indeed it was committed, that Maria was guilty of negligence
when she went home without any companion, although it was already getting dark and she
was carrying a large amount of cash and valuables, and such negligence did not free her
from liability for damages for the loss of the jewelry.
- CA overruled the finding of CFI on the lack of credibility of the two defense witnesses who
testified on the occurrence of the robbery, and holding that the facts of robbery and Abad’s
possession of the pendant on that unfortunate day have been duly established, declared Abads
not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them
from liability for damages to the owner.
- Austria’s theory is for robbery to fall under the category of a fortuitous event and relieve the
obligor from his obligation under a contract, pursuant to A1174, NCC, there ought to be prior
finding on the guilt of the persons responsible therefor. To adopt a different view, he
argued, would be to encourage persons accountable for goods or properties received in trust or
consignment to connive with others, who would be willing to be accused in court for the robbery,
in order to be absolved from civil liability for the loss or disappearance of the entrusted articles.
ISSUES:
 WON in a contract of agency (consignment of goods for sale) it is necessary that there
be prior conviction for robbery before the loss of the article shall exempt the consignee
from liability for such loss.
o NO. To constitute a caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a normal manner,
and that (3) the obligor must be free of participation in, or aggravation of, the
injury to the creditor.
o A fortuitous event, therefore, can be produced by nature, e.g.,
earthquakes, storms, floods, etc., or by the act of man, such as war,
attack by bandits, robbery, etc., provided that the event has all the
characteristics enumerated above.
o A1174’s emphasis of the provision is on the events, not on the agents
or factors responsible for them. To avail of the exemption granted in the
law, it is not necessary that the persons responsible for the occurrence
should be found or punished; it would only be sufficient to establish
that the unforeseeable event, the robbery in this case, did take place
without any concurrent fault on the debtor's part, and this can be done
by preponderant evidence. To require in the present action for
recovery the prior conviction of the culprits in the criminal case, in order
to establish the robbery as a fact, would be to demand proof beyond
reasonable doubt to prove a fact in a civil case.
o Re: third requirement: Under the circumstances prevailing at present in
the City of Manila and its suburbs, with their high incidence of crimes
against persons and property, that renders travel after nightfall a matter to
be sedulously avoided without suitable precaution and protection, Maria’s
conduct, in returning alone to her house in the evening, carrying jewelry of
considerable value, would be negligent per se, and would not exempt her
from responsibility in the case of a robbery. The SC was not persuaded,
however, that the same rule should obtain ten years previously, in
1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present
day.
o There is also no merit in Austria’s argument that to allow the fact of robbery
to be recognized in the civil case before conviction is secured in the criminal
action, would prejudice the latter case, or would result in inconsistency
should the accused obtain an acquittal or should the criminal case be
dismissed. A court finding that a robbery has happened would not
necessarily mean that those accused in the criminal action should be
found guilty of the crime; nor would a ruling that those actually
accused did not commit the robbery be inconsistent with a finding that
a robbery did take place. The evidence to establish these facts would not
necessarily be the same.
KHE HONG CHENG VS CA
FACTS:
- Khe Hong Cheng/Felix Khe (Khe) is the owner of Butuan Shipping Lines.
- Phil. Agricultural Trading Corp. (consignee) shipped onboard M/V Prince Eric, owned
by Khe, 3,400 bags of copra from Masbate to Dipolog City, Zamboanga del Norte. The
shipment was covered by a marine insurance policy issued by American Home
Insurance Co. (Philam). However, somewhere between Negros and Northeastern
Mindano, the ship sank resulting in total loss of the shipment.
- Because of the loss, Philam paid P354k (value of copra) to the consignee.
- Philam, having been subrogated into the rights of the consignee, filed in the RTC of
Makati an action for recovery of money against Khe.
- Pending the case, or on Dec. 20, 1989, Khe executed deeds of donation of parcels of
land in Butuan in favor of his children Sandra Joy and Ray Stevens and new TCTs
were issued in their names.
- The trial court ordered Khe to pay 354k. After the decision became final, a writ of
execution was issued and despite earnest efforts of the sheriff he could not find any
property under Butuan Shipping Lines’ or Khe’s names.
- On Jan. 17, 1997, the sheriff and Philam’s counsel went to Butuan and discovered
that Khe had no property and that he had conveyed the subject properties to his
children.
- Thus, on Feb. 25, 1997, Philam filed before RTC Makati a complaint for the
rescission of the deeds of donation and for the nullification of the TCTs in the
name of Khe’s children. Philam alleged that Khe executed the deeds in fraud of his
creditors, including Philam.
- In his motion to dismiss (MD), Khe contended that the registration of the deeds of
donation on Dec. 1989 constituted constructive notice, and since the complaint was
filed only on Feb 1997 (more than 4 years later), the action was barred by prescription.
- The RTC denied the MD, holding that the prescriptive period began to run only from
Dec. 29, 1993, the date of the decision in Civil Case No. 13357.
- The CA affirmed, holding that the four year period to institute the action for rescission
began to run only in Jan. 1997. Prior thereto, Philam had not yet exhausted all legal
 means for the satisfaction of the decision in its favor, as prescribed under A1383,
NCC.
ISSUES:
 When did the 4 year prescriptive period as provided for in A1389, NCC for Philam to
file its action for rescission of the deeds of donation commence to run?
o Jan. 1997. A1389: “The action of rescission must be commenced w/in 4
years.”
o Since the provision is silent as to when the prescriptive period shall
commence, A1150 is instructive: “The time for prescription for all kinds
of actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be brought.”
o It is the legal possibility of bringing the action which determines the starting
point for the computation of the prescriptive period for the action.
o An action to rescind or an accion pauliana must be of last resort,
availed of only after all other legal remedies have been exhausted and
have been proven futile. For an accion pauliana to accrue, the
following requisites must concur:
1) that the plaintiff asking for rescission has a credit prior to, the
alienation, although demandable later;
2) that the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) that the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to
the third person;
4) that the act being impugned is fraudulent;
5) that the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
o Khe’s contention that the cause of action of Philam against them for the
rescission of the deeds of donation accrued as early as Dec.27, 1989, when
he registered the deeds with the Register of Deeds is unmeritorious. Even if
Philam was aware, as of Dec. 27, 1989, that he had executed the deeds of
donation in favor of his children, the complaint against Butuan Shipping
Lines and/or Khe was still pending before the trial court. Thus, Philam had
no inkling, at the time, that the trial court’s judgment would be in its favor
and further, that such judgment would not be satisfied due to the deeds of
donation executed by Khe during the pendency of the case. Had Philam
filed this complaint on Dec. 27, 1989, such complaint would have been
dismissed for being premature. Not only were all other legal remedies
for the enforcement of Philam's claims not yet exhausted at the time
the deeds of donation were executed and registered, Philam would
also not have been able to prove then that Khe had no more property
other than those covered by the subject deeds to satisfy a favorable
judgment by the trial court.
o Philam only learned about the unlawful conveyances made by Khe in Jan.
1997 when its counsel accompanied the sheriff to Butuan City to attach the
properties of Khe. There they found that he no longer had any properties in
his name. Only then did Philam's action for rescission of the deeds of
donation accrue because then it could be said that Philam had
exhausted all legal means to satisfy the trial court's judgment in its
favor.
o Since Philam filed its complaint for accion pauliana against petitioners on
February 25, 1997, barely a month from its discovery that Khe had no other
property to satisfy the judgment award against him, its action for rescission
of the subject deeds clearly had not yet prescribed.
NOTES:
Tolentino: "xxx[T]herefore, credits with suspensive term or condition are excluded, because the
accion pauliana presupposes a judgment and unsatisfied execution, which cannot exist when
the debt is not yet demandable at the time the rescissory action is brought. Rescission is a
subsidiary action, which presupposes that the creditor has exhausted the property of the debtor
which is impossible in credits which cannot be enforced because of a suspensive term or
condition.”
“While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the
credit was constituted."
SIGUAN VS LIM
Facts:
1. On 25 and 26 August 1990, Rosa Lim (respondent, LIM) issued two Metrobank
checks to satisfy her debts to Maria Antonia Siguan (petitioner, SIGUAN).
2. Upon presentment by SIGUAN with the drawee bank, the checks were dishonoured
for the reason account closed.
3. Criminal case for violation of BP 22 was filed by SIGUAN against LIM.
4. On December 29 1992, RTC convicted LIM as charged. The case is pending before
this Court for review.
5. On August 10, 1989, LIM executed a Deed of Donation in favour of her children, and
the same was registered with the Office of the Register of Deeds on July 2, 1991.
 6. June 23, 193, SIGUAN filed an accion pauliana against LIM and her children, to
rescind the questioned Deed of Donation and to declare as null and void the new
transfer certificates of title.
Issue/s:
1. Whether or not the questioned Deed of Donation was made in fraud of petitioner and,
therefore, rescissible.
Ruling:
1. No. The rescission required the existence of creditors at the time of alleged fraudulent
alienation, and this must be proved as one of the bases of the judicial pronouncement
setting aside the contract. Without prior existing debt, there can neither be injury nor
fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must
exist prior to the fraudulent alienation, the date of the judgment enforcing it is
immaterial.
Since LIMs indebtedness to SIGUAN was incurred in August 1990, or a year after the execution
of the Deed of Donation, the first requirement of accion pauliana was not met.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite
was not met. It is essential that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim. SIGUAN neither alleged nor proved that she
did so. On his score, her action for rescission of the questioned deed is not maintainable even if
the fraud charged actually did exist.
The fourth requisite for an accion pauliana to prosper is not present either. (4) the act being
impugned is fraudulent. It was not sufficiently established that the properties left behind by LIM
were not sufficient to cover her debts existing before the donation was made.
Note / Doctrine:
Requisites of accion pauliana
1. Plaintiff asking for rescission has a credit prior to the alienation, although demandable
later.
2. Debtor has made a subsequent contract conveying a patrimonial benefit to a third
persons.
3. Creditor has no other legal remedy to satisfy his claim, but would benefit by rescission
of the conveyance to the person.
4. Act being impugned is fraudulent.
5. The third parsons who received the property conveyed, if by onerous title, has been
an accomplice in the fraud.
 (New Civil Code) Article 1381. Contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner collect the claims due to
them.
 (New Civil Code) Article 1383. The action for rescission is but a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
 (New Civil Code) Article 1387(1). All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered into in fraud of
creditors when donor did not reserve sufficient property to pay all debts contracted
before the donation.
 (New Civil Code) Article 759. Donation is always presumed to be in fraud of creditors
when at the time thereof the donor did not reserve sufficient property to pay his debts
prior to the donation.
 (New Civil Code) Article 1384. Rescission shall only be to the extent necessary to
cover the damages caused.
 Only the creditor who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit from its
effects.
 Revocation is only to the extent of the plaintiff creditors unsatisfied debts; as
to the excess, alienation is maintained.
Eastern Shipping vs CA
FACTS: Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment
as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service,
which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro,
one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse.
The latter excepted to one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so
that it became subrogated to all the rights of action of consignee against the defendants Eastern
Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court.
The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present
legal interest of 12% per annum from the date of the filing of the complaint. On appeal by
defendants, the appellate court denied the same and affirmed in toto the decision of the trial
court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be computed
from the time the complaint is filed from the date the decision appealed from is rendered.
HELD
(1) The Court held that the legal interest is 6% computed from the decision of the court a
quo. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damaes awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the rate
of legal interest shall be 12% per annum from such finality until satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2) From the date the judgment is made. Where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
EJ but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shll begin to run only from the date of judgment of the court is made.
(3) The Court held that it should be computed from the decision rendered by the court a quo.
NACAR VS GALLERY FRAMES AND/OR FELIPE BORDEY
FACTS: Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr.
Nacar alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence
the Arbiter awarded Nacar P158,919.92 in damages consisting of back wages and separation
pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January
24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998).
The LA reasoned that the said date should be the reckoning point because Nacar did not appeal
hence as to him, that decision became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring
to cases where the dismissed employee wins, or loses but wins on appeal). The first part is the
ruling that the employee was illegally dismissed. This is immediately final even if the employer
appeals – but will be reversed if employer wins on appeal. The second part is the ruling on the
award of backwages and/or separation pay. For backwages, it will be computed from the date of
illegal dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals,
then the end date shall be extended until the day when the appellate court’s decision shall
become final. Hence, as a consequence, the liability of the employer, if he loses on appeal, will
increase – this is just but a risk that the employer cannot avoid when it continued to seek
recourses against the Labor Arbiter’s decision. This is also in accordance with Article 279 of the
Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the
Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by
the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which
lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as
follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon
judicial demand whichever is appropriate and subject to the provisions of Article 1169 of the Civil
Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial
or extra-judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum
demandable from the date of judgment because such on such date, it is already deemed that the
amount of damages is already ascertained.
3. Compounded Interest
– This is applicable to both monetary and non-monetary obligations
– 6% per annum computed against award of damages (interest) granted by the court. To be
computed from the date when the court’s decision becomes final and executory until the award
is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
– Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12%
rate;
– Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12%
rate for unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments
on or after July 1, 2013 shall still incur the 6% rate.
SPS. ANDAL VS PHILIPPINE NATIONAL BANK, ET AL.
FACTS: Sept. 7, 1995, petitioners obtained a loan from respondent bank (P21.8M) for which 12
promissory notes were executed, with varying interest rates (17.5-27%). It was agreed that the
rate of interest may be increased or decreased with prior notice to the petitioners in the event of
changes in interest rates prescribed by law or the Monetary Board.
Petitioners also executed a real estate mortgage in favor of the respondent bank over 5 parcels
of lands, including all improvements thereon, covered by Transfer of Certificate Titles of the
Registry of Deeds.
Respondent bank advised petitioners to pay their loan, otherwise they would declare it due and
demandable. Petitioners paid P14.8M to avoid foreclosure. Respondent bank executed a
release of real estate mortgage over two of the parcels of land. Despite payment, respondent
foreclosed the remaining real estate mortgage over the remaining three parcels of land.
A public auction sale resulted in respondent bank as the winning bidder. A Certificate of sale of
the properties was issued.
Petitioners filed a complaint for annulment of mortgage, sheriff’s certificate of sale, declaration of
nullity of the increased interest rates and penalty charges plus damages.
CONTENTION OF THE PETITIONERS:
1. They tried to pay their loan obligation but the exorbitant rate of interest
unilaterally determined and imposed by the respondent bank.
2. They signed the promissory notes in blank, relying on the representation
that they were bank requirements
3. The exobrbitant and unilateral interest rates are a form of unjust enrichment,
giving respondent
4. bank no right to foreclose the mortgages
RTC Ruling: In favor of petitioners, ordering that the rate of interest be reduced to 6% in
accordance with Art. 2209, NCC and declaring the foreclosure sales as void.
CA Ruling: Affirmed the RTC decision with the modification that the interest be 12% per annum
instead of 6%. Stipulations in a contract have the force of law between the parties so long as
they are not contrary to law, morals, etc. Since parties expressly stipulated in the promissory
notes that a rate of interest would be applied, the petitioners are bound thereby.
The CA finds it more credible that the petitioners had signed blank promissory notes which
respondent bank had filled with high interest rates. This violates the principle of mutuality of
contracts. Since the interest rates in the promissory notes are void, the rate of interest should be
12% (since what is involved is a loan or forebearance of money).
Petitioners-spouses insist that "if the application of the doctrine of operative facts is upheld, as
applied in Caraig vs. Alday, interest in the instant case would be computed only from the finality
of judgment declaring the foreclosure sale null and void. If Mercado vs. China Banking
Corporation, applying by analogy the rule on void usurious interest to void potestative interest
rate, is further sustained, no interest is due when the potestative interest rate stipulation is
declared null and void, as in the instant case.
ISSUES: Whether interest should be imposed on the loan.
RULING: Yes. The petitioners had agreed to payment of interest on their loan obligation. The
subsequent declaration that the rate of interest was illegal does not entitle them to stop payment
of interest. Only the rate was declared void, but the stipulation requiring them to pay interest
remains valid and binding. They are liable to pay interest from the time they defaulted until the
obligation is fully paid.
Petition is DENIED and the CA decision is AFFIRMED with the MODIFICATION that the 12%
interest per annum shall be applied from the date of default until June 30, 2013, after which date
and until fully paid, the obligation shall earn interest at 6% per annum.
ADVOCATES FOR TRUTH IN LENDING ACT, ET AL. VS BANKO CENTRAL MONETARY
BOARD
Parties of the Case
Petitioners: Advocates for Truth in Lending, INC. & Eduardo B. Olaguer (President of AFTIL).
Respondents: Bangko Sentral Monetary Board
Facts of the Case
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
in July 9, 2010, and a month later, it filed this petition, joined by its founder and president,
Eduardo Olaguer, suing as a taxpayer and a citizen.
History of Central Bank’s power to fix max interest rates
1. R.A. No. 265, which is created the Central Bank on June 15, 19481. R.A. No. 265,
which is created the Central Bank on June 15, 1948, empowered the CB-MB to set 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 of the forbearance of any money, goods or credits, provided that the changes
are affected 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 fees charges, on loan or
 forbearance of any money 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 (Bangko Sentral ng Pilipinas) to replace 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. President Decree No.
1792 is likewise repealed.
subject. An implied repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws unless 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 RA NO. 7653.
The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest.
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:

Issues of the Case The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments involving such loan or forbearance of money,
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies “when the
constitutional authority to prescribe the maximum rates of interest for all kinds of credit transaction involves the payment of indemnities in the concept of damage arising from the
transactions and forbearance of money, goods or credit beyond the limits prescribed breach or a delay in the performance of obligations in general with the application of both rates
in the Usury Law; reckoned from the time the complaint was filed until the amount is fully paid. In either instance,
the reckoning period for the commencement of the running of the legal interest shall be subject
2. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, to the condition that the courts are vested with discretion, depending on the equities of each
which removed all interest ceilings and thus suspended Act No. 2655 as regards case, on the award of interest.”
usurious interest rates;
Dispositive portion:
3. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular
No. 905. Petition for certiorari is DISMISSED.

Ruling of the SC

1. CB-MB has the statutory or constitutional authority to prescribe the max rates
of interest for all kinds of credit transactions and forbearance of money, goods
or credit beyond the limits prescribed in the Usury Law both under RA 265 and
PD 1684

2. The CB-MB merely suspended the effectivity of the Usury Law when it issued
CB Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA, citing several cases, CB Circular No. 905 “ did not repeal nor in anyway amend the
Usury Law but simply suspended the latter’s effectivity”.

Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld
the parties’ freedom of contract to agree freely on the rate of interest. It cited Art. 1306 of the
New Civil Code, under which the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

3. The BSP-MB has authority to enforce CB Circular No. 905.

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