Art.

1170 : Damages For Breach Of Contract

HARRY ANG PING VS. THE HONORABLE COURT OF APPEALS, ET AL. G.R. NO. 126947; JULY 15, 1999 DIGEST NO. 11 Facts: Juan Tingson applied for and was issued a Unicard credit card by respondent Corporation with petitioner Harry Ang Ping as co-obligor. As part of the terms and conditions governing the issuance and use of the credit card, Tingson and Ang Ping agreed to jointly and severally pay Unibancard all purchases and charges made through the said credit card within twenty (20) days from receipt of the monthly statement without necessity of demand. Tingson and Ang Ping likewise bound themselves to pay interest and penalty fees on any unpaid balance and attorney's fees in case of suit. Tingson defaulted on his monthly charges which amounted to P49,988.42 and despite repeated demands, failed or refused to settle his accounts with respondent Corporation prompting the latter to file a collection suit with the Regional Trial Court of Makati. A certain Atty. Benito Salazar filed an answer purportedly on behalf of defendants Tingson and Ang Ping, denying the substantial averments in the complaint and alleging that the unpaid charges were much less than P49,988.42 and that no proper demand was made on the defendants. Later, during trial, defendants' counsel did not present any evidence on their behalf; consequently, the trial court deemed that the defendants had waived their right to present evidence and submitted the case for decision. The trial court rendered judgment on June 11, 1990, holding Tingson and Ang Ping jointly and severally liable. Ang Ping filed with the Court of Appeals a petition to annul the judgment of the trial court which was the basis of the various writs of execution issued against him. He alleged that the judgment in question was rendered without due process of law as he was not given his day in court. Petitioner argued that since there was no valid service of summons upon him and he never appeared before the court by himself or by counsel, the trial court never acquired jurisdiction over his person, thus, the judgment cannot be enforced against him.The Court of Appeals dismissed the petition. Hence this petition. Issue: Whether or not the judgment of the civil case was rendered without jurisdiction Held: With respect to the appellate court's holding that because of petitioner's delay in filing the petition for annulment of judgment, he is deemed to have forfeited his opportunity to present his side, it is enough to say that where the ground invoked as basis for annulment of judgment is lack of jurisdiction, the petition may be filed anytime before it is barred by estoppel or laches, neither of which obtains in the present case. As held by this Court before, it is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result. All told, the judgment sought to be executed against Ang Ping was indeed rendered without jurisdiction as he was not properly served with summons and neither did he voluntarily submit himself to the authority of the trial court. The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of his defense. It is elementary that before a person can be deprived of his property, he should first be informed of the claim against him and the theory on which such claim is premised. Not having been duly accorded his day in court, petitioner cannot thus be bound by the judgment in the collection suit.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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LUFTHANSA GERMAN AIRLINES VS. COURT OF APPEALS, ET AL G.R. NO. 83612; NOVEMBER 24, 1994 DIGEST NO. 12 Facts: On September 17, 1984, Lufthansa, through SGV, issued ticket for Antiporda's confirmed flights to Malawi, Africa. Thus, on September 25, 1984, Antiporda took the Lufthansa flight to Singapore from where he proceeded to Bombay on board the same airline. He arrived in Bombay as scheduled and waited at the transit area of the airport for his connecting flight to Nairobi which was, per schedule given him by Lufthansa, to leave Bombay in the morning of September 26, 1984. Finding no representative of Lufthansa waiting for him at the gate, Antiporda was able to get in touch with Lufthansa, through the help of Air India. Ten minutes later, Gerard Matias, Lufthansa's traffic officer, arrived, asked for Antiporda's ticket and told him to just sit down and wait. Matias returned with one Leslie Benent, duty officer of Lufthansa, who informed Antiporda that his seat in Air Kenya Flight 203 to Nairobi had been given to a very important person of Bombay who was attending a religious function in Nairobi. Antiporda protested, stressing that he had an important professional engagement in Blantyre, Malawi. He requested that the situation be remedied but Air Kenya Flight 203 left for Nairobi without him on board. Stranded in Bombay, Antiporda was booked for Nairobi via Addis Ababa only on September 27, 1984. He finally arrived in Blantyre at 9:00 o'clock in the evening of September 28, 1984, days late for his appointment with people from the institution he was to work with in Malawi. Antiporda's counsel wrote the general manager of Lufthansa in Manila demanding damages for the airline's malicious, wanton, disregard of the contract of carriage. Apparently getting no positive action from Lufthansa, he filed with the Regional Trial Court of Quezon City a complaint against Lufthansa which the trial court in its decision favored Antiporda. Lufthansa elevated the case to the Court of Appeals arguing that it cannot be held liable for the acts committed by Air Kenya on the basis of that they merely acted as a ticket-issuing agent in behalf of Air Kenya; consequently the contract of carriage entered into is between respondent Antiporda and Air Kenya, to the exclusion of petitioner Lufthansa; under sections (1) and (2) Article 30 of the Warsaw Convention, an airline carrier is liable only to untoward occurrences on its own line. The Court of Appeals affirmed the decision on the trial court. Failing to obtain a favorable decision, Lufthansa filed this petition for review on certiorari. Hence this petition. Issue: Whether or not Lufthansa is liable for damages in the case at bar. Held: In light of the stipulations expressly specified in the ticket defining the true nature of its contract of carriage with Antiporda, Lufthansa cannot claim that its liability thereon ceased at Bombay Airport and thence, shifted to the various carriers that assumed the actual task of transporting said private respondent. We, therefore, reject Lufthansa's theory that from the time another carrier was engaged to transport Antiporda on another segment of his trip, it merely acted as a ticket-issuing agent in behalf of said carrier. In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by various carriers. The issuance of a confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip abroad successive carriers concretely attests to this. This also serves as proof that Lufthansa, in effect guaranteed that the successive carriers, such as Air Kenya would honor his ticket; assure him of a space therein and transport him on a particular segment of his trip. Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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Computation Of Rate Of Legal Interest as Damages

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS ET. AL. G.R. NO. 123643 OCTOBER 30, 1996 DIGEST NO. 13 Facts: As payments for the purchase of medicines, the Province of Isabela issued several checks drawn against its account with petitioner Philippine National Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals Laboratories, a business operated by private respondent Ibarrola. The checks were delivered to the seller's agents who turned them over to Ibarrola, except 23 checks amounting to P98,691.90, which the agents appropriated after negotiating them with PNB. For her failure to receive the full payment for the medicines, Ibarrola filed on November 6, 1974 before the Regional Trial Court (RTC) an "action for a sum of money and damages against the Province of Isabela, its Treasurer, the two agents and PNB.In its decision dated September 29, 1987, the trial court ordered all the defendants in said civil case, except the treasurer who died in the meantime, to "jointly and solidarily" pay Ibarrola . PNB's appeal to the Court of Appeals (CA) and later to the Supreme Court were denied and dismissed, respectively. All the three courts, however, did not specify whether the legal rate of interest referred to in the judgment is 6% or 12%. The judgment in Civil Case became final and executory on November 26, 1993. At the execution stage, the sheriff computed the interest mentioned in the judgment at the rate of 12% which PNB opposed insisting that the rate should only be 6%. Ibarrola sought clarification from the same RTC which promulgated the decision. On August 4, 1994 said court issued an order clarifying that the rate is 12%. PNB's direct appeal to this court from that order was referred to the CA which affirmed the RTC order. Hence, this petition. Issue: Whether in an action for damages, the legal rate of interest is 6% as provided by Article 2209 of the New Civil Code or 12% as provided by CB Circular 416 series of 1974, and whether such rate shall be computed from the filing of the complaint until fully paid. Held: 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. The case at bench does not involve a loan, forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not receive full payment for her merchandise. When an obligation arises "from a contract of purchase and sale and not from a contract of loan or mutuum," the applicable rate is "6% per annum as provided in Article 2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir. No. 416. The rate of interest shall be 6% p.a. computed from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed from the time the judgment became final and executory on November 26, 1993 until fully satisfied.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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EASTERN SHIPPING LINES, VS. COURT OF APPEALS 234 SCRA 78 DIGEST NO. 14 Facts: Two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel, SS Eastern Comet owned by Eastern Shipping Lines, Inc. the shipment was insured under Marine Insurance Policy of private respondent Mercantile Insurance Policy, Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of Metro Port Service, Inc. The latter, excepted to one drum, said to be in bad order, which damage was unknown to private respondent. On January 7, 1982, Allied Brokerage Corporation made deliveries of the shipment to the consignees warehouse. The latter excepted to one drum which contains spillages, while the rest of the contents was adulterated/fake. Private respondent contend that due to the losses/damages sustained to the drum, the consignee suffered losses totaling P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants. The trial court held that the shipping company, arrester operator and broker-forwarded were jointly and severally liable and were ordered to pay for the damages sustained. The Court of Appeals affirmed in toto the judgment of the lower court. Hence, this petition. Issue: Whether damages. or not Eastern Shipping Lines, Inc. is liable for

Held: There is sufficient evidence that the shipment sustained damage while in the successive possession of the appellants. The liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. For the computation of rate of legal interest for damages, the Court suggested the rules of thumb foe guidance. In the case at hand, the decision was modified that the legal interest to be paid is 6% on the amount due computed from the decision, dated 3 February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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PILIPINAS BANK VS. COURT OF APPEALS 225 SCRA 180 DIGEST NO. 15 Facts: Private respondent filed a complaint against petitioner and its president, Constantino Bautista, for collection of a sum of money. The complaint alleged: (1) that petitioner and Greatland Realty Corporation (Greatland) executed a Dacion en Pago, wherein Greatland conveyed to petitioner several parcels of land in consideration of the sum of P7,776,335.69; (2) that Greatland assigned P2,300,000.00 out the total consideration of Dacion en Pago, in favor of private respondent; and (3) that notwithstanding her demand for payment, petitioner in bad faith, refused and failed to pay the said amount assigned to her. Petitioner, while admitting the execution of the Dacion en Pago, assailed that its former president had no authority to enter into such agreement and that it never ratified the same and that assuming arguendo that the agreement was binding, the conditions stipulated therein were never fulfilled. Dismissing petitioners defenses as unmeritorious, the trial court ruled in favor of private respondent. The trial court ordered petitioner and its co-defendant, jointly and severally, to pay private respondent. On appeal to the Court of Appeals, said court modified the judgment of the trial court. Private respondent was paid in advance the amount of P5,517,707.00 by petitioner pursuant to the order for the execution pending appeal of the judgment of the trial court. On appeal, the Court of Appeals reduced the total damages to P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by private respondent to petitioner. Issue: Whether or not private respondent should pay interest at the rate of 12% on the overpayment collected by her pursuant to the advance execution of the judgment. Held: In party to to repay monetary an execution pending appeal, funds are advanced by the losing the prevailing party with the implied obligation of the latter the former, in case the appellate court cancels or reduces the award.

Under Section 5 of Rule 39 of the Revised Rules of Court where the judgment executed is reversed totally or partially on appeal, the trial court, on motion, after the case is remanded to it, may issue such orders of restitution, as equity and justice may warrant under the circumstances. In the case before us, the excess amount ordered to be refunded by private respondent falls within the ruling in Viloria and Buiser that Circular No. 416 applies to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is subsequently adjudged.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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Interest Rate

For Damages As Stipulated By the Parties

SECURITY BANK & TRUST CO. VS. RTC OF MAKATI BR. 61 263 SCRA 483 DIGEST NO. 16 Facts: On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos (P100,000.00) payable in six monthly installments with a stipulated interest of 23% per annum up to the fifth installment. On July 28, 1983, respondent Eusebio again executed Promissory Note No. TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to pay the sum of One Hundred Thousand Pesos (P100,000.00) in six (6) monthly installments plus 23% interest per annum. Finally, another Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in the amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this note in six (6) monthly installments plus interest at the rate of 23% per annum. On all the abovementioned promissory notes, private respondent Leila Ventura had signed as co-maker. Upon maturity which fell on the different dates below, the principal balance remaining on the notes stood at:1) PN No. TL/74/748/83 P16,665.00 as of September 1983. 2) PN No. TL/74/1296/83 P83,333.00 as of August 1983. 3) PN No. TL/74/1991/83 P65,000.00 as of August 1983. Upon aforestated petitioner judgment in the failure and refusal of respondent Eusebio to pay the balance payable, a collection case was filed in court by SBTC. 5 On March 30, 1993, the court a quo rendered a favor of petitioner SBTC, Hence, this petition.

Issue: 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. Held: The applicable provision of law is CB Circular No. 905 which allows such interest rates. As provided in Article 1306 of the Civil Code, the parties may make such stipulations, clauses, terms and condition as may be deemed 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.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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ANTONIO L. CASTELO, ET AL VS. THE COURT OF APPEALS G.R. NO. 96372 ; MAY 22, 1995 DIGEST NO. 17 Facts: On 15 October 1982, petitioners Antonio Castelo, Bernabe Banson, Lourdes Banson and Pompeyo Depante entered into a contract denominated as a "Deed of Conditional Sale" with private respondent Milagros Dela Rosa involving a parcel of land located in 1524 Espaa Street, Sampaloc, Manila, 84.19 square meters in area. The agreed price of the land was Two Hundred Sixty Nine Thousand, Four Hundred and Eight Pesos (P269,408.00). Upon signing the contract, private respondent paid petitioners One Hundred Six Thousand Pesos (P106,000.00) leaving a balance of One Hundred Sixty Thousand Four Hundred and Eight Pesos (P163,408.00). The Deed of Conditional Sale also stipulated that the balance of P163,408.00 to be paid on or before December 31, 1982 without interest and penalty charges; Should the said balance remain unpaid by the VENDEE, the VENDORS hereby agree to give the VENDEE a grace period of SIX (6) months or up to June 30, 1983 to pay said balance provided that interest at the rate of 12% per annum shall be charged and 1% penalty charge a month shall be imposed on the remaining diminishing balance. Private respondent Dela Rosa was unable to pay the remaining balance thus,petitioners filed an action for specific performance with damages in the RTC of Manila against Dela Rosa. The RTC, in its decision ordered the rescission of the Deed of Conditional Sale. Petitioners then went on Certiorari to the Court of Appeals questioning the trial court's decision. The Court of Appeals, annulled and set aside the RTC's decision. Petitioners filed a motion for execution of judgment of the trial court as modified by the 21 November 1986 judgment of the Court of Appeals. Private respondent opposed this motion. A writ of execution of the 21 November 1986 judgment of the Court of Appeals was issued by the trial court. Accordingly, a Sheriff's Notice to Pay Judgment was served on private respondent Dela Rosa requiring her to pay petitioners a total of One Hundred Ninety Seven Thousand Seven Hundred Twenty Three Pesos and Sixty Eight Centavos P197,723.68. Petitioners filed a motion for reconsideration and a separate motion for alias writ of execution contending that the sum of P197,723.68, based on the Sheriff's own computation, was erroneous. Petitioners then went on Certiorari for the second time to the Court of Appeals claiming that the trial court had acted with grave abuse of discretion in issuing its Orders. Hence this Petition for Review. Issue: Whether or not there is an ambiguity and inadvertent omission in the dispositive portion of the decision of Castro-Bartolome, J. Held: The dispositive portion itself failed to specify expressly whether Castro-Bartolome, J. was referring to the payment of interest in accordance with the terms and conditions of the "Deed of Conditional Sale" or whether, as Luna, J. was to hold almost four years later that the requirement of "to pay interest" related, not to the interest provisions of the Conditional Sale Deed between petitioners and private respondent, but rather to legal interest on the amount of the unpaid balance of the purchase price of the land which would begin to accrue from the date of the entry of the Castro-Bartolome judgment on 12 February 1987. Luna, J. said: It is settled that the only portion subject of execution is the dispositive portion of a judgment. The judgment of the Honorable Court of Appeals does not refer to the interest referred to in the Conditional Deed of Sale. Said judgment or dispositive portion cannot be stretched or enlarged to refer to the interest indicated in the Conditional Deed of Sale. If that were the intention of the Honorable Court of Appeals, as contended by plaintiffs, it would have said so in black and white. This Court is not authorized to re-write, alter, amend or change the above-mentioned dispositive portion of the judgment of the Honorable Court of Appeals. Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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By a fair interpretation, the interest therein referred to is the legal rate of interest imposed by the Honorable Court of Appeals which must commence from the entry of judgment on February 12, 1987. At this stage, it appearing that the Decision of the Honorable Court of Appeals had long become final and executory. This Court has no more jurisdiction to entertain reception of evidence in the matter of the execution of the dispositive portion of the judgment of the Honorable Court of Appeals.It thus appears that the Castro-Bartolome decision was ambiguous in the sense that it was too cryptic. Examination of the body of that decision, however, sheds no light on the reference intended by Castro-Bartolome, J. in directing private respondent "to pay interest." Luna, J. himself had to resort to "fair interpretation." We believe that, in these circumstances, we must assume that Mme. Justice CastroBartolome meant to decide in accordance with law; that we cannot fairly assume that she was unfamiliar with the applicable law or that she had intended to grant petitioners less than that they were entitled to under the law. Thus, the important question is: under the circumstances which were before Castro-Bartolome, J., what should private respondent dela Rosa have been held liable for in accordance with law.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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Stipulated Interest Held Unconscionable

INVESTORS FINANCE CORPORATION VS. AUTOWORLD SALES CORPORATION, ET AL. G.R. NO. 128990 ; SEPTEMBER 21, 2000 DIGEST NO. 18 Facts: Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied. But however remedied to extend funds by purchasing any of its outstanding receivables at a discount, the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The parties signed three contracts to implement the "IPP" transaction. After which it was concluded AUTOWORLD started paying the monthly installments to FNCB. After paying nineteen (19) monthly installments on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to pre-terminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78. AUTOWORLD disagreed with the latter's computation of its outstanding balances. However, FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded. Thus, despite its objections, AUTOWORLD reluctantly paid. AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84. According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction. The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. FNCB should refund the amounts of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess payment for the second transaction. FNCB argued that the contracts were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. The Regional Trial Court of Makati ruled in favor of FNCB. The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest. The appellate court deleted the award of P50,000.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. Hence, this petition of FNCB. Issue: Whether the three (3) contracts that were executed to implement a legitimate Installment Paper Purchase ("IPP") transaction are concealment to a usurious loan. Held: We stress at the outset that this petition concerns itself only with the first transaction involving the alleged' "IPP" worth P6,980,000.00, which was implemented through the three 3 contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. "However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury. The following circumstances show that such scheme was indeed. Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that the P6,980,000.00 was really a usurious loan extended to AUTOWORLD. Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise, the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on usury. In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. These contracts should therefore be declared void.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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EASTERN ASSURANCE & SURETY CORP. VS. COURT OF APPEALS 322 SCRA 73 DIGEST NO. 19 Facts: On June 26, 1981 , a building owned by private respondent Vicente Tan and insured with the petitioner East Assurance and Surety Corporation (EASCO) was destroyed by fire. Due to EASCOs refusal to indemnify private respondent, the latter filed a complaint against the former for breach of contract with damages with RTC by which a judgment was rendered in favor of private respondent and ordered EASCO to pay as sum of money representing the fire insurance claim plus legal rate of interest from June 26, 1981 until fully paid , attorneys fees, moral and exemplary damages and all expenses incurred from Manila. On Appeal by the petitioner , to The CA , the decision was affirmed with some modification , and thereafter , became final and executory on August 25, 1993. Upon Payment by the petitioner , private respondent refused to accept it on ground that the applicable legal rate was 12% per annum. Subsequently, private respondent brought the matter to the Insurance Commission . On February 27, 1995, the parties agreed before the hearing office of the commission that the interest should be computed from June 26, 1981 to September 30, 1994. Petitioner would file with the trial court a motion to fix a legal rate of interest attaching thereto a check with 6% interest per annum. Upon Doing so , the trial court issued the assailed resolution fixing the rate of interest to 12% per annum. Petitioner filed a motion for reconsideration, but was denied and on certiorari to the Court of Appeals , the latter rendered a decision. Noting that the case was for breach of contract for payment of damages for the loss or destruction of property and not for collection of a loan or forbearance , it ruled that the interest rate should be 6% per annum from June 26, 1981 to August 24, 1993 and 12% per annum beginning August 25, 1993( the date the decision of the trial court become final and executory until the money judgment is paid), Hence this petition Issue: Whether or not the legal interest rate should be 12 % per annum from such finality until its satisfaction , this interim period being deemed to be by then an equivalent to a forbearance of credit. Held: Contrary to the petitioner contention , Eastern Shipping Lines, Inc., did not lay down any new rules ; all that was made was to state a comprehensive summary of existing rules on the computation of interest . In fact , earlier in the case of Nakpil An Sons vs. Court of Appeals , the court allowed the imposition of 12 % legal interest per annum on money judgment from the date of it finality until fully paid. Strictly speaking, therefore, there was no retroactive application of the rules in this case. Nor there modification of judgment in fixing the legal rate of interest at 12 % precisely because the subject case arose when the trial court failed to specify in its decision the rate of the legal interest to be imposed on the money judgment.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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Contravention Of Tenor Of The Obligation

TELEFAST COMMUNICATION/PHILIPPINES WIRELESS INC. VS. CASTRO 156 SCRA 445 DIGEST NO. 20 Facts: Consolacion Bravo-Castro, wife of the plaintiff Igancio Castro, Sr. and mother of the other plaintiffs, died in Lingayen, Pangasinan. On the same day , her daughter Sofia Crouch, who was then vacationing in the Philippines, addressed a telegram to plaintiff Igancio Castro Sr. Indiana , USA , announcing her mothers Death. The telegram was accepted by the defendant in its Dagupan office, for transmission , after payment of the required fee. The telegram never reached its addressee. Consolation was interred with only her daughter Sofia in attendance. Neither the husband nor any of the other children of the deceased , then all residing in the United States , retured for the burial. When Sofia returned to the United States , she discovered that the wire she had caused the defendant to send had not been received . She and the other plaintiffs thereupon brought action for damages arising form defendants breach of contract. The only defense of the defendant was that it was unable to transmit the telegram because of technical atmospheric factors beyond control. The Court of first instance of Pangasinan , after trial, ordered the petitioner to pay the private respondent damages with interest. Petitioner appeals form the judgment of the court of appeals, contending that the award for moral damages should be eliminated as defendant s negligent act was not motivated by fraud, malice or recklessness. Issue: Whether or not petitioner is liable for the said damages. Held: In the case at bar, petitioner and private respondent Sofia Crouch, entered into a contract whereby , for a fee, petitioner undertook to send said private respondents message overseas by telegram. This , petitioner did not do, despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. This liability is not limited to actual or quantified damages. To sustain petitioners contrary position in this regard would result in an iniquitous where petitioner will only be held liable for the actual cost of a telegram fixed (30) years ago. We find, Art. 2217 of the Civil Code , applicable to the case at bar , here petitioners act or omission , which amounted to gross negligence , was precisely the cause of the suffering private respondent had undergo.

Rafael M. Soro 1-M ; Obligations & Contracts SY 2005- 2006 ; San Beda College of Law

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