Credit Digest

1
FACTS:
In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., 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. In Resolution No.145, 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.
The mortgage was registered and documents for the promissory note were executed. But then, later on,
was cancelled to make way for the registration of a mortgage contract over the same property in favor of
Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute
machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to
pay said obligation, Prudential sued Saura.
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: Whether or not there was a perfected contract between the parties. YES. There was indeed a perfected
consensual contract.
HELD:
Article 1934 provides: An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until delivery of the object of the
contract.
There was undoubtedly offer and acceptance in the 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. The
defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
When an application for a loan of money was approved by resolution of the respondent corporation and the
responding mortgage was executed and registered, there arises a perfected consensual contract.
However, it should be noted that RFC imposed two conditions (availability of raw materials and increased
production) when it restored the loan to the original amount of P500,000.00.
Saura, Inc. obviously was in no position to comply with RFCs conditions. So instead of doing so and insisting that
the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled.The action thus taken by
both parties was in the nature of mutual desistance 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.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.
Lessons Applicable: Simple Loan

Laws Applicable:
Facts:
Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment
and Development Corporation (AIDC), the predecessor of BPI Investment Corp.
(BPIIC), for the construction of a house on his lot in New Alabang Village, Muntinlupa.
He mortgaged the house and lot to AIDC as security for the loan.
1980: Roa sold the house and lot to ALS Management & Development Corp. and
Antonio Litonjua for P850K who paid P350K in cash and assumed the P500K indebtness
of ROA with AIDC.
o AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested
rate of 20%/annum and service fee of 1%/annum on the outstanding balance
payable within 10 years through equal monthly amortization of P9,996.58 and
penalty interest of 21%/annum/day from the date the amortization becomes due
and payable.
March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation
with the provision that the monthly amortization will commence on May 1, 1981
August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K
principal loan to P457,204.90.
September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan
June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to
June 30, 1984 amounting to P475,585.31
August 13, 1984: Notice of sheriff's sale was published
February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging
that they are not in arrears and instead they made an overpayment as of June 30, 1984
since the P500K loan was only released September 13, 1982 which marked the start of
the amortization and since only P464,351.77 was released applying legal compensation
the balance of P35,648.23 should be applied to the monthly amortizations
RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to
ALS and Litonjua was only in the principal sum of P464,351.77 and awarding moral
damages, exemplary damages and attorneys fees for the publication
CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the
contract which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second
release of the loan?
HELD: YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to
them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.
obligation to pay commenced only on October 13, 1982, a month after the perfection of
the contract
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. Consequently,
petitioner could only demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with its obligation under the
loan contract.
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 and the date when it was released. Such negligence resulted in damage for
which an award of nominal damages should be given
SSS where we awarded attorneys fees because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees
L-49101 October 24, 1983

Lessons Applicable: Simple Loan
Laws Applicable:
Facts:
December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of
P75K from Philippine Bank of Commerce (PBC) by mortgaging their property
December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where
P75K is payable to PBC and P25K is payable to Spouses Lanzano.
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22 to PBC
May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of sale was
published
January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of
Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well
as the extrajudicial foreclosure made on September 4, 1968.
CFI: Dismissed the complaint with costs against the Bonnevies
CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.

HELD: YES. CA affirmed
A contract of loan being a consensual contract is 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.
Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent
purchaser for value being applicable to an innocent mortgagee for value.
Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the
one year redemption period expired on September 3, 1969. It was not until September 29,
1969 that Honesto Bonnevie first wrote respondent and offered to redeem the property.
loan matured on December 26, 1967 so when respondent Bank applied for foreclosure,
the loan was already six months overdue. Payment of interest on July 12, 1968 does not
make the earlier act of PBC inequitous nor does it ipso facto result in the renewal of the
loan. In order that a renewal of a loan may be effected, not only the payment of the
accrued interest is necessary but also the payment of interest for the proposed period of
renewal as well. Besides, whether or not a loan may be renewed does not solely depend
on the debtor but more so on the discretion of the bank.
The banks asking for advance interest for the loan is improper considering that the total loan
hasnt been released. A person cant be charged interest for nonexisting debt. The alleged
discovery by the bank of overvaluation of the loan collateral is not an issue. Since Island
Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
Facts: Island Savings Bank, upon favorable recommendation of its legal department, approved
the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan,
executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las
Nieves, Agusan. The loan called for a lump sum of P80,000, repayable in semi-annual
installments for 3 yrs, with 12% annual interest. After the agreement, a mere P17K partial release
of the loan was made by the bank and Tolentino and his wife signed a promissory note for the
P17,000 at 12% annual interest payable w/in 3 yrs. An advance interest was deducted fr the
partial release but this prededucted interest was refunded to Tolentino after being informed that
there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems,
prohibited the bank fr making new loans and investments. And after the bank failed to restore its
solvency, the Central Bank prohibited Island Savings Bank from doing business in the
Philippines. Island Savings Bank in view of the non-payment of the P17K filed an application for
foreclosure of the real estate mortgage. Tolentino filed petition for specific performance or
rescission and damages with preliminary injunction, alleging that since the bank failed to deliver
P63K, he is entitled to specific performance and if not, to rescind the real estate mortgage.
Issues: 1) Whether or not Tolentinos can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory
note
3) Whether or not the real estate mortgage can be foreclosed
Held:
1) Whether or not Tolentinos can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to
perform, the other party not ready nor willing incurs in delay. When Tolentino executed real
estate mortgage, he signified willingness to pay. That time, the banks obligation to furnish the
P80K loan accrued. Now, the Central Bank resolution made it impossible for the bank to furnish
the P63K balance. The prohibition on the bank to make new loans is irrelevant bec it did not
prohibit the bank fr releasing the balance of loans previously contracted. Insolvency of debtor is
not an excuse for non-fulfillment of obligation but is a breach of contract.
The banks asking for advance interest for the loan is improper considering that the total loan
hasnt been released. A person cant be charged interest for nonexisting debt. The alleged
discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials
should have been more responsible and the bank bears risk in case the collateral turned out to be
overvalued. Furthermore, this was not raised in the pleadings so this issue cant be raised. The
bank was in default and Tolentino may choose bet specific performance or rescission w/ damages
in either case. But considering that the bank is now prohibited fr doing business, specific
performance cannot be granted. Rescission is the only remedy left, but the rescission shld only
be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the
Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved
party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay. Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation
to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay
his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the
real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00
is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable
to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists
as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt
Laws Applicable: Commodatum

Lessons Applicable:
FACTS:
May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding
purposes subject to a breeding fee of 10% of the book value of the bulls
May 7, 1949: Jose requested for a renewal for another year for the three bulls but only
one bull was approved while the others are to be returned
March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value
of the 3 bulls
October 17, 1950: he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General.
October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to
be returned or their book value without deductions should be paid not later than October
31, 1950 which he was not able to do
December 20, 1950: An action at the CFI was commenced against Jose praying that he be
ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid
breeding fee of P199.62, both with interests, and costs
July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio
of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and
Natural Resources and the President of the Philippines, he could not return the animals
nor pay their value and prayed for the dismissal of the complaint.
RTC: granted the action
December 1958: granted an ex-parte motion for the appointment of a special sheriff to
serve the writ outside Manila
December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on
October 23, 1951 and administratrix of his estate, was notified
January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26,
1952 evidenced by recipt and the 3rd bull died from gunshot wound inflicted during a
Huk raid and prayed that the writ of execution be quashed and that a writ of preliminary
injunction be issued.
ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the
loss due to force majeure due to delay.
HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs
If contract was commodatum then Bureau of Animal Industry retained ownership or title
to the bull it should suffer its loss due to force majeure. 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. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because she had
continued possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable if he keeps it longer than the period
stipulated
the estate of the late defendant is only liable for the sum of P859.63, the value of the bull
which has not been returned because it was killed while in the custody of the
administratrix of his estate
Special proceedings for the administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the CFI, the money judgment rendered in favor
of the appellee cannot be enforced by means of a writ of execution but must be presented
to the probate court for payment by the appellant, the administratrix appointed by the
court.
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Date: September 31, 1988

Facts:
- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the
court an application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion
Central, Benguet, said lots being used as sites of the Catholic Church, building, convents, high
school building, school gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership
over lots 1, 2 and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4.
Upon appeal by the private respondents (heirs), the decision of the lower court was reversed.
Title for lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the
Court of Appeals dismissing his 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: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in
commodatum, a gratuitous loan for use.
Held: 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 became bailors in commodatum and the
petitioner the bailee.
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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 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.
The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of
10 years possession for ordinary acquisitive prescription because of the absence of just title. 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.
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G.R. No. L-46240
November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she
lent him for his use. She appealed from the judgment of the Court of First Instance of Manila
which ordered that the defendant return to her the three has heaters and the four electric lamps
found in the possession of the Sheriff of said city, that she call for the other furniture from the
said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the
deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del
Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between
the plaintiff and the defendant, the former gratuitously granted to the latter the use of the
furniture described in the third paragraph of the stipulation of facts, subject to the condition that
the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the
property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the
defendant of the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were found. On
November
5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call
for the furniture in the ground floor of the house. On the 7th of the same month, the defendant
wrote another letter to the plaintiff informing her that he could not give up the three gas heaters
and the four electric lamps because he would use them until the 15th of the same month when the
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lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On
November 15th, before
vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the
plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the
custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the
law: in holding that they violated the contract by not calling for all the furniture on November 5,
1936, when the defendant placed them at their disposal; in not ordering the defendant to pay
them the value of the furniture in case they are not delivered; in holding that they should get all
the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses
claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their
respective legal expenses or the costs; and in denying pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is
only necessary to decide whether the defendant complied with his obligation to return the
furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof,
and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, 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 latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1,
and 1741 of the Civil Code). 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. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the
four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when they
were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the
latter's demand, the Court could not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant's behest. The latter, 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.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment
thereof by the defendant in case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the
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correctness of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through evidence which the parties may
desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract of commodatum, and without any reason he refused to return and deliver
all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that
he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the
plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the
latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The
expenses which may be occasioned by the delivery to and deposit of the furniture with the
Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both
instances. So ordered.
Consolidated Bank and Trust Corporation

vs. Court of Appeals G.R. No. 138569,
September 11, 2003
March 16, 2014 Leave a comment
Solidbanks tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. The tellers know, or should
know, that the rules on savings account provide that any person in possession of the passbook
is presumptively its owner.
Facts: Solidbank is a domestic banking corporation while private respondent L.C. Diaz and
Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of
accounting and which opened a savings account with Solidbank. Diaz through its cashier,
Mercedes Macaraya , filled up a savings cash deposit slip and a savings checks deposit slip.
Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with
Solidbank and give him the Solidbank passbook. Calapre went to Solidbank and presented to
Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the
deposit by returning to Calapre the duplicate copies of the two deposit slips. Since the
transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank,
he left the passbook with Solidbank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to L.C.
Diaz and reported the incident to Macaraya. The following day,, L.C. Diaz through its Chief
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Executive Officer, Luis C. Diaz, called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account followed by a formal written request later
that day. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the
day before of P300,000 from its savings account. The withdrawal slip bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories,
however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
L.C. Diaz demanded from Solidbank the return of its money but to no avail. Hence, L.C. Diaz
filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial
Court. After trial, the trial court rendered a decision absolving Solidbank and dismissing the
complaint. Court of Appeals reversed the decision of the trial court.
Issue: Whether or not Solidbank must be held liable for the fraudulent withdrawal on private
respondents account.
Held: Solidbanks tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. The tellers know, or should
know, that the rules on savings account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the passbook, facilitating unauthorized
withdrawals by that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such
high degree of diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same. However, L.C. Diaz was guilty of contributory negligence in
allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced. Hence, the liability of Solidbank
for actual damages was reduced to only 60%, the remaining 40% was borne by private
respondent.
The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan. There is a debtor-creditor relationship between the bank and its depositor. The
bank is the debtor and the depositor is the creditor. The law imposes on banks high standards in
view of the fiduciary nature of banking. RA 8791 declares that the State recognizes the
fiduciary nature of banking that requires high standards of integrity and performance. This new
provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme
Court decisions holding that 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.
16
G.R. No. L-20240
December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE GRIJALDO, defendant-appellant.
FACTS:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of
6% per annum, compounded quarterly. These loans are evidenced by five promissory notes
executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943,
P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on
August 13, 1943, P200.00, all notes without due dates, but because the loans were due one
year after they were incurred. To secure the payment of the loans the appellant executed a
chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda
Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided
for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank
of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the
Philippine Property Act of 1946 of the United States, these assets, including the loans in
question, were subsequently transferred to the Republic of the Philippines by the
17
Government of the United States under Transfer Agreement dated July 20, 1954. These
assets were among the properties that were placed under the administration of the Board of
Liquidators created under Executive Order No. 372, dated November 24, 1950, and in
accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The record shows that the appellant
had actually received the written demand for payment, but he failed to pay.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question.
The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that
the action had prescribed. The appellee appealed to the Court of First Instance of Negros
Occidental and on March 26, 1962 the court a quo rendered a decision ordering the
appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest
at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay the sum
equivalent to 10% of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the
appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution
of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L.
Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in
accordance with Section 17 of Rule 3 of the Rules of Court.
ISSUE:
Whether or not the obligation to pay is extinguished.
The appellant likewise maintains, in support of his contention that the appellee has no cause
of action, that because the loans were secured by a chattel mortgage on the standing crops
on a land owned by him and these crops were lost or destroyed through enemy action his
obligation to pay the loans was thereby extinguished.
HELD:
This argument is untenable. The terms of the promissory notes and the chattel mortgage
that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of
appellant. The obligation of the appellant under the five promissory notes was not to deliver
a determinate thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with interest. The
transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts
of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers
to another ... money or other consumable evidencing the loans in questions is to pay the
value thereof; that thing upon the condition that the same amount of the same kind and
quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five
18
promissory notes is, to deliver a sum of money a clear case of an obligation to deliver, a
generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for
the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of
the crops did not extinguish his obligation to pay, because the account could still be paid
from other sources aside from the mortgaged crops.
G.R. No. 96494 May 28, 1992

CASA FILIPINA DEVELOPMENT CORPORATION, petitioner,
vs.
THE DEPUTY EXECUTIVE SECRETARY, OFFICE OF THE PRESIDENT, MALACAANG, MANILA,
AND JOSE VALENZUELA, JR., respondents.
MEDIALDEA, J.:
19
This is a petition for review on certiorari (treated as a petition for certiorari) seeking reversal of the
decision of the Office of the President dated April 11, 1989, in O.P. Case No. 3722, entitled "Casa Filipina
Development Corporation, Respondent-Appellant, v. Jose Valenzuela, Jr., Complainant-Appellee," which
affirmed the decision of the Housing and Land Use Regulatory Board dated October 6, 1987; and its
resolution dated September 26, 1989, which denied the motion for reconsideration for Lack of merit.
The antecedent facts are, as follows:
On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint against petitioner Casa
Filipina Development Corporation before the Office of Appeals, Adjudication and Legal Affairs (OAALA) of
the then Human Settlements Regulatory Commission (now Housing and Land Use Regulatory Board) for
its failure to execute and deliver the deed of sale and transfer certificate of title. He alleged therein that on
May 2, 1984, he entered into a contract to sell with petitioner for the purchase of a 120 sq. m. lot
denominated as Lot 8, Block 9, Phase II of Casa Filipina, Sucat II, Bo. San Dionisio, Paraaque, Metro
Manila, for a total purchase price of P68,400.00 with P16,416.00 as downpayment and the balance of
P51,984.00 to be paid in 12 equal monthly installments of P4,915.16 with 24% interest per annum starting
September 3, 1984; that on October 7, 1985, he made his full and final payment under O.R. No. 6266;
that despite full payment of the lot, petitioner refused to execute the necessary deed of absolute sale and
deliver the corresponding transfer certificate of title to him; that since October 1985, he had offered to pay
for or reimburse petitioner the expenses for the transfer of the title but the latter refuses to accept the
same; and that he was constrained to hire a lawyer for a fee to protect his interests.
For petitioner's defense, it contended that private respondent's action is premature because of his failure
to comply with the other conditional requirements of their contract such as payment of transfer expenses,
and that had the latter paid said fees, it would have been very much willing to effect the transfer of the
title.
On January 21, 1987, the OAALA rendered judgment in favor of private respondent, relying on Section 25
of Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing
Penalties for Violations thereof), which provides:
Sec. 25. Issuance of Title The owner or developer shall deliver the title of the lot or
unit to the buyer upon full payment of the lot or unit. No fee except those required for the
registration of the deed of sale in the Registry of deeds shall be collected for the issuance
of such title. In the event a mortgage over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, the owner of or developer shall redeem the mortgage or
the corresponding portion thereof within six months from such issuance in order that the
title over any fully paid lot or unit may be secured and delivered to the buyer in
accordance herewith.
The dispositive portion of its decision reads (p. 19, Rollo):
WHEREFORE, PREMISES CONSIDERED, judgment is rendered ordering respondent,
within 15 days from finality of this decision, to execute the deed of absolute sale for Lot 8,
Block 9, Phase II, Casa Filipina, Sucat II, Bo. San Dionisio, Paraaque, Metro Manila in
favor of the complainant and thereafter to bill complainant the total amount due for the
registration and transfer expenses of the title. Respondent is further ordered, within 15
days from receipt of complainant's payment for registration and transfer expenses, to
20
deliver to the latter the transfer certificate of title of subject lot free from all liens and
encumbrances. In the event respondent is unable to deliver the title to the said lot,
respondent is hereby ordered to refund (to) complainant his total payments amounting to
SEVENTY SIX THOUSAND ONE HUNDRED EIGHTY PESOS and 82/100 (P76,180.82)
plus 24% interest per annum from June 30, 1986, the date of the filing of the complaint,
until fully paid. Respondent is likewise ordered to pay complainant TWO THOUSAND
PESOS (P2,000.00) by way of attorney's fees, for compelling the latter to litigate and
incur expenses in the protection of his rights.
It is SO ORDERED.
Petitioner then filed an appeal before the Housing and Land Use Regulatory Board. In petitioner's
memorandum, it narrated the events that transpired which led to its failure to deliver the title, namely: its
original mortgagee bank was Royal Savings Bank which was absorbed by Comsavings Bank apparently
due to bankrun; Comsavings Bank is not amenable to petitioner's earlier arrangement with Royal Savings
Bank on individual redemption of title, thus, it demanded that petitioner's obligations should be paid prior
to the release of any individual title; petitioner cannot seasonably meet such demand due to the inability
of the past administration to put up a viable and progressive economic program that brought it into a fix
situation wherein it has no participation either intentionally or by negligence.
On October 6, 1987, the HLURB dismissed petitioner's appeal for lack of merit and affirmed in toto the
questioned decision of the OAALA (p. 23, Rollo). It opined that (ibid):
. . . Suffice it to state that the payment in full by the complainant-appellee of the
purchased (sic) price of the lot should warrant the immediate delivery of the title to the lot
so purchased. Section 25 of P.D. 957 clearly provides that the redemption by the
mortgagor or (sic) any mortgage (sic) property shall be within a period of six (6) months
from (the) date of issuance of the title in favor of the buyer. Obviously from the moment
full payment is made by the buyer to (sic) his purchased lot, the maximum period
contemplated by law for delivery of title is only six (6) months. Within this period it
becomes mandatory upon the owner or developer of a subdivision to deliver (the) title to
the lot buyer. In the case at bar, full payment was made on October 7, 1985 and despite
the lapse of one (1) year more or less from (the) date of full payment, delivery of (the) title
is still uncertain.
The defense of the respondent-appellant that its failure to deliver the title allegedly due to
the inability of the past administration to put up a viable and progressive economic
program which led to the closure of the Royal Savings Bank as its original mortgagee
bank in not well-taken since there is no proof submitted to this Board to sunbstantiate
appellant's claim. On the contrary it was only the OAALA decision that made the
respondent-appellant change its line of justification which happened to be just an
allegation which need not be passed upon by this Board.
Petitioner appealed further to the Office of the President. Again, on April 11, 1989, its appeal was
dismissed for lack of merit and the questioned decision of the HLURB was affirmed (p. 32, Rollo). On
September 26, 1989, the motion for reconsideration was denied for lack of merit (p. 36, Rollo). Hence, the
present petition, wherein petitioner raises the following issues (pp. 9-10 Rollo):
21
1. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE RESPECT
ERRED IN NOT APPLYING SETTLED JURISPRUDENCE AND THE PROVISION OF
LAW APPLICABLE IN THIS CASE.
2. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE RESPECT,
ERRED IN ARRIVING AT A CONCLUSION CONTRADICTORY OF (sic) THE FACTS
AND EVIDENCE, AMOUNTING TO GRAVE ABUSE OF DISCRETION.
Mainly, petitioner asseverates that in granting both remedies of specific performance and rescission,
public respondent ignored a well-pronounced rule that these remedies cannot be availed of at the same
time. There is no evidence showing that private respondent had offered to pay the expenses for the
transfer of the title. Furthermore the amount of 24% interest imposed by the OAALA in case of refund is
high and without basis: firstly, HLURB Resolution No. R-421, series of 1988, strictly enjoins the maximum
interest to be awarded in case of refund to 12%; secondly, although condition no. 1 of their contract to sell
provides for said rate of interest, it merely applies to interest on installment payments but not with respect
to refunds; thirdly, since the contract between them is not a forbearance of money or loan, the doctrine
laid down in the case of Reformina v. Tomol, Jr., G.R. No. 59096, 139 SCRA 260 applies, that is, except
where the action involves forbearance of money or loan, interest which courts may award is only up to
12% (should be 6%). Finally, inasmuch as issuance of the title has not yet been effected because of the
take over by Comsavings Bank of Royal Savings Bank, the period specified under Section 25 of P.D. No.
957 has not begun to run for the purpose of redemption.
The arguments advanced by petitioner utterly lack merit.
It is plain enough in the OAALA decision that rescission is being ordered only in the event specific
performance is not feasible. Moreover, petitioner is already estopped from raising this issue because in its
appeal memorandum submitted before the HLURB, it leaded that (p. 28, Rollo):
5. Appellant prays that it be given a period/time to redeem the title or the demand for
issuance of title be suspended from the Comsavings Bank before any deed of absolute
sale be executed so that the Transfer Certificate of Title be issued and/or refund be
ordered.
The OAALA found as a fact that "the complaint-appellee was ready, willing and able to pay for the
expenses for the transfer of title as stipulated in the Contract to Sell . . . " (p. 22, Rollo). We accord
respect and finality to this finding (Filipinas Manufacturers Bank v. NLRC, et al., G.R. No. 72805, February
28, 1990, 182 SCRA 848; Vda. de Pineda, et al. v. Pea, etc., et al., G.R. No. 57665, July 2, 1990, 187
SCRA 22).
We adopt the disposition of the Office of the Solicitor General on the correct rate of interest as Our own
(pp. 124-125, Rollo):
The ruling in Reformina v. Tomol, it must be underscored, deals exclusively with cases
where damages in the form of interest is due but no specific rate has been previously set
by the parties. In such cases, the legal interest of 12% per annum must be applied. In the
present case, however, the interest rate of 24% per annum was mutually agreed upon by
petitioner and private respondent in their contract to sell this was the interest rate
imposed on private respondent for the payment of the installments on the contract price
22
and there is no reason why this same interest rate should not be equally applied to
petitioner which is guilty of violating the reciprocal obligation.
In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), a subdivision owner, in
violation of their Offsetting Agreement, incurred delay in the delivery of a house and lot to
the supplier of the construction materials. On review, the issue of which rate of interest
the 6% per annum which was then the legal interest or the stipulated interest rate of 12%
was raised. This Honorable Court ruled:
On the matter of interest, we agree with the trial court and the Court of
Appeals that the proper rate of interest is twelve (12%) per centum per
annum, which is the rate of interest expressly agreed upon in writing by
the parties, as appearing in the invoices (Exhibits "C" and "D"), and
sanctioned by Art. 2209 of the Civil Code, . . .(Emphasis supplied)
It is, thus, evident that if a particular rate of interest has been expressly stipulated by the
parties, that interest, not the legal rate of interest, shall be applied.
Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or developer, in the event the
mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, to redeem
the mortgage or the corresponding portion thereof within six months from such issuance. We focus Our
attention on the period of "six months" to be reckoned "from the issuance of the title." Supposing there is
no such issuance of the title, as in this case, from what event is the six month period to be counted? Or,
will this period not begin to run at all unless the title has been issued? The argument of petitioner that the
issuance of the title is a prerequisite to the running of the six month period of redemption, fails to convince
Us. Otherwise, the owner or developer can readily concoct a thousand and one reasons as justifications
for its failure to issue the title and in the process, prolong the period within which to deliver the title to the
buyer free from any liens or encumbrances. Additionally, by not issuing/delivering the title of the lot to
private respondent upon full payment thereof, petitioner has already violated the explicit mandate of the
first sentence of Section 25 of P.D. No. 957. If We were to count the six month period of redemption from
the belated issuance of the title, petitioner will have a lot to gain from its own non-observance of said
provision. We shall not countenance such absurdity. Of equal importance as the preceding ratiocination
are the reasons behind the enactment of P.D. No. 957, as expressed succinctly in its "whereas" clauses,
to wit:
WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and
operators, such as failure to deliver titles to the buyers or titles free from liens and
encumbrances, and to pay real estate taxes, and fraudulent sales of the same
subdivision lots to different innocent purchasers for value;
WHEREAS, these acts not only undermine the land and housing program of the
government but also defeat the objectives of the New Society, particularly the promotion
of peace and order and the enhancement of the economic, social and moral condition of
the Filipino people;
23
WHEREAS, this state of affairs has rendered it imperative that the real estate subdivision
and condominium businesses be closely supervised and regulated, and that penalties be
imposed on fraudulent practices and manipulations committed in connection therewith.
ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Office of the President dated
April 11, 1989 and its resolution dated September 26, 1989 are AFFIRMED.
SO ORDERED.
PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and

AMBROSIO PADILLA, Respondents.
The Chief Legal Counsel for Petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for Private Respondent.
SYLLABUS
1. COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF
INTEREST RATE; NOT TO BE MADE OFTENER THAN ONCE A YEAR. PNB, over the
objection of the private respondent, and without authority from the Monetary Board, within a
period of only four (4) months, increased the 18% interest rate on the private respondents 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. Although Section 2, P.D. No. 116 of
January 29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of
interest for loans or renewal thereof and to change such rate or rates whenever warranted by
prevailing economic and social conditions, it expressly provides that "such changes shall not be
made oftener than once every twelve months. "If the Monetary Board itself was not authorized to
make such changes oftener than once a year, even less so may a bank which is subordinate to the
Board.
2. ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB CIRCULARS
AND RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS OF MONETARY
BOARD. While the private respondent-debtor did agree in the Deed of Real Estate Mortgage
(Exh. 5) 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"
(Exh. 5-e-1) or "within the limits allowed by law" (Promissory Notes, Exhs. 2, 3, and 4), no laws
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 to effectuate the increases. The PNB relied on its own Board Resolution No. 681 (Exh.
10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those
24
resolution and circulars are neither laws nor resolutions of the Monetary Board.
3. ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES DOES NOT
AUTHORIZE BANKS TO UNILATERALLY AND SUCCESSIVELY INCREASE INTEREST
RATES. CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury law ceiling on
interest rates but it did not authorize the PNB, or any bank for that matter, to unilaterally and
successively increase the agreed interest rates from 18% to 48% within a span of four (4)
months, in violation of P.D. 116 which limits such changes to "once every twelve months."
cral aw virtua1aw library
4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION

OF ARTICLE 1308 OF CIVIL CODE. Besides violating P.D. 116, the unilateral action of the
PNB in increasing the interest rate on the private respondents loan, violated the mutuality of
contracts ordained in Article 1308 of the civil Code: "ART. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them."
5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF

ARTICLE 1956 OF CIVIL CODE. PNBs successive increases of the interest rate on the
private respondents loan, over the latters protest, were arbitrary as they violated an express
provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by
an instrument in writing signed by the party to be bound as burdened by such amendment." The
increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no
interest shall be due unless it has been expressly stipulated in writing."
DECISION
GRIO-AQUINO, J.:
The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated
on June 27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled, "AMBROSIO
PADILLA, plaintiff-appellant versus PHILIPPINE NATIONAL BANK, defendant-appellee,"
reversing the decision of the trial court which had dismissed the private respondents complaint
"to annul interest increases." (p. 32, Rollo.) The Court of Appeals rendered judgment:
jgc:chanrobles.com.ph
". . . declaring the questioned increases of interest as unreasonable, excessive and arbitrary and
ordering 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. Costs against the
defendant-appellee." (pp 14-15, Rollo.)
In July 1982, the private respondent applied for, and was granted by petitioner 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. Private respondent executed in favor of the PNB a Credit Agreement, two (2)
promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract.
The Credit Agreement provided that
25
"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of
the Central Bank and the current and general policies of the Bank and those which the Bank may
adopt in the future, which may have relation to or in any way affect the Line, which rules,
regulations and policies are incorporated herein by reference as if set forth herein in full.
Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and
deliver such documents and instruments, in form and substance satisfactory to the Bank, in order
to effectuate or otherwise comply with such rules, regulations and policies." (p. 85, Rollo.)
The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18%
interest per annum "within the limits allowed by law at any time depending on whatever policy it
[PNB] may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by
law or by the Monetary Board." (pp. 85-86, Rollo; Emphasis ours.)
The Real Estate Mortgage Contract likewise provided that:
"(k) INCREASE OF INTEREST RATE

"The rate of interest charged on the obligation secured by this mortgage as well as the interest on
the amount which may have been advanced by the MORTGAGEE, in accordance with the
provisions hereof, shall be subject during the life of this contract to such an increase within the
rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors." (p. 86, Rollo; Emphasis supplied.)
Four (4) months advance interest and incidental expenses/charges were deducted from the loan,
the net proceeds of which were released to the private respondent by crediting or transferring the
amount to his current account with the bank.
chanrobl es.com : virtual law library
On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million
"will expire on July 4, 1984," (2)" [i]f renewal of the line for another year is intended, please
submit soonest possible your request," and (3) the "present policy of the Bank requires at least
30% reduction of principal before your line can be renewed." (pp. 86-87, Rollo.) Complying,
private respondent on June 25, 1984, paid PNB P540,000 00 (30% of P1.8 million) and
requested that "the balance of P1,260,000.00 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%" (p. 87, Rollo.).
On July 4, 1984, private respondent paid PNB P360,000.00.
On July 18, 1984, private respondent reiterated in writing his request that "the increase in the rate
of interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.)
On July 26, 1984, private respondent made an additional payment of P100,000.
On August 10, 1984, PNB informed private respondent that "we can not give due course to your
26
request for preferential interest rate in view of the following reasons: Existing Loan Policies of
the bank requires 32% for loan of more than one year; our present cost of funds has substantially
increased." (pp. 8788, Rollo.)
On August 17, 1984, private respondent further paid PNB P150,000.00.
In a letter dated August 24, 1984 to PNB, private respondent announced that he would "continue
making further payments, and instead of a loan of more than one year, I shall pay the said loan
before the lapse of one year or before July 4, 1985. . . . I reiterate my request that the increase of
my rate of interest from 18% be fixed at 21% or 24%." (p. 88, Rollo.)
On September 12, 1984, private respondent paid PNB P160,000.00.
In letters dated September 12, 1984 and September 13, 1984, PNB informed private respondent
that "the interest rate on your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a.
(35% prime rate + 6%) effective September 6, 1984;" and further explained "why we can not
grant your request for a lower rate of 21% or 24%." (pp. 88-89, Rollo.)
In a letter dated September 24, 1984 to PNB, private respondent registered his protest against the
increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41% on September 6,
1984.
On October 15, 1984, private respondent reiterated his request that the interest rate should not be
increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a check for
P140,000.00.
chanrobles.com.ph : virtual law library
Like rubbing salt on the private respondents wound, the petitioner informed private respondent
on October 29, 1984, that "the interest rate on your outstanding line/loan is hereby adjusted from
41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective 25 October 1984." (p. 89,
Rollo.)
In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan
obligation to P300,000.00.
On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a
complaint against PNB entitled, "AMBROSIO PADILLA v. PHILIPPINE NATIONAL BANK"
(Civil Case No. 84-28391), praying that judgment be rendered:
"a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and
again to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his interest
rate from 18% to 24% is reasonable, fair and just;
"b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from said
date and not from July 4, 1984;
"c. The excess of interest payment collected by defendant bank by debiting plaintiffs current
27
account be refunded to plaintiff or credited to his current account;

"d. Pending the determination of the merits of this case, a restraining order and or a writ of
preliminary injunction be issued (1) to restrain and or enjoin defendant bank for [sic] collecting
from plaintiff and/or debiting his current account with illegal and excessive increases of interest
rates; and (2) to prevent defendant bank from declaring plaintiff in default for non-payment and
from instituting any foreclosure proceeding, extrajudicial or judicial, of the valuable commercial
property of plaintiff." (pp. 89-90, Rollo.)
In its answer to the complaint, PNB denied that the increases in interest rates were illegal,
unilateral excessive and arbitrary and recited the reasons justifying said increases.
On March 31, 1985, the private respondent paid the P300,000 balance of his obligation to PNBN
(Exh. 5).
The trial court rendered judgment on April 14, 1986, dismissing the complaint because the
increases of interest were properly made.
The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of Appeals
reversed the trial court, hence, NBs recourse to this Court by a petition for review under Rule 45
of the Rules of Court.
The assignments of error raised in PNBs petition for review can be resolved into a single legal
issue of whether the bank, within the term of the loan which it granted to the private respondent,
may unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased.
The answer to that question is no.
In the first place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the Monetary
Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to
change such rate or rates whenever warranted by prevailing economic and social conditions, it
expressly provides that "such changes shall not be made oftener than once every twelve
months."
In this case, PNB, over the objection of the private respondent, and without authority from the
Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the
private respondents 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 oftener than once a year, even
less so may a bank which is subordinate to the Board.
chanrobles law library : red
Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did agree
in the Deed of Real Estate Mortgage (Exh. 5) 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" (Exh. 5-e-1) or "within the limits allowed by law"
28
(Promissory Notes, Exs. 2, 3, and 4), 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 to effectuate the increases. The Court
of Appeals observed.
". . . We focus Our attention first of all on the agreement between the parties as embodied in the
following instruments, to wit: (1) Exhibit 1 Credit Agreement dated July 1, 1982; (2) Exhibit
2 Promissory Note dated July 5, 1982; (3) Exhibit (3) Promissory Note dated January 3,
1983; (4) Exhibit 4 Promissory Note, dated December 13, 1983; and (5) Exhibit 5 Real
Estate Mortgage contract dated July 1, 1982.
"Exhibit 1 states in its portion marked Exhibit 1-g-1:
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9 .06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of
the Central Bank and the current and general policies of the Bank and those which the Bank may
adopt in the future, which may have relation to or in any way affect the Line, which rules,
regulations and policies are incorporated herein by reference as if set forth herein in full.
Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and
deliver such documents and instruments, in form and substance satisfactory to the Bank, in order
to effectuate or otherwise comply with such rules, regulations and policies.
"Exhibits 2, 3, and 4 in their portions respectively marked Exhibits 2-B, 3-B, and 4-B
uniformly authorize the defendant bank to increase the stipulated interest rate of 18% per annum
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 note shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law or by the Monetary Board.
"Exhibit 5 in its portion marked Exhibit 5-e-1 stipulates:
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(k) INCREASE OF INTEREST RATE

The rate of interest charged on the obligation secured by this mortgage as well as the interest on
the amount which may have been advanced by the MORTGAGEE, in accordance with the
provisions hereof, shall be subject during the life of this contract to such an increase within the
rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
"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, it being declared the obligation of the plaintiff as borrower to
execute and deliver the corresponding documents and instruments to effectuate the increase."
(pp. 11-12, Rollo.)
In Banco Filipino Savings and Mortgage Bank v. Navarro, 15 SCRA 346 (1987), this Court
disauthorized the bank from raising the interest rate on the borrowers loan from 12% to 17%
despite an escalation clause in the loan agreement signed by the debtors authorizing Banco
29
Filipino "to correspondingly increase the interest rate stipulated in this contract without advance
notice to me/us in the event a law should be enacted increasing the lawful rates of interest that
may be charged on this particular kind of loan." (Emphasis supplied.)
chanrobles virtual lawlibrary
In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1,
1976 (72 O.G. No. 3, p. 676-J) which provided that "the maximum rate of interest, including
commissions premiums, fees and other charges on loans with a maturity of more than 730 days
by banking institution . . . shall be 19%."
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This Court disallowed the increase for the simple reason that said "Circular No. 494, although it
has the effect of law is not a law." Speaking through Mme. Justice Ameurfina M. Herrera, this
Court held:
jgc:chanrobl es.com.ph
"It is now clear that from March 17, 1980, escalation clauses to be valid should specifically
provide: (1) that there can be an increase in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction
of the stipulated interest in the event that the applicable maximum rate of interest is reduced by
law or by the Monetary Board." p. 111, Rollo.).
In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB
Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those
resolution and circulars are neither laws nor resolutions of the Monetary Board.
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates
". . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law."
but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation
of PD. 116 which limits such changes to "once every twelve months."
Besides violating PD. 116, the unilateral action of the PNB in increasing the interest rate on the
private respondents loan, violated the mutuality of contracts ordained in Article 1308 of the
Civil Code:
jgc:chanrobl es.com.ph
"ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them."
cralaw virtua1aw library
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 (Garcia v. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan agreement between the PNB and the private
respondent 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
30
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 partys (the debtor) participation being reduced to the alternative "to take it or leave
it" (Qua v. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for
the weaker party whom the courts of justice must protect against abuse and imposition.
PNBS successive increases of the interest rate on the private respondents loan, over the latters
protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1)
Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party
to be bound as burdened by such amendment." The increases imposed by PNB also contravene
Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has been
expressly stipulated in writing."
The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond
24% per annum, hence, he is not bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a period of four (4) months is
excessive, as found by the Court of Appeals, is indisputable.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R.
CV No. 09791, the Court resolved to deny the petition for review for lack of merit, with costs
against the petitioner.
SO ORDERED.
31
G.R. No. 76518 July 13, 1990

IRENE P. RELUCIO, petitioner,
vs.
ZEIDA B. BRILLANTE-GARFIN and COURT OF APPEALS, respondents.
Orlando A. Martizano for petitioner.
Sivestre V. Garfin for private respondent.
RESOLUTION
FELICIANO, J.:
On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a complaint in the lower court for specific performance with damages
against petitioner Irene P. Relucio, to compel the latter to: (a) execute, in compliance with the Contract to Buy and Sell in question, a final
deed of sale in favor of the former over two (2) residential subdivision lots in the Mariano Village Subdivision, Naga City; and (b) construct
paved roads on the northern and southern sides of the lots, as "necessary facilities, improvements, infrastructures and other forms of
development of the subdivision area." Private respondent alleged that the lots, which have a total contract price of P10,800.00, have already
been paid for, as she had already paid P200.00 as down payment, and had subsequently completed payment of 128 equal monthly
installments of P89.45 each amounting to P11,450.00; that as the law allows the charging of interest only as monetary interest or as
compensatory interest, none of which have obtained in her case, as she had never incurred in delay in the payment of installments due, the
stipulated interest of six percent (6%) per annum on the outstanding balance is null and void; and that the amount of 650.00 representing
overpayment be returned to her.
Petitioner resisted the complaint, maintaining that private respondent, contrary to the latter's allegations, is obliged to pay interest on the
installment payments of the unpaid outstanding balance even if paid on their "due dates" per schedule of payments; that private respondent
had actually been in arrears in the amount of P4,269.40, representing such interest as of June 1979, which therefore entitled petitioner to
cancel the contract in question. Petitioner then prayed for judicial affirmance of her Notarial Notice of Cancellation over the said contract in
question.
The lower court ordered petitioner:
1. To execute a deed of absolute sale of the two lots described in the complaint in favor of the plaintiff to enable the
latter to secure the corresponding certificate of title in her name within thirty (30) days from the finality of this Decision;
32
2. To construct or cause the construction of roads on the Northern and Southern sides of the said two lots in
accordance with the contract if any, and in conformity with the City of Naga planning ordinance relative to this case;
3. The return to the plaintiff the excess payment of P650.00, plus 6% interest per annum from the date of the filing of
the complaint; and
To pay to the plaintiff attorney's fees in the sum of P l,000.00 and the costs of suit.
The Court of Appeals affirmed in A.C.-GR CV No. 03194 by a

Decision 2 dated 17 July 1986.
Petitioner now comes to this Court, arguing that she has the right to rescind the contract for private
respondent's continued refusal to pay the monthly installments on the contract price.
Two issues are presented for resolution in this petition: (1) whether or not private respondent has fully
paid the stipulated price in the contract so as to be entitled lawfully to demand the execution of a deed of
absolute sale in her favor. This issue in turn will depend on the question of whether or not petitioner may
validly charge interest on installment payments, notwithstanding that private respondent had been prompt
in her monthly payments; and (2) whether or not petitioner's notice of cancellation was valid and effective.
Examination of the record shows that the questioned Contract to Buy and Sell the subdivision lots
provided for payment by private respondent of the sum of P200.00 as downpayment, and that "the
balance [of P10,600.00] shall be paid in 180 monthly installments at P89.45 per month, including interest
rate at six percent (6%) per annum, until the purchase price is fully paid." 3 This stipulation clearly
specified that an interest charge of six percent (6%) per annum was included in the monthly installment
price: private respondent could not have helped noticing that P89.45 multiplied by 180 monthly
installments equals P16,101.00, and not P10,600.00. The contract price of P10,800.00 may thus be seen
to be the cash price of the subdivision lots, that is, the amount payable if the price of the lots were to be
paid in cash and in full at the execution of the contract; it is not the amount that the vendor will have
received in the aggregate after fifteen (15) years if the vendee shall have religiously paid the monthly
installments. The installment price, upon the other hand, of the subdivision lots-the sum total of the
monthly installments (i.e., P16,101.00) typically, as in the instant case, has an interest component which
compensates the vendor for waiting fifteen (15) years before receiving the total principal amount of
P10,600.00. Economically or financially, P10,600.00 delivered in full today is simply worth much more
than a long series of small payments totalling, after fifteen (15) years, P10,600.00. For the vendor, upon
receiving the full cash price, could have deposited that amount in a bank, for instance, and earned
interest income which at six percent (6%) per year and for fifteen (15) years, would precisely total
P5,501.00 (the difference between the installment price of P16,101.00 and the cash price of
P10,600.00) To suppose, as private respondent argues, that mere prompt payment of the monthly
installments as they fell due would obviate application of the interest charge of six percent (6%) per
annum, is to ignore that simple economic fact. That economic fact is, of course, recognized by law, which
authorizes the payment of interest when contractually stipulated for by the parties 4 or when implied in
recognized commercial custom or usage.
Vendor and vendee are legally free to stipulate for the payment of either the cash price of a subdivision lot
or its installment price. Should the vendee opt to purchase a subdivision lot via the installment payment
system, he is in effect paying interest on the cash price, whether the fact and rate of such interest
payment is disclosed in the contract or not. The contract for the purchase and sale of a piece of land on
33
the installment payment system in the case at bar is not only quite lawful; it also reflects a very wide
spread usage or custom in our present day commercial life.
Applying the foregoing analysis to the case at bar: when private respondent started paying monthly
installments in September 1968, the initial P89.45 was apportioned between the principal and the interest,
with P53.00 5 being allocated to service the interest charge and P36.45 6 being credited to the principal.
During the succeeding monthly payments, however, as the outstanding balance on the principal gradually
declined, the interest component (in absolute terms) correspondingly fell while the component credited to
the principal increased proportionately, thus amortizing the balance of the principal purchase prize as that
balance gradually declined. 7 This explains petitioner's theory of declining balance, which unfortunately
was not appreciated by both the trial and appellate courts.
Despite private respondent's failure to fully pay the stipulated price of the two lots in question, petitioner,
however, could not validly rescind the contract not being lawfully entitled to do so. Petitioner failed to rebut
private respondents' allegations that the former had failed to introduce required improvements in the
subdivision; the former's bare allegation that the improvements have already been donated to the city
government was not accepted by the trial court. Section 23 of Presidential Decree No. 957, otherwise
known as The Subdivision and Condominium Buyers' Protective Decree, provides:
Section 23. Non-forfeiture of Payments. No installment payment made by the buyer in
a subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the owner
or developer desists front further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and
within the time limit for complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid. . . (Emphasis supplied)
In this respect, the trial court was correct in holding that petitioner could not rescind the contract.
As the law vests upon the buyer the option to demand reimbursement of the total amount paid, or
to wait for further development of the subdivision, private respondent who opted for the latter
alternative by waiting for the proper development of the site, may not be ousted from the
subdivision. 8
ACCORDINGLY, the Court Resolved to GRANT the Petition due course and to SET ASIDE and NULLIFY
the Decision of the Court of Appeals. In lieu thereof, a new Decision is hereby RENDERED requiring
1. the petitioner to complete the necessary improvements and developments in the
subdivision area in accordance with the approved subdivision plans and applicable
provisions of P.D. No. 957 as well as applicable implementing administrative regulations
and City of Naga zoning ordinances, if any;
2. private respondent immediately to resume paying installment payments under her
Contract to Buy and Sell with petitioner, subject to her right to proceed against petitioner
should petitioner fail again to comply with her obligations under P.D. No. 957; and
3. petitioner to execute the Deed of Absolute Sale when private respondent shall have
fully paid the purchase price in accordance with the mentioned Contract to Buy and Sell.
34
No pronouncement as to costs.
Eastern Shipping vs CA Credit Digest

Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The
shipment as insured with a marine policy. Upon arrival in Manila unto the custody of
metro Port Service, which excepted to one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance Company. Allied Brokerage
Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse. The latter excepted to
one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the
consignee, so that it became subrogated to all the rights of action of consignee
35
against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The
insurance company filed before the trial court. The trial court ruled in favor of
plaintiff an ordered defendants to pay the former with present legal interest of 12%
per annum from the date of the filing of the complaint. On appeal by defendants,
the appellate court denied the same and affirmed in toto the decision of the trial
court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be
computed from the time the complaint is filed from the date the decision appealed
from is rendered.
HELD
(1)
The Court held that the legal interest is 6% computed from the
decision of the court a quo. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the amount of damaes awarded
may be imposed at the discretion of the court at the rate of 6% per annum. No
interest shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final
and executor, the rate of legal interest shall be 12% per annum from such finality
until satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2)
From the date the judgment is made. Where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or EJ but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shll begin to run only from
the date of judgment of the court is made.
36
(3) The Court held that it should be computed from the decision rendered by the court
a quo.
.R. No. L-47180 May 19, 1980

THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, INC., petitioner-appellant,
vs.
THE HON. JOSE P. FLORES, and CONCORDIA G. NAVALTA, respondents-appellees.
ABAD SANTOS, J.:+.wph!1

Petition to review the Order of the respondent judge dated August 24, 1977. The facts are simple.
Private respondent was the plaintiff and the petitioner was the defendant in Civil Case No. 2414 of the
Court of First Instance of La Union. On January 22, 1973, the respondent judge rendered judgment in
said case, the dispositive portion of which reads: t.hqw
37
IN VIEW OF THE FOREGOING, the Court hereby renders judgment and sentences the
defendant to pay Concordia Garcia Navalta the amount of P75,000.00 with legal interest
from October, 1968, Pl,000.00, as attorney's fees am the cost of suit.
The decision was appealed by the petitioner to the Court of Appeals in CA-G.R. No. 52675-R but was
affirmed on February 7, 1977. On February 24, 1977, the petitioner paid the following amounts to the
private respondent: t.hqw
On the principal P75,000.00
Interest at 6% per annum
from Oct. 1968* to April 30,
1977 P 38,250.00
Attorney's fee P 1,000.00
Total P114,250.00
(*Art. 2209 of the Civil Code provides: "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." This appears
to be the basis for awarding interest at the legal rate from October, 1968, although the
debt was judicially demanded only on July 6, 1970.)
The petitioner was advised by the respondent and her counsel that the payment was not in fun
satisfaction of the judgment because the former had to pay compound interest or an additional sum of
P10,375.77.
Upon refusal of the petitioner to pay the sum additionally claimed, the private respondent secure a writ of
execution for the same which the former sought to quash over the opposition of the latter. In resolving the
question the respondent judge issued an Order on August 24, 1977 as follows: t.hqw
After hearing and consideration of the motion of the plaintiff for the issuance of an alias
writ of execution, and the written manifestation and opposition filed by the defendant and
finding as it appears that the written schedule of interest computation, which was
submitted, is correct and in order, because compound interest has been computed from
July 6, 1970 when the claim was judicially demanded, let an alias writ of execution issue
to satisfy accordingly the unpaid balance as demanded.
It is this Order which is the object of this petition and which raises the question as to whether or not the
petitioner is obligated to pay compound interest under the judgment.
The questioned Order cannot be sustained. The judgment which was sought to be executed ordered the
payment of simple "legal interest" only. It said nothing about the payment of compound interest.
Accordingly, when the respondent judge ordered the payment of compound interest he went beyond the
38
confines of his own judgment which had been affirmed by the Court of Appeals and which had become
final. Fundamental is the rule that execution must conform to that ordained or decreed in the dispositive
part of the decision. Likewise, a court can not, except for clerical errors or omissions, amend a judgment
that has become final. (Jabon, et al. vs. Alo, et al., 91 Phil. 750 [1952]; Robles vs. Timario, et al., 107 Phil.
809 [1960]; Collector of Internal Revenue vs. Gutierrez, et al., 108 Phil. 215 [1960]; Ablaza vs. Sycip, et
al., 110 Phil., 4 [1960].)
Private respondent invokes Sec. 5 of the Usury Law which reads in part as follows: "In computing the
interest on any obligation, promissory note or other instrument or contract, compound interest shall not be
reckoned, except by agreement, or, in default thereof, whenever the debt is judicially claimed in which last
case it shall draw six per centum per annum interest ..." as well as Art. 2212 of the Civil Code which
stipulates: "Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point." Both legal provisions are in applicable for they contemplate the
presence of stipulated or conventional interest which had accrued when demand was judicially made.
(Sunico vs. Ramirez, 14 Phil. 500 [1909]; Salvador vs. Palencia, 25 Phil. 661 [1913]; Bachrach vs.
Golingco, 39 Phil. 912 [1919]; Robinson vs. Sackermann 46 Phil. 539 [1924]; Philippine Engineering Co.
vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs. Mabalacat Sugar Co., 54 Phil. 916 [1930].) In this case
no interest had been stipulated by the parties. In other words, there was no accrued conventional interest
which could further earn interest upon judicial demand.
WHEREFORE, the Order dated August 24, 1977, of the respondent judge is hereby set aside. No special
pronouncement as to costs.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr., and De Castro,* JJ., concur.1

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1

Lessons Applicable: Simple Loan

August 13, 1984: Notice of sheriff's sale was published

contract of loan involves a reciprocal obligation, wherein the obligation or promise of

L-49101 October 24, 1983

CFI: Dismissed the complaint with costs against the Bonnevies

ISSUE: W/N the forclosure on the mortgage is validly executed.

Laws Applicable: Commodatum

RTC: granted the action

Date: September 31, 1988

G.R. No. L-46240

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

Consolidated Bank and Trust Corporation

G.R. No. L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

G.R. No. 96494 May 28, 1992

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and

4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION

5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF

"(k) INCREASE OF INTEREST RATE

account be refunded to plaintiff or credited to his current account;

chanrob1es virtual 1aw library

chanrob1es virtual 1aw library

(k) INCREASE OF INTEREST RATE

cral aw virtua1aw library

G.R. No. 76518 July 13, 1990

The Court of Appeals affirmed in A.C.-GR CV No. 03194 by a

Eastern Shipping vs CA Credit Digest

The interest due shall be 12% PA to be computed fro default, J or EJD.

.R. No. L-47180 May 19, 1980

ABAD SANTOS, J.:+.wph!1

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