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Toring vs. Ganzon-Olan Oct.

10, 2008 Facts: Petitioner's spouses Toring obtained a loan amounting to P6M at 3% interest per month from respondents spouses Olan. It was secured by the real estate mortgage. For less than a month, the parties have executed a deed of absolute sale conveying the mortgaged property to the respondents. Thereafter, the respondents gave the petitioner an option to buy the land for P10M. An agreement that if the option is exercised only after 2 months, the purchase price will increase at the rate of P300,000 or 3% thereof every month and thereafter, at the rate of P381,000 or 3.81% thereof every month. Petitioners filed a complaint on the ground that the interest of 3% & 3.81% are unconscionable. The Trial Court and the Court of Appeals upheld the said stipulated interest rates. Issue: Whether or not the stipulated interest rates were unconscionable. Ruling: The Supreme Court held that they were unconscionable. In a loan or forbearance of money, according to the Civil Code, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. The court reduced the stipulated interest rate to 1% per month. Garcia vs. Thio March 16, 2007 Facts: As a loan, respondent received a checks amounting $100,000 & P500,000 from petitioner. The checks are payable to one Marilou Santiago because the amounts are being re-lent by respondent to Santiago. As agreed the respondent pays monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts with 3% and 4% interest for respective loans. RTC favoured the petitioner but it was reversed by the Court of Appeals which ruled that there was really no contract of loan between the parties. Issue: Whether or not there is a contract of loan between the parties. Ruling: The Supreme Court ruled that in the affirmative. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. Upon delivery, the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. Although the respondent did not physically receive the proceeds of the check as it was forwarded immediately to Santiago, the checks were placed in her control as an owner. As to interest rate of 3% and 4%, there's no written proof but only verbal agreement, hence, there is as if no interest. Consequently, legal interest will be 12% for absence of stipulation.

PHILIPPINE NATIONAL BANK petitioner , vs, THE HON. COURT OF "PEALS and AMBROSIOPADILLA, respondents GR# 88880. April 30, 1991. GRIRO-AQUINO, J FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and was secured byreal estate mortgage and 2 promissory notes executed in favor of Petitioner by PR. The credit agreementand the promissory notes, in effect, provide that PR agrees to be bound by increases to the interest ratestipulated, provided it is within the limits provided for by law.Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18% to: (1) 32%[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times within the span of a singleyear. This was done despite the numerous letters of request made by PR that the interest rate beincreased only to 21% or 24%.PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack of merit. Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under Rule 45 of ROC filed byPNB with SC. ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly increase thestipulated interest rate on loans contracted with third persons as often as necessary and against theprotest of such persons. HELD: NO RATIO: Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the maximumrate of interest for loans and to change such rates whenever warranted by prevailing economic and socialconditions, by express provision, it may not do so oftener than once every 12 months. If the MonetaryBoard cannot, much less can PNB,

effect increases on the interest rates more than once a year.Based on the credit agreement and promissory notes executed between the parties, although PR didagree to increase on the interest rates allowed by law, no law was passed warranting Petitioner to effectincrease on the interest rates on the existing loan of PR for the months of July to November of 1984.Neither there being any document executed and delivered by PR to effect such increase.For escalation clauses to be valid and warrant the increase of the interest rates on loans, there must be:(1) increase was made by law or by the Monetary Board; (2) stipulation must include a clause for thereduction of the stipulated interest rate in the event that the maximum interest is lowered by law or by theMonetary board. In this case, PNB merely relied on its own Board Resolutions, which are not laws nor resolutions of the Monetary Board.Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not authorizebanks to unilaterally and successively increase interest rates in violation of Sec. 2 PD 116.Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under Art. 1308. Thisprovides that the validity and compliance of the parties to the contract cannot be left to the will of one of the contracting parties. Increases made are therefore void.Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It provides that, nointerest shall be due unless it has been expressly stipulated in writing. PR never agreed in writing to payinterest imposed by PNB in excess of 24% per annum. Interest rate imposed by PNB, as correctly foundby CA, is indubitably excessive. First Metro Investment Corporation vs. Este del Sol Mountain Reserve, Inc. (362 SCRA 101) 10 DEC FACTS: Petitioner FMIC granted respondent a loan of Seven Million Three Hundred Eighty Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction of a sports complex at Montalban, Rizal. Respondent also executed, as provided for by the Loan Agreement, an Underwriting Agreement with underwriting fee, annual supervision fee and consultancy fee with Consultancy Agreement for four (4) years, coinciding with the term of the loan. The said fees were deducted from the first release of loan. Respondent failed to meet the schedule of repayment. Petitioner instituted an instant collection suit. The trial court rendered its decision in favor of petitioner. The Court of Appeals reversed the decision of the trial court in favor of herein respondents after its factual findings and conclusion. ISSUE:

Whether or not the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the usurious interest charged by the petitioner. RULING: YES. In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest. Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. Hence, the instant petition was denied and the assailed decision of the appellate court is affirmed.

Antonio Tan vs. Court of Appeals/CCP


GR No. 116285 FACTS: 1. Petition for review. 2. TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM CCP. 1. Executed a promissory note in amount of P3,411,421.32; payable in 5 installments. 2. TAN failed to pay any installment on the said restructured loa. 3. In a letter, TAN requested and proposed to respondent CCP a mode of paying the restructured loan i. 20% of the principal amount of the loan upon the respondent giving its conformity to his proposal ii. Balance on the principal obligation payable 36 monthly installments until fully paid. 4. TAN requested for a moratorium on his loan obligation until the following year allegedly due to a substantial deduction in the volume of his business and on account of the peso devaluation. i. No favorable response was made to said letters. ii. CCP demanded full payment, within ten (10) days from receipt of said letter P6,088,735.03. 3. CCP FILED COMPLAINT collection of a sum of money 1. TAN interposed the defense that he accommodated a friend who asked for help to obtain a loan from CCP. i. Claimed that cannot find the friend. 2. TAN filed a Manifestation wherein he proposed to settle his indebtedness to CCP by down payment of P140,000.00 and to issue1 2 checks every beginning of the year to cover installment payments for one year, and every year thereafter until the balance is fully paid. i. CCP did not agree to the petitioners proposals and so the trial of the case ensued. 4. TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67, representing defendants outstanding account as of August 28, 1986, with the corresponding stipulated interest and charges thereof, until fully paid, plus attorneys fees in an amount equivalent to 25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs. 1. REASONS:

i. Reason of loan for accommodation of friend was not credible. ii. Assuming, arguendo, that the TAN did not personally benefit from loan, he should have filed a 3rd-party complaint against Wilson Lucmen iii. 3 times the petitioner offered to settle his loan obligation with CCP. iv. TAN may not avoid his liability to pay his obligation under the promissory note which he must comply with in good faith. v. TAN is estopped from denying his liability or loan obligation to the private respondent. 5. TAN APPEALED TO CA, asked for the reduction of the penalties and charges on his loan obligation. 1. Judgment appealed from is hereby AFFIRMED. 1. No alleged partial or irregular performance. 2. However, the appellate court modified the decision of the trial court by deleting exemplary damages because not proportionate to actual damage caused by the non-performance of the contract

ISSUES: WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorneys fees. TAN imputes error on CA in not fully eliminating attorney fees and in not reducing the penalties considering that he made partial payments on the loan. And if penalty is to be awarded, TAN asking for non-imposition of interest on the surcharges because compounding of these are not included in promissory note. No basis in law for the charging of interest on the surcharges for the reason that the New Civil Code is devoid of any provision allowing the imposition of interest on surcharges. WON interest may accrue on the penalty or compensatory interest without violating ART 1959: Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. TAN- No legal basis for the imposition of interest on the penalty charge for the reason that the law only allows imposition of interest on monetary interest but not the charging of interest on penalty. Penalties should not earn interest. WON TAN can file reduction of penalty due to made partial payments. Petitioner contends that reduction of the penalty is justifiable under ART 1229: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

HELD CA DECISION AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%) per annum starting from August 28, 1986. With costs against the petitioner.

1. WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorneys fees. YES. WITH LEGAL BASES. 1. ART 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. i. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. 2. CASE AT BAR: promissory note expressed the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan. 3. PENALTY IN MANY FORMS: i. If the parties stipulate penalty apart monetary interest, two are different and distinct from each other and may be demanded separately. ii. If stipulation about payment of an additional interest rate partakes of the nature of a penalty clause which is sanctioned by law: 1. ART 2209: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. 4. CASE AT BAR: Penalty charge of 2% per month began to accrue from the time of default by the petitioner. i. No doubt petitioner is liable for both the stipulated monetary interest and the stipulated penalty charge. 1. PENALTY CHARGE = penalty or compensatory interest. 2. WON interest may accrue on the penalty or compensatory interest without violating ART 1959. 1. Penalty clauses can be in the form of penalty or compensatory interest. i. Thus, the compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering that: 1. There is an express stipulation in the promissory note (Exhibit A) permitting the compounding of interest. a. 5th paragraph of the said promissory note provides that: Any interest which may be due if not paid shall be added to the total amount when due and shall become part thereof, the whole amount to bear interest at the maximum rate allowed by law.. 2. Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve percent (12%) per annum, in the absence of express stipulation on the specific rate of interest, as in the case at bar. 2. ART 2212: Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. 3. CASE AT BAR: interest began to run on the penalty interest upon the filing of the complaint in court by CCP. i. Hence, the courts did not err in ruling that the petitioner is bound to pay the interest on the total amount of the principal, the monetary interest and the penalty interest. 3. WON TAN can file reduction of penalty due to made partial payments. YES. BUT NOT 10% REDUCTION AS SUGGESTED BY PETITIONER. 1. REDUCED TO 2% REDUCTION: i. PARTIAL PAYMENTS showed his good faith despite difficulty in complying with his loan obligation due to his financial problems. 1. However, we are not unmindful of the respondents long overdue deprivation of the use of its money collectible.

4. The petitioner also imputes error on the part of the appellate court for not declaring the suspension of the running of the interest during period when the CCP allegedly failed to assist the petitioner in applying for relief from liability 1. Alleges that his obligation to pay the interest and surcharge should have been suspended because the obligation to pay such interest and surcharge has become conditional i. Dependent on a future and uncertain event which consists of whether the petitioners request for condonation of interest and surcharge would be recommended by the Commission on Audit. 1. Since the condition has not happened due to the private respondents reneging on its promise, his liability to pay the interest and surcharge on the loan has not arisen. 2. COURT ANSWER: i. Running of the interest and surcharge was not suspended. ii. CCP correctly asserted that it was the primary responsibility of petitioner to inform the Commission on Audit of his application for condonation of interest and surcharge.