©D2017 - CREDIT - Simple Loan

PEOPLE OF THE PHILIPPINES, Petitioners, vs.
T E R E S I T A P U I G a n d R O M E O
PORRAS,Respondent. On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia,
that the information must state the acts or omissions complained of as constitutive of the offense.
FACTS:
Th e pe t it ion e rs filed before the RTC of Iloilo 112 cases of Qualified Theft against respondents On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court,
Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, provides that the Information need not use the exact language of the statute in alleging the acts or
of private complainant Rural Bank of Pototan, Inc for taking various amounts of money with grave omissions complained of as constituting the offense. The test is whether it enables a person of
abuse of confidence, and without the knowledge and consent of the bank, to the damage and common understanding to know the charge against him, and the court to render judgment properly.
prejudice of the bank. The RTC dismissed the cases and refused to issue a warrant of arrest against
Puig and Porras on the ground of lack of probable cause because the complaint failed to state the The portion of the Information relevant to this discussion reads:
facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking
without the consent of the owner, since the owner of the money is not the Bank, but the depositors Respondents conspiring, confederating, and helping one another, with grave abuse of
therein. MR was filed but it was also denied. confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan,
Iloilo, without the knowledge and/or consent of the management of the Bank x x x.
ISSUE: WON the 112 informations for qualified theft sufficiently allege the element of taking without
the consent of the owner, and the qualifying circumstance of grave abuse of confidence. It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their
HELD: Yes. employer. Banks, on the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by two jurisprudence. The relationship between banks and depositors has been held to be that of creditor
degrees than those respectively specified in the next preceding article, if committed by a domestic and debtor. Articles 1953 and 1980 of the NCC, as appropriately pointed out by petitioner, provide as
servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or follows:
large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a
fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic Article 1953. A person who receives a loan of money or any other fungible thing acquires the
eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.) ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
property without violence or intimidation against persons or force upon things. The elements of the governed by the provisions concerning loan.
crime under this Article are:
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
1. Intent to gain; possession by the Bank of the money deposits therein, and the duties being performed by its
2. Unlawful taking; employees who have custody of the money or have come into possession of it. The Court has
3. Personal property belonging to another; consistently considered the allegations in the Information that such employees acted with grave
4. Absence of violence or intimidation against persons or force upon things. abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as
owner of the money deposits, as sufficient to make out a case of Qualified Theft
To fall under the crime of Qualified Theft, the following elements must concur:
Where the Informations merely alleged the positions of the respondents; that the crime was
1. Taking of personal property; committed with grave abuse of confidence, with intent to gain and without the knowledge and
2. That the said property belongs to another; consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by
3. That the said taking be done with intent to gain; respondents, of a relation by reason of dependence, guardianship or vigilance, between the
4. That it be done without the owners consent; respondents and the offended party that has created a high degree of confidence between them,
5. That it be accomplished without the use of violence or intimidation against persons, nor of force which respondents abused,[12] and without employing the word owner in lieu of the Bank were
upon things; considered to have satisfied the test of sufficiency of allegations.
6. That it be done with grave abuse of confidence.
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As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this BPI refused to heed Franco’s demands to unfreeze his accounts and release his deposits therein.
case, there is even no reason to quibble on the allegation in the Informations that they acted with Hence, Franco filed this suit. Franco alleged that his accounts were funded by the 2M which he
grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by collected as a fee in introducing Teves to BPI-FB’s Bank Manager, Sebastian.
accused herein is even more precise, as this is exactly the requirement of the law in qualifying the
crime of Theft. Defense: BPI insisted it had a better right to the amounts which consisted of part of the money
allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts. BPI-FB
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees asseverated that the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco
of the Bank, who are entrusted with the possession of money of the Bank due to the confidence between Teves and Sebastian spoke volumes on Franco’s participation in the scam. BPI urges that
reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all as a legal consequence of FMIC’s forgery it had the right to set up its ownership thereon and freeze
the essential elements constituting the crime of Qualified Theft. Franco’s accounts.
BPI FAMILY BANK v AMADO FRANCO and CA ISSUE: WON BPI is the proper owner of the funds deposited in Franco’s account
23 Nov 2007 || Nachura, J.
HELD: Yes, there is a transfer of ownership of the money deposited by Franco, but BPI has a
FACTS correlative obligation as a DEBTOR to Franco, the depositor, to pay such amount upon demand
Case based on fraud on P allegedly by R in conspiracy with other individuals,some of whom opened RULING: There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch. not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account.
BPI-FB conveniently forgets that the deposit of money in banks is governed by the Civil Code
August 15, 1989: Tevesteco Arrastre-Stevedoring Co., Inc. Owned by Eladio Teves provisions on simple loan or mutuum.
opened a savings and current account with BPI-FB.
August 25, 1989: First Metro Investment Corporation (FMIC) opened a time deposit As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
account with the same branch of BPI-FB with a deposit of 100M, to acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding
mature one year thence. obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in Franco’s
August 31, 1989: Franco opened three accounts (current, savings, time deposit). The accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks
current and savings accounts were funded with 500k each, while the against his current account, or asking for the release of the funds in his savings account. Thus, when
time deposit account had 1M with a 1-year maturity. These amounts Franco issued checks drawn against his current account, he had every right as creditor to expect that
are traceable to a check issued by Tevesteco in consideration of those checks would be honored by BPI-FB as debtor.
Franco’s introducing Eladio Teves (Tevesteco Owner) to Jaime SC ruled that BPI cannot shift its liability to FMIC by garnishing the amount from Franco’s accout.
Sebastian (BPI-FB Manager), while Teves was looking for a depository Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures
bank. This 2M check was part of the 80M debited by BPI-FB from of its customers. Having failed to detect the forgery in the Authority to Debit and in the process
FMIC’s time deposit account and credited to Tevesteco’s current inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
account pursuant to an Authority to Debit purportedly signed by FMIC’s Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their
officers. respective accounts without the appropriate court writ or a favorable final judgment.
It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged. Spouses Silos v. Philippine National Bank, G.R. No. 181045, July 2, 2014
BPI’s Senior Vice-President, Severino Coronacion, instructed Jesus Arangorinto to debit Franco’s
savings and current accounts for the amounts remaining therein. Franco’s check’s were dishonored FACTS: Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades
with a notation “account under garnishment” before Franco found that there was a case of of operating a department store and buying and selling of ready-to-wear apparel. To secure a one-
garnishment against him. Franco’s current account was garnished by virtue of an Order of year revolving credit line of P150,000.00 obtained from PNB, petitioners constituted in August 1987
Attachment issued by the Regional Trial Court of Makati, in a case filed by BPI. a Real Estate Mortgage over a 370-square meter lot in Kalibo, Aklan. In July 1988, the credit line was
increased to P1.8 million and the mortgage was correspondingly increased to P1.8 million. And in
July 1989, a Supplement to the Existing Real Estate Mortgage was executed to cover the same credit
line, which was increased to P2.5 million, and additional security was given in the form of a 134- foregoing amount. Thus, PNB foreclosed on the mortgage, and on January 14, 1999, TCTs T-14250
square meter lot. In addition, petitioners issued eight Promissory Notes and signed a Credit and T-16208 were sold to it at auction for the amount of P4,324,172.96.
Agreement. This July 1989 Credit Agreement contained a stipulation on interest which provides as
follows: COMPLAINT: Petitioners filed Civil Case seeking annulment of the foreclosure sale and an
accounting of the PNB credit. Petitioners theorized that after the first promissory note where they
“1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall agreed to pay 19.5% interest, the succeeding stipulations for the payment of interest in their loan
be payable in advance every one hundred twenty days at the rate prevailing at the time of the agreements with PNB – which allegedly left to the latter the sole will to determine the interest rate –
renewal. became null and void. Petitioners added that because the interest rates were fixed by respondent
without their prior consent or agreement, these rates are void, and as a result, petitioners should only
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on be made liable for interest at the legal rate of 12%. They claimed further that they overpaid interests
whatever policy the Bank may adopt in the future, including without limitation, the shifting from the on the credit, and concluded that due to this overpayment of steep interest charges, their debt should
floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank has now be deemed paid, and the foreclosure and sale of TCTs T-14250 and T-16208 became
imposed on the Loan interest at a rate per annum, which is equal to the Bank’s spread over the unnecessary and wrongful.
current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice
to the Borrower, increase or decrease its spread over the floating interest rate at any time depending In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 made during
on whatever policy it may adopt in the future.10 (Emphases supplied)” the period August 21, 1991 to March 5, 1998, resulting from respondent’s imposition of the alleged
illegal and steep interest rates. They also prayed to be awarded P200,000.00 by way of attorney’s
In August 1991, an Amendment to Credit Agreement was executed by the parties, with the following fees.23
stipulation regarding interest: 1.03. Interest on Line Availments. (a) The Borrowers agree to pay
interest on each Availment from date of each Availment up to but not including the date of full ANSWER: PNB denied that it unilaterally imposed or fixed interest rates; that petitioners agreed that
payment thereof at the rate per annum which is determined by the Bank to be prime rate plus without prior notice, PNB may modify interest rates depending on future policy adopted by it; and that
applicable spread in effect as of the date of each Availment. the imposition of penalties was agreed upon in the Credit Agreement. It added that the imposition of
penalties is supported by the all-inclusive clause in the Real Estate Mortgage agreement which
Under this Amendment to Credit Agreement, petitioners issued in favor of PNB the following 18 provides that the mortgage shall stand as security for any and all other obligations of whatever kind
Promissory Notes, which petitioners settled – except the last (the note covering the principal) The 9th and nature owing to respondent, which thus includes penalties imposed upon default or non-payment
up to the 17th promissory notes provide for the payment of interest at the “ rate the Bank may at any of the principal and interest on due date.
time without notice, raise within the limits allowed by law x x x .”17 On the other hand, the 18th up to
the 26th promissory notes – including PN 9707237, which is the 26 th promissory note – carried the RTC: In favor of the respondent and against the petitioners. While the Credit Agreement allows PNB
following provision:x x x For this purpose, I/We agree that the rate of interest herein stipulated may to unilaterally increase its spread over the floating interest rate at any time depending on whatever
be increased or decreased for the subsequent Interest Periods, with prior notice to the Borrower in policy it may adopt in the future, it likewise allows for the decrease at any time of the same. Thus,
the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of such stipulation authorizing both the increase and decrease of interest rates as may be applicable is
the Philippines, or in the Bank’s overall cost of funds. valid, as was held in Consolidated Bank and Trust Corporation (SOLIDBANK) v. Court of Appeals ;32
Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good on the CA: PARTLY GRANTED. The CA noted that, based on receipts presented by petitioners during trial,
promissory notes, religiously paying the interests without objection or fail. But in 1997, petitioners the latter dutifully paid a total of P3,027,324.60 in interest for the period August 7, 1991 to August 6,
faltered when the interest rates soared due to the Asian financial crisis. Petitioners’ sole outstanding 1997, over and above the P2.5 million principal obligation. All the while, petitioners did not complain
promissory note for P2.5 million – PN 9707237 executed in July 1997 and due 120 days later or on nor object to the imposition of interest; they in fact paid the same religiously and without fail for seven
October 28, 1997 – became past due, and despite repeated demands, petitioners failed to make years. The appellate court ruled that petitioners are thus estopped from questioning the same.
good on the note.
Issue: WON THE COURT OF APPEALS AS WELL AS THE LOWER COURT ERRED IN NOT
Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum . PNB prepared a NULLIFYING THE INTEREST RATE PROVISION IN THE CREDIT AGREEMENT DATED JULY 24,
Statement of Account as of October 12, 1998, detailing the amount due and demandable from 1989 X X X AND IN THE AMENDMENT TO CREDIT AGREEMENT DATED AUGUST 21, 1991 X X X
petitioners in the total amount of P3,620,541.60. Despite demand, petitioners failed to pay the WHICH LEFT TO THE SOLE UNILATERAL DETERMINATION OF THE RESPONDENT PNB THE

ORIGINAL FIXING OF INTEREST RATE AND ITS INCREASE, WHICH AGREEMENT IS letters sent by the bank amounted to their implied acceptance of the increase – should likewise fail.
CONTRARY TO LAW, ART. 1308 OF THE [NEW CIVIL CODE],
With regard to interest, the Court finds that since the escalation clause is annulled, the principal
PETIONER: Petitioners insist that the interest rate provision in the Credit Agreement and the amount of the loan is subject to the original or stipulated rate of interest, and upon maturity, the
Amendment to Credit Agreement should be declared null and void, for they relegated to PNB the sole amount due shall be subject to legal interest at the rate of 12% per annum. This is the uniform ruling
power to fix interest rates. Petitioners also questions the CA’s application of the principle of estoppel, adopted in previous cases, including those cited here. 96 The interests paid by petitioners should be
saying that no estoppel can proceed from an illegal act. Though they failed to timely question the applied first to the payment of the stipulated or legal and unpaid interest, as the case may be, and
imposition of the alleged illegal interest rates and continued to pay the loan on the basis of these later, to the capital or principal.97 Respondent should then refund the excess amount of interest that it
rates, they cannot be deemed to have acquiesced, and hence could recover what they erroneously has illegally imposed upon petitioners; “[t]he amount to be refunded refers to that paid by petitioners
paid. Petitioners argue that if the interest rates were nullified, then their obligation to PNB is deemed when they had no obligation to do so.”98 Thus, the parties’ original agreement stipulated the payment
extinguished as of July 1997; moreover, it would appear that they even made an overpayment to the of 19.5% interest; however, this rate was intended to apply only to the first promissory note which
bank in the amount of P984,287.00. expired on November 21, 1989 and was paid by petitioners; it was not intended to apply to the whole
duration of the loan. Subsequent higher interest rates have been declared illegal; but because only
Respondent: For its part, respondent disputes petitioners’ claim that interest rates were unilaterally the rates are found to be improper, the obligation to pay interest subsists, the same to be fixed at the
fixed by it, taking relief in the CA pronouncement that petitioners are deemed estopped by their legal rate of 12% per annum. However, the 12% interest shall apply only until June 30, 2013. Starting
failure to question the imposed rates and their continued payment thereof without opposition. It adds July 1, 2013, the prevailing rate of interest shall be 6% per annum pursuant to our ruling in Nacar v.
that because the Credit Agreement and promissory notes contained both an escalation clause and a Gallery Frames99 andBangko Sentral ng Pilipinas-Monetary Board Circular No. 799.
de-escalation clause, it may not be said that the bank violated the principle of mutuality. Besides, the
increase or decrease in interest rates have been mutually agreed upon by the parties, as shown by The interest rates imposed and indicated in the 2nd up to the 26th Promissory Notes are
petitioners’ continuous payment without protest. DECLARED NULL AND VOID, and such notes shall instead be subject to interest at the rate of
twelve percent (12%) per annum up to June 30, 2013, and starting July 1, 2013, six percent (6%) per
HELD: In making the unilateral increases in interest rates, petitioner bank relied on the escalation annum until full satisfaction; The case is ordered REMANDED to the Regional Trial Court, Branch 6
clause contained in their credit agreement. The clauses stated are authorized by Section 2 of of Kalibo, Aklan for the computation of overpayments made by petitioners spouses Eduardo and
Presidential Decree (P.D.) No. 1684 which further amended Act No. 2655 (“The Usury Law) However, Lydia Silos to respondent Philippine National Bank, taking into consideration the foregoing
contrary to the stubborn insistence of petitioner bank, the said law and circular did not authorize dispositions, and applying the procedure hereinabove set forth; Thereafter, the trial court
either party to unilaterally raise the interest rate without the other’s consent. is ORDERED to make a determination as to the validity of the extrajudicial foreclosure and sale,
declaring the same null and void in case of overpayment and ordering the release and return of
It is basic that there can be no contract in the true sense in the absence of the element of agreement, Transfer Certificates of Title Nos. T-14250 and TCT T-16208 to petitioners, or ordering the delivery to
or of mutual assent of the parties. The unilateral action of the PNB in increasing the interest rate on the petitioners of the difference between the bid price and the total remaining obligation of
the private respondent’s loan violated the mutuality of contracts ordained in Article 1308 of the Civil petitioners, if any;
Code. It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank
unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the
loan without the prior assent of the latter. BOBIE ROSE FRIAS vs FLORA SAN DIEGO-SISON
April 4, 2007 Austria-Martinez,J.
In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring
the parties to agree to changes in the interest rate in writing, we hold that the unilateral and FACTS:
progressive increases imposed by respondent PNB were null and void. Their effect was to increase
the total obligation on an eighteen million peso loan to an amount way over three times that which P is the owner of a house and lot which she acquire from Island Masters Realty and Development
was originally granted to the borrowers. That these increases, occasioned by crafty manipulations in Corporation (IMRDC) by virtue of a Deed of Sale. P and R entered into a MOA that acknowledge that
the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur R paid P3M and that they agreed on these terms:
business cannot be disputed. 1) R has 6 months from date of execution to notify P of her intention to purchase the land at
On the strength of this ruling, PNB’s argument – that the spouses Rocamora’s failure to contest the P6.4M. After notice, another 6 months to pay remaining balance of P3.4M
increased interest rates that were purportedly reflected in the statements of account and the demand 2) Before 6 months period to decide, P may still offer to other persons who wants to buy
provided that the P3M shall be paid back with interested based on prevailing compound
bank interest plus the amount of the sale in excess of P7M if the property be sold at a price only”, referring to the 2nd 6th month period. AKA no interest during the 1st 6-month while deciding WON
more than P7M to buy it.
3) If no other buy within 6 months from execution of contract, no interest shall be charged by
the R on the P3M BUT if on the 6h month R decides not to purchase it, P has a period of This does not mean that interest will no longer be charged after the 2 nd 6-month since such
another 6 months to pa the sun of P3M provided that it must earn compounded bank stipulation was made on the logical expectation that such amount will be paid within the date
interest for the last 6 months only. In this case, P3M given by R shall be treated as a loan stipulated. But P failed to pay amount which is considered as a loan, the monetary interest for the
and the property shall be considered as the security for the mortgage last 6 months continued to accrue until actual payment of the loaned amount.
P got from R P2M in cash and P1M in a post-dated check dated Feb 28, 1990 instead of 1991 so it If debtor continues in possession of the principal of the loan and to continue to use it after maturity
rendered the check stale. So P gave R the title and the deed of absolute sale. without payment of the monetary interest, would constitute unjust enrichment on the part of the
debtor at the expense of the creditor.
R then decided not to buy it and notified P via letter on March 20, 1991 but P received only on June
11, 1991 and reminded P that P2M should be treated as loan payable within 6 mos. But P failed to 21% per annum to a P2M loan is fair and reasonable.
pay P2M.
R is entitled to moral damages and exemplary damages. Atty’s fees (from CA’s decision) must be
R filed with RTC complaint for sum of money (payment of 2M with interest at 36% per annum from deleted.
Dec 7, 1991; P100k moral, corrective and exemplary damages) with preliminary attachment against
P. CONCEPCION VS. CA
P contends that she was asked to sign without being given the chance to read it and that property
was entrusted to Atty. Lozada for safekeeping but were never returned to R as there was no SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners, vs. CHINA BANKING
consummated sale yet; that she was never informed of R’s decision not to purchase; that there no CORPORATION, Respondent.
interest could be due as there was no valid mortgage over the property as the principal obligation is G.R. No. 187678 || April 10, 2013 || VILLARAMA, JR., J.:
vitiated with fraud and deception.
FACTS:
RTC: R pay P P2M plus interest at 32% per annum from Dec 7, 1991 until fully paid
In 1998, Ps obtained 2 loans from R: P6,216,000 and P4,139,000. It was secured by REM over a
CA: Affirmed with modification! Reduce from 32% to 25% per annum effective June 7, 1991 until fully property in White Plains, QC. According to their agreement, the loan would be subject to a monthly
paid. CA ruled that there’s no basis that the interest should be charged for 6 mos only and no more interest to be computed using the prevailing market rates at that month. Due to Ps’ failure to pay the
and that a loan always bears interest otherwise it is not a loan monthly amortizations, R demanded the full payment of the balance plus monthly interests which
totaled to P19,201,776.63 as of Feb 23, 2001. On the same day, the mortgaged property was sold at
ISSUE: WON the compounded bank interest should be limited to 6 months as contained in the MOA P10,300,000.
HELD: No. On May 2001, R demanded from Ps P8,901,776.63 as the deficiency after applying the proceeds of
the foreclosure sale. Due to Ps’ failure to pay, R filed a collection suit for the recovery of 1) the P8M+
CA was wrong when it ruled that loan should always bear interest otherwise it is not loan!! Why? Bec deficiency and interests; 2)additional amt equivalent to 1/10 of 1% per day of the total amount, until
simple loan MAY be gratuitous or with a stipulation to pay interest. No error in awarding 25% interest fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees;
per annum on the P2M even beyond the second 6 months stipulated period. and (4) expenses of litigation and costs of suit.
GR: if terms are clear as to the intention of parties, the literal meaning shall prevail. And must P: No cause of action because principal has already been paid. The deficiency just represented the
interpret stipulations together. penalty/compounded interest, which is generally not favored under CC.
“for the last 6 months only”  how interpret this line in the MOA? The 2nd 6 month period was given
to R to pay P2M if P decided not to buy it. In which case will be charged for “for the last 6 months
R presented its Senior Loans assistant who testified that she assisted Ps in their loan application. to me/us in the event a law or Central Bank regulation is passed or promulgated by the Central Bank
She also called them monthly to inform them of the prevailing rates to be used in computing interests of the Philippines or appropriate government entities, increasing or decreasing such interest rate or
due, which totaled to the above P19M+ amount (the case included a detailed statement of acct which service charge.
showed the computation).
When asked if there was any written authority from Ps to increase the interest rate unilaterally, she Here, the monthly upward/downward adjustment of interest rate is left to the will of respondent bank
answered that they signed a promissory note indicating that they agreed to pay interest at the alone. It violates the essence of mutuality of the contract.
prevailing rate. (Later, P admitted that he is a Doctor of Medicine and also engaged in the business
of distributing medical supplies and that he is aware of his obligations under the PNs before he Although interest rates are no longer subject to a ceiling (repeal of Usury Law), the lender still does
signed it). not have an unbridled license to impose increased interest rates. The lender and the borrower should
agree on the imposed rate, and such imposed rate should be in writing.
RTC ordered P to pay the P8M+ deficiency. CA affirmed – stipulation re: interest is valid.
But wait! This is not strictly an escalation clause since it does not only provide for an increase in rate
P: The interest rates not valid because it was not imposed by any law or BSP circular. The escalation but also recognizes any decrease in the rates!
clause was also unilaterally imposed and violated the principle of mutuality of contracts.
SC: This notwithstanding, we hold that the escalation clause is still void because it grants R the
ISSUE: W/N the escalation clause is valid – NO (but see explanation below) power to impose an increased rate of interest without a written notice to Ps and their written consent.
R’s monthly telephone calls to Ps advising them of the prevailing interest rates would not suffice. A
Summary of Rule: Generally, escalation clauses are valid but these should not violate the mutuality detailed billing statement based on the new imposed interest with corresponding computation of the
of contracts (CC1308), i.e. not solely depending on one party’s will aka potestative. In this case, the total debt should have been provided to enable petitioners to make an informed decision. An
monthly calls to Ps to inform them of the monthly interest rate are not enough. There should have appropriate form must also be signed by the petitioners to indicate their conformity to the new rates.
been written consent. There was none. So, in the end, the Court still found the Ps liable but only Compliance with these requisites is essential to preserve the mutuality of contracts. For indeed, one-
computed the monthly interest to not exceeding 15 % (15% was the imposed interest on the first sided impositions do not have the force of law between the parties, because such impositions are not
charge) based on the parties’ essential equality.
RATIO: Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an
agreement between the parties. Unless such important change in the contract terms is mutually
Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the agreed upon, it has no binding effect. In the absence of consent on the part of the petitioners to the
contracting parties. This Court has long recognized that there is nothing inherently wrong with modifications in the interest rates, the adjusted rates cannot bind them. Hence, we consider as
escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and invalid the interest rates in excess of 15%, the rate charged for the first year.
to retain the value of money in long term contracts.
TOTAL DEFICIENCY: 4,761,865.79
Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an important Concurring Opinion: Sereno, J.
modification in the agreement" is void. The borrower’s assent to the increases cannot be implied from
their lack of response. I fully concur with the majority that the increases in interest rates unilaterally imposed by China Bank
without petitioners' assent violates the principle of mutuality of contracts.
While a ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular
No. 905, nothing therein "grants lenders carte blanche authority to raise interest rates to levels which BUT escalation clauses are not void per se. In fact, these maintain fiscal stability and help retain the
will either enslave their borrowers or lead to a hemorrhaging of their assets." value of money in long term contracts. Jurisprudence recognized that given the fluctuating economic
conditions, practical reasons allow banks to stipulate that interest rates on a loan will not be fixed and
The two promissory notes signed by petitioners provide: will instead depend on market conditions.
I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case
may be, the interest rate/service charge presently stipulated in this note without any advance notice
However, the escalation clause above is still void, there being no reference rate set either o The latter excepted to one drum, said to be in bad order, which damage was unknown to
by it or by the Central Bank, leaving the determination thereof at the sole will and control plaintiff.
of petitioner.
Jan. 7, 1982: Defendant Allied Brokerage Corp. received the shipment from defendant Metro Port
There should be a reference rate, ex: “based on prevailing market rates” Service, Inc..
o 1 drum opened and without seal.
Evidently, the point of difference in the cited escalation clauses lies in the use of the phrase "any
increase or decrease in the interest rate" without reference to the prevailing market rate actually Jan. 8 and 14, 1982: Defendant Allied Brokerage Corp. made deliveries of the shipment to the
imposed by the regulations of the Central Bank. It is thus not enough to state, as akin to China consignee's warehouse.
Bank's provision, that the bank may increase or decrease the interest rate in the event a law or a o The latter excepted to one drum which contained spillages, while the rest of the contents
Central Bank regulation is passed. To adopt that stance will necessarily involve a determination of was adulterated/fake.
the interest rate by the creditor since the provision spells a vague condition - it only requires that any
change in the imposable interest must conform to the upward or downward movement of borrowing Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
rates. losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same.
And if that determination is not subjected to the mutual agreement of the contracting parties, then the
resulting interest rates to be imposed by the creditor would be unilaterally determined. Consequently, As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
the escalation clause violates the principle of mutuality of contracts. under the aforestated marine insurance policy, so that it became subrogated to all the rights of action
of said consignee against defendants.
Based on jurisprudence, therefore, these points must be considered by creditors and debtors in the
drafting of valid escalation clauses. Firstly, as a matter of equity and consistent with P.O. No. 1684, Answers:
the escalation clause must be paired with a de-escalation clause. Secondly, so as not to violate the Eastern Shipping - the shipment was discharged in good order from the vessel unto the custody of
principle of mutuality, the escalation must be pegged to the prevailing market rates, and not merely Metro Port Service so that any damage/losses incurred after the shipment was incurred after the
make a generalized reference to "any increase or decrease in the interest rate" in the event a law or shipment was turned over to the latter, is no longer its liability.
a Central Bank regulation is passed. Thirdly, consistent with the nature of contracts, the proposed Metroport - Although subject shipment was discharged unto its custody, portion of the same was
modification must be the result of an agreement between the parties. In this way, our credit system already in bad order.
would be facilitated by firm loan provisions that not only aid fiscal stability, but also avoid numerous Allied Brokerage - Plaintiff has no cause of action against it, not having negligent or at fault for the
disputes and litigations between creditors and debtors. shipment was already in damage and bad order condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND same condition shipment was received by it.
MERCANTILE INSURANCE COMPANY, INC., respondents (GR No. 97412; J. Vitug; July 12,
1994) RTC: Ordered defendants to pay plaintiff, jointly and severally:
*This is an action against defendants shipping company, arrastre operator and broker-forwarder for 1. The amount of P19,032.95, with the present legal interest of 12% per annum from Oct. 1,
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
paid the consignee the value of such losses/damages. Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser,
while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
FACTS: Dec. 4, 1981: 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. Sec. 6.01 of the Management Contract)…
YMA-8. The shipment was insured under plaintiff Mercantile Insurance Co., Inc. Marine Insurance
Policy No. 81/01177 for P36,382,466.38. CA: affirmed in toto RTC
Dec. 12, 1981: Shipment arrived in Manila. It was discharged unto the custody of defendant Metro ISSUES:
Port Service, Inc. (a) WON a claim for damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs broker
(b) Whether the payment of legal interest on an award for loss or damage is to be computed from the Malayan held that the amount awarded should bear legal interest from the date of the decision of the
time the complaint is filed or from the date the decision appealed from is rendered court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until
(c) Whether the applicable rate of interest, referred to above, is 12% or 6%. definitely ascertained, assessed and determined by the courts after proof,' then, interest
'should be from the date of the decision.'" American Express International v. IAC, introduced a
RULING: Petition PARTLY GRANTED. different time frame for reckoning the 6% interest by ordering it to be "computed from the finality
(a) YES. of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should
Fireman's Fund Insurance vs. Metro Port Services: The legal relationship between the consignee and be imposed from the finality of the decision until the judgment amount is paid.
the arrastre operator is akin to that of a depositor and warehouseman. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator. Since *And then the Court clarified and reconciled the rulings as follows:
it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver
them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
good condition to the consignee. on "Damages" of the CC govern in determining the measure of recoverable damages.
(b) from the decision; (c) 6% II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
*The case discussed previous rulings of the Court re. legal interest.
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
The cases can be classified into two groups according to the similarity of the issues involved and the or forbearance of money, the interest due should be that which may have been stipulated in
corresponding rulings rendered by the court. writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
o The "first group" would consist of the cases of Reformina v. Tomol (1985), Phil. Rabbit Bus demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corp. v. Angas (1992). from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
o In the "second group" would be Malayan Insurance Co. v. Manila Port Service (1969), 1169 of the Civil Code.
Nakpil and Sons v. CA (1988), and American Express International v. IAC (1988).
2. When an obligation, not constituting a loan or forbearance of money , is breached, an interest
 In the "first group", the basic issue focuses on the application of either the 6% (under the CC) or on the amount of damages awarded may be imposed at the discretion of the court at the rate of
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
there has been a consistent holding that the Central Bank Circular imposing the 12% when or until the demand can be established with reasonable certainty. Accordingly, where the
interest per annum applies only to loans or forbearance of money, goods or credits, as well demand is established with reasonable certainty, the interest shall begin to run from the time the
as to judgments involving such loan or forbearance of money, goods or credits, and that the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
6% interest under the CC governs when the transaction involves the payment of reasonably established at the time the demand is made, the interest shall begin to run only from the
indemnities in the concept of damage arising from the breach or a delay in the date the judgment of the court is made (at which time the quantification of damages may be deemed
performance of obligations in general. Observe, too, that in these cases, a common time frame to have been reasonably ascertained). The actual base for the computation of legal interest shall, in
in the computation of the 6% interest per annum has been applied, i.e., from the time the any case, be on the amount finally adjudged.
complaint is filed until the adjudged amount is fully paid.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
 The "second group", did not alter the pronounced rule on the application of the 6% or 12% of legal interest, whether the case falls under par. 1 or par. 2, above, shall be 12% per annum from
interest per annum depending on WON the amount involved is a loan or forbearance, on the one such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" forbearance of credit.
which remained consistent in holding that the running of the legal interest should be from
the time of the filing of the complaint until fully paid, the "second group" varied on the  The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to
commencement of the running of the legal interest. be paid is 6% on the amount due computed from the decision, dated 03 February 1988, of
the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon
finality of this decision until the payment thereof.
interest, to be paid by March 1995. R also issued to him six postdated checks amounting
SIGA-AN v VILLANUEVA to P1,240,000.00 as guarantee. Only one check was honored. P demanded that R settle
her obligation, but the latter failed so he filed BP 22 cases.
20 January 2009 || Chico-Nazario, J.
RTC, CA ruled in favor of R.
FACTS
ISSUES
1998 R filed a comlpaint for collection of sum of money v P. R was a businesswoman engaged in
WON interest was due the P – NO
supplying office materials and equipments to the Philippine Navy Office (PNO) located at Fort
Bonifacio while P was a military officer and comptroller of the PNO from 1991 to 1996.
RULING
1992, P approached R inside the PNO and offered to loan her P540,000.00 which she
accepted. Loan agreement was not reduced in writing. Also, there was no stipulation as to
the payment of interest for the loan. On 31 August 1993, R issued a check worth Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to
P500,000.00 to P as partial payment of the loan. On 31 October 1993, she issued another as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for
check in the amount of P200,000.00 as payment of the remaining balance of the loan. P damages. This is called compensatory interest. The right to interest arises only by virtue of a contract
told her that the excess amount of P160,000.00 would be applied as interest but still or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.
pestered her to pay additional interest. P threatened to block or disapprove her NCC 1956, which refers to monetary interest, mandates that no interest shall be due
transactions with the PNO if she would not comply with his demand. Thus, she paid unless it has been expressly stipulated in writing. Payment of monetary interest is allowed
additional amounts in cash and checks as interests. She asked for receipt for the payments only if: (1) there was an express stipulation for the payment of interest; and (2) the
but P told her that it was not necessary as there was mutual trust and confidence between agreement for the payment of interest was reduced in writing. The concurrence of the two
them. According to her computation, the total amount she paid accumulated to conditions is required. Neither element present in the case
P1,200,000.00.
R explained that it was P who made a promissory note and she was told to copy it in her
R's lawyer told her that P could not validly collect interest on the loan because there was own handwriting; and P threatened to disapprove her transactions with the PNO if she
no agreement regarding payment of interest. R sent a demand letter for the return of the would not pay interest. P did not rebut the foregoing testimony. R was merely tricked and
excess amount of P660,000.00. P ignored her claim for reimbursement. coerced by to pay interest. Hence, it cannot be gainfully said that such promissory note
P's version: It was R who asked for the initial loan, and for subsequent loans after the pertains to an express stipulation of interest or written agreement of interest
payment of the first loan. When R could no longer pay on time, she asked that the loan be P argues that 7% rate of interest was duly admitted by R in her testimony in the BP. 22
restructured. When P refused a second restructuring of payment, R proposed to execute a cases but the RTC did not make a ruling therein. The RTC clearly stated that although
promissory note wherein she would acknowledge her obligation to him, inclusive of petitioner and respondent entered into a valid oral contract of loan amounting
interest, and that she would issue several postdated checks to guarantee the payment of toP540,000.00, they, nonetheless, never intended the payment of interest thereon.
her obligation. 1994 promissory note admitted an amount of P1,240,000.00, inclusive of
There are instances in which an interest may be imposed even in the absence of express every month on outstanding principal and interest in case of default, 10% atty fees).
stipulation, verbal or written, regarding payment of interest. NCC 2209 states that if the Maturity date: 8 Sep 1981, extension till 29 Dec 1981.
obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal 2. Several demands from bank; as of 20 May 1982: P 114,416.10
interest of 12% per annum may be imposed as indemnity for damages if no stipulation on
the payment of interest was agreed upon. Likewise, NCC 2212 provides that interest due 3. Final demand letter (full payment required): 30 Sep 1982; default
shall earn legal interest from the time it is judicially demanded, although the obligation
4. Bank filed a complaint for recovery at RTC Makati
may be silent on this point.
a. Bank presented evidence, rested case
All the same, the interest under these two instances may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a compensation for b. Petitioners reset on 2 occasions
the use or forbearance of money. In other words, the two instances apply only to
b.i. Bank moved to declare petitioners in default: granted
compensatory interest and not to monetary interest. Further, said compensatory interest
is not chargeable in the instant case because it was not duly proven that R defaulted b.ii. 2 years later, petitioners filed for an MR: denied
Under NCC 1960, if the borrower of loan pays interest when there has been no stipulation c. TC ruled in favor of plaintiff (P114,416, 15.189% P.A., 2% service charge, 5%
therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. NCC p.m. penalty charge, commencing 20 May 1982 until fully paid, 10% atty fees)
2154 provides that if something is received when there is no right to demand it, and it was
5. Petitioners appealed to CA
unduly delivered through mistake, the obligation to return it arises. In such a case, a
creditor-debtor relationship is created under a quasi-contract whereby the payor becomes a. Assailed rejection of motion to present evidence, 2% service charge, 5% p.m
the creditor who then has the right to demand the return of payment made by mistake, penalty charge, 10% atty fees
and the person who has no right to receive such payment becomes obligated to return the
b. CA affirmed except for 2% service charge, which was deleted purusuant to CB
same. Circular 783
Since P received something when there was no right to demand it, he has an obligation to
c. Petitioners MR’d for reduction of 5% p.m. penalty charge for being
return it. unconscionable
d. Bank MR’d that payment of interest and penalty commences from time of default
(not filing of complaint)
e. CA: when obligation fell due, 5% p.m. penalty charge
LIGUTAN v. CA
f. Petitioners filed omnibus MR and to admit newly-discovered evidence alleging
executing a real estate mortgage as security  effect of novation
G.R.138677 | February 12, 2002
g. Mortgage foreclosed without notice; they did not credit them with proceeds
h. CA denied MR, and admission of newly-discovered evidence.

FACTS:
ISSUES:
1. Tolomeo Ligutan and Leonidas dela Llana obtained a loan from private respondent Security
Bank and Trust Company (PN, jointly and severally, P120k, 15.189% p.a., penalty of 5% 1. Was penalty clause unconscionable?
2. Was the 15% p.a. interest unconscionable? 4. Vendee shall be informed as to the status of DAR clearance within 10 days upon
signing of the documents.
3. Did the execution of the mortgage novate the contract? xxxx
6. Regarding the house located within the perimeter of the subject [lot] owned by
RULING: spouses [Magbago], said house shall be moved outside the perimeter of this subject
property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the
1. Impliedly NO, but reduced due to partial performance. SC agreed with CA that it may be responsibility of seeing to it that such agreement is carried out before full payment of
reduced due to partial performance and to allow petitioners to finally settle the obligation the sale is made by vendee.
(Art 1229, CC) 7. If and after the vendor has completed all necessary documents for registration of the
title and the vendee fails to complete payment as per agreement, a forfeiture fee of
- Penalty Clause: Accessory undertaking to assume greater liability on the part of an
25% or downpayment, shall be applied. However, if the vendor fails to complete
obligor in case of breach of an obligation
necessary documents within thirty days without any sufficient reason, or without
informing the vendee of its status, vendee has the right to demand return of full
- Function of Penalty Clause: To strengthen the coercive force of the obligation; and to
amount of down payment.
provide for what could be liquidated damages resulting from such a breach.
xxxx
2. NO. The interest on its face is not excessive. 9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee
shall be informed immediately of its approval by the LRC.
- Interest: Cost of money; fundamental part of banking business; core of bank’s 10. The vendor assures the vendee of a peaceful transfer of ownership.
existence. xxxx
- Interest and penalty are distinct concepts which may separately be demanded.
After almost 7 yrs from the time of the execution of the contract and notwithstanding payment of P3.5 million on
3. NO. Petitioners acknowledge that there is no express stipulation that the mortgage is the part of Sps Supangan, Estores still failed to comply with her obligation in paragraphs 4, 6, 7, 9 and 10 of the
intended to supersede the loan agreement. contract. Hence, in a letter dated September 27, 2000, Sps Supangan demanded the return of the amount
of P3.5 million within 15 days from receipt of the letter. Estores promised to return the P3.5M within 120 days.
Sps Supangan were amenable to the proposal provided an interest of 12% compounded annually shall be
HERMOJINA ESTORES vs. SPS. ARTURO and LAURA SUPANGAN imposed on the P3.5 million. When Estores still failed to return the amount despite demand, the Sps were
April 18, 2012 (Del Castillo, J.) constrained to file a Complaint for sum of money before the RTC of Malabon against Estores as well as
**sorry mahaba. Roberto Arias who allegedly acted as Estores’s agent. In their complaint, the Sps prayed that Estores and Arias
FACTS be ordered to 1) pay P3.5M (principal amount) plus interest of 12%, compounded annually starting October 1,
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered 1993 or an estimated amount of P8,558,591.65, and 2) damages (including attorney’s fee – P50k + 20% of
into a Conditional Deed of Sale whereby Estores offered to sell, and Sps Supangan offered to buy, a parcel of recoverable amount from the Estores, and costs of suit) .
land for P4.7M. The parties likewise stipulated, among others, to wit:
Estores and Arias averred that they are willing to return the principal amount of P3.5 million but without any
xxxx interest as the same was not agreed upon. They reiterated that the only remaining issue between the parties is
1. Vendor will secure approved clearance from DAR requirements of which are (sic): the imposition of interest. They argued that since the Conditional Deed of Sale provided only for the return of the
a) Letter request downpayment in case of breach, they cannot be held liable to pay legal interest as well.
b) Title
c) Tax Declaration On May 7, 2004, the RTC rendered its Decision finding respondent-spouses entitled to interest but
d) Affidavit of Aggregate Landholding – Vendor/Vendee only at the rate of 6% per annum and not 12% as prayed by them. It also found respondent-spouses
e) Certification from the Prov’l. Assessor’s as to Landholdings of Vendor/Vendee entitled to attorney’s fees as they were compelled to litigate to protect their interest. Hence, Estores
f) Affidavit of Non-Tenancy and Arias are jointly and severally liable to pay Sps Supangan P3.5M with an interest of 6%
g) Deed of Absolute Sale compounded annually starting October 1, 1993 and attorney’s fee in the amount of P50k plus 20% of
xxxx the recoverable amount from the defendants and cost of the suit.
I. Interest may be imposed even in the absence of stipulation in the contract.
On May 12, 2006, the CA affirmed the ruling of the RTC finding the imposition of 6% interest proper. However, Article 2210 NCC expressly provides that “[i]nterest may, in the discretion of the court, be allowed upon damages
the same shall start to run only from September 27, 2000 when respondent-spouses formally demanded the awarded for breach of contract.” In this case, petitioner is legally obligated to return the P3.5M because of her
return of their money and not from October 1993 when the contract was executed as held by the RTC. Anent the failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact admitted that
award of attorney’s fees, the CA found the award by the trial court (P50k plus 20% of the recoverable amount) the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not
excessive and thus reduced the same to P100k. (Note: In CA decision, Arias is not liable) actually done so. Petitioner enjoyed the use of the money from the time it was given to her until now. Thus, she
is already in default of her obligation from the date of demand, i.e., on September 27, 2000.
CA dispositive:
II. The interest at the rate of 12% is applicable in the instant case.
xxx is MODIFIED. The rate of interest shall be six percent (6%) per annum,
computed from September 27, 2000 until its full payment before finality of the General rule: The applicable rate of interest “shall be computed in accordance with the stipulation of the parties.”
judgment. If the adjudged principal and the interest (or any part thereof) remain[s] Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a
unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).”
annum, computed from the time the judgment becomes final and executory until it is In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining
fully satisfied. The award of attorney’s fees is hereby reduced therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular
to P100,000.00. Costs against the [petitioner]. No. 416, is due.
xxx The contract involved in this case is admittedly not a loan but a Conditional Deed of
Sale. However, the contract provides that the seller (Estores) must return the payment made by the buyer (Sps
Supangan) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the
Estores’s Arguments seller (Estores) has admitted this. Notwithstanding demand by the buyer (Sps
Supangan), the seller (Estores) has failed to return the money and should be considered in default from
Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed the time that demand was made on September 27, 2000.
of Sale only provided for the return of the down payment in case of failure to comply with her
obligations. Petitioner also argues that the award of attorney’s fees in favor of the respondent-spouses is Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing
unwarranted because it cannot be said that the latter won over the former since the CA even sustained her the return of the money be considered as a forbearance of money which required payment of
contention that the imposition of 12% interest compounded annually is totally uncalled for. interest at the rate of 12%? We believe so.
Sps Supangan’s Arguments Crismina Garments, Inc. v. Court of Appeals: “forbearance” was defined as a “contractual obligation of lender or
creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then
Sps Supangan aver that it is only fair that interest be imposed on the amount they paid considering that petitioner due and payable.” This definition describes a loan where a debtor is given a period within which to pay a loan or
failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, petitioner debt. In such case, “forbearance of money, goods or credits” will have no distinct definition from a loan. We
failed to perform her obligations to relocate the house outside the perimeter of the subject property and to believe however, that the phrase “forbearance of money, goods or credits” is meant to have a
complete the necessary documents. As regards the attorney’s fees, they claim that they are entitled to the same separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is
because they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded already sufficiently defined in the Civil Code. Forbearance of money, goods or credits should therefore refer to
by the CA is even smaller compared to the filing fees they paid. arrangements other than loan agreements, where a person acquiesces to the temporary use of his money,
goods or credits pending happening of certain events or fulfillment of certain conditions.
ISSUE In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They
W/N the imposition of interest and attorney’s fees is proper. have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of
the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions
and when those conditions were breached, they are entitled not only to the return of the principal amount paid,
RULING: In favor of Respondents (Sps. Supangan) but also to compensation for the use of their money. And the compensation for the use of their money,

absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or this interim period being deemed to be by then an equivalent to a forbearance of
deprivation of funds is similar to a loan. credit.
Petitioner’s unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to
forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of interest Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then
is 12% per annum. the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest
thereon is fully satisfied.
The Court then went on to mention the guidelines in the case of Eastern Shipping Lines, Inc. v. Court of Appeals,
as cited in Crismina Garments, Inc. v. Court of Appeals:
III. The award of attorney’s fees is warranted.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for Sps Supangan are entitled to recover attorney’s fees as they were forced to litigate to protect their interest, i.e., to
damages. The provisions under Title XVIII on ‘Damages’ of the Civil Code govern in recover their money. However, the amount of P50,000.00 is more appropriate in line with the policy enunciated
determining the measure of recoverable damages. in Art. 2208 NCC that the award of attorney’s fees must always be reasonable.
II. With regard particularly to an award of interest in the concept of actual

and compensatory damages, the rate of interest, as well as the accrual DISPOSITION: CA DECISION AFFIRMED WITH MODIFICIATIONS. The rate of interest shall be
thereof, is imposed, as follows: 12% per annum, computed from September 27, 2000 until fully satisfied. The award of attorney’s
fees is further reduced to P50,000.
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the DARIO NACAR v. GALLERY FRAMES and/or FELIPE BORDEY, JR.
interest due shall itself earn legal interest from the time it is judicially 13 August 2013 | J. Peralta
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial RELEVANT PART:
demand under and subject to the provisions of Article 1169 of the Civil To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Code. Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-
2. When an obligation, not constituting a loan or forbearance of money, is delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
breached, an interest on the amount of damages awarded may be imposed at the on “Damages” of the Civil Code govern in determining the measure of recoverable damages.
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can II. With regard particularly to an award of interest in the concept of actual and compensatory
be established with reasonable certainty. Accordingly, where the demand is damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
established with reasonable certainty, the interest shall begin to run from the time the 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such a loan or forbearance of money, the interest due should be that which may have been
certainty cannot be so reasonably established at the time the demand is made, the stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
interest shall begin to run only from the date the judgment of the court is made (at the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
which time the quantification of damages may be deemed to have been reasonably be 6% per annum to be computed from default, i.e., from judicial or extrajudicial
ascertained). The actual base for the computation of legal interest shall, in any case, demand under and subject to the provisions of Article 1169 of the Civil Code.
be on the amount finally adjudged.
When an obligation, not constituting a loan or forbearance of money, is breached, an
3. When the judgment of the court awarding a sum of money becomes final and interest on the amount of damages awarded may be imposed at the discretion of the court
executory, the rate of legal interest, whether the case falls under paragraph 1 or at the rate of 6% per annum.
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
2. No interest, however, shall be adjudged on unliquidated claims or damages, except when
or until the demand can be established with reasonable certainty. Accordingly, where the HELD: 1) No. No essential change is made by a recomputation as this step is a necessary
demand is established with reasonable certainty, the interest shall begin to run from the consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such that decision. A recomputation (or an original computation, if no previous computation has been
certainty cannot be so reasonably established at the time the demand is made, the interest made) is a part of the law – specifically, Article 279 of the Labor Code and the established
shall begin to run only from the date the judgment of the court is made (at which time the jurisprudence on this provision – that is read into the decision. By the nature of an illegal dismissal
quantification of damages may be deemed to have been reasonably ascertained). The case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor
actual base for the computation of legal interest shall, in any case, be on the amount finally Code. The recomputation of the consequences of illegal dismissal upon execution of the decision
adjudged. does not constitute an alteration or amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected,
3. When the judgment of the court awarding a sum of money becomes final and executory, and this is not a violation of the principle of immutability of final judgments. That the amount
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the
shall be 6% per annum from such finality until its satisfaction, this interim period being risk that it ran when it continued to seek recourses against the Labor Arbiter's decision.
deemed to be by then an equivalent to a forbearance of credit.
2) No. Recently, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
Judgments that have become final & executory prior to 1 July 2013 shall not be disturbed and shall 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982
continue to be implemented applying the rate of interest fixed therein. and, accordingly, issued Circular No. 799, Series of 2013. in the absence of an express stipulation as
to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance
(This is the most relevant part, same as what we discussed in Torts before. But if you think she of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent
would still ask about the rest of the case which doesn’t really say much, read on.) (12%) per annum − as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
FACTS: Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799
Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the NLRC − but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
against Gallery Frames and/or Felipe Bordey. nonetheless, that the new rate could only be applied prospectively and not retroactively.
LA: Nacar dismissed from employment without valid or just case. It awarded backwages and Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
separation pay in lieu of reinstatement (P158,919.92) 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.
R appealed to NLRC --> dismissed for lack of merit, sustained LA decision; MR denied
R filed Petition for review on certiorari before CA --> dismissed petition; MR denied Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary Board : “the
R sought relief before SC --> denied petition BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
Entry of Judgment issued certifying that resolution became final & executory on 27 May 2002. Case forbearance of any money, goods or credits, including those for loans of low priority such as
was referred back to LA. Pre-execution conference was scheduled, but respondents failed to appear. consumer loans, as well as such loans made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.”
alleged that his backwages should be computed from the time of his illegal dismissal (January 24,
1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as Those judgments that have become final and executory prior to July 1, 2013, said judgments shall
he ruled that the reckoning point of the computation should only be from the time Nacar was illegally not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.
dismissed )January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that
the said date should be the reckoning point because Nacar did not appeal hence as to him, that UCPB vs Spouses Samuel and Odette Beluso
decision became final and executory.
Ponente: J. Chico-Nazario
ISSUES: 1) W/N a recomputation of the judgment award is a violation of the principle of immutability
of final judgments
2) W/N the doctrine in Eastern Shipping Lines, Inc. v. CA re: rate of legal interest still applies
Facts: On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit
Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2
Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their a.) WoN UCPB's interest rates are valid.
promissory notes, a real estate mortgage over parcels of land in Roxas City as additional security for
the obligation. The Credit Agreement was subsequently amended to increase the amount of the -No. SC agrees with CA--the imposition of interest in the following provision found in the promissory
Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28 notes of the spouses Beluso is void, as the interest rates and the bases therefor were determined
February 1998. solely by petitioner UCPB: “with interest thereon at the rate indicative of DBD retail rate or as
determined by the Branch Head.”
The spouses availed themselves of the credit line under 3 promissory notes, which were renewed
several times. On 30 April 1997, the payment of the principal and interest of the latter two promissory UCPB defenses: 1. claims that while the interest rate was not numerically quantified in the face of the
notes were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan forP1.3 promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the “rate
Million was again released to the spouses Beluso under one promissory note with a due date of 28 indicative of the DBD retail rate.” UCPB contends that said provision must be read with another
February 1998. stipulation in the promissory notes subjecting to review the interest rate as fixed. UCPB avers that
these are valid reference rates akin to a “prevailing rate” or “prime rate” allowed by this Court in
To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the Polotan v. Court of Appeals.
spouses Beluso executed two more promissory notes for a total of P350,000.00.
2. argues that even if the proviso “as determined by the branch head” is considered void, such a
However, the spouses Beluso alleged that the amounts covered by these last two promissory notes declaration would not ipso facto render the connecting clause void in view of the separability clause
were never released or credited to their account and, thus, claimed that the principal indebtedness of the Credit Agreement. The imposition of the questioned interest rates did not infringe on the
was only P2 Million. principle of mutuality of contracts, because the spouses Beluso had the liberty to choose whether or
not to renew their credit line at the new interest rates pegged by petitioner.
In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%.
From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03. 3. UCPB also claims that assuming there was any defect in the mutuality of the contract at the time
of its inception, spouses Beluso are estopped in availing themselves of the credit line without airing
From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty (max any protest.
charged was 33% and 36%, respectively) on the obligations of the spouses Beluso, but the spouses
failed to pay any of the amounts.
No merit in UCPB's contentions. Article 1308 of the Civil Code provides:
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
P2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 the will of one of them.
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to P3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as
against UCPB. RTC ruled for spouses, declared UCPB's interest rates and the foreclosure of the determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under
properties void. CA affirmed. such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable in both choices. If either of these two
choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an
Issues/Held/Ratio: (I'm only focusing on the two issues na pinaka relevant sa topic natin) option, thus making the entire interest rate provision violative of the principle of mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a just and equitable in the premises” should be deemed to include the civil penalty provided for in
rate “as determined by the Branch Head” gives the latter unfettered discretion on what the rate may Section 6(a) of the Truth in Lending Act.
be. As regards the rate “indicative of the DBD retail rate,” the same cannot be considered as valid for
being akin to the “prime rate” allowed in Polotan, where there is a fixed margin over the reference
rate: 3%. Thus, the parties can easily determine the interest rate by applying simple arithmetic. On
the other hand, here, UCPB can peg the interest at any percentage above or below the DBD retail UCPB’s contention that this action to recover the penalty for the violation of the Truth in Lending Act
rate, again giving it unfettered discretion in determining the interest rate. has already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an
amount equal to twice the finance charge required by such creditor in connection with such
Also, the stipulation in the promissory notes subjecting the interest rate to review does not render the transaction, whichever is greater, except that such liability shall not exceed P2,000.00 on any credit
imposition by UCPB of interest rates on the obligations of the spouses Beluso valid. It should be transaction. As this penalty depends on the finance charge required of the borrower, the borrower’s
pointed out that the authority to review the interest rate was given UCPB alone as the lender. cause of action would only accrue when such finance charge is required. In the case at bar, the date
Moreover, UCPB may apply the considerations (prevailing financial condition, profitability, rates of of the demand for payment of the finance charge is 2 September 1998, while the foreclosure was
other banks) enumerated in this provision as it wishes. Again, as in the case of the interest rate made on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-
provision, there is no fixed margin above or below these considerations. year prescriptive period.
The Separability Clause cannot save either of the two options of UCPB as to the interest to be Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the
imposed, as both options violate the principle of mutuality of contracts. former is merely a preparatory contract to the contract of loan ormutuum. Under such credit line, the
bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts
not exceeding the limit provided. The credit transaction thus occurred not when the credit line was
opened, but rather when the credit line was availed of. In the case at bar, the violation of the Truth in
2. WoN UCPB violated the Truth in Lending Act. Lending Act allegedly occurred not when the parties executed the Credit Agreement, where no
interest rate was mentioned, but when the parties executed the promissory notes, where the
allegedly offending interest rate was stipulated.
-Yes. UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory
notes after their execution, then they were duly notified of the terms thereof, in substantial
The RTC fined P26,000.00 for UCPB’s alleged violation of Republic Act No. 3765, otherwise known compliance with the Truth in Lending Act.
as the Truth in Lending Act.
Once more, we disagree. Section 4 clearly provides that the disclosure statement must be furnished
UCPB challenges this imposition, saying the CA even stated that “[a]dmittedly the original complaint prior to the consummation of the transaction:
did not explicitly allege a violation of the ‘Truth in Lending Act’ and no action to formally admit the
amended petition [which expressly alleges violation of the Truth in Lending Act] was made either by
[respondents] spouses Beluso and the lower court."
The rationale of this provision is to protect users of credit from a lack of awareness of the true cost
UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act thereof, proceeding from the experience that banks are able to conceal such true cost by hidden
had been barred by the one-year prescriptive period provided for in the Act. charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like.
The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their
SC says the allegations in the complaint, much more than the title thereof, are controlling. loan, to enable them to give full consent to the contract, and to properly evaluate their options in
arriving at business decisions. Upholding UCPB’s claim of substantial compliance would defeat these
The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates
purposes of the Truth in Lending Act.
certainly also means that the promissory notes do not contain a “clear statement in writing” of “(6) the
finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance
charge bears to the amount to be financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.” Furthermore, the spouses Beluso’s prayer “for such other reliefs **SC said, however, that there was an error in computation re outstanding obligation of the spouses

(pwera pa ito sa voided interest rates ni UCPB): Spouses Beluso had acknowledged before the RTC
June 15, 1948 RA 2655 Created Central Bank Empowered CB to set maximum
their obligation to pay a 12% legal interest on their loans. When the RTC failed to include the 12%
interest rates which banks may
legal interest in its computation, however, the spouses Beluso merely defended in the appellate
charge for all types of loans/creit
courts this non-inclusion, as the same was beneficial to them. There is, however, sufficient basis to
transactions
impose a 12% legal interest in favor of petitioner in the case at bar, as what we have voided is merely
the stipulated rate of interest and not the stipulation that the loan shall earn interest. March 17, 1980 P.D. 1684 Amended Usury Law Giving the CB-MB authority to
prescribe different maximum
SC also upholds the contract stipulation providing the compounding of interest. The provisions in the rates of interest which may be
Credit Agreement and in the promissory notes providing for the compounding of interest were neither imposed for a loan or renewal
nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with thereof or the forbearance of any
the RTC. The compounding of interests has furthermore been declared by this Court to be legal. money, goods or credits,
provided that the changes are
As regards the imposition of penalties, however, although we are likewise upholding the imposition effected gradually and
thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the announced in advance
penalty stipulated in the contract may also be reduced by the courts if it is iniquitous or
unconscionable. January 1, 1983 CB Circular No. 905 Suspended Usury Law Removed the ceilings on interest
(Act No. 2655) rates on loans or forbearance of
We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the any money, goods or credits
fact that this penalty is already over and above the compounded interest likewise imposed in the June 14, 1993 R.A. No. 7653 created the Bangko -
contract. Sentral ng Pilipinas
(BSP) to replace CB
ADVOCATES FOR TRUTH IN LENDING, INC. & EDUARDO B. OLAGUER (President of AFTIL),
vs BANGKO SENTRAL MONETARY BOARD, et.al. ISSUES OF THE CASE
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of credit
NATURE OF THE CASE transactions and forbearance of money, goods or credit beyond the limits prescribed in the
Petition for Certiorari under Rule 65 Usury Law (YES);
Petitioners seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP- 2. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which
MB), replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, removed all interest ceilings and thus suspended Act No. 2655 as regards usurious interest
has no authority to continue enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982, rates (NO);
which "suspended" Act No. 2655, or the Usury Law of 1916. 3. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No.
905 (YES).
FACTS OF THE CASE
Advocates for Truth in Lending, Inc., (AFTIL) is a non-profit, non-stock corporation RULING OF THE SUPREME COURT
organized to engage in pro bono concerns and activities relating to money lending issues. It filed this
petition directly to the SC invoking transcendental importance (see nature).
EXTRA: Procedurally infirm. No locus standi. No issues of transcendental importance.
For better understanding, please refer to the transition of the events below:
DATE OF STATUTE/CIRCULA PURPOSE EFFECT ON INTEREST

ENACTMENT R RATE

1. CB-MB has the statutory or constitutional authority to prescribe the maximum rates of 2. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
interest for all kinds of credit transactions and forbearance of money, goods or credit Circular No. 905.
beyond the limits prescribed in the Usury Law both under RA 265 and PD 1684 The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend the
Under RA 265
Usury Law but simply suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for]
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may fix the maximum only a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law has been
rates of interest which banks may pay on deposits and on other obligations. rendered ineffective;" and "Usury has been legally non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree upon."
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely
interest which banks may charge for different types of loans and for any other credit operations, or upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited Article 1306 of
may fix the maximum differences which may exist between the interest or rediscount rates of the the New Civil Code, under which the contracting parties may establish such stipulations, clauses,
Central Bank and the rates which the banks may charge their customers if the respective credit terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
documents are not to lose their eligibility for rediscount or advances in the Central Bank. good customs, public order, or public policy.
Any modifications in the maximum interest rates permitted for the borrowing or lending operations of 3. The BSP-MB has authority to enforce CB Circular No. 905.
the banks shall apply only to future operations and not to those made prior to the date on which the Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
modification becomes effective. premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board to the Usury Law, as amended." It does not purport to suspend the Usury Law only as it applies to
may also fix the maximum rates that banks may pay to or collect from their customers in the form of banks, but to all lenders.
commissions, discounts, charges, fees or payments of any sort.
Usury law or Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265,
now R.A. No. 7653, merely supplemented it as it concerns loans by banks and other financial
Under PD 1684 institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so
stated in unequivocal terms.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed
change such rate or rates whenever warranted by prevailing economic and social conditions: to be passed with deliberation and full knowledge of all laws existing pertaining to the subject. An
Provided, That changes in such rate or rates may be effected gradually on scheduled dates implied repeal is predicated upon the condition that a substantial conflict or repugnancy is found
announced in advance. between the new and prior laws. Thus, in the absence of an express repeal, a subsequent law
cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy
exists in the terms of the new and old laws. We find no such conflict between the provisions of Act
In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum 2655 and R.A. No. 7653.
rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans
made by pawnshops, finance companies and other similar credit institutions although the rates
prescribed for these institutions need not necessarily be uniform. The Monetary Board is also OTHERS:
authorized to prescribe different maximum rate or rates for different types of borrowings, including The lifting of the ceilings for interest rates does not authorize stipulations charging
deposits and deposit substitutes, or loans of financial intermediaries. excessive, unconscionable, and iniquitous interest.

It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for
being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these
contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right
to set up their illegality as a defense be waived.
With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
(Following the ruling in the landmark case of Eastern Shipping Lines v. CA)
The 12% per annum rate under CB Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance
of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when
the transaction involves the payment of indemnities in the concept of damage arising from the breach
or a delay in the performance of obligations in general," with the application of both rates reckoned
"from the time the complaint was filed until the [adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of the legal interest shall be subject to the
condition "that the courts are vested with discretion, depending on the equities of each case, on the
award of interest."
DISPOSITIVE PORTION:
Petition for certiorari is DISMISSED.

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PEOPLE OF THE PHILIPPINES, Petitioners, vs.

©D2017 | CREDIT - Simple Loan | 3

e. CA: when obligation fell due, 5% p.m. penalty charge

h. CA denied MR, and admission of newly-discovered evidence.

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II. With regard particularly to an award of interest in the concept of actual

No merit in UCPB's contentions. Article 1308 of the Civil Code provides:

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©D2017 | CREDIT - Simple Loan | 16

DATE OF STATUTE/CIRCULA PURPOSE EFFECT ON INTEREST

©D2017 | CREDIT - Simple Loan | 17

©D2017 | CREDIT - Simple Loan | 18

©D2017 | CREDIT - Simple Loan | 19

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