54. SPOUSES BACOLOR vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
DAGUPAN CITY BRANCH, GR No. 148491; Feb. 8, 2007)
 
FACTS:
 On February 1982, spouses Zacarias and Catherine Bacolor obtained a loan of
P244,000.00 from Banco Filipino Savings and Mortgage Bank. They executed a
promissory note providing that the amount shall be payable within a period of ten
10 years with a monthly amortization of P5,380.00 beginning March 11,1982 and every
11th day of the month thereafter; that the interest rate shall be 24% per annum, with a
penalty of 3% on any unpaid monthly amortization; that there shall be a service charge
of 3% per annum on the loan; and that in case bank seeks the assistance of counsel to
enforce the collection of the loan, petitioners shall be liable for 10%of the amount due
as attorney’s fees and15% of the amount due as liquidated damages. As security for the
loan, petitioners mortgaged with respondent bank their parcel of land located in
DagupanCity, Pangasinan. From March 1982 to July 1991, petitioners paid respondent
bank P412,199.36. Thereafter, they failed to pay the remaining balance of the loan. On
August 1992, petitioners received from respondent bank a statement of account stating
that their indebtedness as of July 1992amounts to P840,845.61. In its letter dated
January1993, respondent informed petitioners that should they fail to pay their loan
within 15 days from notice, appropriate action shall be taken against them. Due to
petitioners’ failure to settle their obligation, respondent instituted, on March 1993, an
action for extra-judicial foreclosure of mortgage. Prior thereto, or on February 1993,
petitioners filed with RTC, a complaint for violation of the Usury Law against
respondent. They alleged that the provisions of the promissory note constitute a
usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service
charge, attorney’s fees and liquidated damages, and (3) deductions for surcharges and
insurance premium. In their amended complaint, petitioners further alleged that, during
the closure of respondent bank, it ceased to be a banking institution and, therefore,
could not charge interests and institute foreclosure proceeding.

RTC rendered its decision dismissing petitioners ‘complaint and the interest rate of 24%
per annum is not usurious. CA rendered its Decision affirming the Decision of the trial
court.

ISSUE:

1. WON the interest rate is "excessive and unconscionable.

2. ”WON the bank lost its function as a banking institution during its closure and
therefore could no longer charge interest and institute foreclosure proceedings.

HELD:

The petition lacks merit. Article 1956 of the Civil Code provides that no interest shall be
due unless it has been expressly stipulated in writing.

1. No. The bank was allowed to collect interests on its loans while under liquidation,
provided that the interests were legal. In fine, we hold that the interest rate on the
loan agreed upon between the parties is not excessive or unconscionable; and
that during the closure of respondent bank, it could still function as a bonding
institution, hence, could continue collecting interests from petitioners. Here, the
 parties agreed in writing on February11, 1982 that the rate of interest on the
petitioners’ loan shall be 24% per annum. With the suspension of the Usury
Law and the removal of interest ceiling, the parties are free to stipulate the
interest to be imposed on monetary obligations. Absent any evidence of fraud,
undue influence, or any vice of consent exercised by one party against the other,
the interest rate agreed upon is binding upon them. Petitioners cannot now
renege on their obligation to comply with what is incumbent upon them under the
loan agreement. A contract is the law between the parties and they are bound
by its stipulations.

2. No.  Even though from January 1985 to July 1994, the bank did not it lost its
function as a banking institution and, therefore, could still charge interests and
institute foreclosure proceedings. In the case of Banco Filipino Savings &
Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, this Court
ruled that the bank’s closure did not diminish the authority and powers of
the designated liquidator to effectuate and carry on the administration of the
bank, thus: x x x. We did not prohibit however acts such as receiving collectibles
and receivables or paying off creditors’ claims and other transactions pertaining
to the normal operations of a bank. There is no doubt that that the prosecution of
suits for collection and the foreclosure of mortgages against debtors of the bank
by the liquidator are among the usual and ordinary transactions pertaining to the
administration of a bank. x x x. Likewise, in Banco Filipino Savings and Mortgage
Bankvs. Ybañez , where one of the issues was whether respondent bank can
collect interest on its loans during its period of liquidation and closure, this Court
held: In Banco Filipino Savings and Mortgage Bank v.Monetary Board, the
validity of the closure and receivership of Banco Filipino was put in issue. But the
pendency of the case did not diminish the authority of the designated liquidator to
administer and continue the bank’s transactions. The Court allowed the bank
liquidator to continue receiving collectibles and receivables or paying off
creditor’s claims and other transactions pertaining to normal operations of
a bank. Among these transactions were the prosecutions of suits against debtors
for collection and for foreclosure of mortgages.
55. Trade & Investment (Philguarantee) v Roblett et al, and Paramount Insurance
Corp.

Facts:

The general contractor of a foreign oil company (KNPC) opened for bidding in 1984 a
subcontract for the supply of workers for a project in Kuwait. Roblett, to qualify as a
bidder, was required to post a bid bond. Consequently, Roblett applied with the Bank of
Kuwait (BKME) for a letter of guarantee to cover the amount. The bank consented on
the condition that Roblett would obtain a counterguarantee to secure bond. Roblett then
obtained from Philguarantee a counterguarantee in favor of BKME, however, its
issuance was conditioned upon the execution by Roblett of a Deed of Undertaking.
Under the terms of the Deed, Roblett bound itself to keep petitioner free and harmless
from any damage or liability which may arise out of the issuance of its bid bond
guarantee and to give their irrevocable consent and approval to any and all extensions
of the period of the guarantee. Furthermore, the Deed required that the
counterguarantee be secured by "a surety bond equivalent to 100% of the guarantee
accommodation." Should the instrument be in the form of a surety bond, "the same
must be issued by an insurance company acceptable to Philguarantee and must be
coterminus with the guarantee to be issued."

To comply with petitioner’s requirement of a counterguarantee, Roblett obtained from

Paramount,a surety bond in the amount of P11M, the peso equivalent of petitioner’s
guarantee accommodation. The term of the Surety Bond was coterminous with
petitioner’s counterguarantee. The Surety Bond, which forms the crux of the present
petition, reads inpart: That we, ROBLETT INDUSTRIAL CONSTRUCTION
CORPORATION, as principal, and PARAMOUNT INSURANCECORPORATION, as
surety, are held and firmly bound unto PHILGUARANTEE in the sum of P11M for the
payment of which, well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally, firmly by these
presents.***

However, should the Surety and Principal receive a written notice from
PHILGUARANTEE stating that PHILGUARANTEE has been called upon by (Bank of
Kuwait and the Middle East) to extend the validity of the guarantee, the Surety hereby
agrees that it will either pay PHILGUARANTEE the full amount outstanding under this
Surety Bond, or extend this Surety Bond to a new maturity date specified by
PHILGUARANTEE. Roblett was awarded the subcontract by KNPC. The required
performance bond was pending with the Central Bank, however, its application was
disapproved. As a result, Roblett was not able to post the bond and was deemed by
KNPC to have breached the subcontract. KNPC confiscated BKME’s bid bond, which in
turn called on petitioner Philguarantee’s counterguarantee. Thus, Philguarantee notified
Paramount of the payment it had made to BKME.

Issue: WON Paramount is liable as surety to petitioner.

Held: YES

As a surety, Paramount is liable to petitioner solidarily with Roblett. In Jeanette D.

Molino v. Security Diners International Corporation, we held:

A surety is considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. Although the contract of a surety is in essence
secondary only to a valid principal obligation, his liability to the creditor is direct, primary
and absolute; he becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor does he receive any
benefit therefrom. As solidary debtors, it is not necessary that Roblett failed to pay
before Paramount could be made liable. It is enough that petitioner demanded payment
from Paramount for liability to attach.

Article 1216 of the Civil Code provides:

The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has
not been fully collected.
56. Almedavs Court of Appeals

FACTS:

The case involves a parcel of land with an area of 1,208 square meters located in Barrio
Pampangin, Pateros, Rizal, and described in Survey Plan Psu-128539. This was
originally owned by the petitioners’ parents. On September 12, 1984, the
petitioners,filed for the registration of the land in the RTC of Pasig. The only
opposition of the application was filed by the Director of Lands through the
Solicitor General on the contention that the applicants have not met the statutory
requirement on possession under Section 48(b) of CA 141, mainly because the land
applied for was alienable forestland before its release as alienable and
disposable land on January 3, 1968. The applicants’ possession prior to January
3, 1968 was invalid for the purposes of a grant under Section 48(b) of the Public Land
Act, which states that actual possession should be 30 years.

ISSUE:

Whether or not classification of the land affects the vested rights of applicants and their
predecessor-in-interest who had exclusive and peaceful possession of said parcel of
land since 1918?

HELD:

The Supreme Court upheld the decision of the CA, that the respondent had not qualified
for a grant under the Public Land Act because their possession of the
landwhile it was still inalienable forest land, or before it was declared alienable anddispo
sable land of the public domain on January 13, 1968, could not ripen into private
ownership, and should be excluded from the computation of the 30-year open
and continuous possession in concept of owner required under Section 48(b) of Com.
Act141. Petition was denied for lack of merit
57. Medelvs Court of Appeals, 299 SCRA 481; GR No. 131622, November 27, 1998,

(Credit Transactions – Loans, Usury Law, Interest Rates)

Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable in
2 months and executed a promissory note. Plaintiff gave only the amount of P47,
000.00 to the borrowers and retained P3, 000.00 as advance interest for 1 month at 6%
per month.

Defendants obtained another loan from Defendant in the amount of P90, 000.00,
payable in 2 months, at 6% interest per month. They executed a promissory note to
evidence the loan and received only P84, 000.00 out of the proceeds of the loan.

For the third time, Defendants secured from Plaintiff another loan in the amount of
P300, 000.00, maturing in 1 month, and secured by a real estate mortgage. They
executed a promissory note in favor of the Plaintiff. However, only the sum of P275,
000.00, was given to them out of the proceeds of the loan.

Upon maturity of the three promissory notes, Defendants failed to pay the indebtedness.

Defendants consolidated all their previous unpaid loans totalling P440, 000.00, and
sought from Plaintiff another loan in the amount of P60, 000.00, bringing their
indebtedness to a total of P50,000.00. They executed another promissory note in favor
of Plaintiff to pay the sum of P500, 000.00 with a 5.5% interest per month plus 2%
service charge per annum, with an additional amount of 1% per month as penalty
charges.

On maturity of the loan, the Defendants failed to pay the indebtedness which prompt the
Plaintiffs to file with the RTC a complaint for collection of the full amount of the loan
including interests and other charges.

Declaring that the due execution and genuineness of the four promissory notes has
been duly proved, the RTC ruled that although the Usury Law had been repealed, the
interest charged on the loans was unconscionable and “revolting to the conscience” and
ordered the payment of the amount of the first 3 loans with a 12% interest per annum
and 1% per month as penalty.

On appeal, Plaintiff-appellants argued that the promissory note, which consolidated all
the unpaid loans of the defendants, is the law that governs the parties.

The Court of Appeals ruled in favor of the Plaintiff-appellants on the ground that the
Usury Law has become legally inexistent with the promulgation by the Central Bank in
1982 of Circular No. 905, the lender and the borrower could agree on any interest that
may be charged on the loan, and ordered the Defendants to pay the Plaintiffs the sum
of P500,000, plus 5.5% per month interest and 2& service charge per annum , and 1%
per month as penalty charges.

Defendants filed the present case via petition for review on certiorari.

Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of P500,
000.00 is usurious.
Held: No.

A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is excessive,
iniquitous, unconscionable and exorbitant, but it cannot be considered “usurious”
because Central Bank Circular No. 905 has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now “legally inexistent.”

Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another law.

Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury
Law but simply suspended the latter’s effectivity (Security Bank and Trust Co vs RTC). 
Usury has been legally non-existent in our jurisdiction. Interest can now be charged as
lender and borrower may agree upon.

Law: Article 2227, Civil Code

The courts shall reduce equitably liquidated damages, whether intended as an

indemnity or a penalty if they are iniquitous or unconscionable.

Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular 905,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or
lead to a haemorrhaging of their assets (Almeda vs. CA, 256 SCRA 292 [1996]).