CREDIT TRANSACTIONS CASES

LOAN
1. PEOPLE vs. CONCEPCION, 44 Phil. 126
FACTS:
Venancio Concepcion, President of the Philippine National Bank and a member of the
Board thereof, authorized an extension of credit in favor of "Puno y Concepcion, S. en
C. to the manager of the Aparri branch of the Philippine National Bank. "Puno y
Concepcion, S. en C."was a co-partnership where Concepcion is a partner.
Subsequently, Concepcion was charged and found guilty in the Court of First Instance
of Cagayan with violation of section 35 of Act No.2747. Section 35 of Act No. 2747
provides that the National Bank shall not, directly or indirectly, grant loans to any of
the members of the board of directors of the bank nor to agents of the branch banks.
Counsel for the defense argue that the documents of record do not prove that
authority to make a loan was given, but only show the concession of a credit. They
averred that the granting of a credit to the co-partnership "Puno y Concepcion, S. en
C." by VenancioConcepcion, President of the Philippine National Bank, is not a "loan"
within the meaning of section 35 of Act No. 2747.
ISSUE:
Whether or not the granting of a credit of P300,000 to the co-partnership "Puno
yConcepcion, S. en C." by Venancio Concepcion, President of the Philippine National
Bank, a"loan" within the meaning of section 35 of Act No. 2747.
HELD:
The Supreme Court ruled in the affirmative. The "credit" of an individual means his
ability to borrow money by virtue of the confidence or trust reposed by a lender that
he will pay what he may promise. A "loan" means the delivery by one party and the
receipt by the other party of a given sum of money, upon an agreement, express or
implied, to repay the sum loaned,with or without interest. The concession of a "credit"
necessarily involves the granting of "loans"up to the limit of the amount fixed in the
"credit,"

2. Bonnevie V. CA (1983)
G.R. No. L-49101 October 24, 1983
Lessons Applicable: Simple Loan
Facts:
December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan
of P75K from Philippine Bank of Commerce (PBC) by mortgaging their property
Manol R. Sala

SWU School of Law

December 8, 1966: Executed Deed of Sale with Mortgage to Honesto

Bonnevie where P75K is payable to PBC and P25K is payable to Spouses Lanzano.
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22 to
PBC
May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of sale
was published
January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine
Bank of Commerce for the annulment of the Deed of Mortgage dated December 6,
1966 as well as the extrajudicial foreclosure made on September 4, 1968.
CFI: Dismissed the complaint with costs against the Bonnevies
CA: Affirmed
ISSUE: W/N the foreclosure on the mortgage is validly executed.
HELD: YES. CA affirmed
A contract of loan being a consensual contract is perfected at the same time the
contract of mortgage was executed. The promissory note executed on December
12, 1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
Respondent Bank had every right to rely on the certificate of title. It was not bound
to go behind the same to look for flaws in the mortgagor's title, the doctrine of
innocent purchaser for value being applicable to an innocent mortgagee for value.
Thru certificate of sale in favor of appellee was registered on September 2, 1968
and the one year redemption period expired on September 3, 1969. It was not until
September 29, 1969 that Honesto Bonnevie first wrote respondent and offered to
redeem the property.
loan matured on December 26, 1967 so when respondent Bank applied for
foreclosure, the loan was already six months overdue. Payment of interest on July
12, 1968 does not make the earlier act of PBC iniquitous nor does it ipso facto
result in the renewal of the loan. In order that a renewal of a loan may be effected,
not only the payment of the accrued interest is necessary but also the payment of
interest for the proposed period of renewal as well. Besides, whether or not a loan
may be renewed does not solely depend on the debtor but more so on the
discretion of the bank.
3. BPI Investment Corp V. CA (2002)
G.R. No. 133632 February 15, 2002
Lessons Applicable: Simple Loan
Facts:
Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of BPI
Manol R. Sala

SWU School of Law

Investment Corp. (BPIIC), for the construction of a house on his lot in New Alabang
Village, Muntinlupa.
He mortgaged the house and lot to AIDC as security for the loan.
1980: Roa sold the house and lot to ALS Management & Development Corp. and
Antonio Litonjua for P850K who paid P350K in cash and assumed the P500K
indebtedness of ROA with AIDC.
AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested rate
of 20%/annum and service fee of 1%/annum on the outstanding balance payable
within 10 years through equal monthly amortization of P9,996.58 and penalty
interest of 21%/annum/day from the date the amortization becomes due and
payable.
March 1981: ALS and Litonjua executed a mortgage deed containing the new
stipulation with the provision that the monthly amortization will commence on May
1, 1981
August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K
principal loan to P457,204.90.
September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to
be what was left of their loan after full payment of Roas loan
June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on
the ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984 amounting to P475,585.31
August 13, 1984: Notice of sheriff's sale was published
February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC
alleging that they are not in arrears and instead they made an over payment as
of June 30, 1984 since the P500K loan was only released September 13, 1982 which
marked the start of the amortization and since only P464,351.77 was released
applying legal compensation the balance of P35,648.23 should be applied to the
monthly amortizations
RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to
ALS and Litonjua was only in the principal sum of P464,351.77 and awarding moral
damages, exemplary damages and attorneys fees for the publication
CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object
of the contract which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the
second release of the loan?
HELD:
YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral
and exemplary damages in favor of private respondents is DELETED, but the award to
them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages. Costs against
petitioner.
obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract
contract of loan involves a reciprocal obligation, wherein the obligation or promise
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SWU School of Law

of each party is the consideration for that of the other. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with
its obligation under the loan contract.
BPIIC was negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount actually
released and the date when it was released. Such negligence resulted in damage
for which an award of nominal damages should be given
SSS where we awarded attorneys fees because private respondents were
compelled to litigate, we sustain the award of P50,000 in favor of private
respondents as attorneys fees

4. COLITO T. PAJUYO vs. COURT OF APPEALS, GR. No. 146364, June 3, 2004
FACTS:
In June 1979, petitioner Colito T. Pajuyo purchased the rights over a property from
Pedro Perez. Thereafter, he constructed a house therein and he and his family lived
there. Later,Pajuyo agreed to let private respondent Eddie Guevarra to live in the
house for free provided that the latter maintain the cleanliness and orderliness of the
house. They also agreed that Guevarrashould leave the premises upon demand.
Subsequently, when Pajuyo told Guevarra that he needed the house, Guevarra
refused, hence an ejectment case was filed. Guevarra claimed thatPajuyo had no valid
title or right of possession over the lot where the house stands because the lot is
within the 150 hectares set aside for socialized housing. The MTC ruled that the
subject of the agreement between Pajuyo and Guevarra is the house and not the lot.
Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by
tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal Aggrieved, Guevarra appealed to
the Regional Trial Court which only affirmed the MTCdecision. At the CA, the latter
reversed the RTC decision. The Court of Appeals ruled that theKasunduan is not a
lease contract but a commodatum because the agreement is not for a pricecertain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property,
theappellate court held that Guevarra has a better right over the property under
Proclamation No.137. At that time, Guevarra was in physical possession of the
property.
ISSUE:
Whether or not the contract between petitioner and private respondent is one of
commodatum.
HELD:
The Supreme Court held that the contract is not a commodatum. In a contract of
commodatum, one of the parties delivers to another something not consumable so
that the latter may use the same for a certain time and return it. An essential feature
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SWU School of Law

of commodatum is that it is gratuitous Another feature is that the use of the thing
belonging to another is for a certain period. Thus, the bailor cannot demand the return
of the thing loaned until after the expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is constituted. If the bailor
should have urgent need of the thing, he may demand its return for temporary use. If
the use of the thing is merely tolerated by the bailor, he can demand the return of the
thing at will, in which case the contractual relation is called a precarium. The
Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The effects
of the Kasunduan are also different from that of a commodatum.
5. PRODUCERS BANK OF THE PHILIPPINES vs. COURT OF APPEALS, GR No. 115324
FACTS:
S o m e t i m e i n 1 9 7 9 , p r i v a t e re s p o n d e n t Fr a n k l i n Vi v e s , u p o n re q u e s t o f
h i s f r i e n d A n g e l e s S a n c h e z a n d re l y i n g o n t h e a s s u r a n c e t h a t h e
c o u l d w i t h d r a w h i s m o n e y w i t h i n a m o n t h ' s time, issued a check in the
amount of Two Hundred Thousand Pesos in favor of SterelaMarketing and Services
owned by one Col. Arturo Doronilla. Subsequently, private respondent and his wife
found out that Sterela cant be found on the address previously given to
then, so they went to petitioner Producers Bank of the Philippines to verify if
their money was still intact They were informed that part of the amount had been
withdrawn by Doronilla and that the latter instructed the bank to debit from the
savings account the amount and deposit it in his
current a c c o u n t Pr i v a t e re s p o n d e n t fi l e d a n a c t i o n f o r re c o v e r y o f s u m
o f m o n e y a g a i n s t Doronilla, Sanchez, Dumagpi and petitioner. The trial
court ruled in favor of herein private respondents O n a p p e a l o f t h e c a s e ,
t h e a p p e l l a t e c o u r t a ffi r m e d t h e d e c i s i o n o f t h e RTC . Pe t i t i o n e r
contends that the transaction between private respondent and Doronilla is a
simple loan ( m u t u u m ) s i n c e a l l t h e e l e m e n t s o f a m u t u u m a re p re s e n t :
fi r s t , w h a t w a s d e l i v e re d b y private respondent to Doronilla was money, a
consumable thing; and second, the transaction was onerous as Doronilla was obliged
to pay interest. Hence, petitioner argues that it cannot be held liable b e c a u s e i t i s
n o t p r i v y t o t h e t r a n s a c t i o n b e t w e e n t h e l a t t e r a n d D o r o n i l l a . Pr i v a t e
re s p o n d e n t , on the other hand, argues that the transaction between him
and Doronilla is not
am u t u u m b u t a n a c c o m m o d a t i o n , s i n c e h e d i d n o t a c t u a l l y p a r t
w i t h t h e o w n e r s h i p o f his P200,000.00 but retained some degree of
control over his money through his wife who was made a signatory to the
savings account and in whose possession the savings account passbook was
given.
ISSUE:
Whether or not the contract between Sanchez and Doronilla and Vives is a
contract of commodatum, thus making petitioner Bank liable.
Manol R. Sala

SWU School of Law

HELD:
Supreme Court held that the contract is commodatum. Although in view of Article
1933of the Civil Code, the object in commodatum is non-consumable, but
Article 1936 of the Civil Code provides Consumable goods may be the
subject of commodatum if the purpose of the contract i s n o t t h e
c o n s u m p t i o n o f t h e o b j e c t , a s w h e n i t i s m e re l y f o r e x h i b i t i o n . T h u s ,
i f consumable goods are loaned only for purposes of exhibition or when the intention
of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed u p o n , t h e l o a n i s c o m m o d a t u m
a n d n o t a m u t u u m . T h e e v i d e n c e s h o w s t h a t p r i v a t e re s p o n d e n t merely
"accommodated" Doronilla by lending his money without consideration, as a favor to
his good friend Sanchez. It was however clear to the parties to the
transaction that the money would not be removed from Sterelas savings
account and would be returned to private respondent after thirty (30) days.

MUTUUM
6. Liam Law vs. Olympic Sawmill (GR L-30771, 28 May 1984)Liam Law vs.
Olympic Sawmill
GR L-30771, 28 May 1984First DivisionMelencio-Herrera (J)
Facts:

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SWU School of Law

On 7 September 1957, Liam Law (plaintiff) loaned P10,000.00, without interest, to

Olympic Sawmill Co. and Elino Lee Chi, as the latter?s 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 attorney?s 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 plaintiff?s 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 P10,000.00plus 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.
Issue:
Whether the allegation of usury should be made in writing and under oath, pursuant to
Section 9 of the Usury Law.
Held :
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.

7. Medel vs Court of Appeals, 299 SCRA 481; GR No. 131622, November 27,
1998
Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable in
Manol R. Sala

SWU School of Law

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 totaling 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 in-existent 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.
Manol R. Sala

SWU School of Law

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 in-existent
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 hemorrhaging of their assets (Almeda vs. CA, 256 SCRA 292 [1996]).
8. Banco Filipino vs CA, GR No. 129227, 30 May 2000, 332 SCRA 241
FACTS
Elsa and Calvin Arcilla secured, on 3 occasions, loan from petitioner as
evidenced by promissory note. REM was also executed. Under said deeds, Banco
Filipino may increase rate of interest on said loans, within the limits allowed by law. at
that time, under Usury Law, the maximum rate of interest for loans secured by REM
was 12% pa. later, the Central bank issued Circular No. 494 providing for the
maximum interest of 19%pa. meanwhile, Skyli Builders, thru President Calvin Arcilla
secured loans from BPI with FGU Insurance as surety. Banco Filipino issued an account
statement with 17% pa as interest. The Arcillas filed for annulment of the loan
contracts because the rate of interests charged were usurious.
ISSUE
Whether or not respondents are entitled to refund of the alleged interest over
payments
HELD
Yes. Private respondents aver that they are entitled to the refund inasmuch as
the escalation clause incorporated in the loan contracts do not have a corresponding
de-escalation clause and is therefore, illegal.
In Banco Filipino Savings & Mortgage Bank vs Navarro, the Court ruled that
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Central Bank Circular 494, although it has the force and effect of law, is not a law and
is not the law contemplated by the parties which authorizes the petitioner to
unilaterally raise the interest rate of loan. The reliance on the circular was without any
legal basis.

9.

EASTERN SHIPPING LINES, INC. vs. CA, GR. No. 97412, July 12, 1994

FACTS:
Two fiber drums of riboflavin were shipped from Yokohama, Japan on board the vessel
owned by herein petitioner Eastern Shipping Lines. When it arrives in Manila, it was
put unto the custody of Metro Port Service, Inc. The latter excepted to one
drum which is said to be in bad order a n d w h i c h d a m a g e w a s u n k n o w n t o
E a s t e rn S h i p p i n g L i n e s . L a t e r , A l l i e d B ro ke r a g e C o r p o r a t i o n re c e i v e d
t h e s h i p m e n t f ro m M e t ro Po r t S e r v i c e , I n c . W i t h o n e d r u m
d a m a g e d , Allied Brokerage Corporation made deliveries to the consignee's
warehouse. The latter excepted to one drum that is damaged. Eastern Shipping
Lines averred that due to the one drum that is damaged and due to the fault
and negligence of Metro Port Service, Inc. and Allied Brokerage Corporation,
the consignee suff ered losses. The two failed and refused to pay the claims
for d a m a g e s . C o n s e q u e n t l y , E a s t e rn S h i p p i n g L i n e s w a s c o m p e l l e d t o
p a y t h e c o n s i g n e e i n t e r ro g a t e d to all the rights of action of said
consignee against Metro Port Service, Inc. and Allied B r o ke r a g e
C o r p o r a t i o n . Tr i a l e n s u e d a n d o n a p p e a l o f t h e c a s e , t h e a p p e l l a t e
c o u r t a ffi rm e d the decision of the trial court ordering Metro Port Service and Allied
Brokerage to pay Eastern Shipping Lines, jointly and severally, the amount of
P19,032.95, with the present legal interest of 12% per annum from the date of filing
of the complaints, until fully paid. Metro Port Service and Allied Brokerage opposed
especially as to the payment of interest contending that the legal interest on
an award for loss or damage should be 6% in view of Article 2209 of the Civil
Code.

ISSUE:
Whether or not the payment of legal interest on an award for loss or damage
is twelve percent (12%) or six percent (6%).
HELD:
Article 2209 of the New Civil Code provides that if the obligation
c o n s i s t s i n t h e 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 six percent
per annum
. 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
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imposed, as follows:1 . W h e n t h e o b l i g a t i o n i s b re a c h e d , a n d i t c o n s i s t s i n
t h e p a y m e n t o f a s u m o f m o n e y , t h e i n t e re s t 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 under and subject to the provisions of Article 1169 of
the Civil Code.2 . W h e n a n o b l i g a t i o n , n o t c o n s t i t u t i n g a l o a n
o r f o r b e a r a n c e o f m o n e y , i s b re a c h e d , a n i n t e re s t 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 unliquidatedclaims 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 extra
judicially(Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the t i m e t h e d e m a n d i s m a d e , t h e i n t e re s t
s h a l l b e g i n t o r u n o n l y f ro m t h e d a t e t h e j u d g m e n t o f t h e c o u r t i s
m a d e ( a t w h i c h t i m e t h e q u a n t i fi c a t i o n o f d a m a g e s m a y b e d e e m e d to
have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.3.When the
judgment of the court awarding a sum of money becomes fi nal 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
10. Consolidated Bank vs CA
GR No. 114286, 19 April 2001
356 SCRA 671
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
Manol R. Sala

SWU School of Law

loan and not a trust receipt one, and that 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 requisites in Art. 1279 are present and should extinguish both debts to
the concurrent amount. Unjust enrichment.
11. S.C. Megaworld Construction and Development Corporation, petitioner
vs.
Engr. Luis Parada, represented by Engr. Leonardo Parada of Genlite
Industries,respondent
G.R. No. 183804 September 11, 2013
DOCTRINE: The settled rule is that novation is never presumed, but must be clearly
and
unequivocally shown. 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.
Thus, the mere substitution of debtors will not result innovation, 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. If there is no agreement as to solidarity, the first and new debtors are
considered
obligated jointly.
FACTS:
1. S.C. Megaworld Construction and Development Corporation (petitioner) bought
electrical lighting materials from Gentile Industries, a sole proprietorship owned by
Engineer Luis Parada (respondent), for its Read-Rite project in Laguna.
2. The petitioner Megaworld was unable to pay for the above purchase on the due
date, but
blamed it on its failure to collect under its sub-contract with the Enviro Kleen
Technologies, Inc. (Enviro Kleen).
Manol R. Sala

SWU School of Law

3. Megaworld was however able to persuade Enviro Kleen to agree to settle its
purchase,
but after paying Parada P250,000.00 on June 2, 1999, Enviro Kleen stopped making
further payments, leaving an outstanding balance of P816,627.00.
4. Megaworld also ignored the various demands of Parada, who then filed a suit in the
RTC,
to collect the balance plus damages, costs and expenses.
5. Megaworld denied liability, claiming that it was released from its indebtedness to
Parada
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 Megaworlds place.
6. RTC ruled in favor of Parada: No novation has taken place. Megaworld must pay the
principal obligation due to Parada.
7. The CA concurred with the RTC decision that there was no novation. The CA noted
that
there is nothing in the 2 letters of the Parada 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 Megaworld from its primary obligation to pay
him
for its purchase of lighting materials. The CA cited the RTCs finding that Parada
informed Enviro Kleen in his first letter that he had served notice to Megaworld that he
would take legal action against it for its overdue account, and that he retained his
option
to pull out the lighting materials and Megaworld for any damage they might sustain
during the pull-out.
8. The CA concurred with the RTC that by retaining his option to seek satisfaction from
Megaworld, any acquiescence which Parada had made was limited to merely accepting
Enviro Kleen as an additional debtor from whom he could demand payment, but
without
releasing Megaworld as the principal debtor from its debt to him.
ISSUE: Whether or not a novation of the contract had taken place when Parada
accepted the
partial payment of Enviro Kleen in Megaworlds behalf.
HELD: No.
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. It is "the substitution of a new contract, debt, or obligation
for an
existing one between the same or different parties." Article 1293 of the Civil Code
defines
novation as follows: Art. 1293. Novation which consists in substituting a new debtor in
Manol R. Sala

SWU School of Law

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 1236and 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. 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
Garcia vs. Llamas (2003): In 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.
12.

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 back wages 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 back wages 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
Manol R. Sala

SWU School of Law

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 back wages and/or separation
pay. For back wages, 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 of 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.
Manol R. Sala

SWU School of Law

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.

Manol R. Sala

SWU School of Law