Eastern Shipping Lines, Inc. v. CA and The First Nationwide Assurance Corp.

G.R. No. 97412 July 12, 1994

Vitug, J.

FACTS:
 13 coils of uncoated 7-wire stress relieved wire strand for pre-stressed concrete were shipped on board
a vessel owned and operated by Eastern Shipping Lines at Kobe, Japan, for delivery to Stresstek Post-
Tensioning Phils., Inc. in Manila
 while en route from Kobe to Manila, the carrying vessel encountered very rough seas and stormy
weather; the coils wrapped in burlap cloth and cardboard paper were stored in the lower hold of the
hatch of the vessel which was flooded with water; the water entered the hatch when the vessel
encountered heavy weather en route to Manila; upon request, a survey of bad order cargo was
conducted at the pier in the presence of the representatives of the consignee and E. Razon, Inc. and it
was found that 7 coils were rusty on one side each; upon survey conducted at the consignee’s
warehouse it was found that the wetting of the cargo was caused by fresh water that entered the hatch
when the vessel encountered heavy weather; all 13 coils were extremely rusty and totally unsuitable for
the intended purpose
 The First Nationwide Assurance Corp. indemnified the consignee in the amount of P171,923.00 for
damage and loss to the insured cargo

ISSUE: WON Eastern Shipping Lines is liable

HELD: Yes.
 under Art. 1733, common carriers are bound to observe extra-ordinary vigilance over goods according
to all circumstances of each case
 Art. 1735: In all cases other than those mentioned in Art. 1734, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence
 Since the carrier has failed to establish any caso fortuito, the presumption by law of fault or negligence
on the part of the carrier applies; and the carrier must present evidence that it has observed the
extraordinary diligence required by Article 1733 of the Civil Code in order to escape liability for damage
or destruction to the goods that it had admittedly carried in this case. But no evidence was presented;
hence, the carrier cannot escape liability.
Spouses Cuyco v. Spouses Cuyco, GR No. 168736 April 19, 2006

Doctrine: When an 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.

Facts: Spouses Feliciano & Adelina Cuyco, petitioners, obtained a loan of 1.5M at a rate of 18% interest
per annum and secured by real estate mortgage over a parcel of land with improvements, from Spouses
Renato & Filipina Cuyco, respondents. Subsequent loans were also obtained, however the contracts
covering some of the loans were not expressed as to whether they were still covered by the same
mortgage. Petitioners defaulted payments, so that the respondents sued for foreclosure and sale of the
property to settle the obligations of the petitioners. RTC rendered judgment ordering the petitioners to
settle the amount of loans plus interests compounded, the interest of 18% shall also earn the legal
interest of 12%. On appeal, the CA affirmed RTC's decision as to interests but clarified that the mortgage
could only cover those loan contracts that were expressly stating so, and that payment of the principal
obligation of 18% per annum shall discharge the property mortgage.

Issues:
1. Are the courts correct in compounding the interests and adding a legal interest over the stipulated
interest?
2. Should the subsequent loans be covered by the mortgage however absent the stipulations?

Held: On the first issue, Yes, the courts did not err in applying the rules in application of interest
enunciated in Eastern Shipping Lines, Inc v. CA which states in paragraph 1, “When an 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.”

On the 2nd issue, as a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the
mortgage contract. It is clear from a perusal of the aforequoted real estate mortgage that there is no
stipulation that the mortgaged realty shall also secure future loans and advancements. Thus, what applies
is the general rule above stated.
 Ruiz v. Caneba
GR No. 84884 December 3, 1990

Facts: Petitioners spouses Ruiz, leased the premises of common-law-spouses Sangalang and Cruz.
Later on, the co-owners decided to sell the leased promises to the lessees for and in consideration of
175K payable in installments subject to such conditions as the continuation of payment of monthly rentals
by the lessee-buyers until the full amount is paid, and an stipulation that the contracts would be subject to
rescision in the event the lessee-buyers would default in the payment of the agreed price—upon
rescision, the supposed lessee-buyers should return the amount advanced to the lessor-sellers while the
former vacates the property. The petitioners defaulted payments so the parties rescinded the contract but
could not however agree as to the amount. The lessee-buyers asked for 24% per annum interests on the
amount advanced by them to the co-owners, while the latter, on the other hand, asked for the additional
rentals for another portion of the property which the petitioner had already been using since the execution
of the contract, these issues was however raised after judgment had been entered and writ of execution
issued.

Issue: Should awards by courts be subject to legal interests however the judgment did not provide for
such?

Held: No. Anent the Ruizes' claim of interest as aforementioned, it has been held in the case of Santulan
v. Fule, 133 SCRA 762 (1984) that where the court judgment which did not provide for interest is already
final, there is no reason to add interest in the judgment. Interest was not demanded by the Ruizes when
the case was pending before the lower court, hence, there is no reason for Supreme Court to grant such
claim. As ruled by the Court, such claim is groundless since the decision and orders sought to be
enforced do not direct the payment of interest and have long become final (Canonizado v. Ordoñez-
Benitez, 149 SCRA 555 [1987]).

Finally, as to Sangalang's claim for P1,500.00 as monthly rental for Door No. 2, the records show that
such claim was never raised in the trial court. The issue of additional rentals was brought up by
Sangalang only when the motion for execution of par. 3 of the dispositive portion of the decision was filed
by the Ruiz spouses (Rollo, p. 189). It is a basic rule that an issue which was not raised in the court below
cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice
and due process.
 PNB v. CA
GR No. 107569 November 8, 1994

Facts:

Private respondents, who are owners of a NACIDA-registered enterprise, obtained from petitioner PNB a
loan initially pegged at 12% per annum interest. The contract agreement includes, among others, a
clause which allows PNB to raise the rate of interest depending onn the bank's future policies. During the
term of the agreement, PNB on several occasions imposed subsequent raises to the applicable rate
ranging from the original 12% up to 42%, imposing also a 6% penalty per annum.

Issue:

Can a creditor raise the rate of interest based solely on a certain clause in the contract and without
consent from the debtor as to the amount and rate of increase?

Held:

No. It is basic that there can be no contract in the true sense in the absence of the element of agreement,
or of mutual assent of the parties. If this assent is wanting on the part of the one who contracts, his act
has no more efficacy than if it had been done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must be mutuallya greed upon,
otherwise, it is bereft of any binding effect. The Court cannot countenance petitioner bank's posturing that
the escalation clause at bench gives it unbridled right tounilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away from private respondents the right to assent to an
important modification in their agreement, and would negate the element of mutuality in contracts.
 Pua v. Spouses Bautista
CA-G.R. CV NO. 77418, August 11, 2006

Facts:

Spouses Bautista contracted a loan with Anita Pua, petitioner, amounting to 1.02M with a stipulation on
interest pegged at 20% per annum. After payment of some 450K plus, the respondents stopped making
payments. Despite frequent demands from the petitioner, the spouses failed to send payment. The
petitioner re-computed the loan amount at 2M to include thereof the accrued interests, and filed a
complaint for collection of sum of money with the MTC—which the lower court ruled in favor of the
petitioner. The spouses then questioned before the Court the re-computed amount alleging that it is
excessive and unconscionable.

Issue: Could the interest rate being agreed upon by parties be considered as excessive?

Held: No. Elementary is the rule that 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. Here, the Bautistas agreed to a 20% interest rate per annum to be applied on top of
their loan principal.

The stipulated interest rate of 20% per annum was not excessive, iniquitous, unconscionable, or in any
way exorbitant. There are already cases where the Supreme Court validated even a higher rate of
stipulated interest. It is important to note that the Bautistas freely agreed on the rate of interest that would
govern their contract of loan. Parties to a contract of loan like in any other contracts are essentially free to
stipulate on the terms of their undertaking. If their debt increased considerably, it is because they had
been in default for a long time.

Applying the stipulated interest rate on the loan, the Court believes that re-computed amount of
P1,889,829 is fairly reasonable considering that more than six years have passed since the last payment
of the Bautistas was recorded. It is to be considered that the computation was made right in front of the
Bautistas who could have easily protested if there was any mistake or irregularity in the procedure.
Instead, the Bautistas again acknowledged the amount.
 Spouses Palada v. Solidbank Corp.
GR No. 172227 June 29, 2011

Facts:

Spouses Palada applied for a 3M loan with the respondent Solidbank. Petitioners received the amount of
1M and secured the same with a deed of real estate mortgage of several properties in favor of the
respondent. Due to failure of the petitioners to pay their obligation, Solidbank foreclosed said properties
covered by the mortgage and sold the same. Petitioners filed for declaration of nullity of the mortgage
upon the ground, among others, that the loan contract was not perfected because the bank delivered only
1M instead of the whole loan amount of 3M.

Issue: Was the contract of loan perfected?

Held:

Yes, the loan contract was perfected. Under Article 1934 of the Civil Code, a loan contract is perfected
only upon the delivery of the object of the contract. In this case, although petitioners applied for a P3
million loan, only the amount of P1 million was approved by the bank because petitioners became
collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value of
P1,944,000.00. Hence, on March 17, 1997, only the amount of P1 million was released by the bank to
petitioners.
 Pajuyo v. CA
GR No. 146364 June 3, 2004

Facts:

Pajuyo entrusted a house to Guevara for the latter's use provided he should return the same upon
demand and with the condition that Guevara should be responsible of the maintenance of the property.
Upon demand Guevara refused to return the property to Pajuyo. The petitioner then filed an ejectment
case against Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the
appellate court reversed the judgment of the lower court on the ground that both parties are illegal settlers
on the property thus have no legal right so that the Court should leave the present situation with respect
to possession of the property as it is, and ruling further that the contractual relationship of Pajuyo and
Guevara was that of a commodatum.

Issue:

Is the contractual relationship of Pajuyo and Guevara that of a commodatum?

Held:

No. The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid of merit. In a
contract of commodatum, one of the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it. An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a
certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the
thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum. The
Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case
law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease. The tenant’s
withholding of the property would then be unlawful.
 Bonnevie v. CA
GR No. L-49101 October 24, 1983

Facts:

Spouses Lozano mortgaged their property to secure the payment of a loan amounting to 75K with private
respondent Philippine Bank of Communication (PBCom). The deed of mortgage was executed on 12-6-
66, but the loan proceeeds were received only on 12-12-66. Two days after the execution of the deed of
mortgage, the spouses sold the property to the petitioner Bonnevie for and in consideration of 100k—25K
of which payable to the spouses and 75K as payment to PBCom. Afterwhich, Bonnevie defaulted
payments to PBCom prompting the latter to auction the property after Bonnivie failed to settle despite
subsequent demands, in order to recover the amount loaned. The latter now assails the validity of the
mortgage between Lozano and Pbcom arguing that on the day the deed was executed there was yet no
principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses, so that
in the absence of a principal obligation, there is want of consideration in the accessory contract, which
consequently impairs its validity and fatally affects its very existence.

Issue: Was there a perfected contract of loan?

Held:

Yes. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed
for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from
the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was perfected at the same time
the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an
evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its
execution.
 Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004

The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement like
for instance a typical standby; or (b) independence may be only as to the justification aspect like in a
commercial letter of credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the
credit the payment of the credit would constitute fraudulent abuse of the credit.

Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp.
(LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
Transfield was given the sole responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the project is to be completed and
also allows for the extension of the period provided that the extension is based on justifiable grounds
such as fortuitous event. In order to guarantee performance by Transfield, two stand-by letters of credit
were required to be opened. During the construction of the plant, Transfield requested for extension of
time citing typhoon and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. Because of the delay
in the construction of the plant, LHC called on the stand-by letters of credit because of default. However,
the demand was objected by Transfield on the ground that there is still pending arbitration on their
request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the pending arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would
convert the letter of credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement like
for instance a typical standby; or (b) independence may be only as to the justification aspect like in a
commercial letter of credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the
credit the payment of the credit would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of
credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of
credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the
required documents are presented to it. The so-called “independence principle” assures the seller or the
beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing
bank from determining whether the main contract is actually accomplished or not. Under this principle,
banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general and/or particular conditions stipulated in the documents
or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods, or any other person whomsoever.