ACME SHOE, RUBBER AND PLASTIC CORPORATION vs.

COURT OF APPEALS
G.R. NO. 103576;AUGUST 22, 1996
Vitug, J.

FACTS:

Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber &
Plastic Corporation executed in behalf of it a chattel mortgage in favor of Producers
Bank of the Philippines in order to secure a P3M corporate loan. The chattel mortgage
includes the following provision:

In case the MORTGAGOR executes subsequent promissory note or notes either

as a renewal of the former note, as an extension thereof, or as a new loan, or is
given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust
Receipts, etc., this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations were existing on
the date thereof. This mortgage shall also stand as security for said obligations
and any and all other obligations of the MORTGAGOR to the MORTGAGEE of
whatever kind and nature, whether such obligations have been contracted
before, during or after the constitution of this mortgage.

In due time, the P3M loan was paid. Subsequently, another P2.7M loan was obtained
which was also fully paid. The bank applied for extrajudicial foreclosure of the chattel
mortgage. Acme filed an action for injunction however, the RTC dismissed the complaint
and ordered foreclosure saying Acme was bound by stipulations. The Court of Appeals
dismissed the appeal and affirmed the RTC.

ISSUE:

Whether or not it is valid and effective to have a clause in a chattel mortgage that
extends its coverage to obligations yet to be contracted or incurred.

RULING:

No, RTC and CA decisions are set aside.

Chattel mortgage can only cover obligations existing at the time mortgage is constituted
as per Act 1508 or the Chattel Mortgage Law. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding commitment
that can be compelled upon, the security itself, however, does not come into existence
or arise until after a chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law.

Hence, it is valid and effective to have a clause in a chattel mortgage that extends its
coverage to obligations yet to be contracted or incurred
OLIVIA M. NAVOA and ERNESTO NAVOA vs.
COURT OF APPEALS, TERESITA DOMDOMA and EDUARDO DOMDOMA
G.R. NO. 59255, December 20, 1995
Bellosillo, J.

FACTS:

Domdoma gave Navoa a loan. First, a diamond ring valued at P15,000.00 which was
secured by PCIB check under a condition that if not returned within 15 days, it is
considered sold. Domdoma tried to deposit the check but it was not honored due to lack
of funds. Other loans of various amounts were extended to Navoa, all of it were secured
by PCIB checks dated one (1) month after the loan. All checks were not honored by said
bank ffor the same reason – lack of funds.

Domdoma filed a case with the RTC for the collection of sum of money based on
Navoa’s loans. The case was dismissed on the ground that there was no vause of action
and Domdoma do not have the capacity to sue. Their appeal was granted by the CA.

ISSUE:

Is the decision of the RTC to dismiss the case due to having no cause of action valid?

RULING:

No, RTC’s decision to dismiss the case is invalid.

A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. Olivia and Ernesto Navoa failed to make good the
checks that were issued as payment for their obligations. The continuing refusal of
Navoa to comply with the demand of payment shows the existence of cause of action.

Hence, there is a cause of action.

BPI INVESTMENT CORPORATION vs. COURT OF APPEALS
G.R. No. 133632               February 15, 2002
Quisumbing, J.

FACTS:

Frank Roa obtained a loan from Ayala Investment and Development Corporation (AIDC)
at 16.25% interest rate, for the construction of his house. The house and lot were
mortgaged to AIDC. He sold the properties to private respondents ALS and Litonjua. The
latter paid in cash and assumed Roa’s indebtedness with AIDC. AIDC was not willing to
extend the old interest to private respondents and proposed a grant of new loan of
P500,000 with higher interest to be applied to Roa’s debt, secured by the same property.
Private respondent executed a mortgage deed containing the stipulation.

BPIIC, AIDC’s predecessor, released to private respondents P7, 146.87, purporting to

be what was left of their loan after full payment of Roa’s loan. BPIIC filed for foreclosure
proceedings on the ground of failure to pay the mortgage indebtedness. Private
respondents maintained that they should not be made to pay amortization before the
actual release of the P500, 000.00loan. The suit was dismissed and affirmed by the CA.

ISSUE:

Whether or not contract of loan is a consensual contract.

RULING:

NO.

A loan contract is not a consensual contract but a real contract. It is perfected only upon
delivery of the object of the contract. A contract or loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other;
it is a basic principle in reciprocal obligations that neither party incurs in delay, if the
others does not comply or it is not ready to comply is a proper manner with what is
incumbent upon him.
DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.
G.R. No. 189871               August 13, 2013
PERALTA, J.

FACTS:

Petitioner Dario Nacar got dismissed by his employer, Gallery Frames. He then filed a
complaint; the labor arbiter ruled that he was dismissed without just cause. An amount of
P158, 919.92 was computed for his separation pay and back wages. The respondent
sought appeal to the NLRC, CA, and SC but were all dismissed. Thus, the judgment
became final. During the execution of the final judgment, petitioner filed a motion for the
recomputation of the damages as it should cover the period until the date of final
judgment. As a result of the recomputation, the damages increased to 471, 320.31.
Respondent prayed for the quashal of such motion since the judgment made by the
Supreme Court is already final. Petitioner also filed another motion asking respondent to
pay appropriate legal interest of the damages from the date of final judgment until full
payment.

ISSUE:

1.Whether or not appropriate interests may be claimed by the petitioner.

2.Whether or not a re-computation in the course of execution of the labor arbiter's
original computation of the awards made is legally proper.

RULING:

1.YES, he is entitled to the interests.

In the case of Eastern Shipping Lines Inc. vs CA, among the guidelines laid down by the
Supreme Court regarding the manner of computing legal interests is – when the
judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest shall be 12% per annum from such finality until its satisfaction.

2.YES,the amount of P471, 320 .31 as damages is correct according to the SC.

By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code.The recomputation made
by the labor arbiter does not equate to alteration or amendment of the final decision
being implemented. The illegal dismissal ruling stands. What is affected is the
computation of monetary consequences as a result of the dismissal which is not a
violation of the principle of immutability of final judgments.

Hence, the recomputation was just and proper.

SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL vs. PHILIPPINE NATIONAL
BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE C. CORALES
G.R. No. 194201               November 27, 2013
PEREZ, J.

FACTS:
Petitioners obtained a P21.8M loan from PNB for which 12 promissory notes were
executed bearing various interest rates, it was agreed that petitioners would be given
prior notice in the event that the interest rate changes as per law or the Monetary
Board’s prescription. A real estate mortgage over five parcels of lands including all
improvements thereon was also executed. PNB advised petitioners to pay their loan,
otherwise they will declare it due and demandable. They paid 14.8M to avoid
foreclosure. PNB executed a release of real estate mortgage over two of the parcels of
land. Despite payment, PNB foreclosed the remaining real estate mortgage over the
three parcels of land.
A public auction sale resulted in favor if the respondent bank as the winner bidder.
Petitioners filed a complaint for annulment of mortgage, sheriff’s certificate of sale,
declaration of nullity of the increased interest rated and penalty charges plus damages.
RTC ruled in favor of spouses Andal ordering that interest rate be reduced to 6% in
accordance with Article 2209, NCC and declaring the foreclosure sale as void. The CA
affirmed RTC’s decision with modification that the interest be 12% per annum.

ISSUE:
Whether interest should be imposed on the land

RULING:
YES. Interest should be imposed on the land.
Petitioners had agreed to payment of interest in their obligation. The subsequent
declaration that the rate of interest was illegal does not entitle them to stop payment of
interest. Only the rate was declared void, but the stipulation requiring them to pay
interest remains valid and binding. They are liable to pay interest from the time they
defaulted until the obligation is fully paid.
SPS. IGNACIO F. JUICO and ALICE P. JUICO vs. CHINA BANKING CORPORATION
G.R. No. 187678               April 10, 2013
VILLARAMA, JR., J.:

FACTS:
Spouses Juico obtained a loan from China Banking Corporation (CBC) as evidenced by
two Promissory Notes which was secured by a Real Estate Mortgage over petitioners’
property. Due to failure to pay the monthly amortizations due, CBC demanded the full
payment of the outstanding balance with accrued monthly interests. The mortgaged
property was sold at public auction, with respondent as highest bidder.

Petitioners demanded for the payment the amount of deficiency after applying the
proceeds of the foreclosure sale to the mortgage debt. Since unheeded, respondent filed
a collection suit in the trial court.

Petitioners admitted the existence of the debt but interposed that the complaint has no
cause of action considering that the principal of the loan was already paid when the
mortgaged property was extrajudicially foreclosed and sold. Even assuming that there is
a cause of action, such deficiency cannot be enforced by respondent because it consists
only of the penalty and/or compounded interest on the accrued interest which is
generally not favored under the Civil Code.

According to Ms. Yu, CBC’s Senior Loans Assistant, as witness, the interest rate
changes every month based on the prevailing market rate and she notified petitioners of
the prevailing rate by calling them monthly before their account becomes past due.
When asked if there was any... written authority from petitioners for respondent to
increase the interest rate unilaterally, she answered that petitioners signed a promissory
note indicating that they agreed to pay interest at the prevailing rate.

ISSUE:
Are the interest rates imposed by CBC valid?

RULING:
No. the imposed interst rates are not valid.

The principle of mutuality of contracts as provided in Article 1308 of the Civil Code
provides that the contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.

The agreement on the changes of rates is valid but the actual rates applied are invalid
since parties must be informed through a written notification and they must agree with
the same. It is settled that an escalation clause is void where the creditor unilaterally
determines and imposes an increase in the stipulated rate of interest without the express
conformity of the debtor.

Thus, modifications in the rate of interest for loans pursuant to an escalation clause must
be the result of an agreement between the parties. Unless such important change in the
contract terms is mutually agreed upon, it has no binding effect.
FLORANTE VITUG vs. EVANGELINE A. ABUDA
G.R. No. 201264 January 11, 2016
Leonen, J.

FACTS:

Abuda loaned P250,000.00 to Vitug and his wife, Narcisa with a 10% interest rate. As
security for the loan, Vitug mortgaged his property to Abuda. Said property was then subject
of a conditional Contract to Sell between the National Housing Authority and Vitug.

Later on, the parties executed a "restructured" mortgage contract on the property to secure
the amount of P600,000.00 representing the original P250,000.00 loan, additional loans, and
subsequent credit accommodations were given by Abuda to Vitug with a monthly interest
rate of 5%

Due to failure of Spouses Vitug to pay their loans despite respondent’s demand, the
latter filed a complaint for the Foreclosure of the Property in the RTC of Manila with a
decision in favour of him. Spouses Vitug then appealed to the CA contending that the
contract was void. The CA partially granted the petition but Vitug then again failed to pay
the said obligation within 6months and lowered the interest rate into 1% monthly or 12% per
annum.

ISSUE:

Whether or not the interest imposed on petitioner’s loan is valid.

RULING:

No. the interest imposed is not valid.

Article 1306 of the Civil Code limits the freedom to contract to promote public morals, safety,
and welfare. In stipulating interest rates, parties must ensure that the rates are neither
iniquitous nor unconscionable. Iniquitous or unconscionable interest rates are illegal and,
therefore, void for being against public morals. The imposition of an unconscionable rate of
interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust.
It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive
to the common sense of man.

Petitioner obtained the loan out of extreme necessity. As pointed out by respondent, the
property would have been earlier foreclosed by the National Housing Authority if not for
the loan. Moreover, it would be unjust to impose a heavier burden upon petitioner, who
would already be losing his and his family's home. An interest rate is not inherently
conscionable or unconscionable. Interest rates become unconscionable in light of the context
in which they were imposed or applied.

Thus, the interest should be reduced to become valid.