Guingona Jr. v. City of Fiscal of Manila (& Clement David) G.R. No.

L-60033 | 1984-04-04

TOPIC: Bank deposits are irregular deposits; Bank not liable for estafa for failure to pay deposit

FACTS: David, together with his sister, invested with the Nation Savings and Loan Association (NSLA) the
sum of P1,145,546.20 on forms of time deposits, savings account deposits, dollar time deposit and
receipt and guarantee of payment. When Central Bank (CB) placed NSLA under receivership, David
received a report from the latter that only P305,821.92 of those investments were entered in the records
of NSLA; the respondents misappropriated the balance of the investments and violated the Central Bank
Circular No. 364 and related Central Bank regulations on foreign exchange transactions. After demands,
petitioner Guingona Jr. paid only P200,000.00, which reduced the misappropriated amount to
P959,078.14 and US$75,000.00. David requested a promissory note to cover the balance of his
investments plus interest,which the petitioners executed.

ISSUE: WON the bank is liable for estafa for failure to pay deposits.

HELD: NO. Time and savings deposits with banks is a contract of simple loan and not a contract of
deposit. Article 1980 of the NCC provides that: "Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loan."

They are considered simple loans and, as such, are not preferred credits. Bank deposits are in the nature
of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans.
Current and savings deposits are loans to a bank because it can use the same. Hence, the relationship
between the private respondent and the NSLA is that of creditor and debtor; consequently, the
ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and
it can make use of the amount deposited for its banking operations, such as to pay interests on deposits
and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has,
however, no obligation to return or deliver the same money that was deposited. And, the failure of the
Bank to return the amount deposited will not constitute estafa through misappropriation punishable
under Article 315, par. 1(b) of the Revised Penal Code, but it will only give rise to civil liability. In simple
loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods
or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed
(Article 248, Civil Code) and his act will not be considered misappropriation thereof.

Mutuum
One of the parties delivers money or other
consumable thing, upon the condition that the
same amount of the same kind and quality shall be
paid
May be gratuitous or with a stipulation to pay
interest
Ownership passes to the borrower
Commadatum
One of the parties delivers to another, either
something not consumable so that the latter may
use the same for a certain time and return it
Essentially gratuitous
Bailor retains the ownership of the thing loaned
BPI FAMILY BANK VS. FRANCO
G.R. No. 123498 November 23, 2007
J. Nachura

FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon thereafter,
FMIC also opened a time deposit account with the same branch of BPI-FB

On August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit, with
BPI-FB. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by
Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, to Jaime Sebastian, who
was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the P2,000,000.00 check was part of
the P80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s
current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.
BPI-FB, debited Franco’s savings and current accounts for the amounts remaining therein. In the
meantime, two checks drawn by Franco against his BPI-FB current account were dishonored and
stamped with a notation “account under garnishment.” Apparently, Franco’s current account was
garnished by virtue of an Order of

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB
prior to Franco’s receipt of notice that his accounts were under garnishment. It was only on May 15,
1990, that Franco was impleaded in the Makati case. Immediately, upon receipt of such copy, Franco
filed a Motion to Discharge Attachment. On May 17, 1990, Franco pre-terminated his time deposit
account.

BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit
account representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to heed
Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990
with the Manila RTC the subject suit.

ISSUE: WON Respondent had better right to the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit

HELD: NO
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a
legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB
conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on
simple loan or mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-
FB ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in
Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing
checks against his current account, or asking for the release of the funds in his savings account. Thus,
when Franco issued checks drawn against his current account, he had every right as creditor to expect
that those checks would be honored by BPI-FB as debtor.
 More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based
on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the
process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.

Consolidated Bank and Trust Corp vs CA

G.R. No. 138569. September 11, 2003
First Division
J. Carpio

Facts: Private respondent L.C. Diaz instructed his employee, Calapre, to deposit in his savings account in
petitioner bank. Calapre left the passbook of L.C. Diaz to the teller of the petitioner bank because it was
taking time to accomplish the transaction and he had to go to another bank. When Calapre returned, the
teller told him that somebody got it. The following day, an impostor succeeded in withdrawing
P300,000.00 by using said passbook and a falsified withdrawal slip. L.C. Diaz through its counsel
demanded from Solidbank the return of its money. However, Solidbank refused.
L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional
Trial Court. After trial, the trial court rendered a decision absolving Solidbank and dismissing the
complaint. On appeal, the Court of Appeals reversed the decision of the trial court and held the bank
liable.

Issues:
1. WON the contract of loan was converted into a trust agreement.
2. WON Petitioner bank is liable solely for the amount withdrawn by the impostor.

Held:
FIRST ISSUE: No. The Supreme Court held that the bank is liable for breach of contract due to
negligence or culpa contractual. The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. There is a debtor-creditor relationship between the bank and
its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (“RA 8791”), declares that the State recognizes the “fiduciary nature of banking
that requires high standards of integrity and performance.”
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement whether express or
implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of
trust. The law simply imposes on the bank a higher standard of integrity and performance in complying
with its obligations under the contract of simple loan, beyond those required of non-bank debtors under
a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich depositors but to earn money for
themselves.

2. YES. Article 1172 of the Civil Code provides that “responsibility arising from negligence in the
performance of every kind of obligation is demandable”. The bank is liable to its depositor for breach of
the savings deposit agreement due to negligence or culpa contractual. “The bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship (Simex International vs. CA)”.
The tellers know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong
person, they would be clothing that person presumptive ownership of the passbook, facilitating
unauthorized withdrawals by that person.
The doctrine of last clear chance states that where both parties are negligent but the negligent
act of one is appreciably later than that of the other, or where it is impossible to determine whose fault
or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to
do so, is chargeable with the loss. This doctrine is not applicable to the present case. The contributory
negligence of the private respondent or his last clear chance to avoid the loss would not exonerate the
petitioner from liability. However, it serves to reduce the recovery of damages by the private respondent.
Under Article 1172, “the liability may be regulated by the courts, according to the circumstances”. In this
case, respondent L.C. Diaz was guilty of contributory negligence in allowing awithdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability of petitioner bank should
be reduced.
In PHILIPPINE BANK OF COMMERCE VS. CA, the Supreme Court allocated the damages between
the depositor who is guilty of contributory negligence and the bank on a 40-60 ratio. The same ruling
was applied to this case. Petitioner bank must pay only 60% of the actual damages.

G.R. No. 114398 October 24, 1997

CARMEN LIWANAG, petitioner,

vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, represented by the
Solicitor General, respondents.

FACTS:

Petitioner Carmen Liwanag was charged with the crime of estafa before the RTC of Quezon City. The
complaint alleged that petitioner Liwanag and certain Thelma Tabligan went to the house of complainant
Isidora Rosales and offered her to join them in the business of buying and selling of cigarettes. Rosales
agreed to give the money needed to buy the cigarettes while Liwanag and Tabligan will act as her agents
with the corresponding 40% commission to her if the goods are sold. It was also agreed that in the event
that the cigarettes are not sold, the proceeds of the sale or the said products shall be returned to Rosales.
Liwanag failed to comply with the above agreements and ceased to make periodic reports to Rosales
prompting the latter to file an estafa case against her.

The trial court found Liwanag guilty as charged. When brought on appeal, the appellate court affirmed the
decision. Hence, this petition where Liwanag advances the theory that the parties intended to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would buy and sell the
cigarettes, and later divide the profits between them. She also argues that the transaction can also be
interpreted as a simple loan, with Rosales lending to her the amount stated on an installment basis.
ISSUE:

May a partner be sued for estafa for misappropriation of partnership funds? YES

RULING:

All the elements of estafa are attendant in the present case: (1) that the accused defrauded another by
abuse of confidence or deceit; and (2) that damage or prejudice capable of pecuniary estimation is
caused to the offended party or third party, and it is essential that there be a fiduciary relation between
them either in the form of a trust, commission or administration.

The language of the receipt signed by petitioner could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event
the cigarettes cannot be sold, the money must be returned to Rosales. Thus, even assuming that a
contract of partnership was indeed entered into by and between the parties, we have ruled that when
money or property have been received by a partner for a specific purpose (such as that obtaining in the
instant case) and he later misappropriated it, such partner is guilty of estafa.

Neither can the transaction be considered a loan, since in a contract of loan once the money is received
by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for
whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could
not dispose of the money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales.
Since in this case there was no transfer of ownership of the money delivered, Liwanag is liable for
conversion under Art. 315, par. l(b) of the Revised Penal Code.

Republic vsUnimex

Facts: 

 Unimex Micro­Electronics GmBH (Unimex) shipped a 40­foot container and 
171 cartons of Atari game computer cartridges, duplicators, expanders, 
remote controllers, parts and accessories to HandywarePhils.
 After the shipment arrived in the Port of Manila, the Bureau of Customs 
(BOC) agents discovered that it did not tally with the description appearing 
on the cargo manifest. 
 As a result, BOC instituted seizure proceedings against Handyware and later
issued a warrant of seizure and detention against the shipment.
 Case was filed by Unimex against BOC where they won and the court 
ordered the BOC to return the seized shipment to the former. However, they 
were not able to find said shipments in the warehouse. 
 Hence, the court ordered BOC to pay Unimexthe equal amount of the 
shipment lost. 
 Issue: WON the payment of BOC to Unimexfalls under mutuum.

Ruling: 

 Yes, it must be noted that mutuumis a contract whereby one of the parties 
delivers to another a money or other consumable thing with the 
understanding that the same amount of the same kind and quality shall be
paid. 
 Hence, BOC is ordered to pay respondent the value of the subject 
shipment in the amount of Euro 669,982.565. Petitioners liability may be 
paid in Philippine currency, computed at the exchange rate prevailing at 
the time of actual payment.

FRIAS vs. SAN DIEGO-SISON

GR No. 155223

April 4, 2007

FACTS:

Frias is the owner of a lot in Alabang, Mandaluyong she acquired from, Island Master Realty and
Development Corp. (IMRDC) by virtue of a deed of sale dated Nov. 16, 1990. On Dec. 7, 1990, Frias and
San Diego-Sison entered into a MOA over the property for the consideration of 3M pesos. The terms of
the MOA are as follows: San Diego-Sison has 6 months from the date of the execution of the contract to
notify Frias of her intention to purchase the property with improvements at 6.4 M pesos. Frias may still
offer the property to other persons, provided that the 3M pesos be paid to Sison, including interest
based on prevailing compounded bank interest plus the amount of sale in excess of 7M pesos should the
property be sold at a price greater than 7M pesos. But, if Frias has no other buyer within 6 months from
the contract’s execution, no interest shall be charged by San Diego-Sison on the 3M pesos. If San Diego-
Sison decides not to buy the property, Frias has 6 months to pay 3M pesos. The 3M pesos is treated as a
loan and the property is considered the security for the mortgage.

Upon notice of intention to purchase, San Diego-Sison has 6 months to pay the remaining balance of
3.4M pesos. Frias received 3M pesos – 2M pesos in cash and 1M pesos in post-dated check dated Feb.
28, 1990. Frias gave San Diego-Sispon the TCT and Deed of Absolute Sale, but the latter decided not to
purchase the property and notified the later through a letter dated March 20, 1991. Frias received the
letter on June 11, 1991 with the reminder that that the 2M pesos San Diego-Sison paid earlier should be
considered as a loan payable within 6 months. Frias defaulted and San Diego-Sison filed a complaint for
sum of money with preliminary attachment. San Diego-Sison averred that Frias tried to deprive her of
the security for the loan by making a false report of the loss of her owner’s copy of TCT, executing an
affidavit of loss and by filing a petition for the issuance of a new owner’s duplicate copy. RTC issued a
writ of preliminary attachment upon the filing of a 2M bond.RTC found that Frias was under obligation to
pay Sison 2M with compounded interest pursuant to their MOA. RTC ordered Frias to pay Sison:2M
pesos + 32% annual interest beginning December 7, 1991 until fully paid, 70k pesos representing
premiums paid by Sison on the attachment bond with legal interest counted from the date of this
decision until fully paid, 100k pesos moral, corrective, exemplary damages, and 100k pesos attorney’s
fees plus cost of litigation. CA affirmed RTC with modification—32% reduced to 25%.

CA said that there was no basis for Frias to say that the interest should be charged for 6 months only. It
said that a loan always bears interest; otherwise, it is not a loan. The interest should commence on June
7, 1991 until fully paid, with compounded bank interest prevailing at the time of June 1991, the 2M
pesos was considered as a loan (as certified by the bank).

RELEVANT ISSSUE:

WoN the compounded bank interest should be limited to 6 months as contained in the MOA.

RULING:

A loan always bears interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous or
with a stipulation to pay interest. No error committed by the CA in awarding a 25% interest per annum
on the two-million peso loan even beyond the second six months stipulated period.

The MOA executed between the parties is the law between the parties. In resolving an issue based upon
a contract, we must first examine the contract itself, especially the provisions thereof which are relevant
to the controversy.In this case, the phrase "for the last six months only" should be taken in the context of
the entire agreement. Their agreement speaks of 2 periods of six months each. The first six-month
period was given to San Diego-Sison to make up her mind whether or not to purchase Frias’ property.
The second six-month period was given to Frias to pay the P2 million loan in the event that San Diego-
Sison decided not to buy the subject property in which case interest will be charged "for the last six
months only", referring to the second six-month period. This means that no interest will be charged for
the first six-month period while San Diego-Sison was making up her mind whether to buy the property,
but only for the second period of six months after she had decided not to buy the property.

The agreement that the amount given shall bear compounded bank interest for the last six months
only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged
after the second six-month period since such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated. Considering that Frias failed to
pay the amount given which under the MOA shall be considered as a loan, the monetary interest for the
last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount.It has been held that for a debtor to continue in possession of
the principal of the loan and to continue to use the same after maturity of the loan without payment of
the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of
the creditor.
EUSEBIO-CALDERON vs. PEOPLE

Facts:

Elizabeth Eusebio-Calderon was charged by her aunt Teresita Eusebio, Amelia Casanova
and cousin Manolito Eusebio with three count Estafa.

According to private complainants, petitioner assured them that the checks will be
honored upon maturity. They gave her the money because she showed them her pieces of
jewelry which convinced them that she has the ability to pay the loans.

In her defense, petitioner admits that she issued the checks but alleges that it was not
done to defraud her creditors.

After trial, the lower court rendered a joint decision finding petitioner guilty beyond
reasonable doubt, but ruled that her liability for the “interest checks” was only civil, thereby
acquitting the accused but indemnify to pay.

The Decision of the Court of Appeals which reversed and set aside the Decision of the
Regional Trial Court acquitting the accused but ordering her to pay civil liability.

Issues: (1) Did the Court of Appeals err in finding the appellant civilly liable to complainants
with respect to the interest in the principal loan despite the dismissal of the interest
checks by the Regional Trial Court?

(2) Is the interest agreed upon by the parties usurious?

(3) Should the private respondents file a separate civil complaint for the claim of Sum of
Money?

Ruling:

The court finds the petition meritorious.

When petitioner appealed her conviction, the dismissal of the interest checks by the lower
court did not preclude the Court of Appeals from reviewing such decision and modifying her
civil liability. The appeal conferred upon the appellate court full jurisdiction and rendered it
competent to examine the records, revise the judgment appealed from, increase the penalty and
cite the proper provision of the penal law.

Under Article 29 of the Civil Code, when the accused in a criminal prosecution is
acquitted on the ground that his guilt has not been proven beyond reasonable doubt, a civil action
for damages for the same act or omission may be instituted. The judgment of acquittal
extinguishes the liability of the accused for damages only when it includes a declaration that the
fact from which the civil liability might arise did not exist. Thus, Section 1, paragraph (a) of Rule
111 of the Rules of Court provides:

SECTION 1. Institution of criminal and civil actions. – (a) When a criminal action is
instituted, the civil action for the recovery of civil liability arising from the offense charged shall
be deemed instituted with the criminal action unless the offended party waives the civil action,
reserves the right to institute it separately or institutes the civil action prior to the criminal action.

An accused who is acquitted of Estafa may nevertheless be held civilly liable where the
facts established by the evidence so warrant. Petitioner Elizabeth Calderon is clearly liable to the
private respondents for the amount borrowed. The Court of Appeals found that the former did
not employ trickery or deceit in obtaining money from the private complainants, instead, it
concluded that the money obtained was undoubtedly loans for which petitioner paid interest.
The checks issued by petitioner as payment for the principal loan constitute evidence of her civil
liability which was deemed instituted with the criminal action.

The civil liability of petitioner includes only the principal amount of the loan. With
respect to the interest checks she issued, the same are void. There was no written proof of the
payable interest except for the verbal agreement that the loan shall earn 5% interest per month.
Under Article 1956 of the Civil Code, an agreement as to payment of interest must be in writing,
otherwise it cannot be valid. Consequently, no interest is due and the interest checks she issued
should be eliminated from the computation of her civil liability.

However, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is elementary that in the absence of a stipulation as to interest,
the loan due will now earn interest at the legal rate of 12% per annum.

In view of our ruling that there can be no stipulated interest in this case, there is no need to pass
upon the second issue of whether or not the interests were usurious.

The Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that
petitioner is ordered to pay Amelia Casanova,Teresita Eusebio, and Manolito Eusebio as civil
liability with legal interest of twelve percent (12%) per annum until its satisfaction.

SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES EMILIANO and MARIA
CONCEPCION LORENZO, respondents.

On December 4, 1990, spouses Felimon and Maria Barrera, petitioners, borrowed P230,000.00
from spouses Miguel and Mary Lazaro. The loan was secured by a real estate mortgage over petitioners
residential lot consisting of 432 square meters located at Bunlo, Bocaue, Bulacan and registered in their
names under Transfer Certificate of Title (TCT) T-42.373 (M of the Registry of Deeds of Bulacan.

A month and a half later, the Lazaro spouses needed money and informed petitioners that they
would transfer the loan to spouses Emiliano and Maria Concepcion Lorenzo, respondents. Consequently,
on May 14, 1991, petitioners executed another real estate mortgage over their lot, this time in favor of the
respondents to secure the loan of P325,000.00, which the latter claimed as the amount they paid spouses
Lazaro. The mortgage contract provides, among others, that the new loan shall be payable within three
(3) months, or until August 14, 1991; that it shall earn interest at 5% per month; and that should
petitioners fail to pay their loan within the said period, the mortgage shall be foreclosed.

When petitioners failed to pay their loan in full on August 14, 1991, respondents allowed them to
complete their payment until December 23, 1993. On this date, they made a total payment of
P687,000.00.

On January 17, 1994, respondents wrote petitioners demanding payment of P325,000.00, plus
interest, otherwise they would foreclose the mortgage. In turn, petitioners responded, claiming that they
have overpaid their obligation and demanding the return of their land title and refund of their excess
payment. This prompted respondents to file a petition for extrajudicial foreclosure of mortgage with the
Office of the Ex-Officio Sheriff, Malolos, Bulacan, docketed therein as EJF 19-94.

For their part, petitioners filed with the Regional Trial Court (RTC), Branch 17, Malolos, Bulacan, a
complaint for the return of their TCT No. T-42.373 (M), sum of money and damages, with application for a
temporary restraining order and preliminary injunction, docketed as Civil Case No. 156-M-94

In their opposition to the application for a preliminary injunction, respondents alleged that
petitioners loan has been restructured three times and that their unpaid balance as of March 14, 1994
was P543,622.00.

After hearing petitioners application for a preliminary injunction, the RTC issued an order enjoining
the sheriff from proceeding with the foreclosure of mortgage, upon their posting of a bond in the amount
of P543,622.00.

Thereafter, trial on the merits ensued.

On July 31, 1995, the RTC rendered judgment, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs (now
petitioners) and against the defendants (now respondents), ordering the latter:

1. to return to the plaintiffs the amount of P215,750.00 representing the overpaid amount;

2. to return to the plaintiffs the owners copy of TCT No. T-42.373 (M) offered as security;

3. to pay P20,000.000 as attorneys fees;

4. to pay the costs of the suit.

The writ of preliminary injunction issued on March 21, 1994 is hereby made permanent.

SO ORDERED.”
 The trial court held that the stipulated 5% monthly interest to be paid by petitioners corresponds
only to the period from May 14, 1991 up to August 14, 1991, the term of the loan. Thereafter, the monthly
interest should be 12% per annum. The trial court concluded that petitioners made an overpayment of
P214,750.00.

Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals, in a Decision dated June
18, 1997, held:

We reverse.

The law and jurisprudence clearly provide that if the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered. (Article 1253, New Civil Code;
Gobonseng, Jr. vs. Court of Appeals,246 SCRA 472). Once it is admitted that an obligation bears interest,
partial payments are to be applied first on account of the interest and then to reduce the principal. (San
Jose vs. Ortega, 11 Phil. 442; Sunico vs. Ramirez, 14 Phil. 500). We thus find no support, whether in law
or in jurisprudence, for the Decision of the court a quo to apply the bigger amounts of P40,000.00,
P37,000.00, P50,000.00 among others, given several times by the Barrera spouses x xx for the payment
of the principal loan when the interests due on the loan that have accumulated through the years have not
been fully satisfied.

We also do not agree that the stipulated monthly interest of 5% was to apply only to the 3-month
effectivity period of the loan. This is a flawed and a grossly unfair interpretation of the terms and
conditions of the agreement of the parties. To rule in this wise is to sanction the irregular performance of
ones obligation. The Barrera spouses will be emboldened not to pay their loan within the agreed period of
3-months since on the fourth month and thereafter, they do not have to pay anymore the 5% monthly
interest, but only the 12% legal interest per annum, or a measly 1% interest per month. Such an
interpretation is totally unfair and unjust to the creditors who could have used their money in some other
ways. Until such time that the Barreras have fully paid their total indebtedness, the 5% monthly interest
subsists, there being no stipulation to the contrary.

While we commiserate with the plight of the Barrera spouses, we cannot change the terms of the loan
agreement between them and the Lorenzos as the courts have no right to make contracts for (the)
parties. (Tolentino and Manio vs. Gonzales SyChian, 5 Phil. 577). A contract is the law between the
parties which not even this Court can interfere with. The only requirement is that the same be not contrary
to law, morals and good customs x xx (Article 1306, New Civil Code). We find the agreement to pay a 5%
monthly interest until the loan is fully paid to be reasonable and sanctioned by regular usage and practice.

The Barreras should, therefore, be required to pay the balance of their indebtedness, including the
interests thereof. Failure to pay the same should warrant the foreclosure of their mortgaged property to
satisfy their obligation to the Lorenzo spouses.

Petitioners filed a motion for reconsideration but was denied.

Hence this petition.

The sole issue for our resolution is whether the 5% monthly interest on the loan was only for three
(3) months, or from May 14, 1991 up to August 14, 1991, as maintained by petitioners, or until the loan
was fully paid, as claimed by respondents.

When the terms of a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs. In such cases, courts have no authority to alter a
contract by construction or to make a new contract for the parties; its duty is confined to the interpretation
of the one which they have made for themselves without regard to its wisdom or folly as the court cannot
supply material stipulations or read into the contract words which it does not contain. It is only when the
contract is vague and ambiguous that courts are permitted to resort to construction of its terms and
determine the intention of the parties therein.

The salient provisions of the mortgage contract read:

a) Angsanglaangito ay salooblamangngtatlong (3) buwan, o hanggangsaAgosto 14, 1991.

b) Angtubonaamingnapagkasunduan ay 5%, o cincoporcientoisangbuwan.

c) Na sakalingmabayarankoangamingpagkakautangsa mag-asawana
P325,000.00angkasulatangito ay walanglakas at kabuluhan, subalit kung
hindikomabayaranangamingpinagkakautangansatakdangpanahong 3 buwansila ay
binibigyankonanglaya at
kapangyarihannamasubastanilaanglupangamingipinanagotsalabasnghukumansabisang
Batas Blg. 3135 at susognito at akong may utangangsiyangsagotsalahatnggastos at
patibayadsaabogadosanasabingsubastasalabasnghukuman. (emphasis supplied)

It is clear from the above stipulations that the loan shall be payable within three (3) months, or from
May 14, 1991 up to August 14, 1991. During such period, the loan shall earn an interest of 5% per month.
Furthermore, the contract shall have no force and effect once the loan shall have been fully paid within
the three-month period, otherwise, the mortgage shall be foreclosed extrajudicially under Act No. 3135.

Records show that upon maturity of the loan on August 14, 1991, petitioners failed to pay their
entire obligation. Instead of exercising their right to have the mortgage foreclosed, respondents allowed
petitioners to pay the loan on a monthly installment basis until December, 1993. It bears emphasis that
there is no written agreement between the parties that the loan will continue to bear 5% monthly interest
beyond the agreed three-month period. Respondent Ma. Concepcion Lorenzo testified as follows:

Atty. Marcos:

Q Now, based on this document which was marked as Exh. 1, there is no dispute that the monthly interest
for the three month period that is from May 14, 1991 to August 14, 1991 is 5% monthly interest, there is
no dispute about that. Now, Miss Witness, my question is, could you go over the entire document that
Exh. 1 and please tell this Hon. Court whether there is a provision in clear and unequivocal terms
providing for that monthly interest after August 14, 1991?

A No, sir, there is none.

Q Are you sure of that?

A Yes, sir.

Q You mean to say there is no stipulation in that document providing for the 5% monthly interest to the
loan after August 14, 1991?

A Yes, sir, they are supposed to return my money.

Court:

Q After they failed to comply with that provision, was there any subsequent agreement between you and
the plaintiffs?

xxx

Q Was there an agreement?

A There was, your Honor.

Q What was that agreement about?

A Verbal agreement, your Honor?

Q Why was that agreement not reduced into writing?

AIt was not reduced into writing, your Honor.

Q Why?

A I am in good faith, your Honor.

Article 1956 of the Civil Code mandates that (n)o interest shall be due unless it has been
expressly stipulated in writing. Applying this provision, the trial court correctly held that the monthly
interest of 5% corresponds only to the three-month period of the loan, or from May 14, 1991 to August 14,
1991, as agreed upon by the parties in writing. Thereafter, the interest rate for the loan is 12% per annum.
In Eastern Shipping Lines, Inc. vs. Court of Appeals, this Court laid down the following doctrine:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
(emphasis supplied)

The above ruling was reiterated in Sulit vs. Court of Appeals, Crismina Garments vs. Court of
Appeals, Eastern Assurance and Surety Corporation vs. Court of Appeals, Catungal vs. Hao, and Yong
et al. vs. Tiu et al.. Thus, the Court of Appeals erred in reversing the RTC Decision and holding that the
5% monthly interest should be paid by petitioners even beyond August 14, 1991.

WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997 and its Resolution
dated October 17, 1997 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court,
Branch 17, Malolos, Bulacan dated July 31, 1995 is REINSTATED.

SO ORDERED.

Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ.,concur.

NACAR V. GALLERY FRAMES AND/OR BORDEY, (2013)
(Compensatory, Penalty or Indemnity Interest)
*Amending the Eastern Shipping Doctrine
*Important: because this case discusses the amendment of the legal interest in loan and
forbearance of money, credits or goods from 12% to 6% effective July 1, 2013.

Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796, approved the
amendment of Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular
No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be 12% per annum but will now be
6% per annum effective July 1, 2013.
 It should be noted, nonetheless, that the new rate could only be applied prospectively
and not retroactively. Consequently, the 12% per annum legal interest shall apply only
until June 30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the
prevailing rate of interest when applicable.

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

New guidelines in the award of interest:

1.) When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2.) When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3.) When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.

Application in this case: The interest of 12% per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013 until their full
satisfaction, is awarded.

CASE DIGEST

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 backwages 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: If stipulated in writing:

 shall run from date of judicial demand (filing of the case)
 rate of interest shall be that amount stipulated
 If not stipulated in writing
 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)
 rate of interest shall be 6% per annum

2. Non-Monetary Obligations (such as the case at bar)

 If already liquidated, rate of interest shall be 6% per annum, demandable from
date of judicial or extra-judicial demand (Art. 1169, Civil Code)

 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.

SPOUSES SALVADOR ABELLA v. SPOUSES ROMEO ABELLA

G.R. No. 195166, July 08, 2015

LEONEN, J.

FACTS: Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and
damages against respondents Spouses Romeo and Annie Abella wherein it was alleged that
respondents obtained a loan from them in the amount of P500K. The loan was evidenced by an
acknowledgment receipt dated March 22, 1999 and was payable within one (1) year. Petitioners
added that respondents were able to pay a total of P200K—P100K paid on two separate
occasions—leaving an unpaid balance of P300K.

In their Answer, respondents alleged that the amount involved did not pertain to a loan but was
part of the capital for a joint venture involving the lending of money when respondents that they
were approached by petitioners, who proposed that if respondents were to "undertake the
management of whatever money [petitioners] would give them, [petitioners] would get 2.5% a
month with a 2.5% service fee to [respondents]." Moreover, they claimed that the entire amount
of P500,000.00 was disposed of in accordance with their agreed terms and conditions and that
petitioners terminated the joint venture, prompting them to collect from the joint venture's
borrowers. They were, however, able to collect only to the extent of P200,000.00; hence, the
P300,000.00 balance remained unpaid.
The RTC ruled in favor of petitioners. On respondents' appeal, the Court of Appeals ruled that
while respondents had indeed entered into a simple loan with petitioners, respondents were no
longer liable to pay the outstanding amount of P300,000.00.

ISSUE1: What contract was entered into by the parties?

HELD1: Respondents entered into a simple loan or mutuum, rather than a joint venture, with
petitioners.

Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail over
the clear terms of the document attesting to the relation of the parties. "If the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations shall control.”

ISSUE2: Whether interest accrued on respondents' loan from petitioner and if in the affirmative,
at what rate?

HELD2: First issue - Guided by the decision in Nacar v. Gallery Frames: In the absence of an
express stipulation as to the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of
Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 — but will now be six percent
(6%) per annum effective July 1, 2013.

It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only
until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.

David vs. Court of Appeals

G.R. No. 115821 | October 13, 1999

Facts:
RTC Manila Judge Diaz issued a writ of attachment over the real properties of private respondents. Judge
Diaz ordered private respondent to pay petitioner P 66,500.00 with interest from July 24, 1974, until fully
paid. However, Judge Diaz amended said Decision, so that the legal rate of interest should be computed
from January 4, 1966, instead of from July 24, 1974. Private respondent appealed to CA and SC, which
both affirmed the decision of the lower court. Subsequently, entries of judgment were made and the
record of the case was remanded to RTC Branch 27, presided by respondent Judge Cruz, for the final
execution of the decision as amended.

Upon petitioner's motion, Judge Cruz issued an alias writ of execution by virtue of which respondent
Sheriff Peña conducted a public auction. Sheriff Peña informed the petitioner that the total amount of the
judgment is P 270,940.52. The amount included a computation of simple interest. Petitioner, however,
claimed that the judgment award should be P 3,027,238.50, because the amount due ought to be based on
compounded interest. Although the auctioned properties were sold to the petitioner, Sheriff Peña did not
issue the Certificate of Sale because there was an excess in the bid price in the amount of P 2,941,524.47,
which the petitioner failed to pay despite notice.

Petitioner filed a motion praying that respondent Judge Cruz issue an order directing respondent Sheriff
Peña to prepare and execute a certificate of sale in favor of the petitioner, placing therein the amount of
the judgment as P 3,027,238.50, the amount he bid during the auction which he won. His reason is that
compound interest, which is allowed by Article 2212 of the Civil Code, should apply in this case.

RTC and CA did not favor petitioner. Petitioner argued that the Court of Appeals erred in ruling that
Article 2212 of the Civil Code applies only where the parties to an obligation stipulated or agreed to pay
compounded interest.

Issue:

Whether respondent appellate court erred in affirming respondent Judge's order for the payment
of simple interest only rather than compounded interest?

Ruling:

Petitioner insists that in computing the interest due of the P 66,500.00, interest should be computed at 6%
on the principal sum of P 66,500.00 pursuant to Article 2209 and then "interest on the legal interest"
should also be computed in accordance with the language of Article 2212 of the Civil Code. In his view,
said article meant "compound interest". However, Article 2212 contemplates the presence of stipulated or
conventional interest which has accrued when demand was judicially made. In cases where no interest
had been stipulated by the parties, no accrued conventional interest could further earn interest
upon judicial demand.

Furthermore, “when the judgment sought to be executed ordered the payment of simple "legal interest"
only and said nothing about payment of compound interest, but the respondent judge orders payment of
compound interest, then, he goes beyond the confines of a judgment which had become final.” Note that
in this case, the Court of Appeals made the finding that "... no interest was stipulated by the parties.”
PHILIPPINE NATIONAL BANK petitioner, vs, THE HON. COURT OF "PEALS and AMBROSIO
PADILLA, respondents.
GR# 88880. April 30, 1991. GRIRO-AQUINO, J.:

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8
million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and was secured by
real estate mortgage and 2 promissory notes executed in favor of Petitioner by PR. The credit agreement
and the promissory notes, in effect, provide that PR agrees to be bound by “increases to the interest rate
stipulated, provided it is within the limits provided for by law”.

Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18% to: (1) 32%
[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times within the span of a single
year. This was done despite the numerous letters of request made by PR that the interest rate be
increased only to 21% or 24%.

PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack of merit.
Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under Rule 45 of ROC filed by
PNB with SC.

ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly increase the
stipulated interest rate on loans contracted with third persons as often as necessary and against the
protest of such persons.

HELD: NO

RATIO: Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the maximum
rate of interest for loans and to change such rates whenever warranted by prevailing economic and social
conditions, by express provision, it may not do so “oftener than once every 12 months”. If the Monetary
Board cannot, much less can PNB, effect increases on the interest rates more than once a year.
Based on the credit agreement and promissory notes executed between the parties, although PR did
agree to increase on the interest rates allowed by law, no law was passed warranting Petitioner to effect
increase on the interest rates on the existing loan of PR for the months of July to November of 1984.
Neither there being any document executed and delivered by PR to effect such increase.

For escalation clauses to be valid and warrant the increase of the interest rates on loans, there must be:
(1) increase was made by law or by the Monetary Board; (2) stipulation must include a clause for the
reduction of the stipulated interest rate in the event that the maximum interest is lowered by law or by the
Monetary board. In this case, PNB merely relied on its own Board Resolutions, which are not laws nor
resolutions of the Monetary Board.

Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not authorize
banks to unilaterally and successively increase interest rates in violation of Sec. 2 PD 116.

Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under Art. 1308. This
provides that the validity and compliance of the parties to the contract cannot be left to the will of one of
the contracting parties. Increases made are therefore void.

Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It provides that, “no
interest shall be due unless it has been expressly stipulated in writing”. PR never agreed in writing to pay
interest imposed by PNB in excess of 24% per annum. Interest rate imposed by PNB, as correctly found
by CA, is indubitably excessive.
AlmedaVs.Court of Appeals, G.R. 113412, April17,1996
Doctrine: LIFTING OF USURY CEILING; DOES NOT GRANT BANKS CARTE BLANCHE AUTHORITY
TO RAISE INTEREST; RULE UNDER CB CIRCULAR 905. - While the Usury Law ceiling on interest
rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as
granting respondent bank carte blanche authority to raise interest rates to levels which would
either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing represents a
transfusion of capital from lending institutions to industries and businesses in order to stimulate
growth. This would not, obviously, be the effect of PNB’s unilateral and lopsided policy regarding
the interest rates of petitioners’ borrowings in the instant case.

Facts: Between 1981 and 1984, petitioners made several partial payments on the loan totaling
P7,735,004.66,a substantial portion of which was applied to accrued interest. On March 31,
1984, respondent bank, over petitioners’ protestations, raised the interest rate to 28%, allegedly
pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from
an initial 21% to a high of 68% between March of 1984 to September, 1986.
Petitioners protested the increase in interest rates, to no avail. Before the loan was to
mature in March, 1988, the spouses filed onFebruary 6, 1988 a petition for declaratory relief
with prayer for a writ of preliminary injunction and temporary restraining order with the
Regional Trial Court of Makati, docketed as Civil Case No. 18872. In said petition, which was
raffled to Branch 134 presided by Judge Ignacio Capulong, the spouses sought clarification as to
whether or not the PNB could unilaterally raise interest rates on the loan, pursuant to the credit
agreement’s escalation clause, and in relation to Central Bank Circular No. 905. As a preliminary
measure, the lower court, onMarch 3, 1988, issued a writ of preliminary injunction enjoining
the Philippine National Bank 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.
Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB
countered by ordering the extrajudicial foreclosure of petitioners’ mortgaged properties and
scheduled an auction sale for March 14, 1989. Upon motion by petitioners, however, the lower
court, on April 5, 1989, granted a supplemental writ of preliminary injunction, staying the public
auction of the mortgaged property.

Issue/s: 1) Whether or not respondent bank was authorized to raise its interest rates from 21%
to as high as 68% under the credit agreement; and 2) Whether or not respondent bank is
granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions
of P.D. 385.
Held: We cannot, at this point, conclude that respondent DBP together with the Bancom people
actually misappropriated and misspent the $5million loan in whole or in part although the trial
court found that there is ‘persuasive’ evidence that such acts were committed by the
respondent. This matter should rightfully be litigated below in the main action. Pending the
outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that
respondent DBP is responsible for the misappropriation of the loan, even if only in part, then
the foreclosure of the petitioner’s properties under the provisions of P.D. 385 to satisfy the
whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its
employees and their families.

Furthermore, petitioners made a valid consignation of what they, in good faith and in
compliance with the letter of the Credit Agreement, honestly believed to be the real amount of
their remaining obligations with the respondent bank. The latter could not therefore claim that
there was no honest-to-goodness attempt on the part of the spouses to settle their obligations.
Respondent bank’s rush to inequitably invoke the foreclosure provisions of P.D. 385 through its
legal machinations in the courts below, in spite of the unsettled differences in interpretation of
the credit agreement was obviously made in bad faith, to gain the upper hand over petitioners.
In the face of the unequivocal interest rate provisions in the credit agreement and in the
law requiring the parties to agree to changes in the interest rate in writing, we hold that the
unilateral and progressive increases imposed by respondent PNB were null and void. Their
effect was to increase the total obligation on an eighteen million peso loan to an amount way
over three times that which was originally granted to the borrowers. That these increases,
occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the
salutary policies of extending loans to spur business cannot be disputed.

Consolidated Bank and Trust Corporation vs. CA [G.R. No.

138569, Sept. 11, 2003]

Facts: Private respondent L.C. Diaz instructed his employee, Calapre, to deposit in his savings
account in petitioner bank. Calapre left the passbook of L.C. Diaz to the teller of the petitioner
bank because it was taking time to accomplish the transaction and he had to go to another
bank. When he returned, the teller told him that somebody got it. The following day,
an impostor succeeded in withdrawing P300,000.00 by using said passbook and a falsified
withdrawal slip. Private respondent sued the bank for the amount withdrawn by the impostor.
The trial court dismissed the complaint but the CA reversed the decision of the trial court and
held the bank liable.

Issue: Whether or not petitioner bank is liable solely for the amount withdrawn by the impostor.

Held: No. The bank is liable for breach of contract due to negligence or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan. Article 1172 of the Civil Code provides that “responsibility arising from
negligence in the performance of every kind of obligation is demandable”. The bank is liable to
its depositor for breach of the savings deposit agreement due to negligence or culpa
contractual. “The bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship (Simex International vs.
CA)”.

The tellers know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner. If the tellers give the passbook to the
wrong person, they would be clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person.

The doctrine of last clear chance states that where both parties arenegligent but
the negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear opportunity
to avoid the loss but failed to do so, is chargeable with the loss. This doctrine is not applicable to
the present case. The contributory negligence of the private respondent or his last clear chance
to avoid the loss would not exonerate the petitioner from liability. However, it serves to reduce
the recovery of damages by the private respondent. Under Article 1172, “the liability may be
regulated by the courts, according to the circumstances”. In this case, respondent L.C. Diaz was
guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories
to fall into the hands of an impostor. Thus, the liability of petitioner bank should be reduced.

In PHILIPPINE BANK OF COMMERCE VS. CA, the Supreme Court allocated the damages
between the depositor who is guilty of contributory negligence and the bank on a 40-60 ratio.
The same ruling was applied to this case. Petitioner bank must pay only 60% of the actual
damages.

New Sampaguita Builders Construction vs PNB

The New Sampaguita Builders Construction (Sampaguita), through its President Mr. Dee, had obtained a
loan accommodation from PNB amounting to Php 8M, secured by Real Estate Mortgages. As such,
Sampaguita executed a promissory note in favor of the bank.

It was stipulated that the said promissory notes would earn interest under the following rates; 19.5% in
the first, and 21.5% in the second and third. It was also stipulated that the bank may increase the
interest rate within the limits prescribed by law at any time depending on the bank policy it may have
in the future, without need of notice to Sampaguita.

Sampaguita defaulted in its payment, causing PNB to demand payment thereof under the pain of
foreclosure. Sampaguita, through its President Mr. Dee had made several arrangements with PNB by
tendering several checks. However, the said checks bounced, causing PNB to foreclose the said
mortgages and have the properties sold in public auction.

Since the proceeds of the auction sale was insufficient to settle the principal amount, PNB instituted a
collection suit against Sampaguita for Php 2.1M with interest and other charges.

However, the trial court dismissed the action, holding that Sampaguita had availed of the PNB Debt
Relief Package, relieving Sampaguita of its loan obligation with the bank.

Upon recourse of PNB with the CA, the appellate court reversed the trial court ruling, holding that
Sampaguita did not qualify under the PNB Debt Relief Package.

Sampaguita sought recourse with the SC and challenged, among other things, the power of the bank to
unilaterally increase the interest rate without prior notice to Sampaguita.

WON the stipulation empowering the bank to unilaterally increase the interest rate is valid.
(1.) NO. The stipulation is void. Such condition cannot give the bank unrestrained freedom to charge any
rate other than that which was agreed upon. No interest shall be due unless such is expressly stipulated in
writing. The interest rate cannot be unilaterally altered by the bank without consent of Sampaguita.

The unilateral determination and imposition of increased rates is violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code. One-sided impositions do not have the force of law
between the parties on account that such impositions are not based on the parties’ essential equality and
mutuality.

(2.) Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money
on long-term contracts, giving respondent an unbridled right to adjust the interest independently and
upwardly would completely take away from petitioners the right to assent to an important modification in
their agreement and would also negate the element of mutuality in their contracts.

The clause which made the fulfillment of the contracts dependent exclusively upon the uncontrolled
will of bank and was therefore void. Besides, the pro forma promissory notes have the character of
a contract adhesion which is strictly construed against the party making the contract.

While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing in the
said Circular grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets.
Beltran vs PAIC Finance

The Spouses Beltran purchased from SESCO a unit of Performance Analyzer. As such, the spouses made
initial payments to decrease the outstanding balance. It was agreed by the parties that the balance of the
spouses Beltran would be financed by PAIC Finance. Under the agreement, the spouses will lease the unit
from PAIC until the principal amount is fully settled; that in such case, ownership over the unit shall be
vested to the spouses Beltran.

However, the unit malfunctioned despite the repairs earlier made by SESCO. The said repairs were found
to be unsatisfactory by the Beltrans who thereupon decided to return the unit and discontinued the
monthly rental payments to PAIC. Consequently, PAIC filed an action for collection of sum of money
against the spouses Beltran, demanding payment for the arrears in rental.

The trial court ruled to dismiss the complaint, holding that since the contract is one of lease, the lessor
PAIC is obliged to deliver the object of the lease in such condition as to render it fit for the use
intended, as provided under the Civil Code. As such, the Performance Analyzer proved to be unfit for the
use intended soon after delivery. Consequently, the lease must be deemed extinguished because the thing
leased was totally unfit for the purposes of the lease.

Upon appeal of PAIC with the CA, the appellate court affirmed the trail court decision, but held that the
contract under consideration is not one of lease but one of sale. It held that the “contract of lease” is but
a scheme to simulate the real agreement which is a financing arrangement where the spouses Beltran
would pay the unpaid balance to PAIC who shouldered the purchase price of the Performance
Analyzer.

PAIC sought recourse with the SC, arguing that the CA erred in applying the provisions under the Civil
Code in determining the character of the agreement; that the agreement is one of a Financial Lease
Agreement governed under R.A. 5980, entitled “An act regulating the organization of Financial
Companies.
WON the agreement in the present case is a Financial Lease.

(1.) YES. The contract in consideration is a Financial Lease. Financial leases, while they are complex
arrangements, cannot be casually dismissed as "simulated contracts." To the contrary, they are genuine or
legitimate contracts which have been accorded statutory recognition under R.A. 5980, the Financing
Company Act.

The basic purpose of a financial leasing transaction is to enable the prospective buyer of equipment, who
is unable to pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for
his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including the expenses
and a margin of profit for the financial lessor) with the expectation that at the end of the lease period, the
buyer/financial lessee will be able to pay any remaining balance of the purchase price.

A financing lease may be seen to be a contract sui generis, possessing some but not necessarily all of the
elements of an ordinary or civil law lease. Thus, legal title to the equipment leased is lodged in the
financial lessor. The financial lessee is entitled to the possession and use of the leased equipment. At the
same time, the financial lessee is obligated to make periodic payments denominated as lease rentals,
which enable the financial lessor to recover the purchase price of the equipment which had been paid to
the supplier thereof.The Beltrans are therefore bound to pay to PAIC all the rental payments which
accrued and are due and payable under that contract.

Sia vs CA

The plaintiff Sia rented a safety deposit box of the defendant Security Bank for the safekeeping of the
plaintiff’s stamp collection. However, the stamp collection was damaged by flood water which seeped
through the safety deposit box contained in the vault of the defendant bank.

The plaintiff now sued the bank for damages. The defendant bank argued that it has limited liability under
the Rules and Regulations Concerning Lease of Safety Deposit Box. It also argued that the contract
between the bank and the plaintiff is not one of deposit, but is actually a lease agreement; that it must be
absolved of any liability as the damage to the stamp collection was by reason of flood, a fortuitous event.

The trial court held in favor of the plaintiff and ordered the defendant bank to pay the corresponding
damages sought after.

Upon appeal of the bank with the CA, the appellate court reversed the trial court ruling, holding that the
agreement is not one of deposit but one of lease, hence the Civil Code provisions on Deposits are not
applicable. It also held that under the lease agreement, the defendant bank’s liability is limited to the
exercise of diligence to prevent the opening of the safety deposit box by any person other than the
plaintiff or his representatives; that there is no showing that the defendant bank did not exercise
diligence in the safekeeping of the stamps; that the damage was due to a fortuitous event; that the
bank does not have custody of the items deposited.

WON the agreement is one of lease.

(1.) NO. The utilization of a safety deposit box is not governed under the law on lease, nor is exclusively
governed by the law on deposit. In the case of Agro – Industrial vs CA, the SC declared that such is a
special kind of deposit; that the relationship between a bank renting out a safety deposit box and its
customers is that of a bailor – bailee.
Any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy. The
stipulation that the bank is not a depositary and that it is merely liable to exercise due diligence in
preventing any person aside from the plaintiff or his representatives from opening the safety deposit box
are void as they are contrary to law and public policy.

It is not correct to assert that the Bank has neither the possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in its premises and is under its absolute control;
moreover, the Bank keeps the guard key to the said box.

(2.) The bank is negligent in keeping the items deposited safe. The bank was aware of the floods of 1985
and 1986; it also knew that the floodwaters inundated the room where the safety deposit box was located.
In view thereof, it should have lost no time in notifying the petitioner in order that the box could have
been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this
respect, it failed to exercise the reasonable care and prudence expected of a good father of a family,
thereby becoming a party to the aggravation of the injury or loss.

Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the
Civil Code, which reads; Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

EQUITABLE PCI BANK V. NG SHEUNG NGOR (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 bank’s 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 Equitable’s 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 respondent’s 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 Equitable’s application for
injunction was granted.
9. Despite the injunction, Equitable’s 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 depositor’s
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.

Security Bank and Trust Company v RTC (Credit

Transactions)
SECURITY BANK AND TRUST COMPANY v RTC-MAKATI
G.R. No. 113926
October 23, 1996

FACTS:

In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed interest rate was
23% per annum. The promissory note was freely and voluntarily signed by both parties. Leia Ventura was the co-
maker. Eusebio defaulted from paying. Security Bank sued for collection.

DECISION OF LOWER COURTS:

* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the interest rate to 12% per
annum.
* directly to SC in petition for certiorari.

ISSUES & RULING:

1. Should the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a contract, far in
excess of the ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2 of Central Bank Circular
No. 905 which prescribes that the rate of interest thereof shall continue to be 12% per annum? or whether or not
the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against
the Usury Law?

Yes, the rate per contract prevails.

From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three
(3) promissory notes is 23% per annum. The applicable provision of law is the Central Bank Circular No. 905
which took effect on December 22, 1982:

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 judicial, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.

Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly excessive.

Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and conditions. The
promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between
them.

2. Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory notes and
stipulated interest rates of promissory notes and thereby impose a 12% interest on the loans, in the absence of
evidence justifying the imposition of a higher rate?

NO. The rate of interest was agreed upon by the parties freely. Significantly, respondent did not question that rate.
It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore,
Article 1306 of the New Civil Code provides that 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. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on
the principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or
forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum. Hence, only in the absence of a stipulation can the court impose the 12% rate of
interest.

APPLICABLE PROVISION OF LAW:

Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2 which state:

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 judicial, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent
(12%) per annum.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905.
Contrary to the claim of respondent court, this circular did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity.