State Investment House, Inc. v.

CA
GR No. 90676 June 19, 1991

Facts: Private respondents Spouses Rafael & Refugia Aquino pledged certain shares of
stock to petitioner to secure a loan. Prior to the execution of such pledge, respondents,
agreed with the petitioner for the latter's purchase of receivables from Spouses Jose and
Marcelina Aquino. Respondent spouses paid their loan partly from their own money and
from the proceeds of a new loan secured by the same pledge. Upon maturity of the new
loan, petitioner demanded payment. Respondents expressed willingness to pay requesting
that upon payment the shares of stocks pledged be released. Petitioner denied the request
on the ground that the loan extended to Jose & Marcelina had remained. Respondent sued
the petitioner. The trial judge ruled in their favor. During execution, the petitioner
refused to accept payment demanding that interests be paid.

Issue: Are the respondents liable for payment of interest even without mora? If they are
liable, on what rate should the interests be?

Held: On the first issue, yes. The respondents may not be in default in view of their
expressed willingness to pay the same upon demand and the refusal of the petitioner to
accept. However, their tender of payment should have been properly consigned with the
court. On the second issue, since respondent spouses were held not to have been in delay,
they were properly liable only for the principal of the loan and the stipulated regular or
monetary interest of 17% per annum. They were not liable for penalty or compensatory
interest, fixed by the promissory note in Account No. IF-82-0904-AA at two percent (2%)
per month or twenty-four (24%) per annum. It must be stressed that the appropriate
measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum or money, is the payment of penalty interest at the rate agreed upon;
and in the absence of a stipulation of a particular rate of penalty interest, then the
payment of additional interest at a rate equal to the regular monetary interest; and if no
regular interest had been agreed upon, then payment of legal interest or six percent
(6%)per annum, or in the case of loans or forbearances of money, 12 % per annum as
provided for in Central Bank Circular No. 416.

BOBIE ROSE FRIAS (REPRESENTED BY MARIE FUJITA) VS. FLORA SAN DIEGO-
SISON (J. AUSTRIA-MARTINEZ, 2007)

FACTS:

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Bobie Rose Frias, owner of a house in Ayala Alabang and Dra. Flora San Diego-Sison
entered into a Memorandum of Agreement on December 7, 1990, for the aforementioned
property for the sum of PHP 3 million, after which Dra. Sison has 6 months from the date
of the contracts execution to notify Frias of her intention to purchase the house and lot
for PHP 6.4 million. Upon notification, Dra Sison has another 6 months within which to pay
the remaining PHP 3.4 million. Other stipulations are as follows:

2. That prior to the six months period given to the SECOND PARTY within which to
decide whether or not to purchase the above-mentioned property, the FIRST
PARTY may still offer the said property to other persons who may be interested to
buy the same provided that the amount of P3,000,000.00 given to the FIRST
PARTY (Frias) BY THE SECOND PARTY (Sison) shall be paid to the latter
including interest based on prevailing compounded bank interest plus the amount
of the sale in excess of P7,000,000.00 should the property be sold at a price
more than P7 million.

3. That in case the FIRST PARTY (Frias) has no other buyer within the first
six months from the execution of this contract, no interest shall be charged
by the SECOND PARTY (Sison) on the P3 million however, in the event that on
the sixth month the SECOND PARTY (Sison) would decide not to purchase the
aforementioned property, the FIRST PARTY (Frias) has a period of another six
months within which to pay the sum of P3 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
(Sison) 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.

Frias received PHP 2 million in cash and PHP 1 million in a post-dated check dated Feb. 28,
1990 (instead of 1991) after which she gave to Sison the TCT in the name of the real
estate developer, as well as the Deed of Absolute Sale between Frias and the real estate
developer. Respondent eventually decided not to purchase the property and told Frias
through a letter sent on March 20, 1991 (which Frias received on June 11, 1991, six months
after the MOA signing) reminding Frias that the 2 million received by Frias should be
considered as a loan payable in 6 months. Frias then failed to pay Sison the amount.

Sison went to RTC Manila for her complant, alleging the facts above as well as Frias
attempt to deprive her of the loans security by executing an affidavit of loss for the TCT
on June 3, 1991. RTC Manila issued a decision on Jan. 31, 1996, and found that Frias was
under the obligation to pay Sison PHP 2 million plus compounded interest pursuant to their
MOA, and ordered Frias to pay Sison the PHP 2 million plus 32% interest per annum
starting from December 7, 1991 (expiration of the 6+6 month period given) until paid.

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Frias appealed to the CA, which decided on June 18, 2002 to reduce the rate of interest
from 32% to 25% per annum, effective from June 7, 1991 until fully paid. The CA argued
that there was no basis for Frias stating that the loan should stay in the 6-month period
only. Also, the CA stated that a loan should always bear interest otherwise it is not a loan,
and that the interest should commence from June 7, 1991 but must be pegged to 25% only.

ISSUES:

WON compounded interest should be limited to 6 months as per MOA. NO. CA decision
upheld.

HELD:

Frias contends that the MOA provides that if Sison decides not to purchase the property,
Frias has another 6 months to pay only, as stated in the third paragraph of the MOA.

The SC, however, agrees with the CA in its interpretation of the six-month period only
clause: the first 6 months will not be charged with interest while Sison makes up her mind,
while the second set of 6 months will already be charged with interest since by that time,
Sison will have expressed her decision to not buy the property, in which case Frias is
bound to return it to her with interest (as it will be similar to a loan). There is nothing
stated in the agreement that limits the interest that will be charged against Frias.

Considering that by the second 6-month period, it was expected for Frias to turn over the
2 million over to Sison, but she failed to do so. In turn, the SC states that, as discussed in
State Investment House vs. CA, as the debtor continues to be in possession of the
principal of the loan (and therefore take advantage of possession of the principal to enrich
oneself), it would be unjust to not charge the price of such an advantage. As the payment
of interest constitutes the price of the use of money, until the principal is returned in full
to the owner of the money (in this case, Sison), the debtor Frias regular interest will
continue to accrue while Frias is in possession of the principal.

DISPOSITIVE: CA Decision Affirmed, with Modification of Deletion of Attorneys Fees.

CHING vs. NICDAO

G.R. No. 141181 April 27, 2007

Facts:
Nicdao was charged eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22.
MTC found her of guilty of said offenses. RTC affirmed.

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Nicdao filed an appeal to the Court of Appeals. CA reversed the decision and acquitted
accused.
Ching is now appealing the civil aspect of the case to the Supreme Court.

Ching vigorously argues that notwithstanding respondent Nicdaos acquittal by the CA, the
Supreme Court has the jurisdiction and authority to resolve and rule on her civil liability.
He anchors his contention on Rule 111, Sec 1B: The criminal action for violation of Batas
Pambansa Blg. 22 shall be deemed to necessarily include the corresponding civil action, and
no reservation to file such civil action separately shall be allowed or recognized. Moreover,
under the above-quoted provision, the criminal action for violation of BP 22 necessarily
includes the corresponding civil action, which is the recovery of the amount of the
dishonored check representing the civil obligation of the drawer to the payee.
Nicdaos defense: Sec 2 of Rule 111 Except in the cases provided for in Section 3
hereof, after the criminal action has been commenced, the civil action which has been
reserved cannot be instituted until final judgment in the criminal action. Accdg to her,
CAs decision is equivalent to a finding that the facts upon which her civil liability may
arise do not exist. The instant petition, which seeks to enforce her civil liability based on
the eleven (11) checks, is thus allegedly already barred by the final and executory decision
acquitting her.

Issue:
1. WON Ching may appeal the civil aspect of the case within the reglementary period? YES
2. WON Nicdao civilly liable? NO.

Held:
1. Ching is entitled to appeal the civil aspect of the case within the reglementary period.
Every person criminally liable for a felony is also civilly liable. Extinction of the penal
action does not carry with it extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil might arise did not exist.

Petitioner Ching correctly argued that he, as the offended party, may appeal the civil
aspect of the case notwithstanding respondent Nicdaos acquittal by the CA. The civil
action was impliedly instituted with the criminal action since he did not reserve his right to
institute it separately nor did he institute the civil action prior to the criminal action.
If the accused is acquitted on reasonable doubt but the court renders judgment on the
civil aspect of the criminal case, the prosecution cannot appeal from the judgment of
acquittal as it would place the accused in double jeopardy. However, the aggrieved party,
the offended party or the accused or both may appeal from the judgment on the civil
aspect of the case within the period therefor.

GENERAL RULE:
Civil liability is not extinguished by acquittal:

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1. where the acquittal is based on reasonable doubt;
2. where the court expressly declares that the liability of the accused is not criminal but
only civil in nature; and
3. where the civil liability is not derived from or based on the criminal act of which the
accused is acquitted.

2. A painstaking review of the case leads to the conclusion that respondent Nicdaos
acquittal likewise carried with it the extinction of the action to enforce her civil liability.
There is simply no basis to hold respondent Nicdao civilly liable to petitioner Ching.
CAs acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is
based on the finding that she did not commit the act penalized under BP 22. In particular,
the CA found that the P20,000,000.00 check was a stolen check which was never issued
nor delivered by respondent Nicdao to petitioner Ching.
CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the CA explicitly
stated that she had already fully paid her obligations. The finding relative to the
P20,000,000.00 check that it was a stolen check necessarily absolved respondent Nicdao
of any civil liability thereon as well.
Under the circumstances which have just been discussed lengthily, such acquittal carried
with it the extinction of her civil liability as well.

Radiowealth Finance Company v. Del Rosario

G.R. No. 138739 July 6, 2000

Lessons Applicable: Demurrer to Evidence, Promissory Note, When Demandable, Penalty,

Interest (Credit Transactions)

Laws Applicable: Rule 33 of the 1997 Rules of Court (Civil Procedure)

FACTS:
March 2, 1991: Spouses Vicente and Maria Sumilang del Rosario jointly and severally
executed, signed and delivered in favor of Radiowealth Finance Company a Promissory Note
for P138,948 without need of notice or demand, in instalments of P11,579.00 payable for
12 consecutive months leaving the period for the instalments blank. Upon default, the late
payment, 2.5% penalty charge per month shall be added to each unpaid installment from
due date thereof until fully paid.
June 7, 1993: Radiowealth filed a complaint for the collection of a sum of money
before the Regional Trial Court of Manila. During the trial, Jasmer Famatico, the credit
and collection officer of Radiowealth, presented in evidence the Spouses check payments,
the demand letter dated July 12, 1991, Spouses customers ledger card, another demand
letter and Metropolitan Bank dishonor slips. Famatico admitted that he did not have
personal knowledge of the transaction or the execution of any of these pieces of

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documentary evidence, which had merely been endorsed to him.
July 29, 1994: Spouses filed a Demurrer to Evidence for alleged lack of cause of action
RTC: Dismissed for Radiowealths failure to substantiate the claims, the evidence it
had presented being merely hearsay
CA: reversed and remanded the case for further proceedings
o During the pretrial, through judicial admissions or the spouses admitted the
genuineness of the Promissory Note and demand letter dated July 12, 1991. Their only
defense was the absence of an agreement on when the installment payments were to begin
ISSUES:
1. W/N the spouses can still present evidence after the appellate courts reversal of the
dismissal on demurer of evidence (Civil Procedure)
2. W/N the obligation is due and demandable (Credit Transaction)

HELD: Petition is GRANTED. Appealed Decision is MODIFIED. Ordered to PAY P138,948,

plus 2.5 percent penalty charge per month beginning April 2, 1991 until fully paid, and 10
percent of the amount due as attorneys fees.

1. NO.
Rule 33 of the 1997 Rules
o SECTION 1. Demurrer to evidence.After the plaintiff has completed the
presentation of his evidence, the defendant may move for dismissal on the ground that
upon the facts and the law the plaintiff has shown no right to relief. If his motion is
denied, he shall have the right to present evidence. If the motion is granted but on appeal
the order of dismissal is reversed he shall be deemed to have waived the right to present
evidence.
Defendants who present a demurrer to the plaintiffs evidence retain the right to
present their own evidence, if the trial court disagrees with them; if the trial court
agrees with them, but on appeal, the appellate court disagrees with both of them and
reverses the dismissal order, the defendants lose the right to present their own evidence
The appellate court shall resolve the case and render judgment on the merits, inasmuch
as a demurrer aims to discourage prolonged litigations

2. Yes.
The act of leaving blank the due date of the first installment did NOT necessarily
mean that the debtors were allowed to pay as and when they could. While the specific
date on which each installment would be due was left blank, the Note clearly provided that
each installment should be payable each month. It also provided for an acceleration clause
and a late payment penalty, both of which showed the intention of the parties that the
installments should be paid at a definite date. Per the acceleration clause, the whole debt
became due one month (April 2, 1991) after the date of the Note because the check
representing their first installment bounced.
Respondents started paying installments on the Promissory Note, even if the checks

6
were dishonored by their drawee bank.
The Note already stipulated a late payment penalty of 2.5 percent monthly to be added
to each unpaid installment until fully paid. Payment of interest was not expressly
stipulated in the Note. Thus, it should be deemed included in such penalty. Liquidated
damages, however, should no longer be imposed for being unconscionable. Such damages
should also be deemed included in the 2.5 percent monthly penalty. Furthermore, we hold
that petitioner is entitled to attorneys fees, but only in a sum equal to 10 percent of the
amount due which we deem reasonable under the proven facts

Facts: Respondent filed a complaint for sum of money against petitioner. Respondent
claimed that petitioner approached her inside the PNO and offered to loan her the amount
of P540,000.00 of which the loan agreement was not reduced in writing and there was no
stipulation as to the payment of interest for the loan. Respondent issued a check
worth P500,000.00 to petitioner as partial payment of the loan. She then issued another
check in the amount of P200,000.00 to petitioner as payment of the remaining balance of
the loan of which the excess amount of P160,000.00 would be applied as interest for the
loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay
additional interest and threatened to block or disapprove her transactions with the PNO if
she would not comply with his demand. Thus, she paid additional amounts in cash and
checks as interests for the loan. She asked petitioner for receipt for the payments but
was told that it was not necessary as there was mutual trust and confidence between
them. According to her computation, the total amount she paid to petitioner for the loan
and interest accumulated to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the excess amount to the
former. It ratiocinated that respondents obligation was only to pay the loaned amount
of P540,000.00, and that the alleged interests due should not be included in the
computation of respondents total monetary debt because there was no agreement
between them regarding payment of interest. It concluded that since respondent made an
excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner
should return the said amount to respondent pursuant to the principle of solutio indebiti.
Also, petitioner should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of
example or correction for the public good, plus attorneys fees and costs of suit.

Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of
solutio indebiti applies to the case at bar.

Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was

7
not duly proven that respondent defaulted in paying the loan and no interest was due on
the loan because there was no written agreement as regards payment of interest. 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: (1) there
was an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. 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 therefor in writing is prohibited by law.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent
as interest. 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. In such a case, a creditor-debtor relationship is created under a quasi-
contract whereby the payor becomes the creditor who then has the right to demand the
return of payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-contract of solutio
indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the
expense of another. The principle of solutio indebiti applies where (1) a payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause. We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti,
exemplary damages may be imposed if the defendant acted in an oppressive
manner. Petitioner acted oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would not pay interest. This
forced respondent to pay interest despite lack of agreement thereto. Thus, the award of
exemplary damages is appropriate so as to deter petitioner and other lenders from
committing similar and other serious wrongdoings.

Eastern Shipping Lines, Inc. v CA (Credit Transactions)

G.R. No. 97412 July 12, 1994

8
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND
MERCANTILE INSURANCE COMPANY, INC., respondents.

VITUG, J.:

FACTS:

This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.

the losses/damages were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker
(Allied Brokerage).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated
to all the rights of action of said consignee against defendants.

DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly and
severally * CA: affirmed trial court.

ISSUES AND RULING:

(a) whether or not a claim for damage sustained on a shipment of goods can be a solidary,
or joint and several, liability of the common carrier, the arrastre operator and the
customs broker;

YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the goods
that are in its custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the
consignee.

The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until
the lapse of a reasonable time for their acceptance by, the person entitled to receive
them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable.

9
(b) 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; and

FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)

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:

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) 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.

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.

(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or
six percent (6%).

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SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February
1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT (12%) interest, in
lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of the Supreme
Court decision until the payment thereof.

RATIO: when the judgment awarding a sum of money becomes final and executory, the
monetary award shall earn interest at 12% per annum from the date of such finality until
its satisfaction, regardless of whether the case involves a loan or forbearance of money.
The reason is that this interim period is deemed to be by then equivalent to a forbearance
of credit.

NOTES: the Central Bank Circular imposing the 12% interest per annum 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, and that the 6% interest under the 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.
Observe, too, that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.

Hermojina Estores vs. Spouses Arturo and Laura Supangan

G.R. No. 175139 April 18, 2012

DEL CASTILLO, J.:

Facts:

1. In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional
Deed of Sale where Estores offered to sell, and Spouses offered to buy a parcel of
land in Cavite for P4.7M.
2. After almost 7 years and despite the payment of P3.5M by the Spouses, Estores still
failed to comply with her obligation to handle the peaceful transfer of ownership as
stated in 5 provisions in the contract.
3. In a letter in 2000, Spouses demanded the return of the amount within 15 days from
receipt
4. In reply, Estores promised to return the same within 120 days
5. Spouses agreed but imposed an interest of 12% annually
6. Estores still failed despite demands
7. Spouses filed a complaint with the RTC against Estores and Roberto Arias (allegedly
acted as Estores agent)

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8. In Answer, Estores said they were willing to pay the principal amount but without the
interest as it was not agreed upon
a. That since the Conditional Deed of Sale provided only for the return of the
downpayment in case of breach, they cant be liable for legal interest as well
9. RTC ruled saying that the Spouses are entitled to the interest but only at 6% per
annum and also entitled to attys fees
10. On appeal, CA said that the issue to resolve is
a. whether it is proper to impose interest for an obligation that does not involve a
loan or forbearance of money in the absence of stipulation of the parties
11. CA affirmed RTC
a. That interest should start on date of formal demand by Spouses to return the
money not when contract was executed as stated by the RTC
b. That Arias not be solidarily liable as he acted as agent only and did not
expressly bind himself or exceeded his authority
12. Estores contends:
a. Not bound to pay interest because the deed only provided for the return of the
downpayment in case of failure to comply with her obligations
b. That atty fees not proper because both RTC and CA sustained her contention
that 12% interest was uncalled for so it showed that Spouses did not win
13. Spouses contend:
a. It is only fair that interest be imposed because Estores failed to return the
amount upon demand and used the money for her benefit
b. Estores failed to relocate the house outside the perimeter of the subject lot
and complete the necessary documents
c. As to the fees, they claim that they were forced to litigate when Estores
unjustly held the amount

Issue:

Is the imposition of interest and attorneys fees is proper? YES

Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%

Held:

Interest may be imposed even in the absence of stipulation in the contract.

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.
Estores failed on her obligations despite demand.
o She admitted that the conditions were not fulfilled and was willing to return the
full amount of P3.5M but hasnt done so

12
 o She is now in default
The interest at the rate of 12% is applicable in the instant case.

Gen Rule: the applicable interest rate shall be computed in accordance with the
stipulation of the parties
Exc: if no stipulation, applicable rate of interest shall be 12% per annum
o When obligation arises out of a loan or forbearance of money, goods or credits
In other cases, it shall be 6%
In this case, no stipulation was made
Contract involved in this case is not a loan but a Conditional Deed of Sale.
o No question that the obligations were not met and the return of money not
made
Even if transaction was a Conditional Deed of Sale, the stipulation governing the
return of the money can be considered as a forbearance of money which requires
12% interest
In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- contractual obligation of
lender or creditor to refrain during a given period of time, from requiring the borrower or
debtor to repay a loan or debt then due and payable.
o In such case, forbearance of money, goods or credits will have no distinct definition
from a loan.
o however, the phrase forbearance of money, goods or credits is meant to have a
separate meaning from a loan, otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil Code
o Forbearance of money, goods or credits 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.
Estores unwarranted withholding of the money amounts to forbearance of money which can be
considered as an involuntary loan so rate is 12% starting in Sept. 2000
The award of attorneys fees is warranted.

no doubt that the Spouses were forced to litigate to protect their interest, i.e., to recover
their money. The amount of P50,000.00 more appropriate

G.R. No. 200868 : November 21, 2012

ANITA A. LEDDA, Petitioner, v. BANK OF THE PHILIPPINE ISLANDS, Respondent.

CARPIO, J.:

FACTS:

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As one of BPIs valued clients, Anita Ledda (Ledda) was issued a pre-approved BPI credit
card. Thereafter, Ledda used the credit card for various purchases of goods and services
and cash advances. Ledda defaulted in the payment of her credit card obligation.
Consequently, BPI sent her demand letters but to no avail. Thus, BPI filed an action for
collection of sum of money against Ledda. The RTC gave due course to BPIs complaint and
ordered Ledda to pay her obligation.

On appeal to the CA, Ledda argued that the document containing the Terms and Conditions
governing the use of the BPI credit card is an actionable document contemplated in Sec.7,
Rule 8 of the Rules of Court. Hence, the document should have been set forth in and
attached in BPIs complaint. Ledda also averred that since there was no written agreement
to pay a higher interest, the interest rate to be imposed is only 6% pursuant to Article
2209 of the Civil Code. The CA rejected Leddas arguments.

ISSUES:

I. Whether or not the document containing the Terms and Conditions governing the use of
credit card is an actionable document?

II. Whether or not the imposable interest rate is 6%?

HELD: The petition is partially meritorious.

FIRST ISSUE: The document containing the Terms and Conditions governing the use of
the BPI credit card is not an actionable document.

REMEDIAL LAW: actionable document

BPIs cause of action is primarily based on Leddas (1) acceptance of the BPI credit card,
(2) usage of the BPI credit card to purchase goods, avail services and secure cash
advances, and (3) non-payment of the amount due for such credit card transactions,
despite demands. In other words, BPIs cause of action is not based only on the document
containing the Terms and Conditions accompanying the issuance of the BPI credit card in
favor of Ledda. Therefore, the document containing the Terms and Conditions governing
the use of the BPI credit card is not an actionable document contemplated in Section 7,
Rule 8 of the 1997 Rules of Civil Procedure.As such, it is not required by the Rules to be
set forth in and attached to the complaint.

SECOND ISSUE: The imposable interest is 12% per annum.

CIVIL LAW: interest; forbearance of money

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Since there is no dispute that Ledda received, accepted and used the BPI credit card
issued to her and that she defaulted in the payment of the total amount arising from the
use of such credit card,Ledda is liable to pay BPI P322,138.58 representing the principal
amount of her unpaid credit card obligation. Ledda must also pay interest on the total
unpaid credit card amount at the rate of 12% per annum since her credit card obligation
consists of a loan or forbearance of money. We reject Leddas contention that, since there
was no written agreement to pay a higher interest rate, the interest rate should only be
6%. Ledda erroneously invokes Article 2209 of the Civil Code. Article 2209 refers to
indemnity for damages and not interest on loan or forbearance of money, which is the case
here.

In accordance with Eastern Shipping Lines, Inc., the 12% legal interest shall be reckoned
from the date BPI extrajudicially demands from Ledda the payment of her overdue credit
card obligation.

Petition is PARTIALLY GRANTED.

G.R No. 138677 February 12, 2002

Tolomeo Ligutan and Leonidas dela Llana

vs.

Hon. Court of Appeals and Security Bank and Trust Company

Vitug, J. :

Facts:

On November 3, 1982 the Security Bank and Trust Company filed a complaint in Regional
Trial Court of Makati against Tolomeo Ligutan and Leonidas dela Llana for obtaining a loan
in the amount of P120,000.00 which they 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 but the petitioners defaulted on their obligation. Two years later
petitioners filed a motion for reconsideration but the court denied the motion. Then the
petitioners interposed an appeal with the Court of Appeals, questioning the rejection by
the trial court of their motion to present evidence and assailing the imposition of the 2%

15
service charge, the 5% per month penalty charge and 10% attorneys fees. In its decision
on March 7, 1996, the appellate court affirmed the judgment of the trial court.

Issue: Whether the interest and penalty charge imposed by private respondent bank on
petitioners loan are manifestly exorbitant, iniquitous and unconscionable?

Ruling: The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach.
Although a court may not at liberty ignore the freedom of the parties to agree on such
terms and conditions as they see fit that contravene neither law nor morals, good customs,
public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced
by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly
or irregularly complied with.

The question of whether a penalty is reasonable or iniquitous can be partly subjective and
partly objective. Its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large, is addressed
to the sound discretion of the court.

The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3%
a month. It was also been held that the 15.189% per annum stipulated interest and the 10%
attorneys is reasonable and not excessive. The interest prescribed in loan financing
arrangements is a fundamental part of the banking business and the core of a bank's
existence.

RCBC vs CA, GR Nos. 128833, 128834, 128866, 20 April 1998, 289 SCRA 292

24FEB

FACTS

GOYU was granted credit facilities and accommodations by the RCBC initially in the
amount of P 30 million. Upon GOYUs application, the credit was increased to P50 Million,
then P90 Million, then P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of
RCBC, which were registered with the RD. Under the 4 contracts, GOYU committed itself
to insure the mortgaged properties with an insurance company approved by RCBC, and
subsequently endorse and deliver the insurance policies to RCBC. GOYU then obtained 10
policies from MICO. GOYUs buildings were gutted by fire and it claimed indemnity from
MICO but the latter denied the claim on the ground that the insurance policies were either

16
attached pursuant to writs of attachments/garnishments issued by various courts or that
the proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights
to the proceeds, filed for specific performance and damges before the RTC of Manila Br 3.
The trial court ruled in favor of GOYU for the fire loss claims but ordered it to pay RCBC
its loan obligations. On appeal to the CA, it affirmed the ruling with regard to the liabilities
of MICO and RCBC. The trial court and appellate courts both held that, since the
endorsements do not bear the signature of any officer of GOYU, they concluded that the
endorsements are defective. The CA then ordered GOYU to pay its obligation to RCBC
without any interest, surcharges and penalties.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss

HELD: YES.
mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his
own sole benefit
although it appears that GOYU obtained the subject insurance policies naming itself as
the sole payee, the intentions of the parties as shown by their contemporaneous acts,
must be given due consideration in order to better serve the interest of justice and
equity
8 endorsement documents were prepared by Alchester in favor of RCBC
MICO, a sister company of RCBC
GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
GOYU is at the very least estopped from assailing their operative effects.
The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are mere
renewals of previous ones
RCBC has the right to claim the insurance proceeds, in substitution of the property
lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of
the said insurance policies
insurance company to be held liable for unreasonably delaying and withholding payment
of insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastians right as attaching creditor must yield to the preferential rights of RCBC
over the Malayan insurance policies as first mortgagee.

GSIS vs. COURT OF APPEALS, GR. No. L-52478, October 20, 1986

FACTS: In 1961, herein private respondents spouses Nemencio R. Medina and Josefina G.
Medina applied with the herein petitioner Government Service Insurance System for a loan

17
of P600,000.00. The approved loan amount was only P350,000.00 at the rate of interest of
9% per annum compounded monthly and the rate of 9%/12% per month for any installment
or amortization that remains due and unpaid. The approved loan amount was further reduced
to P295,000.00. The Medinas accepted the reduced amount and executed a promissory note
and a real estate mortgage in favor of GSIS. Subsequently, upon application by the Medinas,
the GSIS approved an additional loan of P230,000.00 on the security of the same mortgaged
properties to bear interest at 9% per annum compounded monthly and repayable in ten years.
However, in 1965, the Medinas defaulted in the payment of the monthly amortization on
their loan despite several demands from petitioner. Hence, the GSIS imposed 9%/12%
interest on instalments that are due and unpaid. The Medinas opposed to this contending
that the interest rates on the loan accounts are usurious. After trial of the case, the trial
court ordered the Medinas full payment of their obligation to the GSIS plus interest at 9%
per annum. Aggrieved, the Medinas appealed before the Court of Appeals but the latter
affirmed the lower courts decision.

ISSUE: Whether or not the interest rates on the loan accounts of respondent-appellee
Medina spouses are usurious.

HELD: It has already been settled that the Usury Law applies 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 of the Philippines which provides that 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. The Civil Code permits the agreement upon a penalty apart from the interest.
Should there be such an agreement, the penalty does not include the interest, and as such
the two are different and distinct things which may be demanded separately. The stipulation
about payment of such additional rate partakes of the nature of a penalty clause, which is
sanctioned by law.

Concepcion v. Court of Appeals, et al., G.R. No. 122079, June 27, 1997, 274 SCRA
614.

FACTS:
Home Savings Bank and Trust Company (now Insular Life) granted to the Concepcions
a P1,400,000.00 loan. The latter executed in favor of the bank a promissory note and a real
estate mortgage over their property in San Juan, Metro Manila. Thereafter, the bank
unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from
21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984.
In 1985, the bank's President demanded from the Concepcions payment of the arrearages,
but the latter failed to pay. The bank finally filed with the Sheriff of Pasig City a petition
for extrajudicial foreclosure of the real estate mortgage that they executed. A notice of

18
sale was issued on 15 May 1986. The Concepcions, unable to exercise their right of
redemption, lost the property to the bank which consolidated the title over the property
and had a new certificate of title issued in the name of Home Savings Bank and Trust
Company. In 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty
Corporation and a new certificate of title was issued. Meanwhile, on 29 July 1987, the
Concepcions filed an action against Home Savings Bank, for the cancellation of the
foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank,
and the declaration of nullity of the unilateral increases of the interest rates on their loan.

ISSUE:
WON the escalation clause in their mortgage contract valid?

HELD:
Some contracts contain what is known as an `escalator clause,' which is defined as one in
which the contract fixes a base price but contains a provision that in the event of specified
cost increases, the seller or contractor may raise the price up to a fixed percentage of the
base. Attacks on such a clause have usually been based on the claim that, because of the
open price-provision, the contract was too indefinite to be enforceable and did not evidence
an actual meeting of the minds of the parties, or that the arrangement left the price to be
determined arbitrarily by one party so that the contract lacked mutuality. However, the SC
generally upheld its validity. Nonetheless, an escalation clause at bench which gives the bank
unbridled right to unilaterally upwardly adjust the interest on private respondents' loan is
unconscionable, as it would completely take away from mortgagees the right to assent to an
important modification in their agreement, and would negate the element of mutuality in
contracts.

BancoFilipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle, G.R. No. L-
46591, 28 July 1987, 152 SCRA 346.

FACTS:
Del Valle, the borrower, obtained a loan secured by a real estate mortgage from Banco
Filipino amounting to P41,300.00. Said loan still had more than 730 days to run by January
2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the
promissory note is an Escalation Clause based upon above mentioned Central Bank circular.
In lieu of the said circular, Banco Filipino gave notice to Del Valle of the increase of interest
rate on the loan from 12% to 17% per annum effective on March 1, 1976. Answering Del
Valles query as to why was there an increase in the interest rate, Banco Filipino wrote a
letter in September 24, 1976, stating that it was increased by virtue of the escalation clause
attached to their contract and in lieu of CIRCULAR No. 494.

ISSUE:

19
WON Banco Filipino may validly increase the rate of its interest pursuant to the escalation
clause in the contract and in light of Central Bank Circular No. 494, which was given a
retroactive effect in this case?

HELD:
The substantial question in this case is not really whether the Escalation Clause is a valid or
void stipulation, but whether the bank can increase the interest rate on the LOAN from
12% to 17% per annum under the Escalation Clause. The SC held in the negative. The
escalation clause in the contract provides that the interest rate may be increased "in the
event a lawshould be enacted increasing the lawful rate of interest that may be charged on
this particular kind of loan." Said clause was dependent on an increase of rate made by "law"
alone. Circular No. 494 of the Monetary Board was not the "law" contemplated by the
parties, nor should said Circular be held as applicable to loans secured by registered real
estate in the absence of any such specific indication and in contravention of the policy
behind the Usury Law.

SPOUSES EDUARDO & LYDIA SILOS v. PHILIPPINE NATIONAL BANK G.R. No. 181045,
2 July 2014, SECOND DIVISION, (Del Castillo, J .)

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

Spouses Eduardo and Lydia Silos secureda revolving credit line with Philippine National
Bank (PNB)through a real estate mortgage as a security. After two years, their credit line
increased. Spouses Silos then signed a Credit Agreement, which was also amended two
years later, and several Promissory Notes (PN) as regards their Credit Agreements with
PNB.The said loan was initially subjected to a 19.5% interest rate per annum. In the Credit
Agreements, Spouses Silos bound themselves to the power of PNB to modify the interest
rate depending on whatever policy that PNB may adopt in the future, without the need of
notice upon them. Thus, the said interest rates played from 16% to as high as 32% per
annum.Spouses Silos acceded to the policy by pre-signing a total of twenty-six (26) PNs
leaving the individual applicable interest rates at hand blank since it would be subject to
modification by PNB.

Spouses Silos regularly renewed and made good on their PNs, religiously paid the interests
without objection or fail. However, during the 1997 Asian Financial Crisis, Spouses Silos
faltered when the interest rates soared. Spouses Silos 26thPN became past due, and
despite repeated demands by PNB, they failed to make good on the note. Thus, PNB
foreclosed and auctioned the involved security for the mortgage. Spouses Silos instituted
an action to annul the foreclosure sale on the ground that the succeeding interest rates
used in their loan agreements was left to the sole will of PNB, the same fixed by the latter

20
without their prior consent and thus, void. The Regional Trial Court (RTC) ruled that such
stipulation authorizing both the increase and decrease of interest rates as may be
applicable is valid. The Court of Appeals (CA) affirmed the RTC decision.

ISSUE:

May the bank, on its own, modify the interest rate in a loan agreement without violating
the mutuality of contracts?

RULING:

No.Any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement.
In the case of loan agreements, the rate of interest is a principal condition, if not the
most important component.

UST Law Review, Vol. LIX, No. 1, May 2015

Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low
initial interest rates, but actually accompanied by provisions written in fine print that allow
lenders to later on increase or decrease interest rates unilaterally, without the consent of
the borrower, and depending on complex and subjective factors. Because they have been
lured into these contracts by initially low interest rates, borrowers get caught and stuck
in the web of subsequent steep rates and penalties, surcharges and the like. Being ordinary
individuals or entities, they naturally dread legal complications and cannot afford court
litigation; they succumb to whatever charges the lenders impose. At the very least,
borrowers should be charged rightly; but then again this is not possible in a one-sided
credit system where the temptation to abuse is strong and the willingness to rectify is
made weak by the eternal desire for profit.

PHILIPPINE NATIONAL BANK petitioner, vs, THE HON. COURT OF "PEALS and
AMBROSIO PADILLA, respondents.
GR# 88880. April 30, 1991. GRIRO-AQUINO, J.:

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit
line of 321.8 million, by petitioner PNB. This was for a term of 2 years at 18% interest per
annum and was secured by real estate mortgage and 2 promissory notes executed in favor
of Petitioner by PR. The credit agreement and the promissory notes, in effect, provide
that PR agrees to be bound by increases to the interest rate stipulated, provided it is
within the limits provided for by law.

Conflict in this case arose when Petitioner unilaterally increased the interest rate from
18% to: (1) 32% [July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3

21
times within the span of a single year. This was done despite the numerous letters of
request made by PR that the interest rate be increased only to 21% or 24%.

PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for
lack of merit. Appeal by PR to CA resulted in his favor. Hence the petition for certiorari
under Rule 45 of ROC filed by PNB with SC.

ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly
increase the stipulated interest rate on loans contracted with third persons as often as
necessary and against the protest of such persons.

HELD: NO

RATIO: Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe
the maximum rate of interest for loans and to change such rates whenever warranted by
prevailing economic and social conditions, by express provision, it may not do so oftener
than once every 12 months. If the Monetary Board cannot, much less can PNB, effect
increases on the interest rates more than once a year.
Based on the credit agreement and promissory notes executed between the parties,
although PR did agree to increase on the interest rates allowed by law, no law was passed
warranting Petitioner to effect increase on the interest rates on the existing loan of PR
for the months of July to November of 1984. Neither there being any document executed
and delivered by PR to effect such increase.

For escalation clauses to be valid and warrant the increase of the interest rates on loans,
there must be: (1) increase was made by law or by the Monetary Board; (2) stipulation
must include a clause for the reduction of the stipulated interest rate in the event that
the maximum interest is lowered by law or by the Monetary board. In this case, PNB
merely relied on its own Board Resolutions, which are not laws nor resolutions of the
Monetary Board.

Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not
authorize banks to unilaterally and successively increase interest rates in violation of Sec.
2 PD 116.

Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts

under Art. 1308. This provides that the validity and compliance of the parties to the
contract cannot be left to the will of one of the contracting parties. Increases made are
therefore void.

Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It
provides that, no interest shall be due unless it has been expressly stipulated in writing.
PR never agreed in writing to pay interest imposed by PNB in excess of 24% per annum.
Interest rate imposed by PNB, as correctly found by CA, is indubitably excessive.

22