CASES ON CREDIT TRANSACTION

BY: YOAN B. BUENO

SPOUSES EDUARDO and LYDIA SILOS vs. PHILIPPINE NATIONAL BANK

G.R. No. 181045, July 2, 2014
RULING:
In loan agreements, it cannot be denied that the rate of interest is a principal condition,
if not the most important component. Thus, any modification thereof must be mutually
agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot consider a
stipulation granting a party the option to prepay the loan if said party is not agreeable to
the arbitrary interest rates imposed. Premium may not be placed upon a stipulation in a
contract which grants one party the right to choose whether to continue with or withdraw
from the agreement if it discovers that what the other party has been doing all along is
improper or illegal.
With regard to interest, the Court finds that since the escalation clause is annulled, the
principal amount of the loan is subject to the original or stipulated rate of interest, and
upon maturity, the amount due shall be subject to legal interest at the rate of 12% per
annum. This is the uniform ruling adopted in previous cases, including those cited
here. The interests paid by petitioners should be applied first to the payment of the
stipulated or legal and unpaid interest, as the case may be, and later, to the capital or
principal. Respondent should then refund the excess amount of interest that it has
illegally imposed upon petitioners; "[t]he amount to be refunded refers to that paid by
petitioners when they had no obligation to do so."Thus, the parties original agreement
stipulated the payment of 19.5% interest; however, this rate was intended to apply only
to the first promissory note which expired on November 21, 1989 and was paid by
petitioners; it was not intended to apply to the whole duration of the loan. Subsequent
higher interest rates have been declared illegal; but because only the rates are found to
be improper, the obligation to pay interest subsists, the same to be fixed at the legal rate
of 12% per annum. However, the 12% interest shall apply only until June 30, 2013.
Starting July1, 2013, the prevailing rate of interest shall be 6% per annum pursuant to
our ruling in Nacar v. Gallery Frames and Bangko Sentral ng Pilipinas-Monetary Board
Circular No. 799.
ROLANDO C. DE LA PAZ vs. L & J DEVELOPMENT COMPANY
G.R. No. 183360, September 08, 2014
RULING:
Under Article 1956 of the Civil Code, no interest shall be due unless it has been
expressly stipulated in writing. Jurisprudence on the matter also holds that for interest
to be due and payable, two conditions must concur: a) express stipulation for the
payment of interest; and b) the agreement to pay interest is reduced in writing.
Here, it is undisputed that the parties did not put down in writing their agreement. Thus,
no interest is due. The collection of interest without any stipulation in writing is
prohibited by law. Moreover, as the creditor, he could have requested or required that all
the terms and conditions of the loan agreement, which include the payment of interest,
be put down in writing to ensure that he and L&J are on the same page. Rolando had a
choice of not acceding and to insist that their contract be put in written form as this will
favor and safeguard him as a lender. Unfortunately, he did not. It must be stressed that
[c]ourts 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. Even if the payment of interest has been reduced in writing,
a 6% monthly interest rate on a loan is unconscionable, regardless of who between the
parties proposed the rate.

CASES ON CREDIT TRANSACTION

BY: YOAN B. BUENO

FE H. OKABE vs. ERNESTO A. SATURNINO 26 Aug. 2014

RULING:
Held Under Sec. 7, Act 3135, the purchaser or the mortgagee who is also the purchaser
in the foreclosure sale may apply for a writ of possession during the redemption period
upon an ex parte motion and after furnishing a bond. China Banking v. Ordinario:
purchaser in a foreclosure sale is entitled to possession of the property. It is PNB, the
purchaser in the foreclosure sale, who can file for the ex-parte issuance of the writ of
possession during the redemption period, provided it posts a bond under Sec. 7,
Act3135 and not petitioner, who bought the property long after the redemption
period.SC applied Sec. 33, Rule 39, RoC. According to the aforecited provision, if the
purchaser is a third party who acquired the property after the redemption period, a
hearing must be conducted to determine whether possession over the property is still
with the mortgagor or that of a third party holding the same adversely to the mortgagor.
If the property is in the possession of the mortgagor, a writ of possession could thus be
issued. Otherwise, the remedy of a writ of possession is no longer available to such
purchaser, but he can wrest possession over the property through an ordinary action of
ejectment. However, requiring the subsequent purchaser to file a separate case of
ejectment will only prolong the proceedings and unduly deny the said purchaser of
possession of the property already bought.
SPOUSES TAGUMPAY N. ALBOS AND AIDA C. ALBOS vs. SPOUSES NESTOR M.
EMBISAN AND ILUMINADA A. EMBISAN, DEPUTY SHERIFF MARINO V.
CACHERO, AND THE REGISTER OF DEEDS OF QUEZON CITY
G.R. No. 210831, November 26, 2014
RULING:
Article 1956 of the New Civil Code, which refers to monetary interest, provides:
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.
As mandated by the foregoing provision, payment of monetary interest shall be due only
if: (1) there was an express stipulation for the payment of interest; and (2) the
agreement for such payment was reduced in writing. Thus, We have held that collection
of interest without any stipulation thereof in writing is prohibited by law. 13chanrobleslaw
In the case at bar, it is undisputed that the parties have agreed for the loan to earn 5%
monthly interest, the stipulation to that effect put in writing. When the petitioners
defaulted, the period for payment was extended, carrying over the terms of the original
loan agreement, including the 5% simple interest. However, by the third extension of the
loan, respondent spouses decided to alter the agreement by changing the manner of
earning interest rate, compounding it beginning June 1986. This is apparent from the
Statement of Account prepared by the spouses Embisan themselves.
Given the circumstances, We rule that the first requirementthat there be an express
stipulation for the payment of interestis not sufficiently complied with, for purposes of
imposing compounded interest on the loan. The requirement does not only entail
reducing in writing the interest rate to be earned but also the manner of earning the
same, if it is to be compounded. Failure to specify the manner of earning interest,
however, shall not automatically render the stipulation imposing the interest rate void
since it is readily apparent from the contract itself that the parties herein agreed for the
loan to bear interest. Instead, in default of any stipulation on the manner of earning
interest, simple interest shall accrue.
Nevertheless, even if there was such an agreement that interest will be compounded,
We agree with the petitioners that the 5% monthly rate, be it simple or compounded,

CASES ON CREDIT TRANSACTION

BY: YOAN B. BUENO

written or verbal, is void for being too exorbitant, thus running afoul of Article 1306 of the
New Civil Code, which provides:
Article 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary
tolaw, morals, good customs, public order, or public policy. (emphasis added)
As case law instructs, 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.
SPOUSES SUNTAY vs. KEYSER MERCANTILE, INC.,
G.R. No. 208462, December 10, 2014
RULING:
The CA stated in its decision that when the subject property was levied and subjected to
an execution sale, Bayfront had already sold it to Keyser. As such, Spouses Suntay no
longer acquired the right over the subject property from Bayfront because the latter, as
judgment debtor, had nothing more to pass. 29 Earlier, the RTC held that at the time
Spouses Suntay were to register the auction sale, the subject property was already
registered in Keysers name and, thus, they were fully aware of the earlier sale. It was
too late for Spouses Suntay to deny their knowledge of Keysers title. The RTC also
found the auction sale questionable due to the lack of posting and publication of
notice.30
The Court disagrees with the lower courts. They had completely overlooked the
significance of a levy on execution. The doctrine is well-settled that a levy on execution
duly registered takes preference over a prior unregistered sale. Even if the prior sale
was subsequently registered before the sale in execution but after the levy was duly
made, the validity of the execution sale should be maintained because it retroacts to the
date of the levy. Otherwise, the preference created by the levy would be meaningless
and illusory.
The settled rule is that levy on attachment, duly registered, takes preference over
a prior unregistered sale. This result is a necessary consequence of the fact that the
property involved was duly covered by the Torrens system which works under the
fundamental principle that registration is the operative act which gives validity to the
transfer
or
creates
a
lien
upon
the
land.
The preference created by the levy on attachment is not diminished even by the
subsequent registration of the prior sale. This is so because an attachment is a
proceeding in rem. It is against the particular property, enforceable against the whole
world. The attaching creditor acquires a specific lien on the attached property which
nothing can subsequently destroy except the very dissolution of the attachment or levy
itself. Such a proceeding, in effect, means that the property attached is an indebted
thing and a virtual condemnation of it to pay the owners debt. The lien continues until
the debt is paid, or sale is had under execution issued on the judgment, or until the
judgment is satisfied, or the attachment discharged or vacated in some manner
provided by law.