Reading assignment for Credit Transaction: RULING:

1.Arts. 1933-1961, 765, 1175, 1980, 1413 NCC; Private respondents were able to prove that their
2. Act No. 2655, Usury Law; predecessors' house was borrowed by petitioner Vicar after the
3. CB Circulars 416 and 905; church and the convent were destroyed. They never asked for
4. Art. 1249-1250 NCC, the return of the house, but when they allowed its free use,
5. RA 529, they became bailors in commodatum and the petitioner the
6. RA 8183 bailee. The bailees' failure to return the subject matter of
commodatum to the bailor did not mean adverse possession
Prepare Case Digests of the ff: (Hand written in Yellow Paper) on the part of the borrower. The bailee held in trust the
1. Catholic Vicar Apostolic v. CA, 165 SCRA 515 (1988); property subject matter of commodatum. The adverse claim of
2. Republic v. Bagtas, 6 SCRA 262 (1962); petitioner came only in 1951 when it declared the lots for
3. Saura Import & Export v. DBP (1972); taxation purposes. The action of petitioner Vicar by such
4. Herrera v. Petrophil Corp., 146 SCRA 385; adverse claim could not ripen into title by way of ordinary
5. Integrated Realty Corp v. PNB, 174 SCRA 295 (1989); acquisitive prescription because of the absence of just title.
6. Republic v. CA, 146 SCRA 15 (1986); The Court of Appeals found that the predecessors-in-interest
7. Quintos v. Beck, 69 Phil 108 (1939); and private respondents were possessors under claim of
8. Republic v. Grijaldo, 15 SCRA 638 (L-20240, Dec. 31, ownership in good faith from 1906; that petitioner Vicar was
1965); only a bailee in commodatum; and that the adverse claim and
9. De los Santos v. Jarra, 15 Phil 147 (1910); repudiation of trust came only in 1951.
10. Mina v. Pascual, 25 Phil 540 (1913);
11. Briones v. Cammayo, 41 SCRA 404 (1971);
12. Lopez v. del Rosario, 44 Phil 98 (1922); 2. REPUBLIC V. BAGTAS, 6 SCRA 262 (1962);
13. Zobel v. City of Manila, 47 Phil 169 (1925);
14. Reformina v. Tomol, 139 SCRA 260 (1985); G.R. No. L-17474 October 25, 1962
15. Liam Law v. Olympic Sawmill Co., 129 SCRA 439 (1984); Laws Applicable: Commodatum
16. Banco Filipino v. Navarro, 152 SCRA 346 (1987);
17. PNB v. IAC and Maglasang, 183 SCRA 133 (1990); FACTS:
18. PNB v. CA and Padilla, 196b SCRA 536 (1991);
19. PNB v. CA and Fernandez, 238 SCRA 80 (1994); May 8, 1948: Jose V. Bagtas borrowed from the
20. Florendo v. CA, 265 SCRA 678 (1996) Republic of the Philippines through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of P1,
176.46, a Bhagnari, of P1, 320.56 and a Sahiniwal, of P744.46,
for a period of 1 year for breeding purposes subject to a
1. CATHOLIC VICAR APOSTOLIC V. CA, 165 SCRA 515 breeding fee of 10% of the book value of the bulls.
(1988)
May 7, 1949: Jose requested for a renewal for
CATHOLIC VICAR APOSTOLIC V CA 165 SCRA 515 (1988) another year for the three bulls but only one bull was approved
while the others are to be returned.
The Catholic Vicar of the Mountain Province (Vicar for
brevity) filed with the CFI of Baguio, Benguet an application for March 25, 1950: He wrote to the Director of Animal
registration of title for Lots 1, 2, 3 and 4 of Psu-194357 situated Industry that he would pay the value of the 3 bulls.
at Poblacion Central, La Trinidad, Benguet. Said lots being the October 17, 1950: he reiterated his desire to buy them
sites of the Catholic Church building, convents, school, etc., at a value with a deduction of yearly depreciation to be
approved by the Auditor General.
The Heirs of Juan Valdez and the Heirs of Emigdio
Octaviano, upon learning of the application, filed an October 19, 1950: Director of Animal Industry advised
Answer/Opposition thereto on Lots 2 and 3, respectively, him that either the 3 bulls are to be returned or their book value
asserting ownership and title thereto. The land registration without deductions should be paid not later than October 31,
court promulgated its decision confirming the registrable title to 1950 which he was not able to do.
Vicar. Both heirs of Valdez and Octaviano appealed to the
Court of Appeals. December 20, 1950: An action at the CFI was
commenced against Jose praying that he be ordered to return
The CA modified the decision of the land registration the 3 bulls or to pay their book value of P3,241.45 and the
court and found that Lots 2 and 3 were possessed by the unpaid breeding fee of P199.62, both with interests, and costs
predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that Vicar has been July 5, 1951: Jose V. Bagtas, through counsel
in possession of the same lots as bailee in commodatum up to Navarro, Rosete and Manalo, answered that because of the
1951, when Vicar repudiated the trust and when it applied for bad peace and order situation in Cagayan Valley, particularly
registration in1962; that Vicar had just been in possession as in the barrio of Baggao, and of the pending appeal he had
owner for 11years, hence there is no possibility of acquisitive taken to the Secretary of Agriculture and Natural Resources
prescription which requires 10 years possession with just title and the President of the Philippines, he could not return the
and 30 years possession without. animals nor pay their value and prayed for the dismissal of the
complaint.
ISSUE:
WON the failure of Vicar to return the subject property RTC: granted the action
to private respondents would constitute an adverse possession
that would entitle Vicar to have a just title in order for ordinary December 1958: granted an ex-parte motion for the
acquisitive prescription to set in. appointment of a special sheriff to serve the writ outside
Manila.
 December 6, 1958: Felicidad M. Bagtas, the surviving After almost 9 years, Saura Inc, commenced an
spouse of Jose who died on October 23, 1951 and action against RFC, alleging failure on the latter to comply with
administration of his estate, was notified. its obligations to release the loan applied for and approved,
thereby preventing the plaintiff from completing or paying
January 7, 1959: she file a motion that the 2 bulls contractual commitments it had entered into, in connection with
where returned by his son on June 26, 1952 evidenced by its jute mill project.
recipt and the 3rd bull died from gunshot wound inflicted during The trial court ruled in favor of Saura, ruling that there
a Huk raid and prayed that the writ of execution be quashed was a perfected contract between the parties and that the RFC
and that a writ of preliminary injunction be issued. was guilty of breach thereof.

ISSUE: ISSUE:
Whether or not there was a perfected contract
W/N the contract is commodatum and NOT a lease between the parties. YES. There was indeed a perfected
and the estate should be liable for the loss due to force consensual contract.
majeure due to delay.
HELD:
HELD: Article 1934 provides: An accepted promise to deliver
YES. Writ of execution appealed from is set aside, something by way of commodatum or simple loan is binding
without pronouncement as to costs If contract was upon the parties, but the commodatum or simple loan itself
commodatum then Bureau of Animal Industry retained shall not be perfected until delivery of the object of the
ownership or title to the bull it should suffer its loss due to force contract.
majeure. A contract of commodatum is essentially gratuitous.
If the breeding fee be considered a compensation, then the There was undoubtedly offer and acceptance in the
contract would be a lease of the bull. Under article 1671 of the case. The application of Saura, Inc. for a loan of P500,000.00
Civil Code the lessee would be subject to the responsibilities of was approved by resolution of the defendant, and the
a possessor in bad faith, because she had continued corresponding mortgage was executed and registered. The
possession of the bull after the expiry of the contract. And defendant failed to fulfill its obligation and the plaintiff is
even if the contract be commodatum, still the appellant is liable therefore entitled to recover damages.
if he keeps it longer than the period stipulated the estate of the
late defendant is only liable for the sum of P859.63, the value When an application for a loan of money was
of the bull which has not been returned because it was killed approved by resolution of the respondent corporation and the
while in the custody of the administration of his estate. responding mortgage was executed and registered, there
arises a perfected consensual contract.
Special proceedings for the administration and
settlement of the estate of the deceased Jose V. Bagtas However, it should be noted that RFC imposed two
having been instituted in the CFI, the money judgment conditions (availability of raw materials and increased
rendered in favor of the appellee cannot be enforced by means production) when it restored the loan to the original amount of
of a writ of execution but must be presented to the probate P500,000.00.
court for payment by the appellant, the administration
appointed by the court. Saura, Inc. obviously was in no position to comply
with RFC’s conditions. So instead of doing so and insisting that
the loan be released as agreed upon, Saura, Inc. asked that
the mortgage be cancelled. The action thus taken by both
parties was in the nature of mutual desistance which is a mode
3. SAURA IMPORT & EXPORT V. DBP (1972); of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a
SAURA IMPORT and EXPERT CO., INC., vs DBP contract, mutual disagreement by the parties can cause its
[G.R. No. L-24968, April 27, 1972] MAKALINTAL, J. extinguishment.

FACTS: WHEREFORE, the judgment appealed from is

reversed and the complaint dismissed.
In July 1952, Saura, Inc., applied to Rehabilitation
Finance Corp., now DBP, for an industrial loan of P500,000 to
be used for the construction of a factory building, to pay the
balance of the jute mill machinery and equipment and as 4. HERRERA V. PETROPHIL CORP., 146 SCRA 385;
additional working capital. In Resolution No.145, the loan
application was approved to be secured first by mortgage on Herrera vs Petro Phil Corp 146 Scra 385
the factory buildings, the land site, and machinery and
equipment to be installed. FACTS:

The mortgage was registered and documents for the On December 5, 1969, Herrera and ESSO Standard,
promissory note were executed. But then, later on, was (later substituted by Petrophil Corp.,) entered into a lease
cancelled to make way for the registration of a mortgage agreement, whereby the former leased to the latter a portion of
contract over the same property in favor of Prudential Bank his property for a period of 20yrs. subject to the condition that
and Trust Co., the latter having issued Saura letter of credit for monthly rentals should be paid and there should be an
the release of the jute machinery. As security, Saura execute a advance payment of rentals for the first eight years of the
trust receipt in favor of the Prudential. For failure of Saura to contract, to which ESSO paid on December 31, 1969.
pay said obligation, Prudential sued Saura.
However, ESSO deducted the amount of 101, 010.73 as Unless these four things concur in every transaction, it is safe
interest or discount for the eight years advance rental. to affirm that no case of usury can be declared.

On August 20, 1970, ESSO informed Herrera that 5. INTEGRATED REALTY CORP V. PNB, 174 SCRA 295
there had been a mistake in the computation of the interest (1989);
and paid an additional sum of 2,182.70; thus, it was reduced to
98, 828.03. Integrated Realty Corporation vs. Philippine National Bank,
174 SCRA 295(1989)
As such, Herrera sued ESSO for the sum of 98, FACTS:
828.03, with interest, claiming that this had been illegally
deducted to him in violation of the Usury Law. Under date 11 January 1967 defendant Raul L.
Santos made a time deposit with defendant OBM in the
ESSO argued that amount deducted was not usurious amount of P500,000.00. (Exhibit-10 OBM) and was issued a
interest but rather a discount given to it for paying the rentals in Certificate of Time Deposit No. 2308 (Exhibit 1-Santos, Exhibit
advance. Judgment on the pleadings was rendered in favor of D). Under date 6 February 1967 defendant Raul L. Santos also
ESSO. Thus, the matter was elevated to the SC for only made a time deposit with defendant OBM in the amount of
questions of law was involve. P200,000.00 (Exhibit 11-OBM) and was issued certificate of
Time Deposit No. 2367 (Exhibit 2-Santos, Exhibit E). Under
ISSUE: date 9 February 1967 defendant IRC, thru its President.

W/N the contract between the parties is one of loan or Defendant Raul L. Santos, applied for a loan and/or
lease. credit line (Exhibit A) in the amount of P700,000.00 with
plaintiff bank. To secure the said loan, defendant Raul L.
RULING: Santos executed on August 11, 1967 a Deed of Assignment
(Exhibit C) of the two time deposits (Exhibits 1-Santos and 2-
Contract between the parties is one of lease and not Santos, also Exhibits D and E) in favor of plaintiff. Defendant
of loan. It is clearly denominated a "LEASE AGREEMENT." OBM gave its conformity to the assignment thru letter dated 11
Nowhere in the contract is there any showing that the parties August 1967 (Exhibit F). On the same date, defendant IRC,
intended a loan rather than a lease. The provision for the thru its President Raul L. Santos, also executed a Deed of
payment of rentals in advance cannot be construed as a Conformity to Loan Conditions (Exhibit G). The defendant
repayment of a loan because there was no grant or OBM, after the due dates of the time deposit certificates, did
forbearance of money as to constitute an indebtedness on the not pay plaintiff PNB. Plaintiff demanded payment from
part of the lessor. On the contrary, the defendant-appellee was defendants IRC and Raul L. Santos (Exhibit K) and from
discharging its obligation in advance by paying the eight years defendant OBM (Exhibit L). Defendants IRC and Raul L.
rentals, and it was for this advance payment that it was getting Santos replied that the obligation (loan) of defendant IRC was
a rebate or discount. deemed paid with the irrevocable assignment of the time
deposit certificates (Exhibits 5-Santos, 6-Santos and 7-
There is no usury in this case because no money was Santos).
given by the defendant-appellee to the plaintiff-appellant, nor
did it allow him to use its money already in his possession. ISSUE:
There was neither loan nor forbearance but a mere discount
which the plaintiff-appellant allowed the defendant-appellee to 1. Whether or not IRC and Santos should be held
deduct from the total payments because they were being made liable to PNB for the amount of the loan with the corresponding
in advance for eight years. The discount was in effect a interest thereon.
reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount, would 2. Whether OBM should be held liable for interests on
not contravene the Usury Law. the time deposits of IRC and Santos from the time it ceased
operations until it resumed its business.
The difference between a discount and a loan or
forbearance is that the former does not have to be repaid. The RULING:
loan or forbearance is subject to repayment and is therefore
governed by the laws on usury. 1. We find nothing illegal in the interest of one and
one-half percent (1-1/2%) imposed by PNB pursuant to the
To constitute usury, "there must be loan or resolution of its Board which presumably was done in
forbearance; the loan must be of money or something accordance with ordinary banking procedures. Not only did
circulating as money; it must be repayable absolutely and in all IRC and Santos fail to overcome the presumption of regularity
events; and something must be exacted for the use of the of business transactions, but they are likewise estopped from
money in excess of and in addition to interest allowed by law." questioning the validity thereof for the first time in this petition.
There is nothing in the records to show that they raised this
issue during the trial by presenting countervailing evidence.
It has been held that the elements of usury are
What was merely touched upon during the proceedings in the
(1) a loan, express or implied;
court below was the alleged lack of notice to them of the board
(2) an understanding between the parties that the money lent
resolution, but not the veracity or validity thereof.
shall or may be returned;
(3) that for such loan a greater rate or interest that is allowed
2. We have held in The Overseas Bank of Manila vs.
by law shall be paid, or agreed to be paid, as the case may be;
Court of Appeals and Tony D. Tapia, 13 that:
and
“It is a matter of common knowledge, which We take judicial
(4) a corrupt intent to take more than the legal rate for the use
notice of, that what enables a bank to pay stipulated interest on
of money loaned.
money deposited with it is that thru the other aspects of its they replied that the loan was deemed paid with the irrevocable
operation it is able to generate funds to cover the payment of assignment of the time deposit certificates.
such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged PB then filed with RTC to collect from IRC and Santos
properties or their proceeds and generally engage in other with interest. The trial court ruled in favor of PNB ordering IRC
banking and financing activities from which it can derive and Santos to pay PNB the total amount of P700H plus interest
income, it is inconceivable how it can carry on as a depository of 9% PA, 2% additional interest and 1& PA penalty interest.
obligated to pay stipulated interest. Conventional wisdom On appeal, the CA ordered OBM to pay IRC and Santos
dictates this inexorable fair and just conclusion. And it can be whatever amts they will to PNB with interest. IRC and Santos
said that all who deposit money in banks are aware of such a now claim that OBM should reimburse them for whatever amts
simple economic proposition. Consequently, it should be they may be adjudged to pay PNB by way of compensation for
deemed read into every contract of deposit with a bank that the damages incurred.
obligation to pay interest on the deposit ceases the moment
the operation of the bank is completely suspended by the duly ISSUE:
constituted authority, the Central Bank.
Whether or not the claim of IRC and Santos will
“We consider it of trivial consequence that the prosper.
stoppage of the bank’s operation by the Central Bank has been
subsequently declared illegal by the Supreme Court, for before HELD:
the Court’s order, the bank had no alternative under the law
than to obey the orders of the Central Bank. Whatever be the The Court held in the affirmative. The 2 time deposits
juridical significance of the subsequent action of the Supreme matured on 11 January 1968 and 6 February 1968,
Court, the stubborn fact remained that the petitioner was totally respectively. However, OBM was not allowed and suspended
crippled from then on from earning the income needed to meet to operate only on 31 July 1968 and resolved on 2 August
its obligations to its depositors. If such a situation cannot, 1968. There was a yet no obstacle to the faithful compliance by
strictly speaking, be legally denominated as ‘force majeure,’ as OBM of its liabilities. For having incurred in delay in the
maintained by private respondent, We hold it is a matter of performance of its obligation, OBM should be held for
simple equity that it be treated as such.” damages. OBM contends that it had agreed to pay interest
only up to the dates of maturity of the CTD and that Santos is
The Court further adjured that: not entitled to interest after maturity dates had expired.
“Parenthetically, We may add for the guidance of
those who might be concerned, and so that unnecessary While it is true that under Article 1956 of the CC, no
litigations be avoided from further clogging the dockets of the interest shall be due unless it has been expressly stipulated in
courts, that in the light of the considerations expounded in the writing, this applies only to interest for the use of money. It
above opinion, the same formula that exempts petitioner from does not comprehend interest paid as damages. OBM is being
the payment of interest to its depositors during the whole required to pay such interest, not as interest income stipulated
period of factual stoppage of its operations by orders of the in the CTD, but as damages from failure and delay in the
Central Bank, modified in effect by the decision as well as the payment of its obligations which thereby compelled IRC and
approval of a formula of rehabilitation by this Court, should be, Santos to resort to the courts.
as a matter of consistency, applicable or followed in respect to
all other obligations of petitioner which could not be paid during The applicable rule is that LI, in the nature of
the period of its actual complete closure.” damages for non-compliance with an obligation to pay sum of
money, is recoverable from the date judicially or extra-judicially
demand is made.
“Thus, Our task is narrowed down to the resolution of
the legal problem of whether or not, for purposes of the
payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be 6. REPUBLIC V. CA, 146 SCRA 15 (1986);
equated with actual cessation of the bank’s operation, not Republic vs CA 146 scra 15
different, factually speaking, in its effects, from legal liquidation
the factual cessation having been ordered by the Central Bank. FACTS:

The Heirs of Domingo Baloy, (private respondents),

Integrated Realty Corp vs PNB GR No. 60705, 28 June applied for a registration of title for their land. Their claim is
1989 based on their possessory information title acquired by
174 SCRA 295 Domingo Baloy through the Spanish Mortgage Law, coupled
with their continuous, adverse and public possession of the
FACTS: land in question. The Director of Lands opposed the
registration alleging that such land became public land through
Raul Santos made a time deposit with OBM in the the operation of Act 627 of the Philippine Commission. On Nov
amount of P500H and he was issued a certificate of time 26, 1902, pursuant to the executive order of the President of
deposits. On another date, Santos again made a time deposit U.S., the area was declared within the US Naval Reservation.
with OBM in the amount of P200H, he was again issued a The CFI denied respondents' application for registration. CA,
CTD. IRC, thru its president Raul Santos, applied for a loan reversed the decision. Petitioners herein filed their Motion for
and/or credit line (P700H) with PNB. To secure such, Santos Reconsideration, said MR was denied, hence this petition for
executed a Deed of Assignment of the 2 time deposits. After review on certiorari.
due dates of the time deposit certificates, OBM did not pay
PNB. PNB then demanded payment from IRC and Santos, but ISSUE:
Whether or not private respondents' rights by virtue of
their possessory information title was lost by prescription.
 Court could not legally compel her to bear the expenses
RULING: occasioned by the deposit of the furniture at the defendant's
behest. The latter, as bailee, was nt entitled to place the
No. A communication which contains an official furniture on deposit; nor was the plaintiff under a duty to accept
statement of the position of the Republic of the Philippines with the offer to return the furniture, because the defendant wanted
regard to the status of the land in question recognizes the fact to retain the three gas heaters and the four electric lamps.
that Domingo Baloy and/or his heirs have been in continuous
possession of said land since 1894 as attested by an
"Informacion Possessoria" Title, which was granted by the
Spanish Government. Hence, the disputed property is private 8. REPUBLIC V. GRIJALDO, 15 SCRA 638 (L-20240, DEC.
land and this possession was interrupted only by the 31, 1965);
occupation of the land by the U.S. Navy in 1945. The heirs of
the late Domingo P. Baloy, are now in actual possession, and Case No. 9
this has been so since the abandonment by the U.S. Navy. Republic of the Philippines v. Jose Grijaldo
The occupancy of the U.S. Navy was not in the concept of G.R. No. L-20240; December 31, 1965
owner. It holds of the character of a commodatum. It cannot
affect the title of Domingo Baloy. One's ownership of a thing FACTS:
may be lost by prescription by reason of another's possession Jose Grijaldo obtained five loans from the branch of
if such possession be under claim of ownership, not where the the Bank of Taiwan. The loans were evidenced by five
possession is only intended to be temporary, as in the case of promissory notes executed by the appellant in favor of the
the U.S. Navy's occupation of the land concerned, in which Bank of Taiwan. To secure the payment of the loans, Grijaldo
case the owner is not divested of his title, although it cannot be executed a chattel mortgage on the standing crops on his land.
exercised in the meantime. The assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States. Pursuant to the
7. QUINTOS V. BECK, 69 PHIL 108 (1939); Philippine Property Act of 1946 of the United States, these
assets including the loans in question, were subsequently
QUINTOS VS BECK 69 PHIL 108 transferred to the Republic of the Philippines by the
Government of the United States under Transfer Agreement of
20 July 1954. Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written
Facts: extrajudicial demand upon the appellant for the payment of
Quintos and Beck entered into a contract of lease, account in question. Republic filed a complaint in the Justice of
whereby the latter occupied the former’s house. On Jan 14, the Peace of Court of Hinigaran, Negros Occidental, to collect
1936, the contract of lease was novated, wherein the QUintos from the appellant the unpaid account in question. The court a
gratuitously granted to Beck the use of the furniture, subject to quo rendered a decision ordering Grijaldo to pay the Republic
the condition that Beck should return the furnitures to Quintos of the Philippines the sum of P2,377.23 as of 31 December
upon demand. Thereafter, Quintos sold the property to Maria 1959 plus interest at the rate of 6% per annum compounded
and Rosario Lopez. Beck was notified of the conveyance and quarterly. Grijaldo contends that Republic of the Philippines
given him 60 days to vacate the premises. IN addition, Quintos has no cause of action against him since the contract of loan
required Beck to return all the furniture. Beck refused to return was instituted with the Bank of Taiwan.
3 gas heaters and 4 electric lamps since he would use them
until the lease was due to expire. Quintos refused to get the ISSUES:
furniture since Beck had declined to return all of them. Beck Whether or not the obligation of Grijaldo was
deposited all the furniture belonging to QUintos to the sheriff. extinguished.
HELD:
ISSUE: NO. The obligation of the appellant under the five
promissory notes was not to deliver a determinate thing
WON Beck complied with his obligation of returning namely, the crops to be harvested from his land, or the value of
the furnitures to Quintos when it deposited the furniture to the the crops that would be harvested from his land. Rather, his
sheriff. obligation was to pay a generic thing — the amount of
money representing the total sum of the five loans, with
RULING: interest. The transaction between the appellant and the Bank
of Taiwan, Ltd. was a series of five contracts of simple loan of
The contract entered into between the parties is one sums of money. "By a contract of (simple) loan, one of the
of commadatum, because under it the plaintiff gratuitously parties delivers to another ... money or other consumable thing
granted the use of the furniture to the defendant, reserving for upon the condition that the same amount of the same kind and
herself the ownership thereof; by this contract the defendant quality shall be paid." (Article 1933, Civil Code) The obligation
bound himself to return the furniture to the plaintiff, upon the of the appellant under the five promissory notes evidencing the
latters demand (clause 7 of the contract, Exhibit A; articles loans in questions is to pay the value thereof; that is, to deliver
1740, paragraph 1, and 1741 of the Civil Code). The obligation a sum of money — a clear case of an obligation to deliver, a
voluntarily assumed by the defendant to return the furniture generic thing. Article 1263 of the Civil Code provides: “In an
upon the plaintiff's demand, means that he should return all of obligation to deliver a generic thing, the loss or destruction of
them to the plaintiff at the latter's residence or house. The anything of the same kind does not extinguish the obligation.”
defendant did not comply with this obligation when he merely The chattel mortgage on the crops growing on appellant's land
placed them at the disposal of the plaintiff, retaining for his simply stood as a security for the fulfillment of appellant's
benefit the three gas heaters and the four eletric lamps. obligation covered by the five promissory notes, and the loss of
the crops did not extinguish his obligation to pay, because the
As the defendant had voluntarily undertaken to return account could still be paid from other sources aside from the
all the furniture to the plaintiff, upon the latter's demand, the mortgaged crops.
 In his second point of contention, the appellant of any of his descendants, it is the duty of the administratrix of
maintains that the action of the appellee had prescribed. The the estate to either return them or indemnify the owner thereof
appellant points out that the loans became due on June 1, of their value.
1944; and when the complaint was filed on January 17,1961 a
period of more than 16 years had already elapsed — far
beyond the period of ten years when an action based on a
written contract should be brought to court. This contention of 10. MINA V. PASCUAL, 25 PHIL 540 (1913);
the appellant has no merit. Firstly, it should be considered that
the complaint in the present case was brought by the Republic ALEJANDRA MINA, ET AL., plaintiffs-appellants, vs.
of the Philippines not as a nominal party but in the exercise of RUPERTA PASCUAL, ET AL., defendants-appellees. G.R.
its sovereign functions, to protect the interests of the State over No. 8321 | 1913-10-14
a public property. Under paragraph 4 of Article 1108 of the Civil
Code prescription, both acquisitive and extinctive, does not run DOCTRINE: It is an essential feature of commodatum that the
against the State. This Court has held that the statute of use of the thing belonging to another shall be for a certain
limitations does not run against the right of action of the period.
Government of the Philippines. Secondly, the running of the
period of prescription of the action to collect the loan from FACTS:
the appellant was interrupted by the moratorium laws. The Francisco is the owner of land and he allowed his brother,
loan in question, as evidenced by the five promissory notes, Andres, to erect a warehouse in that lot. Both Francisco and
were incurred in the year 1943, or during the period of Andres died. Mina was recognized as the heir of Francisco and
Japanese occupation of the Philippines. Pascual for Andres. Pascual sold his share of the warehouse
and lot. Mina opposed because the lot is hers because
*For reference: Francisco never parted with its ownership when he let Andres
While the bank of Taiwan, Ltd. was the original creditor and the construct a warehouse, hence, it was a contract of
transaction between Grijaldo and the Bank of Taiwan was a commodatum.
private contract of loan, the successive transfer of the rights
over the loans in question from the Bank of Taiwan, Ltd. to the
United States Government, and from the United States ISSUE:
Government to the government of the Republic of the Whether the contract between Francisco and Andres
Philippines, made the Republic of the Philippines the is in the nature of commodatum
successor of the rights, title and interest in said loans. It HELD:
thereby created a privity of contract between the Republic of No It is an essential feature of commodatum that the
the Philippines and Grijaldo. The word privy denotes the idea use of the thing belonging to another shall be for a certain
of succession. Hence, an assignee of a credit and the one period. The parties never fixed a definite period during which
subrogated to it will be privies. The United States of America Andres could use the lot and afterwards return it.
acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd., which belonged to an enemy country.
The republic of the Philippines had become a privy to the 11. BRIONES V. CAMMAYO, 41 SCRA 404 (1971);
original contract of loan between Bank of Taiwan Ltd. and
Grijaldo. AURELIO G. BRIONES, plaintiff-appellee, vs. PRIMITIVO P.
CAMMAYO, ET AL., defendants-appellants. G.R. No. L-23559
October 4, 1971

9. DE LOS SANTOS V. JARRA, 15 PHIL 147 (1910); DOCTRINE:

Neither is there a conflict between the New Civil Code and the
Delos Santos v. Jarra Digest Usury Law. Under the latter, in Sec. 6, any person who for a
G.R. No. L-4150 February 10, 1910 loan shall have paid a higher rate or greater sum or value than
is allowed in said law, may recover the whole interest paid. The
FACTS: New Civil Code, in Article 1413 states: "Interest paid in excess
of the interest allowed by the usury laws may be recovered by
The Plaintiff Felix delos Santos filed this suit against the debtor, with interest thereon from the date of payment."
Agustina Jarra. Jarra was the administration of the estate of Article 1413, in speaking of "interest paid in excess of the
Jimenea. Plaintiff alleged that he owned 10 1st class carabaos interest allowed by the usury laws" means the whole usurious
which he lent to his father-in-law Jimenea to be used in the interest; that is, in a loan of P1,000, with interest of 20% per
animal-power mill without compensation. This was done on the annum or P200 for one year, if the borrower pays said P200,
condition of their return after the work at the latter’s mill is the whole P200 is the usurious interest, not just that part
terminated. When delos Santos demanded the return of the thereof in excess of the interest allowed by law. It is in this
animals Jimenea refused, hence this suit.  case that the law does not allow division. The whole stipulation
as to interest is void, since payment of said interest is illegal.
ISSUE: The only change effected, therefore, by Article 1413, New Civil
W/N the contracts is one of a commodatum  Code, is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already
RULING: provided for, but to add that the same can be recovered "with
interest thereon from the date of payment."
YES. The carabaos were given on commodatum as
these were delivered to be used by defendant. Upon failure of FACTS:
defendant to return the cattle upon demand, he is under the Aurelio G. Briones filed an action in the Municipal Court of
obligation to indemnify the plaintiff by paying him their value. Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio,
Since the 6 carabaos were not the property of the deceased or all surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages, attorney's settlement between the Insurance companies and Del Rosario,
fees and costs of suit. Defendants executed the real estate the latter authorized Atty. Fisher to negotiate with the
mortgage as security for the loan of P1,200.00 given to Companies.
Primitivo P. Cammayo upon the usurious agreement that An agreement was reached to submit the matter to
defendant pays to the plaintiff and that the plaintiff reserve and arbitration.  The claims by different people who had stored
secure, as in fact plaintiff reserved and secured himself, out of copra in the warehouse were settled with the exception of
the alleged loan of P1,500.00 as interest the sum of P300.00 Friolan Lopez.
for one year; although the mortgage contract, was executed for A case was filed in CFI by Lopez.  The court awarded
securing the payment of P1,500.00 for a period of one year, him the sum of P88,492.21 with legal interest.
without interest, the truth and the real fact is that plaintiff
delivered to the defendant Primitivo P. Cammayo only the sum Issue:
of P1,200.00 and withheld the sum of P300.00 which was Whether or not Del Rosario acted as the agent of
intended as advance interest for one year; On account of said Lopez in taking out the insurance on the contents of the
loan of P1,200.00, Primitivo P. Cammayo paid to the plaintiff warehouse or whether she acted as the reinsurer of the copra.
during the period from October 1955 to July 1956 the total sum
of P330.00 which plaintiff, illegally and unlawfully refuse to Held: 
acknowledge as part payment of the account but as in interest She acted as the agent of Lopez.
of the said loan for an extension of another term of one year; The agency can be deduced from the warehouse
receipts, the insurance policies and the circumstances
ISSUE: surrounding the transaction.  Under any aspect, Del Rosario is
Whether the creditor is entitled to collect from the debtor the liable.  The law is that a policy effected by a bailee and
amount representing the principal obligation. covering by its terms in his own property and property held in
trust, inures, in the event of loss, equally and proportionately to
the benefit of all owners of the property insured.  Even if one
HELD: secured insurance covering his own goods and goods stored
YES. In Go Chioco vs. Martinez, 45 Phil. 256 that even if the with him, and even if the owner of the stored goods did not
contract of loan is declared usurious the creditor is entitled to request or know the insurance, and did not ratify it before the
collect the money actually loaned and the legal interest due payment of the loss, it has been held by a reputable court that
thereon. In simple loan with stipulation of usurious interest, the the warehouseman is liable to the owner of such stored goods
prestation of the debtor to pay the principal debt, which is the for his share.
cause of the contract (Article 1350, Civil Code), is not illegal.
The illegality lies only as to the prestation to pay the stipulated In a case of contributing policies, adjustments of loss
interest; hence, being separable, the latter only should be made by an expert or by a board of arbitrators may be
deemed void, since it is the only one that is illegal. The submitted to the court NOT as evidence of the facts stated
principal debt remaining without stipulation for payment of therein, or as obligatory, but for the purpose of assisting the
interest can thus be recovered by judicial action. And in case of court in calculating the amount of liability.
such demand, and the debtor incurs in delay, the debt earns
interest from the date of the demand (in this case from the
filing of the complaint). Such interest is not due to stipulation,
for there was none, the same being void. Rather, it is due to 13. ZOBEL V. CITY OF MANILA, 47 PHIL 169 (1925);
the general provision of law that in obligations to pay money,
where the debtor incurs in delay, he has to pay interest by way
of damages (Art. 2209, Civil Code). The court a quo therefore, G.R. No. L-22201             January 12, 1925
did not err in ordering defendants to pay the principal debt with
interest thereon at the legal rate, from the date of filing of the
JACOBO ZOBEL, ET AL., plaintiffs-appellants, 
complaint.
vs.
THE CITY OF MANILA, defendant-appellant.
12. LOPEZ V. DEL ROSARIO, 44 PHIL 98 (1922);
Fisher, DeWitt, Perkins and Brady for plaintiffs-appellants.
Lopez v. Del Rosario City Fiscal Guevara and Araneta and Zaragoza for defendant-
appellant.
44 PHIL 98
STREET, J.:
Facts:
Benita Del Rosario is the owner of a bonded
warehouse in Manila where copra and other merchandise are This action was instituted in the Court of First Instance of the
deposited. City of Manila on May 24, 1923, by the minors Jacobo Zobel,
Among those who had copra deposited in the Alfonso Zobel, and Mercedes Zobel, under the guardianship of
warehouse was Froilan Lopez, the owner of 14 warehouse Fernando Zobel, to recover of the City of Manila the amount of
receipts with a declared value of P107,990.40 in his name. the first two installments of the purchase price of a tract of land
Del Rosario secured insurance on the warehouse and located in the Province of Rizal near the corporate limits of the
its contents with 5 different insurance companies in the amount City of Manila, which has been conveyed by the guardian of
of P404,800. the minor-plaintiffs by deed (Exhibit E) dated 21st of February,
All policies were in the name of Del Rosario, except 1922, said installments amounting respectively to P41,666.66
for one (with Nat’l Insurance Co.) for 40T, in favor of Compania and with interest upon the first installment from May 21, 1922,
Copra de Tayabas. and upon the second from the date of the making of the
The warehouse and its contents were destroyed by contract. Upon hearing the cause the trial judge gave judgment
fire.  When Bayne, a fire loss adjuster, failed to effect a in favor of the plaintiffs to recover both the principal sums
claimed, amounting to P83,333.32, with interest upon only one
installment at the rate of five per centum per annum. From this engineer, to the Municipal Board, requesting that the Board
judgment the plaintiffs appealed from so much of the decision concur in his selection of the San Pedro Macati site for the
as failed to allow interest on both installments at the rate location of the proposed south cemetery. On August 31, 1920,
claimed in the complaint, while the defendant appealed from so the Municipal Board, at a meeting at which all the members
much of the judgment as was favorable to the plaintiffs. For were present, adopted unanimously a resolution which reads
convenience in the disposition of the controverted points, the as follows:
appeal of the defendant will first be considered.
Endorsement by the Mayor requesting concurrence of
It appears that for several years the responsible officials of the the Board regarding the land selected by his office for
City of Manila have appreciated the necessity for the the proposed south cemetery, namely, a parcel of
establishment of a cemetery near the city and on the south land of the San Pedro Macati Estate belonging to Mr.
side of the Pasig River. Admittedly the only tract of land Enrique Zobel, who is willing to sell it at the rate of
available for this purpose consists of a part of the Hacienda one peso per square meter, apart from a tract of land
San Pedro Macati, belonging to the plaintiffs, who are minors. which he offers to cede gratuitously to give access to
This estate lies in the Province of Rizal, beyond the corporate the cemetery from Calle Vito Cruz, referred to the
limits of the city, but one of its corners juts into the southern, or committee on cemeteries for comment and
southeastern suburbs of the city, in such manner as to bring recommendation.
the desired tract close to populous centres. The hacienda, it
may be stated, has never been built upon improved for city In accordance with this resolution, the matter was referred to
purposes and forms a solid block, practically untraversed by the committee on cemeteries of the Municipal Board of the City
public streets or roads. Owing to the character of the subsoil of Manila. Under date of September 10, 1920, that committee
the land has little value for agricultural purposes, which is the returned the papers to the Municipal Board "recommending the
only use to which it has heretofore been put; and it is taxed in approval of the construction of the south cemetery on the site
the Province of Rizal on the low basis of agricultural land. here indicated as the conditions of the said site are appropriate
for the purpose."
In February, 1920, the Municipal Board of the City of Manila
passed an ordinance (No. 726) appropriating the sum of On September 10, 1920, the report of the committee was
P703,750 to be used for "the establishment of a cemetery in received by the Municipal Board and a resolution of the
the south district of Manila and the acquisition of the land following tenor was adopted:
necessary therefor."
Endorsement of the committee on cemeteries
In consequence of the passage of this resolution the recommending the approval of the site selected by
Honorable Ramon J. Fernandez, at that time the Mayor of the the Mayor for the south cemetery situated at the San
City, entered into negotiations with the guardian of the Pedro Macati Estate, containing approximately
appellees, the result of which was a letter, written July 1, 1920, twenty-five hectares. The recommendation is
in which the appellees offered to sell to the city upon the terms approved and it is ordered that the matter be returned
therein set forth twenty-five hectares of the San Pedro Macati to the Mayor inviting his attention to this approval.
Estate for cemetery purposes (Exhibit A).
After the adoption of this resolution, on September 23, 1920,
Upon receipt of this letter the Mayor endorsed it for the Honorable Ramon J. Fernandez, at that time Mayor of the
recommendation and comment to the city engineer, and made City of Manila, and acting on its behalf, and Mr. Enrique Zobel,
request in writing of the Honorable Francis Burton Harrison, as guardian of the appellees, acting on their behalf, entered
then Governor-General, that he designate some one to into a preliminary contract in writing, prepared by the city fiscal
continue negotiations for the purchase of the land. of the City of Manila, embodying therein the terms of the
agreement under which the City of Manila was to buy and the
On July 10, 1920, the city engineer returned the papers to the appellees were to sell the tract of land in question. (Exhibit C.)
Mayor, stating that in his opinion the site selected was "the
best location available and the only one suitable for cemetery On December 10, 1920, the Municipal Board of Manila
purposes on the south side of the city." adopted a resolution requesting authority pursuant to Act No.
2894 to issue bonds for the construction of works and
On July 23, 1920, Governor-General Harrison appointed the permanent improvements in the amount of P5,500,000. This
city engineer, Mr. Artiaga, a committee of one to negotiate for resolution was duly approved, the bonds mentioned were
the purchase of a tract of land to be used for the proposed issued and sold, and on February 21, 1922, there was an
south cemetery, whereupon the city engineer referred the unexpended balance from the proceeds of these bonds,
communication of the Mayor to the Director of Health, amounting to P1,341,994.35, which was available to defray the
requesting his concurrence. On August 18, 1920, the Director cost of the south cemetery project.
of Health returned the papers to the Mayor, concurring in the
recommendation that the tract of land in question be The preliminary contract bears date of September 23, 1920;
purchased. Thereafter the city engineer reported to the Mayor but on account of delay in the preparation of the plans and
that the proposed site was desirable and recommended its technical description of the property necessary to make
purchase at the rate of one peso per square meter. On August possible its transfer under the Land Registration Act, it was not
26, 1920, the city engineer sent to the Governor-General a until February, 1922, that the final deed of conveyance (Exhibit
copy of his report to the Mayor. E) was executed.

Two or three days after the receipt of Mr. Artiaga's report, the On February 20, 1922, the Municipal Board of Manila adopted
Mayor referred the letter of offer and the other papers a resolution (Resolution No. 31, series of 1922) making an
connected with the case, including the report of the city
appropriation in the amount of P180,000 from the public works Insular Auditor, with the indorsement, by authority of the
and permanent improvements bond issue fund of the city for Governor-General, that the action of the Auditor in refusing to
the purpose of the south cemetery. This resolution was countersign the warrant in any amount in excess of fifty
approved by the Secretary of the Interior in accordance with centavos per square meter was approved.
the provisions of section 1 of Act No. 2894.
Meanwhile on May 21, 1922, the first installment of the
The day after Resolution No. 31 was adopted, the appellees' purchase price of the land had fallen due, and on June 7,
guardian, acting on their behalf, with the approval of the Court 1922, Mr. Zobel, guardian of the appellees, addressed a letter
of First Instance of the City of Manila, and the Honorable to the Mayor, reminding him that payment had not been made.
Ramon J. Fernandez, acting on behalf of the City of Manila, On August 7, 1922, the Mayor replied to Mr. Zobel's letter,
executed a final deed of sale of the land in question. (Exhibit stating that while he recognized the obligation of the city to
E.) This deed was drafted under the direction of the city fiscal carry out its contract, nevertheless, in view of the intervention
of the City of Manila. On February 24, 1922, said deed was of the Governor-General in the matter, he would take no further
filed for record with the register of deeds of the Province of action. The result was that payment of the installment then due
Rizal, together with appellees' certificates of title. Thereupon was not effected, and a similar default occurred later with
transfer certificates of title were duly issued to the City of respect to the second installment.
Manila as owner.
This cause was tried in the lower court upon an agreed
After the execution and delivery to it of the deed of sale to the statements of fact, necessarily somewhat elaborate in its
land in question, and the issuance to it of the certificates of title details. After the cause had been decided an error was
thereto under the Land Registration Act, the City of Manila took discovered in the transcription of Resolution No. 31, series of
possession of the property and placed boundary monuments 1922, into the agreed statements of fact, which was this: In the
on the corners of the land conveyed to it to mark the limits authentic resolution there appears a paragraph cancelling
thereof. Resolution No. 276, series of 1921, but in the transcription of
said resolution into the agreed statements the first two figures
By the terms of the conveyance the purchase price of of the cancelled resolution were so transposed as to make it
P250,000 was to be paid in six installments of P41,666.66 appear that Ordinance No. 726 was cancelled. It so happened
each, the first to be made three months after the date of the that both Ordinance No. 726 and Resolution No. 276 related in
execution of the deed, and the remainder in yearly installments part to the same subject, namely, the south cemetery; with the
thereafter. The first installment was not to bear interest but the result that no one concerned in the litigation discovered the
remaining installments were to bear interest at the rate of five error, and the cause was tried in the lower court on the
per centum per annum. On the date of the execution of the erroneous supposition that Ordinance No. 726 had been
deed of sale, ample funds were available to meet the repealed in so far as relates to south cemetery by said
payments, as appears from a statement in the record signed Resolution No. 31, series of 1922. This error appears to have
by the chief of the department of finance of the City of Manila. been first discovered by the attorneys for the appellees after
the cause was brought to this court upon appeal, and
investigations were conducted by them which revealed the
In anticipation of the falling due of the first installment of the further fact that on May 10, 1921, the Municipal Board had
purchase price, the city treasurer, on March 24, 1924, passed an ordinance (No. 966) reverting to the general funds
prepared and signed a warrant on the city depository for a sum the unexpended balance of the amount theretofore
sufficient to cover said installment. This warrant was then sent appropriated for the south cemetery in Ordinance No. 726.
to the district auditor, one Crisanto Ticman, to be
countersigned by him. Upon looking into the matter the fact
came to Ticman's attention that the land which was being In view of the discovery of the error above-mentioned the
acquired by the city was assessed on the tax books of the appellees, on July 12, 1924, filed a motion in this court, asking
Province of Rizal as uncultivated agricultural land, at a to be relieved from the erroneous stipulation upon the point
valuation of about sixty pesos per hectare. Observing the mentioned and that the court should admit as evidence the
disparity between this valuation and the price which the city affidavits showing the facts to be as stated in the motion. The
had contracted to pay, Ticman refused to countersign the motion was opposed by the appellant, and this court deferred
warrant and addressed a letter to the Insular Auditor, E.M. decision on the motion until the case should be considered on
Fullington, suggesting that the sale should not be permitted to the merits. As it now becomes proper to pass upon the matter,
go through and observing that if the city would institute we will say that while it is not clear that the error alluded to
condemnation proceedings it would surely get the land for very affects the fundamentals of the case, yet the mistake is
much less than the stipulated price of P250,000. The Insular obvious and the situation is one where the appellees are
Auditor approved the course taken by his subordinate and entitled to be relieved from any prejudicial results.
reported the matter to Governor-General Wood, who, through Furthermore, it is desirable for the court to be able to state the
his secretary, appointed a committee of three, composed of facts with truthfulness. We shall therefore assume that the
Colonel C.E. Nathorst, of the Philippine Constabulary, Mr. M. records stand corrected, with leave to the appellant's attorneys
del Rosario, district auditor for Rizal, and the city engineer, Mr. to show that the facts stated in the motion are erroneous, in the
Artiaga, to investigate the matter and report to him. The result contingency that they desire to contest the same.
of the inquiry was that the majority of the committee expressed
the view that not more than fifty centavos per square meter In dismissing this matter we may observe that the general
should be paid for the land, while Artiaga maintained his former situation with reference to the appropriations available for the
position that the price of one peso per square meter south cemetery may be summed up in the statement that at
represented a reasonable valuation. the time the preliminary contract (Exhibit C) was executed on
September 23, 1920, there existed an appropriation of the
The Nathorst report was forwarded to the Mayor by the general funds of the city under Ordinance No. 726, of the sum
secretary to the Governor-General, through the office of the of P703,750 available for the purpose of establishing the south
cemetery; while at the time the definitive contract of sale
(Exhibit E) was made, on February 21, 1922, there existed an the contract is valid depends upon the situation existing at the
appropriation from the public works and permanent time the first agreement was made.
improvements bond issue fund in the amount of P180,000 for
the same purpose, though the appropriation from the general The second question to be considered has reference to the
funds was then no longer available. applicability of section 607 of the Administrative Code to
contracts made by the City of Manila. In the second paragraph
The opposition of the auditing department to the carrying of of said section it is declared that no contract involving the
this contract into effect undoubtedly had its origin in a desire on expenditure by any province, municipality, township, or
the part of the district auditor to protect the interests of the city, settlement of two thousand pesos or more shall be entered into
based on the conviction that if the contract could be nullified or authorized until the treasurer of the political division
and condemnation proceedings instituted the amount to be concerned shall have certified to the officer entering into such
paid by the city would be considerably less than that named in contract that funds have been duly appropriated for such
the contract. Conceding the propriety of this point of view, the purpose and that the amount necessary to cover the proposed
consideration is one that in no wise affects the legal aspects of contract is available for expenditure on account thereof. It is
the case; and it is but fair to say that the terms of purchase admitted that no such certificate was made by the treasurer of
were apparently as favorable to the city as could be arranged Manila at the time the contract now in question was made. We
by negotiation with the representative of the owners. At any are of the opinion that the provision cited has no application to
rate the good faith of the city officials concerned in the deal is contracts of a chartered city, such as the City of Manila. Upon
not called in question. We observe furthermore that in the examining said provision (sec. 607) it will be found that the
Nathorst report the principal reason assigned for estimating the term chartered city, or other similar expression, such as would
price that should be paid by the city at fifty centavos per square include the City of Manila, is not used; and it is quite manifest
meter, instead of one peso per square meter as agreed, is that from the careful use of terms in said section that chartered
the construction by the city of the road to the cemetery will cities were intended to be excluded. In this connection the
considerably increase the commercial value of the remainder definitions of "province," "municipality," and "chartered city,"
of the estate. given in section 2 of the Administrative Code are instructive.
The circumstance that for certain purposes the City of Manila
Considered as a basis for the proposed reduction in the price has the status both of a province and a municipality (as is true
of the land to be taken, this suggestion is only partially sound. in the distribution of revenue) is not inconsistent with this
Even in condemnation proceedings the law does not conclusion.
unqualifiedly permit the offsetting of incidental benefits against
the actual value of the property taken. The rule, we take it, is The next contention is that the contract in question is void
that incidental benefits may be set off against incidental because the approval of the city council was not expressed in
damage but not against the basic value of the property. the form of an ordinance. The provisions of law applicable
Otherwise an owner could be deprived of his property without upon this point are found partly in section 2434, subsection (i),
any compensation at all, as where, for instance, only a small as amended by section 4 of Act No. 2774 of the Philippine
part of an entire parcel is taken for certain uses, with incidental Legislature, and partly in section 2443 of the Administrative
benefit to the remainder. It follows that, even upon the face of Code. Subsection (i) of section 2434, as it originally stood in
the report itself, the fact that the agreed price is excessive is the Administrative Code, among other things declared that the
not demonstrated; and it is to be remembered that by the deed Mayor shall represent the city in all its business matters and
conveying the cemetery site to the city the plaintiffs have sign on its behalf all its bonds, contracts and obligations
gratuitously transferred many thousands of square meters to made in accordance with law or lawful ordinance or resolution.
the city for the construction of a road to the cemetery, with the The corresponding provision in the amendatory Act (No. 2774)
result that if this land be included in the estimate the price of makes it his duty to represent the city in all its business matters
the whole is less than eighty centavos per square meter. The and sign on its behalf all its bonds, contracts and obligations
circumstance that the land in question is assessed on the tax made in accordance with the laws or ordinances. Section 2443
books of the Province of Rizal at sixty pesos per hectare is of of the Administrative Code, as it now and at all times has
little moment when we come to consider the value of the land stood, clearly recognizes the power of the board to
in relation with its propinquity to the City of Manila and its utility adopt resolutions creating liability, and in the same section the
for the purpose for which it is inevitably destined to be used. Mayor is given authority to veto such resolutions.

The brief of the defendant as appellant raises several Now, from the omission of the word "resolution" from the
questions of a purely legal nature, which will be discussed in amendment of subsection (i) of section 2434, it is argued that it
the order of their logical sequence; and we shall first consider was the intention of the Legislature to suppress the power of
that which relates to the antecedent appropriation necessary the Municipal Board to authorize the making of contracts by
before a binding contract can be made requiring the resolution. The validity of this contention cannot be admitted;
expenditure of public funds. The provision of law here for even supposing that the Legislature may have entertained
applicable is found in section 606 of the Administrative Code, the purpose attributed to it in amending subsection (i) of
wherein it is declared that no contract involving the expenditure section 2434, this intention was not fully accomplished by said
of public funds shall be made until there is an appropriation amendment alone, the other provision (sec. 2443) having
therefor, the unexpended balance of which, free from other remained without alteration. But we incline to the view that the
obligations, is sufficient to cover the proposed expenditure. As expression "laws or ordinances," found in the amendment of
we have already seen, at the time the preliminary contract was subsection (i) of section 2434, is there used in a sense broad
made, Ordinance No. 726, appropriating the sum of P703,750 enough to include resolutions. The reason for this is that we
for the proposed cemetery was in force. This in our opinion is a find the same verbal change in two other paragraphs of the
sufficient compliance with the legal requirement; and the same section, in respect to which there can be no doubt that
circumstance that before the definitive contract was made this resolution was intended to be included in the broader
money was reverted to the general funds of the city did not expression. Thus, in subsection (a) of section 2434 of the
have the effect of nullifying said contract. The question whether Administrative Code, it was made the duty of the Mayor to see
that the "laws, ordinances and resolutions" should be faithfully implicit, if not actually expressed in the offer. The letter of offer
executed and enforced. In subsection (m) of the same section (Exhibit A) used the name South Cemetery to identify the
it was made the duty of the Mayor "to perform such other proposed burial ground, and the fact that the land was
executive duties as may be prescribed by law or be required of intended solely for cemetery purposes was patent throughout
him by ordinance or resolution of the board." In the two the negotiations. It will be borne in mind that the city has no
corresponding provisions of the amendatory Act (No. 2774) the authority to acquire land for speculative or commercial uses,
word "resolution," or "resolutions," is omitted and the inclusive and as no other purpose for this acquisition has been
expression "laws and ordinances" or "law or ordinance" is suggested than for the establishment of a cemetery, we think
used. Can it be maintained that the intention of the Legislature that no material mistake was committed by the city fiscal in
in making these changes was to relieve the Mayor of all stating in the deed that the property should be used exclusively
executive responsibility as to the enforcement of resolutions? for that purpose.
Certainly not: he has the same duty to enforce lawful
resolutions as to enforce any law or ordinance. Yet if the Another reason advanced for supposing the contract for the
argument relied upon by the appellant is valid as to the effect purchase of this property to be invalid, or at least unenforcible,
of the omission of the word resolution in subsection (i), it would is that the Insular Auditor has refused to countersign the
necessarily follow that the Mayor has no administrative warrant for the first installment of the purchase price; and it is
responsibility whatever as to the enforcement of resolutions. insisted for the defendant that this action on his part is
conclusive against the plaintiffs. Their sole recourse, so it is
It is next insisted that the resolution of the Board dated claimed, is, or rather was, by way of administrative appeal from
September 10, 1920, approving the Mayor's action with respect the action of the Auditor to the Governor-General. The
to the cemetery site, was intended merely as an expression by suggestion is in our opinion without merit. The general
the Board of its approval of the location of the land chosen for provisions of law defining the jurisdiction and powers of the
the site, without any commitment as to the terms upon which Auditor and which, if literally construed, would seem to make
the property was to be acquired. We are of the opinion that this him absolute arbiter of all claims of any sort against all
is not a fair interpretation of the resolution. At the time the branches of the Government must be considered to be
resolution was adopted, the Board had before it the offer made qualified as regards the contract rights of persons dealing with
by the guardian of the plaintiffs, stating the terms upon which the city by the more specific provisions declaring how and by
the sale would be made. This offer was accompanied by the whom contracts can be made which will be binding on it. It was
favorable report and recommendation of the city engineer, the not intended that the Auditor should possess a general veto
approval of the proposed site by the Director of Health, and the power over all city contracts, and his refusal to countersign the
recommendation of the committee on cemeteries of the Board warrant referred to is of no moment in this action to enforce the
that the cemetery be constructed on the site indicated. The legal liability of the city.
indorsement by which the Board, with all members present,
referred the matter to this committee expressly recites that the Finally, exception is taken to the refusal of the trial court to
price to be paid for the land was at the rate of one peso per require the Insular Auditor to be brought in as a party
square meter, apart from the tract to be ceded gratuitously to defendant. The course pursued by the court was in our opinion
give access to the cemetery. In the light of these facts it is correct. The action is based exclusively upon the legal liability
impossible to suppose that any member of the Board was of the city, and no relief is sought against the Auditor. He was
unaware of the conditions upon which the land was to be therefore not a necessary or even a proper party to the action.
acquired. Again, it is obvious that the matter before the Board Of course if the claim had been based upon an obligation of
was not the mere question of a choice between one or more the Insular Government, no action would have lain directly
available tracts of land then at the disposal of the city. It had against the debtor, in the absence of its consent to be sued. In
reference to the only tract available for cemetery purposes. such case the plaintiffs' only remedy would have been by the
There was no possible choice as between competitive lots, and writ of mandamus to compel the Auditor to countersign a
the sole question was whether this lot was acceptable under warrant for the amount due. But the debtor in this case is a
the terms stated in the offer. municipal corporation, which does not enjoy the State's
immunity from suit, and the action can be maintained directly
Considered as a mere expression of the preference of the against it without the intervention of the Auditor.
Board as to the location of the cemetery, the resolution was
wholly without efficacy and could not advance the negotiations What has been said suffices to dispose of the contentions
in the slightest degree. We are of the opinion that the intention made in behalf of the defendant as appellant, and we
was to approve the construction of the cemetery on the site accordingly pass to the errors assigned in behalf of the
chosen and on the terms expressed in the offer. As a plaintiffs as appellants with respect to the matter of interest.
consequence the Mayor was clothed with authority to execute The facts here pertinent are these: By the final deed of sale,
the contract which he subsequently made. dated February 21, 1922, the city undertook to pay the total
purchase price of P250,000 in six installments. The first was in
The attorneys for the appellant further insist that, even the amount of P41,666.70 payable on May 21, 1922. The other
supposing the resolution to have constituted a sufficient five were in the amount of P41,666.66 each, successively
approval of the contract in the terms expressed in the offer, falling due on May 21, 1923, and on the same date in each
nevertheless the efficacy of the resolution was destroyed by succeeding year until all should be paid.
the subsequent introduction of material changes into the
agreement. In this connection reference is made to a portion of The following stipulation with respect to interest is found in
clause V of the deed, in which it is declared that the land shall clause III of this contract:
be used exclusively for a cemetery to be known as South
Cemetery. The insertion of this term in the contract is
supposed to constitute a material variance from the offer. We Of the installments above stipulated, the first (which
are unable to agree with this contention, as the clause to which will fall due three months after the execution of this
exception is taken seems to be a mere unfolding of what was writing) shall draw no interest; but the five later
 installments shall draw interest at the rate of five per assessed as damages for the nonpayment of a debt, to the
centum (5%) per annum, payable to the creditors same extent as the general government.
upon the date when they shall respectively fall due.
Our conclusion is that no error was committed by the trial court
From this it will be seen that the agreement as to interest in giving judgment in favor of the plaintiffs upon both causes of
differs in case of the two installments here sued on; and the action, but the amount awarded must be modified to conform
situation with respect to each will therefore be dealt with to the rules above stated with respect to the computation of
separately. interest, with the result that the plaintiffs shall recover of the
defendant, upon the first cause of action, the sum of
As to the first installment, which was to fall due at three P45,652.84, as of the date of January 11, 1924, with interest
months, it was stipulated that it should bear no interest. The thereafter at the rate of six per centum per annum until the
trial judge appears to have considered that this stipulation judgment shall be paid; and upon the second cause of action
deprived the plaintiffs of the right to interest after default, and the sum of P44,283.04, as of the date of May 24, 1923, with
no interest whatever was allowed by him upon this installment. interest thereafter at the rate of five per centum per annum
This was error. The stipulation that this installment should draw until the judgment shall be paid. The plaintiffs will also recover
no interest was made in the expectation that the obligation costs of both instances. As thus modified, the judgment is
would be paid upon the date stipulated. After default occurred affirmed. So ordered.
the defendant became liable for interest as damages
regardless of the absence of any express stipulation for Malcolm, Villamor, and Ostrand, JJ., concur.
interest and regardless of the statement that this installment
should draw no interest. This statement in the contract was
evidently intended merely to govern the rights of the parties
with respect to interest for the three-month period between the
making of the contract and the date when the installment was Separate Opinions
to become due. With respect to the plaintiffs' right to interest
after default the situation is to be treated precisely as if nothing JOHNS, J.,  concurring:
had been said about interest at all.
It may be that the land is not worth the price which the city
As already stated, the first installment fell due on May 21, agreed to pay, but there is no evidence of any fraud. In the
1922, and extrajudicial demand for payment appears to have absence of fraud, the contract is valid and should be enforced.
been made in a letter dated June 7, 1922, from the guardian of For such reasons, I concur in the result.
the plaintiffs addressed to the Mayor. Under the first paragraph
of article 1100 of the Civil Code and under article 1108 of the ROMUALDEZ, J.,  dissenting:
same Code, interest should be allowed upon this installment at
the rate of six per centum per annum. Under section 510 of the
Code of Civil Procedure, the interest thus accruing must be With due respect, I dissent from the opinion of the majority. I
consolidated with the principal as of the date of the judgment of think that the price of the land was never acted upon by the
the lower court; after which interest upon the whole shall be Municipal Board either by resolution or ordinance, and
computed at the same rate. consequently the contract of purchase and sale here in
question cannot be held to have been perfected.
With respect to the second installment interest must be allowed
at the contract rate of five per centum per annum from the date Johnson and Avanceña, JJ., concur.
of the execution of the final deed of sale, or February 21, 1922;
and under article 1109 of the Civil Code the interest that had
accrued up to the date of the filing of the complaint (May 24,
1923) must be consolidated as of that date with the capital,
after which the whole shall bear interest at the contract rate of 14. REFORMINA V. TOMOL, 139 SCRA 260 (1985);
five per centum per annum until paid. Where interest is
contracted for at a given rate the contract obligation to pay PACITA F. REFORMINA and HEIRS OF FRANCISCO
interest is not merged in the judgment but remains in full force REFORMINA, petitioners, vs. THE HONORABLE VALERIANO
until the debt is paid. The circumstance that the rate here P. TOMOL, JR., as Judge of the Court of First Instance,
stipulated was less than the lawful rate does not alter the case. Branch XI, CEBU CITY, SHELL REFINING COMPANY
(PHILS.), INC., and MICHAEL, INCORPORATED,
respondents. G.R. No. L-59096 October 11, 1985
In connection with liability for interest it may be well to point out
that section 510 of the Code of Civil Procedure is applicable DOCTRINE: Act No. 2655 Usury Law which allowed 12%
only to debts and claims with respect to which no stipulation for interest deals only on (1) loans; (2) forbearances of any
interest has been made, and article 1109 of the Civil Code, money, goods, or credits; and (3) rate allowed in judgments.
providing for interest upon interest, is applicable only to
obligations containing a stipulation for interest. Furthermore, it FACTS:
will be noted that, though section 510 of the Code of Civil The REFORMINAS (herein petitioners) filed an action against
Procedure provides that interest shall be added "until the date Shell and Michael., Inc. for Recovery of Damages for injury to
of the final judgment," this is not to be understood as inhibiting Person and Loss of Property. In which the Court ruled in their
the collection of interest thereafter accruing until the judgment favor, imposing the legal interest rate of 6% as provided in
is paid. A demand established by judgment must be Article 2209 of the New Civil Code. The said decision having
understood as bearing interest whether expressly so stated or become final on October 24, 1980, the case was remanded to
not. Finally, it hardly needs be said, a municipal corporation the lower court for execution and this is where the controversy
does not enjoy immunity from liability for interest, when started. In the computation of the "legal interest" decreed in the
judgment sought to be executed, petitioners claim that the First Division
"legal interest" should be at the rate of twelve (12%) percent Melencio-Herrera (J)
per annum, invoking in support of their aforesaid submission, Facts: 
Central Bank of the Philippines Circular No. 416. Upon the On 7 September 1957, Liam Law (plaintiff) loaned P10,000.00,
other hand, private respondents insist that said legal interest without interest, to Olympic Sawmill Co. and Elino Lee Chi, as
should be at the rate of six (6%) percent per annum only, the latter’s managing partner (defendants). The loan became
pursuant to and by authority of Article 2209 of the New Civil ultimately due on 31 January 1960, but was not paid on that
Code in relation to Articles 2210 and 2211 thereof. date, with the debtors asking for an extension of 3 months, or
up to 30 April 1960. On 17 March 1960, the parties executed
ISSUE: another loan document. Payment of the P10,000.00 was
Whether the legal interest allowed in judgements extended to 30 April 1960, but the obligation was increased by
referred to in Sec 1 of Act No. 2655 Usury Law covers P6,000 which formed part of the principal obligation to answer
monetary judgment arising from recovery of damages for injury for attorney’s fees, legal interest, and other cost incident
to a person and loss of property thereto to be paid unto the creditor and his successors in
interest upon the termination of this agreement. The
HELD: defendants again failed to pay their obligation.
No The decision herein sought to be executed is one On 23 September 1960, the plaintiff instituted the collection
rendered in an Action for Damages for injury to persons and case before the Court of First Instance of Bulacan. The
loss of property and does not involve any loan, much less defendants admitted the P10,000.00 principal obligation, but
forbearances of any money, goods or credits. As correctly claimed that the additional P6,000.00 constituted usurious
argued by the private respondents, the law applicable to the interest. Upon the plaintiff’s application, the Trial Court issued
said case is Article 2209 of the New Civil Code which reads “If a writ of Attachment on real and personal properties of
the obligation consists in the payment of a sum of money, and defendants. After the Writ of Attachment was implemented,
the debtor incurs in delay, the indemnity for damages, there proceedings before the Trial Court versed principally in regards
being no stipulation to the contrary, shall be the payment of to the attachment. On 18 January 1961, an Order was issued
interest agreed upon, and in the absence of stipulation, the by the Trial Court allowing both parties to simultaneously
legal interest which is six percent per annum.” submit a Motion for Summary Judgment. On 26 June 1961, the
Trial Court rendered decision ordering defendants to pay the
plaintiff the amount of P10,000.00 plus the further sum of
15. LIAM LAW V. OLYMPIC SAWMILL CO., 129 SCRA 439 P6,000.00. The defendants appealed before the then court of
(1984); Appeals, which endorsed it to the Supreme Court stating that
Liam Law v. Olympic Sawmill Co., 129 SCRA 439 (1984) Case the issue involved was one of law.
Digest Issue [1]: Whether the allegation of usury should be made in
Obligations and Contracts: Usurious Transactions – Article writing and under oath, pursuant to Section 9 of the Usury Law.
1175 Held [1]: Section 9 of the Usury Law provides that “the person
or corporation sued shall file its answer in writing under oath to
Facts: any complaint brought or filed against said person or
corporation before a competent court to recover the money or
On or about September 7, 1957, the petitioner loaned other personal or real property, seeds or agricultural products,
P10,000.00, without interest, to the respondent. The loan charged or received in violation of the provisions of this Act.
became ultimately due on January 31, 1960 but was not paid. The lack of taking an oath to an answer to a complaint will
The petitioner asked for a 3-month extension, or up to April 30, mean the admission of the facts contained in the latter.” It
1960. On March 17, 1960, the parties executed another loan envisages a complaint filed against an entity which has
document for the payment of P10, 000.00 extended up to April committed usury, for the recovery of the usurious interest paid.
30, 1960 but the obligation was increased by P6,000.00 to In that case, if the entity sued shall not file its answer under
answer for the attorney’s fees, legal interest, and other cost oath denying the allegation of usury, the defendant shall be
incident thereto. The petitioner again failed to pay their deemed to have admitted the usury. The provision does not
obligation by April 30, 1960. On September 23, 1957, the apply to a case where it is the defendant, not the plaintiff, who
respondent instituted a collection case. The petitioner is alleging usury.
admitted the P10, 000.00 principal obligation but claimed that Issue [2]: Whether the repeal of Rules of Court or any
the additional P6, 000.00 constituted usurious interest. procedural law is with retroactive effect.
Held [2]: The Court opined that the Rules of Court in regards
Issue: to allegations of usury, procedural in nature, should be
considered repealed with retroactive effect. It has been
Whether or not the additional P6, 000.00 constituted usurious previously held (People vs. Sumilang, and De Lopez, et al. vs.
interest. Vda. de Fajardo, et al.) that statutes regulating the procedure
of the courts will be construed as applicable to actions pending
Held: and undetermined at the time of their passage. Procedural
laws are retrospective in that sense and to that extent.
No. Usury has been legally non-existent. Interest can now be Comments (required in assignment): The last sentence of
charged as lender and borrower may agree upon. In the Section 11, Rule 9, of the 1997 Rules of Civil Procedure
present case, the petitioner had not proven that the P6, 000.00 provides that “Allegation of usury in a complaint to recover
additional obligation was illegal. usurious interest are deemed admitted if not denied under
oath,” and is similar in context to Section 9 of Usury Law,
which was raised in this 1984 case (although improperly
Digest: Liam Law vs. Olympic Sawmill (GR L-30771, 28 applied). The reiteration of matters pertaining to usury in the
May 1984) 1997 rules is perplexing as the 1984 decision itself admits that
Liam Law vs. Olympic Sawmill “usury has been legally non-existent; as interest can now be
GR L-30771, 28 May 1984 charged as lender and borrower may agree upon,” and that the
“Rules of Court in regards to allegations of usury, procedural in are more than 730 days as of the effectivity of the law or
nature, should be considered repealed with retroactive effect.” regulation authorizing such an increase.
These incongruent realities, however, are secondary only to
the fact that a mere Central Bank circular or memorandum FACTS:
effectively suspended the application of the Usury Law to a Petitioner, PNB, extended financial assistance to the private
degree tantamount to its “repeal”. respondents (Magsalang&Sedigo) in the form of loans, in total
of P82,682.39 as embodied in the promissory notes that the
latter have executed on various dates from February 5, 1976 to
May 18, 1979, the payment of which to come from the
16. BANCO FILIPINO V. NAVARRO, 152 SCRA 346 (1987); proceeds of sugar sales of the private respondents. The
promissory notes bore 12% interest per annum plus 1%
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, interest as penalty charge in case of default in the payments.
petitioner, vs. HON. MIGUEL NAVARRO, Presiding Judge, January 16, 1969, the private respondents mortgaged several
Court of First Instance of Manila, Branch XXXI and real estate properties in favor of the petitioner as security of
FLORANTE DEL VALLE, respondents. their loans, which mortgage was amended on December 17,
1969, December 22, 1970 and February 12, 1975, as to the
DOCTRINE: CIRCULAR No. 494, although it has the effect of consideration thereof. December 1, 1979, the Monetary Board
law, is not a law. of the Central Bank, by virtue of Presidential Decree No. 116,
issued CB Circular No. 705 increasing the ceiling on the rate of
FACTS: interest on both secured and unsecured loans up to no more
Florante del Valle obtained a loan secured by a real estate than 21% per annum. In view of this development, the PNB
mortgage Banco Filipino in the sum of P41,300.00 Pesos, Board of Directors revised its lending interest rates on the
payable and to be amortized within 15 years at 12% per cent medium and long-term loans effective June 1, 1980, per PNB
interest annually. Hence, the loan still had more than 730 days board resolution dated May 26, 1980. The private respondents
to run by January 2, 1976, the date when CIRCULAR No. 494 defaulted in the payments of their loans, the petitioner
was issued by the Central Bank. Stamped on the PN demanded not only the settlement of their outstanding
evidencing the loan is an Escalation Clause, authorizing Banco obligation but also the payment of the new interest rate of 21%
Filipino to correspondingly increase the interest rate stipulated per annum beginning June 1, 1980 per the PNB board
in this contract in the event law should be enacted increasing resolution. For failure of the private respondents to settle their
the lawful rates of interest that may be charged on this obligation, then in the amount of P84,743.34, the petitioner
particular kind of loan. The Escalation Clause is based upon foreclosed the mortgage. Since the proceeds of the auction
Central Bank CIRCULAR No. 494 issued making the maximum sale, P63,000.00 was not enough to satisfy private
rate of interest on loans with maturity of more than 730 days, respondents' outstanding obligation, the petitioner filed an
by banking institutions, shall be 19% per annum. Except as action for deficiency judgment with the Court of First Instance
provided in this Circular and Circular No. 493, loans or of Leyte against the private respondents. Trial Court ruled in
renewals thereof shall continue to be governed by the Usury favor of the PNB. Ordering the defendants to pay the plaintiff
Law, as amended. the amount of P21,743.34; said amount shall earn interest at
21 % per annum and 3% penalty charge starting November 27,
ISSUE: 1981, until the whole obligation is fully paid; Appellate Court
Whether or not the BANCO FILIPINO can increase the interest affirmed the decision of the trial court with modification:
rate on the loan from 12% to 17% per annum under the Ordering the defendants to pay the plaintiff the amount of
Escalation Clause. P12,551.16 which shall earn interest at 12% per annum and
1% penalty charge starting November 27, 1981 until fully paid.
HELD: PNB filed a petition at Supreme Court with contention that
No It is clear from the stipulation between the parties that the pursuant to Presidential Decree No. 116, the Monetary Board
Escalation Clause was dependent on an increase of rate made issued Central Bank Circular No. 705 on December 1, 1979,
by law alone. CIRCULAR No. 494, although it has the effect of prescribing the maximum rate of interest on loan transactions
law, is not a law. Escalation clauses to be valid should with maturities of more than seven hundred thirty (730) days
specifically provide: (1) that there can be an increase in and shall not exceed twenty-one percent (21%) per annum.
interest if increased by law or by the Monetary Board; and (2) Hence, the upward revision of interest rate as stipulated in the
in order for such stipulation to be valid, it must include a Promissory Notes and Amendment of Real Estate Mortgage
provision for reduction of the stipulated interest "in the event dated February 12, 1975, is in accordance with Presidential
that the applicable maximum rate of interest is reduced by law Decree No. 116 promulgated on January 29, 1973 and Central
or by the Monetary Board." Bank Circular No. 705 issued on December 1, 1979, and the
imposition of 21% rate of interest on the loan obligations of
private respondents is within the limits prescribed by law.
17. PNB V. IAC AND MAGLASANG, 183 SCRA 133 (1990);
ISSUE:
PHILIPPINE NATIONAL BANK, petitioner vs. The HON. Whether or not the revised rate of interest imposed on
INTERMEDIATE APPELLATE COURT and SPOUSES the loans of the private respondents is legal.
FERMIN MAGLASANG and ANTONIA SEDIGO, respondents.
G.R. No. 75223 March 14, 1990 HELD:
No. There is no question that PNB board resolution
DOCTRINE: The Escalation Clause is a valid provision in the dated May 26, 1980 contains such deescalation clause, under
loan agreement provided that — (1) the increased rate paragraph 8 thereof, to wit: (8) To enable us to adjust interest
imposed or charged does not exceed the ceiling fixed by law or rates in accordance with CB Circular letter of March 19, 1980,
the Monetary Board; (2) the increase is made effective not the covering promissory note for all short/medium/long terms
earlier than the effectivity of the law or regulation authorizing loans shall include the following conditions: The Bank reserves
such an increase; and (3) the remaining maturities of the loans the right to increase the interest rate within the limits allowed
by law or by the Monetary Board, provided, that the interest Law Ceiling on interest rates does not authorize banks to
rate agreed upon shall be reduced in the event that the unilaterally and successively increase interest rates.
applicable maximum interest rate is reduced by law or by the
Monetary Board: Provided, further, that the adjustment in the FACTS:
interest rate shall take effect on or after the effectivity of the In July 1982, Ambrosio Padilla applied for, and was granted by
increase or increase in the maximum rate of interest. Central PNB, a credit line of 321.8 million, for a term of 2 years, with
Bank Circular No. 705, authorizing the increase from 12% to 18% interest per annum. Ambrosio Padilla executed in favor of
21% was issued on December 1, 1979. The promissory notes the PNB a Credit Agreement, 2 PNs in the amount of
executed by the private respondents show that they are all P900,000.00 each, and a Real Estate Mortgage Contract. The
payable on demand but the records do not show when PNs in turn, uniformly authorized the PNB to increase the
payment was demanded. Even granting that it was demanded stipulated 18% interest per annum "within the limits allowed by
on the effectivity of law, it is obvious that the period of 730 law at any time depending on whatever policy it [PNB] may
days has not yet elapsed at the date the mortgaged properties adopt in the future; Provided, that, the interest rate on this note
were sold at the public auction on November 27, 1981 shall be correspondingly decreased in the event that the
(Certificate of Sheriff's Sale, Records of Exhibits, p. 84). applicable maximum interest rate is reduced by law or by the
Accordingly, as of December 1, 1979, the remaining maturity Monetary Board. Upon renewal of the loan, PNB unilaterally
days of the loans were less than 730 days. Hence, the increased the interest rates from 18% to 32%, then to 41% and
increased rate imposed or charged is not valid. again to 48%. It rejected the request of the plaintiff that
adjustment of his interest rate would be fixed from 18% to
18. PNB V. CA AND PADILLA, 196B SCRA 536 (1991); 24%.

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. ISSUE:

COURT OF APPEALS and AMBROSIO PADILLA, Whether the bank, within the term of the loan which it granted
Respondents. G.R. No. 88880. April 30, 1991. to the private respondent, may unilaterally change or increase
the interest rate stipulated therein at will and as often as it
DOCTRINE: Removal of Usury Law Ceiling on interest rates pleased.
does not authorize banks to unilaterally and successively
increase interest rates. HELD:
No Although PD. No. 116, authorizes the Monetary Board to
FACTS: prescribe the maximum rate or rates of interest for loans or
Ambrosio Padilla, private respondents, was granted by renewal thereof and to change such rate or rates whenever
petitioner Philippine National Bank, a credit line, secured by a warranted by prevailing economic and social conditions, it
real estate mortgage, for a term of 2 years, with 18% interest expressly provides that "such changes shall not be made
per annum. Private respondent executed in favor of the PNB a oftener than once every 12 months." In this case, PNB, over
Credit Agreement, 2 promissory notes in the amount of the objection of the private respondent, and without authority
P900,000.00 each, and a Real Estate Mortgage Contract. from the Monetary Board, within a period of only four 4 months,
Stipulations in the PN authorizes PNB to increase the increased the 18% interest rate on the private respondent’s
stipulated 18% interest per annum "within the limits allowed by loan obligation 3 times. Those increases were null and void, for
law at any time depending on whatever policy it [PNB] may if the Monetary Board itself was not authorized to make such
adopt in the future; Provided, that, the interest rate on this note changes oftener than once a year, even less so may a bank
shall be correspondingly decreased in the event that the which is subordinate to the Board.
applicable maximum interest rate is reduced by law or by the
Monetary Board." Padilla requested to the increase in the rate 19. PNB V. CA AND FERNANDEZ, 238 SCRA 80 (1994);
of interest from 18% be fixed at 21% or 24% but was denied by
PNB. G.R. No. 107569 November 8, 1994 PHILIPPINE NATIONAL
BANK, petitioner, vs. COURT OF APPEALS, REMEDIOS
ISSUE: JAYME-FERNANDEZ and AMADO FERNANDEZ,
Whether PNB, within the term of the loan which it respondents.
granted to the private respondent, may unilaterally change or
increase the interest rate stipulated therein at will and as often DOCTRINE: It is basic that there can be no contract in the true
as it pleased. sense in the absence of the element of agreement, or of
mutual assent of the parties. If this assent is wanting on the
HELD: part of the one who contracts, his act has no more efficacy
No. Central Bank Circular No. 905, Series of 1982 than if it had been done under duress or by a person of
removed the Usury law ceiling on interest rates, however, it did unsound mind. Similarly, contract changes must be made with
not authorize the PNB, or any bank for that matter, to the consent of the contracting parties. The minds of all the
unilaterally and successively increase the agreed interest rates parties must meet as to the proposed modification, especially
from 18% to 48% within a span of four (4) months, in violation when it affects an important aspect of the agreement. In the
of P.D. 116 which limits such changes to "once every twelve case of loan contracts, it cannot be gainsaid that the rate of
months." interest is always a vital component, for it can make or break a
capital venture. Thus, any change must be mutually agreed
upon, otherwise, it is bereft of any binding effect.

PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. FACTS:

COURT OF APPEALS and AMBROSIO PADILLA, On April 7, 1982, (private respondents) as owners of a
respondents. The Chief Legal Counsel for petitioner. Ambrosio NACIDA-registered enterprise, obtained a loan under the
Padilla, Mempin & Reyes Law Offices for private respondent. Cottage Industry Guaranty Loan Fund (CIGLF) from the
G.R. No. 88880 | 1991-04-30 DOCTRINE: Removal of Usury Philippine National Bank (PNB) in the amount of Fifty
Thousand (P50,000.00) Pesos, as evidenced by a Credit
Agreement. Under the Promissory Note covering the loan, the 20. FLORENDO V. CA, 265 SCRA 678 (1996)
loan was to be amortized over a period of three (3) years to
end on March 29, 1985, at twelve (12%) percent interest SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs.
annually. To secure the loan, (private respondents) executed a COURT OF APPEALS and LAND BANK OF THE
Real Estate Mortgage and a Chattel Mortgage. The agreement PHILIPPINES, respondents. G.R. No. 101771 | 1996-12-17
herewith authorized the PNB to raise the rate of interest, at any DOCTRINE: Without such CB issuance, any proposed
time without notice, beyond the stipulated rate of 12% but only increased rate will never become effective.
"within the limits allowed by law." During the term of the
agreement, PNB on several occasion imposed interest rate of FACTS:
25% per annum to 30% to 42% on Private Respondents plus a Gilda Florendo was an employee of Land Bank from May 17,
penalty of 6% per annum on past dues." Private respondents 1976 until August 16, 1984 when she voluntarily resigned.
filed a suit for specific performance against petitioner PNB and However, before her resignation, she applied for a housing
the NACIDA. The trial court dismissed private respondents' loan payable within 25 years from Land Bank’s Provident Fund
complaint. The Court of Appeals reversed the dismissal with on July 20, 1983; On March 19, 1985, Lankd Bank increased
respect to petitioner bank, and disallowed the increases in the interest rate on Florendo’s loan from 9% per annum to
interest rates. Petitioner bank now contends that "respondent 17%, the said increase to take effect on March 19, 1985 The
Court of Appeals committed grave error when it ruled (1) that details of the increase are embodied in Landbank's ManCom
the increase in interest rates are unauthorized. Resolution No. 85-08 and in a Provident Fund Memorandum
Circular. Land Bank kept on demanding that Florendo pay the
ISSUE: increased interest or the new monthly installments based on
Can a creditor raise the legal interest based on a certain the increased interest rate, but Florendo just as vehemently
clause in the contract and without consent from the debtor. maintained that the said increase is unlawful and unjustifiable.

HELD: ISSUE:
No.We cannot countenance petitioner bank's posturing that the Whether or not Land Bank has a valid and legal basis to
escalation clause at bench gives it unbridled right tounilaterally impose an increased interest rate on the petitioners' housing
upwardly adjust the interest on private respondents' loan. That loan?
would completely take away from private respondents the right
to assent to an important modification in their agreement, and HELD:
would negate the element of mutuality in contracts. In No The court held that there troactive enforcement of the
Philippine National Bank v. Court of Appeals, et al., 196 SCRA ManCom Resolution as against petitioneremployee is invalid
536, 544-545 (1991) we held — . . . The unilateral action of the since in the case at bar, there is in fact no Central Bank rule,
PNB in increasing the interest rate on the private respondent's regulation or other issuance which would have triggered an
loan violated the mutuality of contracts ordained in Article 1308 application of the escalation clause as to petitioner’s factual
of the Civil Code: Art. 1308. The contract must bind both situation. The loan was perfected on July 20, 1983. PD No.
contracting parties; its validity or compliance cannot be left to 116 became effective on January 29, 1973. CB Circular No.
the will of one of them. In order that obligations arising from 416 was issued on July 29, 1974. CB Circ. 504 was issued
contracts may have the force or law between the parties, there February 6, 1976. CB Circ. 706 was issued December 1, 1979.
must be mutuality between the parties based on their essential CB Circ. 905, lifting any interest rate ceiling prescribed under
equality. A contract containing a condition which makes its or pursuant to the Usury Law, as amended, was promulgated
fulfillment dependent exclusively upon the uncontrolled will of in 1982. These and other relevant CB issuances had already
one of the contracting parties, is void . . . . Hence, even come into existence prior to the perfection of the housing loan
assuming that the . . . loan agreement between the PNB and agreement and mortgage contract, and thus it may be said that
the private respondent gave the PNB a license (although in these regulations had been taken into consideration by the
fact there was none) to increase the interest rate at will during contracting parties when they first entered into their loan
the term of the loan, that license would have been null and void contract. ManCom Resolution No. 85-08, which is neither a
for being violative of the principle of mutuality essential in rule nor a resolution of the Monetary Board, cannot be used as
contracts. It would have invested the loan agreement with the basis for the escalation in lieu of CB issuances, since
character of a contract of adhesion, where the parties do not paragraph (f) of the mortgage contract very categorically
bargain on equal footing, the weaker party's (the debtor) specifies that any interest rate increase be in accordance with
participation being reduced to the alternative "to take it or leave “prevailing rules, regulations and circulars of the Central Bank .
it" . . . . Such a contract is a veritable trap for the weaker party . . as the Provident Fund Board . . . may prescribe.”
whom the courts of justice must protect against abuse and
imposition. (Citation omitted.)