MUTUUM CASE DIGEST

1) Garcia VS Thio, 518 SCRA 433

FACTS:

● Petition for review on certiorari under Rule 45 challenging the decision and resolution of
the CA which set aside the decision of the RTC.
● There were two loans obtained by Thio from Garcia
● First loan (February 1995): $100k with interest of 3% per month. The loan would
mature on October 26, 1995. Thio received from Garcia a crossed check in the amount
of $100k payable to the order of a certain Marilou Santiago
■ one which bears across on its face or corner, two parallel lines diagonally on the
upper left corner between which are either the name of the bank or the words
“and company” in full or abbreviated.
■ If crossed specially, the drawee-bank must pay the check only upon
presentment by such bank or company.
■ if crossed generally, the drawee-bank must pay the check through the
intervention of some bank or banker. The drawee should not encash the check
but merely accept the same for deposit when present is made by a bank.
● Second loan (June 1995): ​₱500k with 4% monthly interest rate which would mature on
November 5, 1995. Garcia also gave another crossed check payable to the order of
Marilou Santiago
● For both loans, no promissory note was issued because both parties were close friends.
Respondent paid the stipulated monthly interest for both loans but on their maturity
dates, she failed to pay the principal amounts despite repeated demands.
● Thus, Garcia filed a complaint for sum of money and damages before the RTC.
● Thio denied that she contracted the two loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked
by petitioner to give the crossed checks to Santiago. She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate petitioner's request that
respondent use her own checks instead of Santiago's.
● The RTC ruled in favor of Garcia.
● On appeal, the CA reversed the decision and ruled that there was no contract of
loan between the parties. The appellate court held that the checks received by,
being crossed, may not encashed but only deposited to the bank, by the payee
thereof who is Marilou Santiago.
■ Crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with the bank;
(c) and the act of crossing the check serves as warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.
ISSUE: ​Whether or not there is a contract of loan between Garcia and Thio.

HELD: Yes. The petition is GRANTED. A contract of loan is a REAL, not a consensual
contract. It is perfected by the delivery of the thing which is the object of the contract. Art. 1934
of the New Civil Code provides:
“An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.”

Upon delivery of the object of the contract of loan (in this case the money received by the debtor
when the checks were encashed) the debtor acquires ownership of such money or loan
proceeds and is bound to pay the creditor an equal amount.

It is undisputed that the checks were delivered to respondent. Delivery is the act by which the
res or substance thereof is placed within the actual or constructive possession or control of
another. Although respondent did not physically receive the proceeds of the checks, these
instruments were placed in her control and possession under an arrangement whereby she
actually re-lent the amounts to Santiago.

The Court however disagreed that Thio is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest
payable except for the verbal agreement that the loans would earn 3% and 4% interest per
month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been
expressly stipulated in writing." Even though there can be no stipulated interest, there can be
legal interest pursuant to Article 2209 of the Civil Code. It is well-settled 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. 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.

Hence, respondent is liable for the payment of legal interest per annum to be computed from
November 21, 1995, the date when she received petitioner's demand letter. From the finality of
the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the
interim period being deemed equivalent to a forbearance of credit.

2) Rose Packing VS CA and PCIB, 167 SCRA 309

FACTS:
● This is a petition for review on certiorari of the decision of the CA promulgated on
December 16, 1970
 ● December 12, 1962: PCIB approved a letter-request by Rose Packing for the
reactivation of its overdraft line of ₱50k discounting line of ₱100k and a letter of
credit-trust receipt line of ₱550k as well as an application of a loan of ₱300k on fully
secured real estate and chattel mortgage and on the further condition that PCIB appoint
its executive VP Benedicto as its representative in Rose Packing’s BOD.
● November 3, 1965: the National Investment and Development Corp (NIDC) approved a
P2.6M loan application of Rose Packing subject to certain conditions. The NIDC
released P100k. Rose Packing thereafter purchased 5 parcels of land in Pasig, Rizal
and made downpayment
● August 3 and October 5, 1966: PCIB approved additional accommodations to Rose
Packing consisting of P710k loan for the payment of the balance of the purchase price of
the five lots in Pasig. However, PCIB only released P310k out of the approved loan for
the payment of the land.
● June 29, 1967: DBP approved the loan application of P1.84M of Rose Packing and a
guarantee of $652,682 for the purchase of can making equipment. Rose Packing
advised PCIB of the availability of P800k to partially pay off its account and requested
the release of the titles to the Pasig lots for delivery to DBP.
● PCIB filed a complaint against Rose Packing and its president, Knecht for the collection
of the company’s indebtedness to PCIB. The bank thereafter gave notice that it would
cause the real estate mortgage to be foreclosed at an auction sale.
● Rose Packing filed a complaint before the CFI to enjoin PCIB and the sheriff from
proceeding with the foreclosure sale. The CFI denied the petition.

ISSUE: ​Whether or not the private respondents have the right to the extrajudicial foreclosure
sale of Rose Packing’s properties before trial of the merits.

HELD: ​No. While petitioner corporation does not deny, in fact, it admits its indebtedness to
respondent bank, there were matters that needed the preservation of the status quo between
the parties. The foreclosure sale was premature.

It was already agreed that the loans of the petitioner corporation respondent bank were
supposed to become due only at the time that the bank receives from the NIDC and PDCP the
proceeds of the supposed financing scheme. These conditions were not met. The efficacy or
obligatory force of a conditional obligation is subordinated to the happening of a future and
uncertain event so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed (Gaite v. Fonacier, 2 SCRA 831 [1961]).

The loan agreements between petitioner and respondent Bank are reciprocal obligations (the
obligation or promise of each party is the consideration for that of the other (Penacio v. Ruaya ,
110 SCRA 46 [1981], cited in Central Bank of the Philippines v. Court of Appeals, 139 SCRA 46
[1985]). ​A contract of loan is not a unilateral contract as respondent Bank thinks it is
(Brief for the Respondent, p. 19). The promise of petitioner to pay is the consideration for the
obligation of respondent bank to furnish the loan (Ibid.).
The respondent bank was in default in fulfilling its reciprocal obligation under their loan
agreement. By its own admission it failed to release the P710,000.00 loan (Rollo, p. 167) it
approved on October 13, 1966 (Brief for Respondent, p. 44) in which case, petitioner
corporation, under Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case (Central Bank of the Philippines v. Court of Appeals, 139
SCRA 46 [1985]).

As a consequence, the real estate mortgage of petitioner corporation cannot be entirely

foreclosed to satisfy its total debt to respondent bank.

3) Tan VS Villapaz, 475 SCRA 720

FACTS:
● Petition for review on certiorari on the CA decision
● February 6, 1992: The spouses Tan obtained a loan P250k from Villapaz. Villapaz
issued a PBCom cross check in the amount of ₱250k payable to the order of the
petitioner Tony Tan. The loan was to be settled in 6 months (August 1992).
● On the same date the check was deposited in the account of Antonio Tan in PBCom.
● Antonio Tan failed to settle the loan despite repeated demands. Hence, Villapaz filed a
complaint for sum of money before the RTC two years after the maturity of the loan.
● In their answer, the spouses denied obtaining a loan from Villapaz. They alleged that the
check issued was in exchange for equivalent cash; that they never received any demand
from Villapaz from the alleged loan; that since the alleged loan was with a period, it
should have been expressly stipulated in writing but it was not so the essential requisite
for the validity and enforceability of the loan is wanting; and the check is inadmissible to
prove the existence of the loan.
● The RTC dismissed the complaint.
● On appeal, the CA reversed the RTC decision stating that the existence of a loan cannot
be denied merely because it is not reduced in writing.

ISSUE: Whether or not there was a contract of loan between the parties despite the contract of
loan is not reduced to writing.

HELD: Yes. There is a contract of loan. The petition is DENIED.

That apart from the check no written proof of the grant of the loan was executed was credibly
explained by respondent when he declared that petitioners' son being his godson, he, out of
trust and respect, believed that the crossed check sufficed to prove their transaction.

As for petitioners' reliance on Art. 1358 of the Civil Code, the same is misplaced for the
requirement that contracts where the amount involved exceeds P500.00 must appear in writing
is only for convenience.
At all events, a check, the entries of which are no doubt in writing, could prove a loan
transaction.

That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of more than
P950,000.00 in his account at PBCom Monteverde branch where he was later to deposit
respondent's check did not rule out petitioners' securing a loan. It is pure naivete to believe that
if a businessman has such an outstanding balance in his bank account, he would have no need
to borrow a lesser amount.

In fine, as petitioners' side of the case is incredible as it is inconsistent with the principles by
which men similarly situated are governed, whereas respondent's claim that the proceeds of the
check, which were admittedly received by petitioners, represented a loan extended to petitioner
Antonio Tan is credible, the preponderance of evidence inclines on respondent.

4) Yong Chan Kim VS Pp, 193 SCRA 3344

Facts​: Petitioner, Yong Chan Kim, was employed as Researcher at Aquaculture Department of
the Southeast Asian Fisheries Development Center. He conducted prawn surveys, and this
required him to travel. He was issued two travel orders which overlapped with each other. The
first travel order was from June 16 to July 21, 1982 and received a cash advance of P6238
pesos. The second travel order was from June 30 to July 4, 1982, to which he received a cash
advance of P495.

Upon liquidation, the overlap was discovered, it was found out that Yong Chan Kim got to collect
per diems twice. It was alleged that the total amount he misrepresented amounted to P1230.
The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash
advance which he received under the second travel order, knowing that it overlapped with the
first. As a result an estafa complaint was filed against the petitioner.

Issue​: Whether petitioner was under the obligation to deliver or return the same money, goods
or personal property that he had received, making him criminally liable for estafa.

Ruling​: The Court held that petitioner was not under the obligation to return the money.
Executive Order No. 10, dated 12 February 1980 provided that:

“All cash advances must be liquidated within 30 days after the date of the
projected return of the person. Otherwise, corresponding salary deduction shall be
made immediately following the expiration day."

Liquidation simply means the settling of an indebtedness. An employee, such as herein

petitioner, who liquidates a cash advance which is a form of a loan of money advanced by
the employer, is in fact paying back his debt by offsetting official travel expenses and
allowances. The situation contemplated here was a mutuum where as defined under Article
1933 of the Civil Code, by the contract of loan, one of the parties delivers to another,
money or other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid. Here the employee owed the employer through the cash
advance he got, but this was paid through something similar which was the expenses he made
for the travel assignment. Hence, a mutuum. In a mutuum, based on Article 1953, a person
who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary
relationship was created. The petitioner was under no legal obligation to return the same
cash or money, i.e., the bills or coins, which he received from the private respondent.
Absent this fiduciary relationship between petitioner and private respondent, which is an
essential element of the crime of estafa by misappropriation or conversion, petitioner
could not have committed estafa.

Hence, petitioner, was acquitted, but the cash advance not liquidated for, was deducted from his
salary.

5) Consolidated Bank VS CA, 356 SCRA 671

Facts: Continental Cement Corporation and Gregory Lim obtained a Letter of Credit from
Consolidated Bank and Trust Corporation, amounting toP1,068,150. Continental Cement paid a
deposit of P320,445 to Consolidated Bank. The letter of credit was then used to purchase oil
from Petrophil Corporation, which was directly delivered to Continental Cement. In relation to
the same transaction, a trust receipt for the amount of P1,001,520.93 was executed by
respondent Continental Cement, with respondent Lim as signatory.

Claiming that Continental Cement failed to turn over the goods covered by the trust
receipt or the proceeds thereof, Consolidated Bank filed a complaint for a sum of money.
Continental Cement argued that the transaction was a simple loan and not a trust receipt
transaction.

Issue: ​WON the transaction was that of a simple loan.

Ruling: ​The Court held that inasmuch as the debtor received the goods subject of the
trust receipt before the trust receipt itself was entered into, the transaction in question
was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This
situation is inconsistent with what normally obtains in a pure trust receipt transaction,
wherein the goods belong in ownership to the bank and are only released to the
importer in trust after the loan is granted.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of condence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner. Respondent
Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither
has it been shown that it has evaded payment of its obligations. Indeed, it continually
endeavored to meet the same, as shown by the various receipts issued by petitioner
acknowledging payment on the loan.

By all indications, then, it is apparent that there was really no trust receipt transaction
that took place. Evidently, respondent Corporation was required to sign the trust receipt
simply to facilitate collection by petitioner of the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. The transactions sued upon were clearly
entered into by respondent Lim in his capacity as Executive Vice President of
respondent Corporation. We stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Hence, the petition for review was denied.

6) Pp VS Puig, 563 SCRA 564

Facts: Teresita Puig and Romeo Porras were the Cashier and Bookkeeper, respectively, of
Rural Bank of Pototan, Inc. were the accused in a qualified theft case. They were alleged to
have conspired, with grave abuse of confidence, stole P15,000 from Rural Bank of Pototan Inc..
The trial court did not find probable cause for the element of “taking without consent” was
missing. The basis of which was that it is the depositors-clients, and not the Bank, which
led the complaint in these cases, who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest

Issue: ​Whether the Bank is the owner of the money deposited by their clients, so as to identify
whether the element of taking without consent took place.

Ruling: ​It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a
Bank who come into possession of the monies deposited therein enjoy the condence
reposed in them by their employer. Banks, on the other hand, where monies are
deposited, are considered the owners thereof. This is very clear not only from the
express provisions of the law, but from established jurisprudence. The relationship
between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:

Article 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
 Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.

In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank
due to the condence reposed in them, occupy positions of condence. The Informations,
therefore, sufficiently allege all the essential elements constituting the crime of Qualified
Theft. Hence the warrants of arrest were issued, and the trial court was directed to proceed with
trial.

7) BPI Family VS Franco, 583 SCRA 184

FACTS​:

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a

savings and current account with BPI Family Bank. Soon thereafter, First Metro
Investment Corporation (FMIC) also opened a time deposit account with the same
branch of BPI Family Bank with a deposit of P100,000,000.00, to mature one year
thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,
savings, and time deposit, with BPI Family Bank. 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 a BPI Family Bank San Francisco del Monte (SFDM)’s Branch Manager. In tun, the
funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI
Family Bank 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. Unfortunately, Tevesteco had already effected several withdrawals from its
current account amounting to P37,455,410.54, including P2 million paid to Franco. After
that, BPI Family Bank, thru its Senior VP (Severino Coronacion), instructed Jesus
Arangorin to debit Franco’s savings and current accounts for the amounts remaining
therein. However, Franco’s time deposit account could not be debited due to the
capacity limitations of BPI Family Bank’s computer. In the meantime, two checks drawn
by Franco against his BPI Family Bank 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 Attachment issued by the RTC of Makati, which had
been filed by BPI Family Bank against Franco to recover the P37,455,410.54
representing Tevesteco’s total withdrawals from its account. Notably, the dishonored
checks were issued by Franco and presented for payment at BPI Family Bank prior to
Franco’s receipt of notice that his accounts were under garnishment.

BPI Family Bank 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 Family Bank’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​:

Whether BPI Family Bank had a better right to the deposits in Franco’s account

HELD​:

No. 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 Family Bank ultimately acquired ownership of Franco’s deposits but such ownership
is coupled with a corresponding obligation to pay him an equal amount on demand.

BPI Family Bank argued that the legal consequences of FMIC’s forgery claim is that the
money transferred by BPI Family Bank to Tevesteco is its own and since it was able to
recover possession of the money when it was deposited by Franco, BPI Family Bank
had the right to set up its ownership and freeze Franco’s accounts. BPI also likened it to
that of an owner of personal property who regains possession after it is stolen under
Article 559 of the Civil Code. The Supreme Court, however, found such argument to be
unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code
pertains to a specific or determinate thing. A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same kind.

Although BPI Family Bank owns the deposits in Franco’s accounts, it cannot prevent
him from demanding payment of BPI Family Bank’s obligation by drawing checks or
asking for the release of the funds in his account. He has every right as a creditor to
expect that those checks would be honored by BPI as a debtor.

In this case, the deposit in Franco’s accounts consists of money which, albeit
characterized as a movable, is generic and fungible. The quality of being fungible
depends upon the possibility of the property, because of its nature or the will of the
parties, being substituted by others of the same kind, not having a distinct individuality.
It bears emphasizing that money bears no earmarks of peculiar ownership, and this
characteristic is all the more manifest in the instant case which involves money in a
banking transaction gone awry. Its primary function is to pass from hand to hand as a
medium of exchange, without other evidence of its title. Money, which had passed
through various transactions in the general course of banking business, even if of
traceable origin, bears no earmarks of peculiar ownership.

In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time
the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever directs. A blunder on the part of the bank, such
as the dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of
its functions, 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.

There is no indubitable evidence establishing Franco’s participation in the forgery so he

remains an innocent party.

8) Rep. VS Grijaldo, 15 SCRA 681

FACTS:

Respondent Jose Grijaldo obtained five loans from the branch of the Bank of Taiwan. The loans
were evidenced by five promissory notes executed by the appellant in favor of the Bank of
Taiwan. To secure the payment of the loans, Grijaldo executed a chattel mortgage on the
standing crops on his land. The assets in the Philippines of the Bank of Taiwan were vested in
the GOvernment of the United States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets including the loans in question, were subsequently transferred to
the Republic of the Philippines by the Government of the United States under Transfer
Agreement of 20 July 1954. Republic of the Philippines, represented by the Chairman of the
Board of Liquidators, made a written extrajudicial demand upon Grijaldo for the payment of the
account in question. Republic filed a complaint in the Justice of the Peace of Court of Hinigaran,
Negros Occidental, to collect from Grijaldo the unpaid account in question. The Court of First
Instance of Negros Occidental rendered a decision ordering Grijaldo to pay the Republic of the
Philippines the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per
annum compounded quarterly. Grijaldo contends that Republic of the Philippines has no cause
of action against him since the contract of loan was instituted with the Bank of Taiwan.
ISSUE:

Whether the Republic of the Philippines has the right to collect the loans from Grijaldo

HELD:

Yes. In 1943, appellant obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch,
evidenced by promissory notes. To secure payment of the loans, appellant executed a chattel
mortgage over the standing crops on his land. After the war, the Republic of the Philippines
brought the present action to collect from appellant the unpaid account. It is true that the Bank
of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank
of Taiwan was a private contract of loans. However, pursuant to the Trading with the Enemy
Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., were vested in the
United States Government. Pursuant, further, to the Philippine Property Act of 1946 and
Transfer Agreements dated July 20, 1954 and June 15, 1957, between the United States
Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were
transferred to and vested in the Republic of the Philippines. The successive transfers of the
rights over the loans in question from the Bank of Taiwan, Ltd. to the United States
Government, and from the United States Government to the government of the Republic of the
Philippines, made the Republic of the Philippines the successor of the rights, title and interests
in said loans, thereby creating a privity of contract between the appellee and the appellant.

The complaint in the present case was brought by the Republic of the Philippines not as a
nominal party but in the exercise of its sovereign functions, to protect the interests of the State
ever a public property. This Court has held that the statute of limitations does not run against
the right of action of the Government of the Philippines.

The obligation of the appellant under the five promissory notes was not to deliver a determinate
thing namely, the crops to be harvested from his land, or the value of the crops that would be
harvested from his land. Rather, his obligation was to pay a generic thing which is the amount of
money representing the total sum of the five loans, with interest. The transaction between the
appellant and the Bank of Taiwan was a series of five contracts of simple loan of sums of
money. The obligations of the appellant under the five promissory notes evidencing the loans in
question is to pay the value thereof; that is, to deliver a sum of money which is a clear case of
an obligation to deliver a generic thing. In addition, Article 1263 of the Civil Code provides that in
an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does
not extinguish the obligation. The chattel mortgage on the crops growing on appellant’s land
simply stood as a security for the fulfillment of appellant’s obligation covered by the five
promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the mortgaged crops.
9) Rep VS Unimex, 518 SCRA 19

FACTS:

Sometime in April 1985, respondent Unimex Micro-Electronics (Unimex) shipped a 40-foot

container and 171 cartons of atari game computer hardwares to Handyware Phils., Inc.
(Handyware). Don Time Shipping Corporation transported the goods with Evergreen Marine
Corporation as shipping agent. After the shipment arrived in the Port of Manila on July 9, 1985,
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. On June
5, 1987, the Collector of Customs issued a default order against Handyware for failing to appear
in the seizure proceedings. After an ex parte hearing, the Collector of Customs forfeited the
goods in favor of the government. Subsequently, on June 15, 1987, respondent Unimex, as
shipper and owner of the goods, filed a motion to intervene in the seizure proceedings. The
Collector of Customs granted the motion but later on declared the June 5, 1987 default order
against Handyware as final and executory, thus affirming the goods’ forfeiture in favor of the
government.

The case at bar is an appeal by certiorari under Rule 45 of the Rules of Court seeking to nullify
and set aside the decision of the CA ruling that the BOC Commissioner was liable for the value
of the subject shipment as the same was lost while in its custody, and the BOC’s liability may be
paid in the Philippine currency, computed at the exchange rate prevailing at the time of actual
payment with legal interests thereon at the rate of 6% per annum and its amended decision
which ruled that the Court of Tax Appeals erred in using as basis the prevailing peso-dollar
exchange rate at the time of the importation instead of prevailing rate at the time of actual
payment.

ISSUE:
Whether legal interest may be imposed for use of money or as compensatory damages

HELD:
Yes. Interest may be paid only either as compensation for the use of money (monetary interest)
or as damages (compensatory interest). The Supreme Court agrees with the petitioner that the
obligation to pay legal interest only arises by virtue of a contract or on account of damages due
to delay or failure to pay the principal on which the interest is exacted. Furthermore, since the
Court of Tax Appeals’ decision did not involve a monetary award but merely the release of the
goods to respondent, there was no basis for the computation and/or imposition of the 6% per
annum legal interest.

As provided in article 2209 of the New Civil Code, the interest is demandable if a.) there is
monetary obligation and b.) debtor incurs delay. This case does not involve a monetary
obligation to be covered by the said provision. There is no dispute that this case was originally
filed questioning the seizure of the shipment by the Bureau of Customs. In fact, if there was any
monetary obligation mentioned, it referred to the obligation of the respondent to pay the correct
taxes, duties, fees and other charges before the release of the goods can be had. In a
comprehensive sense, the term debt embraces not merely money due by contract, but whatever
one is bound to render to another, either for contract or the requirement of the law, such as tax
where the law imposes personal liability therefore.

Hence, the government was never a debtor to the petitioner in order that article 2209 could
apply. Nor was it in default for there was no monetary obligation to pay in the first place. There
is default when after demand is made either judicially or extrajudicially. In other words, for
interest to be demandable under article 2209, there should be a monetary obligation and the
debtor was in default. Here, there was no monetary obligation, therefore, no demand can be
made either judicially or extrajudicially. Parallel thereto, there could be no default.

More importantly, interest is not chargeable against petitioner except when it has expressly
stipulated to pay it or when interest is allowed by the legislature or in eminent domain cases
where damages sustained by the owner take the form of interest at the legal rate.
Consequently, the Court of Appeals’ imposition of the 12% per annum legal interest upon the
finality of the decision of this case until the value of the goods is fully paid (as forbearance of
credit) is likewise bereft of any legal anchor.

10) Equitable PCI Bank VS Ng, 541 SCRA 223

Facts: ​Respondents Ng Sheung Nor, Ken appliances division Inc., and Benjamin Go filed an
action for annulment and/or reformation of documents and contract against petitioner Equitable
PCIB (equitable) and its employees. They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering lower interest rates, so they signed the bank’s pre
printed promissory notes on various dates. However, they were allegedly unaware of the
identical escalation clauses found in the documents which granted Equitable authority to
increase the interest without their consent. Equitable, in its answer asserted that respondents
knowingly accepted all the terms and conditions contained in the promissory notes and that they
have been continuously availing and benefiting from Equitable's credit facilities for the last five
years. RTC upheld the validity of the promissory notes. However, they also invalidated the
escalation clause for violation of the principle of mutuality of contracts and awarded damages to
respondent Ng.

Issues: 1. ​WON the promissory notes were valid

2. WON the escalation clause violated the mutuality of contracts

Ruling: 1. Yes. The RTC upheld the validity of the promissory notes despite respondents'
assertion that those documents were contracts of adhesion. A contract of adhesion is a contract
whereby almost all of its provisions are drafted by one party. The participation of the other party
is limited to affixing his signature or his "adhesion" to the contract. For this reason, contracts of
adhesion are strictly construed against the party who drafted it. It is erroneous, however, to
conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as
ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes
void only when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing. That was not the
case here. As the trial court noted, if the terms and conditions offered by Equitable had been
truly prejudicial to respondents, they would have walked out and negotiated with another bank
at the first available instance. But they did not. Instead, they continuously availed of Equitable's
credit facilities for five long years.

2. Yes.Equitable dictated the interest rates if the term (or period for repayment) of the loan was
extended. Respondents had no choice but to accept them. This was a violation of Article 1308
of the Civil Code. Furthermore, the assailed escalation clause did not contain the necessary
provisions for validity, that is, it neither provided that the rate of interest would be increased only
if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the
escalation clause was void. Consequently, respondents should pay Equitable the interest rates
of 12.66% p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated
loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest
of 12% p.a. on all amounts due.

11) PAL VS CA 275 SCRA 621

Facts: On 23 October 1988, Leovigildo A. Pantejo, then City Fiscal of Surigao City, boarded a
PAL plane in Manila and disembarked in Cebu City where he was supposed to take his
connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to
Surigao City was cancelled. To accommodate the needs of its stranded passengers, PAL
initially gave out cash assistance of P 100.00 and, the next day, P200.00, for their expected stay
of 2 days in Cebu. Pantejo requested instead that he be billeted in a hotel at the PAL’s expense
because he did not have cash with him at that time, but PAL refused. Thus, Pantejo was forced
to seek and accept the generosity of a co-passenger, an engineer named Andoni Dumlao, and
he shared a room with the latter at Sky View Hotel with the promise to pay his share of the
expenses upon reaching Surigao. On 25 October 1988 when the flight for Surigao was
resumed, Pantejo came to know that the hotel expenses of his co- passengers, one
Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an Auditor of the Philippine
National Bank, were reimbursed by PAL. At this point, Pantejo informed Oscar Jereza, PAL’s
Manager for Departure Services at Mactan Airport and who was in charge of cancelled flights,
that he was going to sue the airline for discriminating against him. It was only then that Jereza
offered to pay Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the
latter declined. Pantejo filed a suit for damages against PAL with the RTC of Surigao City which,
after trial, rendered judgment, ordering PAL to pay Pantejo P300.00 for actual damages,
P150,000.00 as moral damages, P100,000.00 as exemplary damages, P15,000.00 as
attorney’s fees, and 6% interest from the time of the filing of the complaint until said amounts
shall have been fully paid, plus costs of suit. On appeal, the appellate court affirmed the
decision of the court a quo, but with the exclusion of the award of attorney’s fees and litigation
expenses.
Issue: Whether petitioner airlines acted in bad faith when it failed and refused to provide hotel
accommodations for respondent Pantejo or to reimburse him for hotel expenses incurred by
reason of the cancellation of its connecting flight to Surigao City due to force majeur

Ruling: YES. A contract to transport passengers is quite different in kind and degree from any
other contractual relation, and this is because of the relation which an air carrier sustains with
the public. Its business is mainly with the travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates a relation
attended with a public duty. Neglect or malfeasance of the carrier’s employees naturally could
give ground for an action for damages. The discriminatory act of PAL against Pantejo indelibly
makes the former liable for moral damages under Article 21 in relation to Article 2219 (10) of the
Civil Code. As held in Alitalia Airways vs. CA, et al., such inattention to and lack of care by the
airline for the interest of its passengers who are entitled to its utmost consideration, particularly
as to their convenience, amount to bad faith which entitles the passenger to the award of moral
damages.

The Supreme Court affirmed the challenged judgment of the Court of Appeals, subject to the
modification regarding the computation of the 6% legal rate of interest on the monetary awards
granted therein to Pantejo. The interest of 6% imposed by the court should be computed from
the date of rendition of judgment and not from the filing of the complaint. The rule has been laid
down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et. al. that “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.” This is because at the time of the
filling of the complaint, the amount of the damages to which Pantejo may be entitled remains
unliquidated and not known, until it is definitely ascertained, assessed and determined by the
court, and only after the presentation of proof thereon.

12) RPB VS CA, 216 SCRA 738

Facts: In 1979, World Garment Manufacturing, through its board, authorized Shozo Yamaguchi
(president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank
(RPB) in the forms of export advances and letters of credit/trust receipts accommodations. For
this, 9 promissory notes were executed, Petitioner bank issued nine promissory notes, each of
which were uniformly worded and stated: “… I/we jointly and severally promise to pay to the
order of the Republic Planters Bank…” On the right bottom margin of the promissory notes
appeared the signature of the defendants above their printed names with the phrase “and in his
personal capacity” typewritten below. The notes became due and no payment was made. RPB
eventually sued Yamaguchi and Canlas. Canlas, in his defense, averred that he should not be
held personally liable for such authorized corporate acts that he performed inasmuch as he
signed the promissory notes in his capacity as officer of Worldwide Garment Manufacturing and
when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., it
was in blank .RTC ruled in favor of RPB, while the CA absolved Canlas from liability under the
promissory notes. Hence, this appeal by RPB​.

Issue: Whether or not Canlas and Yamaguchi should be held solidarily liable for the promissory
notes
Ruling: Yes. Under the Negotiable lnstruments Law, persons who write their names on the face
of promissory notes are makers and are liable as such. By signing the notes, the maker
promises to pay to the order of the payee or any holder according to the tenor thereof. The
solidary liability of private respondent Fermin Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase “joint and several” as describing the
unconditional promise to pay to the order of Republic Planters Bank. Where an instrument
containing the words “I promise to pay” is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.

13) Tan VS Valdehueza, 66 SCRA 61

FACTS:

A parcel of land was the subject matter of the public auction sale held on May 6, 1955 at the
Capitol Building in Oroquieta, Misamis Occidental, wherein the plaintiff was the highest bidder
and as such a Certificate of Sale was executed by MR. VICENTE D. ROA who was then the
Ex-Officio Provincial Sheriff in favor of LUCIA TAN the herein plaintiff. Due to the failure of
defendant Arador Valdehueza to redeem the said land within the period of one year as being
provided by law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed
an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA TAN.

DECISION OF LOWER COURTS:

* Trial court: declared tan as the absolute owner. appeal was certified to SC by the Court of
Appeals as involving questions purely of law.

​ISSUE:

1. WON the subject land subject of pacto de retro is actually an equitable mortgage

​RULING:
Yes, it is an equitable mortgage. The Valdehuezas having remained in possession of the land
and the realty taxes having been paid by them, the contracts which purported to be pacto de
retro transactions are presumed to be equitable mortgages, whether registered or not, there
being no third parties involved. Under article 1875 of the Civil Code of 1889, registration was a
necessary requisite for the validity of a mortgage even as between the parties, but under article
2125 of the new Civil Code (in effect since August 30,1950), this is no longer so.

If the instrument is not recorded, the mortgage is nonetheless binding between the parties.
(Article 2125, 2nd sentence).

2. WON the imposition of legal interest on the amounts subject of the equitable mortgages,
P1,200 and P300, respectively . It is without legal basis, for, "No interest shall be due unless it
has been expressly stipulated in writing." (Article 1956, new Civil Code) Furthermore, the
plaintiff did not pray for such interest; her thesis was a consolidation of ownership, which was
properly rejected, the contracts being equitable mortgages.

14) Phil. Phosphate VS Kamalig, 540 SCRA 139

FACTS:
Kamalig purchased fertilizer products from Philphos for eventual sale to its customers. On Sep.
30, 1985, Kamalig purchased from and made advance payments for fertilizer products of
various grades to Philphos in the total sum of P4.5m. In the letter dated July 21, 1986, Philphos
informed Kamalig of its overwithdrawal of various fertilizer stocks in the supply depots in Manila
and Iloilo. According to Philphos, th cost of these overwithdrawals by Kamalig amounted to
some P1M. But since Philphos also had an obligation to Kamalig in the amount of P470
thousand representing the Capital recovery component, partial compensation took place by
operation of law thereby reducing Kamalig’s obligation to P546 thousand. Thus, Philphos
demanded that this sum be settled on or before July 31, 1986 otherwise Kamalig would be
charged 34% interest per annum. Kamalig, however, denied that it had exceeded its
withdrawals of fertilizer and thus contended that it should not be made liable for any amount.

ISSUE:
WON the imposition of the 34% interest to Kamalig by Philphos is meritorious

RULING:
No. With respect to the 34% per annum interest claimed by Philphos, we agree with CA that no
evidence was presented that would show that the parties stipulated on the payment of interest.
Under Art. 1956 of the Civil Code, no interest shall be due unless it has been expressly
stipulated in writing. Philpos presented only its demand letters insisting on payment of the value
of the overwithdrawals and impositions of 34% interest per annum if payment is not made in due
time. Said unilateral impositions of interest do not suffice as proof of agreement on the alleged
34% per annum interest.
Petitioner is ordered to pay Kamalig the amount of P411k plus legal interest.

15) De Lapaz VS L&J Dev. Corp., 734 SCRA 364

FACTS:

Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php 350,000 to L & J
Development Corporation, a property developer represented by Atty. Esteban Salonga as its
president and general manager.

The loan was executed without any security and no maturity date. It was however agreed
between the parties that the loan will have a 6% monthly interest (amounting to Php 21,000). So
far, L&J paid a total of Php 576,000 already – including interest charges from December 2000 to
August 2003.

L&J later failed to make payments due to financial difficulties in the business. Rolando then filed
a collection case with the MTC and alleged as of January 2005, L&J still owes him Php 772,000
inclusive of monthly interests.

L&J (represented by Atty. Salonga) did not deny that they did incurred a debt from Rolando, and
admitted that they failed to pay due to a fortuitous event (financial difficulties). They also
contended that the 6% monthly interest is unconscionable and that their total payment of Php
576,000 should be applied to the principal loan which only amounts to Php 350,000.

Rolando also contends that Atty. Salonga tricked him to execute the said loan plus interest
without reducing the agreement in writing. He also said that the 6% interest rate was at the
suggestion and insistence of L&J.

The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as valid since
L&J complied to it as evidenced by the payment they made from December 2000 to August
2003. L&J is now estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on the remaining loan for
reasons of equity. They did not grant the prayer of moral damages to Rolando since there was
no bad faith on the part of L&J.
L&J appealed the decision to the RTC – contending once again that the 6% interest rate is
unconscionable, and that their previous payment which totaled Php 576,000 should be used to
set off the principal loan of Php 350,000. RTC however affirmed the decision of the MTC. L&J
appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a written
agreement and hence, it should not be considered due. CA ruled that the loan was already paid,
and that Rolando should return the excess Php 226,000 with interest of 12% per annum. The
case has now reached the Supreme Court.

ISSUE: ​Whether or not the unwritten 6% interest agreement should be honored.

RULING:

No. The Supreme Court held that, as provided under the Civil Code, an agreement regarding
loan interests should be stipulated in writing. Even if the 6% monthly rate was done in writing, it
will still be void for being unconscionable and contrary to morals and public policy – for at this
time, an interest rate of 3% and higher is considered excessive and exorbitant.

Furthermore, the lack of maturity date puts the total interest to a whooping 72% per annum
which the Supreme Court considered to be “definitely outrageous and inordinate.” The Supreme
Court affirmed CA’s ruling, but as to Rolando’s obligation to pay the excess Php 226,000, the
interest rate was reduced from 12% to 6% per annum.

16) Casa Filipina VS Dep Ex Sec, 209 SCRA 399

Casa Filipina v. The Deputy Executive Secretary

DOCTRINE:​ found in the discussion of Paras, in Article 1956:

(6) Interest by Way of Damages
Art. 2209 — If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which
is six per cent per annum. (The rate NOW is 12% per annum.)

FACTS:

Private respondent Jose Valenzuela, Jr., filed a complaint against developer Casa Filipina
Development Corporation at the Office of Appeals, Adjudication and Legal Affairs (OAALA) [now
Housing and Land Use Regulatory Board (HLURB)] for its failure to execute and deliver the
deed of sale and the transfer certificate of title (TCT).

Valenzuela alleged that he entered a contract to sell with Casa Filipina for the purchase of a lot
to be paid in 12 equal monthly installments with ​24% interest. He also alleged that despite full
payment, the Casa Filipina refused to execute the deed of sale and deliver the TCT. Valenzuela
had also offered to pay for or reimburse Casa Filipina the expenses for the transfer of the title
but the petitioner refuses to accept the same.

OAALA rendered judgment in favor of Valenzuela and ordered Casa Filipina to execute the
deed of sale and deliver the TCT. OAALA also ordered that in the event petitioner is unable to
deliver the title to the said lot, Casa Filipina should refund to Valenzuela his total payments plus
24% interest per annum from the date of the filing of the complaint, until fully paid.

Casa Filipina then later on filed an appeal before the HLURB which the HLURB dismissed for
lack of merit. Unsatisfied, Casa Filipina appealed further to the Office of the President which
was also dismissed for lack of merit.

This case was subsequently brought before the Supreme Court by Casa Filipina on a petition
for review on certiorari, seeking to reverse the decision of the Office of the President.

ISSUE:

Whether or not the legal interest or the interest rate stipulated in the contract is to be applied.

HELD:

The Supreme Court ruled that the interest rate stipulated in the contract is to be applied. The
Supreme Court emphasized that in cases where damages in the form of interest is due but no
specific rate has been previously set by the parties, the legal interest of 12% per annum must
be applied. In the present case, however, the interest rate of 24% per annum was mutually
agreed upon by petitioner and private respondent in their contract to sell. There is no reason
why this same interest rate should not be equally applied to petitioner which is guilty of violating
the reciprocal obligation.

17) PNB VS CA, 196 SCRA 536

PNB v. CA & Padilla

DOCTRINE:
In relation to Credit Transactions, see Art. 1956.

Removal of Usury Law Ceiling on interest rates does not authorize banks to unilaterally and
successively increase interest rates. Here, aside from considering the unilateral attempt by PNB
to increase the interest rates as a violation of limitations set in P.D. 116, the Court determined
that ​the unilateral action of the PNB in increasing the interest rate on the private respondent's
loan, violated the mutuality of contracts ordained in Article 1308 which provides:

"ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

In order that obligations arising from contracts may have the force of law between the parties,
there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void for being within the character of a contract of
adhesion which unfairly reduces the position of the borrower in favor of the lender bank.

FACTS:

Ambrosio Padilla was granted by the Philippine National Bank, a credit line, ​secured by a real
estate mortgage, for a term of 2-years, with 18% interest per annum​. Padilla executed in
favor of the PNB a Credit Agreement, 2 promissory notes in the amount of P900,000.00 each,
and a Real Estate Mortgage Contract. Stipulations in the PN authorizes PNB to increase the
stipulated 18% interest per annum “​within the limits allowed by law at any time depending on
whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note
shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board.”​ Padilla requested to the increase in the rate of
interest from 18% be fixed at 21% or 24% but was denied by PNB multiple times.

PNB, through the decision of its board, unilaterally subjected Padilla to an increase of interest
rates from 18% to 32%, from 32% to 41%, and finally, from 41% to 48%.

ISSUE:

Whether PNB, within the term of the loan which it granted to the private respondent, may
unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased.

HELD:
No. While the Central Bank Circular No. 905, Series of 1982 removed the Usury law ceiling on
interest rates, however, it did not authorize the PNB, or any bank for that matter, to unilaterally
and successively increase the agreed interest rates from 18% to 48% within a span of four (4)
months, in violation of P.D. 116 which limits such changes to “once every twelve months.”
Furthermore, the Court determined that the rates were unilaterally made by the PNB, and
unfairly increased the rates against the will of the other party to the contract.

18) Relucio VS Brillante-Garfin, 187 SCRA 405

DOCTRINE:
For CredTrans -- The vendor and vendee are legally free to stipulate for the payment of either
the ​cash price of a subdivision lot ​or ​its installment price​. Should the vendee opt to
purchase a subdivision lot via the installment payment system, ​he is in effect paying interest
on the cash price​, whether the fact and rate of such interest payment is disclosed in the
contract or not. The contract for the purchase and sale of a piece of land on the installment
payment system in the case at bar is not only quite lawful. ​The Supreme Court sustained the
validity of imposing interest on an installment sale of real property in recognition of the inability
of the owner to benefit from the property prior to the owner being fully paid.

The failure of the developer to complete the project on time does not excuse the buyer from the
obligation to pay the installment price including the interest.

FACTS:
Private respondent filed a complaint before the lower court for specific performance with
damages against petitioner to compel the latter to execute a final deed of sale over two
residential subdivision lots in Mariano Village Subdivision, Naga City and construct paved roads
as well as necessary facilities and improvements on the subdivision.

Private respondent alleged that she had already paid for the downpayment and the subsequent
128 equal monthly instalments of P89.45 each. She alleged that the contract price was P10,800
and there was overpayment that has to be returned to her. Further, the stipulated interest of 6%
per annum is null and void and does not apply to her as she paid them on time.

On the other hand, petitioner resisted the complaint, stating that the private respondent is
obliged to pay the interest on the installment payments of the unpaid outstanding balance even
if paid on their due dates per schedule of payments, that the private respondent had actually
been in arrears in the amount of P4,269.40 representing interest as of June 1979, which
therefore entitled the petitioner to cancel the contract in question.
ISSUE: ​Whether or not petitioner may validly charge interest on installment payments,
notwithstanding that private respondent had been prompt in her monthly payments.

HELD: ​Yes. ​The payment of interest was upheld by the Supreme Court because the
interest here serves as compensation to the seller for the years that he is unable to
benefit from his or her property or its value. Moreover, it takes into account the
time-value of money. The Court resolved to grant the petition due course and required
that the necessary improvements be completed by the petitioner, while the private
respondent resume in paying the installment under the contract. Finally, the Deed of
Absolute Sale be executed in favor of the private respondent after full payment in
accordance with the contract between the parties.

19) New Sampaguita VS Phils., 435 SCRA 565

Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the
properties of Sampaguita’s president and chairman of the board. Sampaguita also executed
several promissory notes due on different dates (payment dates). The first promissory note had
19.5% interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein permitted PNB to
increase the rate “within the limits allowed by law at any time depending on whatever policy it
may adopt in the future x x x,” without even giving prior notice to petitioners. There was also a
clause in the promissory note that stated that if the same is not paid 2 years after release then it
shall be converted to a medium term loan – and the interest rate for such loan would apply.
Later on, Sampaguita defaulted on its payments and failed to comply with obligations on
promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan.

Again they defaulted, so they asked for loan restructuring. It partly paid the loan and promised
to pay the balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the
mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so they
filed a case in court asking sampaguita to pay for deficiency.

RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and
ruled that the latter had no cause of action against the former. CA reversed, saying Sampaguita
was not entitled, thus ordered them to pay the deficiency. Sampaguita appealed to SC and
claims that the loan was bloated so they don’t really owe PNB anymore, but it overcharged
them.

Issue:

1.) Whether or not the Honorable Court of Appeals seriously erred in not holding that

the Respondent PNB bloated the loan account of petitioner corporation by

imposing interests, penalties and attorney's fees without legal, valid and equitable

justification.

2.) Whether PNB could unilaterally increase interest rates

Ruling

1.) Indeed, Petitioner NSBCI's loan accounts with respondent appear to be bloated with some
iniquitous imposition of interests, penalties, other charges and attorney's fees. The promissory
note between the parties states “the Promissory Notes specified the interest rate to be charged:
19.5 percent in the First, and 21.5 percent in the second and again in the third. However, a
uniform clause therein permitted respondent to increase the rate "within the limits allowed by
law at any time depending on whatever policy it may adopt in the future without even giving prior
notice to petitioners.”

The "unilateral determination and imposition" 23 of increased rates is "violative of thebprinciple

of mutuality of contracts ordained in Article 1308 24 of the Civil Code." 25 One sided impositions
do not have the force of law between the parties, because such impositions are not based on
the parties' essential equality.

Although escalation clauses 26 are valid in maintaining Fiscal stability and retaining the value of
money on long-term contracts, 27 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" 28 and would also negate the element of mutuality
in their contracts. The clause cited earlier

made the fulfillment of the contracts "dependent exclusively upon the uncontrolled will" 29 of
respondent and was therefore void. Besides, the pro forma promissory notes have the character
of a contract d'adhésion, 30 "where the parties do not bargain on equal footing, the weaker
party's [the debtor's] participation being reduced to the alternative 'to take it or leave it.'" 31

Circular that lifted the ceiling of interest rates of usury law did not authorize either party to
unilaterally raise the interest rate without the other’s consent. the interest ranging from 26
percent to 35 percent in the statements of account -- “must be equitably reduced for being
iniquitous, unconscionable and exorbitant.” Rates found to be iniquitous or unconscionable are
void, as if it there were no express contract thereon. Above all, it is undoubtedly against public
policy to charge excessively for the use of money. It cannot be argued that assent to the
increases can be implied either from the June 18, 1991 request of petitioners for loan
restructuring or from their lack of response to the statements of account sent by respondent.
Such request does not indicate any agreement to an interest increase; there can be no implied
waiver of a right when there is no clear, unequivocal and decisive act showing such purpose.
Besides, the statements were not letters of information sent to secure their conformity; and even
if we were to presume these as an offer, there was no acceptance. No one receiving a proposal
to modify a loan contract, especially interest -- a vital component -- is “obliged to answer the
proposal.” Besides, PNB did not comply with its own stipulation that should the loan not be paid
2 years after release of money then it shall be converted to a medium term loan.

*Court applied 12% interest rate instead for being a forbearance of money (there were some
pieces of evidence presented by PNB in court that sampaguita objected to. Lower courts
overruled the objections but SC said the objections were correct and the evidence should not
have been admitted. i.e. contract wasn’t signed by the parties, a part of the contract wasn’t
properly annexed/no reference was made in the main contract.)

In addition to the preceding discussion, it is then useless to labor the point that the increase in
rates violates the impairment clause of the Constitution, because the sole purpose of this
provision is to safeguard the integrity of valid contractual agreements against unwarranted
interference by the State in the form of laws. Private individuals’ intrusions on interest rates is
governed by statutory enactments like the Civil Code.

20) DL Santos VS Metrobank, 684 SCRA 410

From December 9, 1996 until March 20, 1998, the petitioners took out several loans
totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would
use in constructing a hotel on their 305-square-meter parcel of land located in Davao City and
covered by Transfer Certificate of Title No. I-218079 of the Registry of Deeds of Davao City.
They executed various promissory notes covering the loans, and constituted a mortgage over
their parcel of land to secure the performance of their obligation. The stipulated interest rates
were 15.75% per annum for the long term loans (maturing on December 9, 2006) and 22.204%
per annum for a short term loan of P4,400,000.00 (maturing on March 12, 1999). ​3 ​The interest
rates were xed for the First year, subject to escalation or de-escalation in certain events
without advance notice to them. The loan agreements further stipulated that the entire amount
of the loans would become due and demandable upon default in the payment of any installment,
interest or other charges.

On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the real estate
mortgage ​5 ​after the petitioners defaulted in their installment payments. The petitioners were
notifed of the foreclosure and of the forced sale being scheduled on March 7, 2000. The notice
of the sale stated that the total amount of the obligation was P16,414,801.36 as of October 26,
1999.

The petitioners filed in the RTC a complaint (later amended) for damages, xing of interest rate,
and application of excess payments (with prayer for a writ of preliminary injunction). They
alleged therein that Metrobank had no right to foreclose the mortgage because they were not in
default of their obligations; that Metrobank had imposed interest rates (i.e., 15.75% per annum
for two long-term loans and 22.204% per annum for the short term loan) on three of their
loans that were different from the rate of 14.75% per annum agreed upon; that Metrobank had
increased the interest rates on some of their loans without any basis by invoking the escalation
clause written in the loan agreement; that they had paid P2,561,557.87 instead of only
P1,802,867.00 based on the stipulated interest rates, resulting in their excess payment of
P758,690.87 as interest, which should then be applied to their accrued obligation; that they had
requested the reduction of the escalated interest rates on several occasions because of its
damaging effect on their hotel business, but Metrobank had denied their request; and that they
were not yet in default because the long-term loans would become due and demandable on
December 9, 2006 yet and they had been paying interest on the short-term loan in advance.

The complaint prayed that a writ of preliminary injunction to enjoin the scheduled

foreclosure sale be issued. They further prayed for a judgment making the injunction
permanent, and directing Metrobank, namely: (a) to apply the excess payment of P758,690.87
to the accrued interest; (b) to pay P150,000.00 for the losses suffered in their hotel business; (c)
to fix the interest rates of the loans; and (d) to pay moral and exemplary damages plus
attorney's fees. ​In its answer, Metrobank stated that the increase in the interest rates had been
made pursuant to the escalation clause stipulated in the loan agreements; and that not all of the
payments by the petitioners had been applied to the loans covered by the real estate mortgage,
because some had been applied to another loan of theirs amounting to P500,000.00 that had
not been secured by the mortgage.

In the meantime, the RTC issued a temporary restraining order to enjoin the

foreclosure sale. ​8 ​After hearing on notice, the RTC issued its order dated May 2, 2000,
granting the petitioners' application for a writ of preliminary injunction. A motion for
reconsideration was then filed by Metro Bank which was granted. The promissory note as
presented by the Bank in the Motion to reconsideration states that the “The rate of interest
and/or bank charges herein-stipulated, during ​the term of this Promissory Note, its extension,
renewals or other modifications, may be increased, decreased, or otherwise changed from time
to time by the bank without advance notice to me/us in the event of changes in the interest rates
prescribed by law of the Monetary Board of the Central Bank of the Philippines”. The petitioner
appealed on the ground that the lower court acted with grave abuse of discretion that they are in
default but said certiorari was denied by the court.

Issue

1.) Whether Metrobank had increased the interest rates without petitioner’s assent and without
any basis; and they had an excess payment sufficient to cover the amounts due.

2.) Whether the petitioners were entitled as regards to issuance of a preliminary injunction
pending the resolution of the issue on the correct interest rate

would be justified in light of the ruling in Almeda v. Court of Appeals.

Ruling

1.) No. ​We consider to be unsubstantiated the petitioners' claim of their lack of consent to
the escalation clauses. They did not adduce evidence to show that they did not assent to the
increases in the interest rates. The records reveal instead that they requested only the reduction
of the interest rate or the restructuring of their loans. 28 Moreover, the mere averment that the
excess payments were sufficient to cover their accrued obligation computed on the basis of the
stipulated interest rate cannot be readily accepted. Their computation, as their memorandum
submitted to the RTC would explain, 29 was too simplistic, for it factored only the principal due
but not the accrued interests and penalty charges that were also stipulated in the loan
agreements.

The Court also ruled that said escalation is valid as jurisprudence has stated. It is valid
as long as any increase in the rate of interest made pursuant to an escalation clause must be
the result of an agreement between the parties. And that any change must be mutually agreed
upon, otherwise, the change carries no binding effect

2.) No. A​lmeda v. Court of Appeals involved circumstances that were far from identical
with those obtaining herein​. To start with, Almeda v. Court of Appeals involved the mandatory
foreclosure of a mortgage by a government Fiancial institution pursuant to Presidential Decree
No. 385 ​35 ​should the arrears reach 20% of the total outstanding obligation. On the other hand,
Metrobank is not a government financial institution. Secondly, the petitioners in Almeda v. Court
of Appeals were not yet in default at the time they brought the action questioning the propriety of
the interest rate increases, but the herein petitioners were already in default and the mortgage
had already been foreclosed when they assailed the interest rates in court. Thirdly, the Court
found in Almeda v. Court of Appeals that the increases in the interest rates had been made
without the prior assent of the borrowers, who had even consistently protested the increases in
the stipulated interest rate. In contrast, the Court cannot make the same conclusion herein for
lack of basis. Fourthly, the interest rates in Almeda v. Court of Appeals were raised to such a
very high level that the borrowers were practically enslaved and their assets depleted, with the
interest rate even reaching at one point a high of 68% per annum. Here, however, the increases
reached a high of only 31% per annum, according to the petitioners themselves. Lastly, the
Court in Almeda v. Court of Appeals attributed good faith to the petitioners by their act of
consigning in court the amounts of what they believed to be their remaining obligation. No
similar tender or consignation of the amount claimed by the petitioners herein to be their correct
outstanding obligation was made by them.

21) Solidbank VS CA, 365 SCRA 671

Facts

On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent

Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P
1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly to
respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt
for the amount of P 1,001,520.93 was executed by respondent Corporation, with respondent
Lim as signatory.

Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary
attachment​3 ​before the Regional Trial Court of Manila. In answer to the complaint, respondents
averred that the transaction between them was a simple loan and not a trust receipt transaction,
and that the amount claimed by petitioner did not take into account payments already made by
them. Respondent Lim also denied any personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.

On September 17, 1990, the trial court rendered its Decision,​5​ dismissing the Complaint and
ordering petitioner to pay respondents the following amounts under their counterclaim:
P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the
legal rate from July 26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs.

Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting
the award of attorney's fees in favor of respondents and, instead, ordering respondent
Corporation to pay petitioner P37,469.22 as and for attorney's fees and litigation expenses.

Hence this petition.

Issue:

1.) ​WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING
OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES
AND REGULATIONS OF THE​ ​CENTRAL BANK.

2.) WHETHER OR NO THE RESPONDENT APPELLATE COUR GRIEVOUSLY ERRED IN

NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION
ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND
FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

Ruling

1.) We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there
being no reference rate set either by it or by the Central Bank, leaving the determination thereof
at the sole will and control of petitioner. 1âwphi1.nêt
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not be fixed and instead be made dependent
upon prevailing market conditions, there should always be a reference rate upon which to peg
such variable interest rates. An example of such a valid variable interest rate was found in
​ ​In that case, the contractual provision stating that "if there
Polotan, Sr. v. Court of Appeals. 10
occurs any change in the prevailing market rates, the new interest rate shall be the guiding rate
in computing the interest due on the outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly statement served to the
Cardholder"​11 ​was considered valid. The aforequoted provision was upheld notwithstanding that
it may partake of the nature of an escalation clause, because at the same time it provides for
the decrease in the interest rate in case the prevailing market rates dictate its reduction. In other
words, unlike the stipulation subject of the instant case, the interest rate involved in the ​Polotan
case is designed to be based on the prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to "any increase or decrease in the interest rate," without
more, cannot be accepted by this Court as valid for it leaves solely to the creditor the
determination of what interest rate to charge against an outstanding loan.

2.) Petitioner has also failed to convince us that its transaction with respondent Corporation is
really a trust receipt transaction instead of merely a simple loan, as found by the lower court and
the Court of Appeals.

The recent case of ​Colinares v. Court of Appeals 12 ​ ​appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This situation
is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.

In the case at bar, as in ​Colinares, ​the delivery to respondent Corporation of the goods subject
of the trust receipt occurred long before the trust receipt itself was executed. More specifically,
delivery of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7,
1982 and was completed by July 19, 1982.​13 ​Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982.​14 ​On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.

ADDITIONAL DISCUSSION(BASIN IPA EXPLAIN NI DEAN ROCKY:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The ​mala prohibita ​nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners' situation. Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity, which should not be
the basis for criminal prosecution in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and admitted that it was only
after collection of the money, as manifested by its Affidavit of Desistance.

22) Solidbank VS Permanent Homes, Inc. 625 SCRA 275

FACTS:

PERMANENT HOMES, a real estate development company, obtained a loan from SOLIDBANK
to finance its housing project known as the “Buena VidaTownhomes” located within Parañaque
City. It applied and was subsequently granted by SOLIDBANK with an “Omnibus Line” credit
facility in the total amount of 60 MILLION PESOS. Of the entire loan, 59 MILLION as time loan
for a term of up to three hundred sixty (360) days, with interest thereon at prevailing market
rates, and subject to monthly repricing. The remaining 1 MILLION was available for domestic
bills purchase.

To secure the above loan, PERMANENT HOMES initially mortgaged 3 townhouse units. Of the
60 million available to PERMANENT HOMES, it availed a total of 41.5 million pesos, covered by
3 promissory notes, which contained a provision authorizing SOLIDBANK to increase or
decrease at any time the interest rate agreed in the note or loan, on the basis among others,
prevailing local or international capital markets and that the adjustment of the interest rate shall
be effective from the date indicated in the written notice sent to PERMANENT HOMES or if no
date indicated, from the time notice was sent. Another provision also provides that should there
be disagreement on the interest rate adjustment, PERMANENT HOMES shall prepay all
amounts due under the Note or Loan within 30 days from the receipt of the written notice.
Contrary however to the specific provisions, there was a standing agreement by the parties that
any increase or decrease in the interest rates shall be subject to the mutual agreement of the
parties.

For the first loan availment, in the amount of 19.6 million, from the initial interest rate of 14.25%
per annum, the same was increase and/ or decrease in the succeeding months; from 14.25% to
as high as 34% then finally at 30%.

For the second loan availment, in the amount of 18 million, the rate was initially pegged at
15.75% per annum and was eventually increased to as high as 34% then decreased to 30%.

For the third loan availment, in the amount of 3.9 million, the interest rate was initially pegged at
35% per annum and was subsequently decreased to 21% and was settled at 29%.

PERMANENT HOMES filed a case before the trial court seeking the annulment of the increases
in interest rates on the loans it obtained from SOLIDBANK, on the ground that it was violative of
the principle of mutuality of agreement of the parties; that SOLIDBANK unilaterally and
arbitrarily accelerated the interest rates without any declared basis of such increases, of which
they had not agreed to or at the very least, been informed of. PERMANENT HOMES witnesses
testified that SOLIDBANK’s billing statements were either days late or none was received and
that they were only informed of the repriced interest rate applicable for the 30- day interest
period only after the period has begun.

SOLIDBANK however insists that PERMANENT HOMES should not be allowed to renege on its
contractual obligations, as it freely and voluntarily bound itself to the provisions of the Omnibus
Credit Line and the promissory notes.

The RTC ruled in favor of SOLIDBANK, ratiocinated that the instant case was instituted as an
afterthought and as an obvious subterfuge intended to completely lay on SOLIDBANK the
blame for the debacle of its project.

The CA granted PERMANENT’S appeal and set aside the RTC. It did not only recognize the
validity of escalation clauses, but also underscored the necessity of a basis for the increase in
interest rates and of the principle of mutuality of contracts.

​ISSUE:

WON the unilateral increases in interest rates and imposed without basis on PERMANENT
HOME’S loans are valid.

HELD:

No.
Although interest rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates; the lender and the borrower should agree
on the imposed rate, and such shall be in writing. The law also provides that in order that
obligations arising from contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality.

In the case at bar, there was no showing that either of the parties were coerced to enter into the
loan agreements; the terms of the agreement and the promissory notes were mutually and
freely agreed upon by the parties. However, the provision from the note emphasized that
PERMANENT HOMES should receive a written notice from SOLIDBANK as a condition for the
adjustment of the interest rates, to which SOLIDBANK failed to comply.

Thus, it was ruled that SOLIDBANK’S computation of the interest due from PERMANENT
HOMES should be adjusted to take effect only upon PERMANENT’S receipt of the written
notice from SOLIDBANK.

23) Silos VS PNB, 728 SCRA 617

FACTS:

Spouses Eduardo and Lydia SILOS, whose business for about two decades is operating a
department store and buying and selling RTWs apparel, secured a revolving credit line of
P150,000 from PNB; a real estate mortgage was constituted. The credit line was then increased
to P1.8 million and the mortgage was correspondingly increased at the same amount. A year
later, a supplement to the existing real estate mortgage was executed to cover the same credit
line, which was increased to P2.5 million and additional security was given.

The Spouses initially issued 8 promissory notes and signed a Credit Agreement, which
contained a provision that provided that the loan shall be subject to interest at the rate of 19.5%
per annum and shall be payable in advance every 120 days at the rate prevailing at the time of
the renewal. Another provision provides that the borrower agrees that the Bank may modify the
interest rate in the loan depending on whatever policy the bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to the fixed interest
rate system or vice versa. Additionally, it provides that the Bank may increase or decrease,
without notice, its spread over the floating interest rate at any time depending on whatever
policy it may adopt in the future. The promissory notes, on the other hand, contained a
stipulation granting PND the right to increase or reduce interest rates within the limits allowed by
law or by the Monetary Board. The real estate mortgage agreement provided the same right to
increase or reduce interest rates at any time depending on whatever policy PNB may adopt in
the future.

After religiously paying the notes, an amendment to Credit Agreement was executed by the
parties, to which the Spouses issued 18 Promissory Notes.
Petitioners made good on the promissory notes, religiously paying interests without objection or
fail. But in 1997, the Spouses faltered when the interest rates soared due to the Asian financial
crisis; their sole outstanding promissory note for P2.5 million, executed in July 1997 and due
120 days later, became past due. After repeated demands, the spouses failed to make good on
the note. Incidentally, the promissory note provided for a penalty of 24% per annum in case of
default based on the defaulted principal amount; the total due amount is at P3,620,541.60,
inclusive of interest and penalties. Due to the failure of the spouses to pay the foregoing
amount, PNB foreclosed on the mortgage.

More than a year later, the spouses filed a civil case, seeking annulment of the foreclosure sale
and an accounting of the PNB credit; they alleged that PNB has the sole will to determine the
interest rates on the succeeding stipulations and are thus null and void. Lydia Silos testified that
the Credit Agreement, the Amendment, Real Estate Mortgage and the supplement thereto were
all prepared by PNB and were presented to them only for signature and that she was told by
PNB that only PNB alone would determine the interest rate portion thereof; all the promissory
notes they issued and executed, the interest rate portion thereof, were always left in blank.

PNB denied that it unilaterally imposed or fixed interest rates and that the spouses agreed that
without prior notice, PNB may modify the interest rates depending on future policy adopted by it.

The RTC dismissed the complaint, ruling the stipulation authorizing both the increase and
decrease of interest rates as may be applicable as valid.

The CA partly granted the instant appeal. It ruled, among others, that the interest rate to be
applied after the expiration of the first 30- day interest period for the promissory note should be
12% per annum, which is the legal rate.

ISSUE:

WON the unilateral determination of fixing interest rate and its increases on the Spouses’
promissory notes are valid.

​HELD:

No.

In loan agreements, the rate of interest is a principal condition, if not the most important
component. Thus, any modification thereof must be mutually agreed upon; otherwise, it has no
binding effect.

In the case at bar, this lack of consent by the Spouses has been made obvious by the fact that
they signed the promissory notes in blank for PNB to fill and that the stipulations in question no
longer provide that the parties shall agree upon the interest rate to be fixed, instead they were
worded in such a way that the borrower shall agree to whatever interest rate PNB fixes. With the
present credit agreement, the element of consent or agreement by the borrower is now
completely lacking, which makes PNB’s unlawful act all the more reprehensible.

24) First Metro VS Este Del Sol, 369 SCRA 99

FACTS:

FMIC granted ESTE DEL SOL a loan of P7,385,000 to finance its construction and development
of the Este del Sol Mountain Reserve, a sports/resort complex project. Under the terms of the
loan agreement, the proceeds of the loan were to be released on a staggered basis. Interest on
the loan was pegged at 16% per annum based on the diminishing balance. The loan was
payable in 36 equal and consecutive monthly amortizations to start at the beginning of the 13​th
month from the date of the first release. In case of default, an acceleration clause was, among
others, provided and the amount due was made subject to a 20% one-time penalty on the
amount due and such amount shall bear interest at the highest rate permitted by law from the
date of default until full payment thereof plus liquidated damages at the rate of 2% per month
compounded quarterly on the unpaid balance and accrued interest together with all the
penalties, fees, expenses or charges thereon until paid.

In accordance with the terms of the Loan Agreement, Este del Sol executed several documents
as security for payment, to wit: (a) Real Estate Mortgage, (b) Continuing Suretyship
Agreements, and (c) Underwriting Agreement. The underwriting agreement also stipulated for a
Consultancy Agreement.

In 3 letters with the same date, FMIC billed ESTE DEL SOL for the amounts of (a) P200,000 as
the underwriting fee, (b) P1,330,000 as consultancy fee for 4 years and (c) P200,000 as
supervision fee; the said amounts of fees were deemed paid by ESTE DEL SOL to FMIC which
deducted the same from the first release of the loan.

Since ESTE DEL SOL failed to meet the schedule of repayment in accordance with the revised
Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98,
inclusive of interests, penalty and other charges. Accordingly, FMIC caused the extrajudicial
foreclosure of the real estate mortgage; being the highest bidder for P9 million, less charges,
the alleged deficiency balance of P6,863,297.73 was then sought after through instituting an
instant collection suit against ESTE DEL SOL.

ESTE DEL SOL sought the dismissal of the case setting up the defense that the Underwriting
and Consultancy Agreements executed simultaneously with and as integral parts of the Loan
Agreement and which provided for the payment of underwriting, consultancy and supervision
fees were in reality subterfuges resorted to by FMIC and imposed upon it to camouflage the
usurious interest being charged by FMIC.

The RTC ruled in favor of FMIC, ordering ESTE DEL SOL to pay the deficiency plus the 21%
per annum and the 25% attorney’s fees plus cost of suit.
The CA reversed the challenged decision; it declared that the fees provided for in the
Underwriting and Consultancy Agreements were mere subterfuges to camouflage the
excessively usurious interest charged by FMIC.

ISSUES:

WON the Underwriting and Consultancy Agreements were executed to conceal a usurious loan.

WON the entire obligation in usurious loans become void.

HELD:

Yes. The Underwriting and Consultancy Agreements were executed and delivered
contemporaneously with the Loan Agreements and were exacted by FMIC as essential
conditions for the grant of the loan. It has been held that an apparently lawful loan is usurious
when it is intended that additional compensation for the loan be disguised by an ostensibly
unrelated contract providing for payment by the borrower for the lender’s services which are of
little value or which are not in fact to be rendered.

No. Article 1957 provides that contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury, shall be void. The borrower may recover in
accordance with the laws on usury. In usurious loans, the entire obligation does not become
void because of an agreement for usurious interest the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to
be considered with stipulation as to the interest. Thus, the nullity of the stipulation on the
usurious interest does not affect the lender’s right to receive back the principal amount of the
loan; with respect to the debtor, the amount paid as interest under a usurious agreement is
recoverable by him, since payment is deemed to have been made under restraint, rather than
voluntarily.

25) Asian Cathay VS Gravador, 623 SCRA 577

FACTS:

ACFLC extended a loan of P800,000 to CESARIO GRAVADOR; the loan was payable in 60
monthly installments of P24,400 each. To secure the loan, GRAVADOR executed a real estate
mortgage over his property. Initial installment due in the next month was paid, however,
GRAVADOR and his co-makers were unable to pay the subsequent ones. Consequently, they
received a demand letter for the payment of P1,871,480 within 5 days from the receipt thereof.
GRAVADOR and his co-makers requested for an additional period to settle their account but
ACFLC denied the request and consequently, filed a petition for extrajudicial foreclosure of
mortgage.
GRAVADOR and his co- makers filed a suit for annulment of real estate mortgage and
promissory note with damages; they claimed that the real estate mortgage was null and void
and that it contained a provision on the waiver of the mortgagor’s right of redemption, which is
contrary to law and public policy. They also pointed out that the mortgage does not make
reference to the promissory note. Also, the latter does not specify the maturity date of the loan,
the interest rate, and the mode of payment. It added that ACFLC violated RA No. 3765, or the
Truth in Lending Act.

ACFLC claimed that it was merely exercising its right as mortgagor, hence, it prayed for the
dismissal of the complaint.

The RTC dismissed the complaint for lack of cause of action, sustaining the validity of the
promissory note and the real estate mortgage.

The CA reversed the decision and held that the amount demanded by ACFLC is
unconscionable and excessive.

​ISSUE:

WON unconscionable interest rates on loan contracts are valid.

​HELD:

No.

Central Bank Circular No. 905, series of 1982, which suspended the Usury Law ceiling on
interest date gave parties to a loan agreement a wide latitude to stipulate on any interest rate.
However, interest rates, whenever unconscionable, may be equitably reduced or even
invalidated. In several cases, the Court had declared as null and void stipulations on interest
and charges that were found excessive, iniquitous, and unconscionable.

In the case at bar, records show that the amount of the loan obtained was P800,000 and
GRAVADOR and his co-makers paid the installment due on the next month but failed to pay the
subsequent ones. However, in a span of 3 months, the obligation ballooned by more than P1
million and that ACFLC failed to show any computation on how much interest was imposed and,
on the penalties, charged.