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CRED TRANS Digest Pool | Atty. Sarona SY 2015-2016

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aaafffddddPART I: CONCEPT OF

 

CREDIT TRANSACTIONS

 

PART II: LOAN (Articles 1933 – 1961)

  • I. Concept

II.

Commodatum

PAJUYO VS. CA

FACTS: In June 1979, petitioner Pajuyo paid P400 to a certain Perez for the rights over a 250-square meter lot in Quezon City. Pajuyo then constructed a house on the lot and he and his family lived in the house from 1979 to 1985.

On 8 December 1985, Pajuyo and private respondent Guevarra executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case against Guevarra with the MTC.

Guevarra claimed that Pajuyo had no valid title or right of possession over the lot because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot (both were squatters).

MTC rendered its decision in favor of Pajuyo. Pajuyo 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. RTC affirmed the MTC decision in toto.

CA reversed the MTC and RTC rulings

and

declared that Pajuyo and Guevarra illegally occupied the contested lot which the government owned. CA also declared that Pajuyo and Guevarra are in pari delicto or in equal fault. Moreover, the Kasunduan is not a lease contract but a commodatum because

the agreement is not for a price certain.

ISSUE: Whether

or

not

the

contractual

relationship between Pajuyo and Guevarra was that of a commodatum.

HELD: No. 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.

Essential features of commodatum:

it is gratuitous.

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 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, which is a kind of commodatum.

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. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord- tenant relationship where the withdrawal of permission would result in the termination of the lease. The tenants withholding of the property would then be unlawful.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping,

or contracts of commission, administration and commodatum.

Guevarra

freely

entered

into

the

Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the undeniable evidence of

Guevarras recognition of Pajuyos

better right

of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

PRODUCERS BANK VS. CA

FACTS: Sometime in 1979, private respondent Vives was asked by his neighbor and friend Sanchez to help her friend, Col. Doronilla, in incorporating his business (Sterela). Sanchez asked Vives to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation. She assured Vives that he could withdraw his money from said account within a months time.

Vives, Sanchez, Doronilla

and

a

certain

Dumagpi, Doronillas private secretary, met and discussed the matter. Relying on the assurances and representations of Sanchez

and Doronilla,

Vives

issued a

check in

the

amount of P200k in favor of Sterela which was

subsequently deposited account.

under

Sterela's

 

Subsequently, Vives learned that Sterela was no longer holding office in the address previously given to him. He went to the Bank to verify if their money was still intact. Atienza, the assistant manager, informed them that part of the money had been withdrawn by Doronilla, and that only P90k remained therein. He likewise told them that they could not withdraw the remaining amount because it had to answer for some postdated checks issued by Doronilla.

Sterela, through Doronilla, obtained a loan of P175k from the Bank. To cover payment,

Doronilla issued 3 postdated checks, all of which were dishonored.

Vives received a letter from Doronilla assuring him that his money was intact and would be returned to him. Doronilla issued a postdated check for P212k in favor of Vives. However, upon presentment to the drawee bank, the check was dishonored. Doronilla requested Vives to present the same check on a later date but it was again dishonored.

Vives referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his clients money. Doronilla issued another check but was again dishonored for insufficiency of funds.

Vives instituted an action for recovery of sum of money in the RTC against Doronilla, Sanchez, Dumagpi and Producers Bank. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC.

RTC rendered a decision in favor of Vives. CA affirmed the decision of the RTC in Toto.

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of P212k, or P12k more than what Vives deposited in Sterelas bank account.

ISSUE: Whether

or

not

the

transaction

between Doronilla and Vives was

one

of

simple loan or mutuum.

HELD: No, it was a commodatum.

Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case

the

contract

is

simply

called

a

loan

or

Article 1935 of the Civil Code expressly states

mutuum.

 

Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable

thing, such as money, the contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing.

Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition.

Thus, if 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 upon, the loan is a commodatum and not a mutuum.

The rule

is

that

the intention

of

the

parties

thereto shall be accorded primordial

consideration

in

determining

the

actual

character of a contract. The evidence shows

that Vives agreed to deposit his money in the savings account of Sterela for the purpose of making it appear that said firm had sufficient

capitalization

for

incorporation,

with

the

promise that the amount shall be returned within 30 days.

Vives merely accommodated Doronilla by lending his money without consideration, as a favor to 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 Vives after 30 days.

Doronillas attempts to return the amount did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12k corresponds to the fruits of the lending of the P200k.

that the bailee in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit the interest.

Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents money because it was not privy to the transaction between Doronilla and Vives.

Under Article 2180 of

the

Civil

Code,

employers shall be

held primarily and

solidarily liable for damages caused by their employees acting within the scope of their assigned tasks.

Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners interests. It was established that the transfer of funds from Sterelas savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was the cause of private respondents loss.

Under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200k since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterela's savings account.

MINA VS. PASCUAL

FACTS: Francisco Fontanilla and Andres Fontanilla were brothers. Francisco acquired a lot in Laoag, the property having been awarded to him through its purchase at a public auction. Andres, with the consent of his brother Francisco, erected a warehouse on a part of the said lot.

Francisco, the former owner of the lot, being dead, the plaintiffs, Alejandro Mina, et al., were recognized as his heirs. Andres, the former owner of the warehouse, also having died, the children of Ruperta Pascual were recognized (though it is not said how) and consequently are entitled to the said building.

The

plaintiffs

and

the

defendants

are

the

owners of the warehouse, while the plaintiffs

are undoubtedly, the owners of the part of the

9.

That the

herein plaintiffs excepted to the

lot occupied by that building, as well as of the remainder thereof.

judgment

and

appealed

therefrom

to

the

This was the state of affairs when on May 6, 1909, Ruperta Pascual, as the guardian of her minor children (defendants), petitioned the CFI for authorization to sell "the 6/7 of the one-half of the warehouse, of 14 by 11 meters, together with its lot."

The plaintiffs opposed the petition of Ruperta

Pascual for the reason

that

the

latter had

included the lot occupied by the warehouse, which they claimed was their exclusive property.

The plaintiffs requested the court to decide the question of the ownership of the lot before it pass upon the petition for the sale of the warehouse. But the court before determining the matter of the ownership of the lot occupied by the warehouse, ordered the sale of the building.

The warehouse, together with the lot, was sold to Cu Joco (P2890) at a public auction.

The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided it by holding that the land belonged to the owner of the warehouse which had been built thereon thirty years before.

The plaintiffs appealed and this court reversed the judgment of the lower court and held that the appellants were the owners of the lot in question. When the judgment became final and executory, a writ of execution was issued and the plaintiffs were given possession of the lot; but soon thereafter the trial court annulled this possession for the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was served.

It was then that the plaintiffs commenced the present action for the purpose of having the sale of the said lot declared null and void and of no force and effect.

An agreement was had add to the facts, the ninth paragraph of which is as follows:

Supreme Court which found for them by holding that they are the owners of the lot in question, although there existed and still exists a commodatum by virtue of which the guardianship (meaning the defendants) had and has the use, and the plaintiffs the ownership, of the property, with no finding concerning the decree of the lower court that ordered the sale.

By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use

it during the certain period and return it to

the

former,

in

which

case

it

is

called

commodatum

. . .

(art. 1740, Civil Code).

It

is,

therefore, an

essential feature of the

commodatum that the use of the thing

ISSUE: Whether or not there is a contract of commodatum.

belonging to another shall for period.

a certain

Francisco Fontanilla did not

fix any definite

HELD: No. Although

both litigating

period or time during which Andres Fontanilla

parties may have agreed in their idea of

could have the use of the lot whereon the latter

the commodatum, it is not, a question of

was to erect a stone warehouse of

fact but of law. The denomination given by them to the use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable.

considerable value, and so it is that for the past 30 years of the lot has been used by both Andres and his successors in interest.

The present contention of the plaintiffs that Cu

Contracts are not

to

be

interpreted

in

Joco, now in possession of the lot, should pay

conformity with

the

name that

the parties

rent

for

it

at

the

rate

of

P5

a

month, would

thereto

agree

to

give

them,

but

must be

destroy the

theory

of

the

commodatum

construed, duly considering their constitutive elements, as they are defined and denominated by law.

sustained by them, since, according to the

second paragraph of the aforecited article 1740, "commodatum is essentially

gratuitous,"

With that expectation in view, it appears more likely that Francisco intended to allow his brother Andres a surface right; but this right supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.

FELIX DE LOS SANTOS VS AGUSTINA JARRA (1910 CASE)

FACTS: Felix de los Santos brought suit against Agusitina Jarra (the administratrix of the estate of Magdaleno Jimenea, he alleges that Jimenea borrowed and obtained from the plaintiff 10 first class carabos, to be used at the animal power mill of Jimenea’s hacienda, without recompense or remuneration for the use of it and under the sole condition that they should be returned to the owner as soon as the work at the mill was terminated. Jimenea however, did not return the carabaos even though de los Santos claimed their return after the work at the mill was finished. Jimenea died in 1904 (before the suit) and Jarra was appointed by the CFI as administratrix of his estate.

De los

Santos presented his claim to the

commissioners of the estate of Jimenea for

return of the carabaos. (for the carabaos to be

exluded from

the

estate

of

Jimenea). The

commissioners rejected his claim, and thus a lawsuit ensued.

Jarra answered and said that it was true that the late Jimenea asked the plaintiff to loan him ten carabaos, but that he only obtained THREE (3) second-class carabaos, which were afterwards sold by the Delos Santos to Jimenea. (Basically Jarra denied all the allegations in the complaint)

The case came up for trial and the court rendered judgment against Jarra and ordering her to return to de los Santos 6 second-class and third class carabaos. The value of which was 120 each so 720 pesos. Jarra moved for a new trial on the ground that the findings of fact were openly and manifestly contrary to the weight of the evidence.

The record however, discloses that it has been

fully proven from the testimonies of a

number

of witnesses that Santos, sent

in charge

of

various persons, the 10 carabaos requested by Jimenea (it was revealed that Jimenea is the

father

in

law

of

de

los

Santos). Also, de los

Santos produced 2 letters proving that Jimenea received them in the presence of said persons (brother of Jimenea) who saw the animals arrive at the hacienda. FOUR of the carabaos died of rinderpest and thus the judgment appealed from only deals with 6 carabaos.

THE ALLEGED PURCHASE of 3 carabaos by Jimenea from his son-in-law Santos is not evidenced by any trustworthy evidence. Therefore, it is not true.

From the foregoing, it may be logically inferred that the carabaos loaned or given on commodatum to the deceased Jimenea were ten in number, that 6 survived and that these carabaos have not been returned to the owner delos Santos, and lastly, that the 6 carabaos were not the property of the deceased nor any of his descendants, it is the duty of the administratrix to return them or indemnify the owner for the value.

ISSUE:

W/N

the

contracts

is

one

of

a

commodatum.

 

HELD: YES. The carabaos were given on commodatum as these were delivered to be used by defendant. Upon failure of defendant to return the cattle upon demand, he is under the obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos

were not the property of the deceased or of any of his descendants, it is the duty of the

administratrix of the

estate

to either

return

them or indemnify the owner thereof of their

value.

It was not part of Jimenea’s estate. Therefore Agustina Jarra should exclude it or indemnify De los Santos… “for the reasons above set forth, by which the errors assigned to the judgment appealed from have been refuted, and considering that the same is in accordance

with the law and the merits of the case, it is our

opinion

that

it should

be affirmed and we

do

hereby affirm it with the costs against appellant.

RATIO: The ratio differentiates a loan from a

commodatum. Art 1740. (Old civil code) By the contract of loan, one of the parties delivers to the other, either anything not perishable (in the new civil code it’s consumable), in order that the latter may use it during a

certain period and return it to the former, in which case it is called commodatum, or money or any other perishable thing, under the condition to return an equal amount of the same kind and quality, in which case it is merely called a loan.

Commodatum is essentially gratuitous.

A simple loan may be gratuitous, or made under a stipulation to pay interest.

Art 1741. The bailor retains ownership of the thing loaned the bailee acquires the use

thereof, but not its fruits; if any compensation is involved, to be paid by the person requiring the use, the agreement ceases to be a

commodatum.

Art 1742. The obligations and rights which arise from the commodatum pass to the heirs of both contracting parties, unless the loan has been made in consideration for the person of

the bailee,

in which

case his

heirs shall not

have the right to continue using the thing

loaned.

The carabaos delivered to be used were not returned by Jiminea upon demand. There is no doubt that Jarra is under the obligation to indemnify delos Santos.

Article

101.

Those

who

in

fulfilling

their

obligations are guilty of fraud, negligence or delay….

The obligation of the bailee or

of

his

successors to return either the thing loaned or its value is sustained by the tribunal of Spain, which said in its decision - (Mentioned

jurisprudence):

legal

doctrine

commodatum as follows:

touching

Although

it

is

true

that

in

a

contract

of

commodatum the bailor retains the ownership of thing loaned at the expiration

of the period, or after the use for which it was loaned has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him

damages if through the fault of the

bailee

the thing should have been lost or injured…

REPUBLIC OF THE PHILIPPINES VS. JOSE BAGTAS, FELICIDAD BAGTAS, ADMINISTRATRIX OF THE INTESTATE ESTATE LEFT BY JOSE BAGTAS

FACTS:

On

May

8,

1948, Jose Bagtas

borrowed from the Bureau of Animal Industry 3 bulls for 1 year for breeding purposes, subject to breeding fee for 10% of the book value of

the bulls. Upon the expiration of the contract, Bagtas asked for a renewal for another year. The renewal granted was only for 1 bull. Bagtas offered to buy the bulls at book value

less depreciation, but the Bureau told him that he should either return the bulls or pay for their book value. Bagtas failed to pay the book value, and so the Republic commenced an action with the CFI Manila to order the return of the bulls of the payment of book value. Felicidad Bagtas, the surviving spouse and administratrix of the decedent’s estate, stated that the 2 bulls have already been returned in

1952,

and that

the remaining

one

died

of

gunshot during a Huk raid. As regards the two

bulls,

is was

proven that they were returned

and thus, there is no more obligation on the part of the appellant. As to the bull not

returned, Felicidad contends that the obligation is extinguished since the contract is that of a commodatum and that the loss through fortuitous event should be borne by the owner.

ISSUE: Whether, depending on the nature of the contract, the respondent is liable for the death of the bull

HELD: A contract of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum -

. . .

is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period

stipulated

. .

.

(3)

If

the

thing

loaned

 

has

been

VICAR filed with the Supreme Court a petition for

delivered with appraisal of its value,

review on certiorari of the decision of the Court of

unless

there

is

a

stipulation

Appeals dismissing his application for

exempting

 

the

bailee

from

responsibility in case of a fortuitous

 

event.

 

The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

CATHOLIC VICAR VS. CA

FACTS: 1962: Catholic Vicar Apostolic of the

Mountain Province (Vicar), petitioner, filed with the court an application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said lots being used as sites of the Catholic Church, building,

convents,

high

school

building,

school

gymnasium, dormitories, stonewalls.

social

hall

and

1963:

Heirs

of

Juan

Valdez

and

Heirs

of

Egmidio

Octaviano

claimed

that

they

have

ownership over lots 1, 2 and 3. (2 separate civil

cases)

1965: The land registration court confirmed the registrable title of Vicar to lots 1, 2, 3 and 4. Upon appeal by the private respondents (heirs), the decision of the lower court was reversed. Title for lots 2 and 3 were cancelled.

registration of Lots 2 and 3.

During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written demand to Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000 per month.

On

the

other

hand,

Vicar

presented

the

Register of

Deeds

for

the

Province

of

Benguet, Atty. Sison, who testified that the land in question is not covered by any title in the name of Egmidio Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur when the heirs admitted that

the witness

if called

to the witness

stand,

would testify that Vicar has been in possession of Lot 3, for 75 years

continuously

and

peacefully

and

has

constructed permanent structures thereon.

ISSUE: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a gratuitous loan for use.

HELD: YES. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court

of Appeals found that petitioner

Vicar did not meet the requirement of 30 years

possession

for

acquisitive

prescription over

Lots 2 and 3. Neither did it satisfy the

requirement

of

10

years

possession for

ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that

Lot

2

was

acquired

from

Juan

Valdez

by

purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner

Vicar because

there

was

absolutely

no

documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

MARGARITA QUINTOS and ANGEL A. ANSALDO vs. BECK

FACTS: BECK was a tenant of the Quintos and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14,

1936, upon the novation of the contract of lease between them, the former gratuitously granted to the latter the use of the furniture subject to the condition that the BECK would return them to the Quintos upon the latter's demand. Quintos sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified BECK of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after Quintos required BECK to return all the furniture transferred to him for them in the house where they were found.

On November 5, 1936, BECK, through another person, wrote to Quintos reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, he wrote another letter to Quintos informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. Quintos refused to get the furniture in view of the fact that BECK had declined to make delivery of all of them. On November 15th, before vacating the house, the BECK deposited with the Sheriff all the furniture belonging to Quintos and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUE

1:

WON

BECK

complied

with

his

obligation to return the furniture upon the

Quintos’ demand. NO.

HELD 1: The contract entered into between the parties is one of commadatum, because

under it Quintos gratuitously granted the use of the furniture to BECK, reserving for herself the ownership thereof; by this contract he bound himself to return the furniture to Quintos, upon the latter’s demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by BECK to return the furniture upon demand, means that he should return all of them to Quintos at the latter's residence or house. BECK did not comply with this obligation when he merely placed them at the disposal of the Quintos, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the Quintos failed to comply with her obligation to get the furniture when they were offered to her.

ISSUE 2: WON Quintos is bound to bear the deposit fees. NO.

HELD 2: As BECK had voluntarily undertaken to return all the furniture to the Quintos, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the BECK's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was Quintos under a duty to accept the offer to return the furniture, because he wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture,

we

do

not

believe that Quintos is entitled to the payment thereof by BECK in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, BECK has neither agreed to nor admitted the correctness of the said value. Should he fail to deliver some of the furniture, the value thereof should be later determined by the trial Court through evidence which the parties may desire to present.

ISSUE 3: WON Quintos is entitled to the costs of litigation. YES.

HELD 3: The costs in both instances should be borne by BECK because the plaintiff is the prevailing party (section 487 of the Code of

Civil Procedure). He was the one

who

breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon demand. In these circumstances, it is just and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

POLICY: Commodatum is a contract where

the bailor delivers

to

the

bailee

a

non-

consumable thing so that the latter may use it for a certain time and return the identical thing.

III. Mutuum
III.
Mutuum

BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION

FACTS: Frank Roa obtained a loan at an interest rate of 16.25% per annum from Ayala Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC.

AIDC, however, was not willing to extend the old interest rate to ALS and proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly amortization.

Consequently, on March 1981, ALS executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981.

On August 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of P190,601.35. This reduced Roa’s principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the

proceeds of ALS’s loan of P500,000.

On September 13, 1982, BPIIC released to ALS P7,146.87, purporting to be what was left of their loan after full payment of Roa’s loan.

In June 1984, BPIIC instituted foreclosure proceedings against ALS on the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to P475,585.31.

ALS and Litonjua filed a civil case against BPIIC. They alleged, among others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained that they should not be made to pay amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to ALS.

RTC favored ALS and Litonjua. CA affirmed in toto.

CA reasoned that a simple loan is perfected only upon the delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC released the purported balance of the P500,000 loan after deducting therefrom the

value of Roa’s indebtedness. Thus, payment of the monthly amortization should commence only a month after the said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the parties that payment shall commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence showed that ALS had an overpayment. Therefore, there was no basis

for

BPIIC

to

extrajudicially

foreclose

the

mortgage.

 

BPIIC contends among others that CA erred in ruling that because a simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was perfected only on September 13, 1982. BPIIC claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with SC’s ruling in Bonnevie v. CA, 125 SCRA

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10

122.

ISSUE:

WON

a

contract

of

loan

is

a

consensual contract. NO, A CONTRACT OF LOAN IS A REAL CONTRACT.

HELD: A loan contract is not a consensual contract but a real contract. It is perfected only upon the DELIVERY of the object of the contract. BPIIC misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934, CC. It is an accepted promise to deliver something by way of simple loan. A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower.

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the CA, ALS’s obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract. A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other.

As averred by ALS, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. 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. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in.

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. Therefore, in computing the amount

due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.

Other points raised by BPIIC in connection with this issue, such as the date of actual release of the loan and whether ALS were the cause of the delay in the release of the loan, are factual.

CA decision was affirmed but with modification as to the award of damages.

YONG CHAN KIM vs. PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and COURT OF APPEALS (13th Division), SOUTHEAST ASIAN FISHERIES DEVELOPMENT CENTER AQUACULTURE DEPARTMENT (SEAFDEC)

FACTS: Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn surveys which required him to travel to various selected provinces in the country where there are potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses.

Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received a cash advance of

P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July

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1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total amount in the form of per diems and allowances charged and collected by petitioner under Travel Order No. 2222, when he did not actually and physically travel as represented by his liquidation papers, was P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to compensate for the trips he failed to undertake under T.O. 2222 because he was recalled to the head office and given another assignment.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo.

ISSUE: Whether or not petitioner can be held criminally liable on the ground of failure to liquidate her traveling expenses. NO.

RULING:

It

is

undisputed

that

petitioner

received a cash advance from private respondent SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another assignment

which was covered by T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For the alleged

failure of petitioner to return

the amount of

P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code.

In order that a person can be convicted under the above-quoted provision, it must be proven that he had the obligation to deliver or return the same money, good or personal property that he had received. Was petitioner under obligation to return the same money (cash advance) which he had received? We believe not.

Liquidation simply means

the

settling

of

indebtedness. An employee, such as herein petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan

of money advanced to him by his employer, as per diems and allowances.

Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received is less than the amount

he spent for actual travel

he has the right to

. . . demand reimbursement from his employer the amount he spent coming from his personal funds.

In other words, the money advanced by either

party is

actually a loan

to the other. Hence,

petitioner was under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from the private respondent.

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

Art. 1953.— A person who receives a

loan

of

money or any other fungible

thing acquires the ownership thereof, and is bound to pay to the creditor an

equal

amount

of

the same

kind

and

quality.

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred to the latter is erroneous. Ownership of the money was transferred to the petitioner.

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship was created. Absent this fiduciary relationship between petitioner and private respondent, which is an essential element of the crime of estafa by misappropriation or conversion, petitioner could not have committed estafa.

Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted correspondingly

from the salary of the employee

concerned.

The evidence shows that the corresponding salary deduction was made in the case of

petitioner vis-a-vis question.

the

cash

advance

in

(Failure of

bank

to

return

the

amount

deposited, not a case of estafa)

SPOUSES ANTONIO and LOLITA TAN vs. CARMELITO VILLAPAZ

FACTS:

On

February

6,

1992,

respondent

Villapaz issued a Philippine Bank of Communications (PBCom) crossed check in the amount of P250,000.00, payable to the order of petitioner Tony Tan. On that date, the check was deposited at the drawee bank, PBCom Davao City branch at Monteverde Avenue, to the account of petitioner Antonio Tan also at said bank.

On November 7, 1994 respondent

filed

a

Complaint for sum

of

money against the

spouses, alleging that on February 6, 1992, the

spouses

went

to

his

place

of

business at

Malita, Davao and obtained a loan of

P250,000.00, hence,

his

issuance

 

of

the

February 6, 1992 PBCom crossed check which

loan was to be settled interest-free months.

in

six

(6)

On the maturity date of the loan or on August 6, 1992, petitioner Antonio Tan failed to settle the same, and despite repeated demands, petitioners never did, drawing Villapaz to file the complaint; and on account of the willful refusal of petitioners to honor their obligation, he suffered moral damages in the amount of P50,000.00, among other things.

The spouses denied having gone to Malita

and having obtained a loan from respondent, alleging that the check was issued by respondent in Davao City on February 6, 1992 "in exchange for equivalent cash"; they never received from respondent any demand for payment, be it verbal or written, respecting the alleged loan; since the alleged loan was one with a period payable in six months, it should have been expressly stipulated upon in writing by the parties but it was not, hence, the essential requisite for the validity and enforceability of a loan is wanting; and the check is inadmissible to prove the existence of a loan for P250,000.00.

Petitioners maintain that they did not secure a loan from respondent, insisting that they encashed in Davao City respondent's February 6, 1992 crossed check; in the ordinary course of business, prudence dictates that a contract of loan must be in writing as in fact the New Civil Code provides that to be enforceable "contracts where the amount involved exceed[s] P500.00 must appear in writing even a private one," hence, respondent's "self- serving" claim does not suffice to prove the existence of a loan; respondent's allegation that no memorandum in writing of the transaction was executed because he and they are "kumpadres" does not inspire belief for respondent, being a businessman himself, was with more reason expected to be more prudent; and the mere encashment of the check is not a contractual transaction such as a sale or a loan which ordinarily requires a receipt and that explains why they did not issue a receipt when they encashed the check of respondent.

Petitioners furthermore maintain that they were financially stable on February 6, 1992 as shown by the entries of their bank passbook hence, there was no reason for them to go to a distant place like Malita to borrow money.

The lower Court gave four reasons for ruling out a loan:

(a) the defense of spouses Tan that they did not go to Villapaz's place on February 6, 1992, date the check was given to them; (b) Spouses Tan could not have borrowed money on that date because from January to March, 1992, they had an average daily deposit of P700,000 and on February 6, 1992, they had P1,211,400.64 in the bank, hence,

they had "surely no reason nor logic" to borrow money from Villapaz; (c) the alleged loan was not reduced in writing and the check could not be a competent evidence of loan.

ISSUE: Whether or not the transaction in dispute was a contract of loan and not a mere matter of check encashment as found by the trial court. YES.

HELD: The four-fold reasoning cannot be sustained. They are faulty and do not accord either with law or ordinary conduct of men. For one thing, the first two given reasons partake more of alibi and speculation, hence, deserve scant consideration. For another, the last two miss the applicable provisions of law.

The existence of a contract of loan cannot be denied merely because it is not reduced in writing. Surely, there can be a verbal loan. Contracts are binding between the parties, whether oral or written. The law is explicit that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. A loan (simple loan or mutuum) exists when a person receives a loan of money or any other fungible thing and acquires the ownership thereof. He is bound to pay to the creditor the equal amount of the same kind and quality.

Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, maybe in keeping with good faith, usage and law.

The lower Court misplaced its reliance on Article 1358 of the Civil Code providing that to be enforceable, contracts where the amount involved exceed five hundred pesos, must appear in writing. Such requirement, it has been held, is only for convenience, not for validity. It bears emphasis that at the time Villapaz delivered the crossed-check to the petitioner spouses, Villapaz had no account whatsoever with them. Spouses' contention that they did not obtain any loan but merely exchanged the latter's check for cash is not borne by any evidence.

That apart from the check, no written proof of the grant of the loan was executed was credibly explained by respondent when he declared that petitioners' son being his godson, he, out of trust and respect, believed that the crossed check sufficed to prove their transaction.

As for petitioners' reliance on Art. 1358[22] of the Civil Code, the same is misplaced for the requirement that contracts where the amount involved exceeds P500.00 must appear in writing is only for convenience.

At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.

PNB VS. CA AND IBARROLA

FACTS: Province of Isabela issued several checks drawn against its account with PNB (P) in favor of Lyndon Pharmaceuticals Laboratories, a business operated by Ibarrola (R), as payments for the purchase of medicines.

The checks were delivered to R’s agents who turned them over to R, except 23 checks amounting to P98k. Due to failure to receive full amount, R filed case against P.

Trial Court, CA and SC ordered PNB to pay; however, all 3 courts failed to specify the legal rate of interest – 6% or 12%.

ISSUE: WoN the rate to be used is 6%.

HELD: YES. This case does not involve a loan, forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby R did not receive full payment for her merchandise.

When an obligation arises “from a contract of purchase and sale and not from a contract of loan or mutuum,” the applicable rate is 6% per annum as provided in Art. 2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir. No. 416.

The rate of 12% interest referred to in Cir. 416 applies only to: Loan or forbearance of money,

or to cases where money is transferred from

one

person to another and the obligation to

return the

same

or

a

portion

thereof

is

adjudged.

Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank.

When an obligation not constituting a loan or

forbearance of money is breached

then

an

interest on the amount of damages awarded

may be imposed at the discretion of the court

at

the

rate of

6% per annum in accordance

with Art.

2209 of

the Civil Code. Indeed, the

monetary judgment

in

favor

of

private

respondent does not involve a loan or

forbearance of

money,

 

hence

the

proper

imposable rate of interest is six (6%) per cent.

Therefore, the proper rate of interest referred to in the judgment under execution is only 6%. This interest shall be computed from the time of the filing of the complaint considering that the amount adjudged (P98,691.90) can be established with reasonable certainty. Said amount being merely the uncollected balance of the purchase price covered by the 23 checks encashed and appropriated by Ibarrola's agents. However, once the judgment becomes final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit."

*6% from filing of complaint until full payment before finality of judgment.

*12% from finality of judgment. HERMOJINA ESTORES VS. SPOUSES ARTURO AND LAURA SUPANGAN

FACTS: In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional Deed of Sale where Estores offered to sell, and Spouses offered to buy a parcel of land in Cavite for P4.7M.

After almost 7 years and despite the payment of P3.5M by the Spouses, Estores still failed to comply with her obligation to handle the peaceful transfer of ownership as stated in 5

provisions in the contract.

In a letter in 2000, Spouses demanded the return of the amount within 15 days from receipt. In reply, Estores promised to return the same within 120 days. Spouses agreed but imposed an interest of 12% annually. Estores still failed despite demands.

Spouses filed a complaint with the RTC against Estores and Roberto Arias (allegedly acted as Estores’ agent).

In Answer, Estores said they were willing to pay the principal amount but without the interest as it was not agreed upon. That since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cant be liable for legal interest as well.

RTC ruled saying that the Spouses are entitled to the interest but only at 6% per annum and also entitled to atty’s fees. On appeal, CA said that the issue to resolve is whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the absence of stipulation of the parties. CA affirmed RTC.

That interest should start on date of formal demand by Spouses to return the money not when contract was executed as stated by the RTC; That Arias not be solidarily liable as he acted as agent only and did not expressly bind himself or exceeded his authority.

Estores contends: Not bound to pay interest because the deed only provided for the return of the downpayment in case of failure to comply with her obligations; That atty fees not proper because both RTC and CA sustained her contention that 12% interest was uncalled for so it showed that Spouses did not win.

Spouses contend: It is only fair that interest be imposed because Estores failed to return the amount upon demand and used the money for her benefit.

Estores failed to relocate the house outside the perimeter of the subject lot and complete the necessary documents.

As to the fees, they claim that they were forced

to

litigate

when

Estores

unjustly

held

the

In such case, “forbearance of money, goods or

amount.

 

credits” will have no distinct definition from a loan. However, the phrase “forbearance of money,

ISSUES: Is the imposition of interest and attorney’s fees is proper? YES Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%

HELD: Interest may be imposed even in the absence of stipulation in the contract.

Article 2210 of the Civil Code expressly provides that “interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.”

Estores failed on her obligations despite demand. She admitted that the conditions were not fulfilled and was willing to return the full amount of P3.5M but hasn’t done so she is now in default.

The interest at the rate of 12% is applicable in the instant case.

Gen Rule: the applicable interest rate shall be computed in accordance with the stipulation of the parties

Exc: if no stipulation, applicable rate of interest shall be 12% per annum when obligation arises out of a loan or forbearance of money, goods or credits. In other cases, it shall be 6%

In this case, no stipulation was made.

Contract involved in this case is not a loan but a Conditional Deed of Sale.

No question that the obligations were not met and the return of money not made

Even if transaction was a Conditional Deed of Sale, the stipulation governing the return of the money can be considered as a forbearance of money which requires 12% interest

In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- “contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable.”

goods or credits” is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code

Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions.

Estores’ unwarranted withholding of the money amounts to forbearance of money which can be

considered as an involuntary loan so rate is 12% starting in Sept. 2000

The award of attorney’s fees is warranted. No doubt that the Spouses were

airconditioning system. They entered into a contract of mechanical works with respondent for the total consideration for the whole project was P23,311,410.30. The Contract stipulated that Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of materials under paragraphs 70.1 and 70.2 of the General Conditions for the Construction of PCIB Tower II Extension.

Pan Pacific commenced the mechanical works in the project site. In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondents asked for a

reduction

in

the

price

adjustment. To show

goodwill, Pan Pacific reduced the price adjustment toP4,858,548.67.

forced to litigate to protect

their

interest, i.e.,

to

recover

On 28 April 1992, respondent asked that the

their money. The

amount

of

price adjustment should

be

pegged

P50,000.00

ismore appropriate.

PAN PACIFIC vs EQUITABLE PCI BANK

FACTS:

Pan

Pacific

is

engaged

in

contracting

mechanical

works

on

at P3,730,957.07, based on the DOLE Labor Indices and the General Conditions of their contract.

Due to the extraordinary increases in the costs

of

labor

and

materials,

Pan

Pacific’s

operational capital was becoming inadequate for the project. However, respondent withheld the payment of the price adjustment under the escalation clause despite Pan Pacifics repeated demands.

Instead, respondent offered Pan Pacific a loan

of P1.8 million. Pan Pacific was constrained to execute a promissory note in the amount

of P1.8 million as a requirement for the loan.

Pan

Pacific

also

posted

a

surety

bond.

The

P1.8

million

was

released

directly

to

laborers and suppliers and not centavo was given to Pan Pacific.

a

single

Pan

Pacific

made

several

demands

for

payment

on

the

price

adjustment

but

respondent

merely

kept

on

promising

to

release the

same.

Meanwhile,

the P1.8

million loan matured and respondent demanded payment plus interest and penalty.

Pan

Pacific

refused

to

pay

the

loan.

Pan

Pacific insisted that it would not have incurred

the

loan

if

respondent

released

the

price

adjustment on time. Pan Pacific alleged that

the promissory note did not express the true

agreement

of

the

parties.

Pan

Pacific

maintained

that

the P1.8 million

was

to

be

considered as an advance payment on the price adjustment. Therefore, there was really no consideration for the promissory note; hence, it is null and void from the beginning.

Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it would offset the price adjustment with Pan Pacifics outstanding balance of P3,226,186.01, representing the loan, interests, penalties and collection charges.

Pan Pacific refused the offsetting but agreed to

receive

the

reduced amount

of

P3,730,957.07

as

recommended

by

the

TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and P414,942 as advance payments.

On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory note, sum of money, and damages against the respondent with the RTC. On 12 April 1999, the RTC declared the promissory note as null and void and ordered Pan Pacific to pay P1,389,111.10 REPRESENTING UNPAID BALANCE OF THE ADJUSTMENT

PRICE, AND INTEREST AT THE LEGAL RATE OF TWELVE (12%) PERCENT PER ANNUM

The

CA

removed

the

deduction

ofP126,903.97 because it represented the final

payment on the basic contract price. Hence,

the CA ordered respondent

to

pay P1,516,015.07 to petitioners, with interest at the legal rate of 12% per annum starting 6

May 1994.

On MR he CA increased the loan rate to 18%, rate of equitable PCI.

ISSUE: Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the

18% bank lending rate. YES

HELD: The CA went beyond the intent of the parties by requiring respondent to give its consent to the imposition of interest before petitioners can hold respondent liable for interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the General

Conditions shows that the consent of the respondent is not needed for the imposition of interest at the current bank lending rate, which occurs upon any delay in payment.

Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. Therefore, payment of monetary interest is allowed only if:

(1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest.

The consent of the respondent is not needed in order to impose interest at the current bank lending rate.

Under Article 2209 of the Civil Code,

the

appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in

the contract of the parties. In the absence of a

stipulation of a particular rate of penalty

interest, payment of additional interest at a rate equal to the regular monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6%, or in the case of loans or forbearances of money, 12% per annum. It is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money.

The written agreement entered into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in payment and the promissory note charged an interest of 18%.

To prove petitioners entitlement to the 18% bank lending rate of interest, petitioners presented the promissory note prepared by respondent bank itself. This promissory note, although declared void by the lower courts because it did not express the real intention of the parties, is substantial proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by petitioners against the respondent, the interest rate agreed upon is binding on them.

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ

FACTS: December

8,

1993, Pantaleon,

President

and

Chairman

of

the

Board

of

PRISMA, obtained a P1M loan

from the

respondent,

with

monthly

interest

of

P40,000.00 payable for 6 months, or

a

total

obligation of P1,240,000.00 payable within 6

months.

To secure the payment of the loan, Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal capacity and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid balance, plus 4% monthly interest. The petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.

RTC found that the respondent issued a check

for P1M

in favor

of

the petitioners for a loan

that would

earn

an

interest

of

4%

or

P40,000.00

per

month,

or

a

total

of

P240,000.00

for

a

6-month

period.

RTC

ordered the petitioners to jointly and severally pay the respondent the amount of

P3,526,117.00

plus

4%

per

month

interest

from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly interest. CA favored respondent but noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. MR denied hence this petition.

ISSUE: Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan?

RULING: Interest due should be stipulated in writing; otherwise, 12% per annum APPLIES.

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. Courts have no authority to alter the contract by construction or to make a new contract for the parties; a court’s duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the

contract words the contract does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a

check

for P1M. In turn, Pantaleon,

in

his

personal capacity and as authorized by the

Board, executed the promissory note.

Thus,

the P1M loan shall be payable within 6 months.

The loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article

1956

of

the

Civil Code specifically

mandates that “no interest shall be due unless it has been expressly stipulated in writing.” The payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. The collection of interest without any stipulation in writing is prohibited by law.

The

interest

of

P40,000.00 per month

corresponds only to the six-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.

When the obligation

is

breached,

and

it

consists in the payment of a sum of money,

i.e., a loan or forbearance of money, the

interest

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,

i.e.,

from

judicial

or

extrajudicial

demand under and subject to the provisions of Article 1169 of the Civil Code.

The facts show that the parties agreed to the

payment of a specific

sum

of

money

of

P40,000.00 per month for six months, not to a

4% rate of interest payable within a 6-month period.

No

issue

on

the

excessiveness

of

the

stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since it was not agreed upon.

It

is

a

familiar

doctrine

in obligations and

contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. 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 the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a period of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due.

EASTERN SHIPPING LINES, INC. vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC

FACTS: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for

P36,382,466.38.

Upon arrival of the shipment

in Manila

on

December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.

On

January

7,

1982 defendant Allied

Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal.

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake.

Plaintiff contended

that

due

to

the

losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same.

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants

The Court, among others, ordered defendants to pay plaintiff, jointly and severally The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract)

ISSUE:

The common carrier's

duty

to

observe the

1. Whether

or

not

a

claim

for damage

requisite diligence in the shipment of goods

transportation until delivered to, or

until the

sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker. YES

lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for

2. Whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered.

3. Whether

the

applicable

rate

of

interest,

referred to above, is twelve percent (12%) or

six percent (6%). 6%

 

HELD:

1.

Solidary.

Since

it

is

the

duty

of

the

ARRASTRE to take good care of the goods

that are in its custody and to deliver them in

good

condition

to

the

consignee,

such

responsibility also devolves

upon

the

CARRIER. Both the ARRASTRE and the

CARRIER are therefore charged with the

obligation to deliver the goods condition to the consignee.

in

good

lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable.

2.

It may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I.

When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

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II. 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 imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest 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, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest 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 unliquidated claims 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 extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed 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 final 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.

3. The legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

NOTE: The Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

PILIPINAS BANK vs. COURT OF APPEALS

FACTS: Private respondent Lilia Echaus filed a complaint against petitioner and its president, Constantino Bautista, for collection of a sum of money. The complaint alleged: (1) that petitioner and Greatland Realty Corporation executed a "Dacion en Pago," wherein Greatland conveyed to petitioner several parcels of land in consideration of the sum of P7,776,335.69; (2) that Greatland assigned P2,300,000.00 out of the total consideration of the Dacion en Pago , in favor of private respondent; and (3) that notwithstanding her demand for payment, petitioner in bad faith, refused and failed to pay the said amount assigned to her.

The trial court ordered petitioner and its co- defendant, jointly and severally, to pay private respondent P2,300,000.00 the total amount assigned by Greatland in her favor out of the P2,300,000.00 liability of defendant Pilipinas to Greatland plus legal interest from the dates of assignments until fully paid.

On March 22, 1985, petitioner appealed the

decision of the trial

court

to

the

Court

of

Appeals. On the same day, private respondent filed a motion for Immediate Execution

Pending Appeal which the trial court granted.

Petitioner complied with the writ of execution pending appeal by issuing two manager's checks in the total amount of P5,517,707.00

and which

was

encashed

by

the private

respondent.

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On June

28, 1990, the Court of Appeals

rendered a decision in CA-G.R. No. CV-06017, which modified the judgment and ordered Pilipinas Bank to pay 2,300,000,00 Pesos, representing the total amount assigned by Greatland to her, with interest at the legal rate starting July 24, 1981, date when demand was first made.

On September

4,

1990,

petitioner

filed

a

motion

in

the

trial court

praying that private

respondent to refund to her the excess

payment of P1,898,623.67 with interests

at

6%.

Private respondent opposed the motion of petitioner with respect to the rate of interest to be charged on the amount of P2,300,000.00.

According to private respondent,

the legal

interest on the principal amount of P2,300,000.00 due her should be 12% per annum pursuant to CB Circular No. 416 and not 6% per annum as computed by petitioner.

On October 12,

1990,

the

trial court,

while

ordering the refund to petitioner of the excess

payment,

fixed the interest

rate

due

on

the

amount of P2,300.000.00 at

12% per

annum as proposed by private respondent,

instead

of

6% per

annum as

proposed by

petitioner.

The Court of Appeals was of the theory that the action in Civil Case No. 239-A filed by private respondent against petitioner "involves forbearance of money, as the principal award to plaintiff-appellee (private respondent) in the amount of P2,300.000.00 was the overdue debt of defendant-appellant to her since July 1981. The case is, in effect, a simple collection of the money due to plaintiff-appellee, as the unpaid creditor from the defendant bank, the debtor" (Resolution, p.3; Rollo, p. 33). Applying Central Bank Circular No. 416, the Court of Appeals held that the applicable rate of interest is 12% per annum.

Petitioner argues that

the

applicable law is

Article 2209 of the Civil Code, not the Central

Bank Circular No. 416. Said Article 2209 provides:

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,

annum.

which

is

six

per

cent

per

ISSUE:

interest

Whether

on

the

or

not

amount

the

of

legal

rate

of

P2,300,000.00

adjudged

to

be

paid by petitioner

to private

respondent is 12% per annum.

RULING: Presidential Decree No. 116 authorized the Monetary Board to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits and amended the Usury Law (Act No. 2655) for that purpose.

As amended, the Usury Law now provides:

Sec. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted.

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to charge such rate or rates whenever warranted by prevailing economic and social conditions:Provided, That such changes shall not be made oftener that once every twelve months.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform.

Acting on the authority vested on

it

by

the

Usury Law, as amended by P.D. No. 116, the Monetary Board of Central Bank issued Central Bank Circular No. 416, which provides:

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as the "Usury Law" the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that

the rate of interest for the loan, or forbearance of any money, goods, or

credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) per cent per annum. This Circular shall take effect immediately.

Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and (3) judgments.

What then is the nature of the judgment ordering petitioner to pay private respondent the amount of P2,300,000.00?

The said amount was

a

portion

of

the

P7,776,335.69 which petitioner was obligated to pay Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor of private

respondent.

The

said

obligation therefore

arose from a contract of purchase

and sale

and not from a contract of loan or mutuum.

Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil

Code of the Philippines and not the

rate

of

12% per annum as provided in Circular No.

416.

Petitioner next contends that, consistent with its thesis that Circular No. 416 applies only to judgments involving the payment of loans or forbearance of money, goods and credit, the Court of Appeals should have ordered private respondent to pay interest at the rate of 12% on the overpayment collected by her pursuant to the advance execution of the judgment.

We sustain petitioner's contention as correct. Private respondent was paid in advance the amount of P5,517,707.00 by petitioner to the order for the execution pending appeal of the judgment of the trial court. On appeal, the Court of Appeals reduced the total damages to P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by private respondent to petitioner. In an execution

pending appeal, funds are advanced by the losing party to the prevailing party with the implied obligation of the latter to repay former, in case the appellate court cancels or reduces the monetary award.

In

the

case

before us,

the excess amount

ordered to refunded by private respondent falls

within the ruling

in

Viloria

and Buiser that

Circular No. 416 applies to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is subsequently adjudged.

CHUA vs. TIMAN

FACTS:

In

February

and

March

1999,

petitioners Salvador and Violeta Chua granted

respondents

Rodrigo,

Ma.

Lynn

and

Lydia

Timan

the

following

loans:

a) P100,000;

b) P200,000;

c) P150,000;

d)

P107,000;

 

e) P200,000; and f) P107,000. These loans were evidenced by promissory notes with interest of 7% per month, which was later reduced to 5% per month.

Respondents paid the loans

initially at

7%

interest rate per month until September 1999

and

then

at 5%

interest rate per

month from

October to December 1999. Sometime in

March 2000, respondents offered to pay the

principal amount

of

the

loans

through a

Philippine National

Bank

manager’s

check

worth P764,000, but petitioners refused to accept the same insisting that the principal amount of the loans totalled P864,000.

On

May

3,

2000,

respondents

deposited P864,000 with the Clerk of Court of the RTC of Quezon City. Later, they filed a case for consignation and damages which was released to the petitioners.

The RTC rendered a decision

in

favor

of

respondents which was affirmed by the CA. It ruled that the original stipulated interest rates

of

7% and

5% per month were excessive.

It

further ordered

petitioners

to

refund

to

respondents all interest payments in excess of the legal rate of 1% per month or 12% per

annum.

The Court of Appeals declared illegal the

stipulated interest per

rates

of

7%

and

5%

month for being excessive, iniquitous, unconscionable and exorbitant. Accordingly, the Court of Appeals reduced the stipulated interest rates of 7% and 5% per month (equivalent to 84% and 60% per annum, respectively) to a fair and reasonable rate of 1% per month or 12% per annum. The Court of Appeals also ordered petitioners to refund to respondents all interest payments in excess of 12% per annum.

Petitioners aver that the stipulated interest of 5% monthly and higher cannot be considered unconscionable because these rates are not usurious by virtue of Central Bank (C.B.) Circular No. 905-82 which had expressly removed the interest ceilings prescribed by the Usury Law. Petitioners add that respondents were in pari delicto since they agreed on the stipulated interest rates of 7% and 5% per month. They further aver they honestly believed that the interest rates they imposed on respondents’ loans were not usurious.

ISSUE: Whether or not the original stipulated interest rates of 7% and 5%, equivalent to 84% and 60% per annum, are unconscionable

RULING: Yes. The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, 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.

Petitioners cannot also raise the defenses of in pari delicto and good faith. The defense of in pari delicto was not raised in the RTC, hence, such an issue cannot be raised for the first time on appeal. The defense of good faith must also fail because such an issue is a question of fact which may not be properly raised in a

petition for review under Rule 45 of the Rules of Civil Procedure which allows only questions of law.

As well set forth in Medel:

We agree

that

the

stipulated rate of

interest

at

5.5%

per

month

on

the

P500,000.00

loan

is

excessive,

iniquitous, unconscionable and exorbitant.

However, we

can not consider

the

rate

"usurious"

because

this

Court

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, it was held that CB Circular No. 905 "did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity." "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."

Nevertheless, we 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.

DIO vs. SPOUSES JAPOR

FACTS: Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the owners of an 845.5 square-meter residential lot including its improvements. Adjacent to the Japor’s lot is another lot owned by respondent Marta Japor.

On August 23, 1982, the respondents obtained

a

loan

of

P90,000

from

the

Quezon

Development

Bank (QDB),

and

as

security

therefor,

they

mortgaged

the

two

lots

as

evidenced by a Deed of Real Estate Mortgage duly executed by and between the respondents and QDB.

On December 6, 1983, respondents and QDB amended the Deed of Real Estate Mortgage increasing respondents’ loan to P128,000.

The respondents failed to pay their aforesaid loans. However, before the bank could foreclose on the mortgage, respondents, thru their broker, one Lucia G. Orian, offered to mortgage their properties to petitioner Teresita Dio. Petitioner prepared a Deed of Real Estate Mortgage, whereby respondents mortgaged anew the two properties already mortgaged with QDB to secure the timely payment of a P350,000 loan that respondents had from petitioner Dio.

Under the terms of the deed, respondents agreed to pay the petitioner interest at the rate of five percent (5%) a month, within a period of two months or until April 14, 1989. In the event of default, an additional interest equivalent to five percent (5%) of the amount then due, for every month of delay, would be charged on them.

The respondents failed to settle their obligation to petitioner on April 14, 1989, the agreed deadline for settlement.

On August 27, 1991, petitioner made written demands upon the respondents to pay their debt.

Despite repeated demands, respondents did not pay, hence petitioner applied for extrajudicial foreclosure of the mortgage.

Meanwhile, on February 24,

1992,

respondents filed an action for

Fixing of

Contractual Obligation with Prayer for

Preliminary Mandatory Injunction/

Restraining Order, praying that the Deed of Real Estate Mortgage dated February 13, 1989 be declared null and void, and the plea that the trial court fix the contractual obligations of the Japors with Dio.

On

May

8,

1996, the bidding

invoving the

properties was conducted, with petitioner Dio as the sole bidder, purchased the properties for P3,500,000.

The appellate court affirmed the decision of the trial court with respect to the validity of the Deed of Real Estate Mortgage, but modified the interest and penalty rates for being unconscionable and exorbitant.

ISSUE: Whether or not the stipulations on interest and penalty in the Deed of Real Estate Mortgage is contrary to morals, if not illegal and were respondents entitled to any "surplus" on the auction sale price

RULING: On the main

issue, petitioner

contends that The Usury Law 1 has been rendered ineffective by Central Bank Circular

No. 905, series of 1982 and accordingly, usury

has become legally non-existent

in

this

jurisdiction, thus, interest rates may accordingly be pegged at such levels or rates as the lender and the borrower may agree upon.

Respondents

admit

they

owe petitioner P350,000 and do not question any lawful interest on their loan but they maintain that the Deed of Real

Estate Mortgage is null and void since it did not state the true intent of the parties, which

limited the 5% interest rate

to only

two

(2)

months from the date of the loan and which

did not provide for penalties and other charges in the event of default or delay. Respondents vehemently contend that they never consented to the said stipulations and hence, should not be bound by them.

On the first issue, we are constrained to rule against the petitioner’s contentions.

Central Bank Circular No. 905, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity. However, nothing in said Circular grants lenders carte blanche authority to impose interest rates, which would result in the enslavement of their borrowers or to the hemorrhaging of their assets. While a stipulated rate of interest may not technically and necessarily be usurious under Circular No. 905, usury now being legally non-existent in our jurisdiction, nonetheless, said rate may be equitably reduced should the same be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary to morals (contra bonos mores), if not against the law. What is iniquitous, unconscionable, and exorbitant shall depend upon the factual circumstances of each case.

In the instant case, the Court of Appeals found that the 5% interest rate per month and 5%

penalty rate per month for every month of default or delay is in reality interest rate at 120% per annum. This Court has held that a stipulated interest rate of 5.5% per month or 66% per annum is void for being iniquitous or unconscionable. We have likewise ruled that an interest rate of 6% per month or 72% per annum is outrageous and inordinate. Conformably to these precedent cases, a combined interest and penalty rate at 10% per month or 120% per annum, should be deemed iniquitous, unconscionable, and inordinate. Hence, we sustain the appellate court when it found the interest and penalty rates in the Deed of Real Estate Mortgage in the present case excessive, hence legally impermissible. Reduction is legally called for now in rates of interest and penalty stated in the mortgage contract.

What

then should

the interest

and

penalty

rates be?

 

The evidence shows that

it

was

indeed the

respondents who proposed the 5% interest

rate per

month for

two

(2) months. Having

agreed

to

said

rate,

the

parties

are

now

estopped

from

claiming

otherwise.

For

the

succeeding

period

after

the

two

months,

however,

the

Court

of

Appeals

correctly

reduced the interest rate to 12% per annumand the penalty rate to 1% per month, in accordance with Article 2227 of the Civil Code.

But were respondents entitled to the "surplus" of P2,247,326 as a result of the "overpricing" in the auction?

We note that the "surplus" was the result of the computation by the Court of Appeals of respondents’ outstanding liability based on a reduced interest rate of 12% per annum and the reduced penalty rate of 1% per month.

In

the

instant

case,

however,

there

is

no

"surplus" to speak of. In adjusting the interest

and penalty rates to equitable and conscionable levels, what the Court did was

merely to reflect the true price of the land in the foreclosure sale. The amount of the petitioner’s bid merely represented the true amount of the

mortgage debt. No surplus

in the purchase

price was thus created to which the respondents as the mortgagors have a vested right.

**

The

interest

rate

for

the

subject

loan

owing to QDB is hereby fixed at five percent (5%) for the first two (2) months following the date of execution of the Deed of Real Estate Mortgage, and twelve percent (12%) for the succeeding period. The penalty rate thereafter shall be fixed at one percent (1%) per month. Petitioner Teresita Dio is declared free of any obligation to return to the respondents, the Spouses Virgilio Japor and Luz Roces Japor and Marta Japor, any surplus in the foreclosure sale price. There being no surplus, after the court below had applied our ruling in Sulit, respondents could not legally claim any overprice from the petitioner, much less the amount of P2,247,326.00.

DARIO NACAR vs GALLERY FRAMES AND/OR FELIPE BORDEY, JR.

FACTS: Petitioner Dario Nacar filed a complaint for constructive dismissal before the National Labor Relations Commission (NLRC) against Gallery Frames (GF) and/or Felipe Bordey, Jr.

On

October

15,

1998,

the

Labor

Arbiter

rendered a Decision in favor of petitioner and

found that he was dismissed from employment

without a

valid or just

cause and was never

afforded due process. Thus, petitioner was awarded backwages and separation pay in lieu

of reinstatement,

in

the

amount

of

P158,919.92, computed only up to promulgation of this decision. Length of service was 8 yrs and 1 day.

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the date of his

dismissal on January 24, 1997 up to the finality

of the Resolution of the Supreme Court on May 27, 2002. Upon recomputation, NLRC arrived at an updated amount in the sum of

P471,320.31.

Respondents filed a Motion to Quash Writ of Execution, arguing that no more recomputation is required after the decision becomes final and executory, the same cannot be altered or amended anymore. Denied. Reappealed and a recomputation was granted but only in the amount of P147,560.19.

Nacar then filed a Motion praying for the re- computation of the monetary award to include the appropriate interests.

The Labor Arbiter

granted

the

motion,

but

reasoned that it is the October 15, 1998 Decision that should be enforced considering

that it was the one that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are computed only up to the promulgation of the said decision, it is the amount of P158,919.92 that

should

be

executed.

Thus,

since

petitioner

already received

P147,560.19,

he

is

only

entitled to the balance of P11,459.73.

Nacar appealed to the CA. Denied. It opined that since petitioner no longer appealed the

October 15, 1998 Decision of the

Labor

Arbiter, which

already

became

final

and

executory, a belated correction thereof is no

longer allowed. The CA stated

that

there is

nothing left to be done except to enforce the said judgment.

ISSUE: WON a re-computation in the course

Code govern in determining the measure of recoverable damages. II. 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 imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest 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 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest 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

of execution

of the labor arbiter's original

unliquidated

claims

or

damages,

except

computation of the awards made is legally

when or until the demand can be

proper. YES

 

established

with

reasonable

certainty.

 

Accordingly, where

 

the

demand

is

HELD: Computation should start from the time Nacar was illegally dismissed until judgment

established with reasonable certainty, the interest shall begin to run from the time the

has become final and executory on May 27,

claim is made judicially or extrajudicially

2013. Moreover, a recomputation is necessary

(Art.

1169,

Civil

Code),

but

when

such

and is not a violation of the principle of

certainty

cannot

be

so

reasonably

immutability of final judgments. The

established at

the time

the demand

is

recomputation of the consequences of illegal

made, the interest shall begin

to run only

dismissal upon execution of the decision does

from the date the judgment of the court is

not constitute an alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation of monetary consequences of the dismissal is affected.

made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

As

to

the

payment

of

legal

interest,

the

guidelines

laid down

in

the case

of Eastern

3. When the judgment of the court awarding a

Shipping Lines

are accordingly

modified

to

sum of money becomes final and

embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil

executory,

the

rate

of

legal

interest,

whether the case falls

under paragraph 1

or paragraph 2,

above, shall be

6%

per

annum

from

such

finality

until

its

satisfaction,

this

interim

period

being

deemed to be by then an equivalent to a forbearance of credit.

The Decision of the CA is reversed and set aside. The case is remanded back to the LA for the proper recomputation.

* The rate of interest starting July 1,

2013

is

6% per annum (since the original case was decided in 2002, 12% int was still applied) and

applies

prospectively.

Computation

of

backwages and separation pay should start from the time an employee is illegally dismissed to the time judgment has become final and executory. Interest of such amount acrrues until full payment is made.

ECE REALTY AND DEVELOPMENT, INC., VS. HAYDYN HERNANDEZ

FACTS: Haydn filed a complaint for specific performance with damages against EMIR and

ECE Realty due to the failure of the

respondents to deliver

a condominium

unit

which he purchased from them. The respondents allegedly promised to turn over to him the unit by December 31, 1999, but failed to do so. Worse, he learned that the actual

area was only 26 square meters, not 30 square meters as indicated in their contract to sell, and the company refused to grant his corresponding reduction in the purchase price;

instead

the companies told

him

to settle

his

arrears in amortizations. He learned later that that company sold Unit 808 to a third party.

In their defense, the respondent faulted complainant for unjustifiably refusing to accept delivery of the condominium unit; that they were forced to cancel the contract to sell because of the refusal of the complainant to settle his past arrears.

The HLURB ruled in favor of the complainant and ordered the company to reimburse the respondent the amount of P452,551.65, plus legal interest, from the filing of the complaint, and to pay the respondent P50,000.00 as moral damages, P50,000.00 as attorney’s fees, and P50,000.00 as exemplary damages.

[11]

The company appealed the case all the way to the CA and eventually to the Supreme Court.

ISSUE:

W/N

ECE

should

reimburse Hernandez

be

liable

to

RULING: YES. The Supreme Court affirmed

the ruling of the lower four and tribunals, with a

slight

modification

of

the

legal

interest

imposable:

“Article 2209 of the New Civil Code provides that “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.” There is no doubt that ECE incurred in delay in delivering the subject condominium unit, for which reason the trial court was justified in awarding interest to the respondent from the filing of his complaint. There being no stipulation as to interest, under Article 2209 the imposable rate is six percent (6%) by way of damages, following the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of Appeals:

II.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 imposed, as follows:

  • 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest 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, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

  • 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest 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 unliquidated claims 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 extrajudicially

(Art.

1169,

Civil

Code)

but

when

such

certainty cannot be so reasonably

established

at

the

time

the

demand

is

made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of

damages may be deemed 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 final 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.”

“The term “forbearance,” within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the

rules

on the imposition

of interest, if proper,

and the applicable rate, as follows: The 12%

per annum rate under CB Circular No. 416

shall apply

only

to loans

or forbearance of

money, goods, or credits, as well as to judgments involving such loan or forbearance

of money, goods, or credit, while the 6%

per

annum under Art. 2209 of the Civil Code

applies

“when

the

transaction

involves

the

payment of indemnities

in

the

concept

of

damage arising from the breach or a delay in the performance of obligations in general,” with the application of both rates reckoned “from

the

time

the

complaint

was

filed

until

the

[adjudged]

amount

is

fully

paid.”

In

either

instance, the reckoning period for the

commencement of the running of

the legal

interest shall be subject to the condition “that the courts are vested with discretion, depending on the equities of each case, on the award of interest.” (Emphasis ours)

Thus,

from

the

finality

of

the judgment

awarding a sum of money until it

is satisfied,

the award shall be considered a forbearance of

credit, regardless of whether the award in fact pertained to one. Pursuant to Central Bank Circular No. 416 issued on July 29, 1974, in the absence of written stipulation the interest rate to be imposed in judgments involving a forbearance of credit was twelve percent (12%) per annum, up from six percent (6%) under Article 2209 of the Civil Code. This was reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law beginning on January 1, 1983.

But

since

July

1,

2013,

the rate of twelve

percent (12%) per annum from finality of the judgment until satisfaction has been brought

back to six percent (6%). Section 1 of Resolution No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated May 16,

2013

provides: “The rate of interest for the loan

or forbearance of any money, goods or credits and the rate allowed in judgments, in the

absence of an express contract as to such rate

of interest,

shall

be

six

percent

(6%)

per

annum.” Thus, the rate of interest to be imposed from finality of judgments is now back

at six percent (6%), the rate provided in Article

2209

of the Civil Code.”

 

ANTONIO TAN v. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES

FACTS: On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the principal amount of

(P2,000,000.00),

or

in

the

total

principal

amount of Four Million Pesos (P4,000,000.00)

from respondent

Cultural

Center

of

the

Philippines (CCP)

evidenced

by

two

(2)

promissory notes with maturity dates on May

14,

1979

and July 6, 1979, respectively.

Petitioner

defaulted

but

after

payments

he

had

the loans

a few partial restructured by

respondent

CCP, and

petitioner

accordingly

executed a promissory note on August

31,

1979

in the amount of (P3,411,421.32) payable

in five (5) installments. Petitioner Tan failed to pay any installment on the said restructured loan of (P3,411,421.32), the last installment falling due on December 31, 1980.

In a letter dated January 26, 1982, petitioner requested and proposed to respondent CCP a mode of paying the restructured loan, i.e., (a)

twenty percent (20%) of the principal amount of the loan upon the respondent giving its conformity to his proposal; and (b) the balance on the principal obligation payable in thirty-six (36) equal monthly installments until fully paid.

On October 20, 1983, petitioner again sent a letter to respondent CCP requesting 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. No favorable response was made to said letters. Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt of said letter, of the petitioner’s restructured loan which as of April 30, 1984 amounted to (P6,088,735.03). On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for collection of a sum of money against the petitioner after the latter failed to settle his said restructured loan obligation. The petitioner interposed the defense that he merely accommodated a friend, Wilson Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen.

While the case was pending in the trial court, the petitioner filed a Manifestation wherein he proposed to settle his indebtedness to respondent CCP by proposing to make a down payment of (P140,000.00) and to issue twelve (12) checks every beginning of the year to cover installment payments for one year, and every year thereafter until the balance is fully paid. However, respondent CCP did not agree to the petitioner’s proposals and so the trial of the case ensued.

TC: Ruled in favor of CCP. CA: Affirmed trial court’s decision.

ISSUE (1): Whether there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorney’s fees. YES

HELD 1: The petitioner imputes error on the part of the appellate court in not totally eliminating the award of attorney’s fees and in not reducing the penalties considering that the petitioner, contrary to the appellate court’s

findings, has allegedly made partial payments on the loan. And if penalty is to be awarded, the petitioner is asking for the non- imposition of interest on the surcharges inasmuch as the compounding of interest on surcharges is not provided in the promissory note marked Exhibit “A”. The petitioner takes exception to the computation of the private respondent whereby the interest, surcharge and the principal were added together and that on the total sum interest was imposed. Petitioner also claims that there is 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.

We find no merit in the petitioner’s contention. Article 1226 of the New Civil Code provides that:

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.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

In the case at bar, the promissory note (Exhibit “A”) expressly provides for 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. The pertinent portion of the promissory note (Exhibit “A”) imposing interest and penalties provides that:

xxx xxx xxx

With interest at the rate of FOURTEEN

per

cent

(14%) per annum from the date hereof

until paid.

PLUS THREE PERCENT (3%)

SERVICE CHARGE.

 

In case

of

non-payment

of

this

note

at

maturity/on

demand

or

upon

default

of

payment of any portion of

it when

due, I/We

jointly and severally agree to pay additional penalty charges at the rate of TWO per cent

(2%) per month on the total amount due until

paid, payable and computed monthly.

Default

CRED TRANS Digest Pool | Atty. Sarona SY 2015-2016

30
30

of payment of this note or any portion thereof

when due shall render all other

installments

and all existing promissory notes made by us

in favor of the CULTURAL CENTER OF THE

PHILIPPINES immediately due demandable.

and

xxx xxx xxx

The stipulated fourteen percent

(14%)

per

annum interest charge until full payment of the loan constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil Code. On the other hand, the stipulated two percent (2%) per month penalty is in the form of penalty charge which is separate and distinct from the monetary interest on the principal of the loan.

Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately.

The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the stipulated penalty charge. The penalty charge is also called penalty or compensatory interest.

ISSUE (2): whether interest may accrue on the penalty or compensatory interest without violating the provisions of Article 1959 of the New Civil Code. YES

HELD 2: 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.

According to the petitioner, there is

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. He claims that since there is no law that allows imposition of interest on penalties, the penalties should notearn interest. But as we have already explained, penalty clauses can be in the form of penalty or compensatory interest. 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:

First, there is an express stipulation in the promissory note (Exhibit “A”) permitting the compounding of interest. The fifth 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.” 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.

Second, Article 2212 of the New Civil Code provides that “Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.” In the instant case, interest likewise began to run on the penalty interest upon the filing of the complaint in court by respondent CCP on August 29, 1984. Hence, the courts a quo 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.

In the case at bar, however, equity cannot be considered inasmuch as there is a contractual stipulation in the promissory note whereby the petitioner expressly agreed to the compounding of interest in case of failure on his part to pay the loan at maturity. Inasmuch as the said stipulation on the compounding of interest has the force of law between the parties and does not appear to be inequitable or unjust, the said written stipulation should be respected.

The said statement of account also shows that

the amounts stated therein are

net

of

the

partial payments amounting to a total of (P452,561.43) which were made during the period from May 13, 1983 to September 30,