1
SIMPLE LOAN OR MUTUUM harvested from his land, or the value of the crops that would be harvested from his land. Rather, his
G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE GRIJALDO, defendant-appellant.
22. FACTS: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per
annum, compounded quarterly. These loans are evidenced by five promissory notes executed by the
appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943,
P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes
without due dates, but because the loans were due one year after they were incurred. To secure the
payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No.
1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the
Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets, including the loans in question, were subsequently transferred to the Republic
of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954.
These assets were among the properties that were placed under the administration of the Board of
Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with
Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the
Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the
account in question. The record shows that the appellant had actually received the written demand for
payment, but he failed to pay.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of
Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros Occidental and on March 26, 1962 the court a
quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December
31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10%
of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose
Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required
Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose
Grijaldo to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of
Court.
ISSUE:
Whether or not the obligation to pay is extinguished.
The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that
because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and
these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby
extinguished.
HELD:
This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant
executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the
appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be
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obligation was to pay a generic thing the amount of money representing the total sum of the five loans,
with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five
contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to
another ... money or other consumable thing upon the condition that the same amount of the same kind
and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five
promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of
money a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the
fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be paid from other sources aside from the
mortgaged crops.
Monetary interest
Frias vs San Diego-Sison
G.R. No. 155223 April 4, 2007
4. Facts
Petitioner is the owner of a house and lot in Ayala Alabang.
Petitioner and Dra. Flora San Diego-Sison (Respondent) entered into a Memorandum of Agreement
(MOA) over the cited property with the following terms:
1. The land is to be sold for P 6.4 million.
2. Petitioner will receive P3 million from respondent as downpayment.
3. In light of the downpayment, respondent had 6 months (1 st) to notify the Petitioner of her
intention to purchase the land. However, the balance is to be paid within another 6
months.
4. Prior to the first six months, the Petitioner may still offer the cited land to other persons
provided that the P3 million downpayment shall be returned to the Respondent including
interest based on prevailing compounded bank interest.
5. Nevertheless, in case there are no other buyers within the first 6 months, no interest shall
be charged on the P3 million.
6. However, in the event that on the 6th month the Respondent does not purchase the land,
the Petitioner has a period of another 6 months (2nd) within which to pay the sum of P3
million with interest for the last six months only. The downpayment shall be treated as
loan granted by the Respondent.
Petitioner received from Respondent P2 million in cash and P1 million in a post-dated check which
was subsequently considered as stale. Therefore, only P2 million was received as downpayment.
Before the check became stale, Petitioner gave Respondent the TCT and the Deed of Absolute Sale
of the land.

Subsequently, Respondent decided not to purchase the property and notified Petitioner of this
reminding the latter that the amount of P2 million should be considered as a loan payable within six
months as stipulated in the MOA with interest computed from such notification.
Petitioner subsequently failed to return the P2 million pesos.
CA ruled that the P2 million downpayment shall include interest computed at the time the disputed
amount was considered a loan. Thus, this petition.
Issue:
Whether or not the interest should be limited to the 1st six months as contained in the MOA?
Ruling:
No. SC ruled in favour of Respondent.
The SC opined that if the terms of an agreement are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations shall prevail.
It is further required that the various stipulations of a contract shall be interpreted together.
In this case, the phrase "for the last six months only" should be taken in the context of the entire
agreement.
The MOA speaks of 2 periods of six months each.
o The 1st six-months was given to Respondent to make up her mind whether or not to
purchase Petitioner's property.
o The 2nd six-months was given to Petitioner to pay the P2 million loan (downpayment) in
the event that Respondent decided not to buy the property in which case interest will be
charged "for the last six months only", referring to the 2nd six-month period.
o This means that no interest will be charged for the 1st six-months while Respondent
contemplating on whether to buy the property, but only for the 2nd six-months after
Respondent had decided not to buy the property. This is the meaning of the phrase "for
the last six months only".
o Certainly, there is nothing in their agreement that suggests that interest will be charged
for 6 months only even if it takes defendant-appellant an eternity to pay the loan
This does NOT mean that interest will no longer be charged after the 2nd six-month period since consequences which, according to their nature, may be in keeping with good faith, usage and law.
such stipulation was made on the logical and reasonable expectation that such amount would be paid
within the date stipulated. Therefore, the monetary interest for the last 6 months continued to accrue
until actual payment of the loaned amount.
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It has been held that for a debtor to continue in possession of the principal of the loan and to
continue to use the same after maturity of the loan without payment of the monetary interest, would
constitute unjust enrichment on the part of the debtor at the expense of the creditor.
Art. 1956. No interest shall be due when not expressly stipulated in writing.
ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc.
3.FACTS: Petitioner and respondent, as owner and contractor, respectively entered into an Agreement for
the construction of petitioners condominium. Despite the completion of the project, petitioner was not
able to pay respondent the full amount and left a balance. Repeated demands were left unheeded
prompting respondent to file a civil case against petitioner, with a prayer among others that the full
amount be paid with interest of 2% per month, from Nov. 1990 up to the time of payment. RTC ruled in
favor of respondent. Petitioner appealed to the CA, particularly opposing the imposition of the 2%
interest. The CA ruled in favor of the 2% interest.
Petitioners contention- The imposition of the interest is without basis because (1) although it was written
in the Agreement, it was not mentioned by the RTC in the dispositive portion and (2) the interest does not
apply to the respondents claim but to the monthly progress billing.
ISSUE: WON the RTC and Ca is correct in imposing a 2% per month interest on the monetary award or
the balance of the contract price.
HELD: Yes. The Agreement between the parties is the formal expression of the parties rights, duties and
obligations. It is the best evidence of the intention of the parties. Consequently, upon the fulfillment by
respondent of its obligation to complete the construction project, petitioner had the correlative duty to pay
for respondents services. However, petitioner refused to pay the balance of the contract price. From the
moment respondent completed the construction of the condominium project and petitioner refused to pay
in full, there was delay on the part of petitioner.
Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract
incurs delay, the other party who performs his part of the contract suffers damages thereby. Obviously,
respondent suffered damages brought about by the failure of petitioner to comply with its obligation on
time. And, sans elaboration of the matter at hand, damages take the form of interest. Accordingly, the
appropriate measure of damages in this case is the payment of interest at the rate agreed upon, which is
2% interest for every month of delay.
It must be noted that the Agreement provided the contractor, respondent in this case, two options in case of
delay in monthly payments, to wit: a) suspend work on the project until payment is remitted by the owner
or b) continue the work but the owner shall be required to pay interest at a rate of two percent (2%) per
month or a fraction thereof. Evidently, respondent chose the latter option, as the condominium project
was in fact already completed. The payment of the 2% monthly interest, therefore, cannot be jettisoned
overboard.
Since the Agreement stands as the law between the parties, this Court cannot ignore the existence of such
provision providing for a penalty for every months delay. Facta legem facunt inter partes. Neither can
petitioner impugn the Agreement to which it willingly gave its consent. From the moment petitioner gave
its consent, it was bound not only to fulfill what was expressly stipulated in the Agreement but also all the
Petitioners attempt to mitigate its liability to respondent should thus fail.

As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed by
respondent and later awarded by the lower courts does not refer to monthly progress billings, the
delayed payment of which would earn interest at 2% per month.
Petitioner appears confused by a semantics problem. Monthly progress billings certainly form part of
the contract price. If the amount claimed by respondent is not the monthly progress billings provided in
the contract, what then does such amount represent? Petitioner has not in point of fact convincingly
supplied an answer to this query. Neither has petitioner shown any effort to clarify the meaning of
monthly progress billings to support its position. This leaves us no choice but to agree with respondent
that the phrase monthly progress billings refers to a portion of the contract price payable by the owner
(petitioner) of the project to the contractor (respondent) based on the percentage of completion of the
project or on work accomplished at a particular stage. It refers to that portion of the contract price still to
be paid as work progresses, after the downpayment is made.
This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which respectively
provides that the (b)alance shall be paid in monthly progress payments based on actual value of the work
accomplished and that the progress payments shall be reduced by a portion of the downpayment made
by the OWNER corresponding to the value of the work completed give sense to respondents
interpretation of monthly progress billings.
SONCUYA V. AZARRAGA ROYAL SHIRT FACTORY, INC. v CO
14.FACTS:
- The parties entered into a contract wherein it is stipulated that 350 pairs of ballet shoes will be
sold by Co and that Co had 9 days from delivery of the shoes to make his choice of 2
alternatives: a) consider the sale for the shoes closed at a flat rate, or b) return the remaining
unsold ones to Royal.
- Co failed to return the unsold pairs after 9 days and actually began making partial payments on
account of the purchase price agreed upon.
- Co then contended that there was merely a consignment of the goods and he wanted to return
the unsold shoes. Royal refused contending that it was an outright sale.
ISSUE: WoN the sale was an outright sale / WoN Co is bound by the interest stipulated in the invoice.
SC: YES! / NO!
- OUTRIGHT SALE
o Co accepted the invoice of the ballet shoes and he even noted down in his own
handwriting the partial payments that he made.
o If the sale has been on consignment, a stipulation as to the period of time for the
return of the unsold shoes should have been made, however, this was not done
- NOT BOUND BY THE INTEREST
o He did not sign the invoice slip the stipulated interest was 20%, hence, not binding
o However, he is bound by the legal interest of 6%
- Hence, Co was ordered to pay the balance of the purchase price for the ballet shoes + legal
interest
EMERITO M. RAMOS, et al., petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondents; COMMERCIAL BANK OF MANILA,
intervenor.
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10.Facts: This involves question as to applicability of Tapia ruling wherein the Court held that "the
obligation to pay interest on the deposit ceases the moment the operation of the bank is completely
suspended by the duly constituted authority, the Central Bank," to loans and advances by the Central Bank
Held: Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its
Resolution at bar that the Tapia ruling is fully applicable to the non-payment of interest, during the period
of the bank's forcible closure, on loans and advances made by respondent Central Bank.
Respondent Central Bank itself when it was then managing the Overseas Bank of Manila (now
Commercial Bank of Manila) under a holding trust agreement, held the same position in Idelfonso D. Yap
vs. OBM wherein it argued that "(I)n a suit against the receiver of a national bank for money loaned to the
Bank while it was a going concern, it was error to permit plaintiff to recover interest on the loan after the
bank's suspension"
A significant development of the case, the Government Service Insurance System (GSIS) has acquired
ownership of 99.93% of the outstanding capital stock of COMBANK. The Court's Resolution manifestly
redounds to the benefit of another government institution, the GSIS, and to the preservation of the banking
system.
LIRAG TEXTILE MILLS, INC. VS. SSS
153 SCRA 338
16.Facts:
SSS (respondent) and Lirag Textile Mills (Petitioner) entered into a Purchased Agreement which
Respondent agreed to purchase preferred stocks of Petitioner worth P1 million subject to conditions:
o For Petitioner to repurchase the shares of stocks at a regular interval of one year and
to pay dividends.
o Failure to redeem and pay the dividend, the entire obligation shall become due and
demandable and it shall be liable for an amount equivalent to 12% of the amount
then outstanding as liquidated damages.
Basilio Lirag (Basilio) as President of Lirag Textile Mills signed the Agreement as a surety to
guarantee the redemption of the stocks, the payment of dividends and other obligations.
Pursuant to the Agreement, Respondent paid Petitioner P500,000 on two occasions and the latter
issued 5,000 preferred stocks with a par value of P100 as evidenced by Stock Certificate Nos. 128
and 139.
After sending Respondent sent demand letters, Petitioner and Basilio still made no redemption nor
made dividend payments.
Respondent filed an action for specific performance and damages against Petitioner:
Petitioner contends that there is no obligation on their part to redeem the stock certificates since
Respondent is still a preferred stock holder of the company and such redemption is dependent upon
the financial ability of the company.
On the part of Basilio, he contends that his liability only arises only if the company is liable and does
not perform its obligations under the Agreement.
Issue:
1) Whether or not the Purchase Agreement entered into by the Parties is a debt instrument?
2) If so, Is Basilio liable as surety?
3) Whether or not Lirag is liable for the interest as liquidated damages?
Held:

1) YES, the Purchase Agreement is a debt instrument. The terms and conditions of the Agreement show
that parties intended the repurchase of preferred shares on the respective scheduled dates to be an
absolute obligation, which does not depend on the financial ability of the corporation.
o This absolute obligation on the part of the Petitioner corporation is made manifest by the fact
that a surety was required to see to it that the obligation is fulfilled in the event the principal
debtors inability to do so.
o It cannot be said that SSS is a preferred stockholder. The rights given by the Purchase
Agreement to SSS are not rights enjoyed by ordinary stockholders. Since there was a condition
that failure to repurchase the stocks on the scheduled dates renders the entire obligation due
and demandable with interest. These features clearly show that intent of the parties to be
bound therein as debtor and creditor and not as a corporation and stockholder.
2) YES, Basilio is liable as surety. Thus it follows that he cannot deny liability for Lirags default. As
surety, he is bound immediately to pay SSS the amount then outstanding.
3) The award of liquidated damages represented by 12% of the amount then outstanding is correct,
considering that the petitioners in the stipulation of facts admitted having failed to fulfill their
obligations under the Agreement. The grant of liquidated damages is expressly provided for the
Purchase Agreement in case of contractual breach.
Since Lirag did not deny its failure to redeem the preferred shares and the non-payment of dividends
which are overdue, they are bound to earn legal interest from the time of demand, in this case,
judicial i.e. the time of filing the action.
ANGEL WAREHOUSING vs CHELDA
1.Facts: Angel Warehousing sued Chelda for the recovery of unpaid loans amounting to
P20,880 because the post dated checks issued by Chelda were dishonored. Chelda said that Angel
Warehousing charged usurious interests, thus they have no cause of action against them & cant recover
the remaining balance.
Issue: W/N illegal terms as to payment of interest likewise renders a nullity the legal terms
as to the payment of the principal debt?
Ruling: No. The contract of loan with usurious interest consists of principal and accessory stipulations
and the two stipulations are divisible in the sense that the principal debt can stand without the usurious
interest (accessory). These are divisible contracts. In divisible contracts, if the illegal terms can be
separated from legal ones, the latter may be enforced. Illegality lies only as to the prestation to pay
interest, being separable, thus should be rendered void. If the principal will be forfeited this would
unjustly enrich the borrower at the expense of the lender.
CU-UNJIENG V. MABALACAT
7.Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, Mabalacat mortgaged its property.
Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu Unjieng filed a case against Mabalacat
for foreclosure of property and payment of attorney's fees. It also claims interest over interest. Mabalacat
insisted that the agreement for the extension of the time of payment had the effect of abrogating the
stipulation of the original contract with respect to the acceleration of the maturity of the debt by non-
compliance with the terms of the mortgage. The issue related on this case is the interest over interest.
Issue: WoN Cu-Unjieng is entitled to interest over interest.
Ruling: It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury
Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests for the
computation of compound interest can certainly be made monthly, as well as quarterly, semiannually, or
annually. But in the absence of express stipulation for the accumulation of compound interest, no interest
can be collected upon interest until the debt is judicially claimed, and then the rate at which interest upon
accrued interest must be computed is fixed at 6 per cent per annum. In this case, there was no compound
interest in the agreement.
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DAVID vs. CA
G.R.No. 115821, October 13, 1999
13 Facts:
A writ of attachment over the real properties owned by Valentin Afable, Jr.. RTC ordered
Afable, Jr. To pay David P66,500 plus interest from July 24, 1974, until fully paid. RTC amended its
decison and ruled that legal rate of interest should be computed from January 4, 1966, instead of from July
24, 1974.
Afable appealed to the Court of Appeals and then to the Supreme Court. In both instances, the
decision of the lower court was affirmed. Entries of judgment were made and the record of the case was
remanded to Branch 27 for the final execution.
An Alias Writ of Execution was issued by virtue of which respondent Sheriff Melchor P. Pea
conducted a public auction. Sheriff Pea informed the petitioner that the total amount of the judgment is
P270,940.52. The amount included a computation of simple interest. Afable, however, claimed that the
judgment award should be P3,027,238.50, because the amount due ought to be based on compounded
interest.
Although the auctioned properties were sold to the petitioner, Sheriff Pea did not issue the
Certificate of Sale because there was an excess in the bid price in the amount of P2,941,524.47, which the
petitioner failed to pay despite notice. David filed a Motion praying that respondent Judge Cruz
issue an order directing respondent Sheriff Pea to prepare and execute a certificate of sale in his favor.
His reason is that compound interest, which is allowed by Article 2212 of the Civil Code, should apply in
this case.
David claim that in computing the interest due of the P66,500.00, interest should be computed
at 6% on the principal sum of P66,500.00 pursuant to Article 2209 and then interest on the legal interest
should also be computed in accordance with the language of Article 2212 of the Civil Code.
Issue: Whether or not the amount due should be subject to a simple interest or compounded interest.
Ruling: In cases where no interest stipulated, no compounded interest could be
further earned. The Court ruled that Article 2212 contemplates the presence of
stipulated or conventional interest which has accrued when demand was judicially
made. In cases where no interest had been stipulated by the parties, as in the case
of Philippine American Accident Insurance, no accrued conventional interest could
further earn interest upon judicial demand.
In this case, no interest was stipulated by the parties. In the promissory note denominated
Compromise Agreement signed by the Afable, Jr. which was duly accepted by the David no interest was
mentioned. That being the case, the interest should only be subject to a simple interest.
Topic: Simple Loan or Mutuum; Article 1960
Velez v. Balzarra
6.FACTS:
Plaintiff Velez filed a complaint for the return of parcels of land sold by Defendant to
Plaintiffs husband. She further alleged that defendants had remained in possession of said land
under Contract of Lease but for over 2 years defendants had not paid the agreed rentals.
Defendant alleged that the real agreement was a loan secured by a mortgage of those lands.
Trial court found that the payments made by defendants were not made by way of interest but
as payments for the principal. Defendant overpaid therefore Plaintiff should return excess.
ISSUE: Whether payments were intended to be applied to the principal OR were considered as rents,
interests?
HELD:

Payments were NOT rents, interests
Neri took possession of land and collected fruits. The creditor having enjoyed the beneficial
use of the lands delivered as security for the loan, it appears to have been the intention of the
parties that the creditor should be compensated thereby.
Though receipts, payments are called rents, they were prepared by Neri (Ps husband) and
Plaintiff, and defendants in their ignorance did not look into the wording, being merely
satisfied that they were proofs of payment.
The liability of plaintiff to return the excess payments is in keeping with Article 1895 (Old
Civil Code) which provides that, when something is received which there is no right to
collect, and which by mistake has been unduly delivered, the obligation to restore it arises.
The 2 requisites are present: 1) There is no right to collect these excess sums; and 2) the
amounts have been paid through mistake by defendants. Such mistake is shown by the fact that
their contracts never intended that either rents or interest should be paid, and by the further fact
that when these payments were made, they were intended by defendants to be applied to the
principal, but they overpaid the amounts loaned to them.
USURY LAW
EASTERN SHIPPING v CA
9. FACTS:
- 2 Fiber drums of Riboflavin were shipped from Japan for delivery vessel owned by Eastern
Shipping (P) and that the shipment was insured by Mercantile Insurance (R)
- Upon arrival in Manila, it was discharged unto the custody of Metro Port, which it stated in its
survey that 1 drum was in bad order.
- It was then received by Allied Brokerage wherein it stated in its survey that one drum was
opened and without seal
- Allied then delivered it to the consignees W/H, which it excepted that 1 drum contained
spillages while the rest was adulterated/fake
- R then filed claims against P for the losses sustained by the consignee (which R subrogated).
- LC ruled in favor of R and ordered P to pay damages, however, it failed to state when the
interest rate should commence from date of filing of complaint at 12% or from date of
judgment of TC at 6%
ISSUE: When should the interest rate commence and at what rate
SC: 6% from the date of decision and 12% from date of finality of judgment until payment
- This case laid down the rules on the interest rates:
- A) when an obligation regardless of its source, is breached, the contravenor can be held liable
for damages
- B) 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, shall be as follows:
- If it consists of payment of money (loan/forbearance)
o Interest due imposed = as stipulated in writing and the
o Interest due = earn legal interest from the time it is judicially demanded
o No stipulation = 12% per annum from date of default (judicial/extra judicial)
- If it is not loan/forbearance
o Interest on amount of damages = imposed by discretion of court at 6%
o No interest shall be ordered on unliquidated claims/damages until demand can be
established with reasonable certainty
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o When demand is established with reasonable certainty, interest shall begin to run
from the time the claim is made (judicially/extrajudicially)
o But if it cannot be reasonably established at the time demand was made = interest to
run from date of judgment of the court
- If judgment becomes Final and Executory
o Rate of legal interest = 12%
o From finality to satisfaction
o Why? It is already considered as forbearance
PILIPINAS BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, and LILIA R. ECHAUS, respondents.
Facts: private respondent 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 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 in favor of private
respondent; and (3) that notwithstanding her demand for payment, petitioner refused and failed to pay the
said amount assigned to her.
Petitioner claimed: (1) that its former president had no authority (2) that it never ratified the same; and (3)
that assuming arguendo that the agreement was binding, the conditions stipulated therein were never
fulfilled.The trial court ruled in favor of private respondent.Court of Appeals modified the Order dated
April 3, 1985, by limiting the execution pending appeal against petitioner to P5,517.707.00
Trial court granted the new motion for execution pending appeal. Petitioner complied with the writ of
execution pending appeal by issuing two manager's checks in the total amount of P5,517,707.00
The Court of Appeals rendered a decision in CA-G.R. No. CV-06017, which modified the judgment of the
trial court. 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%. It must be recalled that while private respondent
was able to collect P5,517,707.00 from petitioner pursuant to the writ of advance execution, the final
judgment in the main case awarded to private respondent damages in the total amount of P3,619,083.33
ISSUE: What interest rate applicable?
HELD: 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.
(1) the amount of P2,300,000.00 adjudged to be paid by petitioner to private respondent shall earn interest
of 6% per annum - The said obligation 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.
(2) the amount of P1,898,623.67 to be refunded by private respondent to petitioner shall earn interest of
12% per annum. - where money is transferred from one person to another and the obligation to return the
same or a portion thereof is subsequently adjudged.
PNB v CA

FACTS:
- Province of Isabela issued several checks drawn against its account with PNB (P) in favor of
Ibarrola (R), as payments for the purchase of medicines.
- The checks were delivered to Rs 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
- LC, 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%
SC: 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
- 6% from filing of complaint until full payment before finality of judgment
- 12% from finality of judgment
Antonio Tan vs. Court of Appeals/CCP
GR No. 116285
FACTS: TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM CCP.
Executed a promissory note in amount of P3,411,421.32; payable in 5 installments.
TAN failed to pay any installment on the said restructured loa.
In a letter, TAN requested and proposed to respondent CCP a mode of paying the restructured loan
i. 20% of the principal amount of the loan upon the respondent giving its
conformity to his proposal
ii. Balance on the principal obligation payable 36 monthly installments until
fully paid.
TAN requested for a moratorium on his loan obligation until the following year allegedly due to a
substantial deduction in the volume of his business and on account of the peso devaluation.
i. No favorable response was made to said letters.
ii. CCP demanded full payment, within ten (10) days from receipt of said
letter P6,088,735.03.
CCP FILED COMPLAINT collection of a sum of money
TAN interposed the defense that he accommodated a friend who asked for help to obtain a loan from CCP.
i. Claimed that cannot find the friend.
TAN filed a Manifestation wherein he proposed to settle his indebtedness to CCP by down payment of
P140,000.00 and to issue1 2 checks every beginning of the year to cover installment payments for one
year, and every year thereafter until the balance is fully paid.
i. CCP did not agree to the petitioners proposals and so the trial of the case
ensued.
TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67, representing defendants outstanding
account as of August 28, 1986, with the corresponding stipulated interest and charges thereof, until fully
paid, plus attorneys fees in an amount equivalent to 25% of said outstanding account, plus P50,000.00, as
exemplary damages, plus costs.
REASONS:
i. Reason of loan for accommodation of friend was not credible.
ii. Assuming, arguendo, that the TAN did not personally benefit from loan,
he should have filed a 3rd-party complaint against Wilson Lucmen
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iii. 3 times the petitioner offered to settle his loan obligation with CCP.
iv. TAN may not avoid his liability to pay his obligation under the
promissory note which he must comply with in good faith.
v. TAN is estopped from denying his liability or loan obligation to the
private respondent.
TAN APPEALED TO CA, asked for the reduction of the penalties and charges on his loan obligation.
Judgment appealed from is hereby AFFIRMED.
1. No alleged partial or irregular performance.
2. However, the appellate court modified the decision of the trial court by deleting exemplary damages
because not proportionate to actual damage caused by the non-performance of the contract
ISSUES:
WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and
attorneys fees.
TAN imputes error on CA in not fully eliminating attorney fees and in not reducing the penalties
considering that he made partial payments on the loan.
And if penalty is to be awarded, TAN asking for non-imposition of interest on the surcharges because
compounding of these are not included in promissory note.
No basis in law for the charging of interest on the surcharges for the reason that the New Civil Code is
devoid of any provision allowing the imposition of interest on surcharges.
WON interest may accrue on the penalty or compensatory interest without violating ART 1959: Without
prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal,
shall earn new interest.
TAN- No legal basis for the imposition of interest on the penalty charge for the reason that the law only
allows imposition of interest on monetary interest but not the charging of interest on penalty. Penalties
should not earn interest.
WON TAN can file reduction of penalty due to made partial payments.
Petitioner contends that reduction of the penalty is justifiable under ART 1229: The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
HELD
CA DECISION AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%) per
month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent
(12%) per annum starting from August 28, 1986. With costs against the petitioner.
WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and
attorneys fees. YES. WITH LEGAL BASES.
ART 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and
the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
i. The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
CASE AT BAR: promissory note expressed the imposition of both interest and penalties in case of default
on the part of the petitioner in the payment of the subject restructured loan.
PENALTY IN MANY FORMS:
i. If the parties stipulate penalty apart monetary interest, two are different
and distinct from each other and may be demanded separately.
ii. If stipulation about payment of an additional interest rate partakes of the
nature of a penalty clause which is sanctioned by law:

1. ART 2209: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.
CASE AT BAR: Penalty charge of 2% per month began to accrue from the time of default by the
petitioner.
i. No doubt petitioner is liable for both the stipulated monetary interest and
the stipulated penalty charge.
1. PENALTY CHARGE = penalty or compensatory interest.
WON interest may accrue on the penalty or compensatory interest without violating ART 1959.
Penalty clauses can be in the form of penalty or compensatory interest.
i. Thus, the compounding of the penalty or compensatory interest is
sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code
considering that:
1. There is an express stipulation in the promissory note (Exhibit A) permitting the compounding of
interest.
a. 5th paragraph of the said promissory note provides that: Any interest which may be due if not paid
shall be added to the total amount when due and shall become part thereof, the whole amount to bear
interest at the maximum rate allowed by law..
2. Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve percent
(12%) per annum, in the absence of express stipulation on the specific rate of interest, as in the case at bar.
ART 2212: Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
CASE AT BAR: interest began to run on the penalty interest upon the filing of the complaint in court by
CCP.
i. Hence, the courts did not err in ruling that the petitioner is bound to pay
the interest on the total amount of the principal, the monetary interest and the penalty interest.
WON TAN can file reduction of penalty due to made partial payments. YES. BUT NOT 10%
REDUCTION AS SUGGESTED BY PETITIONER.
REDUCED TO 2% REDUCTION:
i. PARTIAL PAYMENTS showed his good faith despite difficulty in
complying with his loan obligation due to his financial problems.
1. However, we are not unmindful of the respondents long overdue deprivation of the use of its money
collectible.
The petitioner also imputes error on the part of the appellate court for not declaring the suspension of the
running of the interest during period when the CCP allegedly failed to assist the petitioner in applying for
relief from liability
Alleges that his obligation to pay the interest and surcharge should have been suspended because the
obligation to pay such interest and surcharge has become conditional
i. Dependent on a future and uncertain event which consists of whether the
petitioners request for condonation of interest and surcharge would be recommended by the Commission
on Audit.
1. Since the condition has not happened due to the private respondents reneging on its promise, his
liability to pay the interest and surcharge on the loan has not arisen.
COURT ANSWER:
i. Running of the interest and surcharge was not suspended.
ii. CCP correctly asserted that it was the primary responsibility of petitioner
to inform the Commission on Audit of his application for condonation of interest and surcharge.
Nacar vs. Gallery Frames
FACTS: Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On October 15,
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1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded
Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision
of the Labor Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged
that his backwages should be computed from the time of his illegal dismissal (January 24, 1997) until the
finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as he ruled that the
reckoning point of the computation should only be from the time Nacar was illegally dismissed (January
24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said date should be
the reckoning point because Nacar did not appeal hence as to him, that decision became final and
executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases
where the dismissed employee wins, or loses but wins on appeal). The first part is the ruling that the
employee was illegally dismissed. This is immediately final even if the employer appeals but will be
reversed if employer wins on appeal. The second part is the ruling on the award of backwages and/or
separation pay. For backwages, it will be computed from the date of illegal dismissal until the date of the
decision of the Labor Arbiter. But if the employer appeals, then the end date shall be extended until the
day when the appellate courts decision shall become final. Hence, as a consequence, the liability of the
employer, if he loses on appeal, will increase this is just but a risk that the employer cannot avoid when
it continued to seek recourses against the Labor Arbiters decision. This is also in accordance with Article
279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the Supreme Court
ruled that the old case of Eastern Shipping Lines vs CA is already modified by the promulgation of the
Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of interest
from 12% to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial
demand whichever is appropriate and subject to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or extra-
judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum demandable from
the date of judgment because such on such date, it is already deemed that the amount of damages is
already ascertained.
3. Compounded Interest
This is applicable to both monetary and non-monetary obligations
6% per annum computed against award of damages (interest) granted by the court. To be computed from
the date when the courts decision becomes final and executory until the award is fully satisfied by the
losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12% rate;
Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate for
unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments on or after July
1, 2013 shall still incur the 6% rate.
GIL JARDENIL, plaintiff-appellant,
vs.
HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.

Eleuterio J. Gustilo for appellant.
Jose C. Robles for appellee.
MORAN, J.:
This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-
appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory
note, or up to the date payment is effected? This question is, in our opinion controlled by the express
stipulation of the parties.
Paragraph 4 of the mortgage deed recites:
Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS
(P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar al Sr. Jardenil en o antes del
dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al
tipo de doce por ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno
(31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa,
por via de primera hipoteca, a favor del Sr. Jardenil, sus herederos y causahabientes, la parcela de terreno
descrita en el parrafo primero (1.) de esta escritura.
Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until
March 31, 1934. As the contract is silent as to whether after that date, in the event of non-payment, the
debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest;
otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree
upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly
stipulated." (Emphasis supplied.)
A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190,
now section 58, Rule 123), and only when the wording of the written instrument appears to be contrary to
the evident intention of the parties that such intention must prevail. (Article 1281, Civil Code.) There is
nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their
evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of
execution of the deed of mortgage, an extension of one year from the date of maturity within which to
make payment, without making any mention of any interest which the mortgagor should pay during the
additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties
was that no interest should be paid during the period of grace. What reason the parties may have therefor,
we need not here seek to explore.
Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their
agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it
and asked that the deed be reformed accordingly, under the parcel-evidence rule.
We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not
been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not
been assailed on the ground of mutual mistake which would require its reformation, same should be given
its full force and effect. When a party sues on a written contract and no attempt is made to show any vice
therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission,
to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily
supplied by what their own notions of justice or equity may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from
November 8, 1932 to March 31, 1934. And it being a fact that extra judicial demands have been made
which we may assume to have been so made on the expiration of the year of grace, he shall be entitled to
legal interest upon the principal and the accrued interest from April 1, 1935, until full payment.
Thus modified judgment is affirmed, with costs against appellant.
Separate Opinions
PARAS, J., dissenting:
Under the facts stated in the decision of the majority, I come to the conclusion that interest at the rate of 12
per cent per annum should be paid up to the date of payment of the whole indebtedness is made. Payment
of such interest is expressly stipulated. True, it is stated in the mortgage contract that interest was to be
paid up to March 31, 1934, but this date was inserted merely because it was the date of maturity. The
extension note is silent as regards interest, but its payment is clearly implied from the nature of the
transaction which is only a renewal of the obligation. In my opinion, the ruling of the majority is
anomalous and at war with common practice and everyday business usage.
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G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.
Alaric P. Acosta for plaintiff-appellee.
Lorenzo P. de Guzman for defendants-appellants.
CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental (Branch I) in an
action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador Valdehueza
and Rediculo Valdehueza (docketed as civil case 2574) for (a) declaration of ownership and recovery of
possession of the parcel of land described in the first cause of action of the complaint, and (b)
consolidation of ownership of two portions of another parcel of (unregistered) land described in
the second cause of action of the complaint, purportedly sold to the plaintiff in two separate deeds of pacto
de retro.
After the issues were joined, the parties submitted the following stipulation of facts:
1. That parties admit the legal capacity of plaintiff to sue; that defendants herein, Arador, Rediculo, Pacita,
Concepcion and Rosario, all surnamed Valdehueza, are brothers and sisters; that the answer filed by
Arador and Rediculo stand as the answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first cause of action.
3. That the parcel of land described in the first cause of action was the subject matter of the public auction
sale held on May 6, 1955 at the Capitol Building in Oroquieta, Misamis Occidental, wherein the plaintiff
was the highest bidder and as such a Certificate of Sale was executed by MR. VICENTE D. ROA who
was then the Ex-Officio Provincial Sheriff in favor of LUCIA TAN the herein plaintiff. Due to the failure
of defendant Arador Valdehueza to redeem the said land within the period of one year as being provided
by law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE
DEED OF SALE in favor of the plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as 'Annex A', the CERTIFICATE OF
SALE is marked as 'Annex B' and the ABSOLUTE DEED OF SALE is hereby marked as Annex C and all
of which are made as integral parts of this stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties defendants Arador,
Rediculo and Pacita, all Valdehueza were the same parties-defendants in the same said Civil Case No.
2002; the complaint in Civil Case No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2 and the
order dated May 22, 1963 as Exhibit 3, and said exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed two
documents of DEED OF PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of two
portions of a parcel of land which is described in the second cause of action with the total amount of ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine Currency, copies of said documents are
marked as 'Annex D' and Annex E', respectively and made as integral parts of this stipulation of facts.
6. That from the execution of the Deed of Sale with right to repurchase mentioned in the second cause of
action, defendants Arador Valdehueza and Rediculo Valdehueza remained in the possession of the land;
that land taxes to the said land were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction filed by Tan on July
24, 1957 against the Valdehuezas, to enjoin them "from entering the above-described parcel of land and
gathering the nuts therein ...." This complaint and the counterclaim were subsequently dismissed for
failure of the parties "to seek for the immediate trial thereof, thus evincing lack of interest on their part to
proceed with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August 5, 1955)
was not registered in the Registry of Deeds, while the Deed of Pacto de Retro referred to as "Annex E"
(dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff:

1. Declaring Lucia Tan the absolute owner of the property described in the first cause of action of the
amended complaint; and ordering the herein defendants not to encroach and molest her in the exercise of
her proprietary rights; and, from which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and severally to pay to
the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with legal interest of 6% as of August 15,
1966, within 90 days to be deposited with the Office of the Court within 90 days from the date of service
of this decision, and that in default of such payment the property shall be sold in accordance with the
Rules of Court for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex 'D', the herein defendants Arador
Valdehueza and Rediculo Valdehueza are hereby ordered to pay the plaintiff the amount of P300 with legal
interest of 6% from August 15, 1966, the said land serving as guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay jointly and severally to
the herein plaintiff Lucia Tan the amount of 1,000.00 as attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause of action that there exists res judicata;
and
That the lower court erred in making a finding on the second cause of action that the transactions between
the parties were simple loan, instead, it should be declared as equitable mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides that a dismissal for
failure to prosecute "shall have the effect of an adjudication upon the merits," the Valdehuezas submit that
the dismissal of civil case 2002 operated, upon the principle of res judicata, as a bar to the first cause of
action in civil case 2574. We rule that this contention is untenable as the causes of action in the two cases
are not identical. Case 2002 was for injunction against the entry into and the gathering of nuts from the
land, while case 2574 seeks to "remove any doubt or cloud of the plaintiff's ownership ..." (Amended
complaint, Rec. on App., p. 27), with a prayer for declaration of ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent judgments, 2 we hold that the
failure of Tan, in case 2002, to secure an injunction against the Valdehuezas to prevent them from entering
the land and gathering nuts is not inconsistent with her being adjudged, in case 2574, as owner of the land
with right to recover possession thereof. Case 2002 involved only the possession of the land and the fruits
thereof, while case 2574 involves ownership of the land, with possession as a mere attribute of ownership.
The judgment in the first case could not and did not encompass the judgment in the second, although the
second judgment would encompass the first. Moreover, the new Civil Code provides that suitors in actions
to quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered the
unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus sold
underpacto de retro," on the ground that no suit lies to foreclose an unregistered mortgage. It would appear
that the trial judge had not updated himself on law and jurisprudence; he cited, in support of his ruling,
article 1875 of the old Civil Code and decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a
mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect since August
30,1950), this is no longer so. 4
If the instrument is not recorded, the mortgage is nonetheless binding between the parties. (Article 2125,
2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes having been paid by them,
the contracts which purported to be pacto de retro transactions are presumed to be equitable
mortgages, 5 whether registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they remained in
possession of the land and gave the proceeds of the harvest to the plaintiff; it is thus argued that they
would suffer double prejudice if they are to pay legal interest on the amounts stated in the pacto de
retro contracts, as the lower court has directed, and that therefore the court should have ordered evidence
to be adduced on the harvest.
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The record does not support this claim. Nowhere in the original and the amended complaints is an
allegation of delivery to the plaintiff of the harvest from the land involved in the second cause of action.
Hence, the defendants' answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and maybe made the basis of
the decision of this Honorable Court. " (emphasis supplied) This, the court did. It cannot therefore be
faulted for not receiving evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and P300,
respectively, is without legal basis, for, "No interest shall be due unless it has been expressly stipulated in
writing." (Article 1956, new Civil Code) Furthermore, the plaintiff did not pray for such interest; her
thesis was a consolidation of ownership, which was properly rejected, the contracts being equitable
mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it needless to pass
upon the plaintiffs petition for receivership. Should the circumstances so warrant, she may address the said
petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts of P1,200 and P300
mentioned in Annexes E and D shall bear interest at six percent per annum from the finality of this
decision; and (b) the parcel of land covered by Annex D shall be treated in the same manner as that
covered by Annex E, should the defendants fail to pay to the plaintiff
G.R. No. 173227. January 20, 2009
Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.
Facts: Respondent filed a complaint for sum of money against petitioner. Respondent claimed that
petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00 of which the
loan agreement was not reduced in writing and there was no stipulation as to the payment of interest for
the loan. Respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. She
then issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance
of the loan of which the excess amount of P160,000.00 would be applied as interest for the loan. Not
satisfied with the amount applied as interest, petitioner pestered her to pay additional interest and
threatened to block or disapprove her transactions with the PNO if she would not comply with his
demand. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked
petitioner for receipt for the payments but was told that it was not necessary as there was mutual trust and
confidence between them. According to her computation, the total amount she paid to petitioner for the
loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation to
petitioner and that the latter should refund the excess amount to the former. It ratiocinated that
respondents obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests
due should not be included in the computation of respondents total monetary debt because there was no
agreement between them regarding payment of interest. It concluded that since respondent made an
excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the
said amount to respondent pursuant to the principle of solutio indebiti. Also, petitioner should pay moral
damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner
should pay exemplary damages by way of example or correction for the public good, plus attorneys fees
and costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio indebiti
applies to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not duly proven
that respondent defaulted in paying the loan and no interest was due on the loan because there was no
written agreement as regards payment of interest. 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. As can be gleaned from the foregoing provision, 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. Thus, we have held that collection of interest without any stipulation therefor in
writing is prohibited by law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as interest.
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article
2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something
is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract
whereby the payor becomes the creditor who then has the right to demand the return of payment made by
mistake, and the person who has no right to receive such payment becomes obligated to return the same.
The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another. The principle of solutio indebiti applies where (1) a payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the person who
received the payment; and (2) the payment is made through mistake, and not through liberality or some
other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of
undue interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions with the PNO if she would not
pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of
exemplary damages is appropriate so as to deter petitioner and other lenders from committing similar and
other serious wrongdoings.
ROYAL SHIRT FACTORY, INC. v CO
FACTS:
The parties entered into a contract wherein it is stipulated that 350 pairs of ballet shoes will be sold by Co
and that Co had 9 days from delivery of the shoes to make his choice of 2 alternatives: a) consider the sale
for the shoes closed at a flat rate, or b) return the remaining unsold ones to Royal.
Co failed to return the unsold pairs after 9 days and actually began making partial payments on account of
the purchase price agreed upon.
Co then contended that there was merely a consignment of the goods and he wanted to return the unsold
shoes. Royal refused contending that it was an outright sale.
ISSUE: WoN the sale was an outright sale / WoN Co is bound by the interest stipulated in the invoice.
SC: YES! / NO!
OUTRIGHT SALE
Co accepted the invoice of the ballet shoes and he even noted down in his own handwriting the partial
payments that he made.
If the sale has been on consignment, a stipulation as to the period of time for the return of the unsold shoes
should have been made, however, this was not done
NOT BOUND BY THE INTEREST
He did not sign the invoice slip the stipulated interest was 20%, hence, not binding
However, he is bound by the legal interest of 6%
Hence, Co was ordered to pay the balance of the purchase price for the ballet shoes + legal interest
Ligutan vs. CA G.R#138677
Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.0
0 from respondent Security Bank and Trust Company. Petitioners executed a promissorynote binding
themselves, jointly and severally, with an interest of 15.189% per annum upon maturityand to pay
a penalty of 5% every month on the outstanding principal and interest in case of default and also a 10%
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attorneys fees if the matter were indorsed to a lawyer for collection. The obligation matured, the
petitioners were not able to settle the obligation; the bank gave an extension, still the same happened.
Since the petitioners still defaulted, the former filed a complaint for recovery of the due amount.
Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners loan
are manifestly exorbitant, iniquitous and unconscionable? Ruling: The obligor would then be bound to pay
the stipulated indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on
such terms and conditions as they see fit that contravene neither law nor morals, good customs, public
order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective.
Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and
purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like, the application of which, by
and large, is addressed to the sound discretion of the court. The CA exercised good judgment in reducing
the stipulated penalty interest from 5% to 3% a month. It was also been held that the 15.189% per annum
stipulated interest and the 10% attorneys is reasonable and not excessive. The interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the core of a bank's existence.
BPI FAMILY BANK VS. FRANCO
G.R. No. 123498 November 23, 2007
J. Nachura
FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon thereafter,
FMIC also opened a time deposit account with the same branch of BPI-FB
On August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit, with
BPI-FB. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by
Tevesteco allegedly in consideration of Francos introduction of Eladio Teves, to Jaime Sebastian, who
was then BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was part of
the P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.
BPI-FB, debited Francos savings and current accounts for the amounts remaining therein. In the
meantime, two checks drawn by Franco against his BPI-FB current account were dishonored and stamped
with a notation account under garnishment. Apparently, Francos current account was garnished by
virtue of an Order of
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Francos receipt of notice that his accounts were under garnishment. It was only on May 15, 1990, that
Franco was impleaded in the Makati case. Immediately, upon receipt of such copy, Franco filed a Motion
to Discharge Attachment. On May 17, 1990, Franco pre-terminated his time deposit account.
BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him. Consequently, in light of BPI-FBs refusal to heed Francos
demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the
Manila RTC the subject suit.
ISSUE: WON Respondent had better right to the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit
HELD: NO
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There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently
forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or
mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Francos deposits, but such ownership is coupled with a corresponding obligation
to pay him an equal amount on demand. Although BPI-FB owns the deposits in Francos accounts, it
cannot prevent him from demanding payment of BPI-FBs obligation by drawing checks against his
current account, or asking for the release of the funds in his savings account. Thus, when Franco issued
checks drawn against his current account, he had every right as creditor to expect that those checks would
be honored by BPI-FB as debtor.
deposits which it supposes are derived from shady transactions, would open the floodgates of public
distrust in the banking industry.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco
and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective accounts
without the appropriate court writ or a favorable final judgment.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly
involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on

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