People vs. Concepcion, 44 Phil. 126 [1922] predecessor of BPI Investment Corp.
(BPIIC), for the construction of a
FACTS:
Venancio Concepcion, President of the Philippine National Bank and a
member of the Board thereof, authorized an extension of credit in
favor of "Puno y Concepcion, S. en C. to the manager of the Aparri
branch of the Philippine National Bank. "Puno y Concepcion, S. en C."
was a co-partnership where Concepcion is a partner. Subsequently,
Concepcion was charged and found guilty in the Court of First Instance
of Cagayan with violation of section 35 of Act No.2747. Section 35 of
Act No. 2747 provides that the National Bank shall not, directly or
indirectly, grant loans to any of the members of the board of directors
of the bank nor to agents of the branch banks. Counsel for the defense
argue that the documents of record do not prove that authority to
make a loan was given, but only show the concession of a credit. They
averred that the granting of a credit to the co-partnership "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, is not a "loan" within the meaning of section
35 of Act No. 2747.
ISSUE:
Whether or not the granting of a credit of P300,000 to the co-
partnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, a "loan" within the meaning
of section 35 of Act No. 2747.
HELD:
The Supreme Court ruled in the affirmative. The "credit" of an
individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may
promise. A "loan" means the delivery by one party and the receipt by
the other party of a given sum of money, upon an agreement, express
or implied, to repay the sum loaned, with or without interest. The
concession of a "credit" necessarily involves the granting of "loans" up
to the limit of the amount fixed in the "credit,"
Saura Import and Export Co., Inc. vs. DBP, 44 SCRA 445
[1972]
FACTS:
Saura Inc. applied to the Rehabilitation Finance Corp (before its
conversion to DBP) for a loan of 500k secured by a first mortgage of
the factory building to finance for the construction of a jute mill factory
and purchase of factory implements. RFC accepted and approved the
loan application subject to some conditions which Saura admitted it
could not comply with. Without having received the amount being
loaned, and sensing that it could not at anyway obtain the full amount
of loan, Saura Inc. then asked for cancellation of the mortgage which
RFC also approved. Nine years after the cancellation of the mortgage,
Saura sued RFC for damages for its non-fulfilment of obligations
arguing that there was indeed a perfected consensual contract
between them.
ISSUES:
Whether or not there was a perfected consensual contract?
Whether or not there was a real contract of loan which would warrant
recovery of damages arising out of breach of such contract?
HELD:
On the first issue, yes, there was indeed a perfected consensual
contract, as recognized in Article 1934 of the Civil Code. There was
undoubtedly offer and acceptance in this case: the application of
Saura, Inc. for a loan of P500,000.00 was approved by resolution of
the defendant, and the corresponding mortgage was executed and
registered.
But this fact alone falls short of resolving the second issue and the
basic claim that the defendant failed to fulfil its obligation and the
plaintiff is therefore entitled to recover damages. The action thus
taken by both partiesSaura's request for cancellation and RFC's
subsequent approval of such cancellationwas in the nature of mutual
desistance what Manresa terms "mutuo disenso" which is a mode
of extinguishing obligations. It is a concept derived from the principle
that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment. In view of
such extinguishment, said perfected consensual contract to deliver did
not constitute a real contract of loan.
BPI Investment Corp. vs. Court of Appeals, 377 SCRA 117
[2002]
FACTS:
Frank Roa obtained a loan with interest rate of 16 1/4%/annum from
Ayala Investment and Development Corporation (AIDC), the
house on his lot in New Alabang Village, Muntinlupa. He mortgaged
the house and lot to AIDC as security for the loan. In 1980: Roa sold
the house and lot to ALS Management & Development Corp. and
Antonio Litonjua for P850K who paid P350K in cash and assumed the
P500K indebtness of ROA with AIDC. AIDC proposed to grant ALS and
Litonjua a new loan for P500K with interested rate of 20%/annum and
service fee of 1%/annum on the outstanding balance payable within
10 years through equal monthly amortization of P9,996.58 and penalty
interest of 21%/annum/day from the date the amortization becomes
due and payable. In March 1981: ALS and Litonjua executed a
mortgage deed containing the new stipulation with the provision that
the monthly amortization will commence on May 1, 1981.
In August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35
reducing the P500K principal loan to P457,204.90. September 13,
1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan . On June
1984: BPIIC instituted foreclosure proceedings against ALS and
Litonjua on the ground that they failed to pay the mortgage
indebtedness which from May 1, 1981 to June 30, 1984 amounting
to P475,585.31. August 13, 1984: Notice of sheriff's sale was
published. Then on February 28, 1985: ALS and Litonjua filed Civil
Case No. 52093 against BPIIC alleging that they are not in arrears and
instead they made an overpayment as of June 30, 1984 since the
P500K loan was only released September 13, 1982 which marked the
start of the amortization and since only P464,351.77 was released
applying legal compensation the balance of P35,648.23 should be
applied to the monthly amortizations.
RTC ruled in favor of ALS and Litonjua and against BPIIC that the loan
granted by BPI to ALS and Litonjua was only in the principal sum of
P464,351.77 and awarding moral damages, exemplary damages and
attorneys fees for the publication.
CA Affirmed reasoning that a simple loan is perfected upon delivery of
the object of the contract which is on September 13, 1982
ISSUE:
Whether or not the contract of loan was perfected only on September
13, 1982 or the second release of the loan?
HELD:
YES. The court AFFIRMED WITH MODIFICATION as to the award of
damages. The award of moral and exemplary damages in favor of
private respondents is DELETED, but the award to them of attorneys
fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages.
Costs against petitioner. Obligation to pay commenced only on October
13, 1982, a month after the perfection of the contract. The contract of
loan involves a reciprocal obligation, wherein the obligation or promise
of each party is the consideration for that of the other. It is a basic
principle in reciprocal obligations that neither party incurs in delay, if
the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Consequently, petitioner
could only demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with its
obligation under the loan contract. It was found that BPIIC was
negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records
on the amount actually released and the date when it was released.
Such negligence resulted in damage for which an award of nominal
damages should be given. SSS where we awarded attorneys fees
because private respondents were compelled to litigate, we sustain the
award of P50,000 in favor of private respondents as attorneys fees
Bonnevie vs. Court of Appeals, 125 SCRA 122 [1983]
FACTS:
Spouses Lozano mortgaged their property to secure the payment of a
loan amounting to 75K with private respondent Philippine Bank of
Communication (PBCom). The deed of mortgage was executed on 12-
6-66, but the loan proceeds were received only on 12-12-66. Two days
after the execution of the deed of mortgage, the spouses sold the
property to the petitioner Bonnevie for and in consideration of 100k
25K of which payable to the spouses and 75K as payment to PBCom.
After which, Bonnevie defaulted payments to PBCom prompting the
latter to auction the property after Bonnivie failed to settle despite
subsequent demands, in order to recover the amount loaned. The
latter now assails the validity of the mortgage between Lozano and
PBCom arguing that on the day the deed was executed there was yet
no principal obligation to secure as the loan of P75,000.00 was not
received by the Lozano spouses, so that in the absence of a principal
obligation, there is want of consideration in the accessory contract,
which consequently impairs its validity and fatally affects its very
existence.
ISSUE: Whether or not there was a perfected contract of loan?
HELD:
Yes. From the recitals of the mortgage deed itself, it is clearly seen
that the mortgage deed was executed for and on condition of the loan
granted to the Lozano spouses. The fact that the latter did not collect
from the respondent Bank the consideration of the mortgage on the
date it was executed is immaterial. A contract of loan being a
consensual contract, the herein contract of loan was perfected at the
same time the contract of mortgage was executed. The promissory
note executed on December 12, 1966 is only an evidence of
indebtedness and does not indicate lack of consideration of the
mortgage at the time of its execution.
Central Bank of the Phils. vs. Court of Appeals, 139 SCRA 46
[1985]
FACTS:
Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio
M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo,
Las Nieves, Agusan. The loan called for a lump sum of P80,000,
repayable in semi-annual instalments for 3 yrs, with 12% annual
interest. After the agreement, a mere P17K partial release of the loan
was made by the bank and Tolentino and his wife signed a promissory
note for the P17,000 at 12% annual interest payable w/in 3 yrs. An
advance interest was deducted fr the partial release but this pre-
deducted interest was refunded to Tolentino after being informed that
there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering
liquidity problems, prohibited the bank fr making new loans and
investments. And after the bank failed to restore its solvency, the
Central Bank prohibited Island Savings Bank from doing business in
the Philippines. Island Savings Bank in view of the non-payment of the
P17K filed an application for foreclosure of the real estate mortgage.
Tolentino filed petition for specific performance or rescission and
damages with preliminary injunction, alleging that since the bank failed
to deliver P63K, he is entitled to specific performance and if not, to
rescind the real estate mortgage.
ISSUES:
1) Whether or not Tolentinos can collect from the bank for damages?
2) Whether or not the mortgagor is liable to pay the amount covered
by the promissory note?
3) Whether or not the real estate mortgage can be foreclosed?
HELD:
1) The loan agreement implied reciprocal obligations. When one party
is willing and ready to perform, the other party not ready nor willing
incurs in delay. When Tolentino executed real estate mortgage, he
signified willingness to pay. That time, the banks obligation to furnish
the P80K loan accrued. Now, the Central Bank resolution made it
impossible for the bank to furnish the P63K balance. The prohibition on
the bank to make new loans is irrelevant because it did not prohibit
the bank from releasing the balance of loans previously contracted.
Insolvency of debtor is not an excuse for non-fulfilment of obligation
but is a breach of contract. The banks asking for advance interest for
the loan is improper considering that the total loan hasnt been
released. A person cant be charged interest for non-existing debt. The
alleged discovery by the bank of overvaluation of the loan collateral is
not an issue. The bank officials should have been more responsible
and the bank bears risk in case the collateral turned out to be
overvalued. Furthermore, this was not raised in the pleadings so this
issue cant be raised. The bank was in default and Tolentino may
choose bet specific performance or rescission w/ damages in either
case. But considering that the bank is now prohibited from doing
business, specific performance cannot be granted. Rescission is the
only remedy left, but the rescission should only be for the P63K
balance.
2) The promissory note gave rise to Sulpicio M. Tolentinos reciprocal
obligation to pay the P17,000.00 loan when it falls due. His failure to
pay the overdue amortizations under the promissory note made him a
party in default, hence not entitled to rescission (Article 1191 of the
Civil Code). If there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for
payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default
as there was no date for him to perform his reciprocal obligation to
pay. Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they are both liable for damages.
3) Since Island Savings Bank failed to furnish the P63,000.00 balance
of the P80,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent. P63,000.00 is 78.75%
of P80,000.00, hence the real estate mortgage covering 100 hectares
is unenforceable to the extent of 78.75 hectares. The mortgage
covering the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
Republic vs. Bagtas, 6 SCRA 262 [1962]
FACTS:
On May 8, 1948, Jose Bagtas borrowed from the Bureau of Animal
Industry three bulls for one year for breeding purposes upon payment
of a breeding fee of 10% of the book value of the bulls. After one
year, the contract was renewed but only for one 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, so the Republic filed an action
with the CFI Manila to order the return of the bulls or the payment of
the book value. Felicidad Bagtas, the surviving spouse and
administratrix of the decedents estate, said that the two bulls have
already been returned in 1952, and that the remaining one died of
gunshot during a Huk raid. It was established that the two bulls were
returned, thus, there is no more obligation on the part of Bagtas. With
regards the bull not returned, Felicidad maintained 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 or not the contract entered into between Bagtas and the
Republic is that of commodatum making Bagtas not liable for the
death of the bull.
HELD:
A contract of commodatum is essentially gratuitous. If the breeding fee
be considered 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. Even
if the contract be commodatum, still Bagtas 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 if he keeps it longer than the period
stipulated or if the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event. The loan of one bull was
renewed for another period of one year but Bagtas kept and used the
bull more than one year where during a Huk raid it was killed by stray
bullets. Furthermore, when lent and delivered to the deceased
husband of Bagtas, 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.
Catholic Vicar Apostolic of the Mt. Province vs. CA, 165 SCRA
515 [1988]
FACTS:
Catholic Vicar of the Mountain Province (Vicar for brevity) filed
with the CFI of Baguio, Benguet an application for registration of
title for Lots 1,2,3 and 4 of Psu-194357 situated at Poblacion
Central, La Trinidad, Benguet. Said lots being the sites of the
Catholic Church building, convents, school, etc. Upon learning of
the application, the Heirs of Juan Valdez and the Heirs of Emigdio
Octaviano filed an Answer/Opposition thereto on Lots 2 and
3,respectively, asserting ownership and title thereto. The land
registration court promulgated its decision confirming the
registrable title to Vicar. Both heirs of Valdez and Octaviano
appealed to the Court of Appeals.
The CA modified the decision of the land registration court and
found that Lots 2 and 3 were possessed by the predecessors-in-
interest of private respondents under claim of ownership in good
faith from 1906 to 1951; that Vicar has been in possession of the
same lots as bailee in commodatum up to 1951, when Vicar
repudiated the trust and when it applied for registration in1962;
that Vicar had just been in possession as owner for 11years, hence
there is no possibility of acquisitive prescription which requires 10
years possession with just title and 30 years possession without.
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.
ISSUE:
Whether or not petitioner Vicar's failure to return the subject property
to private respondents would constitute an adverse possession that
would entitle Vicar to have a just title over the questioned lots.
HELD:
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 found that the predecessors-in-interest and private
respondents were possessors under claim of ownership in good
faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of
trust came only in 1951.
Pajuyo vs. Court of Appeals, 430 SCRA 492 [2004]
Facts: Pajuyo entrusted a house to Guevara for the latter's use
provided he should return the same upon demand and with the
condition that Guevara should be responsible of the maintenance of
the property. Upon demand Guevara refused to return the property to
Pajuyo. The petitioner then filed an ejectment case against Guevara
with the MTC who ruled in favor of the petitioner. On appeal with the
CA, the appellate court reversed the judgment of the lower court on
the ground that both parties are illegal settlers on the property thus
have no legal right so that the Court should leave the present situation
with respect to possession of the property as it is, and ruling further
that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.
ISSUE:
Whether or not there is a contractual relationship of Pajuyo and
Guevara that of a commodatum?
HELD:
No. The Court of Appeals theory that the Kasunduan is one of
commodatum is devoid of merit. In a contract of commodatum, one of
the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a
certain period. Thus, the bailor cannot demand the return of the thing
loaned until after 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. Under the Civil Code,
precarium 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.
Republic vs. Grijaldo, 15 SCRA 681 [1965]
FACTS:
Grijaldo obtained five loans from the Bank of Taiwan in the total sum
of P1,281.97 with interest at the rates of 6% per annum compounded
quarterly. These were evidenced by five promissory notes. These loans
were crop loans and were considered to be due one year after they
were incurred. As a security for the payment of the loans, a chattel
mortgage was executed on the standing crops of his land. The assets
in the Bank of Taiwan were vested in the US Govt which were
subsequently transferred to the Republic of the Philippines.
Republic of the Philippines is now demanding the payment of the
account. Justice of Peace dismisses the case on the ground of
prescription. CA rendered a decision ordering the appellant to pay the
appellee.
Defendants contentions:
1) The appellee has no cause of action against appellant since the
transaction was with Taiwan Bank.
2) That if the appellee has a cause of action at all, it had prescribed
3) The lower court erred in ordering the appellant to pay P2,377.23
ISSUE:
Whether or not Republic of the Philippines can still collect from
Grijaldo?
HELD:
Yes. The obligation of the contract was not to deliver a determinate
thing, it was a generic thing the amount of money representing the
total sum of his loans. The destruction of anything of the same kind
does not extinguish the obligation. 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. Also, prescription
does not run against the State.
Tan vs. Valdehueza, 66 SCRA 61 [1975]
FACTS:
An action instituted by the plaintiff-appellee Lucia Tan against the
defendants-appellants Arador Valdehueza and Rediculo Valdehueza 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. Parcel of land described in the first cause of action was
the subject matter of the public auction sale in Oroquieta, Misamis
Occidental, wherein the TAN was the highest bidder . 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. Civil case 2002 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. The Valdehuezas
appealed to the lower court alleging that it 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.
ISSUE:
HELD:
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
under pacto 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.
Security Bank & Trust Co. vs. RTC Makati, 263 SCRA 483
[1996];
FACTS:
In 1983, Eusebio acquired 3 separate loans from Security Bank
amounting to P265k. The agreed interest rate was 23% per annum.
The promissory note was freely and voluntarily signed by both parties.
Leia Ventura was the co-maker. Eusebio defaulted from paying.
Security Bank sued for collection.
DECISION OF LOWER COURTS:
* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to pay but
he lowered the interest rate to 12% per annum.
* directly to SC in petition for certiorari.
ISSUES:
1) Should the rate of interest on a loan or forbearance of money,
goods or credits, as stipulated in a contract, far in excess of the ceiling
prescribed under or pursuant to the Usury Law, prevail over Section 2
of Central Bank Circular No. 905 which prescribes that the rate of
interest thereof shall continue to be 12% per annum? or whether or
not the 23% rate of interest per annum agreed upon by petitioner
bank and respondents is allowable and not against the Usury Law?
2) Do the Courts have the discretion to arbitrarily override stipulated
interest rates of promissory notes and stipulated interest rates of
promissory notes and thereby impose a 12% interest on the loans, in
the absence of evidence justifying the imposition of a higher rate?
HELD:
1) Yes, the rate per contract prevails.
From the examination of the records, it appears that indeed the
agreed rate of interest as stipulated on the three (3) promissory notes
is 23% per annum. The applicable provision of law is the Central Bank
Circular No. 905 which took effect on December 22, 1982:
Sec. 1. The rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods or
credits, regardless of maturity and whether secured or unsecured, that
may be charged or collected by any person, whether natural or
judicial, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
Only in the absence of stipulations will the 12% rate be applied or if
the stipulated rate is grossly excessive.
Further, Eusebio never questioned the rate. He merely expressed to
negotiate the terms and conditions. The promissory notes were signed
by both parties voluntarily. Therefore, stipulations therein are binding
between them.
2) NO. The rate of interest was agreed upon by the parties freely.
Significantly, respondent did not question that rate. It is not for
respondent court a quo to change the stipulations in the contract
where it is not illegal. Furthermore, Article 1306 of the New Civil Code
provides that contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or
public policy. We find no valid reason for the respondent court a quo
to impose a 12% rate of interest on the principal balance owing to
petitioner by respondent in the presence of a valid stipulation. In a
loan or forbearance of money, the interest due should be that
stipulated in writing, and in the absence thereof, the rate shall be 12%
per annum. Hence, only in the absence of a stipulation can the court
impose the 12% rate of interest.
Toring vs. Ganzon Olan, 568 SCRA 376 [2008];
FACTS:
Petitioner's spouses Toring obtained a loan amounting to P6M at 3%
interest per month from respondents spouses Olan. It was secured by
the real estate mortgage. For less than a month, the parties have
executed a deed of absolute sale conveying the mortgaged property to
the respondents. Thereafter, the respondents gave the petitioner an
option to buy the land for P10M. An agreement that if the option is
exercised only after 2 months, the purchase price will increase at the
rate of P300,000 or 3% thereof every month and thereafter, at the
rate of P381,000 or 3.81% thereof every month. Petitioners filed a
complaint on the ground that the interest of 3% & 3.81% are
unconscionable. The Trial Court and the Court of Appeals upheld the
said stipulated interest rates.
ISSUE:
Whether or not the stipulated interest rates were unconscionable?
HELD:
The Supreme Court held that they were unconscionable. In a loan or
forbearance of money, according to the Civil Code, the interest due
should be that stipulated in writing, and in the absence thereof, the
rate shall be 12% per annum. The court reduced the stipulated
interest rate to 1% per month.
Phil. National Bank vs. Court of Appeals, 196 SCRA 536 [1991]
FACTS:
Private respondent (PR) Ambrosio Padilla, applied for and was granted
a credit line of 321.8 million, by petitioner PNB. This was for a term of
2 years at 18% interest per annum and was secured by real estate
mortgage and 2 promissory notes executed in favor of Petitioner by
PR. The credit agreement and the promissory notes, in effect, provide
that PR agrees to be bound by increases to the interest rate
stipulated, provided it is within the limits provided for by law.
Conflict in this case arose when Petitioner unilaterally increased the
interest rate from 18% to: (1) 32% [July 1984]; (2) 41% [October
1984]; and (3) 48% [November 1984], or 3 times within the span of a
single year. This was done despite the numerous letters of request
made by PR that the interest rate be increased only to 21% or 24%.
PR filed a complaint against Petitioner with the RTC. The latter
dismissed the case for lack of merit. Appeal by PR to CA resulted in his
favor. Hence the petition for certiorari under Rule 45 of ROC filed by
PNB with SC.
ISSUE:
Despite the removal of the Usury Law ceiling on interest, may the
bank validly increase the stipulated interest rate on loans contracted
with third persons as often as necessary and against the protest of
such persons.
HELD: NO
RATIO: Although under Sec. 2 of PD 116, the Monetary Board is
authorized to prescribe the maximum rate of interest for loans and to
change such rates whenever warranted by prevailing economic and
social conditions, by express provision, it may not do so oftener than
once every 12 months. If the Monetary Board cannot, much less can
PNB, effect increases on the interest rates more than once a year.
Based on the credit agreement and promissory notes executed
between the parties, although PR did agree to increase on the interest
rates allowed by law, no law was passed warranting Petitioner to effect
increase on the interest rates on the existing loan of PR for the months
of July to November of 1984. Neither there being any document
executed and delivered by PR to effect such increase.
For escalation clauses to be valid and warrant the increase of the
interest rates on loans, there must be: (1) increase was made by law
or by the Monetary Board; (2) stipulation must include a clause for the
reduction of the stipulated interest rate in the event that the maximum
interest is lowered by law or by the Monetary board. In this case, PNB
merely relied on its own Board Resolutions, which are not laws nor
resolutions of the Monetary Board.
Despite the suspension of the Usury Law, imposing a ceiling on
interest rates, this does not authorize banks to unilaterally and
successively increase interest rates in violation of Sec. 2 PD 116.
Increases unilaterally effected by PNB was in violation of the Mutuality
of Contracts under Art. 1308. This provides that the validity and
compliance of the parties to the contract cannot be left to the will of
one of the contracting parties. Increases made are therefore void.
Increase on the stipulated interest rates made by PNB also
contravenes Art. 1956. It provides that, no interest shall be due
unless it has been expressly stipulated in writing. PR never agreed in
writing to pay interest imposed by PNB in excess of 24% per annum.
Interest rate imposed by PNB, as correctly found by CA, is indubitably
excessive.