3rd meeting

A. Siga-an v. Villanueva G.R 173227, January 20,2009

 Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates
that no interest shall be due unless it has been expressly stipulated in writing. The
payment of monetary interest is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest was reduced
in writing.
FACTS
 Respondent Alicia Villanueva filed a complaint for sum of money against petitioner
Sebastian Siga-an. Villanueva is a businesswoman and supplier of materials for
Philippine Navy Office (PNO), where Sig-an is a comptroller. That in 1992, Respondent
was approached by petitioner and offered a loan in the amount of P540,000. Villanueva
issued a check in 1993 amounting to P500,000 as payment and another for P200,000 for
the remaining balance, the excess of 160,000 from the total amount of loan of P540,000
will be applied as interest. Sig-an not satisfied with the interest demand for additional
payment, and if Villanueva will not ay her business transactions with PNO would be put
on hold, since these are subject to Sig-an approval as comptroller. Overall, VIllanueva
payments for loan and interest accumulated to P1,200,000.
 (Petitioner’s argument)
 Petitioner denied that he offered loan. That Villanueva was the one asked for a loan
twice. That in the second loan, Villanueva asked for restructuring of payment, and ig-an
proposed that the Villanueva make a promissory note, of the obligation with interest.
And thus no overpayment since it was indicated in the said promissory note that it is for
the payment of the loan inclusive of interest. That Villanueva issued post dated checks
as guarantee but bounced and thus he filed a criminal case against her for violation of
Batas Pambansa Blg 22.
 (Respondent’s argument)
 That it was petitioner who made a promissory note and she was told to copy it in her
own handwriting; that all her transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO; that petitioner threatened to disapprove her
transactions with the PNO if she would not pay interest; that being unaware of the law
on interest and fearing that petitioner would make good of his threats if she would not
obey his instruction to copy the promissory note, she copied the promissory note in her
own handwriting; and that such was the same promissory note presented by petitioner
as alleged proof of their written agreement on interest.
 RTC ruled respondent's obligation was only to pay the loaned amount of P540,000.00,
and that the alleged interests due should not be included in the computation of
respondent's total monetary debt because there was no agreement between them
regarding payment of interest. It concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00 through mistake, petitioner should
return the said amount to respondent pursuant to the principle of solutio indebiti.
 The Court of appeals affirmed the RTC’s ruling.
ISSUE
 Was Villanueva liable to pay interest.?
HELD
 NO
 Interest is a compensation fixed by the parties for the use or forbearance of money. This
is referred to as monetary interest. Interest may also be imposed by law or by courts as
penalty or indemnity for damages. This is called compensatory interest. The right to
interest arises only by virtue of a contract or by virtue of damages for delay or failure to
pay the principal loan on which interest is demanded.
 Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates
that no interest shall be due unless it has been expressly stipulated in writing. As can be
gleaned from the foregoing provision, payment of monetary interest is allowed only if:
 (1) there was an express stipulation for the payment of interest; and (2) the agreement
for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest.
 However, there are instances in which an interest may be imposed even in the absence
of express stipulation, verbal or written, regarding payment of interest.
 Article 2209 of the Civil Code states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be
imposed as indemnity for damages if no stipulation on the ayment of interest was
agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall
earn legal interest from the time it is judicially demanded, although the obligation may
be silent on this point. It appears that petitioner and respondent did not agree on the
payment of interest for the loan. Neither was there convincing proof of written
agreement between the two regarding the payment of interest. It is evident that
respondent did not really consent to the payment of interest for the loan and that she
was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be
gainfully said that such promissory note pertains to an express stipulation of interest or
written agreement of interest on the loan between petitioner and respondent.
 As to the interest under two exceptions may be imposed only as a penalty or damages
for breach of contractual obligations. It cannot be charged as a compensation for the
use or forbearance of money. In other words, the two instances apply only to
compensatory interest and not to monetary interest. The case at bar involves
petitioner's claim for monetary interest. Further, said compensatory interest is not
chargeable in the instant case because it was not duly proven that respondent defaulted
in paying the loan.
 Hence, as earlier found, no interest was due on the loan because there was no written
agreement as regards payment of interest.

B. Mendoza v. Spouses Gomez G.R. No. 160110, June 18, 2014

 Interest by way of damages has been defined as interest allowed in actions for breach of
contractor tort for the unlawful detention of money already due. This type of interest is
 frequently called "moratory interest." Interest as a part of damage, is allowed, not by
application of arbitrary rules, but as a result of the justice of the individual case and as
compensation to the injured party.
FACTS
 As a result of a vehicular collision resulting in driver's negligence, respondents suffered
physical injuries and the Isuzu truck sustained extensive damages. Hence, this case for
damages. After weighing the evidence, the RTC found Mendoza liable for direct personal
negligence under Article 2176 of the Civil Code, and it also found Lim vicariously liable
under Article 2180 of the same Code. RTC rendered judgement in favor of respondents
and against the petitioners. Displeased, petitioners appealed to the CA. After evaluating
the damages awarded by the RTC, such were affirmed by the CA with the exception of
the award of unrealized income which the CA ordered deleted. Hence, this present
petition
ISSUE
 Was the CA correct in awarding the attorney’s fees in this case?
HELD
 NO, the CA was not correct in this case in awarding the attorney’s fees. In all cases, the
attorney’s fees and expenses of litigation must be reasonable. From the very opening
sentence of Article 2208 of the Civil Code, it is clearly intended to retain the award of
attorney’s fees as the exception in our law, as the general rule remains that attorney’s
fees are not recoverable in the absence of a stipulation thereto, the reason being that it
is not sound policy to set a premium on the right to litigate.
 In the case at bar, the RTC Decision had nil discussion on the propriety of attorney’s
fees, and it merely awarded such in the dispositive. The CA Decision, on the other hand,
merely stated that the award of attorney’s fees is merited as such is allowed when
exemplary damages are awarded. Following established jurisprudence, however, the CA
should have disallowed on appeal said award of attorney’s fees as the RTC failed to
substantiate said award. Generally, as provided in the Rules of Court, costs shall be
allowed to the prevailing party as a matter of course. In the present case, the award of
costs of suit to respondents, as the prevailing party, is in order. Interest by way of
damages has been defined as interest allowed in actions for breach of contractor tort
for the unlawful detention of money already due. This type of interest is frequently
called "moratory interest." Interest as a part of damage, is allowed, not by application of
arbitrary rules, but as a result of the justice of the individual case and as compensation
to the injured party.

C. Silos v. Philippine National Bank

 Any increase in the rate of interest made pursuant to an escalation clause must be the
result of agreement between the parties.
FACTS
  Sps. Silos obtained a revolving credit line from PNB secured by a mortgage, issued 8
promissory notes, and signed a Credit Agreement which provides that the loan shall be
subject to interest at the rate of 19.5% per annum and that the Borrower agrees that
the Bank may modify the interest rate depending on whatever policy the latter may
adopt in the future. The Sps. issued 8 promissory notes containing interest rates ranging
from 19.5%-32% which they religiously paid. An Amendment to Credit Agreement was
executed by the parties which provided that PNB may modify the interest rate in the
loan depending on whatever policy it may adopt in the future, including without
limitation, the shifting from the floating interest rate system to the fixed interest rate
system, or vice versa.
 Pursuant to this, Sps. Silos issued 18 promissory notes, with interest rates ranging from
16%-26%, which they settled except for the last note. Respondent regularly renewed
the line from 1990 up to 1997 and petitioners made good on the promissory notes,
religiously paying the interests without objection or fail, except when the interest rates
soared due to the Asian financial crisis. Petitioners’ sole outstanding promissory note
became past due.
ISSUE
 Should the interest rate provisions in the Credit Agreement and in the Amendment to
the same be declared null and void?
HELD
 Yes. Because of concern for the unequal status of borrowers vis-a-vis the banks, the
Court’s cases have fashioned the rule that any increase in the rate of interest made
pursuant to an escalation clause must be the result of agreement between the parties.
With the present Credit Agreement, the element of consent or agreement by the
borrower is now completely lacking, which makes PNB’s unlawful act all the more
reprehensible. It is plainly obvious from the undisputed facts of the case that PNB
unilaterally altered the terms of its contract with petitioners by increasing the interest
rates on the loan without the prior assent of the latter.
 Thus, the interest rates imposed and indicated in the 2nd up to the 26th promissory
notes are declared null and void.

D. Buenaventura v. Metropolitan Bank and Trust Co.

 The obligatory force of the stipulations between the parties called for the imposition of
the interest rates stipulated in the promissory notes.
FACTS
 Involved here are two loans of the petitioner from the respondent On January 20, 1997
and April 17, 1997, specifically:(1) the principal amount of P1,500,000.00 covered by
Promissory Note No. 232663 to be paid on or before July 1, 1997 with interest and
credit evaluation and supervision fee (CESF) at the rate of 17.532% per annum and
penalty charge of 18% per annum based on the unpaid principal to be computed from
the date of default until full payment of the obligation; and (2) the principal amount of
 P1,500,000.00 covered by Promissory Note No. 232711 to be paid on or before April 7,
1998 with interest and CESF at the rate of 14.239% per annum and penalty charge of
18% per annum based on the unpaid principal to be computed from the date of default
until full payment of the obligation.
 Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts
of P2,061,208.08 and P1,492,236.37, respectively, as of July 15, 1998, inclusive of
interest and penalty.
 The RTC adjudged the petitioner liable to pay to the respondent the total of
P3,553,444.45 representing her outstanding obligation, including accrued interests and
penalty charges under the promissory notes, plus attorney's fees. On appeal, the CA
ruled that she was liable to the respondent for the sum of P3,553,444.45 with interest
and penalties at 14.239% per annum and 18% per annum, respectively, from July 15,
1998 until fully paid.
ISSUE
 (1)Is there a need to revise the monetary awards of the CA?
 (2)Is the penalty charge warranted?
HELD
 (1) Yes, the Court that the respondent had no legal basis for imposing rates far higher
than those agreed upon and stipulated in the promissory notes. In Mallari v. Prudential
Bank the Court has opined that "the borrowers cannot renege on their obligation to
comply with what is incumbent upon them under the contract of loan as the said
contract is the law between the parties and they are bound by its stipulations."
 In the case The total of P3,553,444.45 was the final sum of the computations contained
in the statements of past due interest and penalty charges as of July 15, 1998 , and was
inclusive of interest at the rate of 34.991% (on the principal of P1,500,000.00) and
27.901% (on the principal of P1,200,000.00). Yet, such interest rates were different from
the interest rates stipulated in the promissory notes, namely: 14.239% for Promissory
Note No. 232711 and 17.532% for Promissory Note No. 232663. The claimed aggregate
outstanding loan obligation of the respondents included interests of almost double the
rates stipulated by the parties.
 Therefore the P3,553,444.45 has an aggregate inclusive of the interest (i.e., at the rates
of 34.991% and 27.901% per annum); and that the penalty charges contravened the
express provisions of the promissory notes, both the RTC and CA erred in the conclusion
of the monetary awards. In addition the CA could not validly apply the lower interest
rate of 14.239% per annum to the whole amount of P3,553,444.45 in contravention of
the stipulation of the parties.
 (2) Yes, the penalty charge was warranted the same was warranted for being expressly
stipulated in the promissory notes. In Government Service Insurance System v. Court of
Appeals , this Court has ruled that the New Civil Code permits an agreement upon a
penalty apart from the monetary interest. If the parties stipulate this kind of agreement,
the penalty does not include the monetary interest, and as such the two are different
and distinct from each other and may be demanded separately.
  There is no doubt that the petitioner is liable for both the stipulated monetary interest
and the stipulated penalty charge of 18% per annum based on any unpaid principal from
the date of default. The penalty charge is also called penalty or compensatory interest.

E. Spouses Limso v. Philippine National Bank

 There is no mutuality of contract when the interest rate in a loan agreement is set at the
sole discretion of one party. Nor is there any mutuality when there is no reasonable
means by which the other party can determine the applicable interest rate. These types
of interest rates stipulated in the loan agreement are null and void. However, the nullity
of the stipulated interest rate does not automatically nullify the provision requiring
payment of interest. Certainly, it does not nullify the obligation to pay the principal loan
obligation.
FACTS
 Spouses Limso and Davao Sunrise Investment and Development Corporation took out a
loan secured by real estate mortgages from PNB. To secure the loan, real estate
mortgages were constituted on four parcels of land registered with the Registry of
Deeds of Davao City. Spouses Limso and Davao Sunrise had difficulty in paying their
loan. In 1999, they requested that their loan be restructured. After negotiations,
Spouses Limso, Davao Sunrise, and Philippine National Bank executed a Conversion,
Restructuring and Extension Agreement. Despite the restructuring of their loan, they
were still unable to pay. PNB sent demand letters. Still, Spouses Limso and Davao
Sunrise failed to pay. On August 21, 2000, PNB filed a Petition for Extrajudicial
Foreclosure of Real Estate Mortgage before the Sheriff's Office in Davao City. PNB was
declared the highest bidder. After the foreclosure sale, but before the Sheriff could issue
the Provisional Certificate of Sale, Spouses Limso and Davao Sunrise filed a Complaint
for Reformation or Annulment of contract against PNB, Atty. Marilou D. Aldevera, in her
capacity as Ex-Officio Provincial Sheriff of Davao City, and the Register of Deeds of
Davao City.
 Spouses Limso and Davao Sunrise contended that the interest rates were imposed
unilaterally and were not stipulated in writing, in violation of Article 1956 of the Civil
Code. Further, the letters sent by PNB to Davao Sunrise were not agreements but mere
notices that the interest rates were increased by PNB.
 PNB contended that Spouses Limso and Davao Sunrise were notified as to the applicable
interest rates, and their consent was obtained before the effectivity of the agreement.
There was no unilateral imposition of interest rates since the rates were dependent on
the prevailing market rates. Philippine National Bank further argues that loan
agreements with escalation clauses, by their nature, "would not indicate the exact rate
of interest applicable to a loan precisely because it is made to depend by the parties to
external factors such as market indicators and/or government regulations affecting the
cost of money."
ISSUE
 Was the interest rates imposed by PNB usurious and unconscionable?
HELD
 Yes. While the Usury Law was suspended by Central Bank Circular No. 905, Series of
1982, unconscionable interest rates may be declared illegal. The suspension of the
Usury Law did not give creditors an unbridled right to impose arbitrary interest rates. To
determine whether an interest rate is unconscionable, the mechanical application of
pre-established floors would be wanting. The lowest rates that have previously been
considered unconscionable need not be an impenetrable minimum. What is more
crucial is a consideration of the parties' contexts. Moreover, interest rates must be
appreciated in light of the fundamental nature of interest as compensation to the
creditor for money lent to another, which he or she could otherwise have used for his or
her own purposes at the time it was lent. It is not the default vehicle for predatory gain.
As such, interest need only be reasonable. It ought not be a supine mechanism for the
creditor's unjust enrichment at the expense of another. (Spouses Abella v. Spouses
Abella)
 In the case at bar, a reading of the interest provisions in the original agreement and the
Conversion, Restructuring and Extension Agreement shows that the interest rates
imposed by PNB were usurious and unconscionable. From the terms of the loan
agreements, there was no way for Spouses Limso and Davao Sunrise to determine the
interest rate imposed on their loan because it was always at the discretion of PNB. Nor
could Spouses Limso and Davao Sunrise determine the exact amount of their obligation
because of the frequent changes in the interest rates imposed. The loan agreements
merely stated that interest rates would be imposed. However, the specific interest rates
were not stipulated, and the subsequent increases in the interest rates were all at the
discretion of PNB.
 Therefore, the interest rates imposed by Philippine National Bank were usurious and
unconscionable.

F. Spouses Jonsay v. Solidbank Corporation

 The "unilateral determination and imposition" of increased rates is "violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code." One-sided
impositions do not have the force of law between the parties, because such impositions
are not based on the parties' essential equality.
FACTS
 Momarco, controlled and owned by the Spouses Jonsay, obtained loans from Solidbank
for which the Spouses Jonsay executed a blanket mortgage over three parcels of land.
The loans were consolidated under one promissory note for the combined amount of
P60,000,000.00. The stipulated rate of interest was 18.75% per annum, along with an
escalation clause tied to increases in pertinent Central Bank declared interest rates, by
which Solidbank was eventually able to unilaterally increase the interest charges up to
30% per annum. Momarco religiously paid the monthly interests charged by Solidbank.
Claiming business reverses brought on by the 1997 Asian financial crisis, Momarco tried
unsuccessfully to negotiate a moratorium or suspension in its interest payments. Due to
 persistent demands by Solidbank, Momarco made its next, and its last, monthly interest
payment. Solidbank applied the said payment to Momarco's accrued interest for
February 1998. Momarco sought a loan from Landbank of the Philippines to pay off its
aforesaid debt but its application fell through. Solidbank proceeded to extrajudicially
foreclose on the mortgage, and at the auction Sale submitted the winning bid
representing Momarco's outstanding loans, interests and penalties, plus attorney's fees
But Momarco claims that on the date of the auction the fair market value of their
mortgaged lots had increased sevenfold Sheriff
 Perocho issued a certificate of sale to Solidbank. A month before the expiration of the
period to redeem the lots, petitioners filed a Complaint against Solidbank, Sheriff
Perocho and the Register of Deeds of Calamba, Laguna, for Annulment of the
Extrajudicial Foreclosure of Mortgage, Injunction, Accounting and Damages with Prayer
for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction contending
that the amount claimed by Solidbank as Momarco's total loan indebtedness is bloated
and Solidbank's interest charges are illegal for exceeding the legal rate of 12% per
annum. RTC granted the petitioners' application for temporary restraining order and
ruled that the mortgage contract and the promissory notes prepared by Solidbank,
which the Spouses Jonsay signed in blank, were contracts of adhesion; and ruled in favor
of petitioners finding among others that the extrajudicial foreclosure is void and
ordered the reduction of the interest rate of the indebtedness to 12% per annum. The
CA rendered judgment affirming the RTC in toto. However, upon appeal, the CA find the
extrajudicial foreclosure valid but affirmed the reduction of interest rate to 12%.
ISSUE
 May Solidbank unilaterally increase the interest rate without prior notice to and consent
of the borrower.
HELD
 No. The unilateral determination and imposition" of increased rates is "violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code which
provides that the contracts must bind both contracting parties its validity or compliance
cannot be left to the will of one of them. One-sided impositions do not have the force of
law between the parties, because such impositions are not based on the parties'
essential equality. In the case at bar, although escalation clauses are valid in maintaining
fiscal stability and retaining the value of money on long-term contracts, giving
respondent an unbridled right to adjust the interest independently and upwardly would
completely take away from petitioners the "right to assent to an important modification
in their agreement" and would also negate the element of mutuality in their contracts.
 "While the Usury Law ceiling on interest rates was lifted by [Central Bank] Circular No.
905, nothing in the said Circular grants lenders carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets." Thus, the Court disregarded the unilaterally escalated interest rates and
imposed the mutually stipulated rates, which it applied up to the maturity of the loans.
 Thereafter, the Court imposed the legal rate of 12% per annum on the outstanding
loans, or 6% per annum legal rate on the excess of the borrower's payments.

G. Security Bank Corporation v. Spouses Rodrigo and Erlinda Mercado

 Stipulations as to the payment of interest are subject to the principle of mutuality of
contracts. As a principal condition and an important component in contracts of loan,
interest rates are only allowed if agreed upon by express stipulation of the parties, and
only when reduced into writing. Any change to it must be mutually agreed upon, or it
produces no binding effect.
FACTS
 Security Bank granted the spouses Mercado a revolving credit line in the amount of
₱1,000,000.00. The agreement included a stipulation on the payment of interest on
outstanding availments, and a stipulation on late payment charges. An addendum to the
agreement stipulated that the interest on outstanding availments were to be paid based
on annual rate computed and billed monthly by Security Bank on the basis of its
prevailing monthly rate. The addendum also states that the spouses Mercado give their
continuing consent without need of additional confirmation to the interests stipulated
as computed by Security Bank.
 To secure the credit line, the spouses Mercado executed a real estate mortgage in favor
of Security Bank. The spouses Mercado again executed another real estate mortgage in
favor of Security Bank to secure an additional amount of ₱7,000,000.00 under the same
revolving credit agreement. Later, the spouses Mercado defaulted in their payment
under the agreement. Security Bank had made demands upon the spouses Mercado,
but these were unheeded. Thus, it filed petitions for extrajudicial foreclosure of the two
mortgages with the RTC of Lipa City and the RTC of Batangas City.
 The foreclosure sales were held wherein Security Bank was adjudged the winning bidder
in both instances. The spouses Mercado offered to redeem the properties for
₱10,000,000.00, but Security Bank made a counter-offer of ₱15,000,000.00. The
spouses Mercado then filed a complaint for annulment of the foreclosure sale with the
RTC of Batangas City.
 The spouses Mercado argued that the foreclosure sales were void because Security
Bank caused only one corrective publication. They also contended that the property in
San Jose should not have been foreclosed together with the properties in Batangas City,
having been covered by a separate mortgage. Also assailed were the interests and
penalties imposed by Security Bank for allegedly being unconscionable, violating the
principle of mutuality of contracts.
 Security Bank countered that the mistake in the original notice is inconsequential or
minor since it only pertains to a letter and number in the technical description. It also
insists that the interests it imposed respect the principle of mutuality of contracts, as
they were “floating-rate interests.”
 The RTC ruled in favor of the spouses Mercado. The CA affirmed the RTC’s ruling
ISSUE
  Were the interests and penalties imposed by Security Bank void?
HELD
 Yes. The principle of mutuality of contracts embodied in Article 1308 of the Civil Code
states that contracts must bind both contracting parties, and its validity or compliance
cannot be left to the will of one of them. Meanwhile, Article 1956 of the Civil Code
provides that no interest shall be due unless it has been expressly stipulated in writing.
Taken together, the two provisions lay down the rule that payment of interest cannot
be left to the will of one of the contracting parties, and consent thereto must be
expressly made in writing. When the imposition of interest is one-sided, indeterminate,
and its stipulation worded in such a way that the borrower will agree to whatever
amount of interest the lender may fix, such agreement to pay interest is void. Thus, the
Supreme Court had ruled in a plethora of jurisprudence that escalation clauses are valid
so long as they are coupled with a de-escalation clause for any downward changes
imposed by law or the Monetary Board of the Bangko Sentral ng Pilipinas. Likewise valid
are agreements to pay “floating-rate interest,” so long as their imposition is not
potestative, is based on reasonable and valid grounds, such as prevailing market rates,
and is agreed upon by the parties in writing.
 In this case, Security Bank was given unbridled authority to impose whatever rate of
interest it may will. The stipulation in the credit line agreement supposedly manifesting
the spouses Mercado’s continuing consent to any change in the interest rates on the
availments goes to show its lopsidedness. No standard of reference was provided as the
basis for the computation of interests, except for “Security Bank’s prevailing lending
rate,” which is hardly an objective standard, unlike prevailing market rates, which are
outside of the bank’s control.
 This makes the imposition of the interest left solely upon the will of Security Bank, and
thus void for violating the principle of mutuality of contracts.

H. Spouses Pen v. Spouses Julian

 Article 2088 of the Civil Code prohibits the creditor from appropriating the things given
by way of pledge or mortgage, or from disposing of them; any stipulation to the
contrary is null and void.
FACTS
 Respondent Linda Julian obtained a loan from petitioner Adelaida Pen, wherein a real
estate mortgage was executed over a real property of the respondents. Respondents
eventually defaulted in their loan so petitioner decided to foreclose said real estate
mortgage. Sensing that this will cause her embarrassment, respondent offered their
mortgaged property as payment in kind instead.
 Respondent then executed a two (2) page Deed of Sale effectively transferring the
ownership to petitioners. Eventually, respondents offered to repurchase the subject
property on several occasions but none of them materialized. The respondents then
instituted a civil complaint and filed an adverse claim and lis pendens which were
annotated at the back of the title to the property. They argued that at the time the
 mortgage was executed, they were required by petitioner Adelaida to sign a one page
document purportedly an "Absolute Deed of Sale". Said document did not contain any
consideration, and was "undated, unfilled and unnotarized".
 When negotiations between the petitioner and respondent turned sour, the latter
found out, upon verification with the Registry of Deeds of Quezon City, that the title to
the mortgaged property had already been registered in the name of petitioner Adelaida
Pen.
 This prompted respondent to file an Affidavit of Adverse Claim with the RTC alleging bad
faith on petitioner. The RTC held that the executed sale was void due to lack of
consideration. The CA also affirmed the nullification of sale but not because of the
supposed lack of consideration as the RTC had indicated, but because of the deed of
sale having been executed at the same time as the real estate mortgage, which
rendered the sale as a prohibited pactum commissorium.
ISSUE
 Was the sale between the parties a pactum commissorium?
HELD
 Yes. The sale between the parties was a pactum commissorium. Article 2088 of the Civil
Code prohibits the creditor from appropriating the things given by way of pledge or
mortgage, or from disposing of them; any stipulation to the contrary is null and void.
 The elements for pactum commissorium to exist are as follows, to wit:
o (a) that there should be a pledge or mortgage wherein property is pledged or
mortgaged by way of security for the payment of the principal obligation; and
o (b) that there should be a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
 The first element was present considering that the property of the respondents was
mortgaged by Linda in favor of Adelaida as security for the farmer's indebtedness. As to
the second, the authorization for Adelaida to appropriate the property subject of the
mortgage upon Linda's default was implied from Linda's having signed the blank deed of
sale simultaneously with her signing of the real estate mortgage. The haste with which
the transfer of property was made upon the default by Linda on her obligation, and the
eventual transfer of the property in a manner not in the form of a valid dacion en pago
ultimately confirmed the nature of the transaction as a pactum commissorium. It is
notable that in reaching its conclusion that Linda's deed of sale had been executed
simultaneously with the real estate mortgage, the CA first compared the unfilled deed
of sale presented by Linda with the notarized deed of sale adduced by Adelaida. The CA
justly deduced that the completion and execution of the deed of sale had been
conditioned on the non-payment of the debt by Linda, and reasonably pronounced that
such circumstances rendered the transaction pactum commissorium. The Court should
not disturb or undo the CA's conclusion in the absence of the clear showing of abuse,
arbitrariness or capriciousness on the part of the CA.
I. Lara’s Gift and Decords Inc vs Midtown Industrial Sales
 When the obligation is breached, and it consists in the payment of a sum of money, i.e,
a loan or forbearance of money, goods, credits or judgments, the interest due shall be
that which is stipulated by the parties in writing, provided it is not excessive and
unconscionable, which, in the absence of a stipulated reckoning date, shall be computed
from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169
of the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless
compounded interest is expressly stipulated by the parties, by law or regulation.
Interest due on the principal amount accruing as of judicial demand shall SEPARATELY
earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas,
from the time of judicial demand UNTIL FULL PAYMENT
 In the absence of stipulated interest, in a loan or forbearance of money, goods, credits
or judgments, the rate of interest on the principal amount shall be the prevailing legal
interest prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from
default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the
Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless
compounded interest is expressly stipulated by law or regulation. Interest due on the
principal amount accruing as of judicial demand shall SEPARATELY earn legal interest at
the prevailing rate prescribed by the Bangko Sentral ng Pilipinas, from the time of
judicial demand UNTIL FULL PAYMENT.
 When the obligation, not constituting a loan or forbearance of money, goods, credits or
judgments, is breached, an interest on the amount of damages awarded may be
imposed in the discretion of the court at the prevailing legal interest prescribed by the
Bangko Sentral ng Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code. No
interest, however, shall be adjudged on unliquidated claims or damages until the
demand can be established with reasonable certainty. Accordingly, where the amount
of the claim or damages is established with reasonable certainty, the prevailing legal
interest shall begin to run from the time the claim is made extrajudicially or judicially
(Art. 1169, Civil Code) UNTIL FULL PAYMENT, but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date of the judgment of the trial court (at which time the quantification of
damages may be deemed to have been reasonably ascertained) UNTIL FULL PAYMENT.
The actual base for the computation of the interest shall, in any case, be on the principal
amount finally adjudged, without compounding any interest unless compounded
interest is expressly stipulated by law or regulation.

Petitioner Lara's Gifts & Decors, Inc. (petitioner) is engaged in the business of manufacturing,
selling, and exporting handicraft products. On the other hand, respondent Midtown Industrial
Sales, Inc. (respondent) is engaged in the business of selling industrial and construction
materials, and petitioner is one of respondent's customers. Respondent alleged that from
January 2007 up to December 2007, petitioner purchased from respondent various industrial
and construction materials in the total amount of ₱1,263,104.22. The purchases were on a sixty
(60)-day credit term, with the condition that 24% interest per annum would be charged on all
accounts overdue, as stated in the sales invoices. Petitioner paid for its purchases by issuing
several Chinabank postdated checks in favor of respondent. However, when respondent
deposited the Chinabank checks on their maturity dates, the checks bounced. After repeated
demands from respondent, petitioner replaced the bounced checks with new postdated Export
and Industry Bank checks. However, when respondent deposited the replacement checks on
their maturity dates, the checks were likewise dishonored for being "Drawn Against Insufficient
Funds," and subsequently, for "Account Closed." Respondent sent a demand letter 5 dated 21
January 2008, which was received by petitioner on 22 January 2008, informing petitioner of the
bounced checks and demanding that petitioner settle its accounts. Still petitioner failed to pay,
prompting respondent to file on 5 February 2008 a Complaint6 for Sum of Money with Prayer
for Attachment against petitioner.

In its Answer,7 petitioner admitted that from January 2007 to December 2007, petitioner
purchased from respondent, on a 60-day credit term, various industrial and construction
materials in the total amount of ₱1,263,104.22. However, petitioner claimed that most of the
deliveries made were substandard and of poor quality. Petitioner alleged that the checks it
issued for payment were not for value because not all of the materials delivered by respondent
were received in good order and condition. Thus, when petitioner used the raw materials, the
finished product allegedly did not pass the standards required by petitioner's buyers from the
United States (US) who rejected the products. Furthermore, due to the economic recession in
the US, subsequent orders made by petitioner's US buyers were canceled. Petitioner claimed
that on 19 February 2008, a fire razed its factory and office, destroying its equipment,
machineries, and inventories, including those rejected by the US buyers.

The Ruling of the Trial Court

On 27 January 2014, the trial court rendered a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

MIDTOWN INDUSTRIAL SALES, INC. and against the defendant LARA'S GIFTS [&] DECORS, INC.
ordering the latter to pay the former the following amount:

1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE HUNDRED FOUR PESOS and
22/100 (Phpl,263,104.22) plus interest fixed at 24% per annum to be computed from February
5, 2008, the date of judicial demand, until the judgment obligation is fully paid. 2. The sum of
FIFTY THOUSAND PESOS (Php50,000.00) as and by way of attorney's fees.

Finally, defendant is ordered to pay the cost of suit.

SO ORDERED.8

The trial court held that petitioner failed to prove that the deliveries made by respondent did
not comply with the required specifications. Other than the self-serving denials of its witnesses,
no other evidence was offered by petitioner to prove that the materials delivered were
substandard. On the other hand, the amount of ₱1,263,104.22 claimed by respondent against
petitioner was supported by the sales invoices and postdated checks. The trial court also held
that the stipulated 24% interest per annum on overdue accounts is not unconscionable.

The Ruling of the Court of Appeals

The Court of Appeals denied petitioner's appeal, and affirmed the 27 January 2014 Decision of
the trial court.

The Court of Appeals sustained the finding of the trial court that petitioner admitted issuing
postdated checks as payment for the materials purchased from respondent from January 2007
to December 2007. The Court of Appeals ruled that petitioner failed to prove that the materials
delivered were substandard and of poor quality to justify its claim that the checks were issued
without valuable consideration.

On the 24% interest per annum imposed, the Court of Appeals found implausible petitioner's
claim that it was placed in a disadvantageous position. Petitioner could not have been cheated
or misled into agreeing to the 24% interest rate per annum that was stated in the sales invoices.
Petitioner, an established company with numerous transactions with respondent prior to the
purchases made in 2007, could have negotiated with respondent for more favorable terms.
Since the 24% interest rate per annum was stipulated in writing, the Court of Appeals held that
such rate should be applied considering that petitioner has not shown that it was placed at a
disadvantage in its contractual relation with respondent.

The Issues

Petitioner raises the following issues:

I. WHETHER OR NOT MIDTOWN'S SALES INVOICES HAVE PROBATIVE VALUE, CONSIDERING

THAT THEIR GENUINENESS, DUE EXECUTION AND AUTHENTICITY ARE NOT ESTABLISHED UNDER
SECTION 20, RULE 132 OF THE RULES OF COURT.

II. WHETHER OR NOT [LARA'S GIFTS & DECORS, INC.] IS IN DEFAULT OF ITS CONTRACTUAL
OBLIGATIONS. III. WHETHER OR NOT ARTICLES 1192 AND 1283 OF THE CIVIL CODE ARE
APPLICABLE IN THE PRESENT CASE.

IV. WHETHER OR NOT THE INTEREST RATE FIXED AT 24% PERANNUM IS VOID.

V. ASSUMING THAT THE INTEREST RATE OF 24% IS VALID, WHETHER OR NOT THE SAID RATE
SHALL BE APPLIED ONLY UNTIL FINALITY OF JUDGMENT.9

The Court's Ruling

We find the petition without merit. We affirm the ruling of the Court of Appeals with
modification.

Admissibility of the Sales Invoices

Petitioner argues that the sales invoices on the alleged purchases have no probative value
because their genuineness, due execution, and authenticity have not been established.
Petitioner stresses that in paragraph 2 of its Answer, 10 it only admitted the existence of the
sales invoices but not their due execution.

It should be stressed that petitioner admitted in its Answer that from January 2007 to
December 2007, it purchased from respondent various industrial and construction materials in
the total amount of ₱1,263,104.22. Petitioner likewise admitted the existence of the sales
invoices covering the said purchases, which were attached as annexes to the Complaint.
Although petitioner stated that it is not admitting the due execution of the sales invoices,
petitioner's Answer failed to specifically deny or contest under oath the genuineness or due
execution of any of the sales invoices or any of the signatures of petitioner's representatives or
employees appearing therein. Furthermore, petitioner failed to specify which of the sales
invoices pertain to materials delivered which were allegedly substandard and of poor quality.

The rule on actionable documents is provided under Sections 7 and 8, Rule 8 of the 1997 Rules
of Civil Procedure:

Sec. 7. Action or defense based on document. - Whenever an action or defense is based upon a
written instrument or document, the substance of such instrument or document shall be set
forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an
exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be
set forth in the pleading.

Sec. 8. How to contest such documents. - When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denies them, and sets forth what he claims
to be the facts; but the requirement of an oath does not apply when the adverse party does
not appear to be a party to the instrument or when compliance with an order for an inspection
of the original instrument is refused. (Emphasis supplied)

Section 10 of Rule 8 further describes how a specific denial should be made:

Sec. 10. Specific denial. - A defendant must specify each material allegation of fact the truth
of which he does not admit and, whenever practicable, shall set forth the substance of the
matters upon which be relies to support his denial. Where a defendant desires to deny only a
part of an averment, he shall specify so much of it as is true and material and shall deny only
the remainder. Where a defendant is without knowledge or information sufficient to form a
belief as to the truth of a material averment made in the complaint, he shall so state, and this
shall have the effect of a denial. (Emphasis supplied)

In this case, petitioner did not state the facts or substance of the matters relied upon to
support its denial of the due execution of the sales invoices. As held in Sy-Quia v.
Marsman, 11 "the Rules require that besides specifying the allegations of fact not admitted, the
answer should set forth the matters relied upon in support of the denial; so that, in effect, the
Rules are no longer satisfied with mere denials, even if specific, but demand that defendant
manifest what he considers to be the true facts." The purpose of the specific denial is to compel
the defendant to specify the allegations which he or she intends to disprove and disclose the
matters relied upon to support such denial, 12 thereby limiting the issues and avoiding
unnecessary delays and surprises. 13 Petitioner's general denial amounts to an admission of the
genuineness and due execution of the sales invoices.

Default in the Contractual Obligations

Petitioner admits that it made purchases amounting to ₱1,263,104.22, but that the materials
delivered were substandard or of poor quality. 14 In effect, petitioner is alleging fraud in the
transactions, which petitioner is bound to substantiate. Whoever alleges fraud or mistake
affecting a transaction must substantiate his allegation and has the burden of proof. 15 As found
by the trial court and the appellate court, petitioner failed to substantiate its claim that the
materials delivered by respondent did not comply with the specifications required or that the
materials were substandard and of poor quality.

The best evidence of the transaction between petitioner and respondent are the sales invoices
and the checks issued by petitioner as payments for the materials purchased. The sales invoices
show that petitioner, through its authorized staff or employees, acknowledged receipt of the
deliveries without protest. The sales invoices clearly stated that petitioner "RECEIVED
MERCHANDISE IN GOOD ORDER & CONDITION." 16 Furthermore, petitioner admits issuing the
postdated checks as payment for the materials delivered. The postdated checks were
subsequently dishonored for being "drawn against insufficient funds" or for "account closed."
Petitioner insists that the checks were issued without valuable consideration since most of the
materials delivered did not comply with the required specifications. However, other than its
bare allegation that the materials delivered were substandard and of poor quality, petitioner
failed to prove or substantiate its claims. As found by the trial court, none of petitioner's
witnesses was able to present proof that the materials delivered were substandard or of poor
quality.

Applicability of Articles 1192 and 1283 of the Civil Code

Articles 1192 and 1283 of the Civil Code read:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages.

Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the
other, the former may set it off by proving his right to said damages and the amount thereof.

As previously discussed, petitioner failed to substantiate its claims that the materials delivered
were substandard or of poor quality. Thus, petitioner cannot demand either a tempering of its
liability or an offset of damages.

Validity of the 24% Interest Rate In Asian Construction and Development Corporation v. Cathay
Pacific Steel Corporation, 17 the Court upheld the validity of interest rate fixed at 24% per
annum that was expressly stipulated in the sales invoices. The Court held that petitioner
construction company is presumed to have full knowledge of the terms and conditions of the
contract and that by not objecting to the stipulations in the sales invoice, it also bound itself to
pay not only the stated selling price but also the interest of 24% per annum on overdue
accounts and the 25% of the unpaid invoice for attorney's fees.

In the present case, petitioner, which has been doing business since 1990 and has been
purchasing various materials from respondent since 2004, cannot claim to have been misled
into agreeing to the 24% interest rate which was expressly stated in the sales invoices. Besides,
this Court has already ruled in several cases that an interest rate of 24% per annum agreed
upon between the parties is valid and binding 18 and not excessive and unconscionable. 19 Thus,
the stipulated 24% interest per annum is binding on petitioner. Imposition of Legal Interest

The rates of interest stated in the guidelines on the imposition of interests, as laid down in the
landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals20 have already been modified
in Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) Circular No. 799, Series of 2013, which
reduced the rate of legal interest from twelve percent (12%) per annum to six percent (6%)per
annum.

The modified guidelines are detailed in the 2013 case of Nacar v. Gallery Frames,21 thus:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extra judicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.22 (Emphasis supplied)

However, if the rate of interest is stipulated, such stipulated interest shall apply and not the
legal interest,23 provided the stipulated interest is not excessive and unconscionable.24 The
stipulated interest shall be applied until full payment of the obligation because that is the law
between the parties. 25 The legal interest only applies in the absence of stipulated interest. This
is in accord with Article 2209 of the Civil Code, which states:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum. (Boldfacing and italicization supplied)

Even BSP-MB Circular No. 799 expressly states that the legal interest applies only in the
absence of stipulated interest in loan contracts. Circular No. 799 reads:

CIRCULAR NO. 799

Series of 2013
Subject: Rate of interest in the absence of stipulation

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305 .1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013. (Emphasis supplied)

Clearly, Circular No. 799 will apply only in the absence of stipulated interest.

In Eastern Shipping Lines, which first laid down the guidelines on the computation of legal
interest, the Court declared:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date of the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount of [sic] finally
adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. 26 (Emphasis supplied)

Paragraph 3 above failed to qualify that for loans or forbearance of money, the prevailing
legal interest should only apply in the absence of stipulated interest. The stipulated interest is
the law between the parties and should apply from the time of extrajudicial or judicial
demand until full payment.27 This omission resulted in several rulings of this Court, which
imposed the stipulated interest on the adjudged amount until finality of the decision BUT
applied the prevailing legal interest in lieu of the stipulated interest from finality of the decision
until full payment of the obligation.28 This is in direct contravention of the law, particularly
Article 2209 of the Civil Code, which mandates that when a debtor incurs a delay in obligations
to pay a sum of money, the indemnity for damages shall be the payment of the interest agreed
upon. Only in the absence of a stipulated interest will the legal interest be applied.

To repeat, the stipulated interest is the law between the parties, and should be applied until full
payment of the obligation. Article 1159 of the Civil Code provides that "[o]bligations arising
from contracts have the force of law between the contracting parties and should be complied
with in good faith." Article 1956 of the Civil Code also states that "[n]o interest shall be due
unless it has been expressly stipulated in writing." Furthermore, the contracting parties may
establish such stipulations as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy, 29 and the parties are bound to fulfill
what has been expressly stipulated. 30 Thus, unless the stipulated interest is excessive and
unconscionable, there is no legal basis for the reduction of the stipulated interest at any time
until full payment of the principal amount. The stipulated interest remains in force until the
obligation is satisfied. In the absence of stipulated interest, the prevailing legal interest
prescribed by the Bangko Sentral ng Pilipinas shall apply.

Moreover, there should be no compounding of interest, whether stipulated or legal, unless

compounding is expressly agreed upon in writing by the parties or mandated by law or
regulation.31 Section 5 of the Usury Law, as amended, expressly provides that compounded
interest "shall not be reckoned, except by agreement."32 Being more burdensome than simple
interest, compounded interest must be expressly stipulated by the parties or mandated by law
or regulation.

Articles 2210 and 2211 of the Civil Code Apply to Obligations Other Than Loans or
Forbearance of Money, Goods or Credits

Articles 2210 and 2211 of the Civil Code provide:

Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract.

Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case,
be adjudicated in the discretion of the court.

Under these articles, when the obligation, other than loans or forbearance of money, goods or
credits, is breached, the court may in its discretion impose an interest on the damages
awarded. The interest imposed in the discretion of the court will be the prevailing legal interest
prescribed by the Bangko Sentral ng Pilipinas.

In contrast, Article 2209 of the Civil Code is applicable only to loans or forbearance of money,
goods or credit which arise out of "obligations consisting in the payment of a sum of money,
and the debtor incurs in delay," and thus where there is a debtor-creditor relationship. Articles
2210 and 2211 refer to obligations that do not involve the payment of a sum of money and
there is no debtor-creditor relationship. Moreover, the payment of interest in Article 2209
is mandatory, while the payment of interest in Articles 2210 and 2211 is discretionary on the
court.

The Legal Interest Rate in Article 2209 of the Civil Code Has Been Amended

On 24 Feb1uary 1916, Act No. 265533 or the Usury Law was enacted, which fixed the legal
interest at 6% per annum for loans, forbearance of money, goods, credits or judgments. 34 This
legal interest applied in the absence of stipulated interest.

On 18 June 1949, Republic Act No. 386,35 otherwise known as the Civil Code of the Philippines,
was enacted and took effect the following year. Article 220936 of the Civil Code declared that
the legal interest in obligations to pay a sum of money is 6% per annum when the debtor incurs
in delay. Article 2209 applies to loans and forbearance of money, goods or credits. 37 This legal
interest will apply in the absence of stipulated interest. 38

On 29 January 1973, Presidential Decree No. 116 39 (P.D. No. 116) was issued, which amended
the Usury Law and fixed the legal interest for loans, forbearance of money, goods, credits or
judgments at 6% per annum "or such rate as may be prescribed by the Monetary Board of the
Central Bank of the Philippines." This legal interest applies in the absence of stipulated
interest. Section 11 of P.D. No. 116 states: "All Acts and parts of Acts inconsistent with the
provisions of this Decree are hereby repealed." This repealing clause applied to Acts,
Commonwealth Acts, and Republic Acts, including Article 2209 of Republic Act No. 386 (Civil
Code of the Philippines). When P.D. No. 116 says "[a]ll Acts and parts of Acts," it does not mean
only Act No. 2655 (Usury Law) but all other Acts, without exception. P.D. No. 116 was obviously
intended to amend all laws prescribing the rate of legal interest in the absence of stipulated
interest. The Whereas clauses of P.D. No. 116 state that "the monetary authorities have
recognized the need to amend the present Usury Law to allow for more flexible interest rate
ceilings that would be more responsive to the requirements of changing economic
conditions,"40 and that "the availability of adequate capital resources is, among other factors, a
decisive element in the achievement of the declared objective of accelerating the growth of the
national economy."41 Thus, P.D. No. 116 amended all laws, including Article 2209 of the Civil
Code, prescribing the rate of legal interest to allow the Bangko Sentral ng Pilipinas to calibrate
the legal interest rate to meet changing economic conditions and to accelerate the growth of
the national economy. If P.D. No. 116 did not amend Article 2209, then all "obligations
consisting in the payment of a sum of money," which is the all-encompassing coverage of
Article 2209 applying to all loans or forbearance of money, goods, credits or judgments, would
still be subject to the fixed 6% legal interest rate. This would prevent the Bangko Sentral ng
Pilipinas from calibrating the legal interest to meet changing economic conditions and to
accelerate the growth of the national economy.

Thus, the legal interest referred to in Article 2209 of the Civil Code is now 6% per annum or as
may be fixed by the Monetary Board of the Bangko Sentral ng Pilipinas pursuant to the Usury
Law, as amended by PD 116.

Forbearance of Money, Goods or Credits

The term "forbearance" in the context of the Usury Law has been defined as "a contractual
obligation of lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." 42 In consideration of this
forbearance, the parties often agree on the payment of interest on the amount due.

In Estores v. Spouses Supangan,43 the Court ruled that "forbearance of money, goods or credits"
has a "separate meaning from a loan." The Court then reiterated, citing Crismina Garments,
Inc. v. Court of Appeals,44 that "forbearance of money, goods or credits" refers to
"arrangements other than loan agreements, where a person acquiesces to the temporary use
of his money, goods or credits pending happening of certain events or fulfillment of certain
conditions." The Court explained in Estores:

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale.
However, the contract provides that the seller (petitioner) must return the payment made by
the buyer (respondent spouses) if the conditions are not fulfilled. There is no question that they
have in fact, not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding
demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the
money and should be considered in default from the time that demand was made on
September 27, 2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the
return of the money be considered as a forbearance of money which required payment of
interest at the rate of 12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals, "forbearance" was defined as a "contractual

obligation of lender or creditor to refrain during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." This definition describes a
loan where a debtor is given a period within which to pay a loan or debt. In such case,
"forbearance of money, goods or credits" will have no distinct definition from a loan. We
believe, however, that the phrase "forbearance of money, goods or credits" is meant to have
a separate meaning from a loan, otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil Code. Forbearance of money, goods
or credits should therefore refer to arrangements other than loan agreements, where a
person acquiesces to the temporary use of his money, goods or credits pending happening of
certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted
with their money even before the conditions were fulfilled. They have therefore allowed or
granted forbearance to the seller (petitioner) to use their money pending fulfillment of the
conditions. They were deprived of the use of their money for the period pending fulfillment of
the conditions and when those conditions were breached, they are entitled not only to the
return of the principal amount paid, but also to compensation for the use of their money. And
the compensation for the use of their money, absent any stipulation, should be the same rate
of legal interest applicable to a loan since the use or deprivation of funds is similar to a
loan. 45 (Emphasis supplied)

The Court further stressed in Reformina v. Judge Tomol, Jr. 46 that Act No. 2655 or the Usury
Law deals with "interest on (1) loans; (2) forbearance of any money, goods or credits; and (3)
the rate allowed in judgments."47 The Court clarified that the term "judgments" refers to
judgments in litigations involving loans or forbearance of any money, goods or credits. 48 As
declared in Eastern Shipping Lines, the "finality [of judgment] until its satisfaction x x x [is a]
period being deemed to be by then an equivalent to a forbearance of credit" 49 or a
forbearance of money.

P.D. No. 116 amended Act No. 2655 or the Usury Law, as follows:

SECTION 1. Section one of Act Numbered two thousand six hundred fifty-five is hereby
amended to read as follows:

"Sec. 1. The rate of interest for the loan or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of interest,
shall be six per centum per annum or such rate as may be prescribed by the Monetary Board
of the Central Bank of the Philippines for that purpose in accordance with the authority hereby
granted."

SECTION 2. The same Act is hereby amended by adding the following section immediately after
section one thereof, which reads as follows:

"Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rate of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and
to chance [sic] such rate or rates whenever warranted by prevailing economic and social
conditions: Provided, That such changes shall not be made oftener than once every twelve
months.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher
maximum rates for consumer loans or renewals thereof as well as loans made by pawnshops,
finance companies and other similar credit institutions although the rates prescribed for these
institutions need not necessarily be uniform."

xxxx

SECTION 7. Section five of the same Act is hereby amended to read as follows:

"Sec. 5. In computing the interest on any obligation, promissory note or other instrument or
contract, compound interest shall not be reckoned, except by agreement: Provided, That
whatever compound interest is agreed upon, the effective rate of interest charged by the
creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary
Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall
draw six per centum per annum interest or such rate as may be prescribed by the Monetary
Board. No person or corporation shall require interest to be paid in advance for a period of not
more than one year: Provided, however, That whenever interest is paid in advance, the
effective rate of interest charged by the creditor shall not exceed the equivalent of the
maximum rate prescribed by the Monetary Board."

x x x x (Boldfacing and italicization supplied)

Clearly, under the law and jurisprudence, the prevailing legal interest prescribed by the Bangko
Sentral ng Pilipinas applies, in the absence of stipulated interest, on the following: (1) loans; (2)
forbearance of any money, goods or credits; and (3) judgments in litigations involving loans or
forbearance of money, goods or credits. It should be noted that under Section 1 of P.D. No.116,
the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas applies to
"judgments" in the absence of stipulated interest.

Forbearance of goods includes the sale of goods on installment, requiring periodic payment of
money to the creditor.1âшphi1 Forbearance of credits includes the sale of anything on credit,
where the full amount due can be paid at a date after the sale.

As previously discussed, the general rule is that the interest stipulated by the parties shall
apply, provided it is not excessive and unconscionable. Absent any stipulation, the Court has
consistently held that the prevailing legal interest prescribed by the Bangko Sentral ng
Pilipinas applies to loans or forbearance of money, goods or credits, as well as to judgments. 50

To summarize, the guidelines on the imposition of interest as provided in Eastern Shipping

Lines and Nacar are further modified for clarity and uniformity, as follows:
With regard to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e, a
loan or forbearance of money, goods, credits or judgments, the interest due shall be that
which is stipulated by the parties in writing,51 provided it is not excessive and
unconscionable, which, in the absence of a stipulated reckoning date, 52 shall be computed
from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 53 of
the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded
interest is expressly stipulated by the parties, by law or regulation. Interest due on the
principal amount accruing as of judicial demand shall SEPARATELY earn legal interest54 at the
prevailing rate prescribed by the Bangko Sentral ng Pilipinas,55 from the time of judicial
demand UNTIL FULL PAYMENT.56

2. In the absence of stipulated interest, in a loan or forbearance of money, goods, credits or

judgments, the rate of interest on the principal amount shall be the prevailing legal interest
prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from
default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil
Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded interest
is expressly stipulated by law or regulation. Interest due on the principal amount accruing as
of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by
the Bangko Sentral ng Pilipinas,57 from the time of judicial demand UNTIL FULL PAYMENT. 58

3. When the obligation, not constituting a loan or forbearance of money, goods, credits or
judgments, is breached, an interest on the amount of damages awarded may be imposed in
the discretion of the court at the prevailing legal interest prescribed by the Bangko Sentral ng
Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code. 59 No interest, however, shall
be adjudged on unliquidated claims or damages until the demand can be established with
reasonable certainty.60 Accordingly, where the amount of the claim or damages is established
with reasonable certainty, the prevailing legal interest shall begin to run from the time the
claim is made extrajudicially or judicially (Art. 1169, Civil Code) UNTIL FULL PAYMENT, but
when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date of the judgment of the trial court (at which
time the quantification of damages may be deemed to have been reasonably ascertained)
UNTIL FULL PAYMENT. The actual base for the computation of the interest shall, in any case,
be on the principal amount finally adjudged, without compounding any interest unless
compounded interest is expressly stipulated by law or regulation.61

This case involves a forbearance of credit wherein petitioner was granted a 60-day credit term
on its purchases, with the condition that a 24% interest per annum would be charged on all
accounts overdue. Since there was an extra judicial demand before the complaint was filed,
interest on the amount due begins to run not from the filing of the complaint but from the date
of such extrajudicial demand. 62 Thus, the unpaid principal obligation of ₱1,263,104.22 shall
earn the stipulated interest of 24% per annum from the date of extrajudicial demand on 22
January 2008 until full payment.

Furthermore, in accordance with Article 2212 63 of the Civil Code, the 24% interest per
annum due on the principal amount accruing as of the judicial demand shall earn legal interest
at the rate of 12% per annum from the date of judicial demand on 5 February 2008 until 30
June 2013, and thereafter at the rate of 6% per annum from 1 July 2013 until full payment.
From the date of judicial demand on 5 February 2008 until 30 June 2013, the prevailing rate of
legal interest was 12% per annum. The 6% per annum legal interest prescribed under BSP-MB
Circular No. 799 took effect on 1 July 2013 and could only be applied prospectively. 64 The
₱50,000.00 attorney's fees shall also earn legal interest at the rate of 6% per annum from the
finality of this Decision until full payment.1âшphi1

WHEREFORE, the Decision dated 21 April 2016 of the Court of Appeals in CA-G.R. CV No.
102465, affirming the 27 January 2014 Decision of the Regional Trial Court, Branch 128,
Caloocan City, is AFFIRMED with MODIFICATION, as follows:

Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc.
the following:

1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE HUNDRED FOUR PESOS and
22/100 (₱1,263,104.22) representing the principal amount plus stipulated interest at 24% per
annum to be computed from 22 January 2008, the date of extrajudicial demand, until full
payment.

2. Legal interest on the 24% per annum interest due on the principal amount accruing as of
judicial demand, at the rate of 12% per annum from the date of judicial demand on 5 February
2008 until 30 June 2013, and thereafter at the rate of 6% per annum from 1 July 2013 until full
payment.

3. The sum of FIFTY THOUSAND PESOS (₱50,000.00) as attorney's fees, plus legal interest
thereon at the rate of 6% per annum to be computed from the finality of this Decision until full
payment.

4. Cost of the suit.

SO ORDERED.

J. Estores v. Spouses Supangan

 Forbearance of money, goods or credits refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or
credits pending happening of certain events or fulfillment of certain conditions.
FACTS
 Petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan
entered into a Conditional Deed of Sale whereby petitioner offered to sell, and
respondent-spouses offered to buy, a parcel of land in Cavite for the sum of P4.7M.
 After almost seven years from the execution of the contract and notwithstanding
payment of P3.5M on the part of respondent-spouses, petitioner failed to comply with
her obligations under the contract. This prompted the respondent-spouses to demand
the return of the amount of P3.5M within 15 days from receipt of letter.
 Petitioner promised to return the same within 120 days. Respondent-spouses were
amenable to the proposal provided that an interest of 12% compounded annually shall
be imposed on the P3.5M. When petitioner still failed to return the amount despite
demand, respondent-spouses filed a complaint for sum of money before the RTC.
Petitioner averred that she is willing to return the amount of P3.5M but without any
interest as the same was not agreed upon because their agreement provided only for
the return of downpayment in case of breach. Respondent spouses argued that it is only
fair that interest be imposed on the amount they paid considering that petitioner failed
to return the amount upon demand and had been using the P3.5M for her benefit.
 The RTC ruled in favor of respondent spouses but reduced the rate of interest to 6%,
finding the rate of 12% per annum (at the time) for loan or forbearance of money is not
applicable because the contract involved is not loan or forbearance of money but a
Conditional Deed of Sale. The CA affirmed the ruling of the RTC.
ISSUE
 Does the obligation in this case involve forbearance of money which required payment
of interest at the rate of 12% per annum (at the time)?
HELD
 Yes. The Supreme Court held that the phrase “forbearance of money, goods or credits”
should refer to arrangements other than loan agreements, where a person acquiesces
to the temporary use of his money, goods or credits pending happening of certain
events or fulfillment of certain conditions. Because the definition of forbearance in
Crismina Garments, Inc. v. Court of Appeals, which defines forbearance as a “contractual
obligation of a lender or creditor to refrain during a given period of time from requiring
the borrower or debtor to pay a loan or debt then due and payable” describes a loan
where a debtor is given a period within which to pay a loan or debt, and in such case,
“forbearance of money, goods or credits” will have no distinct definition from a loan. In
this case, the respondent-spouses parted with their money even before the conditions
under the Conditional Deed of Sale were fulfilled. They have therefore allowed or
granted forbearance to the seller (petitioner) to use their money pending fulfillment of
the conditions. They were deprived of the use of their money for the period pending
fulfillment of the conditions under the contract and when those conditions were
breached, they are entitled not only to the return of the principal amount paid, but also
to compensation for the use of their money.
  Therefore, the obligation is for forbearance of money and the legal interest of 12% (at
the time) should apply.

K. Land Bank of the Philippines v. Onate

 The unilateral offsetting of funds without legal justification and the undocumented
withdrawals are tantamount to forbearance of money.
FACTS
 Emmanuel Oñate opened and maintained seven trust accounts with Land Bank of the
Philippines. Each trust account was covered by an Investment Management Account
(IMA) with Full Discretion, in which Oñate authorized LBP to hold, invest and re-invest
the funds, and has a corresponding passbook where deposits and withdrawals were
recorded.
 Land Bank demanded from Oñate the return of P4 million it claimed to miscredited to
Trust Account No. 01-125 as his additional funds but actually represents the total
amount of the checks issued to Land Bank by its corporate borrowers as payment for
their pre-terminated loans. After Oñate refused, Land Bank unilaterally applied the
outstanding balance in all of Oñate’s trust accounts against his resulting indebtedness
by reason of the “miscrediting” of funds. To recoup the remaining balance of Oñate’s
indebtedness, Land Bank filed a Complaint for Sum of Money seeking to recover the
amount of P8,222,687.8920 plus interest at the legal rate of 12% per annum computed
from May 15, 1992 until fully paid.
 Both the RTC and the CA denied the petition because Land Bank failed to establish the
source of the funds it claimed to have been erroneously credited to Oñate’s account. It
ordered Land Bank to pay Oñate the amount of undocumented withdrawals it debited
from the latter’s trust account with interest at the rate of 12% .
 During the pendency of this case, however, the BSP Circular No. 799, stating that in the
absence of express stipulation between the parties, the rate of interest in loan or
forbearance of any money, goods or credits and the rate allowed in judgments shall be
6% per annum; the same took effect on July 1, 2013.
 Land Bank argues that the above Resolution applies to it because there was no loan or
forbearance of money involved; trust accounts are in the nature of “Express Trust” and
not in the nature of a regular deposit account where a debtor-creditor relationship
exists between the bank and its depositor. It was not indebted to Oñate but merely held
and managed his funds.
 Oñate defends the CA’s grant of 12% per annum rate of interest as under BSP Circular
No. 416, said rate shall be applied in cases where money is transferred from one person
to another and the obligation to return the same or a portion thereof is adjudged. In any
event, Land Bank is estopped from disputing said rate for Land Bank itself applied the
same 12% per annum rate of interest when it sought to recover the amount allegedly
“miscredited” to his account.
ISSUE
 What is the proper interest rate to be applied?
HELD
 The unilateral offsetting of funds without legal justification and the undocumented
withdrawals are tantamount to forbearance of money. In the analogous case of Estores
v. Supangan, 670 SCRA 95 (2012) we held that “[the] unwarranted withholding of the
money which rightfully pertains to [another] amounts to forbearance of money which
can be considered as an involuntary loan.” Following Eastern Shipping Lines, Inc. v.
Court of Appeals, 234 SCRA 78 (1994) therefore, the applicable rate of interest in this
case is 12% per annum. Land Bank is estopped from assailing the award of 12% per
annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the
outstanding indebtedness of Oñate by using the same 12% per annum rate of interest. It
was only after the lower courts rendered unfavorable decisions that Land Bank started
to insist that the applicable rate of interest is 6% per annum. As to the compounding of
interest and the reckoning of the same, it was suggested that “where the demand is
established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made101 (at which time
the quantification of damages may be deemed to have been reasonably ascertained).”
 Hence, the Court find it just and proper to reckon the running of the interest of 12% per
annum, compounded yearly, for the debited amount and undocumented withdrawals
on different dates. The debited amount of P1,471,416.52, shall earn interest beginning
May 31, 2006 or the day the RTC rendered its Decision granting said amount to Oñate.

L. Metropolitan Bank and Trust Company v. Chuy Lu Tan

 A creditor is not precluded from recovering any unpaid balance on the principal
obligation if the extrajudicial foreclosure sale of the property subject of the real estate
mortgage results in a deficiency.
FACTS
 Respondents Chuy Lu Tan (Chuy) and Romeo Tanco (Tanco) obtained five loans from
petitioner Metropolitan Bank &Trust Company (Metrobank) with the aggregate amount
of P19,900,000. The loans were evidenced by five Promissory Notes executed by Chuy
and Tnaco. A Real Estate Mortgage over a parcel of land was executed by Chuy as a
security for the said loans. A Contonuing Surety Agreement was also executed by
respondents Sy Se Hiong (Sy) and Tan Hsiu Yen (Tan) which bound themselves solidarily
liable with Chuy and Tanco for the principal amount of the loan.
 Chuy and Tanco failed to settle their loans despite demands from Metrobank for
payment. The total amount they owed was P24,353,062 which comprises the principal
amount, the interests and the penalties. As a result of such failure, Metrobank
extrajudicially foreclosed the mortgaged property and was sold to Metrobank as the
highest bidder.
 However, Metrobank claimed that respondents still had deficiency of P1,641,815
despite the foreclosure of the property. Hence, Metrobank demanded from
 respondents the payment of such deficiency. For failing to pay, Metrobank filed a suit
for a collection of sum of money with the RTC of Makati.
 The RTC held that respondents were liable to pay said deficiency. On appeal, the CA
reverse the trial court’s ruling and held that to allow Metrobank to recover the amount
it seeks from respondents would be iniquitous, unconscionable and would amount to
unjust enrichment. Hence this petition.
 Petitioner questions the ruling of the appellate court and further claims that the
deficiency claimed should not have been dismissed because respondents admitted that
they defaulted in the payment of their obligations. Respondents, on the other hand,
claims that since the supposed value of the subject property shows that it is more than
the amount of their outstanding obligation, they can no longer be held liable for the
balance.
ISSUE
 Are respondents still liable for the deficiency despite the foreclosure of the mortgaged
property?
HELD
 YES, inadequacy of the price at which the property was sold at public auction does not
prevent petitioner from claiming any deficiency not covered by the said foreclosure sale.
 The fact that the mortgaged property was sold at an amount less than its actual market
value should not militate against the right to such recovery. This Court has likewise ruled
that in deference to the rule that a mortgage is simply a security and cannot be
considered payment of an outstanding obligation, the creditor is not barred from
recovering the deficiency even if it bought the mortgaged property at the extrajudicial
foreclosure sale at a lower price than its market value notwithstanding the fact that said
value is more than or equal to the total amount of the debtor's obligation.
 In this case, there is no convincing evidence nor argument which would show that
petitioner is not entitled to the deficiency it claims. The CA simply says that to allow
petitioner to recover the amount it seeks, which is allegedly over and above the actual
value of the property it bought at public auction, would amount to unjust enrichment.
However, the Court does not see any unjust enrichment resulting from upholding the
right of the petitioner to collect any deficiency from respondents. Unjust enrichment
exists when a person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental. principles of justice,
equity and good governance. As discussed above, there is a strong legal basis for
petitioner's claim against respondents for the balance of their loan obligation.