Medel vs Court of Appeals, 299 SCRA 481; GR No.

131622, November 27,

1998, digested
(Credit Transactions Loans, Usury Law, Interest Rates)

Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable
in 2 months and executed a promissory note. Plaintiff gave only the amount of P47,
000.00 to the borrowers and retained P3, 000.00 as advance interest for 1 month at
6% per month.
Defendants obtained another loan from Defendant in the amount of P90, 000.00,
payable in 2 months, at 6% interest per month. They executed a promissory note to
evidence the loan and received only P84, 000.00 out of the proceeds of the loan.
For the third time, Defendants secured from Plaintiff another loan in the amount of
P300, 000.00, maturing in 1 month, and secured by a real estate mortgage. They
executed a promissory note in favor of the Plaintiff. However, only the sum of P275,
000.00, was given to them out of the proceeds of the loan.
Upon maturity of the three promissory notes, Defendants failed to pay the
indebtedness.
Defendants consolidated all their previous unpaid loans totalling P440, 000.00, and
sought from Plaintiff another loan in the amount of P60, 000.00, bringing their
indebtedness to a total of P50,000.00. They executed another promissory note in
favor of Plaintiff to pay the sum of P500, 000.00 with a 5.5% interest per month plus
2% service charge per annum, with an additional amount of 1% per month as
penalty charges.
On maturity of the loan, the Defendants failed to pay the indebtedness which
prompt the Plaintiffs to file with the RTC a complaint for collection of the full amount
of the loan including interests and other charges.
Declaring that the due execution and genuineness of the four promissory notes has
been duly proved, the RTC ruled that although the Usury Law had been repealed,
the interest charged on the loans was unconscionable and revolting to the
conscience and ordered the payment of the amount of the first 3 loans with a 12%
interest per annum and 1% per month as penalty.
On appeal, Plaintiff-appellants argued that the promissory note, which consolidated
all the unpaid loans of the defendants, is the law that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants on the ground that the
Usury Law has become legally inexistent with the promulgation by the Central Bank
in 1982 of Circular No. 905, the lender and the borrower could agree on any interest
that may be charged on the loan, and ordered the Defendants to pay the Plaintiffs
the sum of P500,000, plus 5.5% per month interest and 2& service charge per
annum , and 1% per month as penalty charges.
Defendants filed the present case via petition for review on certiorari.

Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of
P500, 000.00 is usurious.

Held: No.
A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is
excessive, iniquitous, unconscionable and exorbitant, but it cannot be considered
usurious because Central Bank Circular No. 905 has expressly removed the
interest ceilings prescribed by the Usury Law and that the Usury Law is now legally
inexistent.

Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another law.
Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury
Law but simply suspended the latters effectivity (Security Bank and Trust Co vs
RTC). Usury has been legally non-existent in our jurisdiction. Interest can now be
charged as lender and borrower may agree upon.

Law: Article 2227, Civil Code

The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular 905,
nothing in the said circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a haemorrhaging of their assets (Almeda vs. CA, 256 SCRA 292
[1996]).

Dario nacar VS gallery frames

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged
that he was dismissed without cause by Gallery Frames on January 24, 1997. On October 15, 1998,
the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded
Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the
decision of the Labor Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January 24,
1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as
he ruled that the reckoning point of the computation should only be from the time Nacar was illegally
dismissed )January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that
the said date should be the reckoning point because Nacar did not appeal hence as to him, that
decision became final and executory.

ISSUE: Whether or not the Labor Arbiter is correct.

HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring to
cases where the dismissed employee wins, or loses but wins on appeal). The first part is the ruling
that the employee was illegally dismissed. This is immediately final even if the employer appeals
but will be reversed if employer wins on appeal. The second part is the ruling on the award of
backwages and/or separation pay. For backwages, it will be computed from the date of illegal
dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals, then the end
date shall be extended until the day when the appellate courts decision shall become final. Hence,
as a consequence, the liability of the employer, if he loses on appeal, will increase this is just but a
risk that the employer cannot avoid when it continued to seek recourses against the Labor Arbiters
decision. This is also in accordance with Article 279 of the Labor Code.
Anent the issue of award interest in the form of actual or compensatory damages, the Supreme
Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by the
promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which lowered
the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial
demand whichever is appropriate and subject to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2.

Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or
extra-judicial
demand (Art. 1169, Civil Code)
b. If unliquidated, no interest

Except: When later on established with certainty. Interest shall still be 6% per annum demandable
from the date of judgment because such on such date, it is already deemed that the amount of
damages is already ascertained.
3. Compounded Interest
- This is applicable to both monetary and non-monetary obligations
- 6% per annum computed against award of damages (interest) granted by the court. To be
computed from the date when the courts decision becomes final and executory until the award is
fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
- Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12% rate;
- Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate
for unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments on or
after July 1, 2013 shall still incur the 6% rate.

FILINVEST vs. CA
G.R. No. 115902. 27 Sept 1995.
Petition for certiorari to review the decision of the CA
Davide, Jr., J.:
Facts: On Aug 26, 1978 FILINVEST awarde to the defendant PACIFIC the development of the residential
subdivision consisting of two lands located in Payatas, QC. PACIFIC issued two surety bonds issued by
PHILAMGEN. PACIFIC failed to finish the contracted work, FILINVEST intends to take over the project
and hold defendant liable for damages.

On October 26, plaintiff submitted its claim against PHILAMGEN under its performance and guarantee
bond but PHILAMGEN refused to acknowledge its liability for the single reason that its principal,
defendant pacific, refused to acknowledge liability therefore. Defendant said that the failure to finish the
contracted work was due to the weather, and the grant of extension of the work is a waiver to claim any
damages. PHILAMGEN contends that the various amendments made on the principal contract and the
deviation in the implementation thereof which were resorted to by plaintiff and PACIFIC w/o its consent
have automatically released the latter from any liability. The tc dismissed the complaint, basing on the
commissioner report. CA affirmed.
Issue: WON the liquidated damages agrees upon by the parties should be reduced.
Held: Decision of CA AFFIRMED.
Ratio: Art. 1226 in obligations with a penal clause, the penalty of 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.
As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and
conditions as they see fit, as long as they are not contrary to law. But the courts may equitably reduce the
penalty in two instances, first,if the principal obligation has been irregularly complied with and second,
when it is iniquitous or unconscionable.