CREDIT (Additional Cases-Mutuum)
CIC argued it should not be
COMMONWEALTH INSURANCE CORPORATION vs.
CA
In 1984, plaintiff-appellant Rizal Commercial Banking
Corporation (RCBC) granted two export loan lines,
one, for P2,500,000.00 to Jigs Manufacturing
Corporation (JIGS) and, the other, for P1,000,000.00
to Elba Industries, Inc. (ELBA). JIGS and ELBA which
are sister corporations both drew from their
respective credit lines, the former in the amount
of P2,499,992.00 and the latter for P998,033.37
plus P478,985.05 from the case-to-case basis and
trust receipts. These loans were secured by surety
bonds executed by defendant-appellee
Commonwealth Insurance Company (CIC).
Specifically, the surety bonds issued by appellee CIC
in favor of appellant RCBC to secure the obligations of
JIGS totaled P2,894,128.00 while that securing
ELBA’s obligation was P1,570,000.00. Hence, the total
face value of the surety bonds issued by appellee CIC
was P4,464,128.00.
JIGS and ELBA defaulted in the payment of their
respective loans. RCBC made a written demand on
appellee CIC to pay JIG’S and ELBA’s account to the
full extend (sic) of the suretyship. CIC made several
payments in the total amount of P2,000,000.00.
There having been a substantial balance unpaid,
appellant RCBC made a final demand for but CIC
ignored it. Thus, appellant RCBC filed the Complaint
for a Sum of Money against CIC.
The Trial Court finds the defendants Commonwealth
Insurance Co. and defaulted third party defendants
Jigs Manufacturing Corporation, Elba Industries and
Iluminada de Guzman solidarily liable to pay RCBC.
Not satisfied with the trial court’s decision, RCBC
filed a motion for reconsideration praying that in
addition to the principal sum of P2,464,128.00,
defendant CIC be held liable to pay interests thereon
from date of demand at the rate of 12% per annum
until the same is fully paid. However, the trial court
denied the motion.
RCBC then appealed to the Court of Appeals.
CA: CIC was ordered to pay the amount of surety
bonds plus legal interest of 12% per annum.
CIC filed a motion for reconsideration but the CA
denied the same.
Hence, herein petition.
made to pay interest because its issuance of the
surety bonds was made on the condition that its
liability shall in no case exceed the amount of the said
bonds.
ISSUE: WON petitioner should be held liable to pay
legal interest over and above its principal obligation
under the surety bonds issued by it.
RULING:
In Republic vs. Court of Appeals and R & B Surety and
Insurance Company, Inc. we have sustained the
principle that if a surety upon demand fails to pay, he
can be held liable for interest, even if in thus paying,
its liability becomes more than the principal
obligation. The increased liability is not because of
the contract but because of the default and the
necessity of judicial collection.12
Petitioner’s liability under the suretyship contract is
different from its liability under the law. There is no
question that as a surety, petitioner should not be
made to pay more than its assumed obligation under
the surety bonds.13 However, it is clear from the
above-cited jurisprudence that petitioner’s liability
for the payment of interest is not by reason of the
suretyship agreement itself but because of the delay
in the payment of its obligation under the said
agreement. xxx Petitioner admits having incurred in
delay.
In the present case, there is no dispute that
petitioner’s obligation consists of a loan or
forbearance of money. No interest has been agreed
upon in writing between petitioner and respondent.
Applying the above-quoted rule to the present case,
the Court of Appeals correctly imposed the rate of
interest at 12% per annum to be computed from the
time the extra-judicial demand was made.
This is in accordance with the provisions of Article
116920 of the Civil Code and of the settled rule that
where there has been an extra-judicial demand
before action for performance was filed, interest on
the amount due begins to run not from the date of the
filing of the complaint but from the date of such
extra-judicial demand.21 RCBC’s extra-judicial
demand for the payment of JIGS’ obligation was made
on October 30, 1984; while the extra-judicial demand
for the payment of ELBA’s obligation was made on
December 17, 1984. On the other hand, the complaint
for a sum of money was filed by RCBC with the trial
court only on September 19, 1988.
CALDERON vs. PEOPLE
Facts:
Elizabeth Eusebio-Calderon was charged by her aunt
Teresita Eusebio, Amelia Casanovaand cousin
Manolito Eusebio with three count Estafa.
According to private complainants, petitioner
assured them that the checks will behonored upon
maturity. They gave her the money because she
showed them her pieces of jewelry which convinced
them that she has the ability to pay the loans.In her
defense, petitioner admits that she issued the checks
but alleges that it was notdone to defraud her
creditors.After trial, the lower court rendered a joint
decision finding petitioner guilty beyond reasonable
doubt,
but ruled that her liability for the “interest checks” w
as only civil, thereby acquitting the
accused but indemnify to pay.The Decision of the
Court of Appeals which reversed and set aside the
Decision of theRegional Trial Court acquitting the
accused but ordering her to pay civil liability.
Issues
(1) Did the Court of Appeals err in finding the
appellant civilly liable to complainantswith respect to
the interest in the principal loan despite the dismissal
of the interestchecks by the Regional Trial Court?
(2) Is the interest agreed upon by the parties
usurious?
(3) Should the private respondents file a separate
civil complaint for the claim of Sum of Money?
Ruling:
The court finds the petition meritorious.When
petitioner appealed her conviction, the dismissal of
the interest checks by the lowercourt did not
preclude the Court of Appeals from reviewing such
decision and modifying hercivil liability. The appeal
conferred upon the appellate court full jurisdiction
and rendered itcompetent to examine the records,
revise the judgment appealed from, increase the
penalty andcite the proper provision of the penal law.
Under Article 29 of the Civil Code, when the accused
in a criminal prosecution isacquitted on the ground
that his guilt has not been proven beyond reasonable
doubt, a civil actionfor damages for the same act
or omission may be instituted. The judgment
of acquittalextinguishes the liability of the accused
for damages only when it includes a declaration that
thefact from which the civil liability might arise did
not exist. Thus, Section 1, paragraph (a) of Rule111 of
the Rules of Court provides:
SECTION 1.
Institution of criminal and civil actions.
– (a) When a criminal action isinstituted, the civil
action for the recovery of civil liability arising from
the offense charged shallbe deemed instituted with
the criminal action unless the offended party waives
the civil action,reserves the right to institute it
separately or institutes the civil action prior to the
criminal action.An accused who is acquitted of Estafa
may nevertheless be held civilly liable where thefacts
established by the evidence so warrant. Petitioner
Elizabeth Calderon is clearly liable to theprivate
respondents for the amount borrowed. The Court
of Appeals found that the former didnot employ
trickery or deceit in obtaining money from the
private complainants, instead, itconcluded that the
money obtained was undoubtedly loans for which
petitioner paid interest.The checks issued by
petitioner as payment for the principal loan
constitute evidence of her civilliability which was
deemed instituted with the criminal action.The civil
liability of petitioner includes only the principal
amount of the loan. Withrespect to the interest
checks she issued, the same are void. There was no
written proof of thepayable interest except for the
verbal agreement that the loan shall earn 5% interest
per month.Under Article 1956 of the Civil Code, an
agreement as to payment of interest must be in
writing,otherwise it cannot be valid. Consequently,
no interest is due and the interest checks she
issuedshould be eliminated from the computation of
her civil liability.However, while there can be no
stipulated interest, there can be legal interest
pursuant toArticle 2209 of the Civil Code. It is
elementary that in the absence of a stipulation as to
interest,the loan due will now earn interest at the
legal rate of 12% per annum.In view of our ruling
that there can be no stipulated interest in this case,
there is no need to passupon the second issue of
whether or not the interests were usurious.
The Decision of the Court of Appeals is AFFIRMED
with the MODIFICATION thatpetitioner is ordered to
pay Amelia Casanova,Teresita Eusebio, and Manolito
Eusebio as civilliability with legal interest of twelve
percent (12%) per annum until its satisfaction.
MEDEL vs. COURT OF APPEALS
On November 7, 1985, Servando Franco and Leticia
Medel (hereafter Servando and Leticia) obtained a
loan from Veronica R. Gonzales (hereafter Veronica),
who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the
amount of P50,000.00, payable in two
months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she
retained P3,000.00, as advance interest for one
month at 6% per month. Servado and Leticia
executed a promissory note for P50,000.00, to
evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia
obtained from Veronica another loan in the amount
of P90,000.00, payable in two months, at 6% interest
per month. They executed a promissory note to
evidence the loan, maturing on January 19,
1986. They received only P84,000.00, out of the
proceeds of the loan.
On maturity of the two promissory notes, the
borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from
Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a
real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special
power of attorney in favor of Leticia Medel,
authorizing her to execute the mortgage. Servando
and Leticia executed a promissory note in favor of
Veronica to pay the sum of P300,000.00, after a
month, or on July 11, 1986. However, only the sum
of P275,000.00, was given to them out of the
proceeds of the loan.
Like the previous loans, Servando and Medel failed to
pay the third loan on maturity.
Servando and Leticia with the latter's husband, Dr.
Rafael Medel, consolidated all their previous unpaid
loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing
their indebtedness to a total of P500,000.00, payable
on August 23, 1986. The executed a promissory note.
On maturity of the loan, the borrowers failed to pay
the indebtedness of P500,000.00, plus interests and
penalties. A complaint for collection of the full
amount of the loan including interests and other
charges was filed.
Issue: WON the stipulated rates of interest at 5.5%
per month on the loan in the sum of P500,00 that
plaintiffs extended to the defendant is usurious?
Held:
The SC agree with petitioners that the stipulated rate
of interest at 5.5% per month on the P500,000.00
loan is excessive, iniquitous, unconscionable and
exorbitant. However, SC cannot consider the rate
"usurious" because it has consistently held that
Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law and
that the Usury Law is now "legally inexistent".
In Security Bank and Trust Company vs. Regional
Trial Court of Makati, Branch 61 the Court held that
CB Circular No. 905 "did not repeal nor in anyway
amend the Usury Law but simply suspended the
latter's effectivity." Indeed, we have held that "a
Central Bank Circular cannot repeal a law. Only a law
can repeal another law." In the recent case of
Florendo vs. Court of Appeals, the Court reiterated
the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective". "Usury has
been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may
agree upon."
Nevertheless, SC find the interest at 5.5% per month,
or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable,
and, hence, contrary to morals ("contra bonos
mores"), if not against the law. The stipulation is
void. The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in
upholding the stipulation of the parties. Rather, we
agree with the trial court that, under the
circumstances, interest at 12% per annum, and an
additional 1% a month penalty charge as liquidated
damages may be more reasonable.
SPOUSES SILVESTRE and CELIA
PASCUAL, petitioners, vs. RODRIGO V.
RAMOS, respondent.
FACTS:
This case is a petition[3] for consolidation of title or
ownership filed on 5 July 1993 with the trial court by
herein respondent Rodrigo V. Ramos (hereafter
RAMOS) against herein petitioners, Spouses Silvestre
and Celia Pascual (hereafter the PASCUALs).
On June 3, 1987, Sps. Pascual entered into a loan
agreement with Ramos in the amount of Php
150,000.00 with interest of 7% per month. As
collateral the spouses Pascual executed a Deed of
Absoute Sale with Right of Repurchase within one
year covering the Spouses’ property in Bo. Taliptip,
Bambang, Bulacan, Bulacan.
The Spouses defaulted in payment and failed to
exercise the right of repurchase within one. Hence
the present case.
RTC Ruling
(1) First Case – RTC Ruling
The trial court found that the transaction between
the parties was actually a loan in the amount
of P150,000, the payment of which was secured by a
mortgage of the property covered by TCT No.
305626. It also found that the PASCUALs had made
payments in the total sum of P344,000, and that with
interest at 7% per annum, the PASCUALs had
overpaid the loan by P141,500.
(2) MR by Ramos – RTC Ruling
 the trial court issued on 5 June 1995 an
Order[9] modifying its decision by deleting
the award of P141,500 to the PASCUALs
as overpayment of the loan and interest
and ordering them to pay
RAMOS P511,000 representing the
principal loan plus interest.
 It noted that during trial, the PASCUALs
never disputed the stipulated interest
rate. However, the court declared that
the 7% per month interest is too
burdensome and onerous. Invoking the
protective mantle of Article 24 of the Civil
Code, which mandates the courts to be
vigilant for the protection of a party at a
disadvantage due to his moral
dependence, ignorance, indigence, mental
weakness, tender age or other handicap,
the trial court unilaterally reduced the
interest rate from 7% per month to 5%
per month. Thus, the interest due from 3
June 1987 to 3 April 1995
was P705,000. Deducting therefrom the
payments made by the PASCUALs in the
amount of P344,000, the net interest due
was P361,000. Adding thereto the loan
principal of P150,000, the total amount
due from the PASCUALs was P511,000.
CA Ruling
In its Decision[11] of 5 November 1999, the Court of
Appeals affirmed in toto the trial court’s Orders
Contention of Sps. Pascual
 the interest of either 5% or 7% a month is
exorbitant, unconscionable, unreasonable,
usurious and inequitable.
 Invoking this Court’s ruling in Medel v. Court of
Appeals,[12] they argue that the 5% per month
interest is excessive, iniquitous, unconscionable
and exorbitant. Moreover, respondent should not
be allowed to collect interest of more than 1%
per month because he tried to hide the real
transaction between the parties by imposing
upon them to sign a Deed of Absolute Sale with
Right to Repurchase.
Contention of Ramos
there was nothing illegal on the rate of interest
agreed upon by the parties, since the ceilings on
interest rates prescribed under the Usury Law had
expressly been removed, and hence parties are left
freely at their discretion to agree on any rate of
interest. Moreover, there was no scheme to hide a
usurious transaction.
ISSUE: Whether or not the 7% interest charge is
illegal or not.
HELD:
Interest charge
It is a basic principle in civil law that parties are
bound by the stipulations in the contracts voluntarily
entered into by them. Parties are free to stipulate
terms and conditions which they deem convenient
provided they are not contrary to law, morals, good
customs, public order, or public policy.[15]
The interest rate of 7% per month was voluntarily
agreed upon by RAMOS and the PASCUALs. There is
nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of
fraud when they entered into the agreement with
RAMOS. Neither is there a showing that in their
contractual relations with RAMOS, the PASCUALs
were at a disadvantage on account of their moral
dependence, ignorance, mental weakness, tender age
or other handicap, which would entitle them to the
vigilant protection of the courts as mandated by
Article 24 of the Civil Code. Apropos in our ruling
in Vales vs. Villa:
All men are presumed to be sane and normal and
subject to be moved by substantially the same
motives. When of age and sane, they must take care
of themselves. In their relations with others in the
business of life, wits, sense, intelligence, training,
ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes
to a few only, with loss and injury to others. In these
contests men must depend upon themselves – upon
their own abilities, talents, training, sense, acumen,
judgment. The fact that one may be worsted by
another, of itself, furnishes no cause of
complaint. One man cannot complain because
another is more able, or better trained, or has better
sense or judgment than he has; and when the two
meet on a fair field the inferior cannot murmur if the
battle goes against him. The law furnishes no
protection to the inferior simply because he is
inferior, any more than it protects the strong because
he is strong. The law furnishes protection to both
alike – to one no more or less than to the other. It
makes no distinction between the wise and the
foolish, the great and the small, the strong and the
weak. The foolish may lose all they have to the wise;
but that does not mean that the law will give it back
to them again. Courts cannot follow one every step of
his life and extricate him from bad bargains,
protect him from unwise investments, relieve him
from one-sided contracts, or annul the effects of
foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally
incompetent. Courts operate not because one person
has been defeated or overcome by another, but
because he has been defeated or
overcome illegally. Men may do foolish things, make
ridiculous contracts, use miserable judgment, and
lose money by then – indeed, all they have in the
world; but not for that alone can the law intervene
and restore. There must be, in addition, a violation of
law, the commission of what the law knows as
anactionable wrong, before the courts are
authorized to lay hold of the situation and remedy
it.[16]
With the suspension of the Usury Law and the
removal of interest ceiling, the parties are free to
stipulate the interest to be imposed on loans. Absent
any evidence of fraud, undue influence, or any vice of
consent exercised by RAMOS on the PASCUALs, the
interest agreed upon is binding upon them. This
Court is not in a position to impose upon parties
contractual stipulations different from what they
have agreed upon. As declared in the decision
of Cuizon v. Court of Appeals,[17]
APPLICABILITY OF THE DOCTRINE ENUNCIATED IN
MEDEL V. CA
Our ruling in Medel v. Court of Appeals[14] is not
applicable to the present case. In that case, the
excessiveness of the stipulated interest at the rate of
5.5 % per month was put in issue by the defendants
in the Answer. Moreover, in addition to the interest,
the debtors were also required, as per stipulation in
the promissory note, to pay service charge of 2% per
annum and a penalty charge of 1% per month plus
attorney’s fee of equivalent to 25% of the amount
due. In the case at bar, there is no other stipulation
for the payment of an extra amount except interest
on the principal loan. Thus, taken in conjunction with
the stipulated service charge and penalty, the interest
rate of 5.5% in the Medel case was found to be
excessive, iniquitous, unconscionable, exorbitant and
hence, contrary to morals, thereby making such
stipulation null and void.
SPOUSES FELIMON and MARIA BARRERA,
petitioners, vs. SPOUSES EMILIANO and MARIA
CONCEPCION LORENZO, respondents.
On December 4, 1990, spouses Felimon and
Maria Barrera, petitioners, borrowed P230,000.00
from spouses Miguel and Mary Lazaro. The loan was
secured by a real estate mortgage over petitioners
residential lot consisting of 432 square meters
located at Bunlo, Bocaue, Bulacan and registered in
their names under Transfer Certificate of Title (TCT)
T-42.373 (M of the Registry of Deeds of Bulacan.
A month and a half later, the Lazaro spouses
needed money and informed petitioners that they
would transfer the loan to spouses Emiliano and
Maria Concepcion Lorenzo, respondents.
Consequently, on May 14, 1991, petitioners executed
another real estate mortgage over their lot, this time
in favor of the respondents to secure the loan of
P325,000.00, which the latter claimed as the amount
they paid spouses Lazaro. The mortgage contract
provides, among others, that the new loan shall be
payable within three (3) months, or until August 14,
1991; that it shall earn interest at 5% per month; and
that should petitioners fail to pay their loan within
the said period, the mortgage shall be foreclosed.
When petitioners failed to pay their loan in full
on August 14, 1991, respondents allowed them to
complete their payment until December 23, 1993. On
this date, they made a total payment of P687,000.00.
On January 17, 1994, respondents wrote
petitioners demanding payment of P325,000.00, plus
interest, otherwise they would foreclose the
mortgage. In turn, petitioners responded, claiming
that they have overpaid their obligation and
demanding the return of their land title and refund of
their excess payment. This prompted respondents to
file a petition for extrajudicial foreclosure of
mortgage with the Office of the Ex-Officio Sheriff,
Malolos, Bulacan, docketed therein as EJF 19-94.
For their part, petitioners filed with the
Regional Trial Court (RTC), Branch 17, Malolos,
Bulacan, a complaint for the return of their TCT No.
T-42.373 (M), sum of money and damages, with
application for a temporary restraining order and
preliminary injunction, docketed as Civil Case No.
156-M-94
In their opposition to the application for a
preliminary injunction, respondents alleged that
petitioners loan has been restructured three times
and that their unpaid balance as of March 14, 1994
was P543,622.00.
After hearing petitioners application for a
preliminary injunction, the RTC issued an order
enjoining the sheriff from proceeding with the
foreclosure of mortgage, upon their posting of a bond
in the amount of P543,622.00.
Thereafter, trial on the merits ensued.
On July 31, 1995, the RTC rendered judgment,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiffs (now
petitioners) and against the defendants (now
respondents), ordering the latter:
1. to return to the plaintiffs the amount of
P215,750.00 representing the overpaid amount;
2. to return to the plaintiffs the owners copy of TCT
No. T-42.373 (M) offered as security;
3. to pay P20,000.000 as attorneys fees;
4. to pay the costs of the suit.
The writ of preliminary injunction issued on March
21, 1994 is hereby made permanent.
SO ORDERED.”
The trial court held that the stipulated 5%
monthly interest to be paid by petitioners
corresponds only to the period from May 14, 1991 up
to August 14, 1991, the term of the loan. Thereafter,
the monthly interest should be 12% per annum. The
trial court concluded that petitioners made an
overpayment of P214,750.00.
 Upon appeal, docketed as CA GR-CV No. 51095,
the Court of Appeals, in a Decision dated June 18,
1997, held:
We reverse.
The law and jurisprudence clearly provide that if the
debt produces interest, payment of the principal shall
not be deemed to have been made until the interests
have been covered. (Article 1253, New Civil Code;
Gobonseng, Jr. vs. Court of Appeals, 246 SCRA 472).
Once it is admitted that an obligation bears interest,
partial payments are to be applied first on account of
the interest and then to reduce the principal. (San
Jose vs. Ortega, 11 Phil. 442; Sunico vs. Ramirez, 14
Phil. 500). We thus find no support, whether in law or
in jurisprudence, for the Decision of the court a quo
to apply the bigger amounts of P40,000.00,
P37,000.00, P50,000.00 among others, given several
times by the Barrera spouses x x x for the payment of
the principal loan when the interests due on the loan
that have accumulated through the years have not
been fully satisfied.
We also do not agree that the stipulated monthly
interest of 5% was to apply only to the 3-month
effectivity period of the loan. This is a flawed and a
grossly unfair interpretation of the terms and
conditions of the agreement of the parties. To rule in
this wise is to sanction the irregular performance of
ones obligation. The Barrera spouses will be
emboldened not to pay their loan within the agreed
period of 3-months since on the fourth month and
thereafter, they do not have to pay anymore the 5%
monthly interest, but only the 12% legal interest per
annum, or a measly 1% interest per month. Such an
interpretation is totally unfair and unjust to the
creditors who could have used their money in some
other ways. Until such time that the Barreras have
fully paid their total indebtedness, the 5% monthly
interest subsists, there being no stipulation to the
contrary.
While we commiserate with the plight of the Barrera
spouses, we cannot change the terms of the loan
agreement between them and the Lorenzos as the
courts have no right to make contracts for (the)
parties. (Tolentino and Manio vs. Gonzales Sy Chian, 5
Phil. 577). A contract is the law between the parties
which not even this Court can interfere with. The
only requirement is that the same be not contrary to
law, morals and good customs x x x (Article 1306,
New Civil Code). We find the agreement to pay a 5%
monthly interest until the loan is fully paid to be
reasonable and sanctioned by regular usage and
practice.
The Barreras should, therefore, be required to pay
the balance of their indebtedness, including the
interests thereof. Failure to pay the same should
warrant the foreclosure of their mortgaged property
to satisfy their obligation to the Lorenzo spouses.
Petitioners filed a motion for reconsideration
but was denied.
Hence this petition.
The sole issue for our resolution is whether the
5% monthly interest on the loan was only for three
(3) months, or from May 14, 1991 up to August 14,
1991, as maintained by petitioners, or until the loan
was fully paid, as claimed by respondents.
When the terms of a contract are clear and
leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations
governs. In such cases, courts have no authority to
alter a contract by construction or to make a new
contract for the parties; its duty is confined to the
interpretation of the one which they have made for
themselves without regard to its wisdom or folly as
the court cannot supply material stipulations or read
into the contract words which it does not contain. It
is only when the contract is vague and ambiguous
that courts are permitted to resort to construction of
its terms and determine the intention of the parties
therein.
The salient provisions of the mortgage contract
read:
a) Ang sanglaang ito ay sa loob lamang ng tatlong
(3) buwan, o hanggang sa Agosto 14, 1991.
b) Ang tubo na aming napagkasunduan ay
5%, o cinco por ciento isang
buwan.
c) Na sakaling mabayaran ko ang aming
pagkakautang sa mag-asawa na
P325,000.00 ang kasulatang ito ay
wala ng lakas at kabuluhan, subalit
kung hindi ko mabayaran ang aming
pinagkakautangan sa takdang
panahong 3 buwan sila ay binibigyan
ko nang laya at kapangyarihan na
masubasta nila ang lupang aming
ipinanagot sa labas ng hukuman sa
bisa ng Batas Blg. 3135 at susog nito
at akong may utang ang siyang sagot
sa lahat ng gastos at pati bayad sa
abogado sa nasabing subasta sa labas
ng hukuman. (emphasis supplied)
It is clear from the above stipulations that the
loan shall be payable within three (3) months, or
from May 14, 1991 up to August 14, 1991. During
such period, the loan shall earn an interest of 5% per
month. Furthermore, the contract shall have no force
and effect once the loan shall have been fully paid
within the three-month period, otherwise, the
mortgage shall be foreclosed extrajudicially under
Act No. 3135.
Records show that upon maturity of the loan
on August 14, 1991, petitioners failed to pay their
entire obligation. Instead of exercising their right to
have the mortgage foreclosed, respondents allowed
petitioners to pay the loan on a monthly installment
basis until December, 1993. It bears emphasis that
there is no written agreement between the parties
that the loan will continue to bear 5% monthly
interest beyond the agreed three-month period.
Respondent Ma. Concepcion Lorenzo testified as
follows:
Atty. Marcos:
Q Now, based on this document which was marked as
Exh. 1, there is no dispute that the monthly interest
for the three month period that is from May 14, 1991
to August 14, 1991 is 5% monthly interest, there is
no dispute about that. Now, Miss Witness, my
question is, could you go over the entire document
that Exh. 1 and please tell this Hon. Court whether
there is a provision in clear and unequivocal terms
providing for that monthly interest after August 14,
1991?
A No, sir, there is none.
Q Are you sure of that?
A Yes, sir.
Q You mean to say there is no stipulation in that
document providing for the 5% monthly interest to
the loan after August 14, 1991?
A Yes, sir, they are supposed to return my money.
Court:
Q After they failed to comply with that provision, was
there any subsequent agreement between you and
the plaintiffs?
xxx
Q Was there an agreement?
A There was, your Honor.
Q What was that agreement about?
A Verbal agreement, your Honor?
Q Why was that agreement not reduced into writing?
A It was not reduced into writing, your Honor.
Q Why?
A I am in good faith, your Honor.
Article 1956 of the Civil Code mandates that
(n)o interest shall be due unless it has been
expressly stipulated in writing. Applying this
provision, the trial court correctly held that the
monthly interest of 5% corresponds only to the
three-month period of the loan, or from May 14, 1991
to August 14, 1991, as agreed upon by the parties in
writing. Thereafter, the interest rate for the loan is
12% per annum. In Eastern Shipping Lines, Inc. vs.
Court of Appeals, this Court laid down the following
doctrine:
When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code. (emphasis supplied)
The above ruling was reiterated in Sulit vs.
Court of Appeals, Crismina Garments vs. Court of
Appeals, Eastern Assurance and Surety Corporation vs.
Court of Appeals, Catungal vs. Hao, and Yong et al. vs.
Tiu et al.. Thus, the Court of Appeals erred in
reversing the RTC Decision and holding that the 5%
monthly interest should be paid by petitioners even
beyond August 14, 1991.
WHEREFORE, the assailed Decision of the Court of
Appeals dated June 18, 1997 and its Resolution dated
October 17, 1997 are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court, Branch 17,
Malolos, Bulacan dated July 31, 1995 is REINSTATED.
SO ORDERED.
FIRST FIL-SIN LENDING CORPORATION,
petitioner, vs. GLORIA D. PADILLO, respondent.
G.R. No. 160533 January 12, 2005
Topic: Interpretation of a contract or agreement
Ponente: YNARES-SANTIAGO, J.
DOCTRINE: When the terms of the agreement are
clear and explicit that they do not justify an attempt
to read into it any alleged intention of the parties, the
terms are to be understood literally just as they
appear on the face of the contract. (Note this doctrine
was cited in the 1st case: Gaisano Cagayan, Inc. vs.
Insurance Company of North America)
As between two parties to a written agreement, the
party who gave rise to the mistake or error in the
provisions of the same is estopped from asserting a
contrary intention to that contained therein.
_____________________________________________________________
___________________________
FACTS:
Respondent Gloria D. Padillo obtained a P500,000.00
loan from petitioner First Fil-Sin Lending Corp.
Respondent obtained another P500,000.00 loan from
petitioner. In both instances, respondent executed a
promissory note and disclosure statement.
For the first loan, respondent made 13 monthly
interest payments of P22,500.00 each before she
settled the P500,000.00 outstanding principal
obligation. As regards the second loan, respondent
made 11 monthly interest payments of P25,000.00
each before paying the principal loan of P500,000.00.
In sum, respondent paid a total of P792,500.00 for
the first loan and P775,000.00 for the second loan.
Respondent Padillo then filed an action for sum of
money against herein petitioner before the RTC
alleging that she only agreed to pay interest at the
rates of 4.5% and 5% per annum, respectively, for the
two loans, and not 4.5% and 5% per month.
Respondent sought to recover the amounts she
allegedly paid in excess of her actual obligations.
The RTC dismissed respondent’s complaint and
ordered her to pay petitioner P311,125.00 with legal
interest. On appeal, the CA reversed and set aside the
decision of the RTC and ruled that, based on the
disclosure statements executed by respondent, the
interest rates should be imposed on a monthly basis
but only for the 3-month term of the loan. Thereafter,
the legal interest rate will apply. Hence, the instant
petition.
Petitioner maintains that the interest rates are to be
imposed on a monthly and not on a per annum basis
and the monthly interest shall be imposed until the
outstanding obligations have been fully paid. On the
other hand, respondent avers that the interest on the
loans is per annum as expressly stated in the
promissory notes and disclosure statements. The
provision as to annual interest rate is clear and
requires no room for interpretation. Respondent
asserts that any ambiguity in the promissory notes
and disclosure statements should not favor petitioner
since the loan documents were prepared by the
latter.
ISSUE: Whether the interest on the loans is per
annum, and not monthly, as expressly stated in the
promissory notes and disclosure statements  YES.
RULING: We agree with respondent. Perusal of the
promissory notes and the disclosure statements
pertinent to the loan obligations of respondent
clearly and unambiguously provide for interest rates
of 4.5% per annum and 5% per annum, respectively.
Nowhere was it stated that the interest rates shall be
applied on a monthly basis.
Thus, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms
are to be understood literally just as they appear on
the face of the contract. It is only in instances when
the language of a contract is ambiguous or obscure
that courts ought to apply certain established rules of
construction in order to ascertain the supposed
intent of the parties. However, these rules will not be
used to make a new contract for the parties or to
rewrite the old one, even if the contract is inequitable
or harsh. They are applied by the court merely to
resolve doubts and ambiguities within the
framework of the agreement.
The lower court and the CA mistook the Loan
Transactions Summary for the Disclosure Statement.
The former was prepared exclusively by petitioner
and merely summarizes the payments made by
respondent and the income earned by petitioner.
There was no mention of any interest rates and
having been prepared exclusively by petitioner, the
same is self serving. On the contrary, the Disclosure
Statements were signed by both parties and
categorically stated that interest rates were to be
imposed annually, not monthly.
As such, since the terms and conditions contained in
the promissory notes and disclosure statements are
clear and unambiguous, the same must be given full
force and effect. The expressed intention of the
parties as laid down on the loan documents controls.
Notably, petitioner even admitted that it was solely
responsible for the preparation of the loan
documents, and that it failed to correct the pro forma
note p.a. to per month. Since the mistake is
exclusively attributed to petitioner, the same should
be charged against it. This unilateral mistake cannot
be taken against respondent who merely affixed her
signature on the pro forma loan agreements. As
between two parties to a written agreement, the
party who gave rise to the mistake or error in the
provisions of the same is estopped from asserting a
contrary intention to that contained therein. The
checks issued by respondent do not clearly and
convincingly prove that the real intent of the parties
is to apply the interest rates on a monthly basis.
Absent any proof of vice of consent, the promissory
notes and disclosure statements remain the best
evidence to ascertain the real intent of the parties.
The same promissory note provides that x x x any and
all remaining amount due on the principal upon
maturity hereof shall earn interest at the rate of _____
from date of maturity until fully paid. The CA thus
properly imposed the legal interest of 12% per
annum from the time the loans matured until the
same has been fully paid on February 2, 1999. As
decreed in Eastern Shipping Lines, Inc. v. Court of
Appeals, in the absence of stipulation, the rate of
interest shall be 12% per annum to be computed
from default.
Macalinao vs. BPI
Ileana Macalinao was an APPROVED cardholder of
BPI Mastercard
She made some purchases through the use of the said
credit card and defaulted in paying for said
purchases. She subsequently received a demand
letter from BPI asking for the payment of PhP
141,518.34.
Terms and Conditions:
The charges or balance thereof remaining
unpaid after the payment due date
indicated on the monthly Statement of
Accounts shall bear interest at the rate of
3% per month for BPI Express Credit, BPI
Gold Mastercard and an additional penalty
fee equivalent to another 3% of the amount
due for every month or a fraction of a
months delay.
 PROVIDED that if there occurs any change on
the prevailing market rates, BCC shall have the
option to adjust the rate of interest and/or
penalty fee due on the outstanding obligation
with prior notice to the cardholder. The
Cardholder hereby authorizes BCC to
correspondingly increase the rate of such
interest [in] the event of changes in the
prevailing market rates, and to charge
additional service fees as may be deemed
necessary in order to maintain its service to the
Cardholder.
Macalinao failed to settle her obligations, and thus
BPI filed a complaint for collection of sum of money.
CA Ruling:
The amount of PhP 141,518.34 already incorporated
the interest rates in the said amount. Thus, the said
amount should not be made as basis in computing the
total obligation of petitioner Macalinao. The CA also
held, however, that the MeTC erred in modifying the
amount of interest rate from 3% monthly to only
2% considering that petitioner Macalinao freely
availed herself of the credit card facility offered
by respondent BPI to the general public.
Statement of the Issue:
Macalinao claims that the interest rate and penalty
charge of 3% per month imposed by the CA is
iniquitous as the same translates to 36% per annum
or thrice the legal rate of interest. On the other hand,
respondent BPI asserts that said interest rate and
penalty charge are reasonable as the same are based
on the Terms and Conditions Governing the Issuance
and Use of the BPI Credit Card.
SC Ruling
We are of the opinion that the interest rate
and penalty charge of 3% per month should be
equitably reduced to 2% per month or 24% per
annum. Indeed, in the Terms and Conditions
Governing the Issuance and Use of the BPI Credit
Card, there was a stipulation on the 3% interest rate.
But, we held in Chua vs. Timan:
We need not unsettle the principle we had
affirmed in a plethora of cases that
stipulated interest rates of 3% per month
and higher are excessive, iniquitous,
unconscionable and exorbitant. Such
stipulations are void for being contrary to
morals, if not against the law. While C.B.
Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling
on interest rates for both secured and
unsecured loans, regardless of maturity,
nothing in the said circular could possibly
be read as granting carte blanche authority
to lenders to raise interest rates to levels
which would either enslave their borrowers
or lead to a hemorrhaging of their assets.
Since the stipulation on the interest rate is
void, it is as if there was no express contract
thereon. Hence, courts may reduce the interest
rate as reason and equity demand.[18]
The same is true with respect to the penalty
charge. Pertinently, Article 1229 of the Civil Code
states:
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.
Thus, under the circumstances, the Court
finds it equitable to reduce the interest rate pegged
by the CA at 1.5% monthly to 1% monthly and
penalty charge fixed by the CA at 1.5% monthly to
1% monthly or a total of 2% per month or 24% per
annum in line with the prevailing jurisprudence and
in accordance with Art. 1229 of the Civil Code.
PHILIPPINE NATIONAL BANK vs, THE HON.
COURT OF "PEALS and AMBROSIOPADILLA,
FACTS:
Private respondent (PR) Ambrosio Padilla, applied
for and was granted a credit line of 321.8million, by
petitioner PNB. This was for a term of 2 years at 18%
interest per annum and was secured byreal estate
mortgage and 2 promissory notes executed in favor
of Petitioner by PR. The credit agreementand the
promissory notes, in effect, provide that PR agrees to
be bound by “increases to the interest ratestipulated,
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 singleyear. This was done despite the numerous
letters of request made by PR that the interest rate
beincreased 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 byPNB with SC.
ISSUE:
Despite the removal of the Usury Law ceiling on
interest, may the bank validly increase thestipulated
interest rate on loans contracted with third persons
as often as necessary and against theprotest of such
persons.
HELD:
NO
RATIO:
Although under Sec. 2 of PD 116, the Monetary Board
is authorized to prescribe the maximumrate of
interest for loans and to change such rates whenever
warranted by prevailing economic and
socialconditions, by express provision, it may not do
so “oftener than once every 12 months”. If the
MonetaryBoard 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
didagree to increase on the interest rates allowed by
law, no law was passed warranting Petitioner to
effectincrease 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 thereduction of
the stipulated interest rate in the event that the
maximum interest is lowered by law or by
theMonetary 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 authorizebanks 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. Thisprovides 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, “nointerest
shall be due unless it has been expressly stipulated in
writing”. PR never agreed in writing to payinterest
imposed by PNB in excess of 24% per annum.
Interest rate imposed by PNB, as correctly foundby
CA, is indubitably excessive.
ECE REALTY and DEVELOPMENT, INC., vs.
HAYDYN HERNANDEZ, (G.R. No. 212689, August
06, 2014, J. Reyes)
Facts: Respondent filed a complaint for specifi
performance with damages against Emir Realty and
petitioner before the HLURB alleging that Emir
Realty and petitioner sold to him a 30sqm
condominium unit. Respondent paid the reservation
fee of P35k and paid P104k to complete the
downpayment.
In the parties' contract to sell, Emir and petitioner
promised that the unit would be ready for occupancy
in 1999 but failed to deliver the unit at said date. By
this time, respondent had already paid P452.6k.
Moreover, respondent discovered that the unit only
contained 26sqm thus, he asked for a corresponding
reduction of the price. Instead, Emir and petitioner
demanded that respondent settle all his
amortizations in arrears with interest. Sometime in
2005, respondent discovered that Emir and
petitioner had sold the unit to a third party. HLURB
dropped Emir as defendant and ordered petitioner to
reimburse respondent. OP dismissed petitioner's
appeal. CA affirmed OP decision.
Issue: WON the rescission of the contract to sell and
order of refund was proper with legal interest from
filing of the complaint along with the award of moral
and exemplary damages and attorney's fees to
respondent. YES.
HELD: Art. 2209, CC: "If the obligation consists in the
payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent
per annum."
There is no doubt that ECE incurred in delay in
delivering the subject condominium unit, for which
reason the trial court was justified in awarding
interest to respondent from the filing of his
complaint. There being no stipulation as to interest,
under Article 2209 the imposable rate is 6% by way
of damages, following the guidelines laid down in the
landmark case of Eastern Shipping Lines v. CA: The
12% per annum rate under CB Circular No. 416 shall
apply only to loans or forbearance of money, goods,
or credits, as well as to judgments involving such loan
or forbearance of money, goods, or credit, while the
6% per annum under Art. 2209, CC applies "when the
transaction involves the payment of indemnities in
the concept of damage arising from the breach or a
delay in the performance of obligations in general,"
with the application of both rates reckoned "from the
time the complaint was filed until the [adjudged]
amount is fully paid."
But since July 1, 2013, the rate of 12% per annum
from finality of the judgment until satisfaction has
been brought back to 6%. Section 1 of Resolution No.
796 of the Monetary Board of BSP (May 16, 2013):
"The rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to
such rate of interest, shall be 6% per annum."
Florendo vs CA and Landbank of the Philippines
Facts:
Florendo was an employee of Landbank of the
Philippines (LBP) from May 17,
1976 until August 16, 1984 when she voluntarily
resigned. Before her
resignation, she applied for a housing loan
payable in 25 years from LBP’s
Provident Fund. Both parties executed a Housing
Loan Agreement and
constituted a Real Estate Mortgage and Promissory
Note.
After almost a year from her resignation, LBP
increased the interest rate on the
loan from 95 per annum to 17%. LBP informed
Florendo and the latter
protested the increase. LBP kept on demanding
Florendo to pay the increased
interest or the new monthly installments based on
the increased interest rate.
Florendo maintained that such increase is
unjustified and unlawful.
Nevertheless, Florendo just disregarded the
increased rate and continued to
pay the obligation under the original contract.
Issue:
WON the LBP have a valid and legal basis to impose
an increased interest rate
on the housing loan.
Ruling:
The increased rate imposed or charged is not valid.
In Banco Filipino, this Court, x x x, disallowed the
bank from increasing the
interest rate on the subject loan from 12% to 17%
despite an escalation clause
in the loan agreement authorizing the bank to
“correspondingly increase the
interest rate stipulated in this contract without
advance notice to me/us in the
event the law should be enacted increasing the lawful
rates of interest that may
be charged on this particular kind of loan.―
In the case at bar, the loan was perfected on July
20, 1983. PD No. 116
became effective on January 29, 1973. x x x x x x x
x x In the light of the
CB issuances in force at that time, respondent
bank was fully aware that it
could have imposed an interest higher than 9% per
annum rate for the housing
loans of its employees, but it did not. In the subject
loan, the respondent bank
knowingly agreed that the interest rate on the
petitioner’s loans shall remain at
9% unless a CB issuance is passed authorizing an
increase (or decrease) in the
rate on such employee loans and the Provident
Fund Board of Trustees acts
accordingly. Thus, as far as the parties were
concerned, all other onerous
factors, such as employee resignations, which could
have been used to trigger
the application of the escalation clause were
considered barred or waived.

x x x (I)t will not be amiss to point out that the

unilateral determination and
imposition of increased interest rates by the
herein respondent bank is
obviously violative of the principle of mutuality of
contracts ordained in Article
1308 of the Civil Code.

xxx xxx xxx

Let it be clear that this Court understands

respondent’s bank’s position that
the concessional interest rate was really intended as
a means to remunerate its
employees and thus an escalation clause due to
resignation would have been a
valid stipulation. But no such stipulation was in
fact made, and thus
escalation provision could not be legally applied
and enforced against herein
petitioners.