1.CEBU INTERNATIONAL V.

CA
316 SCRA 488

FACTS:
Petitioner is a quasi-banking institution involved in money market transactions. Alegre
invested with petitioner P500,000. Petitioner issued then a promissory note, which would mature
approximately after a month. The note covered for Alegres placement plus interest. On the
maturity of the note, petitioner issued a check payable to Alegre, covering the whole amount
due. It was drawn from petitioners current account in BPI. When the wife of Alegre tried to
deposit the check, the bank dishonored the check. Petitioner was notified of this matter
and Alegre demanded the immediate payment in cash. In turn, petitioner promised to
replace the check on the impossible premise that the first issued be returned to them. This
prompted Alegre to file a complaint against petitioner and petitioner in turn, filed a case
against BPI for allegedly unlawfully deducting from its account counterfeit checks. The trial
court decided in favor of Alegre.

ISSUE:
Whether or not the Negotiable Instruments Law is applicable to the money market
transaction held
between petitioner and Alegre?

HELD:
No. A money market has been defined to be a market dealing in standardized short-term
credit instruments where lenders and borrowers dont deal directly with each other but
through a middleman or dealer in the open market. In a money market transaction, the
investor is the lender who loans his money to a borrower through a middleman or dealer.

In the case at bar, the transaction is in the nature of a loan. Petitioner accepted the
check but when he tried to encash it, it was dishonored. The holder has an immediate recourse
against the drawer, and consequently could immediately file an action for the recovery of the
value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money may be paid in
money, which is the legal tender or, by the use of a check. A check is not legal tender, and
therefore cannot constitute valid tender of payment.

2.MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L-22973)

Facts:

Petitioner Mambulao Lumber applied for an industrial loan with herein respondent PNB and was
approved with its real estate, machinery and equipments as collateral. PNB released the
approved loan but petitioner failed to pay and was later discovered to have already stopped in its
operation. PNB then moved for the foreclosure and sale of the mortgaged properties. The
properties were sold and petitioner sent a bank draft to PNB to settle the balance of the
obligation. PNB however alleges that a remaining balance stands and a foreclosure sale would
still be held unless petitioner remits said amount. The foreclosure sale proceeded and
petitioners properties were taken out of its compound. Petitioner filed actions before the court
and claims among others, moral damages.

Issue:

Whether or not petitioner corporation, who has already ceased its operation, may claim for moral
damages.

Ruling: NO.
Herein appellants claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may have a good reputation which,
if besmirched, may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the
chattels could have upon its reputation or business standing would undoubtedly be the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the
place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila
as provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances
of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

3. Liam Law vs. Olympic Sawmill (GR L-30771, 28 May 1984)

Facts: On 7 September 1957, Liam Law (plaintiff) loaned P10,000.00, without interest, to Olympic
Sawmill Co. and Elino Lee Chi, as the latters managing partner (defendants). The loan became
ultimately due on 31 January 1960, but was not paid on that date, with the debtors asking for an
extension of 3 months, or up to 30 April 1960. On 17 March 1960, the parties executed another
loan document. Payment of the P10,000.00 was extended to 30 April 1960, but the obligation
was increased by P6,000 which formed part of the principal obligation to answer for attorneys
fees, legal interest, and other cost incident thereto to be paid unto the creditor and his
successors in interest upon the termination of this agreement. The defendants again failed to
pay their obligation.
On 23 September 1960, the plaintiff instituted the collection case before the Court of First
Instance of Bulacan. The defendants admitted the P10,000.00 principal obligation, but claimed
that the additional P6,000.00 constituted usurious interest. Upon the plaintiffs application, the
Trial Court issued a writ of Attachment on real and personal properties of defendants. After the
Writ of Attachment was implemented, proceedings before the Trial Court versed principally in
regards to the attachment. On 18 January 1961, an Order was issued by the Trial Court allowing
both parties to simultaneously 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 P6,000.00. The defendants appealed before the then court of Appeals,
which endorsed it to the Supreme Court stating that the issue involved was one of law.

The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the claim of usury should have been deemed admitted
by plaintiff as it was "not denied specifically and under oath".

Issue [1]: Whether the allegation of usury should be made in writing and under oath, pursuant to
Section 9 of the Usury Law.
Held [1]: Section 9 of the Usury Law provides that the person or corporation sued shall file its
answer in writing under oath to any complaint brought or filed against said person or corporation
before a competent court to recover the money or other personal or real property, seeds or
agricultural products, charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of the facts contained in the
latter. It envisages a complaint filed against an entity which has committed usury, for the
recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer
under oath denying the allegation of usury, the defendant shall be deemed to have admitted the
usury.

The provision does not apply to a case where it is the defendant, not the plaintiff, who is alleging
usury.

4. FLORANTE VS PILAR DEVT

FACTS: petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar
Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex
Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00. They executed a
promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the
"principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of
240 months, or twenty years, from date, in monthly installments of P1,378.83. Petitioner spouses
again failed to pay the installments. Respondent corporation, as successor-in-interest of Apex,
instituted against petitioner spouses Civil Case No. 17702 before the Regional Trial Court, Makati,
Branch 138. petitioner spouses mainly contended that the terms of the second promissory note
increasing the interest rate to 21% and the escalation clauses authorizing Apex to increase
interest rates pursuant to any law or Central Bank regulation are null and void.

Issue: W/N THE ESCALATION OF INTEREST RATE FROM 12% PER ANNUM (1ST PROMISSORY NOTE)
TO 21% PER ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL.

Held: No. At the time the parties executed the first promissory note in 1978, the interest of 12%
was the maximum rate fixed by the Usury Law for loans secured by a mortgage upon registered
real estate. On December 1, 1979, the Monetary Board of the Central Bank of the Philippines
issued Circular No. 705 which fixed the effective rate of interest on loan transactions with
maturities of more than 730 days to twenty-one per cent (21%) per annum for both secured and
unsecured loans. On January 28, 1980, The Monetary Board issued Circular No. 712 reiterating
the effective interest rate of 21% on said loan transactions. On January 1, 1983, CB Circular No.
905, series of 1982, took effect. This Circular declared that the rate of interest on any loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or
unsecured, "shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended."In short, Circular No. 905 removed the ceiling on interest rates for secured and
unsecured loans, regardless of maturity.

5.Tolentino vs. Gonzalez Sy Chiam 50 Phil 558

Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three installments.
Tolentino defaulted on the balance so the owner sent a letter of demand to him. To pay, Tolentino
applied for loan from Gonzalez on condition that he would execute a pacto de retro sale on the
property in favor of Gonzalez. Upon maturation of loan, Tolentino defaulted so Gonzalez is
demanding recovery of the land. Tolentino contends that the pacto de retro sale is a mortgage
and not an absolute sale.

ISSUE: WoN the contract in question is a mortgage

Held: No. The Supreme Court held that upon its terms, the deed of pacto de retro sale is an
absolute sale with right of repurchase and not a mortgage. Thus, Gonzalez is the owner of the
land and Tolentino is only holding it as a tenant by virtue of a contract of lease.
6. Consolidated Bank VS CA

FACTS
Continental Cement Corp obtained from Consolidated Bank letter of credit used to
purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginal deposit to
petitioner. A trust receipt was executed by respondent corporation, with respondent Gregory Lim
as signatory. Claiming that respondents failed to turn over the goods or proceeds, petitioner filed
a complaint for sum of money before the RTC of Manila. In their answer, respondents aver that
the transaction was a simple loan and not a trust receipt one, and tht the amount claimed by
petitioner did not take into account payments already made by them. The court dismissed the
complaint, CA affirmed the same.

ISSUE
Whether or not the marginal deposit should not be deducted outright from the amount of
the letter of credit.

HELD
No. petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interest and other charges. It could be onerous to compute
interest and other charges on the face value of the letter of credit which a bank issued, without
first crediting or setting off the marginal deposit which the borrower paid to it-compensation is
proper and should take effect by operation of law because the requisited in Art. 1279 are present
and should extinguish both debts to the concurrent amount. Unjust enrichment.

7.Colinares Vs CA

Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters
convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of credit
with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of
CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the full invoice
value of the goods. Petitioners signed a pro-forma trust receipt as security.

PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. After the
initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the amount be
paid within seven days from notice. Instead of complying with PBCs demand, Veloso confessed
that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of
until 15 June 1980 to settle the account. Colinares proposed that the terms of payment of the
loan be modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending
approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter
P500 on 11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the separate
demand for attorneys fees by PBCs legal counsel, PBC continued to demand payment of the
balance. On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 of the Revised Penal Code

During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal
guarantee of Cayo Garcia Tuiza, PBCs former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the trust receipt implication much
later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt
was a mere formality. The Trust Receipts Law does not seek to enforce payment of the loan,
rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner. Here, it is crystal clear that
on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of
money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as
shown by several receipts issued by PBC acknowledging payment of the loan.

Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust
Receipt

Held: No. Colinares received the merchandise from CM Builders Centre on 30 October 1979. On
that day, ownership over the merchandise was already transferred to Petitioners who were to use
the materials for their construction project. It was only a day later, 31 October 1979, that they
went to the bank to apply for a loan to pay for the merchandise. This situation belies what
normally obtains in a pure trust receipt transaction where goods are owned by the bank and only
released to the importer in trust /subsequent to the grant of the loan.

The bank acquires a security interest in the goods as holder of a security title for the advances
it had made to the entrustee. The ownership of the merchandise continues to be vested in the
person who had advanced payment until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by
his representative or successor in interest. To secure that the bank shall be paid, it takes full title
to the goods at the very beginning and continues to hold that title as his indispensable security
until the goods are sold and the vendee is called upon to pay for them; hence, the importer has
never owned the goods and is not able to deliver possession. In a certain manner, trust receipts
partake of the nature of a conditional sale where the importer becomes absolute owner of the
imported merchandise as soon as he has paid its price. There are two possible situations in a
trust receipt transaction. The first is covered by the provision which refers to money received
under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise
sold. The second is covered by the provision which refers to merchandise received under the
obligation to return it (devolvera) to the owner. Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the trust receipt shall be
punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of proving
intent to defraud.

8.Republic vs Grijaldo

Facts:
Grijaldo obtained five loans from the Bank of Taiwan in the total sum of P1,281.97 with interest
at the rats of 6% per annum compounded quarterly. These were evidenced by five promissory
notes.
These loans were crop loans and was considered to be due one year after they were incurred.
As a security for the payment of the loans, a chattel mortgage was executed on the standing
crops of his land.
The assets in the Bank of Taiwan were vested in the US Govt which were subsequently
transferred to the Republic of the Philippines
RP is now demanding the payment of the account.
Justice of Peace dismisses the case on the ground of prescription. CA rendered a decision
ordering the appellant to pay the appellee

Defendants contentions:
1)The appellee has no cause of action against appellant since the transaction was with Taiwan
Bank.
2)That if the appellee has a cause of action at all, it had prescribed
3)The lower court erred in ordering the appellant to pay P2,377.23

Issue:
Can RP still collect from Grijaldo?
Held: Yes
Ratio: The obligation of the contract was not to deliver a determinate thing, it was a generic
thing the amount of money representing the total sum of his loans. The destruction of anything
of the same kind does not extinguish the obligation. The loss of the crops did not extinguish his
obligation to pay because the account could still be paid from other sources aside from the
mortgaged crops. Also, prescription does not run against the State.

9. Tan v. Valdehueza

Facts:
Defendants herein, Arador, Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza,
are brothers and sisters; the parcel of land described in the first cause of action was the subject
matter of the public auction sale wherein the plaintiff was the highest bidder and as such a
Certificate of Sale was executed in favor of LUCIA TAN the herein plaintiff. Due to the failure of
defendant Arador Valdehueza to redeem the said land within the period of one year as being
provided by law, an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA; that defendants
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of two portions of a parcel of
land which is described in the second cause of action with the total amount of P1,500; that from
the execution of the Deed of Sale with right to repurchase mentioned in the second cause of
action, defendants Arador Valdehueza and Rediculo Valdehueza remained in the possession of
the land.

A complaint for injunction filed by Tan to enjoin the Valdehuezas "from entering the parcel of land
and gathering the nuts therein ...." This complaint and the counterclaim were subsequently
dismissed for failure of the parties "to seek for the immediate trial thereof, thus evincing lack of
interest on their part to proceed with the case.robles virtual law library
The Deed of Pacto de Retro referred to was not registered in the Registry of Deeds, while the 2nd
Deed of Pacto de Retro was registered.

Issue:
Whether the transactions between the parties were simple loan?

Held:
NO. Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the
validity of a mortgage even as between the parties, but under article 2125 of the new Civil Code
(in effect since August 30,1950), this is no longer so.
The Valdehuezas having remained in possession of the land and the realty taxes having been
paid by them, the contracts which purported to be pacto de retro transactions are presumed to
be equitable mortgages, 5 whether registered or not, there being no third parties involved.

10. JARDENIL V. SOLASG.R.

No. L-4787824 July 1942Article 1956: No interest shall be due unless it has been expressly
stipulated in writing.(1755a)

FACTS: The case is an action for foreclosure of mortgage. Paragraph 4 of the mortgage
deedbetween the parties states that Solas agrees to pay Jardenil on or before 31 March 1934
theamount of P 2,400 with the interests of the sum at the rate of 12% per year starting from the
dateof execution until its maturity date on 31 March 1934. The mortgage also includes an
extension note of one year from the date of maturity within which to make payment, without
making anymention of any interest which the mortgagor should pay during the additional period.

ISSUE: Whether or not defendant-appellee (Solas) is bound to pay the stipulated

interest continuously up to the date of payment, regardless whether the actual date of payment
is beyond the stipulated maturity date
HELD/RATIO: No. The Court ruled that Solas clearly agreed to pay interest only up to the date of
maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in the
event of non-payment, the debtor would continue to pay interest, the Court cannot in law,
indulge in any presumption as to such interest; otherwise, the Court would be imposing upon the
debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the (old)
Civil Code provides that "interest shall be due only when it has been expressly stipulated." There
is nothing in the mortgage deed to show that the terms stipulated go against the intention of the
parties. Neither has either of the parties shown that, by mutual mistake, the deed of mortgage
fails to express their agreement since the plaintiff, Jardenil, did not adduce evidence to establish
such mistake. Since the parties included an extension note of one year within whichto make
payment without mentioning that additional interests should be paid during thatextended
period, it can be deduced that parties intended that no interest should be paid during theperiod
of grace.The contract is clear and unmistakable and the terms employed therein have not
beenshown to belie or otherwise fail to express the true intention of the parties and that the
deed hasnot been assailed on the ground of mutual mistake which would require its reformation,
sameshould be given its full force and effect. Plaintiff is, therefore, entitled only to the stipulated
interest of 12 per cent on the loan ofP2,400 from November 8, 1932 to March 31, 1934. And it
being a fact that extra judicialdemands have been made on the expiration of the year of grace,
he shall be entitled to legalinterest upon the principal and the accrued interest from April 1,
1935, until full payment.

11. RADIOWEALTH FINANCE CORP VS. DEL ROSARIO

FACTS:
On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly
and severally executed, signed and delivered in favor of Radiowealth Finance Company (herein
petitioner), a Promissory Note for P138,948.
FOR VALUE RECEIVED, on or before the date listed below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum of ONE HUNDRED THIRTY EIGHT THOUSAND
NINE HUNDRED FORTY EIGHT Pesos (P138,948.00) without need of notice or demand, in
installments as follows:
P11,579.00 payable for 12 consecutive months starting on ________ 19__ until the amount
of P11,579.00 is fully paid. Each installment shall be due every ____ day of each month. A late
payment penalty charge of two and a half (2.5%) percent per month shall be added to each
unpaid installment from due date thereof until fully paid.
It is hereby agreed that if default be made in the payment of any of the installments or late
payment charges thereon as and when the same becomes due and payable as specified above,
the total principal sum then remaining unpaid, together with the agreed late payment charges
thereon, shall at once become due and payable without need of notice or demand.
Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they
failed to pay their obligations under their Promissory Note. On June 7, 1993, petitioner filed a
Complaint[7] for the collection of a sum of money before the Regional Trial Court of Manila, Branch
14.[8] During the trial, Jasmer Famatico, the credit and collection officer of petitioner, presented in
evidence the respondents check payments, the demand letter dated July 12, 1991, the
customers ledger card for the respondents, another demand letter and Metropolitan Bank
dishonor slips. Famatico admitted that he did not have personal knowledge of the transaction or
the execution of any of these pieces of documentary evidence, which had merely been endorsed
to him.
ISSUE: WON The date and obligation became due and demandable
HELD: yes. The act of leaving blank the due date of the first installment did not necessarily
mean that the debtors were allowed to pay as and when they could. If this was the intention of
the parties, they should have so indicated in the Promissory Note. However, it did not reflect any
such intention.

On the contrary, the Note expressly stipulated that the debt should be amortized monthly in
installments of P11,579 for twelve consecutive months. While the specific date on which each
installment would be due was left blank, the Note clearly provided that each installment should
be payable each month. Furthermore, it also provided for an acceleration clause and a late
payment penalty, both of which showed the intention of the parties that the installments should
be paid at a definite date. Had they intended that the debtors could pay as and when they could,
there would have been no need for these two clauses.

The obligation of the respondents had matured and they clearly defaulted when their checks
bounced. Per the acceleration clause, the whole debt became due one month (April 2, 1991)
after the date of the Note because the check representing their first installment bounced.

12. CASA FILIPINA VS. DEPUTY EXECUTIVE SECRETARY

FACTS: On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint against
petitioner Casa Filipina Development Corporation before the Office of Appeals, Adjudication and
Legal Affairs (OAALA) of the then Human Settlements Regulatory Commission (now Housing and
Land Use Regulatory Board) for its failure to execute and deliver the deed of sale and transfer
certificate of title. He alleged therein that on May 2, 1984, he entered into a contract to sell with
petitioner for the purchase of a 120 sq. m. lot denominated as Lot 8, Block 9, Phase II of Casa
Filipina, Sucat II, Bo. San Dionisio, Paraaque, Metro Manila, for a total purchase price of
P68,400.00 with P16,416.00 as down payment and the balance of P51,984.00 to be paid in 12
equal monthly installments of P4,915.16 with 24% interest per annum starting September 3,
1984.
That on October 7, 1985, he made his full and final payment under O.R. No. 6266; that despite
full payment of the lot, petitioner refused to execute the necessary deed of absolute sale and
deliver the corresponding transfer certificate of title to him; that since October 1985, he had
offered to pay for or reimburse petitioner the expenses for the transfer of the title but the latter
refuses to accept the same; and that he was constrained to hire a lawyer for a fee to protect his
interests.
On January 21, 1987, the OAALA rendered judgment in favor of private respondent, relying on
Section 25 of Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and
Condominiums, Providing Penalties for Violations thereof), which provides:

Sec. 25. Issuance of Title The owner or developer shall deliver the title of the lot or unit to the
buyer upon full payment of the lot or unit. No fee except those required for the registration of the
deed of sale in the Registry of deeds shall be collected for the issuance of such title. In the event
a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer,
the owner of or developer shall redeem the mortgage or the corresponding portion thereof within
six months from such issuance in order that the title over any fully paid lot or unit may be
secured and delivered to the buyer in accordance herewith

ISSUE: WON the doctrine laid down in the case of Reformina v. Tomol, Jr., G.R. No. 59096, 139
SCRA 260 applies, that is, except where the action involves forbearance of money or loan,
interest which courts may award is only up to 12% (should be 6%).
HELD: The ruling in Reformina v. Tomol, it must be underscored, deals exclusively with cases
where damages in the form of interest is due but no specific rate has been previously set by the
parties. In such cases, the legal interest of 12% per annum must be applied. In the present case,
however, the interest rate of 24% per annum was mutually agreed upon by petitioner and
private respondent in their contract to sell this was the interest rate imposed on private
respondent for the payment of the installments on the contract price and there is no reason why
this same interest rate should not be equally applied to petitioner which is guilty of violating the
reciprocal obligation.
In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), a subdivision owner, in violation of
their Offsetting Agreement, incurred delay in the delivery of a house and lot to the supplier of
the construction materials. On review, the issue of which rate of interest the 6% per
annum which was then the legal interest or the stipulated interest rate of 12% was raised.
This Honorable Court ruled:
On the matter of interest, we agree with the trial court and the Court of Appeals that the
proper rate of interest is twelve (12%) per centum per annum, which is the rate of interest
expressly agreed upon in writing by the parties, as appearing in the invoices (Exhibits
"C" and "D"), and sanctioned by Art. 2209 of the Civil Code, . . .(Emphasis supplied) It is,
thus, evident that if a particular rate of interest has been expressly stipulated by the parties, that
interest, not the legal rate of interest, shall be applied.
13. SECURITY BANK VS. RTC OF MAKATI

FACTS: On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No.
TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount of One
Hundred Thousand Pesos (P100,000.00) payable in six monthly installments with a stipulated
interest of 23% per annum up to the fifth installments. Finally, another Promissory Note No.
TL74/1491/83 was executed on August 31, 1983 in the amount of Sixty Five Thousand Pesos
(P65,000.00). Respondent agreed to pay this note in six (6) monthly installments plus interest at
the rate of 23% per annum. On all the above mentioned notes, private respondents Leila Ventura
had signed as co-maker. Upon the failure and refusal of respondent Eusebio to pay the
aforestated balance payable, a collectible case was filed in court by petitioner SBTC.

ISSUE: Whether or not the 23% rate of interest per annum agreed upon by petitioner bank and
respondents is allowable and not against the Usury Law.

HELD: From the examination of the records, it appears that indeed the agreed rate of interest as
stipulated on the three (3) promissory notes is 23% per annum. The applicable provision of law is
the Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections
1 and 2 which state:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan
or forbearance of any money, goods or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or judicial, shall not
be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.

Sec. 2. 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
continue to be twelve per cent (12%) per annum.

This court has ruled in the case of Philippine National Bank v. Court of Appeals that: P.D. No. 1684
and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any
subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money,
goods or credits. In fine, they can agree to adjust, upward or downward, the interest previously
stipulated.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB
Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor in
anyway amend the Usury Law but simply suspended the latters effectivity. The rate of interest
was agreed upon by the parties freely. Significantly, respondent did not question that rate. It is
not for respondent court a quo to change the stipulations in the contract where it is not
illegal. Furthermore, Article 1306 of the New Civil code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy. We
find no valid reason for the respondent court a quo to impose a 12% rate of interest on the
principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a
loan or forbearance of money, the interest due should be that stipulated in writing, and in the
absence thereof, the rate shall be 12% per annum .Hence, only in the absence of a stipulation can
the court impose the 12% rate of interest.

The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein
are binding between them. Respondent Eusebio, likewise, did not question any of the stipulations
therein. In fact, in the Comment file by respondent Eusebio to this court, he chose not to
question the decision and instead expressed his desire to negotiate with the petitioner bank for
terms within which to settle his obligation.
14. PHILIPPINE NATIONAL BANK VS. CA
FACTS: In July 1982, the private respondent applied for, and was granted by petitioner PNB, a
credit line of 321.8 million, secured by a real estate mortgage, for a term of two (2) years, with
18% interest per annum. Private respondent executed in favor of the PNB a Credit Agreement,
two (2) promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage
Contract.

On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million "will
expire on July 4, 1984," (2)" [i]f renewal of the line for another year is intended, please submit
soonest possible your request," and (3) the "present policy of the Bank requires at least 30%
reduction of principal before your line can be renewed." (pp. 86-87, Rollo.) Complying, private
respondent on June 25, 1984, paid PNB P540,000 00 (30% of P1.8 million) and requested that
"the balance of P1,260,000.00 be renewed for another period of two (2) years under the same
arrangement" and that "the increase of the interest rate of my mortgage loan be from 18% to
21%. Private respondent paid PNB P360,000.00.

On July 4, 1984, private respondent paid PNB P360,000.00. On July 18, 1984, private respondent
reiterated in writing his request that "the increase in the rate of interest from 18% be fixed at
21% of 24%. (p. 87, Rollo.)

On July 26, 1984, private respondent made an additional payment of P100,000. On August 10,
1984, PNB informed private respondent that "we can not give due course to your request for
preferential interest rate in view of the following reasons: Existing Loan Policies of the bank
requires 32% for loan of more than one year; our present cost of funds has substantially
increased."

On August 17, 1984, private respondent further paid PNB P150,000.00. In a letter dated August
24, 1984 to PNB, private respondent announced that he would "continue making further
payments, and instead of a loan of more than one year, I shall pay the said loan before the
lapse of one year or before July 4, 1985. . . . I reiterate my request that the increase of my rate of
interest from 18% be fixed at 21% or 24%." (p. 88, Rollo.)

On September 12, 1984, private respondent paid PNB P160,000.00. In letters dated September
12, 1984 and September 13, 1984, PNB informed private respondent that "the interest rate on
your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a. (35% prime rate + 6%)
effective September 6, 1984;" and further explained "why we can not grant your request for a
lower rate of 21% or 24%." In a letter dated September 24, 1984 to PNB, private respondent
registered his protest against the increase of interest rate from 18% to 32% on July 4, 1984 and
from 32% to 41% on September 6, 1984. Like rubbing salt on the private respondents wound,
the petitioner informed private respondent on October 29, 1984, that "the interest rate on your
outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6%
spread) effective 25 October 1984.

ISSUE: Whether the bank, within the term of the loan which it granted to the private respondent,
may unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased.

HELD: NO. In the first place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the
Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof
and to change such rate or rates whenever warranted by prevailing economic and social
conditions, it expressly provides that "such changes shall not be made oftener than once every
twelve months.

In this case, PNB, over the objection of the private respondent, and without authority from the
Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the
private respondents loan obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in
October 1984; and (c) to 48% in November 1984. Those increases were null and void, for if the
Monetary Board itself was not authorized to make such changes oftener than once a year, even
less so may a bank which is subordinate to the Board.

PNBS successive increases of the interest rate on the private respondents loan, over the latters
protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1)
Section 9.01 that its terms "may be amended only by an instrument in writing signed by the
party to be bound as burdened by such amendment." The increases imposed by PNB also
contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has
been expressly stipulated in writing

The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond
24% per annum, hence, he is not bound to pay a higher rate than that.

15. ROYALSHIRT VS CO BON TIC

FACTS: The present appeal involves an action originally brought in the Municipal Court of Manila
by the plaintiff, the ROYAL SHIRT COURT, INC., to recover from defendant CO BON TIC the sum of
P1,422 said to represent the balance of the purchase price of 350 pairs of "Balleteenas" shoes at
P7 a pair, with interest at 12 per cent per annum from August 27, 1948, and 25 per cent of said
sum as attorney's fees, and costs.

Judgment was rendered in favor of the plaintiff and against the defendant and the latter was
ordered to pay to the former the sum of P1,422, the unpaid balance of the sales price of 350
pairs of shoes in question, with interest on the amount due at the rate of 12 per cent per annum
from August 27, 1948 until final payment plus the amount of 25 per cent of the same sum for
attorney's fees as stipulated, and costs. After failing to get a reconsideration of the judgment, the
defendant appealed the case to the Court of Appeals which Tribunal after the submission of the
briefs for both parties, and acting upon a motion filed by counsel for the appellant that the case
be certified to the Supreme Court for the reason that the question raised in his first and second
assignment of errors involved the jurisdiction of the trial court, granted the same and certified
the appeal to us for final determination pursuant to Section 17, par. 2 (3) of Republic Act. 296.

ISSUE: Whether it was an outright sale as contended by the plaintiff, or a sale merely on
consignment as claimed by the defendant who wanted to return the shoes not yet sold by him.

HELD: It was evidently not only accepted by the defendant but on it he noted down in his own
handwriting the different partial payments of P500, P528 and lastly of the controversial P420 by
check. It will also be noticed that the defendant in making said notations of payment considered
the full purchase price of the 350 pairs of shoes at P7.00 or P2,450, and it was against said total
that he had been making the payments, putting down the balance after each payment. For
instance, after paying P500 on account, he put P1,950 as balance, and after paying another
P528, he put down as balance P1,422. In other words, he obviously accepted the straight sale to
him on credit of the whole 350 pairs of shoes for P2,450 and made partial payments on account
thereof. In making said partial payments, he made no mention whatsoever of the number of
shoes sold by him and the number of shoes remaining unsold, which he should have done had
the sale been on the consignment basis. On the other hand, he merely mentioned the balance of
the purchase price after deducting the several partial payments made by him. Furthermore, if the
sale had been on consignment, a stipulation as to the period of time for the return of the unsold
shoes should have been made; but evidently that had not been done and defendant kept the
shoes unsold more or less indefinitely, but giving the same excuse that he could not return them
to the plaintiff because he did not know where to return them. The plaintiff Royal Shirt Factory,
Inc., is quite well-known. Is has a store at the Escolta and according to the invoice (Exhibit B), it
is an importer, wholesaler and manufacturer, and it could not have been hard, much less
impossible for the defendant to return the shoes unsold by him had the transaction really been a
sale on consignment. So, on this issue of the nature of the transaction between the parties, we
agree with the trial court that it was a straight sale at the rate of P7 per pair of shoes.

16. SONCUYA VS. AZARRAGA

FACTS: The plaintiff has four causes of action. Under the first cause he seeks to recover from the
defendants the sum of P118,635.68 as damages, which he alleges to have been caused by the
defendants in fraudulently depriving him of the possession of four parcels of land with a total
area of 296 hectares, 58 ares and 92 centares, which they, with knowledge that said real
properties belonged to him exclusively, registered in their names in the registry of property and
mortgaged in favor of "Hijos de I. de la Rama" to pay a certain obligation which they had
contracted with the Panay Municipal Cadastre. Under the second cause, plaintiff seeks to recover
P6,080 as the supposed value of the heads of cattle belonging to him, which the tenants of the
defendants had slaughtered. Under the third cause, he seeks payment of the sum of P5,575 as
the supposed value of 1,115 coconut trees which he had planted on the four parcels of land in
question. Under the fourth and last cause of action, plaintiff prays that the defendants surnamed
Azarraga, with the exception of Joaquin Azarraga, be ordered to make up to 123 hectares, 13
ares and 99 centares the land which the latter had sold to him, because plaintiff did not take
possession of the land, except a portion thereof, having an area of 72 hectares, 83 ares and 5
centares. In other words, the defendants should deliver to the plaintiff an additional 50 hectares ,
30 ares and 94 centares inasmuch as the participation of said Joaquin Azarraga in the estate left
to him and his brothers, his co-defendants herein, by their common grandfather, Juan Azarraga y
Galvez, which Joaquin Azarraga sold to plaintiff, had that area according to the deed of partition,
executed by all of them, and the plan of said estate which was subsequently drawn up.

ISSUE: WON the contract entered into by-the Azarraga brothers, the defendants herein, with
Attorney Leodegario Azarraga from whom the plaintiff derived his right, a sale with pacto de
retro, or an assignment in payment of a debt, or was it an antichresis partaking of the nature of
what was anciently known as pacto comisorio, or a mortgage, or was it merely a loan with real
estate security?

HELD: The first question offers no difficulty if account is taken of the established facts and the
conduct of the interested parties after the expiration of the term of five years fixed in Exhibit A.
When the plaintiff extended the period to February 16, 1926 within which the defendants
Azarraga could pay him his credit, but imposed on them the condition that they pay him 12 per
cent annual interest from August 30, 1924 on the principal of P3,000 (Exh. 5) and gave them
another extension up to April 26, 1926, under the same conditions as regard interest (Exh. M),
what perhaps could have been considered as a antichresis or pacto comisorio not an
assignment in payment of a debt, or a sale with pacto de retro because there is nothing in
Exhibit A to indicate that such was the intention of the defendants Azarraga or, at least, that they
bound themselves to deliver the land in question to the plaintiff and that the latter should pay
them the value thereof; and because there was what may be considered the resolutory condition
of five years was converted into a simple loan by the decisive circumstance that plaintiff chose
to collect thereafter, and the obligors agreed to pay him, 12 per cent annual interest. It is only in
contracts of loan, with or without guaranty, that interest may be demanded (articles 1108, 1740,
1755, 1868, 1876, and 1881 of the Civil Code. As a matter of fact, the contract embodied in
Exhibit A was novated by Exhibits 5 and M, and the plaintiff wanted to have it novated for the
third time by means of Exhibit 2. It does not appear of record, however, that the defendants
Azarraga ever assented to the latter novation. Perhaps, their refusal to agree to the same was
due to the fact that the plaintiff wanted to raise their old obligation (P3,000 or P2,700 of all the
Azarraga brothers, plus P4,000 which Joaquin Azarraga alone owed, which two accounts both the
plaintiff and the defendants considered as amounting to P7,000, exclusive of the annual interest
of 12 per cent) to the round sum of P12,000. From all this it may easily be inferred that the
obligation which the defendants had imposed upon themselves by Exhibit A had ceased to exist
and became a simple loan with security, if so desired, of the lands in question, but without
prejudice to third parties as neither Exhibit A nor the deed of assignment Exhibit C, executed by
Leodegario Azarraga in favor of the plaintiff, was inscribed in the registry of deeds.

17. RELUCIO VS. BRILLANTE

FACTS: On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a complaint in the
lower court for specific performance with damages against petitioner Irene P. Relucio, to compel
the latter to: (a) execute, in compliance with the Contract to Buy and Sell in question, a final
deed of sale in favor of the former over two (2) residential subdivision lots in the Mariano Village
Subdivision, Naga City; and (b) construct paved roads on the northern and southern sides of the
lots, as "necessary facilities, improvements, infrastructures and other forms of development of
the subdivision area." Private respondent alleged that the lots, which have a total contract price
of P10,800.00, have already been paid for, as she had already paid P200.00 as down payment,
and had subsequently completed payment of 128 equal monthly installments of P89.45 each
amounting to P11,450.00; that as the law allows the charging of interest only as monetary
interest or as compensatory interest, none of which have obtained in her case, as she had never
incurred in delay in the payment of installments due, the stipulated interest of six percent (6%)
per annum on the outstanding balance is null and void; and that the amount of 650.00
representing overpayment be returned to her.
Petitioner resisted the complaint, maintaining that private respondent, contrary to the latter's
allegations, is obliged to pay interest on the installment payments of the unpaid outstanding
balance even if paid on their "due dates" per schedule of payments; that private respondent had
actually been in arrears in the amount of P4,269.40, representing such interest as of June 1979,
which therefore entitled petitioner to cancel the contract in question. Petitioner then prayed for
judicial affirmance of her Notarial Notice of Cancellation over the said contract in question.

ISSUE: Whether or not private respondent has fully paid the stipulated price in the contract so
as to be entitled lawfully to demand the execution of a deed of absolute sale in her favor. This
issue in turn will depend on the question of whether or not petitioner may validly charge interest
on installment payments, notwithstanding that private respondent had been prompt in her
monthly payments;

HELD: Examination of the record shows that the questioned Contract to Buy and Sell the
subdivision lots provided for payment by private respondent of the sum of P200.00 as down
payment, and that "the balance [of P10,600.00] shall be paid in 180 monthly installments at
P89.45 per month, including interest rate at six percent (6%) per annum, until the purchase price
is fully paid." This stipulation clearly specified that an interest charge of six percent (6%) per
annum was included in the monthly installment price: private respondent could not have helped
noticing that P89.45 multiplied by 180 monthly installments equals P16,101.00, and not
P10,600.00.

Vendor and vendee are legally free to stipulate for the payment of either the cash price of a
subdivision lot or its installment price. Should the vendee opt to purchase a subdivision lot via
the installment payment system, he is in effect paying interest on the cash price, whether the
fact and rate of such interest payment is disclosed in the contract or not. Applying the foregoing
analysis to the case at bar: when private respondent started paying monthly installments in
September 1968, the initial P89.45 was apportioned between the principal and the interest, with
P53.00 being allocated to service the interest charge and P36.45 being credited to the principal.
During the succeeding monthly payments, however, as the outstanding balance on the principal
gradually declined, the interest component (in absolute terms) correspondingly fell while the
component credited to the principal increased proportionately, thus amortizing the balance of
the principal purchase prize as that balance gradually declined. This explains petitioner's theory
of declining balance, which unfortunately was not appreciated by both the trial and appellate
courts.

18. STATE INVESTMENT VS. COURT OF APPEALS

FACTS: On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares
of stock to petitioner State Investment House, Inc. ("State") in order to secure a loan of
P120,000.00 designated as Account No. IF-82-0631-AA. Prior to the execution of the pledge,
respondent-spouses, as an accommodation to and together with the spouses Jose and Marcelina
Aquino, signed an agreement (Account No. IF-82-1379-AA) with petitioner State for the latter's
purchase of receivables amounting to P375,000.00. When Account No. IF-82-0631-AA fell due,
respondent spouses paid the same partly with their own funds and partly from the proceeds of
another loan which they obtained also from petitioner State designated as Account No. IF-82-
0904-AA. This new loan was secured by the same pledge agreement executed in relation to
Account No. IF-820631-AA. When the new loan matured, State demanded payment. Respondents
expressed willingness to pay, requesting that upon payment, the shares of stock pledged be
released. Petitioner State denied the request on the ground that the loan which it had extended
to the spouses Jose and Marcelina Aquino (Account No. IF-82-1379- AA) had remained unpaid.
ISSUE: WON the respondents liable for payment of interest even without mora? If they are liable,
on what rate should the interests be?

HELD: YES. We believe and so hold that since respondent Aquino spouses were held not to have
been in delay, they were properly liable only for: (a) the principal of the loan or P110,000.00; and
(b) regular or monetary interest in the amount of seventeen percent (17%) per annum. They
were not liable for penalty or compensatory interest, fixed by the promissory note in Account No.
IF-82-0904-AA at two percent (2%) per month or twenty-four (24%) per annum. It must be
stressed in this connection that under Article 2209 of the Civil Code which provides that . . . [i]f
the obligation consists in the payment of a sum of money, and the debtor incurs in delay. the
indemnity for damages, there being no stimulation to the contrary. shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum.

The appropriate measure for damages in case of delay in discharging an obligation consisting of
the payment of a sum or money, is the payment of penalty interest at the rate agreed upon; and
in the absence of a stipulation of a particular rate of penalty interest, then the payment of
additional interest at a rate equal to the regular monetary interest; and if no regular interest had
been agreed upon, then payment of legal interest or six percent (6%) per annum. The fact that
the respondent Aquino spouses were not in default did not mean that they, as a matter of law,
were relieved from the payment not only of penalty or compensatory interest at the rate of
twenty-four percent (24%) per annum but also of regular or monetary interest of seventeen
percent (17%) per annum. The regular or monetary interest continued to accrue under the terms
of the relevant promissory note until actual payment is effected. The payment of regular interest
constitutes the price or cost of the use of money and thus, until the principal sum due is returned
to the creditor, regular interest continues to accrue since the debtor continues to use such
principal amount.

The relevant rule is set out in Article 1256 of the Civil Code which provides as follows: Art. 1256.
If the creditor to whom tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases: (1) When the creditor is
absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to
receive the payment at the time it is due; (3) When, without just cause, he refuses to give a
receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the
obligation has been lost. For the respondent spouses to continue in possession of the principal of
the loan amounting to P110,000.00 and to continue to use the same after maturity of the loan
without payment of regular or monetary interest, would constitute unjust enrichment on the part
of the respondent spouses at the expense of petitioner State even though the spouses had not
been guilty of mora. It is precisely this unjust enrichment which Article 1256 of the Civil Code
prevents by requiring, in addition to tender of payment, the consignation of the amount due in
court which amount would thereafter be deposited by the Clerk of Court in a bank and earn
interest to which the creditor would be entitled

19. EASTERN SHIPPING LINES VS. CA

FACTS: This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages. On December 4,
1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8
(Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to
be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied
Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum
opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14,
1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum which contained spillages, while the
rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff
contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence
of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants.

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged
in good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the
cargo to consignee in the same condition shipment was received by it.

(ADDITIONAL FACTS: NOT MAIN ISSUES)

1. Whether or not the shipment sustained losses/damages; 2. Whether or not these

losses/damages were sustained while in the custody of defendants (in whose respective
custody, if determinable); 3. Whether or not defendant(s) should be held liable for the
losses/damages.

As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate
any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted
to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were

sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter notes, it is stated
that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No.
86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but contents intact. Net
unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee,
one drum was found with adulterated/faked contents. It is obvious, therefore, that
 these losses/damages occurred before the shipment reached the consignee while
under the successive custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe extraordinary diligence in the vigilance
of goods remains in full force and effect even if the goods are temporarily unloaded
and stored in transit in the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable opportunity to remove or
dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit,
the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".

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

(b) whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed from is
rendered; and

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

HELD: (a) The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled to receive them. When the goods shipped either
are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it liable. In
Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding
the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to
that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5
[1967]. The relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good
care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE
and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-
versa, nor that attendant facts in a given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able
to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.

(b) & (c) FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

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

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

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

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

2. 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.

With regards to the applicable legal rate interest, SIX PERCENT (6%) on the amount due
computed from the decision, dated 03 February 1988, of the court a quo (Court of Appeals) AND
A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such
amount upon finality of the Supreme Court decision until the payment thereof. Since when the
judgment awarding a sum of money becomes final and executory, the monetary award shall earn
interest at 12% per annum from the date of such finality until its satisfaction, regardless of
whether the case involves a loan or forbearance of money. The reason is that this interim period
is deemed to be by then equivalent to a forbearance of credit.

NOTES: the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs
when the transaction involves the payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been applied,
i.e., from the time the complaint is filed until the adjudged amount is fully paid.

20. S.C. MEGAWORLD CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, v.

ENGR. LUIS U. PARADA, REPRESENTED BY ENGR. LEONARDO A. PARADA OF GENLITE
INDUSTRIES

FACTS: S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical
lighting materials from Genlite Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna. The petitioner was unable to pay for
the above purchase on due date, but blamed it on its failure to collect under its sub-contract with
the Enviro Kleen Technologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen
to agree to settle its above purchase, but after paying the respondent P250,000.00 on June 2,
1999,4 Enviro Kleen stopped making further payments, leaving an outstanding balance of
P816,627.00. It also ignored the various demands of the respondent, who then filed a suit in the
RTC, docketed as Civil Case No. Q-01-45212, to collect from the petitioner the said balance, plus
damages, costs and expenses. The petitioner in its answer denied liability, claiming that it was
released from its indebtedness to the respondent by reason of the novation of their contract,
which, it reasoned, took place when the latter accepted the partial payment of Enviro Kleen in its
behalf, and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in the
petitioners place.
After trial, the RTC rendered judgment 6 on May 28, 2004 in favor of the respondent. On appeal to
the CA, the petitioner maintained that the trial court erred in ruling that no novation of the
contract took place through the substitution of Enviro Kleen as the new debtor. But for the first
time, it further argued that the trial court should have dismissed the complaint for failure of the
respondent to implead Genlite Industries as a proper party in interest, as provided in Section 2
of Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:

SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.

The petitioner also contended that a binding novation of the purchase contract between
the parties took place when the respondent accepted the partial payment of Enviro Kleen of
P250,000.00 in its behalf, and thus acquiesced to the substitution by Enviro Kleen of the
petitioner as the new debtor. But the CA noted that there is nothing in the two (2) letters of the
respondent to Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply that he
consented to the alleged novation, and, particularly, that he intended to release the petitioner
from its primary obligation to pay him for its purchase of lighting materials.

ISSUE: (1) Whether or not the complaint should have been dismissed outright by the trial court
for an invalid non-forum shopping certification; and
(2) Whether or not the appellate court erred in not declaring that there was a novation of
the contract between the parties through substitution of the debtor, which resulted in the release
of the petitioner from its obligation to pay the respondent the amount of its purchase.

HELD: (1) The verification and certification of non-forum shopping in the complaint is not a
jurisdictional but a formal requirement, and any objection as to non-compliance therewith should
be raised in the proceedings below and not for the first time on appeal.

It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of
the lower court, administrative agency or quasi-judicial body, need not be considered by a
reviewing court, as they cannot be raised for the first time at that late stage. Basic
considerations of fairness and due process impel this rule. Any issue raised for the first time on
appeal is barred by estoppel.
The petitioner failed to reckon that any objection as to compliance with the requirement of
verification in the complaint should have been raised in the proceedings below, and not in the
appellate court for the first time.20 In KILUSAN-OLALIA v. CA,21 it was held that verification is a
formal, not a jurisdictional
We have emphasized, time and again, that verification is a formal, not a
jurisdictional requisite, as it is mainly intended to secure an assurance that the allegations
therein made are done in good faith or are true and correct and not mere speculation. The
Court may order the correction of the pleading, if not verified, or act on the unverified
pleading if the attending circumstances are such that a strict compliance with the rule
may be dispensed with in order that the ends of justice may be served. Further, in
 rendering justice, courts have always been, as they ought to be, conscientiously guided by
the norm that on the balance, technicalities take a backseat vis--vis substantive rights,
and not the other way around.
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be
raised in the CA and in the Supreme Court, since such an issue must be raised at the earliest
opportunity in a motion to dismiss or a similar pleading. The high court even warned that
[i]nvoking it in the later stages of the proceedings or on appeal may result in the dismissal of
the action x x x.

Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the
complaint below, Section 4 of Rule 7 provides that the verification need not be based on the
verifiers personal knowledge but even only on authentic records. Sales invoices, statements of
accounts, receipts and collection letters for the balance of the amount still due to the respondent
from the petitioner are such records. There is clearly substantial compliance by the respondents
attorney-in-fact with the requirement of verification. Lastly, it is well-settled that a strict
compliance with the rules may be dispensed with in order that the ends of substantial justice
may be served.25 It is clear that the present controversy must be resolved on its merits, lest for a
technical oversight the respondent should be deprived of what is justly due him.
(2) Novation is never presumed but must be clearly and unequivocally shown.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations,

by substituting a new debtor in place of the old one, or by subrogating a third person to the
rights of the creditor. 27 It is the substitution of a new contract, debt, or obligation for an existing
one between the same or different parties. 28 Article 1293 of the Civil Code defines novation as
follows: Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him rights mentioned in
Articles 1236 and 1237. Thus, in order to change the person of the debtor, the former debtor
must be expressly released from the obligation, and the third person or new debtor must assume
the formers place in the contractual relation. 29 Article 1293 speaks of substitution of the debtor,
which may either be in the form of expromision or delegacion, as seems to be the case here. In
both cases, the old debtor must be released from the obligation, otherwise, there is no valid
novation. As explained in Garcia30:chanrobleIn general, there are two modes of substituting the
person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the
change does not come fromand may even be made without the knowledge ofthe debtor,
since it consists of a third persons assumption of the obligation. As such, it logically requires the
consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary. Both modes of substitution by the debtor require
the consent of the creditor.

From the circumstances obtaining below, we can infer no clear and unequivocal consent by the
respondent to the release of the petitioner from the obligation to pay the cost of the lighting
materials. In fact, from the letters of the respondent to Enviro Kleen, it can be said that he
retained his option to go after the petitioner if Enviro Kleen failed to settle the petitioners debt.
As the trial court held: The fact that Enviro Kleen Technologies, Inc. made payments to the
[respondent] and the latter accepted it does not ipso facto result in novation. Novation to be
given its legal effect requires that the creditor should consent to the substitution of a new debtor
and the old debtor be released from its obligation (Art. 1293, New Civil Code). A reading of the
letters dated 14 April 1999 (Exh. 1) and dated 16 June 1999 (Exh[s]. 4 & 4-a) sent by the
[respondent] to Enviro Kleen Technologies, Inc. clearly shows that there was nothing therein that
would evince that the [respondent] has consented to the exchange of the person of the debtor
from the [petitioner] to Enviro Kleen Technologies, Inc.
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the [respondent] expressly
stated that it has served notice to the [petitioner] that unless the overdue account is paid, the
matter will be referred to its lawyers and there may be a pull-out of the delivered lighting
fixtures. It was likewise stated therein that incident damages that may result to the structure in
the course of the pull-out will be to the account of the [petitioner]. It is evident from the two (2)
aforesaid letters that there is no indication of the [respondents] intention to release the
[petitioner] from its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc. The
acquiescence of Enviro Kleen Technologies, Inc. to assume the obligation of the [petitioner] to
pay the unpaid balance of [P]816,627.00 to the [respondent] when there is clearly no agreement
to release the [petitioner] will result merely to the addition of debtors and not novation. Hence,
the creditor can still enforce the obligation against the original debtor x x x. A fact which points
strongly to the conclusion that the [respondent] did not assent to the substitution of Enviro Kleen
Technologies, Inc. as the new debtor is the present action instituted by [the respondent] against
the [petitioner] for the fulfilment of its obligation. A mere recital that the [respondent] has
agreed or consented to the substitution of the debtor is not sufficient to establish the fact that
there was a novation. x x x.
The settled rule is that novation is never presumed, 33 but must be clearly and unequivocally
shown.34 In order for a new agreement to supersede the old one, the parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one. 35 Thus, the
mere substitution of debtors will not result in novation, 36 and the fact that the creditor accepts
payments from a third person, who has assumed the obligation, will result merely in the addition
of debtors and not novation, and the creditor may enforce the obligation against both debtors. 37
If there is no agreement as to solidarity, the first and new debtors are considered obligated
jointly. The trial court found that the respondent never agreed to release the petitioner from its
obligation, and this conclusion was upheld by the CA. We generally accord utmost respect and
great weight to factual findings of the trial court and the CA, unless there appears in the record
some fact or circumstance of weight and influence which has been overlooked, or the
significance of which has been misinterpreted, that if considered would have affected the result
of the case.41 We find no such oversight in the appreciation of the facts below, nor such a
misinterpretation thereof, as would otherwise provide a clear and unequivocal showing that a
novation has occurred in the contract between the parties resulting in the release of the
petitioner.

Pursuant to Article 2209 of the Civil Code, except as provided under Central Bank
Circular No. 905, and now under Bangko Sentral ng Pilipinas Circular No. 799, which
took effect on July 1, 2013, the respondent may be awarded interest of six percent
(6%) of the judgment amount by way of actual and compensatory damages.

It appears from the recital of facts in the trial courts decision that the respondent demanded
interest of two percent (2%) per month upon the balance of the purchase price of P816,627.00,
from judicial demand until full payment. There is then an obvious clerical error committed in the
fallo of the trial courts decision, for it incorrectly ordered the defendant therein to pay the sum
equivalent to twenty percent (20%) per month of the principal obligation due from date of
judicial demand until fully paid as and for interest.
Article 2209 of the Civil Code provides that [i]f 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. Pursuant to the said provision,
then, since there is no finding of a stipulation by the parties as to the imposition of interest, only
the amount of 12% per annum47 may be awarded by the court by way of damages in its
discretion, not two percent (2%) per month. Pursuant, then, to Central Bank Circular No. 416,
issued on July 29, 1974,53 in the absence of a written stipulation, the interest rate to be imposed
in judgments involving a forbearance of credit shall be 12% per annum, up from 6% under Article
2209 of the Civil Code. This was reiterated in Central Bank Circular No. 905, which suspended the
effectivity of the Usury Law from January 1, 1983. 54 But if the judgment refers to payment of
interest as damages arising from a breach or delay in general, the applicable interest rate is 6%
per annum, following Article 2209 of the Civil Code. 55 Both interest rates apply from judicial or
extrajudicial demand until finality of the judgment. But from the finality of the judgment
awarding a sum of money until it is satisfied, the award shall be considered a forbearance of
credit, regardless of whether the award in fact pertained to one, and therefore during this period,
the interest rate of 12% per annum for forbearance of money shall apply. But notice must be
taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko Sentral
ng Pilipinas approved the revision of the interest rate to be imposed 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. Thus, under BSP Circular No. 799, issued on June 21, 2013
and effective on July 1, 2013, the said rate of interest is now back at six percent (6%).
S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting
materials from Genlite Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna. The petitioner was unable to pay for
the above purchase on due date, but blamed it on its failure to collect under its sub-contract with
the Enviro Kleen Technologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen
to agree to settle its above purchase, but after paying the respondent P250,000.00 on June 2,
1999,4 Enviro Kleen stopped making further payments, leaving an outstanding balance of
P816,627.00. It also ignored the various demands of the respondent, who then filed a suit in the
RTC, docketed as Civil Case No. Q-01-45212, to collect from the petitioner the said balance, plus
damages, costs and expenses. The petitioner in its answer denied liability, claiming that it was
released from its indebtedness to the respondent by reason of the novation of their contract,
which, it reasoned, took place when the latter accepted the partial payment of Enviro Kleen in its
behalf, and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in the
petitioners place.
After trial, the RTC rendered judgment 6 on May 28, 2004 in favor of the respondent. On appeal to
the CA, the petitioner maintained that the trial court erred in ruling that no novation of the
contract took place through the substitution of Enviro Kleen as the new debtor. But for the first
time, it further argued that the trial court should have dismissed the complaint for failure of the
respondent to implead Genlite Industries as a proper party in interest, as provided in Section 2
of Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of
the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
The petitioner also contended that a binding novation of the purchase contract between
the parties took place when the respondent accepted the partial payment of Enviro Kleen of
P250,000.00 in its behalf, and thus acquiesced to the substitution by Enviro Kleen of the
petitioner as the new debtor. But the CA noted that there is nothing in the two (2) letters of the
respondent to Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply that he
consented to the alleged novation, and, particularly, that he intended to release the petitioner
from its primary obligation to pay him for its purchase of lighting materials.

21. ADVOCATES FOR TRUTH IN LENDING, INC. v. BANGKO SENTRAL MONETARY BOARD
FACTS: Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non- profit, non-stock
corporation organized to engage in pro bono concerns and activities relating to money lending
issues. It was incorporated on July 9, 2010, 2rl1 and a month later, it filed this petition, joined
by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen. R.A. No. 265,
which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-MB
to, among others, set the maximum interest rates which banks may charge for all types of loans
and other credit operations, within limits prescribed by the Usury Law. Section 109 of R.A. No.
265 reads: Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix
the maximum rates of interest which banks may pay on deposits and on other obligations.

The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of
interest which banks may charge for different types of loans and for any other credit operations,
or may fix the maximum differences which may exist between the interest or rediscount rates of
the Central Bank and the rates which the banks may charge their customers if the respective
credit documents are not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending
operations of the banks shall apply only to future operations and not to those made prior to the
date on which the modification becomes effective.

In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the
Board may also fix the maximum rates that banks may pay to or collect from their customers in
the form of commissions, discounts, charges, fees or payments of any sort.

On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving
the CB-MB authority to prescribe different maximum rates of interest which may be imposed for
a loan or renewal thereof or the forbearance of any money, goods or credits, provided that the
changes are effected gradually and announced in advance. Thus, Section 1-a of Act No. 2655
now reads: Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or
rates of interest for the loan or renewal thereof or the forbearance of any money, goods or
credits, and to change such rate or rates whenever warranted by prevailing economic and social
conditions: Provided, That changes in such rate or rates may be effected gradually on scheduled
dates announced in advance. In the exercise of the authority herein granted the Monetary Board
may prescribe higher maximum rates for loans of low priority, such as consumer loans or
renewals thereof as well as such loans made by pawnshops, finance companies and other similar
credit institutions although the rates prescribed for these institutions need not necessarily be
uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. In its Resolution No. 2224 dated December 3, 1982, 3rl1 the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its
General Provisions, removed the ceilings on interest rates on loans or forbearance of any money,
goods or credits, to wit: Sec. 1. The rate of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity
and whether secured or unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended.

The Circular then went on to amend Books I to IV of the CB's "Manual of Regulations for Banks
and Other Financial Intermediaries" (Manual of Regulations) by removing the applicable ceilings
on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the ceilings for
interest and other charges, commissions, premiums, and fees applicable to commercial banks;
Sections 12 and 17 removed the interest ceilings for thrift banks (Book II, Subsections 2303,
2349); Sections 19 and 21 removed the ceilings applicable to rural banks (Book III, Subsection
3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P). 4rl1

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko
Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section 135, reads:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of this Act,
Republic Act No. 265, as amended, the provisions of any other law, special charters, rule or
regulation issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which
may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.

On the petition for certiorari filed by the petitioners, they Petitioners contend that under Section
1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB was authorized only to prescribe or
set the maximum rates of interest for a loan or renewal thereof or for the forbearance of any
money, goods or credits, and to change such rates whenever warranted by prevailing economic
and social conditions, the changes to be effected gradually and on scheduled dates; that nothing
in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest on all credit
transactions, when it issued CB Circular No. 905. They further insist that under Section 109 of
R.A. No. 265, the authority of the CB-MB was clearly only to fix the banks' maximum rates of
interest, but always within the limits prescribed by the Usury Law. Thus, according to petitioners,
CB Circular No. 905, which was promulgated without the benefit of any prior public hearing, is
void because it violated Article 5 of the New Civil Code, which provides that "Acts executed
against the provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity. They further claim that just weeks after the issuance of CB Circular No.
905, the benchmark 91-day Treasury bills (T-bills), 13rl1 then known as "Jobo" bills 14rl1 shot
up to 40% per annum, as a result. The banks immediately followed suit and re-priced their loans
to rates which were even higher than those of the "Jobo" bills. Petitioners thus assert that CB
Circular No. 905 is also unconstitutional in light of Section 1 of the Bill of Rights, which
commands that "no person shall be deprived of life, liberty or property without due process of
law, nor shall any person be denied the equal protection of the laws.

Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section 109
of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of R.A. No. 7653, the
BSP-MB has been stripped of the power either to prescribe the maximum rates of interest which
banks may charge for different kinds of loans and credit transactions, or to suspend Act No. 2655
and continue enforcing CB Circular No. 905.

ISSUE:

a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in the
Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which
removed all interest ceilings and thus suspended Act No. 2655 as regards usurious interest
rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905.

HELD: The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA,36rl1 citing several cases, CB Circular No. 905 "did not repeal nor in anyway
amend the Usury Law but simply suspended the latter's effectivity; that "a [CB] Circular cannot
repeal a law, [for] only a law can repeal another law; that "by virtue of CB Circular No. 905, the
Usury Law has been rendered ineffective; and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon. rl1

In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41rl1 cited in DBP v.
Perez,42rl1 we also belied the contention that the CB was engaged in self-legislation.
Thus:chanroblesvirtualawlibrary

Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latter's effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law.

In PNB v. Court of Appeals,44rl1 an escalation clause in a loan agreement authorized the PNB
to unilaterally increase the rate of interest to 25% per annum, plus a penalty of 6% per annum
on past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984. The Supreme
Court invalidated the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise: P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust,
upward or downward, the interest previously stipulated.

Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the
parties' freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the
New Civil Code, under which the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.cralawlibrary

The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended. It does not purport to suspend the Usury Law only as it
applies to banks, but to all lenders.cralawlibrary

Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new
BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No. 7653,
which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265. A closer perusal shows that Section
109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the
Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any money, goods or credits, including those for
loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.cralawlibrary

Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653,
merely supplemented it as it concerns loans by banks and other financial institutions. Had R.A.
No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms. Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full knowledge of all laws existing
pertaining to the subject.46rl1 An implied repeal is predicated upon the condition that a
substantial conflict or repugnancy is found between the new and prior laws. Thus, in the absence
of an express repeal, a subsequent law cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws. 47rl1
We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.cralawlibrary

F. The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest.

It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.48rl1 As held in Castro v. Tan: The imposition of an unconscionable rate of interest
on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may justify such imposition as righteous
and as one that may be sustained within the sphere of public or private morals.

Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down
for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code,
these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor
may the right to set up their illegality as a defense be waived. Nonetheless, the nullity of the
stipulation of usurious interest does not affect the lender's right to recover the principal of a loan,
nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right to foreclose
the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor
to pay the debt due. The debt due is considered as without the stipulated excessive interest, and
a legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed.

22. FIRST UNITED CORPS VS. BAYANIHAN

FACTS: Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star
Construction Corporation (Blue Star) were associate construction firms sharing financial
resources, equipment and technical personnel on a case-to-case basis. From May 27, 1992 to July
8, 1992, they ordered six units of dump trucks from the respondent, a domestic corporation
engaged in the business of importing and reconditioning used Japan-made trucks, and of selling
the trucks to interested buyers who were mostly engaged in the construction business. On
September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover that the
respondent delivered on the same date. On September 29, 1992, FUCC again ordered from the
respondent one unit of Isuzu Transit Mixer that was also delivered to the petitioners. For the two
purchases, FUCC partially paid in cash, and the balance through post-dated checks. Upon
presentment of the checks for payment, the respondent learned that FUCC had ordered the
payment stopped. The respondent immediately demanded the full settlement of their obligation
from the petitioners, but petitioners refused. Instead, the petitioners informed the respondent
that they were withholding payment of the checks due to the breakdown of one of the dump
trucks they had earlier purchased from respondent, specifically the second dump truck delivered
on May 27, 1992.
Due to the refusal to pay, the respondent commenced this action for collection on April 29, 1993,
seeking payment of the unpaid balance in the amount of P735,000.00 represented by the two
checks.
In their answer, the petitioners averred that they had stopped the payment on the two checks
because of the respondent's refusal to repair the second dump truck, and that the respondent
should also reimburse them the sum of P247,950.00 as their expenses for the repair of the dump
truck, with 12% per annum interest from December 16, 1992, the date of demand, until fully
paid.
RTC rendered its judgment, ordering defendants, jointly and severally to pay plaintiff the sum of
P360,000.00 and P375,000.00 with interest at the legal rate of 12% per annum computed from
February 11, 1993, which is the date of the first extrajudicial demand, until fully paid. Also, they
ordered the plaintiff to pay defendants the sum of P71,350.00 with interest at the legal rate of
12% per annum computed from the date of this decision until fully paid;
ISSUE: Whether or not the costs of the repairs and spare parts for the second dump truck
delivered to FUCC on May 27, 1992 could be offset for the petitioners' obligations to the
respondent
HELD: Legal compensation was permissible. Legal compensation takes place when the
requirements set forth in Article 1278 and Article 1279 of the Civil Code are present, to wit:
 Article 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other."
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
Article 1290 of the Civil Code provides that when all the requisites mentioned in Article 1279 of
the Civil Code are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount. With petitioners' expenses for the repair of the dump truck
being already established and determined with certainty by the lower courts, it follows that legal
compensation could take place because all the requirements were present. Hence, the amount of
P71,350.00 should be set off against petitioners' unpaid obligation of P735,000.00, leaving a
balance of P663,650.00, the amount petitioners still owed to respondent.
We deem it necessary to modify the interest rate imposed by the trial and appellate courts. The
legal interest rate to be imposed from February 11, 1993, the time of the extrajudicial demand
by respondent, should be 6% per annum in the absence of any stipulation in writing in
accordance with Article 2209 of the Civil Code, which provides:
Article 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 per cent per annum.
23. SPS. ANDAL VS. PNB

FACTS: On September 7, 1995, petitioners-spouses obtained a loan from respondent bank in the
amount of P21,805,000.00, for which they executed twelve (12) promissory notes undertaking to
pay respondent bank the principal loan with varying interest rates of 17.5% to 27% per interest
period. It was agreed upon by the parties that the rate of interest may be increased or decreased
for the subsequent interest periods, with prior notice to [petitioners-spouses], in the event of
changes in interest rates prescribed by law or the Monetary Board or in the bank's overall cost of
funds. To secure the payment of said loan, petitioners-spouses executed a real estate mortgage
using as collateral five (5) parcels of land including all improvements therein, all situated in
Batangas City and covered by (TCTs) in the name of petitioners-spouses. Subsequently,
respondent bank advised petitioners-spouse] to pay their loan obligation, otherwise the former
will declare the latter's loan due and demandable. On July 17, 2001, [petitioners-spouses] paid
P14,800,000.00 to [respondent bank] to avoid foreclosure of the properties subject of the real
estate mortgage. Accordingly, [respondent bank] executed a release of real estate mortgage
over the parcels of land covered by 2 TCTs. However, despite payment respondent bank
proceeded to foreclose the real estate mortgage, particularly with respect to the three (3) parcels
of land covered by the 3 TCTs. Public auction sale of the properties proceeded and respondent
bank emerged as the highest and winning bidder. [Respondent bank] consolidated its ownership
over the said properties and 3 TCTs. Petitioners-spouses filed a complaint for annulment of
mortgage, sheriff's certificate of sale, declaration of nullity of the increased interest rates and
penalty charges plus damages, with the RTC of Batangas City. In their amended complaint,
[petitioners-spouses] alleged that they tried to religiously pay their loan obligation to
[respondent bank], but the exorbitant rate of interest unilaterally determined and imposed by the
latter prevented the former from paying their obligation. Further, [petitioners-spouses] alleged
that the unilateral increase of interest rates and exorbitant penalty charges are akin to unjust
enrichment at their expense, giving [respondent bank] no right to foreclose their mortgaged
properties Respondent Bank denied the allegations in the complaint. Respondent bank alleged
that: the penalty charges imposed on the loan was expressly stipulated under the credit
agreements and in the promissory notes.
RTC rendered judgment in favor of petitioners-spouses. It ordered that the the rate of interest
should be reduced as it is hereby reduced to 6% in accordance with Article 2209 of the Civil
Code effective the next 30, 31 and 180 days respectively from the date of the twelve (12)
promissory notes covered by the real estate mortgages.
The CA, consequently, dismissed respondent bank's appeal and affirmed the decision of the trial
court with the modification that the rate of interest shall be 12% per annum instead of 6%. It is
well-settled that when an obligation is breached and consists in the payment of a sum of
money, i.e., loan or forbearance of money, the interest due shall be that which may have been
stipulated in writing. In the absence of stipulation, the rate of interest shall be 12% interest per
annum to be computed from default, i.e., from judicial or extra-judicial demand and subject to
the provisions of Article 1169 of the Civil Code.Since the interest rates printed in the promissory
notes are void for the reasons above-stated, the rate of interest to be applied to the loan should
be 12% per annum only.
Petitioners-spouses is now reiterating their position that no interest should be imposed on
their loan, following the respective pronouncements of the CA in the Caraig case. In the
case of Spouses Caraig v. The Ex-Officio Sheriff of RTC, Batangas City, CA ruled that under
the doctrine of operative facts, no interest is due after the auction sale because the loan is
paid in kind by the auction sale, and interest shall commence to run again upon finality of
the judgment declaring the auction sale null and void.
ISSUE: WON the interest shall commence to run again upon finality of the judgment
declaring the auction sale null and void.
HELD: NO. We cannot subscribe to the contention of petitioners-spouses that no interest
should be due on the loan they obtained from respondent bank, or that, at the very least,
interest should be computed only from the finality of the judgment declaring the
foreclosure sale null and void, on account of the exorbitant rate of interest imposed on
their loan.
It is clear from the contract of loan between petitioners-spouses and respondent bank that
petitioners-spouses, as borrowers, agreed to the payment of interest on their loan obligation.
That the rate of interest was subsequently declared illegal and unconscionable does not entitle
petitioners-spouses to stop payment of interest. It should be emphasized that only the rate of
interest was declared void. The stipulation requiring petitioners-spouses to pay interest on their
loan remains valid and binding. They are, therefore, liable to pay interest from the time they
defaulted in payment until their loan is fully paid.
Thus, for the purpose of computing the amount of liability of petitioners-spouses, they are
considered in default from the date the Resolution of the Court in G.R. No.
194164 (Philippine National Bank v. Spouses Bayani H. Andal and Gracia G. Andal)
which is the appeal interposed by respondent bank to the Supreme Court from the
judgment of the CA became final and executory
In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance with
the ruling of the Supreme Court in the recent case of Dario Nacar v. Gallery Frames
and/or Felipe Bordey, Jr., 20 effective 1 July 2013, 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. Accordingly, the rate of interest of 12% per annum on petitioners-spouses'
obligation shall apply from 20 May 2011 the date of default until 30 June 2013 only. From 1
July 2013 until fully paid, the legal rate of 6% per annum shall be applied to petitioners-spouses'
unpaid obligation.
12% interest per annum shall be applied from the date of default until 30 June 2013 only, after
which date and until fully paid, the outstanding obligation of petitioners-spouses shall earn
interest at 6% per annum.
24. CASTELO VS. COURT OF APPEALS
FACTS: On 15 October 1982, petitioners Antonio Castelo, Bernabe Banson, Lourdes Banson and
Pompeyo Depante entered into a contract denominated as a "Deed of Conditional Sale" with
private respondent Milagros Dela Rosa involving a parcel of land. The agreed price of the land
was (P269,408.00). Upon signing the contract, private respondent paid petitioners (106,000.00)
leaving a balance (P163,408.00). L The Deed of Conditional Sale also stipulated that:
b.) The balance of P163,408.00 to be paid on or before December 31, 1982 without
interest and penalty charges;
c.) Should the said balance [remain unpaid] by the VENDEE, the VENDORS hereby agree to
give the VENDEE a grace period of SIX (6) months or up to June 30, 1983 to pay said
balance provided that interest at the rate of 12% per annum shall be charged and 1%
penalty charge a month shall be imposed on the remaining diminishing balance.
Private respondent Dela Rosa was unable to pay the remaining balance on or before 30 June
1983.On 29 July 1983, petitioners filed an action for specific performance with damages in the
RTC against Dela Rosa. The RTC ordered the rescission of the Deed of Conditional Sale.
In a decision written by Castro-Bartolome, J., dated 21 November 1986 CA annulled and set
aside the RTC's decision. In its dispositive portion, the Court of Appeals ordered the defendant
to comply with her obligation under the conditional sale to pay the balance of the conditional
sale in the amount of P163,408.00, to pay interest and in default thereof the rescission thereof
is the alternative. A writ of was issued by the trial court. Accordingly, a Sheriff's Notice to Pay
Judgment was served on private respondent Dela Rosa requiring her to pay petitioners a total
(P197,723.68)
"Principal P163,408.00
plus interest of
12% (per contract)
from 21 Nov. 1986 to
2 Sept. 1988 34,315.68

Total amount of judgment
(excluding sheriff's fees
and expenses) P197, 723.68"|||

Petitioners filed a motion for reconsideration and a separate motion for alias writ of execution
contending that the sum of P197,723.68, based on the Sheriff's own computation, was
erroneous. They argued that the obligation of private respondent was to pay (a) interest at
 the rate of twelve percent (12%) per annum plus (b) one percent (1%) penalty charge per
month, from default, i.e, from 1 January 1983: They also claimed that the amount arrived at
by the Sheriff was inconsistent not only with the Court of Appeals' decision of 21 November
1986, but also the stipulation in the "Deed of Conditional Sale."
ISSUE: WON the defendant should pay legal interest from the time of entry of the Castro-
Bartolome
HELD: NO. There is, in the second place, no question that private respondent dela Rosa had
failed to pay the balance of P163,408.00 on or before 31 December 1982. The applicable law is
to be found in Article 2209 of the Civil Code which provides as follows:
"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 (6%) per annum."
Under Article 2209, the appropriate measure for damages in case of delay in discharging an
obligation consisting of the payment of a sum of money is the payment of penalty interest at
the rate agreed upon in the contract of the parties. In the absence of a stipulation of a
particular rate of penalty interest, payment of additional interest at a rate equal to the
regular or monetary interest, becomes due and payable. Finally, if no regular interest had
been agreed upon by the contracting parties, then the damages payable will consist of
payment of legal interest which is six percent (6%) or, in the case of loans or forbearances of
money, twelve percent (12%) per annum. Applying Article 2209 to the instant case, we must
refer to the "Deed of Conditional Sale" which, as already noted, had specifically provided for
"interest at the rate of 12% per annum" and a "1% penalty charge a month [to] be imposed
on their remaining diminishing balance." There was, it thus appears, no need for the
subsequent Luna, J. decision to refer at all to the payment of legal interest from the time of
entry of the Castro-Bartolome decision (CA).
The contention of private respondent that Article 2209 of Civil Code is not applicable in
this case because the interest referred to therein is given as compensation for the use of
money, not for the incurring of delay as in the instant case, need not detain us for long. Article
2209 governs transactions involving the payment of indemnity in the concept of damages
arising from delay in the discharge of obligations consisting of the payment of a sum of
money. The "obligation consisting in the payment of a sum of money" referred to in Article
2209 is not confined to a loan or forbearance of money. The Court has, for instance,
consistently applied Article 2209 in the determination of the interest properly payable where
there was default in the payment of the price or consideration under a contract of sale as in
the case at bar. Article 2209 has also been applied by this Court in cases involving an action
for damages for injury to persons and loss or property; to actions for damages arising from
unpaid insurance claims; and an action involving the appropriate rate of interest on just
compensation that is payable for expropriated lands.
25. ATLANTIC GULF VS CA, CASTILLO

FACTS: Atlantic (Petitioner), commenced construction of a steel fabrication plant in Batangas

which necessitated dredging operations at Batangas bay adjacent to Castillos (Private
respondent) real property. Respondents due to such dredging in the soil which is an agricultural
land cannot anymore be planted with palay and during dredging petitioners personnel and the
heavy equipment trespassed into adjacent parcels of land of respondent without their consent.
Thus, action for damages were filed by respondent
Lower Court ruled in favor of respondents. Petitioner appealed to CA= CA approved Lower court
with modification as to amount for damages. Petitioner elevated the matter to SC, interposing
that CA ruling contravenes Art. 2177 which states: The plaintiff cannot recover damages twice or
the same act or omission of the defendant when it condemned the petitioner as a result of the
dredging operations, to pay private respondents NOT ONLY the expected total amount of profits
the latter would have derived from the expected sale of their palay harvest for over 11 years,
from the half hectare BUT ALSO, RENTALS on the basis of P5.00 per sq.meter of their entire
landholdings.

ISSUE: WON CA exceeded its jurisdiction when it modified the amount of damages ordered by
trial court.
SC HELD: Yes. The evidence on record support the findings of trial court and CA that petitioner is
liable for the destruction of the property of respondents and consequently entitle the latter to an
award of the damages prayed for. Such conclusions and findings of fact by Lower courts are
entitles great weight on appeal and will not be disturbed except for strong and cogent reasons.
The fact that CA adopted findings of trial court, makes the same binding upon SC. Petitioner
cannot expect a reversal since it is a basic rule that only questions of law may be raised in
appeal by certiorari under Rule 45 Rules of Court.
However, SC found that CA committed a reversible error of law in increasing amount of damages
awarded to private respondents, CA exceeded its jurisdiction when it modified the judgment
of trial court by increasing the award of damages in favor of private respondents, who in the first
place, did not interpose an appeal therefrom. They are then presumed to be satisfied with the
adjudication of lower court.
The entrenched procedural rule that a party who has not himself appealed cannot obtain from
the appellate court any affirmative relief other than those granted in the decision of lower court.
Appellee can assign errors on appeal if such are requires to strengthen the views expressed by
the court a quo. Such assigned errors, in turn, may be considered by appellate court solely to
maintain the appealed decision on other grounds, but not for the purpose of modifying the
judgment in the appellees favor and giving him affirmative reliefs.
26. CRISMINA GARMENTS VS CA, SIAPNO
FACTS: Crismina Garments (Petitioner), engaged in the export of girls denim pants, contracted
services of Norma SIapno, sole proprietress of D Wilmar Garments (Private Respondents), to sew
for the petitioner 20, 762 pcs. Of assorted girls denims amounting to P76,410.00. Respondent
sewed the material and delivered the same to petitioner. At FIRST, Respondent was told that the
sewing of some pants was defective. Then LATER, told by petitioners representative that the
goods were already good. She was told to return for her check of P76,410.00. Petitioner failed to
pay. Respondent thru counsel, wrote demand letter for payment of such amount in 10 days

Petitioner averred: Jeans, numbering 6,164 were defective and respondent was liable in the
amount of P49,925.51 (value of damaged pairs of denim) and such amount should be refunded.
Trial court ruled in favor of respondent and ordered petitioner to pay her P76,410 + 12% interest
per annum counting from filing of complaint.

CA Affirmed with modifications as to attorneys fees which was deleted. Petitioner: Interest rate
should be 6% pursuant to Art. 2209, NCC: If the obligation consists in the payment of money
and the debtor incurs 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 6% per annum. The matter herein is an action for the enforcement of an
obligation for payment arising from a contract for a piece of work. Respondent: The interest
rate should be 12% per annum, the money sought to be recovered by her from petitioner is a
form of forbearance. As per Central Bank Circ. 416 (CBC) which prescribed that 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 12% per
annum.

ISSUE: WON, it is proper to impose interest at the rate of 12% per annum for an obligation that
does not involve a loan, or forbearance of money in the absence of stipulation of the parties.

SC HELD: No. The controversy revolves around petitioners payment of the price beyond period
prescribed in contract for piece of work. Art. 1589, NCC: The vendee (petitioner) shall owe
interest for the period between the delivery of the thing and payment of priceshould he be in
default, from the time of judicial or extrajudicial demand for the payment of price.
SC agreed with Petitioner. Citing Reformina vs Tomol case, CBC 416 applies to: 1. Loans, 2.
Forbearance, 3. A judgment involving a loan or forbearance of money, goods or credits. Cases
beyond such scope falls under Art. 2209, NCC, which considers INTEREST as form of
INDEMNITY for the delay in performance of obligation.
According to Eastern Shipping Lines case: The following guidelines for application of
proper interest were as follows:

1. When the obligation, regardless of its source, is breached, the contravenor can be held
liable for damages.
2. With regard particularly to an award of interest in concept of actual and compensatory
damages, the rate of interest, as well as accrual thereof, is imposed as follows:
a. Obligation breached consists payment of a sum of money (Loan or forbearance) =
interest is in accordance to what stipulated in writing. Furthermore, interest due
shall itself earn legal interest from the time of judicial demand. NO STIPULATION-
12% per annum to be computed from default subject to Art. 1169, NCC.
b. Obligation NOT constituting loan or forbearance of money, is breached = interest on
amt. of damages is upon Courts discretion at 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
c. Judgment of Court becomes final and executor, awarding sum of money = Legal
interest (whether it falls under a or b) shall be 12% per annum
Forbearance in context of Usury law, is 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. As applied in the case, the amount due arose from contract of piece of
work, NOT from loan or forbearance of money. Thus, legal interest of 6% per annum applies and
computed from filing of the complaint.

27. PILIPINAS BANK VS CA, ECHAUS

FACTS: Echaus (Private respondent), filed a complaint against PIlipinas Bank (Petitioner)and its
president Constantino Bautista, for collection of sum of money. In the complaint of respondent:
1) Petitioner and Greatland Realty Corp (GRC) executed a Dacion en Pago wherein GRC conveyed
to petitioner several parcels of land in consideration of P7,776,335.69. 2) GRC assigned
P2,300,000.00 out of total consideration of dacion en pago in favor of Respondent. 3) Despite
respondents demand of payment, Petitioner in badfaith, refused and failed to pay the said
amount.

Petitioner admits the execution of dacion en pago but claimed: 1) Constantino had no authority
to enter into such agreement. 2) it never ratified the same 3) assuming arguendo, that the
agreement was binding, conditions stipulated was not fulfilled. Trial court ruled in favor of
respondent. Respondent field a Motion for Execution Pending Appeal, which trial court granted.
CA modified the order of trial court by limiting the execution pending appeal against petitioner to
P5,517,707.00 and deferring the execution of award for moral, exemplary and nominal damages
Petitioner complied with CAs execution order pending appeal by issuing 2 managers check.
Respondent encashed the said check. CA then rendered decision ordering the Petitioner to pay
respondent P2.3M, representing the total amt. assigned by GRC with legal interest starting from
the date when demand was first made.

Petitioner (filed motion in trial court): seeking to refund the excess payment it made to
respondent, with interests at 6% pursuant to Art. 2209: If the obligation consists in the payment
of money and the debtor incurs 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 6% per annum

Respondent opposed motion of petitioner: the rate of legal interest to be charged with regards to
P2.3M should be 12% per annum pursuant CBC (Central Bank Circ) 416 (and not 6% per annum
as computed as petitioner. Prescribed that 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 12% per annum. Trial Court ruled in favor
of respondent: to refund to petitioner of excess payment , fixed the interest rate due on the
amount of P2.3M at 12% per annum. CA affirmed.

ISSUE: What is the nature of the judgment ordering petitioner to pay respondent the P2.3M?
Considering its nature, WON the 12% per annum legal interest rate imposed by CBC. 416
should apply

SC HELD: As to the nature of P2.3M:

The amount of P2.3 M was assigned by GRC in favor of respondent. That obligation
arose from a contract of purchase and sale and NOT from a contract of mutuum or loan.
CBC 416 fixing the interest rate at 12% per annum deals with 1) loans 2) forbearance 3)
judgments. As to the applicability of 12% per annum rule in CBC 416:

Citing Reformina case, judgments in litigation involving loans or forbearance of any

money, goods, or credits. Any kind of monetary judgment which has nothing to do with nor
involving loans or forbearance of any money, goods, or credits does not fall within the coverage
of the said law for it is not within the ambit of authority granted to Central Bank. Thus CBC 416
does not apply to judgments involving damages, compensation in expropriation proceeding.
However, CBC 416 applies to judgments involving payment of unliquidated cash advances to an
employee by his employer and the return of money paid by the buyer of a leasehold right but
which contract was voided due to the fault of the seller.

Therefore, what is applicable in the case at bar is the rate of 6% per annum under Art.
2209, NCC. Not CBC 416. As the petitioner next contends, that consistent with its thesis that
CBC 416 applies only to judgments involving the payment of loans or forbearance of money
goods or credit, CA should have ordered respondent to pay interest at the rate of 12% on the
overpayment collected by her pursuant to the advance execution of the judgment.

SC agreed with the Petitioner. Respondent was paid in advance the amount of
P5,517,707.00 by petitioner pursuant to the order for execution pending appeal. In such
execution, funds are advanced by the losing party to the prevailing party with the implied
obligation of the latter to repay the former, in case the appellate court cancels or reduces the
monetary award. In the case at bar, the excess amount ordered to be refunded by private
respondent is governed by CBC 416 which applies to cases where money is transferred from one
person to another and the obligation to return the same or portion thereof is subsequently
adjudged.

28. Tio Khe Chio v. CA, EASCO GR No. 76101-02 September 30, 1991
Facts: Petitioner shipped bags of imported fishmeals and insured the same with respondent
insurance company Eastern Assurance & Surety Corp (EASCO). During transit, the bags were
found out to be damaged thus rendering the fishmeals useless. Petitioner filed a claim before the
EASCO which denied the same, prompting the former to sue the latter at CFI Cebu who ordered
EASCO to pay the petitioner's claim for insurance with damages. Upon execution, respondent
filed a petition for certiorari with the CA who set aside the lower court's decision arguing that the
latter has erred in fixing the legal interest on 12% per annum rather than the mandated 6%.

Issue: What should the legal interest be for damages arising from loss of property?

Held: The applicable law is Article 2209 of the Civil Code which reads that if the obligation
consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of interest agreed
upon, and in the absence of stipulation, the legal interest which is 6% per annum. The adjusted
rate mentioned in the Circular No. 416, from which the CFI based its decision, refers only to
loans or forbearances of money, goods or credits and court judgments thereon but not
to court judgments for damages arising from injury to persons and loss of property which does
not involve a loan.

29. A.C. Enterprises, Inc. v. Construction Industry Arbitration Commission, G.R. No.
101444
Facts: In their Second Motion For Partial Reconsideration, private respondent insists that it is
entitled to interests at the rate of 12% per annum on the monetary award given them by the
Construction Industry Arbitration Commission (CIAC). It contends that under Executive Order No.
1008 dated February 4, 1985 and the Rules of Procedure Governing Construction Arbitration,
arbitral awards are final and "inappealable (sic)" and pursuant to our ruling in Eastern Shipping
Lines, Inc., we held that when the judgment awarding a sum of money becomes final and
executory, the monetary award shall earn interest at 12% per annum from the date of such
finality until its satisfaction, regardless of whether the case involves a loan or forbearance of
money. The obligation that was breached in the arbitration case at bench was not based on a
loan or forbearance of money, and therefore was not covered by Central Bank Circular No. 416.

Issue: Should arbitral awards earn interests? What should the rate of interest be?

Held: Yes, but only after the awards become final and executory.

In the case at bar, the obligation that was breached in the arbitration case at bench was not
based on a loan or forbearance of money, and therefore was not covered by Central Bank
Circular No. 416.

In Reformina v. Tomol, Jr., (1985), we made clear that the award of legal interest at 12% per
annum under said Central Bank Circular shall be adjudged only in cases involving the loan or
forbearance of money.

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

Respondent equated and wrongly at that, the term final and inappealable (sic) as used in EO
1008 and the Rules of Procedure Governing Construction Arbitration with the term final and
executory in Eastern Shipping case.

A final and inappealable (sic) is not the same as final and executory. The former becomes
executory only as in the case of an an award by CIAC after lapse of 30 days from receipt of notice
and no petition for review of Supreme Court is made, While the petition for review does not
automatically suspend the execution of the award of CIAC, SC may direct a stay execution. The
CIAC award did not come final and executory until after service of a copy of resolution denying
the motion for reconsideration. The award was fully paid by respondent.

30. Philippine National Bank v. Court of Appeals, G.R. No. 107508

Facts: A check dated August 7, 1981 was issued by the Ministry of Education and Culture (now
Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check
was drawn against PNB. Four days after, F. Abante Marketing, a client of Capitol City
Development Bank deposited the questioned check in its savings account with said bank. In turn,
Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom)
which, in turn, sent the check to petitioner for clearing.

Petitioner cleared the check, thereafter, PBCom credited Capitol's account for the amount stated
in the check. However, on October 19, 1981, petitioner returned the check to PBCom and debited
PBCom's account for the amount covered by the check, the reason being that there was a
"material alteration" of the check number.

PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same
amount, and subsequently, sent the check back to petitioner. Petitioner, returned the check to
PBCom. On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since
the latter had already withdrawn the amount of the check as of October 15, 1981. Capitol sought
clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by
requesting an explanation and re-crediting from petitioner. Petitioner, on its part, filed a fourth-
party complaint against F. Abante Marketing.

Issue: WON there is a material alteration with respect to checks serial number as reasoned out
by the petitioner
WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD
LIABLE FOR ATTORNEY'S FEES.

Held: A material alteration is one which changes the items which are required to be stated under
Sec. 1 of Negotiable Instruments Law. It should alter the effect of the instrument. The serial
number of a check, as claimed in this case to be altered, is not an essential requisite for its
negotiability thus such alteration did not change the relations between parties. The checks serial
number is not the sole indication of its origin. Petitioner cannot refuse to accept the check in
question on the ground that the serial number was altered. It is suffice to conclude that since
there is no material alteration in the check, petitioner has no right to dishonor it and return it to
PBCOm, the same being in all respects negotiable.

The award of attorney's fees lies within the discretion of the court and depends upon the
circumstances of each case. However, the discretion of the court to award attorney's fees under
Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification,
without which the award is a conclusion without a premise and improperly left to speculation and
conjecture. It becomes a violation of the proscription against the imposition of a penalty on the
right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court). The reason for
the award must be stated in the text of the court's decision. If it is stated only in the dispositive
portion of the decision, the same shall be disallowed. As to the award of attorney's fees being an
exception rather than the rule, it is necessary for the court to make findings of fact and law that
would bring the case within the exception and justify the grant of the award.

The case at bench is unique in the sense that what was altered is the serial number of the check
in question, an item which, it can readily be observed, is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration
did not change the relations between the parties. The name of the drawer and the drawee were
not altered. The intended payee was the same. The sum of money due to the payee remained
the same. The check's serial number is not the sole indication of its origin. As succinctly found by
the Court of Appeals, the name of the government agency which issued the subject check was
prominently printed therein. The check's issuer was therefore sufficiently identified, rendering
the referral to the serial number redundant and inconsequential. Petitioner, thus cannot refuse to
accept the check in question on the ground that the serial number was altered, the same being
an immaterial or innocent one.

31. SENTINEL INSURANCE COvv COURT OF APPEALS|||

Facts: Petitioner Sentinel Insurance Co., Inc., was the surety in a contract of suretyship entered
into with Nemesio Azcueta, Sr., 'jointly and severally, to fully and religiously guarantee the
compliance with the terms and stipulations of the credit line granted by private respondent Rose
Industries, Inc., in favor of Nemesio Azcueta, Sr., in the amount of P180,00.00.'

Azcueta made various purchases of tires, batteries and tire tubes from the private respondent
but failed to pay therefor, prompting the latter to demand payment but because Azcueta failed
to settle his accounts, the case was referred to the Insurance Commissioner who invited the
attention of the petitioner on the matter and the latter cancelled the Suretyship Agreement on
May 13, 1975 with due notice to the private respondent. Meanwhile, private respondent filed
with the respondent court of Makati a complaint for collection of sum of money against herein
petitioner and Azcueta.

Respondent court rendered its decision with the following dispositive portion:

a) to pay interest at 14% per annum on the principal obligation and damage dues at the rate
of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is
fully paid;"

Respondent judge is ordered to clarify its judgment complained of.

Issue: Whether or not interest imposed is veritably usurious.

Held: No. While interest forms part of the consideration of the contract itself, damage dues
(penalties, and so forth) are usually made payable only in case of default or non-performance of
the contract. Also, although interest is subject to the provisions of the Usury Law, there is no
policy or provision in such law preventing the enforcement of damage dues although the effect
may be to increase the sum payable beyond the prescribed ceiling rates.

It should, however, be stressed that such observation was on the theoretical assumption that the
rate of 2% is being imposed as interest, not as damage dues which was the intendment of the
trial court. Certainly, the damage dues in this case do not include and are not included in the
computation of interest as the two are of different categories and are distinct claims which may
be demanded separately, in the same manner that commissions, fines and penalties are
excluded in the computation of interest where the loan or forbearance is not secured in whole or
in part by real estate or an interest therein.
32. Philippine American Accident Insurance Co., Inc. v. Flores, G.R. No. L-47180, May
19, 1980

Facts: Respondent Judge Flores rendered a judgment in favor of the Respondent Navalta asking
Petitioner Phil-Am Accident Incurance Company Inc. to pay the former the amount of P75,000.00
with legal interest from Oct. 1968, as attorneys fees and the cost of the suit. Petitioner paid
respondent the principal amount with legal interest at 6% per annum from Oct 1968 to Apr. 30
1978 (in accordance with Art. 2209 of the CC which provides: If the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, whichis six per cent per annum." This appears to be the
basis for the awarding interest at the legal rate from Oct. 1968, although the debt is judicially
demanded only on July 6 1970) and attorneys fees and the cost of the suit. Later on, Respondent
advised the petitioner that payment was not in full satisfaction of the judgment because he has
to pay compound interest or additional sum of P10, 375.77. The respondent secured a writ if
execution upon the refusal of the petitioner to pay the additional sum claimed; which was
affirmed by the Judge. Hence this review.

Issue: Whether or not the petitioner is obligated to pay compound interest under the judgment.

Held: The questioned Order cannot be sustained. The judgment which was sought to be executed
ordered the payment of simple "legal interest" only. It said nothing about the payment of
compound interest. Accordingly, when the respondent judge ordered the payment of compound
interest he went beyond the confines of his own judgment which had been affirmed by the Court
of Appeals and which had become final.

Private respondent invokes Sec. 5 of the Usury Law which reads in part as follows: "In computing
the interest on any obligation, promissory note or other instrument or contract, compound
interest shall not be reckoned, except by agreement, or, in default thereof, whenever the debt is
judicially claimed in which last case it shall draw six per centum per annum interest . . ." as well
as Art. 2212 of the Civil Code which stipulates: "Interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be silent upon this point." Both legal
provisions are in applicable for they contemplate the presence of stipulated or conventional
interest which had accrued when demand was judicially made.

33. Santulan v. Hon. Fule, G.R. No. 59664

Facts: This case is about the collection of legal interest on the sum of P30,000 as the value of
improvements on a foreshore land, which interest was not included in this Court's decision of
December 15, 1977 in Santulan vs. Executive Secretary. In that decision this Court affirmed the
order of the Undersecretary of Agriculture and Natural Resources dated December 14, 1954
which gave due course to the lease application of Julian Santulan provided that he reimbursed
Antonio Lusin the appraised value of the existing improvements. When the case was remanded
to the trial court, Judge Fule in his order of September 2, 1981 directed the heirs of Santulan to
reimburse the heirs of Lusin the sum of P30,000 as the value of the improvements "with legal
interest" from 1955 until paid. He affirmed said order in his order of January 13, 1982. Santulan's
heirs appealed under Republic Act No. 5440 from the order imposing 6% legal interest.

Issue: Whether or not EXACTION OF INTEREST IN CASE AT BAR IS ILLEGAL AND UNJUST.

Held: Yes. It is obviously not sanctioned by article 2209 of the Civil Code which provides that "if
the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent
per annum."
Santulan' s obligation to reimburse Lusin the value of his improvements was intended to avoid
unjust enrichment. Interest was not demanded by Lusin when the case was pending in the
administrative agencies and in the courts. This Court's final judgment, which is the law of the
case, did not provide for interest. There is no reason for the trial court to add interest to the
judgment.

The exaction of interest is not only illegal. It is also manifestly unjust under the facts of this
protracted controversy. Lusin and his heirs have received the fruits of the disputed land since
they have been in possession thereof.

34. Ruiz v. Hon. Caneba, G.R. No. 84884

Facts: Petitioners spouses Ruiz, leased the premises of common-law-spouses Sangalang and Cruz
for a monthly rental of 650 pesos. Later on, the co-owners decided to sell the leased promises to
the lessees in consideration of 175K payable in installments subject to such conditions DP: P65,
000. Assume balance in BPI : P31,500. After payment of said balance mortgage, a balance of
seventy eight thousand five hundred pesos (P78,500.00) will be payable on or before December
31, 1983; failure to comply with the above conditions of payment, the said property above
described will be open for sale and all partial payments will be refunded.

The petitioners defaulted payments so the parties rescinded the contract but could not however
agree as to the amount. The Ruizes claim that they are entitled to a refund of P124,192.62 plus
24% interest compounded annually. Sangalang, on the other hand, countered that she received
only the amount of P120,092.62 or a difference of P4,100.00 from that claimed by the Ruizes, let
alone the computation of interest and additional rentals for another portion of the property which
the petitioner had already been using since the execution of the contract. These issues was
however raised after judgment had been entered and writ of execution issued.

Issue: Whether or not awards by courts be subject to legal interests when the judgment did not
provide for such?

Held: No. Anent the Ruizes' claim of interest as aforementioned, it has been held in the case of
Santulan v. Fule, 133 SCRA 762 (1984) that where the court judgment which did not provide for
interest is already final, there is no reason to add interest in the judgment. Interest was not
demanded by the Ruizes when the case was pending before the lower court, hence, there is no
reason for Supreme Court to grant such claim. As ruled by the Court, such claim is groundless
since the decision and orders sought to be enforced do not direct the payment of interest and
have long become final (Canonizado v. Ordoez-Benitez, 149 SCRA 555 [1987]).
As to Sangalang's claim for P1,500.00 as monthly rental for Door No. 2, the records show that
such claim was never raised in the trial court. The issue of additional rentals was brought up by
Sangalang only when the motion for execution of par. 3 of the dispositive portion of the decision
was filed by the Ruiz spouses (Rollo, p. 189). It is a basic rule that an issue which was not raised
in the court below cannot be raised for the first time on appeal as it would be offensive to the
basic rules of fair play, justice and due process.

36. Briones v. Cammayo, G.R. No. L-23559

Facts: Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo,
Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit. Defendants
executed the real estate mortgage as security for the loan of P1,200.00 given to Primitivo P.
Cammayo upon the usurious agreement that defendant pays to the plaintiff, out of the alleged
loan of P1,500.00 (which includes as interest the sum of P300.00) for one year. Although the
mortgage contract was executed for securing the payment of P1,500.00 for a period of one year,
without interest, the truth and the real fact is that plaintiff delivered to the defendant Primitivo P.
Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as
advance interest for one year.

Primitivo paid to the plaintiff the total sum of P330.00 which plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as an interest of the said loan for an
extension of another term of one year; and that said contract of loan entered into between
plaintiff and defendant Primitivo is a usurious contract. Defendants claim that the trial court
erred in sentencing them to pay the principal of the loan notwithstanding its finding that the
same was tainted with usury.

Issue: Whether or not creditor is entitled to collect from the debtor the amount representing the
principal obligation in a contract of loan tainted with usury.

Held: Yes. IN USURIOUS LOANS, CREDITOR CAN COLLECT ACTUAL LOAN PLUS LEGAL INTEREST
THEREON. We held in Go Chioco vs. Martinez that even if the contract of loan is declared
usurious the creditor is entitled to collect the money actually loaned and legal interest due
thereon. The debtor in a usurious contract of loan should pay the creditor the amount which he
justly owes him. Under Act 2655 a usurious contract is void; that the creditor had no right of
action to recover the interest in excess of the lawful rate; but that this did not mean that the
debtor may keep the principal received by him as loan thus unjustly enriching himself to the
damage of the creditor. The Usury Law, by its letter and spirit, did not deprive the lender of his
right to recover from the borrower the money actually loaned to and enjoyed by the latter. This
Court went further to say that the Usury Law did not provide for the forfeiture of the capital in
favor of the debtor in usurious contracts, and that while the forfeiture might appear to be
convenient as a drastic measure to eradicate the evil of usury, the legal question involved should
not be resolved on the basis of convenience. When a contract is found to be tainted with usury
"the only right of the respondent (creditor) . . . was merely to collect the amount of the loan, plus
interest due thereon.

A contract of loan with usurious interest consists of principal and accessory stipulations; the
principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two
stipulations are divisible in the sense that the former can still stand without the latter. Article
1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in force. In simple loan
with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to
the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.

37. Angel Jose Warehousing Co., Inc. v. Chelda Enterprises, G.R. No. L-25704

Facts: Plaintiff corporation filed suit in the Court of First Instance of Manila on against the
partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged
unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the
complaint, plus attorney's fees of P5,000.00. Alleging that postdated checks issued by
defendants to pay said account were dishonored. Defendants averred that they obtained four
loans from plaintiff in the total amount of P26,500.00, of which P5,620.00 had been paid, leaving
a balance of P20,880.00; that plaintiff charged and deducted from the loan usurious interest
thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the law.

Plaintiff denied under oath the allegations of usury.

The court found that there remained due from defendants an unpaid principal; that plaintiff
charged usurious interests; leaving a balance which is still payable to the plaintiff. Said court
held that notwithstanding the usurious interest charged, plaintiff is not barred from collecting the
principal of the loan or its balance of P19,247.35.

Issue: Whether or not in a loan with usurious interest, may the creditor recover the principal of
the loan?

Held: Yes. A contract of loan with usurious interest is valid as to the loan but void as to the
usurious interest. In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced. In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which is the cause of the contract (Article
1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is the only one
that is illegal. Article 1413, in speaking of "interest paid in excess of the interest allowed by the
usury laws" means the whole usurious interest; that is, in a loan of P1,000 with interest of 20%
per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious
interest, not just that part thereof in excess of the interest allowed by law. It is in this case that
the law does not allow division. The whole stipulation as to interest is void, since payment of said
interest is the cause or object and said interest is illegal. The only change effected, therefore, by
Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in excess of
that allowed by law, which the Usury Law already provided for, but to add that the same can be
recovered "with interest thereon from the date of payment."

38. PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES vs IAC and ERNESTO

Facts: On May 21, 1974, Davao Timber Corporation and the Private Development Corporation
entered into a loan agreement whereby PDCP extended to DATICOR a loan in foreign currency
for the purpose of establishing a kiln drying and woodworking plant in Mati, Davao Oriental. It
was stipulated in the loan agreement, that the foreign currency loan was to be paid with an
interest rate of 11-3/4% per annum on the disbursed amount of the foreign currency; and the
peso loan at the rate of 12% per annum on the disbursed amount of the peso loan outstanding,
commencing on the several dates on which disbursements of the proceeds of the loans were
made.

The loans were secured by a first mortgage for a total of P27,000,000.00 for the loan of about
P4.4 million pesos. This service fee was subsequently increased to six (6%) per cent per annum
in addition to the twelve (12%) per cent per annum interest on the peso loan. Furthermore,
DATICOR was asked to pay penalty charges at the rate of two (2%) per cent per month.

A total of P3,000,000.00 was already paid by Del Rosario to PDCP and which the latter applied to
interests, service fees and penalty charges, such that according to PDCP, DATICOR still has an
outstanding balance on the principal loan of P10,887,856.99 as of May 15, 1983. DATICOR filed a
case in the Court of First Instance of Davao Oriental to prevent PDCP from foreclosing its
properties in Davao, and likewise praying for the annulment of the loan contract as it is in
violation of the Usury Law and damages. The then Intermediate Appellate Court set aside the
decision appealed declared the stipulations of interest in the loan agreement between DATICOR
and PDCP void and of no effect, as if the loan agreement is without stipulation as to payment of
interest.

Issue: Whether or not stipulations on usurious interest should be interpreted to mean forfeiture
even of the principal.

Held: No. The law should not be interpreted to mean forfeiture of the principal loan as that would
be unjustly enriching the borrower. As held in Angel Jose Warehousing Co., Inc. vs. Chelda
Enterprises, "In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal.
The illegality lies only as to the prestation to pay the stipulated interest: hence, being separable,
the latter only should be deemed void, since it is only one that is illegal." . . . "The foregoing
interpretation is reached with the philosophy of usury legislation in mind; to discourage
stipulations on usurious interest, said stipulations are treated as wholly void, so that the loan
becomes one without stipulation as to the payment of interest. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at
the expense of the lender. Furthermore, penal sanctions are available against a usurious lender,
as a further deterrence to usury. "The principal debt remaining without stipulation for payment of
interest can thus be recovered by judicial action.

Inasmuch as the loan agreement herein was entered into on May 21, 1974, the prevailing law
applicable is the Usury Law, as amended by P.D. No. 116, which took effect on January 29, 1974.
Section 2 of Act No. 2655 provides: "No person or corporation shall directly or indirectly take or
receive money or other property, real or personal, or choses in action, a higher rate of interest or
greater sum of value including commission premiums, fines and penalties for the loan or renewal
thereof or forbearance of money, goods or credit, where such loan or renewal or forbearance is
secured in whole or in part by a mortgage upon real estate, the title to which is duly registered or
by a document conveying such real estate at an interest rate, than twelve percent per annum."
The usury law therefore, as amended by Presidential Decree 116, fixed all interest rates for all
loans with maturity of more than 360 days at twelve (12%) per cent per annum including
premiums, fines and penalties. It is to be noted that PDCP was charging penalties at the rate of
two (2%) per cent per month or an effective rate of twenty four (24%) per cent per annum on the
peso loan and one-half (1/2%) per cent per month or an effective six (6%) per cent per annum on
the foreign currency loan. It is therefore very clear that PDCP has been charging and imposing
interests in violation of the prevailing usury laws.

39. SANCHEZ vs BUENVIAJE

Facts: On August 25, 1976, Alejo Sanchez sued Teodoro Sanchez and Leonor Santilles in the
Municipal Court of Bato, Camarines Sur, for the recovery of P2,000.00 which the latter had
promised to pay in two notes. Said notes also contained stipulations for interest at the rate of
10% per month The Municipal Court rendered judgment ordering Teodoro Sanchez only to pay to
Alejo Sanchez P2,000.00 plus interest thereon at the legal rate from the filing of the complaint.
Defendant to pay double the costs of this suit. Teodoro claims that in a loan with usurious
interest both the loan and the usurious interest are void.

Issue: Whether or not loan with usurios interest are void.

Held: No. True it is that in Briones vs. Cammayo, Chief Justice Concepcion and now Chief Justice
Fernando concurred with Justice Castro who opined that both loan and usurious interest are void.
However, it must be emphasized that eight other justices maintained that only the usurious
interest is void but not the principal obligation.

It is now well-settled that: "the Usury Law (Act No. 2655), by its letter and spirit, does not deprive
the lender of his right to recover of the borrower the money actually loaned this only in the case
that the interest collected is usurious. The law, as it is now, does not provide for the forfeiture of
the capital in favor of the debtor in usurious contract ... (Lopez and Javelona vs. El Hogar Filipino,
47 Phil. 249, 275 [1925].).

The original rule was that while the usurious loan is void this does not mean that the debtor
may keep the principal received by him as loan, thus unjustly enriching himself to the damage of
the creditor. The creditor has no right of action for the recovery of the stipulated interest
although he may sue for the recovery of the principal loaned.

DEPOSIT
1.CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT
OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Facts: On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon
and Paula Pugao entered into an agreement whereby the former purchased from the latter two
(2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as
downpayment while the balance was covered by three (3) postdated checks. Among the terms
and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of
Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full
payment of the purchase price and that the owner's copies of the certificates of titles thereto,
Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety
deposit box of any bank. The same could be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full payment of the purchase price
.Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of
private respondent Security Bank and Trust Company, a domestic banking corporation
hereinafter referred to as the respondent Bank.

After the execution of the contract, two (2) renter's keys were given to the renters one
to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the
guard key and the other for the renter's key, and can be opened only with the use of both keys.
Petitioner claims that the certificates of title were placed inside the said box. Thereafter, a
certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of
P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of
P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos
demanded the execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of
title. However, when opened in the presence of the Bank's representative, the box yielded no
such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her
earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to
realize the expected profit of P280,500.00.

RTC rendered a favorable verdict declaring that said respondent bank has no liability for
the loss of the certificate of title. Its motion for reconsideration having been denied, petitioner
appealed from the adverse decision to the respondent Court of Appeals.

Issue:
1. WON the contractual relation between a commercial bank and another party in a contract
of rent of a safety deposit box with respect to its contents placed by the latter that of the
deposit contemplated in the civil code.
2. WON condition 13 and 14 of the question contract of lease of the safety deposit box a
valid stipulation
3. WON the degree of diligence required of the depositary is extraordinary diligence

Held:
1. It is a special kind of deposit not strictly governed by civil code provisions on deposit. The
petitioner's contention that the contract for the rent of the safety deposit box is not an
ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not
fully subscribe to its view that the same is a contract of deposit that is to be strictly
governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a
special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box
was not given to the joint renters the petitioner and the Pugaos. The guard key of the
box remained with the respondent Bank; without this key, neither of the renters could
 open the box. On the other hand, the respondent Bank could not likewise open the box
without the renter's key.
2. In the instant case, conditions 13 and 14 of the questioned contract of lease of the safety
deposit box, which read: "13. That bank is not a depositary of the contents of the safe and
it has neither the possession nor control of the same. 14. The bank has no interest
whatsoever in said contents, except herein expressly provided, and it assumes absolutely
no liability in connection therewith." are void as they are contrary to law and public policy.
Said provisions are inconsistent with the respondent Bank's responsibility as a depositary
under Section 72(a) of the General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe. Furthermore,
condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank.
It is not correct to assert that the Bank has neither the possession nor control of the
contents of the box since in fact, the safety deposit box itself is located in its premises and
is under its absolute control; moreover, the respondent Bank keeps the guard key to the
said box. As stated earlier, renters cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key.
3. No, only the diligence of a good father of a family. The depositary's responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of
the Civil Code. Accordingly, the depository would be liable if, in performing its obligation, it
is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement.
In the absence of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed. Hence, any stipulation exempting the depositary
from any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy.

2. VICENTE DELGADO, defendant-appellee, vs. PEDRO BONNEVIE and FRANCISCO

ARANDEZ, plaintiffs-appellants.

Facts: When Pedro Bonnevie and Francisco Arandez formed in Nueva Caceres, Ambos
Camarines, a regular general partnership for engaging in the business of threshing paddy,
Vicente Delgado undertook to deliver to them paddy for this purpose to be cleaned and returned
to him as rice, with the agreement of paying them 10 centimos for each cavan and to have
returned in rice one-half the amount received as paddy. The paddy received for this purpose was
credited by receipts made out in this way: "Receipt for (number) cavanes of paddy in favor of
(owner of the paddy), Nueva Caceres, (day) of (month), 1898." And they issued to Vicente
Delgado receipt Nos. 86-99 for a total of 2,003 cavanes and a half of paddy, from April 9 to June
8, 1898.
On February 6, 1909, Vicente Delgado appeared in the Court of First Instance of Ambos
Camarines with said receipts, demanding return of the said 2,003 and a half cavanes of paddy, or
in the absence thereof, of the price of said article at the rate of 3 persons the cavan or 6,009
pesos and 50 centimos, with interest thereon at 6 per cent a year reckoning from November 21,
1905, until complete payment, and the costs. The plaintiff asked that the interest run from
November 21, 1905, because on the date his counsel demanded of the defendants, Bonnevie
and Arandez, their partnership having been dissolved, that they settle the accounts in this
matter. (Persons talaga yung nasa case pero baka peso yun hahahaha)

Issue:
1. WON the right of action has prescribed pursuant to Art. 532 and 950 of the Code of
Commerce
2. WON the nature of the obligation contracted by the appellants is that of a contract of
deposit

Held:
1. No. It is true that, according to article 950 of the Code of Commerce, actions arising from
bills of exchange, drafts, notes, checks, securities, dividends, coupons, and the amounts of
 the amortization of obligations issued in accordance with said code, shall extinguish three
years after they have fallen due; but it is also true that as the receipts in question are not
documents of any of the kinds enumerated in said article, the actions arising therefrom do
not extinguish three years from their date (that, after all, they do not fall due). It is true
that paragraph 2 of article 950 also mentions, besides those already stated, "other
instruments of draft or exchange;" but it is also true that the receipts in this case are not
documents of draft or exchange, they are not drafts payable to order, but they are, as the
appellants acknowledge, simple promises to pay, or rather mere documents evidencing
the receipt of some cavanes of paddy for the purpose already stated, which is nothing
more than purely for industrial, and not for mercantile exchange. They are documents
such as would be issued by the thousand so-called rice-mills scattered throughout the
Islands, wherein a few poor women of the people in like manner clean the paddy by
pounding it with a pestle and return hulled rice. The contract whereby one person receives
from another a quantity of unhulled rice to return it hulled, for a fixed compensation or
remuneration, is an industrial, not a commercial act; it is, as the appellants say, a hire of
services without mercantile character, for there is nothing mercantile about it, just as
there is nothing mercantile about the operation of washing clothes. Articles 532 and 950 of
the Code of Commerce have not, therefore, been violated, for they are not applicable to
the case at bar.
Under title of deposit or hire of services, the possession of the appellants can in no
way amount to prescription, for the thing received on deposit or for hire of services could
not prescribe, since for every prescription of ownership the possession must be in the
capacity of an owner, public, peaceful, and uninterrupted (Civil Code, 1941); and the
appellants could not possess the rice in the capacity of owners, taking for granted that the
depositor or lessor never could have believed that he had transferred to them ownership
of the thing deposited or leased, but merely the care of the thing on deposit and the use
or profit thereof; which is expressed in legal terms by saying that the possession of the
depositary or
of the lessee is not adverse to that of the depositor or lessor, who continues to be
the owner of the thing which is merely held in trust by the depositary or lessee.
2. It is acknowledged that the obligation of the appellants arose primarily out of the contract
of deposit, but this deposit was later converted into a contract of hire of services, and this
is true. But it is also true that, after the object of the hire of services had been fulfilled, the
rice in every way remained as a deposit in the possession of the appellants for them to
return to the depositor at any time they might be required to do so, and nothing has
relieved them of this obligation; neither the dissolution of the partnership that united
them, nor the revolutionary movement of a political character that seems to have
occurred in 1898, nor the fact that they may at some time have lost possession of the rice.

3.BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner, vs. HON.
COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.

FACTS: Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), an
officer and stockholder of Eastern, held at least one joint bank account with the Commercial Bank
and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI).
Sometime in March 1975, a joint checking account with Lim in the amount of P120,000.00 was
opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim.
Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account
stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for
himself and as President and General Manager of Eastern, one-half of this amount was
provisionally released and transferred to one of the bank accounts of Eastern with CBTC.
hereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional
Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction"
(Disclosure Statement) signed by CBTC through its branch manager. . The loan was payable on
demand with interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00
payable on demand to the order of CBTC with interest at 14% per annum. In the Disclosure
Statement, the box with the printed word "UNSECURED" was marked with "X" meaning
unsecured, while the line with the words "this loan is wholly/partly secured by" is followed by the
typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint account
of Velasco and Lim with a balance of P331,261.44.

Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," dated 18
August 1978, wherein it was stated that "as security for the Loan have offered [CBTC] and the
latter accepts a holdout on said [Current Account No. 2310-011-42 in the joint names of Lim and
Velasco] to the full extent of their alleged interests therein asthese may appear as a result of
final and definitive judicial action or a settlement between and among the contesting parties
thereto." Sometime in 1980, CBTC was merged with BPI. On December 2, 1987, BPI filed with
the RTC of Manila a complaint against Lim and Eastern demanding payment of the promissory
note for P73,000.00. Defendants Lim and Eastern, in turn, filed a counterclaim against BPI for the
return of the balance in the disputed account subject of the Holdout Agreement and the interests
thereon after deducting the amount due on the promissory note.

ISSUES:
1. whether BPI can demand payment of the loan of P73,000.00 despite the existence of the
Holdout Agreement
2. whether BPI is still liable to the private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.

HELD:
1. It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every
right to demand that Eastern and Lim settle their liability under the promissory note. It cannot be
compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of
the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is
under no duty or obligation to make the application. 18 To apply the deposit to the payment of a
loan is a privilege, a right of set-off which the bank has the option to exercise. 19

Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement,
CBTC was not in any way precluded from demanding payment from Eastern and from instituting
an action to recover payment of the loan. What it provides is an alternative, not an exclusive,
method of enforcing its claim on the note. When it demanded payment of the debt directly from
Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the
Holdout Agreement to the payment of the promissory note for P73,000.00. Its suit for the
enforcement of the note was then in order and it was error for the trial court to dismiss it on the
theory that it was set off by an equivalent portion in C/A No. 2310-001-42 which BPI should have
debited. The "suspensive condition" theory of the petitioner is, to recover payment of the loan.
What it provides is an alternative, not an exclusive, method of enforcing its claim on the note.
When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of
the promissory note for P73,000.00. Its suit for the enforcement of the note was then in order
and it was error for the trial court to dismiss it on the theory that it was set off by an equivalent
portion in C/A No. 2310-001-42 which BPI should have debited. The "suspensive condition" theory
of the petitioner is, therefore, untenable.
2. The account was proved and established to belong to Eastern even if it was deposited in the
names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or
to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it
already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner
should not have allowed such withdrawal because it had admitted in the Holdout Agreement the
questioned ownership of the money deposited in the account. As early as 12 May 1979, CBTC
was notified by the Corporate Secretary of Eastern that the deposit in the joint account of
Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of
Velasco. Because the ownership of the deposit remained undetermined, BPI, as the debtor with
respect thereto, had no right to pay to persons other than those in whose favor the obligation
was constituted or whose right or authority to receive payment is indisputable. The payment of
the money deposited with BPI that will extinguish its obligation to the creditor-depositor is
payment to the person of the creditor or to one authorized by him or by the law to receive it. 25
Payment made by the debtor to the wrong party does not extinguish the obligation as to the
creditor who is without fault or negligence, even if the debtor acted in utmost good faith and by
mistake as to the person of the creditor, or through error induced by fraud of a third person. 26
The payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its
obligation to the true depositor, Eastern.

4.GUIGONA VS. CITY FISCAL

FACTS: A petition for prohibition and injunction with a prayer for the immediate issuance of
restraining order and/or writ of preliminary injunction filed by petitioners to prohibit public
respondents from proceeding with the preliminary investigation. Petitioners were charged by
respondent David, with estafa and violation of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions principally, on the ground of lack of
jurisdiction because petitioners' obligation is civil in nature.

The complaint alleges that from March 20, 1979 to March, 1981, David invested with NSLA
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister,
Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of
payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise Kuhne),

That David was induced into making the investments by Robert Marshall an Australian national
said to be a close associate of petitioner Guingona Jr., then NSLA President, petitioner Martin,
then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA General Manager;

March 21, 1981 NSLA was placed under receivership by the Central Bank, David filed claims for
his investments and those of his sister. On July 22, 1981 David received a report from the
Central Bank that only P305,821.92 of those investments were entered in the records of NSLA;
that the respondents in I.S. No. 81-31938 may have misappropriated the balance at the same
time violating Central Bank Circular No. 364 and related Central Bank regulations on foreign
exchange transactions;
After demands, petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts
misappropriated to P959,078.14 and US$75,000.00. Petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims allegedly comprised a purely civil
obligation which was itself novated. Fiscal Lota denied the motion to dismiss After presentation of
David's principal witness, petitioners filed the instant petition because

(a) the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits
and Savings Account allegedly showed that the transactions between David and NSLA were
simple loans, i.e., civil obligations of NSLA which were novated when Guingona, Jr. and Martin
assumed them;

(b) David's principal witness allegedly testified that the duplicate originals of the instruments
were all on file with NSLA, contrary to David's claim that some of his investments were not record

ISSUE: WON failure of the Bank to return the amount deposited will constitute estafa through
misappropriation punishable under of the Revised Penal Code.

HELD: Not estafa through misappropriation but simple loan.

In order that a person can be convicted under estafa, it must be proven that he has the
obligation to deliver or return the same money, goods or personal property that he received
Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they
received from private respondents. As clearly as stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of money that petitioners received
were loans.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as
contrasted to commodatum the borrower acquires ownership of the money, goods or personal
property borrowed Being the owner, the borrower can dispose of the thing borrowed (Article 248,
Civil Code) and his act will not be considered misappropriation thereof'.

But even granting that the failure of the bank to pay the time and savings deposits of private
respondent, any incipient criminals . While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same money that was
deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa
through misappropriation punishable under of the Revised Penal Code, but it will only give rise to
civil liability over which the public respondents have no- jurisdiction.