COMMONWEALTH INSURANCE CORPORATION vs.
CA bonds was made on the condition that its liability shall
In 1984, plaintiff-appellant Rizal Commercial Banking
Corporation (RCBC) granted two export loan lines, one,
for P2,500,000.00 to Jigs Manufacturing Corporation
(JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). JIGS and ELBA which are sister
corporations both drew from their respective credit
lines, the former in the amount of P2,499,992.00 and
the latter for P998,033.37 plus P478,985.05 from the
case-to-case basis and trust receipts. These loans were
secured by surety bonds executed by defendant-
appellee Commonwealth Insurance Company (CIC).
Specifically, the surety bonds issued by appellee CIC in
favor of appellant RCBC to secure the obligations of JIGS
totaled P2,894,128.00 while that securing ELBA’s
obligation was P1,570,000.00. Hence, the total face
value of the surety bonds issued by appellee CIC
was P4,464,128.00.
JIGS and ELBA defaulted in the payment of their
respective loans. RCBC made a written demand on
appellee CIC to pay JIG’S and ELBA’s account to the full
extend (sic) of the suretyship. CIC made several
payments in the total amount of P2,000,000.00. There
having been a substantial balance unpaid, appellant
RCBC made a final demand for but CIC ignored it. Thus,
appellant RCBC filed the Complaint for a Sum of Money
against CIC.
The Trial Court finds the defendants Commonwealth
Insurance Co. and defaulted third party defendants Jigs
Manufacturing Corporation, Elba Industries and
Iluminada de Guzman solidarily liable to pay RCBC.
Not satisfied with the trial court’s decision, RCBC filed a
motion for reconsideration praying that in addition to
the principal sum of P2,464,128.00, defendant CIC be
held liable to pay interests thereon from date of
demand at the rate of 12% per annum until the same is
fully paid. However, the trial court denied the motion.
RCBC then appealed to the Court of Appeals.
CA: CIC was ordered to pay the amount of surety bonds
plus legal interest of 12% per annum.
CIC filed a motion for reconsideration but the CA denied
the same.
Hence, herein petition. CIC argued it should not be
made to pay interest because its issuance of the surety
in no case exceed the amount of the said bonds.
ISSUE: WON petitioner should be held liable to pay legal
interest over and above its principal obligation under
the surety bonds issued by it.
RULING:
In Republic vs. Court of Appeals and R & B Surety and
Insurance Company, Inc. we have sustained the
principle that if a surety upon demand fails to pay, he
can be held liable for interest, even if in thus paying, its
liability becomes more than the principal obligation.
The increased liability is not because of the contract but
because of the default and the necessity of judicial
collection.12
Petitioner’s liability under the suretyship contract is
different from its liability under the law. There is no
question that as a surety, petitioner should not be made
to pay more than its assumed obligation under the
surety bonds.13 However, it is clear from the above-
cited jurisprudence that petitioner’s liability for the
payment of interest is not by reason of the suretyship
agreement itself but because of the delay in the
payment of its obligation under the said agreement.
xxx Petitioner admits having incurred in delay.
In the present case, there is no dispute that petitioner’s
obligation consists of a loan or forbearance of money.
No interest has been agreed upon in writing between
petitioner and respondent. Applying the above-quoted
rule to the present case, the Court of Appeals correctly
imposed the rate of interest at 12% per annum to be
computed from the time the extra-judicial demand was
made.
This is in accordance with the provisions of Article
116920 of the Civil Code and of the settled rule that
where there has been an extra-judicial demand before
action for performance was filed, interest on the
amount due begins to run not from the date of the filing
of the complaint but from the date of such extra-judicial
demand.21 RCBC’s extra-judicial demand for the
payment of JIGS’ obligation was made on October 30,
1984; while the extra-judicial demand for the payment
of ELBA’s obligation was made on December 17, 1984.
On the other hand, the complaint for a sum of money
was filed by RCBC with the trial court only on
September 19, 1988.
CALDERON vs. PEOPLE
Facts:
Elizabeth Eusebio-Calderon was charged by her aunt
Teresita Eusebio, Amelia Casanovaand cousin Manolito
Eusebio with three count Estafa.
According to private complainants, petitioner assured
them that the checks will behonored upon
maturity. They gave her the money because she showed
them her pieces of jewelry which convinced them that
she has the ability to pay the loans.In her defense,
petitioner admits that she issued the checks but alleges
that it was notdone to defraud her creditors.After trial,
the lower court rendered a joint decision finding
petitioner guilty beyond reasonable doubt,
but ruled that her liability for the “interest checks” was
only civil, thereby acquitting the accused but indemnify
to pay.The Decision of the Court of Appeals which
reversed and set aside the Decision of theRegional Trial
Court acquitting the accused but ordering her to pay
civil liability.
Issues
(1) Did the Court of Appeals err in finding the appellant
civilly liable to complainantswith respect to the interest
in the principal loan despite the dismissal of the
interestchecks by the Regional Trial Court?
(2) Is the interest agreed upon by the parties usurious?
(3) Should the private respondents file a separate civil
complaint for the claim of Sum of Money?
Ruling:
The court finds the petition meritorious.When
petitioner appealed her conviction, the dismissal of the
interest checks by the lowercourt did not preclude the
Court of Appeals from reviewing such decision and
modifying hercivil liability. The appeal conferred
upon the appellate court full jurisdiction and
rendered itcompetent to examine the records, revise
the judgment appealed from, increase the penalty
andcite the proper provision of the penal law.
Under Article 29 of the Civil Code, when the accused in
a criminal prosecution isacquitted on the ground that
his guilt has not been proven beyond reasonable doubt,
a civil actionfor damages for the same act or omission
may be instituted. The judgment
of acquittalextinguishes the liability of the accused for
damages only when it includes a declaration that
thefact from which the civil liability might arise did not
exist. Thus, Section 1, paragraph (a) of Rule111 of the
Rules of Court provides:
SECTION 1.
Institution of criminal and civil actions.
– (a) When a criminal action isinstituted, the civil
action for the recovery of civil liability arising from the
offense charged shallbe deemed instituted with the
criminal action unless the offended party waives the
civil action,reserves the right to institute it separately or
institutes the civil action prior to the criminal action.An
accused who is acquitted of Estafa may nevertheless be
held civilly liable where thefacts established by the
evidence so warrant. Petitioner Elizabeth Calderon is
clearly liable to theprivate respondents for the
amount borrowed. The Court of Appeals found that
the former didnot employ trickery or deceit in obtaining
money from the private complainants, instead,
itconcluded that the money obtained was undoubtedly
loans for which petitioner paid interest.The checks
issued by petitioner as payment for the principal loan
constitute evidence of her civilliability which was
deemed instituted with the criminal action.The civil
liability of petitioner includes only the principal
amount of the loan. Withrespect to the interest checks
she issued, the same are void. There was no written
proof of thepayable interest except for the verbal
agreement that the loan shall earn 5% interest per
month.Under Article 1956 of the Civil Code, an
agreement as to payment of interest must be in
writing,otherwise it cannot be valid. Consequently, no
interest is due and the interest checks she issuedshould
be eliminated from the computation of her civil
liability.However, while there can be no stipulated
interest, there can be legal interest pursuant toArticle
2209 of the Civil Code. It is elementary that in the
absence of a stipulation as to interest,the loan due will
now earn interest at the legal rate of 12% per annum.In
view of our ruling that there can be no stipulated
interest in this case, there is no need to passupon the
second issue of whether or not the interests were
usurious.
The Decision of the Court of Appeals is AFFIRMED with
the MODIFICATION thatpetitioner is ordered to pay
Amelia Casanova,Teresita Eusebio, and Manolito
Eusebio as civilliability with legal interest of twelve
percent (12%) per annum until its satisfaction.
MEDEL vs. COURT OF APPEALS
On November 7, 1985, Servando Franco and Leticia
Medel (hereafter Servando and Leticia) obtained a loan
from Veronica R. Gonzales (hereafter Veronica), who
was engaged in the money lending business under the
name "Gonzales Credit Enterprises", in the amount
of P50,000.00, payable in two months. Veronica gave
only the amount of P47,000.00, to the borrowers, as
she retained P3,000.00, as advance interest for one
month at 6% per month. Servado and Leticia executed a
promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained
from Veronica another loan in the amount
of P90,000.00, payable in two months, at 6% interest
per month. They executed a promissory note to
evidence the loan, maturing on January 19, 1986. They
received only P84,000.00, out of the proceeds of the
loan.
On maturity of the two promissory notes, the
borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from
Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a
real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special
power of attorney in favor of Leticia Medel, authorizing
her to execute the mortgage. Servando and Leticia
executed a promissory note in favor of Veronica to pay
the sum of P300,000.00, after a month, or on July 11,
1986. However, only the sum of P275,000.00, was given
to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to
pay the third loan on maturity.
Servando and Leticia with the latter's husband, Dr.
Rafael Medel, consolidated all their previous unpaid
loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing
their indebtedness to a total of P500,000.00, payable on
August 23, 1986. The executed a promissory note.
On maturity of the loan, the borrowers failed to pay the
indebtedness of P500,000.00, plus interests and
penalties. A complaint for collection of the full amount
of the loan including interests and other charges was
filed.
Issue: WON the stipulated rates of interest at 5.5% per
month on the loan in the sum of P500,00 that plaintiffs
extended to the defendant is usurious?
Held:
The SC agree with petitioners that the stipulated rate of
interest at 5.5% per month on the P500,000.00 loan is
excessive, iniquitous, unconscionable and
exorbitant. However, SC cannot consider the rate
"usurious" because it has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is
now "legally inexistent".
In Security Bank and Trust Company vs. Regional Trial
Court of Makati, Branch 61 the Court held that CB
Circular No. 905 "did not repeal nor in anyway amend
the Usury Law but simply suspended the latter's
effectivity." Indeed, we have held that "a Central Bank
Circular cannot repeal a law. Only a law can repeal
another law." In the recent case of Florendo vs. Court of
Appeals, the Court reiterated the ruling that "by virtue
of CB Circular 905, the Usury Law has been rendered
ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and
borrower may agree upon."
Nevertheless, SC find the interest at 5.5% per month, or
66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if not
against the law. The stipulation is void. The courts shall
reduce equitably liquidated damages, whether intended
as an indemnity or a penalty if they are iniquitous or
unconscionable.
Consequently, the Court of Appeals erred in upholding
the stipulation of the parties. Rather, we agree with the
trial court that, under the circumstances, interest at
12% per annum, and an additional 1% a month penalty
charge as liquidated damages may be more reasonable.
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners,
vs. RODRIGO V. RAMOS, respondent.
FACTS:
This case is a petition[3] for consolidation of title or
ownership filed on 5 July 1993 with the trial court by
herein respondent Rodrigo V. Ramos (hereafter
RAMOS) against herein petitioners, Spouses Silvestre
and Celia Pascual (hereafter the PASCUALs).
On June 3, 1987, Sps. Pascual entered into a loan
agreement with Ramos in the amount of Php
150,000.00 with interest of 7% per month. As collateral
the spouses Pascual executed a Deed of Absoute Sale
with Right of Repurchase within one year covering the
Spouses’ property in Bo. Taliptip, Bambang, Bulacan,
Bulacan.
The Spouses defaulted in payment and failed to exercise
the right of repurchase within one. Hence the present
case.
RTC Ruling
(1) First Case – RTC Ruling
The trial court found that the transaction between the
parties was actually a loan in the amount of P150,000,
the payment of which was secured by a mortgage of the
property covered by TCT No. 305626. It also found that
the PASCUALs had made payments in the total sum
of P344,000, and that with interest at 7% per annum,
the PASCUALs had overpaid the loan by P141,500.
(2) MR by Ramos – RTC Ruling
 the trial court issued on 5 June 1995 an
Order[9] modifying its decision by deleting
the award of P141,500 to the PASCUALs as
overpayment of the loan and interest and
ordering them to pay RAMOS P511,000
representing the principal loan plus
interest.
 It noted that during trial, the PASCUALs
never disputed the stipulated interest
rate. However, the court declared that the
7% per month interest is too burdensome
and onerous. Invoking the protective
mantle of Article 24 of the Civil Code, which
mandates the courts to be vigilant for the
protection of a party at a disadvantage due
to his moral dependence, ignorance,
indigence, mental weakness, tender age or
other handicap, the trial court unilaterally
reduced the interest rate from 7% per
month to 5% per month. Thus, the interest
due from 3 June 1987 to 3 April 1995
was P705,000. Deducting therefrom the
payments made by the PASCUALs in the
amount of P344,000, the net interest due
was P361,000. Adding thereto the loan
principal of P150,000, the total amount due
from the PASCUALs was P511,000.
CA Ruling
In its Decision[11] of 5 November 1999, the Court of
Appeals affirmed in toto the trial court’s Orders
Contention of Sps. Pascual
 the interest of either 5% or 7% a month is
exorbitant, unconscionable, unreasonable, usurious
and inequitable.
 Invoking this Court’s ruling in Medel v. Court of
Appeals,[12] they argue that the 5% per month
interest is excessive, iniquitous, unconscionable and
exorbitant. Moreover, respondent should not be
allowed to collect interest of more than 1% per
month because he tried to hide the real transaction
between the parties by imposing upon them to sign
a Deed of Absolute Sale with Right to Repurchase.
Contention of Ramos
there was nothing illegal on the rate of interest agreed
upon by the parties, since the ceilings on interest rates
prescribed under the Usury Law had expressly been
removed, and hence parties are left freely at their
discretion to agree on any rate of interest. Moreover,
there was no scheme to hide a usurious transaction.
ISSUE: Whether or not the 7% interest charge is illegal
or not.
HELD:
Interest charge
It is a basic principle in civil law that parties are bound
by the stipulations in the contracts voluntarily entered
into by them. Parties are free to stipulate terms and
conditions which they deem convenient provided they
are not contrary to law, morals, good customs, public
order, or public policy.[15]
The interest rate of 7% per month was voluntarily
agreed upon by RAMOS and the PASCUALs. There is
nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of
fraud when they entered into the agreement with
RAMOS. Neither is there a showing that in their
contractual relations with RAMOS, the PASCUALs were
at a disadvantage on account of their moral
dependence, ignorance, mental weakness, tender age
or other handicap, which would entitle them to the
vigilant protection of the courts as mandated by Article
24 of the Civil Code. Apropos in our ruling in Vales vs.
Villa:
All men are presumed to be sane and normal and
subject to be moved by substantially the same
motives. When of age and sane, they must take care
of themselves. In their relations with others in the
business of life, wits, sense, intelligence, training,
ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes
to a few only, with loss and injury to others. In these
contests men must depend upon themselves – upon
their own abilities, talents, training, sense, acumen,
judgment. The fact that one may be worsted by
another, of itself, furnishes no cause of
complaint. One man cannot complain because
another is more able, or better trained, or has better
sense or judgment than he has; and when the two
meet on a fair field the inferior cannot murmur if the
battle goes against him. The law furnishes no
protection to the inferior simply because he is inferior,
any more than it protects the strong because he is
strong. The law furnishes protection to both alike – to
one no more or less than to the other. It makes no
distinction between the wise and the foolish, the great
and the small, the strong and the weak. The foolish
may lose all they have to the wise; but that does not
mean that the law will give it back to them again.
Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from
unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts
cannot constitute themselves guardians of persons
who are not legally incompetent. Courts operate not
because one person has been defeated or overcome
by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make
ridiculous contracts, use miserable judgment, and lose
money by then – indeed, all they have in the world;
but not for that alone can the law intervene and
restore. There must be, in addition, a violation of law,
the commission of what the law knows as
anactionable wrong, before the courts are
authorized to lay hold of the situation and remedy
it.[16]
With the suspension of the Usury Law and the removal
of interest ceiling, the parties are free to stipulate the
interest to be imposed on loans. Absent any evidence of
fraud, undue influence, or any vice of consent exercised
by RAMOS on the PASCUALs, the interest agreed upon
is binding upon them. This Court is not in a position to
impose upon parties contractual stipulations different
from what they have agreed upon. As declared in the
decision of Cuizon v. Court of Appeals,[17]
APPLICABILITY OF THE DOCTRINE ENUNCIATED IN
MEDEL V. CA
Our ruling in Medel v. Court of Appeals[14] is not
applicable to the present case. In that case, the
excessiveness of the stipulated interest at the rate of
5.5 % per month was put in issue by the defendants in
the Answer. Moreover, in addition to the interest, the
debtors were also required, as per stipulation in the
promissory note, to pay service charge of 2% per annum
and a penalty charge of 1% per month plus attorney’s
fee of equivalent to 25% of the amount due. In the case
at bar, there is no other stipulation for the payment of
an extra amount except interest on the principal loan.
Thus, taken in conjunction with the stipulated service
charge and penalty, the interest rate of 5.5% in
the Medel case was found to be excessive, iniquitous,
unconscionable, exorbitant and hence, contrary to
morals, thereby making such stipulation null and void.