Topic 2 - Loan

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✓Case 1: SAURA IMPORT and EXPORT CO, Inc. v. Development Bank of the Philippines|
G.R. No. L-24968 |
Date: April 27, 1972 | Ponente: J. Makalintal
TOPIC: LOAN
SUB-TOPIC: Perfection of Loan Contract; Mutual Desistance
Digested by: Earl Guen Padayao

● Mutual Desistance — Manresa terms "mutuo disenso” — which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.
● Contract v. Loan Itself (Article 1934)
○ The perfection of consensual contract → happens upon offer and acceptance
○ The perfection of the loan itself → happens upon delivery of the object of the contract;
delivery of what was loaned
■ See also: Article 1316 Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the object of the
obligation.
Facts:
● Loan Application: In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp.
(RFC), now DBP, for an industrial loan of P500,000 to be used for the construction of a
factory building, to pay the balance of the jute mill machinery and equipment and as
additional working capital.
● Loan Approval: In Resolution No.145 dated January 7, 1954, the loan application was
approved to be secured first by mortgage on the factory buildings, the land site, and
machinery and equipment to be installed.
○ Problems:
■ January 8, 1954: Saura wrote a letter to RFC, requesting a modification of
the terms: That instead of having China Engineers, Ltd. sign as co-maker
on the corresponding promissory notes, Saura, Inc. would put up a bond for
P123,500.00, an amount equivalent to such subscription; and that Maria S.
Roca would be substituted for Inocencia Arellano as one of the other co-
makers, having acquired the latter's shares in Saura, Inc.
■ The board of RFC decided to reexamine the entire loan approval.
■ March 24, 1954 Saura, Inc. wrote to RFC that China Engineers, Ltd. had
again agreed to act as co-signer for the loan, and asked that the necessary
documents be prepared in accordance with the terms and conditions
specified in Resolution No. 145
● Loan Reduction: June 10, 1954 RFC decided to reduce the loan granted to 300,000
instead of 500,000
● Loan Increased again: December 17, 1954 RFC passed Resolution No. 9083, restoring
the loan to the original amount of P500,000.00 considering that China Engineers, Ltd. is
now willing to sign the promissory notes jointly with the borrower-corporation.
○ This came with two conditions for the loan to be released: increased production
and that the raw materials are immediately available in the vicinity.
● Saura realized it could not comply with this, it did not insist on the loan but requested
for the cancellation of the mortgage -- which was done by the bank by July 15, 1955.
● After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on
the latter to comply with its obligations to release the loan applied for and approved,
thereby preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
● The trial court ruled in favor of Saura, ruling that there was a perfected contract between
the parties and that the RFC was guilty of breach thereof.
Issue 1: Was there a perfected consensual contract between Suara Import and
Rehabilitation Finance Corporation (RFC), which later became Development Bank of the
Philippines?
Ruling: YES. there was indeed a perfected consensual contract, as recognized in Article 1934 of
the Civil Code, which provides:
ART. 1934. 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.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan
of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage
was executed and registered.
However, this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its
obligation and the plaintiff is therefore entitled to recover damages.
Issue 2: Based on the perfected contract, may Suara claim damages from RFC (now DBP)?
Ruling: No, DBP is not liable for damages. All circumstances demonstrate beyond doubt that the
said agreement had been extinguished by mutual desistance — and that on the initiative of the
Saura itself.
Recalling the facts:

● RFC set a conditions on the loan:
1) That the raw materials needed by the borrower-corporation to carry
out its operation are available in the immediate vicinity
2) That there is prospect of increased production thereof to provide
adequately for the requirements of the factory
● Saura, Inc. realized that it could not meet the conditions required by RFC, and so
wrote its letter of January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking that out of the loan
agreed upon the sum of P67,586.09 be released "for raw materials and labor."
● RFC turned down the request in its letter of January 25, 1955
● Saura, Inc. obviously was in no position to comply with RFC's conditions. Saura,
Inc. asked not to pursue the loan and the mortgage be cancelled, which was done
on June 15, 1955.
● Subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC. It only filed a case 9 years later
(1964).
✓Case 2: Bonnevie vs CA | G.R. No. L-49101|
Date: October 24, 1983 | Ponente: GUERRERO, J
TOPIC: LOAN
SUB-TOPIC: Consideration; Mortgage Contract
Digested by: Mel Michelle Dawn Ramirez

● A mortgage contract does not become invalid by mere failure of the debtor to get the
mortgage consideration on the date the mortgage was executed. A loan is a consensual
contract.
● A mortgage is not rendered null and void by the use thereof as security in the renewal of
the original loan after the property mortgaged had already been sold to another without the
sale being registered.
● Creditor has no duty to notify buyer of mortgaged estate of the foreclosure thereof where
creditor not notified of said sale.
● Notice of auction sale once a week for three consecutive weeks does not mean that the
notice must be published for three full weeks.
● There is no right conferred by law in favor of buyer of mortgaged property to redeem the
same where sale to such third party was not with consent of mortgaged creditor.
● No bad faith can be inferred from failure of creditor to give notices to petitioner where his
letter to the creditor did not say that he is the new owner of the mortgaged estate and that
all notices should be given to him.
● Receipt by bank of interest payment on long matured loan does not result in renewal or
extension of maturity period of the loan.
Facts:
Series of events:
December 6, Deed of Mortgage was executed by spouses Jose M. Lozano & Josefa P.
1966 Lozano in favor of PBC to mortgage the former’s property to secure the
payment of loan in principal amount of Php 75,000.00 which is still to be
obtained by the Spouses
December 8, Spouses executed a Deed of Sale with Mortgage in favor of Petitioner

1966 Honesto in consideration of Php 100,000.00 (Php 25,000.00 of which shall
be given to the spouses upon the execution of the document, and Php
75,000.00 payable to the PBC)
December 12, The spouses and their co-maker Alfonso Lim signed the promissory note for
1966 the amount they were to receive from PBC
● Note: Sps apparently haven’t received any amount of the loan
April 28, 1967 Petitioner Honesto made payments in total of Php 18,944.22 to PBC
- July 12, 1968
May 4, 1968 Petitioner Honesto assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother Petitioner Raoul (intervenor)
June 10, 1968 PBC applied for the foreclosure of mortgage
August 19, The auction sale was conducted and the property was sold to PBC for
1968 Php84,387.00
Thereafter, offers from Petitioner Honesto to repurchase the property had

failed
Sep. 4, 1968 The property mortgaged was foreclosed
January 27, Petitioner Honesto Bonnevie filed before the CFI against Philippine Bank
1971 (this of Commerce (PBC), seeking to annul the Deed of Mortgage dated
case) December 6, 1966 (between Sps Lozano and PBC).
Petitioner sighted the following grounds:

1. The Deed of Mortgage lacks consideration, and was executed by
one who was not the owner of the mortgaged property
2. The foreclosure was done without complying with the condition
imposed for a valid foreclosure.
3. If the Deed and the foreclosure were valid, the respondent Bank
should have accepted petitioner’s offer to redeem the property under
principle of equity
Defendant Bank’s defenses:

1. The defendant has not given its consent to the sale of the
mortgaged property to petitioner Honesto, and the latter’s
assumption of the loan secured
2. Demand letters and notice of foreclosure were sent to Jose Lozano
3. Defendant bank was only notified of the said sale to petitioner only
after the foreclosure
4. The loan of Php75,000.00, which was renewed twice, remained
unpaid despite countless demands and reminders.
5. Payments against accounts need not be personally made by the
debtor himself
Thereafter, Raoul S.V. Bonnevie filed a motion of intervention on the

premise of a Deed of Assignment executed by petitioner Honesto in favor of
Raoul, covering all rights and interest of Honesto over the subject property.
March 29, The lower court dismissed the complaint

1976
August 11, The CA affirmed the lower court’s decision, and denied the MR on October
1978 3, 1978
Issues:
1. WON the mortgage lacks consideration because the loan was not received on the date it
was executed
2. WON the real estate mortgage executed by spouses Lozano in favor of Respondent PBC
was valid and legally executed.
3. WON the extrajudicial foreclosure of the said mortgage was validly and legally effected.
4. WON petitioners had a right to redeem the foreclosed property.
5. WON respondent was justified in refusing their offers to repurchase the property., granting
that the petitioners had such a right.
Key argument leading to the main issue (very creative, actually!): Petitioner contended that
when the mortgage was executed on December 6, 1966, while the promissory note was on
December 12, 1966 --- so they said that there was no principal obligation (loan) yet to secure
as the amount of P75,000.00 was not received by the Lozano spouses. This then results in the
want of consideration in the accessory contract (the mortgage), which consequently impairs its
validity and fatally affects its very existence."
1. MAIN ISSUE: WON the mortgage lacks consideration due to the non-perfection of
the contract of loan
No, it does not lack consideration.
From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was
executed for and on condition of the loan granted to the Lozano spouses. The fact that
the latter did not collect from the respondent Bank---- the consideration of the mortgage on
the date it was executed --- is immaterial.
A contract of loan being a consensual contract, the herein contract of loan was
perfected at the same time the contract of mortgage was executed. The promissory note
executed on December 12, 1966 is only an evidence of indebtedness and does not
indicate lack of consideration of the mortgage at the time of its execution.
Additionally, petitioners admit that they failed to secure the consent of respondent PBC to
the sale with assumption of mortgage. Provision 2 of the contract of mortgage prohibits
sale, disposition, mortgage, and encumbrance without the consent of the mortgagee, in
this case PBC.
2. WON the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
Yes. Firstly, PBC, not being a party to the Deed of Sale with Assumption of Mortgage,
can validly claim that it was not aware of the same and hence, it may not be obliged to
notify petitioners.Secondly, petitioner Honesto Bonnevie was not entitled to any notice
because as of May 14, 1968, he had transferred and assigned all his rights and interests
over the property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise
informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice.
Requirement for Notice, Act. 3135: Section 3. Notice shall be given by posting notices of
the sale for not less than twenty days in at least three public places of the municipality or
city where the property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city.
3. WON petitioners had a right to redeem the foreclosed property.
No. No consent having been secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their
rights were never recorded and hence, respondent Bank is charged with the obligation to
recognize the right of redemption only of the Lozano spouses.
4. WON respondent (PBC) was justified in refusing their offers to repurchase the
property., granting that the petitioners had such a right.
Yes, even though petitioners, as purchase or assignee of the property, had acquired a
right to redeem, they still failed to exercise said right within the period granted by law. The
one-year redemption period had expired on September 3, 1969, yet petitioner Honesto
had only first written an offer to redeem on September 29, 1969, the latter had also
assigned his rights to intervenor Raoul Bonnevie at that time.
✓Case 3: Rose packing vs CA and Philippine Commercial and Industrial Bank | G.R. No:
L-33084 |
Date: Nov. 14 1988 | Ponente: Paras
TOPIC: LOAN
SUB-TOPIC: Loan a Reciprocal Obligation;
Promise to pay is the consideration of a loan contract
DIGESTED BY: Journey Segales
● The loan agreements are reciprocal obligations, the obligation or promise of each party is
the consideration for that of the other. A contract of loan is not a unilateral contract.
● The promise of the petitioner to pay is the consideration for the obligation of the
respondent bank to furnish the loan.
● Default generally begins from the moment the creditor demands the performance of the
obligation, without such demand, the effect of default will not arise.
● Where the lending institution took over the management of the borrowing corporation,
as one of the conditions for the granting of the loan, and the borrowing corporation was
led to bankruptcy thru mismanagement and misappropriation of funds, thereby
defeating the very purpose of the loan, it is as if the loan was never delivered, and thus,
there was failure of consideration on the part of the lending institution.
Summary: We are looking at 3 banks and multiple loans
-Rose Packing took loans from 3 banks:
Banks Transaction made by Rose Packing:
-PCIB (secured by real estate mortgage) - loan of P300k; no money released
-NIDC (used this to purchase 5 lots) -loaned P2.6M; only P200k released (Rose
used this to buy 5 lots in Pasig)
-PCIB (secured by real estate mortgage) -loaned P710k to partially pay for Pasig lots;
released P300k only
-loaned P500k for operating exp; released
P300k
-loans P200k to be directly paid to petitioner’s
creditors
-DBP (this was supposed to pay partially for -loans P1,840,000; released P800k
PCIB but latter refused)
-PCIB filed a case to collect payment from Rose Packing and notified the same that the real
estate mortgage used to secure their loan would be foreclosed
-Rose Packing filed for preliminary injunction to enjoin the foreclosure
-RTC denied (denied also for MR)
-Rose Packing appealed to CA
-before CA resolved the issue, PCIB foreclosed the mortgage and sold the lot in a public auction
- Rose Packing asked to enjoin the effects of the foreclosure sale and CA granted Rose Packing
60 days to redeem its property
-However, four days after the CA’s decision, PCIB caused the cancellation of the TCTs and had
new ones issued to PCIB, the buyer of the properties at the foreclosure sale
-In view thereof, petitioner filed a motion charging respondent PCIB and its Executive
Vice-President and Assistant General Manager Unson with contempt of court. Petitioner
prayed that
a) the Deed of Sale dated May 12, 1970 and the consolidation of ownership of the
same date be declared null and void;
(b) that the new transfer certificates of title TCT Nos. 286174, 286175, and 286176
—be cancelled and the old ones, TCT Nos. 177019,175595, and 73620 be
restored or revived by the Register of Deeds of Rizal; and
(c) that the respondent PCIB be ordered to surrender and deposit the TCT Nos.
177019, 175595, and 73620 with respondent Court for safekeeping
-CA denied the motion
Facts:
On December 12, 1962 respondent bank (PCIB) approved a letter- request by petitioner for the
reactivation of its overdraft line, discounting line,and a letter of credit-trust receipt line as well as
an application for a loan of P300,000.00, on fully secured real estate and chattel mortgage and a
condition that respondent PCIB appoint as it did appoint its executive vice-president Roberto S.
Benedicto as representative in petitioner's board of directors.
On November 3, 1965 the National Investment & Development Corporation (NIDC) approved a
P2.6 million loan application of petitioner but only was released 200,000.00 by the NIDC.
Subsequently, petitioner purchased five (5) parcels of land in Pasig, Rizal.
Respondent PCIB approved additional accommodations to petitioner consisting of a P710,000.00

loan for the payment of the balance of the purchase price of those lots in Pasig.
However, PCIB released only P300,000.00 of the P710,000.00 approved loan for the payment of
the Pasig lands and some P300,000.00 for operating capital.
The Development Bank of the Philippines approved an application by petitioner for a loan of
P1,840,000.00 and a guarantee for $652,682.00 for the purchase of can making equipment. The
petitioner advised respondent PCIB of the availability of P800,000.00 to partially pay off its
account and requested the release of the titles to the Pasig lots for delivery to DBP. However the
respondent refused, stating that all obligations should be liquidated before the release of the titles
to the Pasig properties.
On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht, its
president for the collection of petitioner's indebtedness to respondent bank, which complaint
was docketed as Civil Case No. 71697 of the Court of First Instance of Manila. PCIB notified the
petitioner that it would foreclose the real estate mortgage to an auction sale.
Petitioner filed a complaint in the lower court to enjoin PCIB and the sheriff the proceeding of the
foreclosure sale, however it was denied. Elevating the issue to Court of Appeals but it was also
denied.
MAIN ISSUE: Was the Philippine Commercial and Industrial Bank able to fulfil its
obligation under their loan agreement?
NO. 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 it approved on October
13, 1966 in which case, petitioner corporation, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in either case.
As a consequence, the real estate mortgage of petitioner corporation cannot be entirely

foreclosed to satisfy its total debt to respondent bank.
Issue 2: Is there consideration for the loan herein?
No, there was no consideration due the mismanagement by the bank of Rose Parking’s affairs.
The mismanagement led to a poor financial state, this negates the purpose of loaning, thus it is as
if that the loan was not delivered at all.
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. A contract
of loan is not a unilateral contract as respondent Bank thinks it is. The promise of the
petitioner to pay is the consideration for the obligation of the respondent bank to furnish
the loan (Ibid.).
In this case, It is apparent that the respondent bank was practically managing the petitioner
corporation through its representatives occupying key positions therein. There was failure of
consideration on the part of respondent bank for the mismanagement of the affairs of petitioner
corporation and where said bank is in default in complying with its obligation to release to
petitioner corporation the amount of P710,000.00. In fact the real estate mortgage itself
becomes unenforceable.
Note this: Just like Filipinas Marble Corporation v. Intermediate Appellate Court
where the lending institution took over the management of the borrowing corporation and
led that corporation to bankruptcy through mismanagement or misappropriation of the
funds, defeating the very purpose of the loan which is to develop the projects of the
corporation, the Court ruled that it is as if the loan was never delivered to it and thus,
there was failure on the part of the respondent DBP to deliver the consideration for
which the mortgage and the assignment of deed were executed.
ISSUE 3: Whether or not private respondents have the right to the extrajudicial foreclosure
sale of petitioner's mortgaged properties before trial on the merits
Ruling: No. Petitioner filed Civil Case in the Court of First Instance of Rizal, Branch II, to obtain
judgment (1) enjoining respondents from proceeding with the foreclosure sale of the subject real
estate mortgages, (2) fixing a new period for the payment of the obligations of plaintiff to PCIB
sufficiently long to enable it to recover from the effects of defendant PCIB's inequitable acts, (3)
ordering defendant PCIB to immediately give up management of plaintiffs canning industry and to
pay plaintiff such damages as it may prove in the concept of actual, compensatory and exemplary
or corrective damages. It is to be noted that petitioner filed the above case mainly to forestall the
foreclosure sale of the mortgaged properties before final judgment. The issuance of a writ of
preliminary injuction could have preserved the status quo of the parties in relation to the subject
matter litigated by them during the pendency of the action.
When the lower court denied the issuance of the writ prayed for and dissolved the restraining
order it had previously issued, in its order dated January 31, 1969 it practically adjudicated the
case before trial on the merits.
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.
✓Case 4: BPI Investment Corp. v. Court of Appeals | G.R. No: 133632 |
Date: February 15, 2002 | Ponente: QUISUMBING, J.
TOPIC:LOAN
SUB-TOPIC: Loan Contract vs Consensual Contract
DIGESTED BY: Mary Ramirez
Perfected Consentual Contract: March 31, 1981

Perfected Contract of Loan: September 13, 1982, date of release
Obligation to pay amortizations commenced only on October 13, 1982, one month after the
perfection of the contract of loan

● A loan contract is not a consensual contract but a real contract. It is perfected only
upon the delivery of the object of the contract.
● A perfected consensual contract can give rise to an action for damages. However, said
contract does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only on the part
of the borrower.
● A contract of loan involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other.
● It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other
does not comply or is not ready to comply in a proper manner with what is incumbent upon
him. Only when a party has performed his part of the contract can he demand that the
other party also fulfills his own obligation and if the latter fails, default sets in.
Facts: This is a case assailing the foreclosure of mortgage by petitioner BPI Investment
Corporation (BPIIC for brevity; this was called AIDC before) against private respondents ALS
Management and Development Corporation (ALS for brevity) and Antonio K. Litonjua.
Frank Roa obtained a loan from Ayala Investment and Development

Corporation (AIDC) for the construction of a house on his lot.
● interest rate was 16 1/4% per annum
● AIDC is the predecessor of petitioner BPIIC
Said house and lot were mortgaged to AIDC to secure the loan.
Sometime in Roa sold the house and lot to private respondents ALS and Antonio Litonjua
1980 for ₱850,000.
● They paid ₱350,000 in cash and assumed the ₱500,000 balance of
Roa’s indebtedness with AIDC.
● AIDC was not willing to extend the old interest rate to private
respondents. AIDC proposed to grant them a new loan:
○ ₱500,000 to be applied to Roa’s debt and
○ secured by the same property,
○ at an interest rate of 20% per annum and
○ service fee of 1% per annum on the outstanding principal
balance
○ payable within ten years in equal monthly amortization of
₱9,996.58 and
○ penalty interest at the rate of 21% per annum per day from the
date the amortization became due and payable.
March 1981 ALS and Litonjua executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall
commence on May 1, 1981 (a month after the execution of the mortgage deed)
● THIS IS THE PROBLEM: BPIIC only agreed to extend this new loan if
ALS reduced Roa’s loan. The reduction only happened in Aug 13, so
everything got delayed. The loan was only perfected in Sept 13. So how
could ALS pay for amortizations when BPIIC has not even released the
loan?
August 13, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of
1982 ₱190,601.35. This reduced Roa’s principal balance to ₱457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds of private
respondents’ loan of ₱500,000.
September BPIIC released to ALS and Litonjua ₱7,146.87, purporting to be what was left
13, 1982 of their loan after full payment of Roa’s loan.
June 1984 BPIIC instituted foreclosure proceedings against private respondents on the
ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984, amounted to ₱475,585.31.
August 13, A notice of sheriff’s sale was published.

1984
February ALS and Litonjua filed a civil case for damages against BPIIC.
28, 1985 ● They alleged, among others, that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984.
● They maintained that they should not be made to pay amortization
before the actual release of the ₱500,000 loan in August and
September 1982.
● Further, out of the ₱500,000 loan, only the total amount of ₱464,351.77
was released to private respondents.
Hence, applying the effects of legal compensation, the balance of ₱35,648.23

should be applied to the initial monthly amortization for the loan.
○ Note: Apparently, BPIIC did not pay out the full ₱500k to ALS
Trial Court = dismissed foreclosure suit; awarded damages to ALS and Litonjua.It held that the
amount of loan granted by BPI to ALS and Litonjua
● was only in the principal sum of P464,351.77,
● with interest at 20%
● plus service charge of 1% per annum,
● payable on equal monthly and successive amortizations at P9,283.83
● for ten (10) years or one hundred twenty (120) months.
CA = affirmed TC’s Decision. reasoned that a simple loan is perfected only upon the delivery of
the object of the contract. The contract of loan between BPIIC and ALS &
Litonjua was perfected only on September 13, 1982, the date when BPIIC
released the purported balance of the ₱500,000 loan after deducting therefrom the
value of Roa’s indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the
stipulations in the contract. This, despite the express agreement of the parties
that payment shall commence on May 1, 1981.
● From October 1982 to June 1984, the total amortization due was only
₱194,960.43.
● Evidence showed that private respondents had an overpayment, because
as of June 1984, they already paid a total amount of ₱201,791.96.
● Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private
respondents’ delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.
Argument ni BPIIC = While the docs showed that the loan was released only on Aug 1982, the
the loan contract was already perfected on March 31, 1981 when the loan was released
and BPIIC issued a cancellation of mortgage of Frank Roa’s loan
Issue 1: Is this CONTRACT OF LOAN a CONSENSUAL CONTRACT?
Ruling: There is a PERFECTED CONSENSUAL CONTRACT. A loan contract is not a

consensual contract but a real contract. It is perfected only upon the delivery of the object of the
contract. Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an
accepted promise to deliver something by way of simple loan.
A perfected consensual contract can give rise to an action for damages. However, said contract
does not constitute the real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on the part of the borrower.
Issue 2: When was the loan contract between BPIIC and ALS perfected? And when did the
obligation to pay commence?
Ruling: In the present case, the loan contract was perfected only on September 13, 1982, the
date of the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private
respondents’ obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
Therefore, ALS was not in default of their amortizations. Foreclosure was dismissed.
Issue 2: When was the loan contract between BPIIC and ALS perfected? And when did the
obligation to pay commence?
Ruling: In the present case, the loan contract was perfected only on September 13, 1982, the
date of the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private
respondents’ obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
Therefore, ALS was not in default of their amortizations. Foreclosure was dismissed.
Issue 3: Is BPIIC liable for moral and exemplary damages and attorney’s fees?
Ruling: BPIIC is not liable for moral and exemplary damages, but for nominal damages and
Attorney’s Fees. As admitted by private respondents themselves, they were irregular in their
payment of monthly amortization. Conformably with the Court’s ruling in SSS vs CA, BPIIC
cannot be properly declared in bad faith.
However, BPIIC was negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount actually released to
private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages of ₱25,000 should be given in
recognition of their rights which were violated by BPIIC.
Lastly, as in SSS where we awarded attorney’s fees because private respondents were
compelled to litigate, we sustain the award of ₱50,000 in favor of private respondents as
attorney’s fees.
CASES mentioned:
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of ₱500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected consensual
contract which under normal circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable to petitioner therein, the court
did not award it damages.
Social Security System vs. Court of Appeals, 120 SCRA 707:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the
Court of Appeals "the negligence of the appellant is not so gross as to warrant moral and
temperate damages," except that, said Court reduced those damages by only P5,000.00
instead of eliminating them.
Neither can we agree with the findings of both the Trial Court and respondent Court that
the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting
in the legitimate exercise of its right under the mortgage contract in the face of irregular
payments made by private respondents and placed reliance on the automatic acceleration
clause in the contract. The filing alone of the foreclosure application should not be a
ground for an award of moral damages in the same way that a clearly unfounded civil
action is not among the grounds for moral damages.
✓Case 5: Garcia v. Thio | G.R. No. 154878
Date: March 16, 2007 | Ponente: CORONA, J.
TOPIC:LOAN
SUB-TOPIC: Perfection by delivery satisfied by possession and control
DIGESTED BY: Pamela Altubar

● The delivery that perfects a contract of mutuum does not require actual physical
possession of what is lent [in this case, money in the form of checks]—it is enough that
what is lent is placed under the control and possession of the debtor.
● Absent written stipulation, the payment of interest cannot be enforced.
● Only questions of law, may be raised in a petition for review on certiorari under Rule 45 of
the Rules of Court. An exception is when the factual findings of the CA (which held that
there were no contracts of loan between petitioner and respondent) and the RTC (which
held that there were contracts of loan) are contradictory.
● A loan is a real contract, not consensual, and as such is perfected only upon the delivery
of the object of the contract.
Art. 1934, NCC: 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.
Facts:
Dates Antecedent
February 24, Thio borrowed from Garcia US$100,000 with interest of 3% per month,
1995 which loan would mature on October 26, 1995.
The amount of this loan was covered by a crossed check (can only be
deposited to the account of the payee, and not immediately cashed
over-the-counter).
Check details:
Date: February 24, 1995
Amount: US$100,000
Payee: Marilou Santiago
Thereafter, Garcia received the following from Thio every month

(alleged payment for interests)
March 24, 1995 - US$3,0006

April 26, 1995 - US$3,0006
June 26, 1995 - US$3,0006
July 26, 1995 - US$3,0006
July 26, 1995 - ₱76,5007
August 26,1995 - ₱76,5007
September 26, 1995 - ₱76,5007
October 26, 1995 - ₱76,5007
(NOTE: lahi2x jud syag currencies)
June 29, 1995 Respondent (Thio) borrowed ₱500,000 with monthly interest of 4%, the
maturity date of which was on November 5, 1995. The amount of this
loan was covered by the second check.
Thio received from Garcia another crossed check.

Check details:
Date: June 29, 1995
Amount: ₱500,000
Payee: Marilou Santiago
Thereafter, petitioner received the following from respondent every

month
August 5, 1995 - ₱20,000
September 5, 1995 - ₱20,000
October 5, 1995 - ₱20,000
November 5, 1995 - ₱20,000
NOTE: For both loans, no promissory note was executed since

petitioner and respondent were close friends at the time.
Respondent paid the stipulated monthly interest for both loans (see
installment payments above) but on their maturity dates, she failed to pay
the principal amounts of the loans (US$100,000 and ₱500,000) despite
repeated demands.
February 22, Petitioner filed a complaint for sum of money and damages in the RTC
1996 against respondent, seeking to collect the sums of US$100,000, with
interest thereon at 3% a month from October 26, 1995 and ₱500,000,
with interest thereon at 4% a month from November 5, 1995.
Respondent’s defenses:
1. Denied that she contracted the two loans with petitioner
2. It was really Marilou Santiago (the payee in the checks) to whom the petitioner lent
money and that she was merely asked by petitioner to give the crossed checks to
Santiago.
3. She issued the checks for ₱76,000 and ₱20,000 not as payment of interest but to
accommodate Garcia’s request that respondent use her own checks instead of
Santiago’s.
RTC Ruled in favor of Garcia (petitioner).

CA : reversed the decision of the RTC and ruled that there was no contract of loan between the
parties.
● A perusal of the record of the case shows:
1. Garcia failed to substantiate her claim that Thio Actually borrowed money from her.
2. Nothing in the record shows that Thio received money from Garcia
3. The crossed checks received by Thio may not be encashed but only deposited in
the bank by the payee (Marilou Santiago)
4. Thio received a crossed check dated February 24, 1995 in the sum of
US$100,000.00, payable to the order of Marilou Santiago and another crossed
check dated June 29, 1995 in the amount of ₱500,000.00 payable to Marilou
Santiago
Issue: Is Thio liable to Garcia for the two loans and interests? What is the participation of
Santiago herein?
Ruling:
Subject Is the Ratio

respondent
liable?
Principal Amounts of $100k Yes Delivery is the act by which the res or
and ₱500,000 substance thereof is placed within the
actual or constructive possession or
control of another.
Although respondent (Thio) 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.
Supporting facts to this conclusion:

1. Respondent admitted that
petitioner did not personally know
Santiago.
2. A common friend, Leticia Ruiz,
testified that respondent’s plan was
for petitioner to lend her money at a
monthly interest rate of 3%, after
which respondent would lend the
same amount to Santiago at a
higher rate of 5% and realize a
profit of 2%. This explained why
respondent instructed petitioner
to make the checks payable to
Santiago
3. It is difficult to believe that
respondent would put herself in a
position where she would be
compelled to pay interest, from her
own funds, for loans she allegedly
did not contract.
4. In the petition for insolvency sworn
to and filed by Santiago, it was
respondent, not petitioner, who was
listed as one of her (Santiago’s)
creditors.
5. Respondent never presented
Santiago as a witness
Monthly interest of 3% and 4% No There was no written proof of the interest

payable except for the verbal agreement.
Article 1956 of the Civil Code provides that
"[n]o interest shall be due unless it has
been expressly stipulated in writing."
Legal interest (per annum) Yes While there can be no stipulated interest,
there can be legal interest pursuant to
Article 2209 of the Civil Code
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 under and subject
to the provisions of Article 1169 of the Civil
Code.
(NOTE: There must be a judicial or

extrajudicial demand. “No demand, no
delay.”)
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.
✓Case 6: Pantaleon v. American Express International | G.R. No: 174269
Date: August 25, 2010 | Ponente: Brion, J.
[TOPIC]: Loan
[SUB-TOPIC]:Credit Card Transactions
DIGESTED BY: Rosette Tinguha
DOCTRINES:
● General Rule: As between a bank and its depositors, the bank is deemed as the debtor
while the depositor is considered as the creditor.
○ Exception: The relationship between a credit card provider and its card holders
is that of creditor-debtor, with the card company as the creditor extending loans
and credit to the card holder, who as debtor is obliged to repay the creditor.
○ When cardholders use their credit cards to pay for their purchases, they merely
offer to enter into loan agreements with the credit card company. Only after the
latter approves the purchase requests that the parties enter into binding loan
contracts
● In every credit card transaction involves three contracts, namely:
○ (a) the sales contract between the credit card holder and the merchant or the
business establishment which accepted the credit card;
■ Arise: When the issuer approved the purchase request
○ (b) the loan agreement between the credit card issuer and the credit card holder;
and lastly
■ Arise: Upon the approval of the purchase request
○ (c) the promise to pay (contract to enter into a loan in the future) between the
credit card issuer and the merchant or business establishment.
■ Arise: When a carr was issued
● At the point of issuance of the credit card, what contract existed between you and the
bank?
○ Contract to Enter into a Loan
○ What was created when Pantaleon decided to use the credit card?
■ Merely a purchase request
■ Or an offer to enter into a contract of loan????
● As the following survey of Philippine law on credit card transactions demonstrates, the
State does not require credit card companies to act upon its cardholders’ purchase
requests within a specific period of time.
● The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law
as injury") refers to self-inflicted injury or to the consent to injury which precludes the
recovery of damages by one who has knowingly and voluntarily exposed himself to
danger, even if he is not negligent in doing so.
● In contracts, exemplary damages can only be awarded if a defendant acted "in a wanton,
fraudulent, reckless, oppressive or malevolent manner."49 The plaintiff must also show
that he is entitled to moral, temperate, or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded.
FACTS: Pantaleon sued his credit card provided allegedly for delay in approving it purchase
requests using his credit card:
Incident 1: On October 1991, Pantaleon together with his wife, daughter and son, went on
a guided European tour. While at Coster Coster Diamond House Mrs. Pantaleon decided to
purchase some diamond pieces worth US$13,826.00. AMEX a total of 78 minutes to approve
Pantaleon’s purchase and to transmit the approval to the jewelry store
They had to release the purchased items to Pantaleon even without AMEX’s approval at
around 10:05 AM since the city tour could not begin until the Pantaleon’s were onboard the tour
bus.
Incident 2:
In New York on October 30, 1991, he experienced a delay when he wanted to purchase
golf equipment in the amount of US$1,475 at the Richard Metz Golf Studio in New York
Incident 3:
In the Quiency Market in Boston, November 3, 1991 when he wanted to purchase
children’s shoes worth US$87.00
MAIN ISSUE: Whether or not there was a breach on the part of AMEX to act on the
purchase requests when the credit cards was used by Pantaleon
RULING: NO, there was no breach on the part of AMEX.
This was answered by the court in the perspective of Article 1169 of the New Civil Code, which
provides the requisites to hold a debtor guilty of culpable delay, states: Those obliged to deliver or
to do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation. x x x.
We shall examine all three requisites for a finding of default:
1) that the obligation There is no demandable obligation.

is demandable and
AMEX is not obligated to approve Pantaleon’s purchase request.
liquidated
Without a demandable obligation, there can be no finding of default.
The reservation is found in the card membership agreement itself,

particularly paragraph 10, which clearly states that AMEX "reserve[s]
the right to deny authorization for any requested Charge." By so
providing, AMEX made its position clear that it has no obligation to
approve any and all charge requests made by its card holders.
There is no culpable delay in performance.

2) the debtor delays
performance
There is no provision in this agreement that obligates AMEX to act on
all cardholder purchase requests within a specifically defined period of
time. The fact remains that no obligation exists on the part of AMEX to
act within a specific period of time, much so “in a matter of seconds”
The delays were merely to ensure Pantaleon’s own protection as a

cardholder as well as to make sure the cardholder has the means to
pay for the credit extended.
It is but natural for AMEX to want to ensure that it will extend credit
only to people who will have sufficient means to pay for their
purchases. Thus, so long as AMEX exercises its rights, performs its
obligations, and generally acts with good faith, with no intent to cause
harm, even if it may occasionally inconvenience others, it cannot be
held liable for damages.
3) The creditor Pantaleon failed to make the demand required by Article 1169 of the
judicially or New Civil Code.
extrajudicially
requires the debtor’s Every time Pantaleon used his AMEX credit card to pay for his
purchases cannot be classified as the demand required by law to make
performance. the debtor in default, given that no obligation could arise on the part of
AMEX until after AMEX transmitted its acceptance of Pantaleon’s
offers because what the stores transmitted to AMEX were only his
offers to execute loan contracts.
SUMMARY:
Is AMEX is guilty of culpable delay
No. Since AMEX has no obligation to approve the purchase requests of its credit cardholders,
Pantaleon cannot claim that AMEX defaulted in its obligation.
Article 1169 of the New Civil Code, provides the requisites to hold a debtor guilty of culpable
delay, states:
Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x
x.
The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or
extrajudicially requires the debtor’s performance.
Based on the above, the first requisite is no longer met because AMEX, by the express terms of
the credit card agreement, is not obligated to approve Pantaleon’s purchase request. Without a
demandable obligation, there can be no finding of default.
Pantaleon failed to make the demand required by Article 1169 of the New Civil Code.
Every time Pantaleon used his AMEX credit card to pay for his purchases cannot be classified as
the demand required by law to make the debtor in default, given that no obligation could arise on
the part of AMEX until after AMEX transmitted its acceptance of Pantaleon’s offers because what
the stores transmitted to AMEX were only his offers to execute loan contracts.
Was there unreasonable delay in the processing of payments?
No. The delays were merely to ensure Pantaleon’s own protection as a cardholder as well as to
make sure the cardholder has the means to pay for the credit extended. It is but natural for AMEX
to want to ensure that it will extend credit only to people who will have sufficient means to pay for
their purchases. Thus, so long as AMEX exercises its rights, performs its obligations, and
generally acts with good faith, with no intent to cause harm, even if it may occasionally
inconvenience others, it cannot be held liable for damages.
Is Pantaleon is entitled to damages.
No. Pantaleon is not entitled to damages because he is the proximate cause for his injury. In his
claim, Pantaleon anchors the moral and exemplary damages on the embarrassment and
humiliation that he felt when the European tour group had to wait for him and his wife.
In Nikko Hotel Manila Garden v. Reyes,45 we ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for the resulting injury:
The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law
as injury") refers to self-inflicted injury or to the consent to injury which precludes the
recovery of damages by one who has knowingly and voluntarily exposed himself to
danger, even if he is not negligent in doing so.
This doctrine, in our view, is wholly applicable to this case. When Pantaleon made up his mind to
push through with his purchase, he must have known that the group would become annoyed and
irritated with him. This was the natural, foreseeable consequence of his decision to make them all
wait.
In order that a plaintiff may maintain an action for the injuries of which he complains, he must
establish that such injuries resulted from a breach of duty which the defendant owed to the
plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person causing it.
Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the
willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted. The
plaintiff must also show that he is entitled to moral, temperate, or compensatory damages before
the court may consider the question of whether or not exemplary damages should be awarded. In
the absence of any other damages, the award of exemplary damages clearly lacks legal basis.
B. COMMODATUM
✓Case 1: Republic vs Bagtas | G.R. No:L-17474 |

Date: October 25, 1962 | Ponente: PADILLA, J.
TOPIC:LOAN vs COMMODATUM vs. DEPOSIT
DIGESTED BY: John Paul Antiquiera
Commodatum Lease Deposit
● The purpose of the contract of commodatum ● Temporary use ● If the bailee is

must be the temporary use of the thing with a fee or not entitled to the
loaned for a certain period. compensation. use of the thing,
● The presumption is that the bailor has the contract may
loaned the thing for having no need be a deposit (see
therefore. Art. 1962.) not a
● Commodatum is similar to a donation in that commodatum.
it confers a benefit to the recipient. ● You have
● It is an essential feature of the contract of possession, but
commodatum that the use of the property of you cannot use
another shall be “for a certain time.” (Art. it.
1933, par. 2.)
● In commodatum, the subject matter is
generally non-consumable things, whether
real or personal. This conforms to reality, for
the bailee cannot use and return something
which is consumed when used.
(Source: De Leon)
FACTS:
- May 8, 1948, Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls:
- Red Sindhi at P1,176.46

- Bhagnari at P1,320.56,
- Sahiniwal at P744.46
for a period of 1 year from May 8, 1948 to May 7, 1949 for breeding purposes subject to
a government charge of breeding fee of 10% of the book value of the bulls.
- Upon expiration on May 7, 1949, Jose Bagtas asked for a renewal for another 1 year. The
Secretary of Agriculture and Natural Resources only approved the renewal of one bull for
1 year from May 8, 1949 to May 7, 1950 and requested the return of the two.
- March 25, 1950, Jose Bagtas wrote to the Director of Animal Industry that will pay the
value of three bulls.
- October 17, 1950, Jose Bagtas expresses his desire to buy the bulls at a value with a
deduction of yearly depreciation to be approved by the Auditor General.
- October 19, 1950, Director of Animal Industry advised Jose Bagtas that the book value of
the three bulls cannot be reduced. They either be returned or pay the book value not
later than October 31, 1950.
- Jose Bagtas failed to pay for the three bulls at their book value or return them.
- December 20, 1950 in the Court of First Instance in Manila commenced an action against
him and prayed that he be ordered to return the three bulls loaned to him or pay the book
value totaling P 3,241.45, unpaid breeding fee of P 199.65, both with interest, and costs.
- July 5, 1951, Jose Bagtas through counsel (Nacarro, Rosete, and Manalo), stating that
Jose Bagtas could not return the animals nor pay their value because of the bad peace
and order situation in Cagayan Valley, Barrio of Baggao, also the pending appeal to
the Secretary of Agricultural and Natural Resources and the President of the Philippines
from the refusal of the Director of Animal Industry to deduct the book value of the bulls to
which the Auditor General did not object and prayed for the dismissal of the complaint.
Appellant’s argument:
- The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the
Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao,
Cagayan, where the animal was kept, and that as such death was due to force majeure
she is relieved from the duty of returning the bull or paying its value to the appellee.
- The appellant contends that the contract was commodatum and that, for that reason, as
the appellee retained ownership or title to the bull it should suffer its loss due to force
majeure.
Trial Court: Sentenced the defendant to pay the sum of P 3,625.09 for the three bulls plus
breeding fees of P 626.17 with interest of both sums. (Judgment was on July 30, 1956)
ISSUE 1: What was the nature of the contract herein, a commodatum or a lease?
RULING: The contract is that of a lease of the bull. The contract here was subject to a fee of 10%
of the book value of the bull. A contract of commodatum is essentially gratuitous. If the breeding
fee be considered a compensation, then the contract would be a lease of the bull.
Commodatum is similar to a donation in that it confers a benefit to the recipient. The purpose of
the contract of commodatum must be the temporary use of the thing loaned.
In the present case, the loan by the appellee to the late defendant Jose V. Bagtas of the three
bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on
renewed for another year as regards one bull, was subject to the payment by the borrower of
breeding fee of 10% of the book value of the bulls.
ISSUE 2: Who assumes liability for death of Sahiniwal bull due the raid of Huks?
RULING:
Bagtas assumes the liability for the Sahiniwal bull who died around November 1958 from a
gunshot wound inflicted during a Huk. No liability for the two bulls Sindhi and Bhagnari which were
returned to the Bureau Animal of Industry on June 26, 1952.
Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a
possessor in bad faith, because she (Felicidad M. Bagtas, the surviving spouse of Bagtas and
administratrix of his estate) had continued possession of the bull after the expiry of the contract.
Continued possession (here’s the timeline):

→ The original period of the loan was from 8 May 1948 to 7 May 1949.
→ The loan of one bull was renewed for another period of one year to end on 8 May 1950
→ But the appellant kept and used the bull until November 1953 when during a Huk raid it
was killed by stray bullets
And even if the contract be commodatum, still the appellant is liable, because article 1942 of
the Civil Code provides that a bailee in a contract of commodatum —
xxx is liable for loss of the things, even if it should be through a fortuitous event:
(1) xxx
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
(2) If he keeps it longer than the period The renewal ended on May 8, 1950, but the
stipulated . . . appellant kept and used the bull until
November 1953.
(3) If the thing loaned has been delivered with Furthermore, when lent and delivered to the
appraisal of its value, unless there is a deceased husband of the appellant the bulls
had each an appraised book value, to with: the
stipulation exempting the bailee from Sindhi, at P1,176.46, the Bhagnari at
responsibility in case of a fortuitous event; P1,320.56 and the Sahiniwal at P744.46. It
was not stipulated that in case of loss of the
bull due to fortuitous event the late husband of
the appellant would be exempt from liability.
Case 2: Ortiz vs Kayanan | G.R. No: L-32974|
Date: July 30, 1979 | Ponente: Antonio, J.
[TOPIC]: Loan
[SUB-TOPIC]: right of retention, fruits
DIGESTED BY: Cj Rose Lachica
Possession in Good Faith (Governed by Commodatum (Governed by the book on

Property Law) loans)
● Fruits ● No rights to fruits, only use

● Right to Retention ● No right of retention for bailee even if
the bailor owes him something
● There is a right of retention for the
bailee when the case of hidden defects
How did Atty appreciate this case?

●
● A possessor in good faith is entitled to the fruits received before the possession is
legally interrupted.
○ Possession in good faith ceases or is legally interrupted from the moment defects
in the title are made known to the possessor, by extraneous evidence or by the
filing of an action in court by the true owner for the recovery of the property.
○ EFFECT: All the fruits that the possessor may receive from the time he is
summoned in court, or when he answers the complaint, must be delivered and paid
by him to the owner or lawful possessor.
● When can the possessor retain a property even after good faith ceases?
○ When there is a right of retention:
■ Article 546 of the New Civil Code, until he has been fully reimbursed for
all the necessary and useful expenses made by him on the property.
■ It permits the actual possessor to remain in possession while he has not
been reimbursed by the person who defeated him in the possession for
those necessary expenses and useful improvements made by him on the
thing possessed.
● The one who enjoys the RIGHT OF RETENTION is in fact a CREDITOR.
○ This right of retention of the property by the creditor is a means of obtaining
compensation for the debt.
○ The right of retention as a means or device by which a creditor is able to obtain the
payment of a debt.
○ The right of retention in this case is analogous to a contract of antichresis and
it can be considered as a means of extinguishing the obligation, inasmuch as the
right to retain the thing lasts only for the period necessary to enable the creditor to
be reimbursed from the fruits for the necessary and useful expenses.
● Right of Retention
○ Analogous to a pledge if movable
■ In a pledge, if the thing pledged earns or produces fruits, income, dividends
or interests, the creditor shall compensate what he receives with those
which are owing him.
■ Under Article 1731 of the New Civil Code, any person who has performed
work upon a movable has a right to retain it by way of pledge until he is
paid
■ Under Article 1914 of the same Code, the agent may retain in pledge the
things which are the object of the agency until the principal effects
reimbursement of the funds advanced by the former for the execution of the
agency, or he is indemnified for all damages which he may have suffered
as a consequence of the execution of the agency, provided he is free from
fault.
○ Analogous to antichresis if immovable
■ The creditor acquires the right to receive the fruits of an immovable of his
debtor with the obligation to apply them to payment of the interest, if owing,
and thereafter to the principal of his credit. The debtor can not reacquire
enjoyment of the immovable until he has actually paid what he owes the
creditor.
● Right of Retention in a depositary and usufructuary
○ The depositary, under Article 1994 of the same Code, may retain the thing in
pledge until the full payment of what may be due him by reason of the deposit.
○ The usufructuary, pursuant to Article 612 of the same Code, may retain the
property until he is reimbursed for the amount paid for taxes levied on the capital
(Article 597) and tor extraordinary repairs (Article 594).
Recit-ready:
Parties:
● BARTOLOME ORTIZ
● HON. UNION C. KAYANAN
● ELEUTERIO ZAMORA
● QUIRINO COMINTAN
● VICENTE FERRO
● GREGORIO PAMISARAN
In this case, Ortiz is the legal guardian of Martin Dolorico II, he was the possessor and cultivator of the latter’s
land since 1931. He introduced improvements amounting to 13,632 pesos. He also collected tolls on a portion
of the property used as a diversion road.
This lot was subject to a homestead application.
When Martin II died, he named his uncle Martin Dolorico I, as heir, and the latter executed an affidavit
relinquishing his rights over the property in favor of defendants Quirino Comintan and Eleuterio Zamora, his
grandson and son-in-law, respectively, and requested the Director of Lands to cancel the homestead
application.
Quirino and Eleuterio then filed their sales applications → in spite of plaintiff's opposition, "Portion A"
which is ½ of the property was sold at public auction wherein defendant Comintan was the only bidder.
Ortiz claims preferential rights because he was in possession of such lot. He also claims reimbursement of his
introduced improvements.
RTC
· LOT A Awarded to QUIRINO COMINTAN being the successful bidder in the public auction
conducted by the bureau of Lands on April 18, 1955
· LOT B It also gave due course to the Sales Application No. 9258 of defendant Eleuterio Zamora
over the lot
· It also granted BARTOLOME ORTIZ the right to participate in the public bidding of the same to
be announced by the Bureau of Lands, Manila.
o However, should plaintiff Bartolome Ortiz be not declared the successful bidder thereof,
defendants Quirino Comintan and Eleuterio Zamora are ordered to reimburse jointly said
plaintiff the improvements he has introduced on the whole property in the amount of
P13,632.00
o With right to retain the property until after he has been fully paid therefor, without interest
since he enjoys the fruits of the property in question, with prejudice and with costs again
the plaintiff.
CA Affirmed RTC
Facts:
→ Ortiz is the former legal guardian of Martin Dolorico II.

→ When the Martin II died, plaintiff continued to be the possessor and cultivator of the land of Martin
Dolorico II which was subject of Homestead Application No. 122417, without however filing any
application to acquire title thereon.
On the other hand, Martin Dolorico II named his uncle, Martin Dolorico I as his heir and
successor in interest in the Homestead Application No. 122417.
In 1951, Martin Dolorico I (uncle) executed an affidavit relinquishing his rights over the property
in favor of defendants Quirino Comintan and Eleuterio Zamora, his grandson and son-in-law,
respectively, and requested the Director of Lands to cancel the homestead application. When
said request was granted, defendants Comintan and Zamora filed their sales application.
November 26, 1951: Aggrieved by the judgment of Director of Lands, Plaintiff filed his protest on
November 26, 1951 alleging that he should be given preference to purchase the lot inasmuch as
he is the actual occupant and has been in continuous possession of the same since 1931.
Inspite of Plaintiff’s protest, however, "Portion A" of the property was sold at public auction
wherein defendant Comintan was the only bidder.
June 8, 1957: Investigation was conducted on the plaintiff's protest by the Assistant Public Lands
Inspector, whose report was then submitted to the Regional Land Officer.
April 9, 1958: Regional Land Officer dismissed plaintiff's claim and giving due course to
defendants' sales applications on the ground that the relinquishment of the homestead rights of
Martin Dolorico I in favor of Comintan and Zamora is proper, the former having been designated
as successor in interest of the original homestead applicant and that because plaintiff failed to
participate in the public auction, he is forever barred to claim the property.
On motion for reconsideration: The Director of Lands denied plaintiff’s MR.
On Appeal: The Secretary of Agriculture and Natural Resources, the decision rendered by the
Regional Land Officer was affirmed in toto.
Plaintiff made several motions on the decision of respondent court as well as the appellate court.
When the case was remanded back to respondent court ruled that one-half portion of the property
in litigation in favor of defendant QUIRINO COMINTAN, being the successful bidder in the public
auction conducted by the bureau of Lands on April 18, 1955, and hereby giving due course to the
Sales Application No. 9258 of defendant Eleuterio Zamora over the other half, Lot No. 5785-B of
PLS-45, Calauag, without prejudice to the right of plaintiff BARTOLOME ORTIZ to participate in
the public bidding of the same to be announced by the Bureau of Lands, Manila.
Plaintiff appealed the judgment. It was later found that plaintiff collected tolls on portions of
the property where he has not introduced any improvements therein. When the judgment
became final and executory, private respondents filed a motion for Writ of Execution requesting
that they file a bond in such amount as this Honorable Court may fix, in lieu of the P13,632.00
required to be paid to plaintiff, conditioned that after the accounting of the tools collected by
plaintiff, there is still an amount due and payable to said plaintiff, then if such amount is not paid
on demand, including the legal interests, said bond shall be held answerable.
Petitioner’s contention in his opposition:

(1) the offer of a bond in lieu of payment of P13,632.00 does not, and cannot, satisfy the condition
imposed in the decision of this Court which was affirmed in toto;
(2) the public sale of Portion "B" of the land has still to take place as ordained before the decision
could be executed; and
(3) that whatever sums plaintiff may derive from the property cannot be set off against what is due
him for the improvements he made, for which he has to be reimbursed as ordered.
Issue 1: Whether or not petitioner is still entitled to retain for his own exclusive benefit all
the fruits of the property, such as the tolls collected by him from March 1967 to December
1968, and September 1969 to March 31, 1970, amounting to about P25,000.00.
Ruling 1: NO. Oritz here is the creditor with respect to the judgment obligation and the debtor
with respect to the tolls collected, Comintan being the owner thereof.
Thus, Petitioner cannot appropriate for his own exclusive benefit of all the tolls which he
collected from the property retained by him. It was his duty under the law, after deducting
the necessary expenses for his administration, to apply such amount collected to the
payment of the interest, and the balance to the payment of the obligation.
FORMULA: Total Amount of Toll - Petitioner’s Expenses for Administration = Excess belongs to
Quirino Comintan
In other words, the disputed tolls, after deducting petitioner's expenses for administration, belong
to Quirino Comintan, owner of the land through which the toll road passed, further considering
that the same was on portions of the property on which petitioner had not introduced any
improvement.
Issue 2: With respect to the amount of reimbursement.
Ruling 2: The judgment debt of P13,632.00 should be pro-rated in equal shares to Comintan and
Zamora. When two persons are liable under a contract or under a judgment, and no words appear
in the contract or judgment to make each liable for the entire obligation, the presumption is that
their obligation is joint or mancomunada, and each debtor is liable only for a proportionate part of
the obligation.
Issue 3: Regarding Lot 5785-B
Ruling 3: It appears that no public sale has yet been conducted by the Bureau of Lands and,
therefore, petitioner is entitled to remain in possession thereof. This is not disputed by respondent
Eleuterio Zamora. After public sale is conducted and in the event that Ortiz is not declared the
successful bidder, then he should be reimbursed by respondent Zamora in the corresponding
amount for the improvements on Lot 5785-B.
✓Case 3: Catholic Vicar Apostolic v. Court of Appeals | G.R. No: 80294-95 |
Date: September 21, 1988 | Ponente: GANCAYCO, J.
[TOPIC]: Commodatum
[SUB-TOPIC]: Adverse Possession; Adverse Claim; Acquisitive Prescription
DIGESTED BY: Jezrel Perez
Doctrine:
● When petitioner borrowed the house of private respondents’ predecessors, and petitioner
was allowed its free use, private respondents became bailors in commodatum, and
petitioner, the bailee.
● The bailees’ failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower.
● The bailee held in trust the property subject matter of commodatum.
FACTS:
● September 5, 1962 - defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on an
application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at
Poblacion Central, La Trinidad, Benguet. Said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school dormitories, social hall,
stonewalls, etc.
● March 22, 1963 - the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title
thereto.
● November 17, 1965 - Land Registration Court (LRC) promulgated its Decision confirming
the registrable title of VICAR to Lots 1, 2, 3, and 4
● May 9, 1977 - CA reversed the decision of the LRC and dismissing the VICAR's
application as to Lots 2 and 3
○ Lot 2 - being presently occupied by the convent (Civil Case No. 3655)
○ Lot 3 - by the women's dormitory and the sister's convent (Civil Case No. 3607)
● VICAR later filed with the Supreme Court (SC) a petition for review on certiorari of the
decision of the CA dismissing his (its) application for registration of Lots 2 and 3
● During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged
ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio
Octaviano; his written demand to Vicar for the return of the land to them; and the
reasonable rentals for the use of the land at P10,000 per month.
● On the other hand, VICAR presented the Register of Deeds for the Province of Benguet,
Atty. Sison, who testified that the land in question is not covered by any title in the name of
Egmidio Octaviano or any of the heirs. VICAR dispensed with the testimony of Mons.
Brasseur when the heirs admitted that the witness, if called to the witness stand, would
testify that VICAR has been in possession of Lot 3, for 75 years continuously and
peacefully and has constructed permanent structures thereon.
ISSUE #1:
Whether or not VICAR had been in possession of Lots 2 and 3 merely as bailee borrower in
commodatum, gratuitous loan for use
RULING:
YES. Private respondents were able to prove that their predecessors' house was borrowed by
petitioner VICAR after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they (private respondents) became
bailors in commodatum and the petitioner (VICAR) the bailee
ISSUE #2:
Whether or not the bailees' failure to return the subject matter of commodatum to the bailor
means adverse possession on the part of the borrower
RULING #2:
NO. The bailees' failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum. The adverse claim of the petitioner came only in 1951 when it declared
the lots for taxation purposes. The action of petitioner VICAR by such adverse claim could not
ripen into title by way of ordinary acquisitive prescription because of the absence of just title.
Additional Notes/Relevant questions:
Who owned Lot 2 and 3?

Predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in
good faith from 1906 to 1951. By the very admission of petitioner VICAR, Lots 2 and 3 were
owned by Valdez and Octaviano.
Predecessors-in-interest and private respondents were possessors under claim of ownership in

good faith from 1906; that petitioner VICAR was only a bailee in commodatum; and that the
adverse claim and repudiation of trust came only in 1951.
When did VICAR possessed these lots and in what capacity?

VICAR was in possession as borrower in commodatum up to 1951, when it repudiated the trust
by declaring the properties in its name for taxation purposes. When the petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in the concept of owner only for
eleven years.
Can VICAR acquire these lots under Ordinary acquisitive prescription OR Extraordinary
acquisitive prescription?
Neither. Ordinary acquisitive prescription requires possession for ten years, but always with just
title (in other words, VICAR can’t claim ownership under ordinary acquisitive prescription
because they do not have a JUST title). Extraordinary acquisitive prescription requires 30
years.
The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner VICAR because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.
✓Case 4: Producers Bank of the Philippines v. CA | G.R. No: 115324 |
Date: Feb. 19, 2003| Ponente: Callejo, Sr., J.
[TOPIC]: Commodatum
[SUB-TOPIC]: Whether a consumable thing can be considered as a commodatum
DIGESTED BY: Mary Rose Saloma
→ if it was a mutuum, dili unta ma liable ang bank kay ownership passes. Here, it was a commodatum,
hence the ownership is retain
Doctrine:
● The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.
● If consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the
end of the period agreed upon, the loan is a commodatum and not a mutuum.
Recit-ready:
Facts:
Bailor = Franklin Vives
Bailee = Col. Arturo Doronilla
→ Respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help
her friend Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services → this is by depositing a certain amount of money in the bank account of Sterea for
purposes of its incorporation and that he could withdraw his money from said account within a
month’s time.
→ Vives issued a check in the amount of ₱200,000.00 in favor of Sterela.

→ To be deposited in the savings account of Sterela specifically for the purpose of
making it appear "that said firm had sufficient capitalization for incorporation, with the promise
that the amount shall be returned within 30 days."
→ Sanchez, Mrs. Vives and Dumagpi (sec of Doronilla) went to the bank to deposit the check.
START OF THE PROBLEM: When respondent learned that Sterela was no longer holding
office → he and his wife went to the Bank to verify if their money was still intact
→ They learned that part of the money in the savings account had been withdrawn by Doronilla,
and that only ₱90,000.00 remained therein. Also, Doronilla authorized the bank to debit the
saving accounts to fund over drawings from his current account.
→ He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla.
KEY ARGUMENT: In an attempt to justify the withdrawal, petitioner contends that the
transaction between Vives and Doronilla is a simple loan (mutuum) since all the elements of a
mutuum are present:
● First: what was delivered by private respondent to Doronilla was money, a consumable
thing; and
● Second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of ₱212,000.00, or ₱12,000
more than what private respondent deposited in Sterela’s bank account
_________
Doronilla attempted to returning the money

→ Postdated check for ₱212,000.00 but was dishonored.
→ He issued another check for ₱212,000.00 in private respondent’s favor but the check was again
dishonored for insufficiency of funds.
FILING OF THE CASE: The respondent filed a case for the recovery of sum of money as
well as criminal action against Doronilla, Sanchez, and the bank (for allowing Doronilla to
withdraw).
Issue No. 1: Whether the transaction between Doronilla and Vives was a simple loan or a
commodatum.
Ruling: Commodatum, under the Article 1936 of CC.
Vive merely "accommodated" Doronilla by lending his money without consideration, as a favor to
his good friend Sanchez. The evidence shows that the agreement was to deposit his money in the
savings account of Sterela specifically for the purpose of making it appear "that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be returned within
30 days."
As to the contention that it is a mutuum because money is consumable: Art. 1933 seems
to imply that if the subject of the contract is a consumable thing, such as money, the contract
would be a mutuum.
However, we have to look at Art. 1936 → there are some instances where a commodatum may have for
its object a consumable thing. The article provides: “Consumable goods may be the subject of
commodatum if the purpose of the contract is not the consumption of the object, as when
it is merely for exhibition”
Issue No. 2: Whether the act of Doronilla in issuing a check in favor of the respondent turned the
nature of the transaction into a simple loan or mutuum.
Ruling: NO
Doronilla’s attempts to return to private respondent the amount of ₱200,000.00 which the
latter deposited in Sterela’s account together with an additional ₱12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum
into a mutuum because such was not the intent of the parties and because the additional
₱12,000.00 corresponds to the fruits of the lending of the ₱200,000.00. Article 1935 of the Civil
Code expressly states that "the bailee in commodatum acquires the use of the thing loaned but
not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest
accruing to the latter’s money deposited with petitioner.
Issue No. 3: Whether the petitioner is solidarily liable for the return of the respondent's money.
Ruling: YES
The Court does not agree with petitioner’s contention that it is not solidarily liable for the return of
private respondent’s money because it was not privy to the transaction between Doronilla and
private respondent. The nature of said transaction, that is, whether it is a mutuum or a
commodatum, has no bearing on the question of petitioner’s liability for the return of
private respondent’s money because the factual circumstances of the case clearly show
that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private
respondent’s money and is liable for its restitution.
The petitioner’s rule was that no withdrawal will be permitted without the savings bank book. Here,
Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the
Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook
(which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals
because he was party to Doronilla’s "scheme" of defrauding private respondent.
✓Case 5: Pajuyo v CA | G.R. No: 146364 |
Date: June 3, 2004 | Ponente: CARPIO, J.
[TOPIC]: Loan – Commodatum
[SUB-TOPIC}: Precarium
DIGESTED BY: Mary Ruth Kristine Risma
Note: This case is not a commodatum. (This case illustrates if the Kasunduan was in the
nature of a commodatum (in which it was not, it was a contract)] This could be an
innominate contract tho.

● Commodatum – An essential feature of commodatum is that it is gratuitous, while another
feature is that the use of the thing belonging to another is for a certain period.
○ The bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is
constituted.
○ If the bailor should have urgent need of the thing, he may demand its return for
temporary use.
● Precarium: Where the use of the thing is merely tolerated by the bailor, he can demand
the return of the thing at will.
○ Precarium is a kind of commodatum.
Recit-ready:
Facts:
● June 1979 – Pajuyo paid ₱400 to Perez for rights over a 250-square meter lot in Barrio
Payatas, Quezon City.
○ He then constructed a house and lived from 1979 to December 7, 1985.
● December 8, 1985 – Pajuyo and respondent Guevarra executed a Kasunduan →
where Pajuyo (as owner), allowed Guevarra to live in the house for free provided Guevarra
would maintain the cleanliness and orderliness of the house, and would voluntarily
vacate the premises on Pajuyo’s demand.
● September 4, 1994 – (9 years later) Pajuyo informed Guevarra of his need for the house
and demanded Guevarra vacate, in which the latter refused.
● Pajuyo filed an ejectment case against Guevarra before the MTC of Quezon City.
● In his answer, Guevarra claimed that:
➔ Pajuyo had no valid title or right of possession over the lot where the house stands
because the lot is within the 150 hectares set aside by Proclamation No. 137 for
socialized housing
➔ From December 8, 1985 - September 1994, Pajuyo did not show up or
communicate with him.
➔ Neither he nor Pajuyo has a valid title to the lot.
● MTC ruled in favor of Pajuyo → The agreement between Pajuyo and Guevarra is the house and not
the lot. Pajuyo is the owner and he allowed Guevarra to use the house only by
tolerance. Thus, Guevarra’s refusal to vacate the house on Pajuyo’s demand made
Guevarra’s continued possession of the house illegal.
● RTC → the kasunduan created a landlord and tenant relationship, a lease.
● APPEALED TO SC instead of CA → theorizing that his appeal raised pure questions of law.
● SC referred it to CA.
● CA declared that Pajuyo, Guevarra, and Perez (the person from whom Pajuyo acquired
his rights) were all squatters and had no right over the lot because it is public land.
○ THUS: The Kasunduan between Pajuyo and Guevarra did not have any legal
effect.
○ Kasunduan is not a lease contract but a commodatum because the agreement
was not for a price certain.
Issue: Whether or not CA erred when it ruled that the Kasunduan is one of commodatum?
Ruling: YES. The CA erred. This case is more akin to a lease, because the Kasunduan was not
essentially gratuitous.
While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract
different from a commodatum. This case is akin to a landlord-tenant relationship where the
withdrawal of permission would result in the termination of the lease.
Thus, Guevarra’s withholding of the property would then be unlawful.
So, what is the status of Payujo and Guevarra considering that this is PUBLIC LAND, how
did the SC appreciate the issue?
→ The Court of Appeals’ determination of Pajuyo and Guevarra’s rights under Proclamation
No. 137 was premature.
→ Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by law to determine the
qualifications of applicants for the acquisition of public lands. Instead, courts should
expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder
and breaches of peace.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum:
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the
bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum. These contracts
certainly involve the obligation to deliver or return the thing received.
Take note: In a contract of commodatum, one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return it. An
essential feature of commodatum is that it is gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is for a certain period. Thus, the bailor
cannot demand the return of the thing loaned until after expiration of the period stipulated,
or after accomplishment of the use for which the commodatum is constituted.
If the bailor should have urgent need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a precarium. Under the
Civil Code, precarium is a kind of commodatum.
✓Case 6: Quintos and Ansaldo v. Beck| G.R. No. L-46240 |
Date: November 3, 1939 | Ponente: J. Imperial
TOPIC: Commodatum
SUB-TOPIC: Perfection of Loan Contract; Mutual Desistance
Digested by: Earl Guen Padayao
DOCTRINE (Simplified Take-Away): The contract entered into between the parties is one of
commodatum, because under it the plaintiff gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by this contract the defendant bound
himself to return the furniture to the plaintiff, upon the latter's demand
Bailor = Quintos and Ansaldo (plaintiff)

Bailee = Beck (respondent)
Recit-ready FACTS:
● Beck was a tenant of Quintos and Ansaldo’s house.
● Beck was gratuitously (for free) granted the use of certain furniture subject to the
condition that it should be returned upon demand.
● The plaintiff sold the HOUSE to Maria Lopez and Rosario Lopez.
● September 14, 1936 → Beck was notified of the conveyance → giving him 60 days to vacate the
premises under one of the clauses of the contract of lease.
● DEMAND: Thereafter the plaintiff required the defendant to return all the furniture
transferred to him for them in the house where they were found.
● November 5, 1936: Quintos and Ansaldo reiterated that they may call for the furniture in
the ground floor of the house.
● November 7, 1936: Beck wrote that he could not give up some of the furniture → three gas
heaters and the four electric lamps because he would use them until the 15th of the
same month when the lease is due to expire.
● Quintos and Ansaldo → refused to get the furniture because Beck declined to deliver all of
them.
● November 15, 1936: Before vacating the house, the defendant deposited with the Sheriff
all the furniture belonging to the plaintiff.
The trial court → concluded that the plaintiff failed to comply with her obligation to get the
furniture when they were offered to her.
MAIN ISSUE: Whether the defendant complied with his obligation to return the furniture upon
the plaintiff's demand, whether the defendant is bound to bear the deposit fees thereof, and
whether she is entitled to the costs of litigation
NO. The defendant failed to comply with his obligation.
In this case → there was a contract of commodatum. Quintos gratuitously granted the use
of the furniture to the defendant, reserving for herself the ownership.
→ By this contract the defendant bound himself to return the furniture to the plaintiff, upon
the latter's demand.
Thus → defendant breached the contract of commodatum → he refused to return and

deliver all the furniture upon the plaintiff's demand and later deposited it. The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the latter's residence or house.
Who shall bear the costs?
The costs for the following instances should be borne by the Beck:
1) For the cost of the deposit: Beck, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture,
because the defendant wanted to retain the three gas heaters and the four electric lamps.
2) For the cost of the items should the defendant fail to deliver some of the furniture,
the value thereof should be later determined by the trial Court through evidence which the
parties may desire to present.
3) Cost of ligation: Beck should pay the legal expenses and other judicial costs
GENERAL CONCEPTS
Article 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and
return it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind and quality
shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation

to pay interest.
In commodatum the bailor retains the ownerships of the thing loaned, while in simple loan,
ownership passes to the borrower. (1740a)
Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. (n)
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. (1753a)
Article 1954. A contract whereby one person transfers the ownership of non-fungible
things to another with the obligation on the part of the latter to give things of the same
kind, quantity, and quality shall be considered a barter. (n)
Article 1955. The obligation of a person who borrows money shall be governed by the
provisions of Articles 1249 and 1250 of this Code.
If what was loaned is a fungible thing other than money, the debtor owes another thing of
the same kind, quantity and quality, even if it should change in value. In case it is
impossible to deliver the same kind, its value at the time of the perfection of the loan shall
be paid. (1754a)
OBJECT
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. (1753a)
Article 1954. A contract whereby one person transfers the ownership of non-fungible
things to another with the obligation on the part of the latter to give things of the same
kind, quantity, and quality shall be considered a barter. (n)
be paid. (1754a)
FUNGIBLE GOODS [Sec. 58, Act 2137 (1912)]
Sec. 58. Definitions. — (a) In this Act, unless the content or subject matter otherwise
requires:
"Fungible goods" means goods of which any unit is, from its nature by mercantile custom,
treated as the equivalent of any other unit.
OBLIGATIONS TO PAY
be paid. (1754a)
Article 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal tender
in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
(1170)
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated

should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary.
C. SIMPLE LOAN OR MUTUUM
✓Case 1: Yam vs Malik | G.R. No: L-50550-52|

Date: October 31, 1979| Ponente: ABAD SANTOS, J.:
[TOPIC]: Simple Loans or Muttum
[SUB-TOPIC]: Obligation to Pay: Articles 1955, 1249 and 1250
DIGESTED BY:
CLASS HIGHLIGHT:
● Estafa by misappropriation of the thing → only for commodatum not for simple loan or mutuum
→ In simple loan (mutuum), as contrasted to commodatum, the borrower acquires
ownership of the money, goods or personal property borrowed. Being the owner, the
borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not
be considered misappropriation thereof.
● But estafa by other means → could also be filed for mutuum

● Disposition of the money borrowed by the borrower does not give rise to estafa; Person
who refuses to pay his debt or denies its existence is not liable for estafa.
● Petitioners had no such obligation to return the same money, i.e., the bills or coins, which
they received from private respondents. This is so because as clearly stated in criminal
complaints, the related civil complaints and the supporting sworn statements, the sums of
money that petitioners received were loans.
Facts: This case involves 3 criminal cases for estafa.
Case Remarks Complaint filed
Crim. Case No. Respondent Rosalinda Amin States that such petitioners received the
M-111 charges petitioners Yam Chee amount “as a loan”
Kiong and Yam Yap Kieng
- Estafa through
misappropriation of Php50K
Civil. Case No. Independent action for collection of the same amount filed by respondent
N-5 Rosalinda Amin
- States that the Php50K was a “simple business loan”
- w/c earned interest and demandable 6 months from July 12, 1973
Crim. Case No. Respondent Tan Chu Kao States that the Php30K was a “simple
M-183 charges petitioners Yam Chee loan”
Kion, Jose Y.C. Yam, Ampang
Mah, and Anita Yam
- Estafa through misappropriation
of Php30K
Civil Case No. Filed by respondent Tan Chu Kao for collection of the same amount
Crim. Case No. Respondent Augusto Sajor The complaint did no state that the
M-208 charges petitioners Jose Y.C. amount was received as a loan
Yam, Anita Yam, Chee Kiong
Yam, and Richard Yam However, Respondent Augusto Sajor
- Estafa through misappropriation stated in his sworn statement that the
of Php20K amount was a “loan”
The respondent Municipal Judge Malik held in the preliminary investigation that there was a prima
facie case against the petitioners, and issued corresponding warrants of arrest against the
petitioners.
Thus this petition for Certiorari, prohibition, and mandamus with a preliminary injunction. This
Court then issued a temporary restraining order against the respondent judge from proceeding
with the case and enforcing the warrants of arrest.
Issue: WON the facts alleged constitute estafa through misappropriation.
Ruling: No. The Crime of Estafa through misappropriation required that there must be an
obligation to deliver or return the same money, goods, or personal property received as
provided under Art. 315, par 1(b) of the RPC:
Art. 315. Swindling (Estafa). — Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence namely:
xxx xxx xxx
b) By misappropriating or converting, to the prejudice of another, money, goods,
or any other personal property received by the offender in trust or on commission, or
for administration, or under any other obligation involving the duty to make delivery
of or to return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money, goods, or other
property.
In this case, Petitioners had no such obligation to return the same money, i.e., the bills or coins,
which they received from private respondents. This is so because as clearly stated in criminal
complaints, the related civil complaints and the supporting sworn statements, the sums of money
that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. — By the contract of loan, xxx money or other consumable thing upon the
condition that the same amount of the same kind and quality shall be paid, in which case
the contract is simply called a loan or mutuum.
xxx
Simple loan may be gratuitous or with a stipulation to pay interest.
xxx while in simple loan ownership passes to the borrower.
Art. 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.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as
contrasted to commodatum, the borrower acquires ownership of the money, goods or personal
property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248,
Civil Code) and his act will not be considered misappropriation thereof.
Accordingly, In U.S. vs. Ibañez, this Court held that it is not estafa for a person to refuse to nay his
debt or to deny its existence.
✓Case 2: Singson vs Caltex| G.R. No: 137798. |
Date: October 4, 2000 | Ponente: Gonzaga Reyes
[TOPIC]: Simple Loan
[SUB-TOPIC]: Article 1250 NCC
DIGESTED BY: Journey Segales
PS: DILI NI SINGON VS CALTEX NOR 92 SCRA 91
DOCTRINE:
● Extraordinary inflation: Exist when there is a decrease or increase in the purchasing

power of the Philippine currency which is unusual or beyond the common fluctuation in the
value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.
○ EVIDENCE PRESENTED: Not enough.
○ SC said here: NO EXTRAORDINARY INFLATION HERE
● "Erosion" is indeed an accurate description of the trend of decline in the value of the
peso in the past three to four decades. Unfortunate as this trend may be, it is certainly
distinct from the phenomenon contemplated by Article 1250.
○ Article 1250 of the Civil Code states: In case an extraordinary inflation or
deflation of the currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
● The contract is the law between the parties. Further amendments must be negotiated between
the parties.
● NEED FOR DECLARATION: the effects of extraordinary inflation are not to be applied
without an official declaration thereof by competent authorities.
FACTS:
Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land
in Cubao, Quezon City. The land, which had an area of 1,400 square meters and was covered by
Transfer Certificates of Title No. 43329 and 81636 issued by the Register of Deeds of Quezon
City, was to be used by respondent as a gasoline service station.
The contract of lease provides:
Lease Period: 20 years
P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from
the 11th to 20th years,
The rental herein provided for is in any event the maximum rental which LESSOR may collect
during the term of this lease or any renewal or extension thereof LESSEE further agrees for thirty
(30) days after written notice of such default has actually been delivered to the General Manager
of Caltex (Philippines), Inc.
Thus, based on the foregoing provisions of the lease contract, the monthly rental was fixed at
P3,500.00 for the first ten years, and at P4,200.00 for the succeeding ten years of the lease.
On June 23, 1983 five years before the expiration of the lease contract, petitioner asked
respondent to adjust or increase the amount of rentals citing that the country was experiencing
extraordinary inflation.
August 3, 1983 respondent refused petitioner’s request and declared that the terms of the
lease contract are clear as to the rental amounts therein provided being "the maximum rental
which the lessor may collect during the term of the lease."
September 21, 1983 petitioner instituted a complaint before the RTC praying for, among other
things, the payment by respondent of adjusted rentals based on the value of the Philippine peso
at the time the contract of lease was executed.
Complainant side:
The complaint invoked Article 1250 of the Civil Code, an extraordinary inflation had supervened
resulting from the deterioration of worldwide economic conditions, a circumstance that was not
foreseen and could not have foreseen by the parties.
Evidence presented:
1. Petitioner presented as witness Mr. Narciso Uy, Assistant Director of the Supervising
and Examining Sector of the Central Bank, who attested that the inflation rate increased
abruptly during the period 1982 to 1985, caused mainly by the devaluation of the peso.
2. Petitioner also submitted into evidence a certification of the official inflation rates from
1966 to 1986 prepared by the National Economic Development Authority ("NEDA")
based on consumer price index, the inflation rate was only 2.06%; then, it soared to
34.51% in 1974, and in 1984, reached a high of 50.34%.
Lastly, the terms of rental in the contract of lease dated July 16, 1968 are clear and unequivocal
as to the specific amount of the rental rates and the fact that the rentals therein provided shall be
the "maximum rental" which petitioner as lessor may collect.
ISSUE: Whether there existed an extraordinary inflation during the period 1968
to 1983 that would call for the application of Article 1250 of the Civil Code and
justify an adjustment or increase of the rentals between the parties.
RULING: NO. There is no legal or factual basis to support petitioner’s allegation of the existence
of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to
1983, to merit the adjustment of the rentals in the lease contract dated July 16, 1968.
Although by petitioner’s evidence there was a decided decline in the purchasing power of the
Philippine peso throughout this period, we are hard put to treat this as an "extraordinary inflation"
within the meaning and intent of Article 1250. Rather, we adopt with approval the following
observations of the Court of Appeals on petitioner’s evidence, especially the NEDA certification of
inflation rates based on consumer price index where there was a decline in the purchasing power
of the Philippine currency from the period 1966 to 1986, such cannot be considered as
extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a
characteristic of most currencies.
Moreover, this Court has held that the effects of extraordinary inflation are not to be applied
without an official declaration thereof by competent authorities.
Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and
respondent are clear and categorical, and we have no reason to suppose that such lease contract
does not reflect or express their true intention and agreement. The contract is the law between the
parties and if there is indeed reason to adjust the rent, the parties could have by themselves
negotiated the amendment of the contract.
✓Case 3: Equitable PCI Bank, et al. v. Ng Sheung Ngor | G.R. No: G.R. No. 171545|
Date: December 19, 2007 | Ponente: CORONA, J.
[SUB-TOPIC]: Obligation to Pay: Articles 1955, 1249 and 1250

● [CLASS HIGHLIGHT] For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
1. That there was an official declaration of extraordinary inflation or deflation from the
Bangko Sentral ng Pilipinas (BSP);
2. That the obligation was contractual in nature;and
3. That the parties expressly agreed to consider the effects of the extraordinary inflation
or deflation.
Do you see anything problematic here, in relation to 1250? [DISAGREEMENTS OF

SIR]
● #1 → Sir: “Chances that government will declare extraordinary inflation is very low”
● #3 → This requires a stipulation. But, provisions of the law are written in the contract, so
there is no need to write because 1250 already provides for it.
○ Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there
is an agreement to the contrary.
○ In effect, the court is reversing 1250.
__________________
● Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation.
Moreover, although the obligation in this instance arose out of a contract, the parties did not agree
to recognize the effects of extraordinary inflation (or deflation).
● 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.
● Escalation clauses are not void per se. However, one "which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely depriving the
debtor of the right to assent to an important modification in the agreement" is void.
Clauses of that nature violate the principle of mutuality of contracts.
● Article 1308 of the Civil Code holds that a contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
Facts: On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and
Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts
against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel
Apas, in the Regional Trial Court (RTC). They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates so they accepted Equitable's proposal
and signed the bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses granting
Equitable authority to increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes. In fact, they continuously availed of and benefited
from Equitable's credit facilities for five years.
[sir asked this] Issue No. 1: Were the promissory notes valid?
Ruling: YES, but defective insofar as the escalation clause is concerned.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. It
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.
Since the RTC did not explain how it arrived at the amounts of US$228,200 and ₱1,000,000, the
SC ordered the partial remand of the case for the sole purpose of determining the amount of
actual damages.
Issue No. 2: Was the escalation clause valid?
Ruling: NO. It is void.

Escalation clauses are valid as long as they do not grant the creditor an unbridled right to adjust
the interest independently. With respect to Art 1308 of the Civil Code, a valid escalation clause
should provide:
1. that the rate of interest will only be increased if the applicable maximum rate of interest
is increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of
interest is reduced by law or by the Monetary Board (de-escalation clause).
The RTC found that Equitable's promissory notes uniformly stated:

If subject promissory note is extended, the interest for subsequent extensions shall be at
such rate as shall be determined by the bank.
RACIO DECIDENDI WHY IT WAS VOIDED:

→ 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.
Result: 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.
✓Case 4: Almeda v. Bathala Marketing | G.R. NO. 150806 |
Date: January 28, 2008 | Ponente: NACHURA, J.:
[SUB-TOPIC]: Obligations of the debtor | Extraordinary Inflation

● CLASS HIGHLIGHT:
○ 1250 → requisites → too burdensome → hard to get a remedy
● When is there an Extraordinary inflation?

○ when there is an unusual decrease or increase in the purchasing power of the
Philippine currency
○ Requisites for its application: [all must be met]
■ The decrease/increase is unusual or beyond the common fluctuation in the
value of said currency
■ The increase or decrease could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation
■ There must be an official pronouncement or declaration by competent
authorities of the existence of extraordinary inflation during a given period
● Summary of obligations of the debtor (wala ni sa case; noteworthy lang hehe):

1. Pay the creditor an equal amount of the same kind and quality
2. Pay interest, if stipulated in writing
● Inflation
○ the sharp increase of money or credit, or both, without a corresponding increase in
business transaction
○ There is inflation when there is an increase in the volume of money and credit
relative to available goods, resulting in a substantial and continuing rise in the
general price level.
● Art. 1955. The obligation of a person who borrows money shall be governed by the
be paid.
● Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines. xxx
● Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the
contrary.
If the thing loaned is money, payment should be made in the currency stipulated. If
the agreement is silent on the currency, then payment must be made in the
currency in which the money was delivered, based on the principle that the
borrower must pay “the same amount of the same kind and quality”. If it is not
possible to deliver in the relevant currency, payment must be made in the currency
which is the legal tender in the Philippines
● Art. 1956. No interest shall be due unless it has been expressly stipulated in
writing.
Others: (just in case mag-ask si sir)

● Declaratory relief
○ an action by any person interested in a written instrument to determine any
question of construction or validity arising from the instrument, and for a
declaration of his rights and duties thereunder
○ (6) Requisites of an action for declaratory relief:
1) the subject matter of the controversy must be a deed, will, contract or
other written instrument, statute, executive order or regulation, or
ordinance;
2) the terms of said documents and the validity thereof are doubtful and
require judicial construction;
3) there must have been no breach of the documents in question;
4) there must be an actual justiciable controversy or the "ripening seeds" of
one between persons whose interests are adverse;
5) the issue must be ripe for judicial determination;
6) adequate relief is not available through other means or other forms of
action or proceeding.
● The petition for declaratory relief should be dismissed in view of the pendency of a
separate action for unlawful detainer. [Panganiban v. Pilipinas Shell Petroleum
Corporation}
○ NOTE: This was not applicable in the instant case.
○ “In Panganiban, the unlawful detainer case had already been resolved by the trial
court before the dismissal of the declaratory relief case; and it was the petitioner in
that case who insisted that the action for declaratory relief be preferred over the
action for unlawful detainer. Conversely, in the case at bench, the trial court had
not yet resolved the rescission/ejectment case during the pendency of the
declaratory relief petition.”
Recit-Ready Chika:
This case involves a contract of lease between Ponciano Almeda and Bathala. The
petitioners in this case are the wife and son of Ponciano because Ponciano died during
the effectivity of their lease contract. Ponciano was the lessor, and Bathala the lessee
of a portion of Almeda compound.
Their lease contract provided for instances or conditions where the lessor could collect
additional rental charges. Paragraph 6 provided that in case there would be an increase in
property assessment by authorities, Bathala should pay additional charges corresponding
to its leased portion. Paragraph 7 provided that in case of supervening extraordinary
inflation, the value of Philippine peso at the time of the establishment of the obligation
should be the basis of payment. I mentioned that Ponciano died during the effectivity of
their contract. Bathala then dealt with the petitioners after that.
The conflict started when petitioners sent two letters to Bathala; the first one was to
collect VAT, and the second was about a 73% increase on their monthly rental pursuant
to paragraph 7 of their contract and Article 1250 of the Civil Code. Bathala refused to pay
the additional charges but continued to pay the stipulated monthly rental. He then filed for
an action for declaratory relief for purposes of determining the correct interpretation of par
6 and 7 of the lease contract. There was also an action for ejectment filed by the
petitioners. So the main issue really was on the respondent's obligation to pay the
additional charges that petitioners wanted to collect. To resolve that, the court had to
consider the applicability of Article 1250 of the Civil Code. (refer to the ruling below)
Facts:
Parties:
● Ponciano Almeda (Ponciano) - Lessor
● Eufemia Almeda (Eufemia) - Wife of Ponciano; Petitioner
● Romel Almeda (Romel) - Son of Ponciano & Eufemia; Petitioner
● Bathala Marketing Industries, Inc. (Bathala) - Lessee; Respondent
● Ramon Garcia (Garcia) - President of Bathala Mktg Industries
Property Subject of lease contract:
● [portion of] Almeda Compound - Owned by Ponciano; 7,348.25 sqm; Located in
Pasong Tamo Street, Makati City
1) Bathala was a lessee of Ponciano. Through its President, Garcia, Bathala renewed its
lease contract with Ponciano in May 1997.
CONTRACT OF LEASE (renewal)

Terms / Provisions
Leased Property portion of Almeda Compound
Monthly Rental P 1,107,348.69
Lease Term 4 years from May 1, 1997 - unless sooner terminated
Issue-relevant contract provisions

(excerpts only; not the whole paragraph)
SIXTH ● the rental rate stipulated is based on the present rate of

paragraph assessment on the property
● LESSEE shall pay an additional rental / charges
corresponding to its leased portion IN CASE the
assessment should be increased or any new tax, charge
or burden be imposed by authorities on the lot and
building
● in the event that the present assessment or tax should be
reduced, LESSEE shall be entitled to reduction in the
stipulated rental, in proportion to the portion leased by
him
SEVENTH ● the value of Philippine peso at the time of the

paragraph establishment of the obligation shall be the basis of
payment in case an extraordinary inflation or
devaluation of Philippine Currency should supervene
2) Ponciano died during the effectivity of the contract, so Bathala dealt with the surviving
spouse, Eufemia and their son, Romel - petitioners in this case.
3) December 29, 1997 - petitioners advised respondent that the former shall assess and
collect Value Added Tax (VAT) on its monthly rentals
4) January 26, 1998 - petitioners sent another letter informing the respondent that its monthly
rental should be increased by 73% pursuant to condition No. 7 of the contract and Article
1250 of the Civil Code
5) Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but
continued to pay the stipulated amount set forth in their contract.
6) February 18, 1998 - respondent instituted an action for declaratory relief for purposes of
determining the correct interpretation of condition Nos. 6 and 7 of the lease contract
7) March 10, 1998 - petitioners filed an action for ejectment, rescission and damages against
respondent for failure of the latter to vacate the premises after the demand made by the
former. Before respondent could file an answer, petitioners filed a Notice of Dismissal.
8) RTC ruled in favor of the respondent. CA affirmed.
9) SC ruled in favor of respondent.
Issue(s):
1) WON the action for declaratory relief is proper (not relevant to our topic) - YES.
Petitioners claim that the instant petition is not proper because a separate
action for rescission, ejectment and damages had been commenced before
another court; thus, the construction of the subject contractual provisions
should be ventilated in the same forum. Court ruled otherwise.
2) [CLASS HIGHLIGHT] WON the respondent is liable to pay 10% VAT pursuant to
Republic Act (RA) 7716 - NO
3) [CLASS HIGHLIGHT] WON the amount of rentals due the petitioners should be
adjusted by reason of extraordinary inflation or devaluation - NO
What’s the relevance of these issues to our topic? In my opinion

● In relation to Issue #3 above, I think the main point that’s relevant to credit
transactions is the application of Article 1250 or the topic on extraordinary
inflation. (WON Article 1250 of NCC is applicable to this case) If it is applicable,
then the respondent would be liable to pay the additional rental charges as
provided in paragraph 7 of their lease contract. This provision is relevant because
the same provision governs the payment of loan obligations as provided for in Art.
1955 which states that “The obligation of a person who borrows money shall be
governed by the provisions of Articles 1249 and 1250 of this Code.”
Ruling:
1) YES, because the resolution of the petition for declaratory relief would settle the question
of the proper interpretation of paragraphs 6 & 7 - the two contractual stipulations subject of
this controversy. (The cases used as reference were Teodoro, Jr. v. Mirasol and
Panganiban v. Shell - both were not the same with the present case)
2) NO.
Ratio:
a) Estoppel → THEY ARE ESTOPPED
The actual shifting of the tax burden upon the lessee is optional on
the part of the lessor, under the terms of the statute. In this case,
despite the applicability of the rule granting the lessor the option to
pass on to the lessee the 10% VAT, to existing contracts of lease as
of January 1, 1996, the original lessor, Ponciano Almeda did not
charge the lessee-appellee the 10% VAT nor provided for its
additional imposition when they renewed the contract of lease in
May 1997. More significantly, said lessor did not actually collect a
10% VAT on the monthly rental due from the lessee-appellee after
the execution of the May 1997 contract of lease. In short,
petitioners are estopped from shifting to respondent the
burden of paying the VAT.
b) Timing / effectivity of RA 7716 (VAT law) → THE NEW VAT LAW WAS
ALREADY IN EFFECT
The provision in paragraph 6 of their lease contract provided that
respondent can only be held liable for new taxes imposed after the
effectivity of the contract of lease, that is, after May 1997, and only if
they pertain to the lot and the building where the leased premises
are located. Considering that RA 7716 took effect in 1994 - 3 years
before the renewal of their contract, the VAT cannot be considered
as a "new tax" in May 1997, as to fall within the coverage of the
sixth paragraph.
→ PRESUMPTION: If it does not say anything about VAT, it is

presumed that the VAT is incorporated.
3) NO. Article 1250 of NCC does not apply. The court held that there was no supervening
“extraordinary inflation” at that time. I mean, there was an inflation but “the downward
trend of the peso could not be considered as the “extraordinary inflation” contemplated by
Article 1250” because the requisites were not met.
Requisites:
a) Must be unusual
Court said that it was not unusual because the fluctuation was a
normal characteristic of currencies for the past 3-4 decades
b) The increase or decrease could not have been reasonably foreseen by the
parties.
Not sure about this though kay ma-foresee man sya esp if
economist ka, but the requisite is “by the parties”, so possible na
wala jud silay idea at that time. But still, other reqs were not met.
c) There was an official pronouncement from authority
There was also no official pronouncements or declaration of an
extraordinary inflation during that period.
Therefore, the respondent isn’t liable to pay the additional rental charges.
Case 5: People vs Puig | G.R. No: G.R. No. 173654-765 |
Date: August 28, 2008 | Ponente: CHICO-NAZARIO, J.
[SUB-TOPIC]: Qualified Theft; Relationship of Bank and Depositors
DIGESTED BY: Rosette Tinguha
DOCTRINES:
● The relationship between banks and depositors has been held to be that of creditor and
debtor:
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.
● The Court has consistently considered the allegations in the Information that such
employees acted with grave abuse of confidence, to the damage and prejudice of the
Bank, without particularly referring to it as owner of the money deposits, as sufficient to
make out a case of Qualified Theft.
FACTS: The Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas,
Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras
(Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank
of Pototan, Inc.
The allegations in the information were uniform and pro-forma, except for the amounts, date and
time of commission.
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo,
Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents],
conspiring, confederating, and helping one another, with grave abuse of confidence,
being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank and with intent of
gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the
sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and
prejudice of the said bank in the aforesaid amount.
RTC - Did not find the existence of probable cause.

1. The element of ‘taking without the consent of the owners’ was missing on the ground that
it is the depositors-clients, and not the Bank, which filed the complaint. (Bank is the real
party-in-interest)
2. Bereft of the phrase alleging "dependence, guardianship or vigilance between the
respondents and the offended party that would have created a high degree of confidence
between them which the respondents could have abused."
RTC → Jumped to SC to assail a pure question of law
ISSUE: WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT

SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE
OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE
RULING: YES. The informations sufficiently alleged all the essential elements constituting the crime of
Qualified Theft. The Bank acquires ownership of the money deposited by its clients → as the relationship
between banks and depositors has been held to be that of creditor and debtor.
The employees of the Bank, who are entrusted with the possession of money of the Bank due to
the confidence reposed in them, occupy positions of confidence.
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 confidence 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.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it
as owner of the money deposits, as sufficient to make out a case of Qualified Theft.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this
case, there is even no reason to quibble on the allegation in the Informations that they acted with
grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by
accused herein is even more precise, as this is exactly the requirement of the law in qualifying the
crime of Theft.
NOTE: THE FOLLOWING ARE SUPPORTING PROVISIONS, YOU MAY SKIP TO HERE (click link) IF NECESSARY
DISCUSSION RE QUALIFIED THEFT:
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is
committed as follows,
ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next
higher by two degrees than those respectively specified in the next preceding article, if
committed by a domestic servant, or with grave abuse of confidence, or if the property
stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the
premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the
occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular
accident or civil disturbance.
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of
another’s property without violence or intimidation against persons or force upon things. The
elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;

2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner’s consent;
5. That it be accomplished without the use of violence or intimidation against persons, nor
of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia,
that the information must state the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of
Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting

the offense and the qualifying and aggravating circumstances must be stated in ordinary
and concise language and not necessarily in the language used in the statute but in terms
sufficient to enable a person of common understanding to know what offense is being
charged as well as its qualifying and aggravating circumstances and for the court to
pronounce judgment.
Case 6: BPI vs Franco | G.R. No. 123498 |
Date: November 23, 2007 | Ponente: CHICO-NAZARIO, J.
[SUB-TOPIC]:
DIGESTED BY: JP Antiquiera
DOCTRINES:
● In commodatum the bailor retains the ownerships of the thing loaned, while in simple loan,
ownership passes to the borrower.
● Simple loan or mutuum. — where the lender delivers to the borrower money or other
consumable thing upon the condition that the latter shall pay the same amount of the
same kind and quality.
● Banks are exhorted to treat the accounts of their depositors with meticulous care and
utmost fidelity.
● 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.
FACTS:
➔ This case is about fraud perpetrated on BPI by the respondent in conspiracy with other individuals
→ they opened and maintained separate accounts with BPI-FB, San Fransisco del Monte
➔ August 15, 1989: Tevesteco Arrastre-Stevedoring Co., Inc. opened a savings and current
account with BPI-FB
➔ August 25, 1989: First Metro Investment Corporation also opened a time deposit account
with the same branch and deposited P 100,000.00 to mature once a year.
➔ August 31, 1989: Franco opened three accounts. (current, savings, and time deposit).
Current and savings were funded P 500,000.00 while Time Deposit had P 1M, with a
maturity date of August 31, 1990.
◆ The total amount of P 2M to open said accounts were traceable to a check issued
by Tevesteco in consideration of Franco’s introduction of Eladio Teves to look a
conduit bank to facilitate Tevesteco’s business transaction to Jaime Sebastian then
BPI-FB SFDM’s Branch Manager.
◆ The funding of the P 2M check was part of the P80M debited by BPI-FB from
FMIC’s time deposit account and credited to Tevesteo’s current account to an
Authority to Debit which was signed by FMIC’s officers,
➔ The signatures of FMIC’s officers on the Authority to Debit appear to be forged.
➔ September 4, 1989: Antonio Ong (one of the officers? Not mentioned) declared that indeed his
signature was forged but Tevesteco already effected withdrawals from its current
account (P 37, 455,410.54 including the 2M paid to Franco)
➔ September 8, 1989: BPI-FB, Vice-P instructed Jesus Arangorin to debit Franco’s savings
and current accounts but the Time deposits account could not be debited due to capacity
limitations of BPI-FB’s computer. (freeze the accounts of Franco)
➔ Two checks drawn by Franco against his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation "account under garnishment."
(order of attachment was issued by the RTC of Makati)
➔ BPI refused to unfreeze the account, claiming that It had better right over the money.
RTC Ruling: affirmed in favor of Franco
CA Ruling: re-affirmed in favor of Franco. BPI was ordered to pay P 63M plus to Franco, P 200k
as moral damages, P 100k as exemplary damages. Deleted the award of nominal damages and
increased the atty fees from 30k to 75k
ISSUE: WON deposits of money in banks are considered mutuum or simple loan?
RULING: YES.
Deposits of money in banks are in the nature of mutuum. Deposits of money in banks are
generally governed by the Civil Code provisions on simple loan or mutuum. In simple loan or
mutuum, there is a debtor-creditor relationship. As in this case, Franco is the depositor and BPI as
the bank where the money is deposited to.
BPI acquired ownership of the money from the moment Franco deposited it to the bank. However,
such ownership is coupled with a corresponding obligation to pay him an equal amount on
demand. BPI cannot prevent Franco from drawing checks against these accounts because
he has every right to do so as creditor and expects that those checks would be honored by
the bank BPI-FB as debtor.
ISSUE: WON BPI has the right to freeze the bank accounts of Franco?
RULING: NO.
Banking Institutions do not have the right to freeze bank accounts just on mere suspicions that the
transactions are a scam because the funds were in millions of pesos. To grant such rights to the
banks, it would open floodgates of public distrust towards the banking industry. Hence, the
banking industry is precluded from freezing bank accounts based on mere suspicions only.
The Court Cited Simex International (Manila), Inc. v. Court of Appeals, wherein it stated that:
xxx The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. 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. x
x x.
The bank is engaged in business impressed with public interest, and it is its duty to protect in
return its many clients and depositors who transact business with it with the highest degree of
care, more than that of a good father of the family or of an ordinary business firm. It is its
obligation to see to it that all funds invested with it are properly accounted for and duly posted in
its ledger. In every case, the depositor expects the bank to treat his account with utmost fidelity,
whether such account consists of only a few hundred pesos or of millions, always having in mind
the fiduciary nature of their relationship. (SOURCE: DE LEON)
D. INTEREST
✓Case 1: Frias v. San Diego-Sison| G.R. No: 155223 |

Date: April 3, 2007| Ponente: |
[TOPIC]: Interest
[SUB-TOPIC]: Monetary Interest
DIGESTED BY: Cj Rose Lachica
CLASS HIGHLIGHT:
● Contention: The interest is only due on the last 6 months
○ Court → There is nothing in their agreement that suggests that interest will be charged for
six months only even if it takes the petitioner an eternity to pay the loan. It has been held
that for a debtor to continue in possession of the principal of the loan and to
continue to use the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the part of the debtor at
the expense of the creditor.
● What is the contract in respect to the 2 million?
○ It became a loan.
○ As it should be returned if they opted not to buy the property subject to the
Contract to Sell.
■ A loan always bears interest otherwise it is not a loan, is flawed since a simple loan
may be gratuitous or with a stipulation to pay interest,23 we find no error committed
by the CA in awarding a 25% interest per annum on the two-million peso loan even
beyond the second six months stipulated period.
■ Considering that petitioner failed to pay the amount given which under the
Memorandum of Agreement shall be considered as a loan, the monetary interest
for the last six months continued to accrue until actual payment of the loaned
amount
○ The interest → is for the enjoyment of the use of the money
● While the principal is outstanding, interest will continue to accrue until the principal is paid.
DOCTRINE:
● The payment of regular interest constitutes the price or cost of the use of money and thus,
until the principal sum due is returned to the creditor, regular interest continues to accrue
since the debtor continues to use such principal amount.
● It has been held that for a debtor to continue in possession of the principal of the loan and
to continue to use the same after maturity of the loan without payment of the monetary
interest, would constitute unjust enrichment on the part of the debtor at the expense of the
creditor.
● The Memorandum of Agreement executed between the petitioner and respondent

on December 7, 1990 is the law between the parties.
FACTS:
● Petitioner acquired from Island Masters Realty and Development Corporation a house and
lot by virtue of a Deed of Sale covered by TCT No. 168173.
● Sometime around December 7, 1990, petitioner and respondent entered into a
“Memorandum of Agreement” over the subject property.
○ PETITIONER → SELLER
○ RESPONDENT → BUYER
The said agreement contains such clauses:
For and in consideration of the sum of THREE MILLION PESOS (₱3,000,000.00) receipt of
which is hereby acknowledged by the FIRST PARTY (petitioner-seller) from the SECOND
PARTY (respondent-buyer) , the parties have agreed as follows:
1. That the SECOND PARTY (respondent) has a period of Six (6) months from the date of the
execution of this contract within which to notify the FIRST PARTY (petitioner) of her intention to
purchase the aforementioned parcel of land together within (sic) the improvements thereon at
the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS (₱6,400,000.00). Upon
notice to the FIRST PARTY (petitioner) of the SECOND PARTY’s (respondent) intention to
purchase the same, the latter has a period of another six months within which to pay the
remaining balance of ₱3.4 million.
2. That prior to the six months period given to the SECOND PARTY (respondent) within which
to decide whether or not to purchase the above-mentioned property, the FIRST PARTY
(petitioner) may still offer the said property to other persons who may be interested to buy the
same provided that the amount of ₱3,000,000.00 given to the FIRST PARTY (petitioner) BY
THE SECOND PARTY (respondent) shall be paid to the latter including interest based on
prevailing compounded bank interest plus the amount of the sale in excess of ₱7,000,000.00
should the property be sold at a price more than ₱7 million.
3. [IMPORTANT CLAUSE IN THIS CASE] That in case the FIRST PARTY (petitioner)
has no other buyer within the first six months from the execution of this contract,
no interest shall be charged by the SECOND PARTY (respondent) on the P3
million however, in the event that on the sixth month the SECOND PARTY
(respondent) would decide not to purchase the aforementioned property, the
FIRST PARTY (petitioner) has a period of another six months within which to pay
the sum of ₱3 million pesos provided that the said amount shall earn
compounded bank interest for the last six months only. Under this circumstance,
the amount of P3 million given by the SECOND PARTY (respondent) shall be
treated as [a] loan and the property shall be considered as the security for the
mortgage which can be enforced in accordance with law.
In lieu of the said agreement, respondent paid petitioner:

● a payment of two million pesos in cash; and
● one million pesos in a post-dated check dated February 28, 1990, instead of 1991, which
rendered said check stale.
In effect, petitioner issued to respondent the title of the property in the name of Island Masters
Realty and Development Corporation (IMRDC) as well as the Deed of Absolute Sale over the
property between petitioner and IMRDC.
[THIS IS IN CONNECTION OF THE CLAUSE 3 OF THE AGREEMENT]
Respondent, however, decided not to purchase the property. In lieu of this, on March
20, 1991, respondent sent a letter to petitioner reminding the latter of their agreement
[clause 3 of the agreement] that the amount of two million pesos which petitioner received
from respondent should be considered as a loan payable within six months. Petitioner
received the letter only on June 11, 1991, petitioner subsequently failed to pay
respondent. Hence, on April 1, 1993, respondent filed a complaint against petitioner for
sum of money with preliminary attachment.
Respondent’s allegation Petitioner’s Anwser to Respondent’s

Allegation
1. The foregoing facts and in addition [THE ONE NA NAKA RED TEXT IS
thereto averred that petitioner tried to IMPORTANT]
deprive respondent of the security for 1. The Memorandum of Agreement was
the loan by making a false report of the conceived and arranged by her lawyer,
loss of her owner’s copy of the title Atty. Carmelita Lozada, who is also
executing an affidavit of loss and by respondent’s lawyer;
filing a petition for the issuance of a 2. That she was asked to sign the
new owner’s duplicate copy of said title agreement without being given the
with the RTC of Makati, Branch 142. chance to read the same;
3. That the title to the property and the
Deed of Sale between her and the
IMRDC were entrusted to Atty. Lozada
for safekeeping and were never turned
over to respondent as there was no
consummated sale yet;
4. That out of the two million pesos cash
paid, Atty. Lozada took the one million
pesos which has not been returned,
thus petitioner had filed a civil case
against her;
5. That she was never informed of
respondent’s decision not to purchase
the property within the six month period
fixed in the agreement;
6. That when she demanded the return of
TCT No. 168173 and the Deed of Sale
between her and the IMRDC from Atty.
Lozada, the latter gave her these
documents in a brown envelope on
May 5, 1991 which her secretary
placed in her attache case;
7. That the envelope together with her
other personal things were lost when
her car was forcibly opened the
following day;
8. That she sought the help of Atty.
Lozada who advised her to secure a
police report, to execute an affidavit of
loss and to get the services of another
lawyer to file a petition for the issuance
of an owner’s duplicate copy;
9. That the petition for the issuance of a
new owner’s duplicate copy was filed
on her behalf without her knowledge
and neither did she sign the petition
nor testify in court as falsely claimed
for she was abroad;
10. That she was a victim of the
manipulations of Atty. Lozada and
respondent as shown by the filing of
criminal charges for perjury and false
testimony against her;
11. That no interest could be due as there
was no valid mortgage over the
property as the principal obligation is
vitiated with fraud and deception.
Respondent’s Prayer: Respondent prayed Petitioner’s Prayer: Petitioner prayed for the
for the ex-parte issuance of a writ of dismissal of the complaint, counter-claim for
preliminary attachment and payment of two damages and attorney’s fees.
million pesos with interest at 36% per annum
from December 7, 1991, ₱100,000.00 moral,
corrective and exemplary damages and
₱200,000.00 for attorney’s fees.
RTC → Ruled in favor of respondent; Court found that petitioner was under obligation to pay
respondent the amount of two million pesos with compounded interest pursuant to their Memorandum
of Agreement.
CA → Affirmed RTC’s ruling with modification where rate of interest is reduced from 32% to 25% per
annum, effective June 7, 1991 until fully paid.
ISSUE 1: WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED

TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.
RULING 1: NO. Considering that petitioner failed to pay the amount given which under the
Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six
months continued to accrue until actual payment of the loaned amount.
In examining the contract of the party: Their agreement speaks of two (2) periods of six
months each.
1. The first six-month period was given to respondent to make up her mind whether or not to
purchase petitioner's property.
2. The second six-month period was given to petitioner to pay the P2 million loan in the event
that defendant decided not to buy the subject property in which case interest will be
charged "for the last six months only", referring to the second six-month period.
Meaning of the phrase “for the last six months only”: This means that no interest will be
charged for the first six-month period while defendant was making up her mind whether to buy the
property, but only for the second period of six months after defendant had decided not to buy the
property.
Certainly, there is nothing in their agreement that suggests that interest will be charged for six
months only even if it takes petitioner an eternity to pay the loan. It has been held that for a debtor
to continue in possession of the principal of the loan and to continue to use the same after
maturity of the loan without payment of the monetary interest, would constitute unjust enrichment
on the part of the debtor at the expense of the creditor.
ISSUE 2: WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
RULING 2: YES. The Memorandum of Agreement provides that in the event that respondent opts
not to buy the property, the money given by respondent to petitioner shall be treated as a loan
and the property shall be considered as the security for the mortgage.
It was testified to by respondent that after they executed the agreement on December 7, 1990,
petitioner gave her the:
● owner’s copy of the title to the property;
● the Deed of Sale between petitioner and IMRDC;
● the certificate of occupancy; and
● the certificate of the Secretary of the IMRDC who signed the Deed of Sale.
However, notwithstanding that all those documents were in respondent’s possession,

petitioner executed an affidavit of loss that the owner’s copy of the title and the Deed of
Sale were lost. Petitioner’s actuation would have deprived respondent of the security for her loan
were it not for respondent’s timely filing of a petition for relief whereby the RTC set aside its
previous order granting the issuance of new title. Thus, the award of moral damages is in
order.
✓Case 2: SIGA-AN v. VILLANUEVA | G.R. No: 173227 |
Date: January 20, 2009 | Ponente: CHICO-NAZARIO, J.
[TOPIC]: LOAN
[SUB-TOPIC]: INTEREST: MONETARY INTEREST
DIGESTED BY: Jezrel Perez
Doctrine:
● Monetary interest - an interest which is a compensation fixed by the parties for the use or
forbearance of money.
● Compensatory interest - is an Interest may also be imposed by law or by courts as
penalty or indemnity for damages.
● THUS: The right to interest arises only by (1) virtue of a contract or (2) by virtue of
damages for delay or failure to pay the principal loan on which interest is demanded.
● Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates
that NO INTEREST shall be due UNLESS it has been expressly stipulated in writing.
REQUISITES:
1st req: there was an ✘

express stipulation for the It appears that petitioner and respondent did not agree on the
payment of interest payment of interest for the loan.
2nd req: the agreement for ✘

the payment of interest was Neither was there convincing proof of written agreement between
reduced in writing the two regarding the payment of interest. Respondent testified that
although she accepted petitioner’s offer of loan amounting to
₱540,000.00, there was, nonetheless, no verbal or written
agreement for her to pay interest on the loan.
The concurrence of the two conditions is required for the payment of monetary interest.
Thus, we have held that collection of interest without any stipulation therefore in writing is
prohibited by law.
FACTS:
● Respondent Alicia Villanueva filed a complaint for a sum of money against petitioner
Sebastian Siga-an before the RTC of Las Pinas City on 30 March 1998.
BACKGROUND:
○ Respondent is a businesswoman engaged in supplying office materials and equipment to
the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City
○ Petitioner was a military officer and comptroller of the PNO from 1991 to 1996.
● CLAIMS OF THE RESPONDENT

○ Sometime in 1992, petitioner approached her inside the PNO and offered to loan
her the amount of ₱540,000.00.
○ Since she needed capital for her business transactions with the PNO, she
accepted petitioner’s proposal.
○ The loan agreement:
■ was not reduced in writing
■ Also, there was no stipulation as to the payment of interest for the
loan
● On 31 August 1993 - Villanueva (respondent) issued a check worth ₱500,000.00 to Siga-

an (petitioner) as partial payment of the loan.
● On 31 October 1993 - 2 months after, she (respondent) issued another check in the
amount of ₱200,000.00 as payment of the remaining balance of the loan.
● Siga-an told her that since she paid a total amount of ₱700,000.00. The excess amount
of ₱160,000.00 would be applied as interest for the loan
● Not satisfied with the amount applied as interest, Siga-an(petitioner) pestered her
(respondent)
○ to pay additional interest and;
○ threatened to block or disapprove her transactions with the PNO if she would not
comply with his demand (all her transactions with the PNO were subject to the approval
of Siga-an [petitioner])
○ NOTE: She conceded to all these demands out of fear (abusado si military officer)
● She paid to Siga-an for the loan and interest accumulated to ₱1,200,000.00 with no
receipt for the payments given to her
○ Because petitioner told her that it was not necessary as there was mutual trust
and confidence
● VILLANUEVA[respondent] CONSULTED A LAWYER: Her lawyer told her that petitioner

could not validly collect interest on the loan because there was no agreement between her
and petitioner regarding payment of interest.
○ Because of the lawyer’s advice, she sent a demand letter to petitioner asking for
the return of the excess amount of ₱660,000.00.
● Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement thus
Villanueva filed this case.
● In his answer to the complaint, petitioner denied that he offered a loan to respondent.
CLAIMS OF THE PETITIONER
○ Villanueva [respondent] approached him for a 1st loan which was granted and then
fully paid
○ Then comes 2nd loan which respondent could no longer pay and requested
restructuring of the loan terms of payment and she issued promissory notes
○ Also respondent issued post-dated checks (background chika sa case is si military
officer also filed a case for BP 22 against respondent for the dishonored checks)
RTC - says respondent made an overpayment of her loan obligation to petitioner and that the
latter should refund the excess amount to the former.
CA - affirmed in toto RTC
MAIN ISSUE: Whether or not there was a monetary interest due to the petitioner
RULING: NO. It appears that petitioner and respondent did not agree on the payment of
interest for the loan
DEFINITION OF TERMS
● Monetary interest - an interest which is a compensation fixed by the parties for the use or forbearance of
money.
● Compensatory interest - is an Interest may also be imposed by law or by courts as penalty or indemnity for
damages.
THUS: The right to interest arises only by (1) virtue of a contract or (2) by virtue of damages for
delay or failure to pay the principal loan on which interest is demanded.
Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that NO
INTEREST shall be due UNLESS it has been expressly stipulated in writing.
● As can be gleaned from the foregoing provision, payment of monetary interest is
allowed only if:
REQUISITES:
1st req: there was an ✘

express stipulation for the It appears that petitioner and respondent did not agree on the
payment of interest payment of interest for the loan.
2nd req: the agreement for ✘

the payment of interest was Neither was there convincing proof of written agreement between
reduced in writing the two regarding the payment of interest. Respondent testified that
although she accepted petitioner’s offer of loan amounting to
₱540,000.00, there was, nonetheless, no verbal or written
agreement for her to pay interest on the loan.
The concurrence of the two conditions is required for the payment of monetary interest.
Thus, we have held that collection of interest without any stipulation therefore in writing is
prohibited by law.
ISSUE #1: Isn’t the handwritten promissory note a proof that respondent purportedly
admitted owing petitioner "capital and interest?”
RULING #1: NO. It cannot be gainfully said that such promissory note pertains to an express
stipulation of interest or written agreement of interest on the loan between petitioner and
respondent.
RE: the handwritten promissory note -- it turns out that it was petitioner who made a promissory
note and she was told to copy it in her own handwriting; petitioner threatened to disapprove her transactions
with the PNO if she would not obey his instruction to copy the promissory note. Being unaware of the law
on interest and fearing that petitioner would make good of his threats, Villanueva copied the P.N on her own
handwriting
Petitioner did not rebut the foregoing testimony. It is evident that respondent did not really
consent to the payment of interest for the loan and that she was merely tricked and
coerced by petitioner to pay interest.
ISSUE #2: Whether or not petitioner is correct in saying that both the RTC and the CA found that
he and respondent agreed on the payment of 7% rate of interest on the loan
RULING #2: NO. The SC have carefully examined the RTC Decision and found that the RTC did
not make a ruling therein that petitioner and respondent agreed on the payment of interest at the
rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered
into a valid oral contract of loan amounting to ₱540,000.00, they, nonetheless, never intended the
payment of interest thereon. While the CA mentioned in its Decision that it concurred in the
RTC’s ruling that petitioner and respondent agreed on a certain rate of interest as regards the
loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC
and the CA ruled that petitioner is not entitled to the payment of interest on the loan
[CLASS HIGHLIGHT] ISSUE #3: Whether or not Siga-an may rely on Villanueva’s alleged
admission in the Batas Pambansa Blg. 22 cases he filed against her (for the bounced checks) that
they had agreed on the payment of interest at the rate of 7%
RULING #3: NO. In the said case, respondent merely testified that after paying the total amount
of loan, petitioner ordered her to pay interest. Respondent did not categorically declare in the
same case that she and respondent made an express stipulation in writing as regards payment of
interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was an
express stipulation in writing for the payment of interest.
ISSUE #4: Are there instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest?
RULING #4: YES. There are instances in which an interest may be imposed even in the absence
of express stipulation, verbal or written, regarding payment of interest.
● Article 2209 of the Civil Code states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be
imposed as indemnity for damages if no stipulation on the payment of interest was agreed
upon.
● Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a compensation for the
use or forbearance of money. In other words, the two instances apply only to compensatory
interest and not to monetary interest.
The case at bar involves petitioner’s claim for monetary interest. Further, said compensatory
interest is not chargeable in the instant case because it was not duly proven that respondent
defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there
was no written agreement as regards payment of interest.
[CLASS HIGHLIGHT] ISSUE #5: Whether or not the principle of solutio indebiti applies in
this case
RULING #5: YES. Under Article 1960 of the Civil Code, if the borrower of loan pays interest
when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio
indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti.
Said provision provides that if something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises. (RATIONALE: that no
one shall enrich himself unjustly at the expense of another.)
REQUISITES:
1st req: a payment is made when ✅

there exists no binding relation It was duly established that respondent paid interest
between the payor, who has no duty to petitioner. Respondent was under no duty to make
to pay, and the person who received such payment because there was no express
the payment stipulation in writing to that effect.
2nd req: the payment is made ✅

through mistake, and not through There was no binding relation between petitioner and
liberality or some other cause respondent as regards the payment of interest. The
payment was clearly a mistake. Since petitioner
received something when there was no right to
demand it, he has an obligation to return it.
We have held that the principle of solutio indebiti applies in case of erroneous payment
of undue interest.
*This part may not be relevant anymore but added this because Sir is quite detailed sometimes. Please
note also that the full text discussed ALL the damages awarded and the reason why.
ISSUE #6: Whether or not the RTC & CA is correct in imposing a 12% rate of legal interest on the
amount refundable to respondent computed from 3 March 1998 until its full payment.
RULING #6: NO. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 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 rate of 6% per annum. We further declared that when the
judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit.
In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not
from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on
the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be
computed from the time of the extrajudicial demand on 3 March 1998,46 up to the finality of this
Decision. In addition, the interest shall become 12% per annum from the finality of this Decision
up to its satisfaction.
✓Case 3: Ligutan vs CA| G.R. No: 138677|
Date: Feb. 12, 2002 | Ponente: Vitug, J.:|
[TOPIC]: General Concepts
[SUB-TOPIC]: Penalty clause
DIGESTED BY: Mary Rose Saloma
Doctrine:
● CA from 5% to 3% → the repeated acts of breach by petitioners of their contractual obligation
The Court of Appeals, exercising its good judgment in the instant case, has
reduced the penalty interest from 5% a month to 3% a month which petitioner still
disputes. Given the circumstances, not to mention the repeated acts of breach by
petitioners of their contractual obligation, the Court sees no cogent ground to
modify the ruling of the appellate court.
Main Reason for reduction to 3%: Sir says “This was actually stipulated in the
contract.” (I think Sir misread the case, the contract actually says 5% not 3%)
“Petitioners prayed for the reduction of the 5% stipulated penalty for
being unconscionable”
● The essence or rationale for the payment of interest is not exactly the same as that of a
surcharge or a penalty.
○ A penalty stipulation is not necessarily preclusive of interest, if there is an
agreement to that effect, the two being distinct concepts which may separately be
demanded.
● The interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank's existence.
● A penalty clause, expressly recognized by law, is an accessory undertaking to assume
greater liability on the part of an obligor in case of breach of an obligation. It functions to
strengthen the coercive force of the obligation and to provide, in effect, for what could be
the liquidated damages resulting from such a breach
● The essence or rationale for the payment of interest, quite often referred to as cost of
money, is not exactly the same as that of a surcharge or a penalty
○ A penalty stipulation is not necessarily preclusive of interest, if there is an
demanded.
Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company.
● Petitioners executed a promissory note binding themselves, jointly and severally, to pay
the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a
penalty of 5% every month on the outstanding principal and interest in case of default.
● Petitioners also agreed to pay 10% of the total amount due by way of attorney’s fees if
the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce
payment.
The obligation matured on 8 September 1981. The bank, however, granted an extension but only
up until 29 December 1981.
Since the petitioners failed to pay the debt which, as of 20 May 1982, amounted to
P114,416.10 [P5,584.00 had been remitted out of the entire loan of P120,000.00], the bank sent a
final demand letter to petitioners informing them that they had 5 days within which to make full
payment. However, the petitioners still failed to pay so the bank filed a complaint for recovery of
the amount due.
During the trial, petitioners, instead of introducing their own evidence, had the hearing of the case
reset on two consecutive occasions and the case was submitted for decision.
● Petitioners filed an MR to RTC praying that they be allowed to prove their case however,
the trial court ruled that they have waived their right to present evidence and ordered
petitioners to pay the obligation to plaintiff.
In the CA, petitioners questioned the rejection by the trial court of their motion to present
evidence and assailed the imposition of the 2% service charge, the 5% per month penalty charge
and 10% attorney's fees.
CA ordered petitioners to pay:
1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum
and 3% per month penalty charge commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for
attorney’s fees.
Issue: Whether Court of Appeals seriously erred in holding that the petitioners are liable of
15.189% interest and the penalty of 3% per month or 36% per annum to the respondents.
Ruling: NO.
As to the 3% per month penalty: The Court of Appeals, exercising its good judgment in the
instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner
still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners
of their contractual obligation, the Court sees no cogent ground to modify the ruling of the
appellate court.
As to the 15.189% interest: Petitioners, for the first time, question its reasonableness and prays
that the Court reduce the amount. This contention is a fresh issue that has not been raised and
ventilated before the courts below.
In any event, the interest stipulation, on its face, does not appear as being that excessive. The
essence or rationale for the payment of interest, quite often referred to as cost of money, is
not exactly the same as that of a surcharge or a penalty.
● A penalty stipulation is not necessarily preclusive of interest, if there is an

demanded.
What may justify a court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefor in a valid agreement, may not equally justify the non-
payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is
a fundamental part of the banking business and the core of a bank's existence.
Issue: Whether Court of Appeals gravely erred in not reducing to a reasonable level the
10% award of attorney’s fees.
Ruling: NO.
Bearing in mind that the rate of attorney’s fees has been agreed to by the parties and intended to
answer not only for litigation expenses but also for collection efforts as well, the Court, like the
appellate court, deems the award of 10% attorney’s fees to be reasonable.
Irrelevant Facts but basin mag ask:
● Petitioners filed an omnibus motion for reconsideration to CA and prayed for an admission
of the newly discovered evidence, alleging that while the case was pending before the trial
court, petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate
mortgage to secure the existing indebtedness of petitioners Ligutan and dela Llana with
the bank.
o Petitioners contended that the execution of the real estate mortgage had the
effect of novating the contract between them and the bank.
● The appellate court ruled that the newly-discovered evidence being invoked by petitioners
had actually been known to them when the case was brought on appeal and when the first
motion for reconsideration was filed.
Issue: Whether the subsequent real estate mortgage constitutes novation of the original
contract of loan.
Ruling: NO.
The subsequent execution of the real estate mortgage as security for the existing loan would not
have resulted in the extinguishment of the original contract of loan because of novation.
Petitioners acknowledge that the real estate mortgage contract does not contain any express
stipulation by the parties intending it to supersede the existing loan agreement between the
petitioners and the bank. Respondent bank has correctly postulated that the mortgage is but an
accessory contract to secure the loan in the promissory note.
Extinctive novation requires:
1. a previous valid obligation;

2. the agreement of all the parties to the new contract;
3. the extinguishment of the obligation; and
4. the validity of the new one.
In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new
obligation be on every point incompatible with each other. An obligation to pay a sum of
money is not extinctively novated by a new instrument which merely changes the terms of
payment or adding compatible covenants or where the old contract is merely supplemented by the
new one. When not expressed, incompatibility is required so as to ensure that the parties have
indeed intended such novation despite their failure to express it in categorical terms.
The incompatibility, to be sure, should take place in any of the essential elements of the
obligation such as:
(1) the juridical relation or tie, such as from a mere commodatum to lease of things, or
from negotiorum gestio to agency, or from a mortgage to antichresis, or from a sale to one
of loan;
(2) the object or principal conditions, such as a change of the nature of the prestation; or
(3) the subjects, such as the substitution of a debtor or the subrogation of the creditor.
✓Case 4: Eastern Shipping Lines v. Court of Appeals | G.R. No: 97412 |
Date: July 12, 1994 | Ponente: VITUG, J.
[TOPIC]: Compensatory Interest
[SUB-TOPIC]: Interest Rate (Art. 2209, NCC; Sec. 1, Usury Law)
DIGESTED BY: Mary Ruth Kristine Risma
Note: Landmark Case ✍️
CLASS HIGHLIGHT:
● 1ST CLASS OF TRANSACTIONS: In a loan or forbearance of money, goods, or
credits, the interest due should be that stipulated in writing, and in the absence thereof,
the rate shall be 12% per annum.
○ 12% interest per annum (Central Bank Circular) applies only to loans or
forbearance of money, goods or credits, as well as to judgments involving
such loan or forbearance of money, goods or credits.
○ Start to accrue interest: Computed from default (there is a need for demand)
Example:
→ Loaned 1 million w/ 24% interest per annum, prior to any breach → monetary interest
→ 30% interest per annum upon failure to pay on designated date → compensatory interest
● 2ND CLASS OF TRANSACTIONS: In case of other obligations, the interest on the

amount of damages may be imposed at the discretion of the court at the rate of 6% per
annum.
○ 6% interest per annum (Civil Code) governs when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general, computed from the time the
complaint is filed until the adjudged amount is fully paid.
○ Example: Breach of contract of carriage
2 scenarios in computing interest here:

1) When the amount of the damage is clear from the start → there is basis for demand
2) When the amount of damages cannot be reasonably determined from the start, so
reckoned from judgement of the court → there should be a trial to determine how
much could be demanded
● 3RD CLASS OF TRANSACTIONS:When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
● Reason: The judgement creates an obligation. It is as if like an utang → hence it would

also accrue interest
Facts:
● Eastern Shipping Lines, Inc. is a shipping company and the carrier for brevity, while Metro
Port Services, Inc. was the arrastre operator, Allied Brokerage Corporation was the
broker, and Mercantile Insurance Company, Inc. (respondent) was the insurer/subrogee
of the consignee warehouse (not named).
● On December 4, 1981, two drums of riboflavin were shipped for delivery from
Yokohama, Japan to Manila onboard the carrier's vessel, which was insured for Php
36,382,466.38 under respondent’s Marine Insurance Policy.
● Upon arrival on December 12, 1981, they were discharged into the custody of the arrastre
operator, in which 1 drum was excluded because it was a bad order. This damage was
unknown to the carrier.
● On January 7, 1982, the broker received the shipment from the arrastre operator with 1
drum opened and without seal (this was the drum known as bad order).
● On January 8 and 14, 1982, the broker delivered the shipment to the consignee's
warehouse where it excluded the 1 drum (the bad order, in which contained spillages and
the rest of the contents were fake/adulterated).
● Due to the damage of the 1 drum, the consignee suffered losses in the amount of Php
19,032.95 to which it claimed against the insurance policy. And as a consequence, the
respondent was compelled to pay the consignee the said amount.
● Respondent then filed a complaint against the carrier, arrastre operator, and broker for
their fault and negligence, to which they answered the material allegations contending
that:
➔ Carrier - the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the
shipment was incurred after the shipment was turned over to the latter, is no longer
its liability.
➔ Arrastre Operator - averred that although subject shipment was discharged unto
its custody upon arrival, portion of the same was already in bad order.
➔ Broker - it was not negligent or at fault for the shipment was already in damage
and bad order condition when received by it, but nonetheless, it still exercised
extraordinary care and diligence in the handling/delivery of the cargo to consignee
in the same condition shipment was received by it.
RTC RULING: Ordered to pay the amount of Php 19,032.95 with 12% legal interest per
annum from the date of filing of the complaint until fully paid by the carrier, while arrastre
operator shall be liable for the actual invoice of each package, crate box or container. No
liability upon the broker.
CA: Affirmed in toto. Hence, this petition by the carrier.
Issue 1: Whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed from
is rendered?
Ruling 1: When computing for legal interest, the following are the rules of thumb:
1) When an obligation, regardless of its source, i.e. law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on “Damages” of the
Civil Code govern in determining the measure of recoverable damages.
❖ 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 shall
be that:
➢ stipulated in writing
➢ itself earn legal interest from the time it is judicially demanded
➢ In the absence of stipulation, it 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)
2) With regard particularly to an award of interest in the concept of actual and

compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
❖ 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
➢ when or until the demand can be established with reasonable certainty
will interest be adjudged on unliquidated claims or damages
➔ demand is established with reasonable certainty - interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code)
➔ certainty cannot be so reasonably established at the time the
demand is made - 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.
3) When the judgment of the court awarding a sum of money becomes final and
executory
➔ the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
a forbearance of credit.
Issue 2: Whether the applicable rate of interest herein is 12% or 6%?
Ruling 2: Both rates apply. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.
Thus, the legal interest to be paid is 6% on the amount due computed from the decision of the
court a-quo. While a 12% interest shall be imposed on such amount upon finality of the
decision until the payment thereof.
✓Case 5: NACAR v. GALLERY FRAMES AND/OR FELIPE BORLEY, JR.
| G.R. No: 189871 |
Date: August 13, 2013 | Ponente: J. Peralta |
[TOPIC]: LOAN INTEREST
[SUB-TOPIC]: Interest Rate (Article 2209, Civil Code; Sec. 1, Usury Law)
DIGESTED BY: Earl Guen Padayao
CLASS HIGHLIGHT:
Rationale: The guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1ST CLASS OF TRANSACTIONS: 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 6% 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.
2ND CLASS OF TRANSACTIONS: 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.
3RD CLASS OF TRANSACTIONS: When the judgment of the court awarding a
sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.
DOCTRINE:
● Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 dated May 16, 2013
effective July 1, 2013, the pertinent portion of which reads:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract
as to such rate of interest, shall be six percent (6%) per annum.
● In the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per annum but will now
be six percent (6%) per annum effective July 1, 2013.
● PROSPECTIVE; NOT RETROACTIVE: It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively.
○ DATES AND RATES TO REMEMBER:
■ 12% per annum legal interest shall apply only until June 30, 2013
■ 6% per annum starts on July 1, 2013 → it shall be the prevailing rate of interest when
applicable
FACTS:
1998 → Dario Nacar filed a complaint for constructive dismissal against respondents Gallery Frames
(GF) and/or Felipe Bordey, Jr..
LABOR ARBITER → Said Nacar was dismissed from employment without a valid or just cause.
Respondents guilty of constructive dismissal and are therefore, ordered to pay:
● ₱62,986.56 his separation pay (for his 8 years and 1 month service)
● ₱95,933.36 his backwages (from January 24, 1997 to August 18, 1998)
(remember these dates and the amount)
NLRC → Dismissed the appeal of Gallery Frames. Including their MR.
CA → Respondents were denied. Including their MR.
SC → Denied the appeal of respondents. Ruled in favor of CA’s decision. → Referred it back to Labor
Arbiter → Respondents failed to attend the pre-execution conference.
2002 → Nacar filed for a Motion to Correct Computation → The Computation and Examination Unit of
the NLRC arrived at an updated amount in the sum of ₱471,320.31 → A writ of execution issued.
LABOR ARBITER → Received a Motion to Quash Writ of Execution from respondents →

arguing that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of
₱95,933.36, no more recomputation is required to be made of the said awards. They claimed that
after the decision becomes final and executory, the same cannot be altered or amended
anymore [notice this argument re the decision was final and executory already]. This was denied.
NLRC → Respondent’s appeal was granted. Ordering another recomputation.
2003 → Entry of judgement was issued → making NLRC’s decision final and executory.
Computation and Examination Unit → recomputed → where the judgment award of petitioner
was reassessed to be in the total amount of only ₱147,560.19
LABOR ARBITER → Issued an Alias Writ of Execution on October 15, 1998 to satisfy the
judgment award that was due to petitioner in the amount of ₱147,560.19 → this amount was eventually
received.
Petitioner then filed another Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests. [key fact]
LABOR ARBITER → granting the motion, but only up to the amount of ₱11,459.73 → reasoning that
the October 15, 1998 Decision should be enforced considering that it was the one that became final
and executory.
₱158,919.92 (computed until the promulgation of decision)

- ₱147,560.19 (already received)
₱11,459.73
NLRC → Petitioner appeal to NLRC. Denied. MR was also denied.
CA → denied appeal.
The decision consists essentially of two parts:
● The first is the finding of the illegality of the dismissal and the awards of separation
pay in lieu of reinstatement, backwages, attorney's fees, and legal interests. [That part
of the decision that cannot now be disputed because it has been confirmed with
finality]
● The second part is the computation of the awards made. [THIS IS THE ONLY ONE
DISCUSSED ON APPEAL]
In question herein is merely the computation of awards. The issue relevant to our study is
the payment of legal interest.
ISSUE: WON the computation of the legal interest by the Labor Arbiter was proper
RULING: NO. The computation should not just end until October 15, 1998. SC ruled that Nacar is
entitled to backwages computed from the date he was illegally dismissed up to the 2002 decision.
While the decision on the illegal dismissal attained finality on said date → the recomputation of the
consequences of illegal dismissal upon execution of the decision does not constitute an alteration or amendment
of the final decision being implemented.
Thus, interest must be pegged at twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013
until their full satisfaction. Thus, the Labor Arbiter should make another recomputation (yes, another one)
of the total monetary benefits awarded and due to the petitioner in accordance with this Decision.
Nota bene: The change of rate from 12% to 6% was due to the Bangko Sentral ng Pilipinas
Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013 effective July 1,
2013.
✓Case 6: Estores vs Sps. Arturo and Laura Supangan| G.R. No: 175139|
Date: April 18, 2012| Ponente: DEL CASTILLO, J.:|
[INTEREST]: [Interest Rate (Article 2209, Civil Code; Sec. 1, Usury Law) ]
DIGESTED BY: Mel Michelle Dawn Ramirez
Critique of Atty: There is a disconnect. At first saying, the imposition is discretionary using 2210. Then,
using 2209 it was a forbearance. Remember, 2209 and 2210 apply to different cases → check the discussion
of Lara’s Gifts.
NOTE: Estores’ rate is no longer good law. The BSP issued a new circular in 2013 → this case was
decided in 2012.
The only lesson we can learn from this is the possibility of imposing interest sans stipulation.
Article 2210 of the Civil Code expressly provides that "[i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract."
Article 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.

● Interest may be imposed even in the absence of stipulation in the contract.
● General rule: the applicable rate of interest “shall be computed in accordance with the
stipulation of the parties.”
● XPN: Absent any stipulation, the applicable rate of interest shall be 12% per annum “when
the obligation arises out of a loan or a forbearance of money, goods or credits.
● XPN to the XPN: In other cases, it shall be six percent (6%).” → no longer good law
Facts:
- October 3, 1993 → petitioner Estores and respondent-spouses Supangan entered into a
Conditional Deed of Sale → Petitioner offered to sell and respondent-sps offered to buy land for
the Php 4.7M.
- 7 years after → notwithstanding payment of Php3.5M, petitioner failed to comply with her
obligations under the deed’s paragraphs 4, 6, 7, 9, & 10 → so, in a letter, dated September 27,
2000, respondent-spouses demanded for the return of the Php3.5M within 15 days from
receipt of the letter.
- In a reply → petitioner promised to return the Php3.5M within 120 days → to which respondent-
spouses were amenable, provided an interest of 12% compounded annually shall be
imposed on the Php3.5M.
- Petitioner, however, still failed to make payments despite demands from the respondent-
spouses, the former filed a complaint before the RTC.
In case Sir asks lang: Obligations of petitioner which she failed to perform: (pars. 4, 6, 7,
9, & 10
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing
of the documents.
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses
[Magbago], said house shall be moved outside the perimeter of this subject property to
the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it
that such agreement is carried out before full payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration of the title
and the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or
downpayment, shall be applied. However, if the vendor fails to complete necessary documents
within thirty days without any sufficient reason, or without informing the vendee of its status,
vendee has the right to demand return of full amount of down payment.
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall
be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
Respondent-Spouses Petitioner
→ Demanded for the payment of Php3.5M + → answered that they are willing to pay the
12% interest compounded annually (starting Php3.5M but without interest as the same
October 1, 1993) → estimating to Php8,558,591.65 was not agreed upon.
& damages + attorney’s fee
RTC → respondent-spouses entitled to interest, but only 6% per annum and not 12 % starting
from October 1, 1993, & attorney’s fees.
CA → affirmed but modified the RTC, but the imposition must start to run only from September 27, 2000
which was when respondent-spouses formally demanded the return of their money and not from October
1993 when the contract was executed.
Petitioner’s Argument before SC Respondent-spouses Argument before SC

→ she’s not bound to pay interest on → it is only fair that interest be imposed on the amount
Php3.5M because the Conditional Deed of they paid considering that petitioner failed to return the
Sale only provided for the return for failure amount upon demand and had been using the ₱3.5 million
of obligations for her benefit.
Issue & Ruling:

1. WON the respondent-spouses are entitled to interest.
YES. Interest may be imposed even in the absence of stipulation in the contract.
The general rule is that the applicable rate of interest "shall be computed in
accordance with the stipulation of the parties."
→ Absent any stipulation, the applicable rate of interest shall be 12% per
annum "when the obligation arises out of a loan or a forbearance of money,
goods or credits.
→In other cases, it shall be six percent (6%)."
In this case, the parties did not stipulate as to the applicable rate of interest.
2. Absent any stipulation on interest, which interest rate should apply? 12% per
annum
Petitioner’s unwarranted withholding of the money amounts to forbearance of money

which can be considered as an involuntary loan, thus the applicable rate of interest
is 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under a subject to the provisions of Article 1169 of the Civil code.
As to the starting date of imposition: Since the date of demand which is September 27,
2000 was satisfactorily established during trial, then the interest rate of 12% should be
reckoned from said date of demand until the principal amount and the interest thereon is
fully satisfied.
As provided above, → Absent any stipulation, the applicable rate of interest shall be
12% per annum "when the obligation (1) arises out of a loan or (2) a forbearance of
money, goods or credits.
In this case, the Conditional Deed of Sale is clearly not a loan.
Forbearance of money, goods or credits , as ruled in Crismina Garments, Inc. vs

CA, should therefore refer to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending happening of
certain events or fulfillment of certain conditions.
In this case, the respondent-spouses parted with their money even before the conditions
were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner)
to use their money pending fulfillment of the conditions. They were deprived of the use of
their money for the period pending fulfillment of the conditions and when those conditions
were breached, they are entitled not only to the return of the principal amount paid, but
also to compensation for the use of their money. And the compensation for the use of their
money, absent any stipulation, should be the same rate of legal interest applicable to a
loan since the use or deprivation of funds is similar to a loan.
3. WON the attorney’s fees were proper. YES.
Under Article 2208 of the Civil Code, attorney’s fees may be recovered:
xxxx
(2) When the defendant’s act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation should be recovered.
Considering the circumstances of the instant case, we find respondent-spouses entitled to

recover attorney’s fees. There is no doubt that they were forced to litigate to protect their
interest, i.e., to recover their money. However, we find the amount of ₱50,000.00 more
appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the
award of attorney’s fees must always be reasonable.
✓Case 7: Advocates for Truth in Lending, Inc. & Olaguer v. Bangko Sentral Monetary
Board | G.R. No:G.R. No. 192986 |
Date:15 Jan. 2013 | Ponente: |
[TOPIC]: [SUB-TOPIC]:
DIGESTED BY: JOURNEY R. SEGALES
[CLASS HIGHLIGHT]
1) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905
YES. The BSP-MB has authority to enforce CB Circular No. 905. Clearly, there is no conflict
between the provisions of Act 2655 and R.A. No. 7653. Usury law or Act No. 2655, an earlier law,
is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it
as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 was
intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
2) BSP validly suspended usury law.
3) Central Bank (CB) Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply
suspended the latter’s effectivity; that a Central Bank(CB) Circular cannot repeal a law, for only a
law can repeal another law; that by virtue of CB Circular No.905, the Usury Law has been rendered
ineffective; and Usury Law has been legally non-existent in our jurisdiction.
4)
● Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-of
the Usury Law, as amended, the Bangko Sentralng Pilipinas Monetary Board (BSP-MB) may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forebearance
of any money, goods or credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit institutions.
○ Implied Repeals; Repeals by implication are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws existing pertaining to the subject.
● R.A. No. 7653, merely supplemented it as it concerns loans by banks and other financial
institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have
so stated in unequivocal terms.
Facts:
Advocates for Truth in Lending, Inc., (AFTIL) is a non-profit, non-stock corporation organized to engage
in pro bono concerns and activities relating to money lending issues.
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that they are raising issues of
transcendental importance to the public and so they filed Petition for Certiorari under Rule 65 ROC
seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central
Bank Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue enforcing
Central Bank Circular No. 905, issued by the CB-MB in 1982, which "suspended" the Usury Law of
1916 (Act No. 2655).
R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the CB-MB to, among
others, set the maximum interest rates which banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982. Section 1 of the
Circular, under its General Provisions, removed the ceilings on interest rates on loans or forbearance
of any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral
ng Pilipinas (BSP) to replace the CB.
AYAW IAPIL SA RECIT
DATE OF STATUTE/ PURPOSE EFFECT ON INTEREST RATE

ENACTMENT CIRCULAR
June 15, 1948 RA 265 Created Central Bank Empowered CB to set maximum interest rates which banks may
charge for all types of loans/credit transactions
March 17, 1980 P.D. 1684 Amended Usury Law Giving the CB-MB authority to prescribe different maximum rates
of interest which may be imposed for a loan or renewal thereof or
the forbeara
nce of any money, goods or credits, provided that the changes

are effected gradually and announced in advance
January 1, 1983 CB Circular Suspended Usury Law Removed the ceilings on interest rates on loans or forbearance of
No. 905 (Act No. 2655) any money, goods or credits
June 14, 1993 R.A. No. 7653 created the Bangko

Sentral ng Pilipinas
(BSP) to replace CB
Issue:
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or constitutional
authority to prescribe the maximum rates of interest for all kinds of credit transactions and forbearance of
money, goods or credit beyond the limits prescribed in the Usury Law;
2. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all
interest ceilings and thus suspended Act No. 2655 as regards usurious interest rates;
3. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905
Ruling:
Whether under R.A. No. 265 and P.D. No. 1684 the CB-MB had the statutory or constitutional
authority to prescribe the maximum rates of interest for all kinds of credit transactions and
forbearance of money, goods or credit beyond the limits prescribed in the Usury Law
YES, it has authority both under RA 265 and PD 1684.
Under RA 265
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may fix the maximum
rates of interest which banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of
interest which banks may charge for different types of loans and for any other credit operations, or
may fix the maximum differences which may exist between the interest or rediscount rates of the
Central Bank and the rates which the banks may charge their customers if the respective credit
documents are not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending operations
of the banks shall apply only to future operations and not to those made prior to the date on which
the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board
may also fix the maximum rates that banks may pay to or collect from their customers in the form of
commissions, discounts, charges, fees or payments of any sort.
Under PD 1684
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum
rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans
made by pawnshops, finance companies and other similar credit institutions although the rates
prescribed for these institutions need not necessarily be uniform. The Monetary Board is also
authorized to prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries.
If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed
all interest ceilings and thus suspended Act No. 2655 as regards usurious interest rates
NO, it did not exceed its authority. Mere suspension is well-within the power of the CB to effectively suspend
the Usury Law pursuant to P.D. No. 1684 → this has long been recognized and upheld in many cases.
As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No.
905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s
effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal another law;"
that "by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;" and
"Usury has been legally non-existent in our jurisdiction. Interest can now be charged as
lender and borrower may agree upon."
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the
parties’ freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the New
Civil Code, under which the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905
YES. The BSP-MB has authority to enforce CB Circular No. 905. Clearly, there is no conflict between
the provisions of Act 2655 and R.A. No. 7653. Usury law or Act No. 2655, an earlier law, is much broader
in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by
banks and other financial institutions. Had R.A. No. 7653 was intended to repeal Section 1-a of Act No.
2655, it would have so stated in unequivocal terms.
In relation to interest:
With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. 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.
2. 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)
○ 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.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable
rate, as follows:
● The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments involving such loan or forbearance of
money, goods, or credit
● The 6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application of both rates reckoned "from the time
the complaint was filed until the [adjudged] amount is fully paid."
In either instance, the reckoning period for the commencement of the running of the legal interest shall be
subject to the condition "that the courts are vested with discretion, depending on the equities of each
case, on the award of interest.
✓Case 8: People vs CA & Ambrosio Padilla | G.R. No: 88880 |
Date: April 30, 1991 | Ponente: GRIÑO-AQUINO, J. |
LOAN INTEREST: Remedies (Article 1413, Civil Code; Usury Law, Secs. 6-10)

● Unilateral increase w/o consent of Padilla invalid.
○ Here, there was an escalation clause but the requisites are missing → as there is NO LAW
which allows the increase.
● Article 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment.
● Art. 1956 of the Civil Code "no interest shall be due unless it has been expressly stipulated
in writing.”
Chika minute with Mary: Padilla applied for a credit line with PNB. PNB granted it, so Padilla
executed 3 documents in favor of PNB, all with stipulations that PNB may increase the interest
rate if the law imposes it or if they both agree. Before the credit line expired, Padilla was able to
renew it and requested PNB to increase the interest rate from 18% to 21% or 24%. PNB denied
the request and increased the interest to 32% effective at the time of the renewal. Then about 3
months after, it was increased to 41%. Then to 48% a month after that. Padilla protested that the
interest was excessive and not in accordance with law or their agreement. SC said Padilla is
correct. He should be refunded with his excess interest payments. 10 points to Gryffindor.
Facts:
July 1982 Padilla applied for, and was granted by PNB, a credit line of 321.8 million
● secured by a real estate mortgage,
● for a term of two (2) years,
● with 18% interest per annum.
Padilla executed in favor of the PNB;

● a Credit Agreement,
○ Which provided that the Padilla agreed to be bound to the
rules and regulations which the Bank may adopt in the future
● two (2) promissory notes in the amount of P900,000.00 each, and
○ Uniformly authorized the PNB to increase the stipulated 18%
interest “within the limits allowed by law at any time
depending on whatever policy it [PNB] may adopt in the
future “
● a Real Estate Mortgage Contract.
○ Provided that the the interest rate shall be subject to
increase as allowed by law
Note: basically, the three stipulated that PNB can increase the interest rate
as provided by law or as agreed between them.
June 20, 1984 PNB informed Padilla that his credit line P1.8 million will expire and the
conditions he has to meet to request for a renewal.
June 25, 1984 Padilla complied and paid PNB P540,000 (30% of P1.8 million) and
requested that "the balance of P1,260,000 be renewed for another period
of two (2) years under the same arrangement" and that "the increase of the
interest rate of my mortgage loan be from 18% to 21%"
July 18, 1984 Padilla reiterated in writing his request that "the increase in the interest rate
from 18% be fixed at 21% or 24%
August 10, 1984 PNB informed Padilla that his request cannot be granted because PNB’s
existing loan policies require 32% for loans over 1 year.
Note: the 32% was effective July pa
August 24, 1984 Padilla addressed a letter to PNB announcing that he was going to pay the
loan within a year from renewal so his request for the interest rate to be
fixes at 21% or 24% may be granted by PNB.
September 12, PNB informed Padilla that his request was denied and that the interest rate
1984 was adjusted to 41%.
September 24, Padilla registered his protest against the increase of interest rate.
1984
October 29, PNB further increased the interest rate to 48%.

1984
During the course of Padilla’s request, he paid PNB certain amounts until
his principal obligations was reduced to P300,000.
December 18, Padilla filed in the RTC a complaint against PNB alleging that the increased
1984 interest rates were illegal and that he be refunded the excess interest
payment collected.
RTC = dismissed Padilla’s complaint "to annul interest increases."

CA = reversed
Issue No. 1: May PNB unilaterally increase the stipulated interest rate?
Ruling: No.
FIRST, Section 2, PD. No. 116 of January 29, 1973 expressly provides that changes to interest
rate shall not be made more often than once every twelve months.
● In this case, PNB, over Padilla’s objection, and without authority from the Monetary Board,
within a period of only four (4) months, increased the 18% interest rate on the private
respondent’s loan obligation three (3) times:
(a) to 32% in July 1984;
(b) to 41% in October 1984; and
(c) to 48% in November 1984.
● Those increases were null and void, for if the Monetary Board itself was not authorized to
make such changes more than once a year, even less so may a bank which is subordinate
to the Board.
SECOND, Padilla agreed in the Deed of Real Estate Mortgage that the interest rate may be
increased during the life of the contract "to such increase within the rate allowed by law, as
the Board of Directors of the MORTGAGEE may prescribe" or "within the limits allowed by
law".
● No law was ever passed in July to November 1984 increasing the interest rates on loans
or renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed
and delivered by the debtor (Padilla) to effectuate the increases.
● Clearly, then, the agreement between the parties authorized the defendant bank to
increase the interest rate beyond the original rate of 18% per annum but ‘within the limits
allowed by law’ or ‘within the rate allowed by law’.
SC affirmed the CA’s decision, which:

● declared the questioned increases of interest as unreasonable, excessive and arbitrary
and
● ordered the defendant-appellee [PNB] to refund to the plaintiff-appellant the amount
of interest collected from July, 1984 in excess of twenty-four percent (24%) per annum
Issue No. 2: Did PNB violate the mutuality of contracts?
Ruling: Yes.
"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.
Hence, even assuming that the P1.8 million loan agreement between the PNB and the Padilla
gave the PNB a license (although in fact there was none) to increase the interest rate at will
during the term of the loan, that license would have been null and void for being violative of the
principle of mutuality essential in contracts.
It would have invested the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party’s (the debtor) participation being
reduced to the alternative "to take it or leave it". Such a contract is a veritable trap for the
weaker party whom the courts of justice must protect against abuse and imposition.
Case 9: Tio Khe Chio v. CA | G.R. No: 76101-02 |
Date: September 30, 1991 | Ponente: FERNAN, C.J.: |
[TOPIC]: INTEREST | [SUB-TOPIC]: REMEDIES
[MUBO RA KAAYO NI NGA CASE. Kulang nalang i-paste ra nako tanan dire haha]
Summary (own words / recit-ready):

Tio Khe Chio took out an insurance policy from EASCO (EASTERN ASSURANCE AND SURETY
CORPORATION) for his imported goods (which was fishmeal). When these goods arrived in
Manila, they were found to be damaged, so Tio Khe Chio filed for insurance claims from EASCO
and the shipping company [Far Eastern Shipping Company]. Both the insurance company and
shipping company refused to pay, and this prompted Tio Khe Chio to sue them. The trial court
rendered the insurance company and shipping company solidarily liable for the insurance
proceeds. The insurance policy was not fully paid yet when the claim was filed, so the court held
that the unpaid premiums be deducted from the insurance proceeds. The net proceeds be then
subjected to an interest at the legal rate from the filing of the complaint. The shipping company
appealed to the CA but the judgment became final upon EASCO. Upon writ of execution, the
sheriff fixed the legal interest rate at 12% per annum which Tio Khe Chio affirmed, invoking the
provisions in the Insurance Code. EASCO argued that it should only be 6% per cent under Article
2209 of the Civil Code.
Facts:
Parties:
PETITIONER RESPONDENT
Tio Khe Chio EASCO

➔ Importer of fishmeal ➔ Eastern Assurance and Surety
Corporation
➔ Insurer of the goods imported by Tio
Khe Chio
Far Eastern Shipping Company

➔ Owns the vessel where the imported
goods of Tio Khe Chio were onboarded
Antecedent:
December 18, 1978 Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30
from Agro Impex, U.S.A. Dallas, Texas, U.S.A
January 28, 1979 The goods reached Manila, and were found to have been damaged by
sea water which rendered the fishmeal useless.
Conflict Petitioner filed a claim with EASCO and Far Eastern Shipping but both
refused to pay. (The reason for refusal was not stated in the case.)
June 30, 1982 Trial Court ordered EASCO and Far Eastern Shipping to pay petitioner
(CFI decision) solidarily the following:
a) P105,986.68 less the amount of P18,387.86 for unpaid
premiums with interest at the legal rate from the filing of the
complaint
b) P15,000.00 as attorney's fees
c) costs
The Appeal Far Eastern shipping company appealed to the CA and was absolved
from liability by the said court.
The Trial Court issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve
(12%).
Respondent EASCO moved to quash the writ alleging that the legal
interest to be computed should be six (6%) per cent per annum in
accordance with Article 2209 of the Civil Code and not twelve (12%) per
cent as insisted upon by petitioner's counsel.
July 30, 1986 The trial court denied EASCO's motion.
July 30, 1986 The CA fixed the interest at 12% on the principal amount of P87,598.82
(CA decision) from the date of filing of the complaint until the full payment of the
amount, and the interest that the private respondent is entitled to collect
from the petitioner is hereby reduced to 6% per annum.
EASCO’s Argument before the SC:

The CA decision on the legal interest was:
1. unjust and unfair
2. contrary to the correct interpretation of the fixing of interest rates under Sections
243 and 244 of the Insurance Code.
3. Since the claims is based on an insurance contract, then it is the Insurance Code
which must govern and not the Civil Code
Issue:
What was the legal rate of interest to be imposed in actions for damages arising from
unpaid insurance claims? - 6% per annum
Ruling:
The legal rate of interest in the case at bar is six (6%) per annum. Art 2209 of the Civil Code
applies.
Reasons / basis:
1) The Court cited the cases of Philippine Rabbit Bus Lines, Inc. vs. Cruz and GSIS vs. Court
of Appeals.
Philippine Rabbit Bus Lines, Inc. vs. Cruz

RULING: The legal rate of interest is six (6%) per cent per annum, and not twelve (12%)
per cent, where a judgment award is based on an action for damages for personal
injury, not use or forbearance of money, goods or credit.
GSIS vs. Court of Appeals

RULING: The rates under the Usury Law (amended by P.D. 116) are applicable only to
interest by way of compensation for the use or forbearance of money. Interest by way of
damages is governed by Article 2209 of the Civil Code.
2) The provisions under the Insurance code apply only when the court finds an
unreasonable delay or refusal in the payment of the claims.
3) BSP Circular No. 416 was also not applicable BECAUSE the adjusted rate mentioned
herein refers only to loans or forbearances of money, goods or credits and court
judgments thereon but not to court judgments for damages arising from injury to
persons and loss of property which does not involve a loan.
4) The parties did not allege the rate of interest stipulated in the insurance contract.
Civil Code Insurance Code BSP Circular No. 416

This is the applicable law. The provisions under this code were NOT applicable to the
not pertinent to the instant case. They case because the
apply only when the court finds an adjusted rate mentioned
unreasonable delay or refusal in the herein refers only to
payment of the claims. loans or forbearances of
money, goods or credits
and court judgments
thereon but not to court
judgments for damages
arising from injury to
persons and loss of
property which does not
involve a loan.
Article 2209. Section 243. By virtue of the authority

If the obligation consists in The amount of any loss or damage for granted to it under
the payment of a sum of which an insurer may be liable, under Section 1 of Act No.
money, and the debtor any policy other than life insurance 2655, as amended,
incurs in delay, the policy, shall be paid within thirty days otherwise known as the
indemnity for damages, after proof of loss is received by the "Usury Law", the
there being no stipulation insurer and ascertainment of the loss Monetary Board, in its
to the contrary, shall be the or damage is made either by Resolution No. 1622
payment of the interest agreement between the insured and dated July 29, 1974, has
agreed upon, and in the the insurer or by arbitration; but if such prescribed that the rate
absence of stipulation, the ascertainment is not had or made of interest for the loan or
legal interest, which is 6% within sixty days after such receipt by forbearance of any
per annum. the insurer of the proof of loss, then money, goods or credits
the loss or damage shall be paid and the rate allowed in
within ninety days after such receipt. judgments, in the
Refusal or failure to pay the loss or absence of express
damage within the time prescribed contract as to such rate
herein will entitle the assured to of interest, shall be
collect interest on the proceeds of the twelve per cent (12%)
policy for the duration of the delay at per annum.
the rate of twice the ceiling prescribed
by the Monetary Board, unless such
failure or refusal to pay is based on
the ground that the claim is fraudulent.
Section 244
In case of any litigation for the
enforcement of any policy or contract
of insurance, it shall be the duty of the
Commissioner or the Court, as the
case may be, to make a finding as to
whether the payment of the claim of
the insured has been unreasonably
denied or withheld; and in the
affirmative case, the insurance
company shall be adjudged to pay
damages which shall consist of
attorney's fees and other expenses
incurred by the insured person by
reason of such undeniable denial or
withholding of payment plus interest of
twice the ceiling prescribed by the
Monetary Board of the amount of the
claim due the insured, from the date
following the time prescribed in
section 242 or in section 243, as the
case may be, until the claim is fully
satisfied; Provided, That the failure to
pay any such claim within the time
prescribed in said sections shall be
considered prima facie evidence of
unreasonable delay in payment.
Case 10: Pilipinas Bank vs. CA | G.R. No: 97873 |
Date: August 12, 1993 | Ponente: Quiason, J. |
[TOPIC]: Interest
[SUB-TOPIC]: CB Circular No. 416; Article 2209 NCC
DIGESTED BY: Rosette Elaine Tinguha
DOCTRINE:
● Central Bank Circular No. 416. By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, otherwise known as the "Usury Law" the Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the
loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall be twelve (12%) per
cent per annum.
➔ In fixing the rate of interest at 12% per annum, deals with
1. loans;
2. forbearance of any money, goods or credit; and
3. judgments.
● 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.
FACTS: Respondent filed a complaint against Pilipinas Bank and its President.
RESPONDENT CLAIMS PETITIONER CLAIMS
1. Petitioner and Greatland executed a 1. Admitted to the execution of Dacion en

Dacion en Pago Pago
➔ Greatland conveyed several parcels of
land in consideration of the sum of 2. Former president had no authority to
P7,776,335.69 enter into such agreement
2. Greatland assigned P2,300,000 from the 3. It never ratified the same

total consideration of the Dacion en Pago
in favor of private respondent 4. Assuming that the agreement was
binding, the conditions stipulated
3. Petitioner, in bad faith, refused and failed therein were never fulfilled.
to pay the said amount assigned to her.
RTC
● Ruled in favor of Lilia
● Petitioner appealed before the CA and, on the same day, Lilia filed a motion for execution
pending appeal which the RTC granted
Pilipinas Bank complied with the writ of execution pending appeal by issuing two manager’s
checks in the total amount of P5,517,707.00. The check payable was encashed.
CA
● Rendered a decision which modified the judgment of the trial court, reducing the amount to
be paid by Pilipinas Bank
● This was rendered final and executory.
Pilipinas Bank filed motion in the trial court praying for Lilia to refund to her excess payment of
P1,898,623.67 with interest at 6%.
On October 12, 1990, the Trial Court, while ordering the refund to Pilipinas Bank of the excess
payment, fixed the interest rate due on the amount of P2,300,000 at 12% per annum as proposed
by Lilia, instead of 6% per annum as proposed by Pilipinas Bank.
ISSUE 1: Whether or not the interest rate due on the amount of P2,300,000 should be 12%
per annum.
RULING 1: No, the applicable rate on the amount of P2,300,000 should be 6%.
Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with
4. loans;
5. forbearance of any money, goods or credit; and
6. judgments.
Judgments spoken of and referred to in Circular No. 416 are "judgments in litigation
involving loans or forbearance of any money, goods or credits. Any other kind of monetary
judgment which has nothing to do with nor involving loans or forbearance of any money,
goods or credits does not fall within the coverage of the said law for it is not, within the
ambit of the authority granted to the Central Bank."
The amount to be paid was a portion of the P7,776,335.69 which petitioner was obligated to pay
Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The
amount of P2,300,000.00 was assigned by Greatland in favor of private respondent. The said
obligation therefore arose from a contract of purchase and sale and not from a contract of
loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article
2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in
Circular No. 416.
ISSUE 2: Whether or not the amount to be refunded to Pilipinas bank at 6% per annum.
RULING: No, the amount to be refunded to Pilipinas Bank shall receive the interest of 6% per
annum.
Private respondent was paid in advance the amount of P5,517,707.00 by petitioner to the order
for the execution pending appeal of the judgment of the trial court. On appeal, the Court of
Appeals reduced the total damages to P3,619,083.33, leaving a balance of P1,898,623.67 to be
refunded by private respondent to petitioner.
In an execution pending appeal, funds are advanced by the losing party to the prevailing party
with the implied obligation of the latter to repay former, in case the appellate court cancels or
reduces the monetary award.
In the case before us, the excess amount ordered to refunded by private respondent falls
within the ruling in Viloria and Buiser that Circular No. 416 applies to cases where money
is transferred from one person to another and the obligation to return the same or a
portion thereof is subsequently adjudged.
✓Case 11: Sps. Almeda vs CA | G.R. No:113412 |
Date: April 17, 1996 | Ponente: Kapunan, J. |
[TOPIC]: LOAN [SUB-TOPIC]: INTEREST
DIGESTED BY: JP Antiquiera
DOCTRINE:
● Increase must be agreed at all times
○ If there is prior agreement that future increase is allowed, the rate of increase must
still be agreed in the future under the mutuality of contracts
○ If the escalation clauses which allow future increase are POTESTATIVE, it
becomes void.
● The escalation clause says that if the civil rate increases, the rate also increases. → This is valid,
because it is not potestative.
★ Any contract which appears to be heavily weighed in favor of one of the parties so as to
lead to an unconscionable result is void.
★ Escalation clauses are not basically wrong or legally objectionable so long as they are
not solely potestative but based on reasonable and valid grounds.
FACTS:
➢ In 1981, PNB granted petitioners Sps. Almeda several loan/credit accommodations
totaling P18M, payable in 6 years with an interest rate of 21% per annum.
➢ To secure the loan, petitioner sps. mortgaged their 3,500 sq.m. parcel of land together
with the building erected thereon (Marvin Plaza) located in Pasong Tamo, Makati, Metro
Manila.
➢ Between the years 1981 to 1984, petitioners partially paid the loan with a total of P
7,735,006.66.
➢ March 31, 1984: Respondent bank raised the interest to 28% pursuant to section III-c (1)
of its credit agreement despite petitioners protestations and increased even more up to
68% between March of 1984 to September 1986.
➢ Petitioners herein protested the increase of the interest rates but to no avail.
The loan agreement between PNB and Sps. Almeda
(c) interest and Charges
(1) The Bank reserves the right to increase the interest rate within the limits allowed by law at
any time depending on whatever policy it may adopt in the future; provided, that the interest rate
on this/these accommodations shall be correspondingly decreased in the event that the
applicable maximum interest rate is reduced by law or by the Monetary Board. In either case,
the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease of the maximum interest rate.
ISSUE: Whether or not respondent bank was authorized to raise its interest rates from 21%
to as high as 68% under the credit agreement?
RULING: NO.
An agreement between parties, to be binding, has two principles.
1. That any obligation arising from contract has the force of law between the parties;
2. That there must be mutuality between the parties based on their essential equality.
From the undisputed facts of the case, respondent bank unilaterally altered the terms of its
contract with petitioners by increasing the interest rates without petitioners consent. As
provided in Article 1956 of the Civil Code, “No interest shall be due unless it has been expressly
stipulated in writing."
In the present case, the agreement between the parties were only 21% interest rate, subject
to possible escalation or de-escalation, when:
1) the circumstances warrant such escalation or de-escalation;

2) within the limits allowed by law; and
3) upon agreement.
Respondent bank relied on C.B. Circular No. 905, Series of 1982. However, it does not
authorize any bank or any lending institution to progressively increase interest rates that would
enslave its borrowers or lead to a hemorrhaging of their assets as the credit agreement
specifically requires the increase be “within the limits allowed by law”. Escalation clauses in
credit agreements are valid but such clauses are still subject to laws and provisions
governing agreement between the parties.
Moreover, petitioners never agreed to pay the increased interest rates demanded by respondent
bank and the increase in interest rates from 18% to 68% is unreasonable, excessive and
unconscionable.
ISSUE 2: Whether or not respondent bank is granted the authority to foreclose the Marvin
Plaza under the mandatory foreclosure provisions of P.D. 385.
RULING 2: NO.
Respondent bank invoked PD No. 385, which prevents or delay the government’s collection of
their debts or loans. However, the automatic foreclosure provisions does not exempt them
from observing basic principles of law, and ordinary fairness and decency under the due
process clause of the Constitution.
In the present case, the exact amount of petitioners obligations could not yet be determined
because of the dispute regarding the increased interests. Therefore, the foreclosure
provisions of PD 385 could only be validly invoked after settlement of the question
involving interest rate on the loan is determined and only when the spouses refuse to
perform their obligations.
Case 12: Carpo vs. Chua
| G.R. Nos. 150773 & 153599 |
Date: September 30, 2005 | Ponente: Tinga
[TOPIC]: INTEREST | [SUB-TOPIC]: Remedies
DIGESTED BY: Kaye Villacrucis

❖ PRINCIPAL OBLI: Loan + Interest
ACCESSORY OBLI: Mortgage
If the interest is void → it does not affect the loan and mortgage
If the loan itself is void → it affects the accessory contract of mortgage
❖ A usurious loan transaction is not a complete nullity but defective only with respect to
the agreed interest.
❖ Since the mortgage contract derives its vitality from the validity of the principal obligation,
the invalid stipulation on interest rate is similarly insufficient to render void the ancillary
mortgage contract.
➢ In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is
the only one that is illegal.
● A LESSON FOR US DAW: One final note. The issue on the validity of the stipulated interest
rates, regrettably for petitioners, was not raised at the earliest possible opportunity. It should be
pointed out though that since an excessive stipulated interest rate may be void for being contrary to
public policy, an action to annul said interest rate does not prescribe. Such indeed is the remedy; it
is not the action for annulment of the ancillary real estate mortgage. Despite the nullity of the
stipulated interest rate, the principal loan obligation subsists, and along with it the mortgage that
serves as collateral security for it.
Facts:
Spouses David B. Carpo and Rechilda S. Carpo - Petitioner / Borrower / Mortgagor
Eleanor Chua and Elma Dy Ng - Respondents / Lender / Mortgagee
July 18, 1995 - Petitioner borrowed from Respondent the amount of Php 175,000, payable
within six (6) months with an interest rate of six percent (6%) per month.
◆ To secure the payment of the loan, petitioners mortgaged their residential house
and lot covered by Transfer Certificate of Title (TCT) No. 23180.
➔ Petitioners failed to pay the loan upon demand.
➔ July 8, 1996 - Consequently, the real estate mortgage was extrajudicially foreclosed and
the mortgaged property sold at a public auction.
◆ The house and lot was awarded to respondents, who were the only bidders, for the
amount of Php 367,457.80
➔ September 5, 1997 - a certificate of sale was issue since petitioner failed to exercise their
right of redemption
➔ TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was issued in the name of
respondents.
➔ Petitioner still continues to occupy the said house and lot
Proceeding of the Case:

➔ Respondents filed a petition for writ of possession with RTC. March 23, 1999 - RTC issued
an Order for the issuance of a writ of possession
Civil Case No. 99-4376 SP No. 98-1665

➔ petitioners filed a complaint for ➔ a temporary restraining order was
annulment of real estate mortgage and issued upon motion on 3 August 1999,
the consequent foreclosure enjoining the enforcement of the writ of
proceedings possession
RTC - dismissed the case RTC - dismissed the case
➔ on the ground that it was filed out of ➔ it was the ministerial duty of the lower
time and barred by laches. court to issue the writ of possession
➔ complaint was one for annulment of a when title over the mortgaged property
voidable contract and thus barred by had been consolidated in the
the four-year prescriptive period. mortgagee.
Hence, the first petition for review now
under consideration was filed with this
Court, assailing the dismissal of the
complaint.
This Court ordered the consolidation of the two cases, on motion of petitioners.
G.R. No. 150773 G.R. No. 153599

(main issue jud sa case in re: Interest)
Petitioners claim that following the Court's Petitioners argue in that the RTC did not
ruling in Medel v. Court of Appeals the rate of commit any grave abuse of discretion when it
interest stipulated in the principal loan issued the orders.
agreement is clearly null and void.
Issue:
1. Whether or not the rate of interest stipulated in the principal loan agreement is null and
void? - YES
2. Whether or not the nullity of the agreed interest rate affects the validity of the real estate
mortgage? - NO
Ruling:
1. The interest rate stipulated is invalid.
In a long line of cases, this Court has invalidated similar stipulations on interest rates for being
excessive, iniquitous, unconscionable and exorbitant.
➔ Solangon v. Salazar - we annulled the stipulation of 6% per month or 72% per annum
interest on a P60,000.00 loan.
➔ Imperial v. Jaucian - we reduced the interest rate from 16% to 1.167% per month or 14%
per annum.
➔ Ruiz v. Court of Appeals - we equitably reduced the agreed 3% per month or 36% per
annum interest to 1% per month or 12% per annum interest.
➔ Cuaton v. Salud - The 10% and 8% interest rates per month on a P1,000,000.00 loan
were reduced to 12% per annum in.
➔ Arrofo v. Quino- reduced the 7% interest per month on a P15,000.00 loan amounting to
84% interest per annum to 18% per annum.
From that perspective, it is apparent that the stipulated interest in the subject loan is excessive,
iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied
in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. In the ordinary course, the codal provision may be
invoked to annul the excessive stipulated interest.
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the
standards set in the above-cited cases, this stipulation is similarly invalid.
2. The invalidity of the interest rate does not affect the validity or the real estate mortgage.
In Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the
stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per
annum. The same remedial approach to the wrongful interest rates involved was employed or
affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
In this case, the Court's wholehearted affirmation of the rule that the principal obligation subsists
despite the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all
of which the main obligation was upheld and the offending interest rate merely corrected. Hence,
it is clear and settled that the principal loan obligation still stands and remains valid. By the same
token, since the mortgage contract derives its vitality from the validity of the principal
obligation, the invalid stipulation on interest rate is similarly insufficient to render void the
ancillary mortgage contract.
NOTES with Usury Law:

- Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the
borrower the money actually loaned to and enjoyed by the latter.
- Usury Law did not provide for the forfeiture of the capital in favor of the debtor in usurious
contracts, and that while the forfeiture might appear to be convenient as a drastic measure
to eradicate the evil of usury, the legal question involved should not be resolved on the
basis of convenience.
- when a contract is found to be tainted with usury "the only right of the respondent
(creditor) . . . was merely to collect the amount of the loan, plus interest due thereon."
Discussion on UNDUE INFLUENCE

There is ultimately no showing that petitioners' consent to the loan and mortgage agreements was
vitiated by undue influence. The financial condition of petitioners may have motivated them to
contract with respondents, but undue influence cannot be attributed to respondents simply
because they had lent money.
➔ Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the
right to obtain the annulment of contract on account of factors which vitiate consent. Article
1337 defines the concept of undue influence, as follows:
◆ There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must be proven that there is deprivation
of their free agency. In other words, for undue influence to be present, the influence exerted must
have so overpowered or subjugated the mind of a contracting party as to destroy his free agency,
making him express the will of another rather than his own. The alleged lingering financial woes of
petitioners per se cannot be equated with the presence of undue influence.
The RTC had likewise concluded that petitioners were barred by laches from assailing the validity
of the real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their
consent to the agreement, they should have raised this issue as early as in the foreclosure
proceedings. It was only when the writ of possession was issued did petitioners challenge the
stipulations in the loan contract in their action for annulment of mortgage. Evidently, petitioners
slept on their rights.
✓Case 13: LARA’S GIFTS AND DECORS, INC. v. MIDTOWN INDUSTRIAL SALES
| G.R. No: 225433 |
Date: August 28, 2019 | Ponente: J. Carpio
[TOPIC]: INTERESTS
[SUB-TOPIC]: 24% Interest, unconscionable or not?
DIGESTED BY: Earl Guen Padayao
✍️SUMMARIZES THE REFINED SET OF RULES RE COMPENSATORY INTERESTS (GO TO

BACK TO THIS ANA SI SIR)

● If the rate of interest is stipulated, such stipulated interest shall apply and not the legal
interest, provided the stipulated interest is not excessive and unconscionable. The
stipulated interest shall be applied until full payment of the obligation because that is the
law between the parties. The legal interest only applies in the absence of stipulated
interest.
● However, interest rates, whenever unconscionable, may be equitably reduced or even

invalidated. In several cases, this Court had declared as null and void stipulations on
interest and charges that were found excessive, iniquitous and unconscionable.
● The legal interest only applies in the absence of stipulated interest. This is in accord with
Article 2209 of the Civil Code, which states:
○ 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 percent per annum.
● Art. 2209 → SC applied this article in this case → limited it ONLY to loans or forbearance of
money, goods, or credits where there is a debtor-creditor relationship.
2209 2210 2211
Mandatory Discretionary Discretionary
Article 2209. If the obligation Art. 2210. Interest may, in the Art. 2211. In crimes and
consists in the payment of a discretion of the court, be quasi-delicts, interest as a
sum of money, and the debtor
incurs in delay, the indemnity allowed upon damages part of the damages may, in a
for damages, there being no awarded for breach of proper case, be adjudicated in
stipulation to the contrary,
contract. the discretion of the court.
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.
Nota bene: The legal interest

referred to in Article 2209 of
the Civil Code is now 6% per
annum (not 12% anymore) or
as may be fixed by the
Monetary Board of the Bangko
Sentral ng Pilipinas pursuant
to the Usury Law, as amended
by PD116.
Is applicable only to loans or Articles 2210 and 2211 of the Civil Code Apply to Obligations
forbearance of money, goods Other Than Loans or Forbearance of Money, Goods or Credits
or credit which arise out of Articles 2210 and 2211 refer to obligations that do not involve
"obligations consisting in the the payment of a sum of money and there is no debtor-
payment of a sum of money, creditor relationship.
and the debtor incurs in
delay," and thus where there is Under these articles, when the obligation, other than loans or
a debtor-creditor forbearance of money, goods or credits, is breached, the court
relationship. may in its discretion impose an interest on the damages
awarded. The interest imposed in the discretion of the court will
be the prevailing legal interest prescribed by the Bangko
Sentral ng Pilipinas.
Facts:
● Petitioner Lara's Gifts & Decors, Inc. is engaged in the business of manufacturing,
selling, and exporting handicraft products.
● Respondent Midtown Industrial Sales, Inc. (respondent) is engaged in the business of
selling industrial and construction materials, and petitioner is one of respondent's
customers.
● TRANSACTION: From January 2007 up to December 2007, petitioner purchased from
respondent various industrial and construction materials in the total amount of
P1,263,104.22.
○ The purchases were on a sixty (60)-day credit term, with the condition that 24%
interest per annum would be charged on all accounts overdue, as stated in the
sales invoices. Petitioner paid for its purchases by issuing several Chinabank
postdated checks in favor of respondent.
○ Supported by the sales invoices and postdated checks
● However, when respondent deposited the Chinabank checks on their maturity dates, the
checks bounced.
● After repeated demands from respondent, petitioner replaced the bounced checks with
new postdated Export and Industry Bank checks.
○ Checks were likewise dishonored for being "Drawn Against Insufficient Funds," and
subsequently, for "Account Closed."
○ Respondent sent a demand letter dated 21 January 2008, which was received by
petitioner on 22 January 2008, informing petitioner of the bounced checks and
demanding that petitioner settle its accounts.
○ Still petitioner failed to pay.
● COLLECTION CASE WAS FILED: Respondent to file on 5 February 2008 a Complaint
for Sum of Money with Prayer for Attachment against petitioner.
Insofar as interest is concerned, the following findings of the lower courts are relevant:
● RTC → The trial court also held that the stipulated 24% interest per annum on overdue accounts is
not unconscionable.
● CA → Upheld RTC’s decision. Petitioner could not have been cheated or misled into
agreeing to the 24% interest rate per annum that was stated in the sales invoices.
Petitioner, an established company with numerous transactions with respondent prior to
the purchases made in 2007, could have negotiated with respondent for more favorable
terms.
Issue: WON the 24% per annum interest stipulated is binding on petitioner
Ruling: YES, the stipulated 24% interest per annum is binding on petitioner. The petitioner herein
has been doing business since 1990 and has been purchasing various materials from
respondent since 2004, cannot claim to have been misled into agreeing to the 24% interest rate
which was expressly stated in the sales invoices. Besides, this Court has already ruled in several
cases that an interest rate of 24% per annum agreed upon between the parties is valid and
binding and not excessive and unconscionable.
In a previous case, Asian Construction and Development Corporation v. Cathay Pacific

Steel Corporation:
● The Court upheld the validity of interest rate fixed at 24% per annum that was expressly
stipulated in the sales invoices. The Court held that petitioner construction company is
presumed to have full knowledge of the terms and conditions of the contract and that by
not objecting to the stipulations in the sales invoice, it also bound itself to pay not only the
stated selling price but also the interest of 24% per annum on overdue accounts and the
25% of the unpaid invoice for attorney's fees.
SC COMPUTATION:
On the 24% per annum to be This case involves a forbearance of credit

principal computed from 22 January wherein petitioner was granted a 60-day
amount + 2008, the date of extrajudicial credit term on its purchases, with the
stipulated demand, until full payment. condition that a 24% interest per annum
interest would be charged on all accounts overdue.
Since there was an extrajudicial demand

before the complaint was filed, interest on
the amount due begins to run not from the
filing of the complaint but from the date of
such extrajudicial demand.
Thus, the unpaid principal obligation of

P1,263,104.22 shall earn the stipulated
interest of 24% per annum from the date of
extrajudicial demand on 22 January 2008
until full payment.
Legal interest Legal interest on the 24% Furthermore, in accordance with Article
(interest on per annum interest due on 2212 of the Civil Code, the 24% interest per
interest) the principal amount accruing annum due on the principal amount
as of judicial demand, at the accruing as of the judicial demand shall
rate of 12% per annum from earn legal interest at the rate of 12% per
the date of judicial demand on annum from the date of judicial demand on
5 February 2008 until 30 June 5 February 2008 until 30 June 2013, and
2013, and thereafter at the thereafter at the rate of 6% per annum from
rate of 6% per annum from 1 1 July 2013 until full payment.
July 2013 until full payment.
From the date of judicial demand on 5
February 2008 until 30 June 2013, the
prevailing rate of legal interest was 12% per
annum. The 6% per annum legal interest
prescribed under BSP-MB Circular No. 799
took effect on 1 July 2013 and could only be
applied prospectively.
Atty’s Fees + P50,000.00) as attorney's The P50,000.00 attorney's fees shall also
interest fees, plus legal interest earn legal interest at the rate of 6% per
thereon at the rate of 6% per annum from the finality of this Decision until
annum to be computed from full payment.
the finality of this Decision
until full payment

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Case: Title (sample) | G.R. No: |

Doctrine (Simplified Take away):

NOTE: Please paste in order. Base it on the syllabus.

Re topic and sub-topic; sample:

TOPIC: General Principles

Looking for the Tracker?

Doctrine (Simplified Take away):

ART. 1934. An accepted promise to deliver something, by way of commodatum or

Recalling the facts:

Doctrine (Simplified Take away):

December 8, Spouses executed a Deed of Sale with Mortgage in favor of Petitioner

June 10, 1968 PBC applied for the foreclosure of mortgage

Thereafter, offers from Petitioner Honesto to repurchase the property had

Sep. 4, 1968 The property mortgaged was foreclosed

Petitioner sighted the following grounds:

Defendant Bank’s defenses:

Thereafter, Raoul S.V. Bonnevie filed a motion of intervention on the

March 29, The lower court dismissed the complaint

No, it does not lack consideration.

3. WON petitioners had a right to redeem the foreclosed property.

Doctrine (Simplified Take away):

Summary: We are looking at 3 banks and multiple loans

-Rose Packing took loans from 3 banks:

Banks Transaction made by Rose Packing:

-PCIB (secured by real estate mortgage) - loan of P300k; no money released

Respondent PCIB approved additional accommodations to petitioner consisting of a P710,000.00

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

Issue 2: Is there consideration for the loan herein?

Perfected Consentual Contract: March 31, 1981

Doctrine (Simplified Take away):

Frank Roa obtained a loan from Ayala Investment and Development

August 13, A notice of sheriff’s sale was published.

Hence, applying the effects of legal compensation, the balance of ₱35,648.23

Issue 1: Is this CONTRACT OF LOAN a CONSENSUAL CONTRACT?

Ruling: There is a PERFECTED CONSENSUAL CONTRACT. A loan contract is not a

Social Security System vs. Court of Appeals, 120 SCRA 707:

Doctrine (Simplified Take away):

Thereafter, Garcia received the following from Thio every month

March 24, 1995 - US$3,0006

(NOTE: lahi2x jud syag currencies)

Thio received from Garcia another crossed check.

Thereafter, petitioner received the following from respondent every

NOTE: For both loans, no promissory note was executed since

RTC Ruled in favor of Garcia (petitioner).

Subject Is the Ratio

Although respondent (Thio) did not

Supporting facts to this conclusion:

Monthly interest of 3% and 4% No There was no written proof of the interest

The interest due shall itself earn legal

In the absence of stipulation, the rate of

(NOTE: There must be a judicial or

Respondent is liable for the payment of

RULING: NO, there was no breach on the part of AMEX.

1) that the obligation There is no demandable obligation.

The reservation is found in the card membership agreement itself,

There is no culpable delay in performance.

The delays were merely to ensure Pantaleon’s own protection as a

Is AMEX is guilty of culpable delay

Was there unreasonable delay in the processing of payments?

Is Pantaleon is entitled to damages.

✓Case 1: Republic vs Bagtas | G.R. No:L-17474 |