WEEK 2
based upon the value of the property, amounted to usury.
CREDIT TRANSACTION
CASE DIGESTS
TOLENTINO v. GONZALES SY CHIAM
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FACTS:
1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio
purchased Luzon Rice Mills, Inc., parcel of land in Tarlac for
P25,000.00 to be paid in three installments.
a. First installment is P2,000 due on or before May 2, 1921
b. Second installment is P8,000 due on or before May 31, 1921
c. Third installment of P15,000 at 12% interest due on or before
Nov 30, 1922
One of the conditions of the contract of purchase was that if
Tolentino and Manio failed to pay the balance of any of the
installments on the date agreed upon, the property bought would
revert to the original owner.
The first and second installments were paid but the balance was paid
on Dec 1, 1922
2. On Nov 7, 1922, a representative of vendor of said property wrote
Manio , notifying her that if the balance of said indebtedness was not
paid, they would recover the property with damages for non
compliance with the condition of the contract of purchase.
3. Tolentino and Manio borrowed money from Benito Gonzales Sy
Chiam to satisfy their indebtedness to the vendor.
4. Gonzales agreed to loan the P17,500 upon condition that they
execute and deliver to him a pacto de retro of the property.
5. The contract includes a contract of lease on the property whereby
the lessees as vendors apparently bind themselves to pay rent at the
rate of P375 per month and whereby "Default in the payment of the
rent agreed for two consecutive months will terminate this lease and
will forfeit our right of repurchase, as though the term had expired
naturally"
6. Upon maturation of loan, Tolentino defaulted payment and Gonzales
demanded recovery of land.
Tolentino’s argument: that the pacto de retro sale is a mortgage and not an
absolute sale and that the rental price paid during the period of the
existence of the right to repurchase, or the sum of P375 per month,
ISSUE: WoN the contract in question is a mortgage
HELD: No.
RATIO: The contract is a pacto de retro and not a mortgage. There is not a
word, a phrase, a sentence or a paragraph in the entire record, which
justifies this court in holding that the said contract of pacto de retro is a
mortgage and not a sale with the right to repurchase.
The purpose of the contract is expressed clearly that there can certainly be
no doubt as to the purpose of the Tolentino to sell the property in question,
reserving the right only to repurchase the same:
Second. That is a condition of this sale that if in the course of
five (5) years from the 1st of December, 1922, we return to
Don Benito Gonzales Sy Chiam the above-mentioned price of
seventeen thousand five hundred (P17,500), Mr. Benito
Gonzales Sy Chiam is forced to return the farm; but if it
passes the above mentioned term of five (5) years without
exercising to the right of redemption that we have saved
ourselves, then this sale will be absolute and irrevocable.
From the foregoing, we are driven to the following conclusions: First, that the
contract of pacto de retro is an absolute sale of the property with the right to
repurchase and not a mortgage; and, second, that by virtue of the said
contract the vendor became the tenant of the purchaser, under the conditions
mentioned in paragraph 3 of said contact. When the vendor of property
under a pacto de retro rents the property and agrees to pay a rental value for
the property during the period of his right to repurchase, he thereby becomes
a "tenant" and in all respects stands in the same relation with the purchaser
as a tenant under any other contract of lease.
In the present case the property in question was sold. It was an absolute sale
with the right only to repurchase. During the period of redemption the
purchaser was the absolute owner of the property. During the period of
redemption the vendor was not the owner of the property. During the period
of redemption the vendor was a tenant of the purchaser. During the period
of redemption the relation which existed between the vendor and the vendee
was that of landlord and tenant. That relation can only be terminated by a
repurchase of the property by the vendor in accordance with the terms of
the said contract. The contract was one of rent. The contract was not a loan,
as that word is used in Act No. 2655.
Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act
fixing rates of interest upon 'loans' and declaring the effect of receiving or
taking usurious rates."
Usury, generally speaking, may be defined as contracting for or receiving
something in excess of the amount allowed by law for the loan or forbearance
of money—the taking of more interest for the use of money than the law
allows.
It will be noted that said statute imposes a penalty upon a "loan" or
forbearance of any money, goods, chattels or credits, etc. The central idea of
said statute is to prohibit a rate of interest on "loans." A contract of "loan," is
very different contract from that of "rent". A "loan," as that term is used in
the statute, signifies the giving of a sum of money, goods or credits to
another, with a promise to repay, but not a promise to return the same thing.
To "loan," in general parlance, is to deliver to another for temporary use, on
condition that the thing or its equivalent be returned; or to deliver for
temporary use on condition that an equivalent in kind shall be returned with
a compensation for its use. The word "loan," however, as used in the statute,
has a technical meaning. It never means the return of the same thing. It
means the return of an equivalent only, but never the same thing loaned. A
"loan" has been properly defined as an advance payment of money, goods or
credits upon a contract or stipulation to repay, not to return, the thing loaned
at some future day in accordance with the terms of the contract. Under the
contract of "loan," as used in said statute, the moment the contract is
completed the money, goods or chattels given cease to be the property of
the former owner and becomes the property of the obligor to be used
according to his own will, unless the contract itself expressly provides for a
special or specific use of the same. At all events, the money, goods or chattels,
the moment the contract is executed, cease to be the property of the former
owner and becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract
of "rent" the owner of the property does not lose his ownership. He simply
loses his control over the property rented during the period of the contract.
In a contract of "loan" the thing loaned becomes the property of the obligor.
In a contract of "rent" the thing still remains the property of the lessor. He
simply loses control of the same in a limited way during the period of the
contract of "rent" or lease. In a contract of "rent" the relation between the
contractors is that of landlord and tenant. In a contract of "loan" of money,
goods, chattels or credits, the relation between the parties is that of obligor
and obligee. "Rent" may be defined as the compensation either in money,
provisions, chattels, or labor, received by the owner of the soil from the
occupant thereof. It is defined as the return or compensation for the
possession of some corporeal inheritance, and is a profit issuing out of lands
or tenements, in return for their use. It is that, which is to paid for the use of
land, whether in money, labor or other thing agreed upon. A contract of
"rent" is a contract by which one of the parties delivers to the other some
nonconsumable thing, in order that the latter may use it during a certain
period and return it to the former; whereas a contract of "loan", as that word
is used in the statute, signifies the delivery of money or other consumable
things upon condition of returning an equivalent amount of the same kind or
quantity, in which cases it is called merely a "loan." In the case of a contract
of "rent," under the civil law, it is called a "commodatum."
CEBU INTERNATIONAL FINANCE v. CA
FACTS
Vicente Alegre invested with Cebu International Finance Corporation (CIFC)
P500,000 in cash. CIFC issued promissory note which covered private respondent’s
placement. CIFC issued BPI Check No. 513397 (the Check) in favor of private
respondent as proceeds of his matured investment. Mrs. Alegre deposited the Check
with RCBC but BPI dishonoured it, annotating therein that the “Check is subject of
an investigation”. BPI took possession of the Check pending investigation of several
counterfeit checks drawn against CIFC’s checking account. Private respondent
demanded from CIFC that he be paid in cash but the latter refused. Private respondent
Alegre filed a case for recovery of a sum of money against CIFC.
CIFC asserts that since BPI accepted the instrument, the bank became primarily liable
for the payment of the Check. When BPI offset the value of the Check against the
losses from the forged cheks allegedly committed by private respondent, the Check
was deemed paid.
ISSUE
Whether or not petitioner CIFC is discharged from the liability of paying the value of
the Check.
HELD
The Court held in the negative. In a money market transaction, the investor is a lender
who loans his money to a borrower through a middleman or dealer. A check is not
legal tender, and therefore cannot constitute valid tender of payment. Since a
negotiable instrument is only substitute for money and not money, the delivery of
such an instrument does not by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document
is actually realized. (Article 1249)
Petition denied.
NAGUIAT v. CA
FACTS
Queaño applied with Naguiat a loan for P200,000, which the latter granted. Naguiat
indorsed to Queaño Associated bank Check No. 090990 for the amount of P95,000
and issued also her own Filmanbank Check to the order of Queaño for the amount of
P95,000. The proceeds of these checks were to constitute the loan granted by Naguiat
to Queaño. To secure the loan, Queaño executed a Deed of Real Estate Mortgage in
favor of Naguiat, and surrendered the owner’s duplicates of titles of the mortgaged
properties. The deed was notarized and Queaño issued to Naguiat a promissory note
for the amount of P200,000. Queaño also issued a post-dated check amounting to
P200,000 payable to the order of Naguait. The check was dishonoured for
insufficiency of funds. Demand was sent to Queaño. Shortly, Queaño, and one Ruby
Reubenfeldt met with Naguiat. Queaño told Naguiat that she did not receive the
loan proceeds, adding that the checks were retained by Reubenfeldt, who purportedly
was Naguiat’s agent.
Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared the
Deed as null and void and ordered Naguiat to return to Queaño the owner’s duplicates
of titles of the mortgaged lots.
ISSUE
Whether or not the issuance of check resulted in the perfection of the loan contract.
HELD
The Court held in the negative. No evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. The
Civil Code provides that the delivery of bills of exchange and mercantile documents
such as checks shall produce the effect of payment only when they have been
cashed. It is only after the checks have been produced the effect of payment that the
contract of loan may have been perfected.
Article 1934 of the Civil Code provides: An accepted promise to deliver something by
way of commodatum or simple loan is binding upon the parties, but the commodatum
or simple loan itsel shall not be perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and as such, is perfected only upon
the delivery of the objects of the contract.
PEOPLE v. PUIG & POITAS
Facts:
A case of Qualified Theft was filed against the respondents. This was filed by the
Iloilo provincial prosecutor, for the private complainant, Rural Bank of Potoan. It
was alleged in the complaint that Puig was the cashier & Porras was the
Bookkeeper in the said bank, and that they took away money amounting to 15k
without the consent of the bank owner, to the prejudice of the bank. However,
the RTC dismissed the complaint for insufficiency of the information ruling that
the real parties in interest are the depositors-clients and not the bank because
the bank does not acquire ownership of the money deposited in it. It also denied
the MR.
Issue: WON the bank was the owner and thus, the real party in interest?
Held & Rationale
Yes. Under Art 1980 of the CC, "fixed, savings, and current deposits of money in
banks shall be governed by the provisions concerning simple loans." And, Art
1953 provides that "a person who receives a loan of money acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the
same kind and quality." Thus, it posits that the depositors who place their
money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by
respondents as belonging to the bank. Allegations in the Information that such
 employees acted with grave abuse of confidence, to the damage and prejudice
of the Bank, without particularly referring to it as owner of the money deposits,
as sufficient to make out a case of Qualified Theft.
-------------
(Simple Loan)
· Depositors who place their money with the bank are considered creditors of the bank.
The bank acquires ownership of the money deposited by its clients, making the money
taken by respondents as belonging to the bank.
· The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately
pointed out by petitioner, provide as follows:
· Article 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of
the same kind and quality.
· Article 1980. (supra)
· In summary, the Bank acquires ownership of the money deposited by its clients; and
the employees of the Bank, who are entrusted with the possession of money of the
Bank due to the confidence reposed in them, occupy positions of confidence. The
Informations, therefore, sufficiently allege all the essential elements constituting the
crime of Qualified Theft
EQUITABLE PCI BANK v. NGOR
Facts:
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc.
and Benjamin E. Go filed an action for annulment and/or reformation of documents
and contracts against petitioner Equitable PCI Bank (Equitable) and its employees,
Aimee Yu and Bejan Lionel Apas, in RTC, Branch 16 of Cebu City. They claimed that
Equitable induced them to avail of its peso and dollar credit facilities by offering low
interest rates so they accepted Equitable's proposal and signed the bank's pre-printed
promissory notes on various dates beginning 1996. They, however, were unaware that
the documents contained identical escalation clauses granting Equitable authority
to increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes. In fact, they continuously
availed of and benefited from Equitable's credit facilities for five years.
RTC upheld the validity of the promissory notes. Equitable and respondents filed their
respective notices of appeal but both were denied by the RTC. Equitable moved for
the reconsideration but RTC denied due to lack of merit.
A writ of execution was thereafter issued and three real properties of Equitable were
levied upon.
Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It,
however, withdrew that petition on March 30, 2004 and instead filed a petition for
certiorari with an application for an injunction in the CA to enjoin the implementation
and execution of the March 24, 2004 omnibus order. CA granted Equitable’s
application for injunction. A writ of preliminary injunction was correspondingly
issued.
Notwithstanding the writ of injunction, the properties of Equitable previously levied
upon were sold in a public auction on July 1, 2004. Respondents were the highest
bidders and certificates of sale were issued to them.
Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who
conducted the sale in contempt for proceeding with the auction despite the injunction
order of the CA.
CA dismissed the petition for certiorari. It found Equitable guilty of forum shopping
because the bank filed its petition for certiorari in the CA several hours before
withdrawing its petition for relief in the RTC. Moreover, Equitable failed to disclose,
both in the statement of material dates and certificate of non-forum shopping, that it
had a pending petition for relief in the RTC.
Equitable moved for reconsideration but it was denied.
Issue:
Whether or not the promissory notes were valid.
Held:
Yes.
The RTC upheld the validity of the promissory notes despite respondents assertion that
those documents were contracts of adhesion.
 A contract of adhesion is a contract whereby almost all of its provisions are drafted
by one party. The participation of the other party is limited to affixing his signature or
his adhesion to the contract. For this reason, contracts of adhesion are strictly construed
against the party who drafted it.
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They
are, on the contrary, as binding as ordinary contracts. A party is in reality free to
accept or reject it. A contract of adhesion becomes void only when the dominant
party takes advantage of the weakness of the other party, completely depriving
the latter of the opportunity to bargain on equal footing.
That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But they
did not. Instead, they continuously availed of Equitable's credit facilities for five long
years.
While the RTC categorically found that respondents had outstanding dollar- and peso-
denominated loans with Equitable, it, however, failed to ascertain the total amount due
(principal, interest and penalties, if any) as of July 9, 2001. The trial court did not
explain how it arrived at the amounts of US$228,200 and P1,000,000. In Metro Manila
Transit Corporation v. D.M. Consunji, we reiterated that this Court is not a trier of
facts and it shall pass upon them only for compelling reasons which unfortunately are
not present in this case. Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages.
SIGA-AN v. VILLANUEVA
----------------
(Compensatory, Penalty or Indemnity Interest)
Interests:
a) Monetary interest is a compensation fixed by the parties for the use or forbearance
of money.
b) Compensatory interest - imposed by law or by courts as penalty or indemnity for
damages.
The right to interest arises only by virtue of a contract or by virtue of damages for
delay or failure to pay the principal loan on which interest is demanded.
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.
I. Hence, 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.
· Monetary interest is due only when these requirements are present.
II. However, there are instances in which an interest may be imposed even in the
absence of express stipulation, verbal or written, regarding payment of
interest. Article 2209 of the Civil Code states that if the obligation consists in the
payment of a sum of money, and the debtor incurs delay, a legal interest of 12%
(now 6%) per annum may be imposed as indemnity for damages if no stipulation
on the payment of interest was agreed upon. (Compensatory interest)
· This interest may be imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a compensation for the use or
forbearance of money. This applies only to compensatory interest and not to
monetary interest.
Solutio Indebiti
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 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. We
have held that the principle of solutio indebiti applies in case of erroneous payment of
undue interest.
HELD: It was duly established that respondent paid interest to petitioner. Respondent
was under no duty to make such payment because there was no express stipulation
in writing to that effect. There was no binding relation between petitioner and
respondent as regards the payment of interest. The payment was clearly a mistake.
Since petitioner received something when there was no right to demand it, he has
an obligation to return it.
FRIAS v. SAN DIEGO-SISON
On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA
over Frias’property
  MOA consideration is 3M
 Sison has 6 months from the date of contract’s execution to notify Frias of
her intention to purchase the property with the improvements at 6.4M
 Prior to this 6 month period, Frias may still offer the property to other persons,
provided that 3M shall be paid to Sison including interest based on prevailing
compounded bank interest + amount of sale in excess of 7M [should the
property be sold at a price greater than 7M]
 In case Frias has no other buyer within 6 months from the contract’s
execution, no interest shall be charged by Sison on the 3M
 In the event that on the 6th month, Sison would decide not to purchase the
property, Frias has 6 months to pay 3M (amount shall earn compounded bank
interest for the last 6 months only)
 3M treated as a loan and the property considered as the security for the
mortgage
 Upon notice of intention to purchase, Sison has 6 months to pay the balance
of 3.4M (6.4M less 3M MOA consideration)
Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28,
1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and
the Deed of Absolute Sale over the property. Sison decided not to purchase the
property, so she notified Frias through a letter dated March 20, 1991 [Frias received
it only on June 11, 1991],and Sison reminded Frias of their agreement that the 2M
Sison paid should be considered as a loan payable within 6 months. Frias failed
to pay this amount.
Sison filed a complaint for sum of money with preliminary attachment. Sison averred
that Frias tried to deprive her of the security for the loan by making a false report of
the loss of her owner’s copy of TCT, executing an affidavit of loss and by filing a
petition[1] for the issuance of a new owner’s duplicate copy. RTC issued a writ of
preliminary attachment upon the filing of a 2M bond.
RTC found that Frias was under obligation to pay Sison 2M with compounded interest
pursuant to their MOA. RTC ordered Frias to pay Sison:
 2M + 32% annual interest beginning December 7, 1991 until fully paid
 70k representing premiums paid by Sison on the attachment bond with legal
interest counted from the date of this decision until fully paid
 100k moral, corrective, exemplary damages [liable for moral damages
because of Frias’ fraudulent scheme]
 100k attorney’s fees + cost of litigation
CA affirmed RTC with modification—32% reduced to 25%. CA said that there was
no basis for Frias to say that the interest should be charged for 6 months only. It said
that a loan always bears interest; otherwise, it is not a loan. The interest should
commence on June 7, 1991 until fully paid, with compounded bank interest prevailing
at the time [June 1991] the 2M was considered as a loan (as certified by the bank).
ISSUES & HOLDING – Ratio only discusses topic of INTEREST (as per syllabus)
 WON compounded bank interest should be limited to 6 months as contained
in the MOA. NO
 WON Sison is entitled to moral damages. YES
 WON the grant of attorney’s fees is proper, even if not mentioned in the body
of the decision. NO
CA committed no error in awarding an annual 25% interest on the 2M even beyond
the 6-month stipulated period. In this case, the phrase “for the last six months only”
should be taken in the context of the entire agreement.
SC notes that the agreement speaks of two (2) periods of 6 months each (see
FACTS—words in bold & underline). No interest will be charged for the 1st 6-month
period [while Sison was making up her mind], but only for the 2nd 6-month period
after Sison decided not to buy the property. There is nothing in the MOA that
suggests that interest will be charged for 6 months only even if it takes forever for
Frias to pay the loan.
The payment of regular interest constitutes the price or cost of the use of money,
and until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount. 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
constitutes unjust enrichment on the part of the debtor at the expense of the
creditor.
CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATION—
Award of attorney’s fees deleted
(Conventional Interest )
*example of forbearance
· Parties: Petitioner Frias as the property owner and Respondent Dra. Flora San
Diego-Sison, entered into a Memorandum of Agreement over the subject property.
· MOA: Petitioner received P3M from respondent with the following agreement:
Ø That respondent has a period 6 months from the date of the execution of this contract
within which to notify petitioner of her intention to purchase the land at the price
ofP6.4M. Upon notice to the petitioner of respondent’s intention to purchase the
same, the latter has a period of another 6 months within which to pay the remaining
balance of P3.4 million.
Ø In the event that on the sixth month the respondent would decide NOT to purchase the
property, the petitioner has a period of another 6 months within which to pay the sum
of P3 million pesos provided that the said amount shall earn compounded bank interest
for the last 6 months only. Under this circumstance, the amount of P3 million given
by the respondent shall be treated as a loan.
· Respondent decided not to purchase the property and demanded the return of her
money with 36% interest.
· Petitioner and respondent stipulated that the loaned amount shall earn compounded
bank interests, and per the certification issued by Prudential Bank, the interest rate for
loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate
to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.
Monetary Interest: The payment of regular interest constitutes the price or cost of the
use of money and thus, until the principal sum due is returned to the creditor, regular
interest continues to accrue since the debtor continues to use such principal amount. 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.
SC: Affirmed the ruling of the CA as to the 25% interest rate. Thus, the interest rate
of 25% per annum awarded by the CA to a P2 million loan is fair and reasonable.
INTEGRATED REALTY CORP. v. PNB
FACTS
Raul Santos made a time deposit with OBM in the amount of P500H and he
was issued a certificate of time deposits. On another date, Santos again made a time
deposit with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its
president Raul Santos, applied for a loan and/or credit line (P700H) with PNB. To
secure such, Santos executed a Deed of Assignment of the 2 time deposits.
After due dates of the time deposit certificates, OBM did not pay PNB.
PNB then demanded payment from IRC and Santos, but they replied that the
loan was deemed paid with the irrevocable assignment of the time deposit
certificates.
PNB then filed with RTC to collect from IRC and Santos with interest. The
trial court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount
of P700H plus interest of 9% PA, 2% additional interest and 1& PA penalty interest.
On appeal, the CA ordered OBM to pay IRC and Santos whatever amts they will to
PNB with interest.
IRC and Santos now claim that OBM should reimburse them for whatever amts
they may be adjudged to pay PNB by way of compensation for damages incurred.
ISSUE
Whether or not the claim of IRC and Santos will prosper.
HELD
The Court held in the affirmative. The 2 time deposits matured on 11 January
1968 and 6 February 1968, respectively. However, OBM was not allowed and
suspended to operate only on 31 July 1968 and resolved on 2 August 1968. There
was a yet no obstacle to the faithful compliance by OBM of its liabilities. For
having incurred in delay in the performance of its obligation, OBM should be
held for damages.
OBM contends that it had agreed to pay interest only up to the dates of
maturity of the CTD and that Santos is not entitled to interest after maturity dates had
expired.
While it is true that under Article 1956 of the CC, no interest shall be due
unless it has been expressly stipulated in writing, this applies only to interest for
the use of money. It does not comprehend interest paid as damages. OBM is being
required to pay such interest, not as interest income stipulated in the CTD, but as
damages froM failure and delay in the payment of its obligations which thereby
compelled IRC and Santos to resort to the courts.
The applicable rule is that LI, in the nature of damages for non-compliance
with an obligation to puy sum of money, is recoverable from the date judicially or
extra-judicially demand is made.
LIGUTAN v. CA
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount
of P120,000.00 from Security Bank and Trust Co. The obligation matured and the
bank granted an extension. Despite several demands from the Bank, petitioners failed
to settle the debt which then amounted to P114,416.10. The Bank sent a final demand
letter however petitioners still defaulted on their obligation. The Bank then filed
a complaint for recovery of the due amount. Petitioners instead of presenting their
evidence had the schedule reset for two consecutive occasions. On the third hearing
date, the trial court resolved to consider the case submitted for decision.
Two years later petitioners filed a motion for reconsideration which was denied by the
trial court. Petitioners then interposed an appeal with the Court of Appeals, the
appellate court affirmed the judgement of the trial court except the 2% service charge
which was deleted pursuant to Central Bank Circular No. 763. The two parties filed
their motions for reconsiderations and the Court of Appeals resolved the two motions:
that the payment of interest and penalty commence on the date when the obligation
became due and a penalty of 3% per month would suffice. The petitioners filed an
omnibus motion for reconsideration which was then denied by the Court of Appeals.
ISSUE:
Whether or not the 15.189% interest and the penalty of 3% per month (36% per annum)
is exorbitant, iniquitous, and unconscionable.
RULING:
Petition is DENIED.
HELD:
The question of whether a penalty is reasonable or iniquitous can be partly subjective
and partly objective. Its resolution will depend on such factors as, but not 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 Court of Appeals, exercising its good judgement has reduced the penalty interest
from 5% a month to 3% a month. Given the circumstances and the repeated acts of
breach by petitioners of their contractual obligation, the Court sees no cogent ground
to modify the ruling of the appellate court.
The stipulated interest of 15.189% per annum, does not appear as being excessive.
The essence or rationale for the payment of interest, quite often referred to as
cost of money, is not exactly the same as that as a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an
agreement to that effect, the two being distinct concepts which may separately be
demanded. The interest prescribed in loan financing arrangements is a
fundamental part of the banking business and the core of a banks existence.
---------------
(Compensatory, Penalty or Indemnity Interest)
The essence or rationale for the payment of interest, quite often referred to as cost of
money, is not exactly the same as that of a surcharge or a penalty. A penalty
stipulation is not necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be demanded. What may
justify a court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefor in a valid agreement, may not equally justify
the non-payment or reduction of interest. Indeed, the interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the core of
a bank's existence.
· Here, the stipulated interest of 15.189% on the forbearance of money was upheld by
the court as reasonable.
CORDOVA v. REYES
--------------
Common Credits, Art. 2245, Art. 2251
The Civil Code provisions on concurrence and preference of credits are applicable to
the liquidation proceedings.
Issue: Was petitioner a preferred or ordinary creditor under these provisions?
Ø Petitioner argues that he was a preferred creditor because private respondents illegally
withdrew his shares from the custodian banks and sold them without his knowledge
and consent and without authority from the SEC. He quotes Article 2241 (2) of the
Civil Code:
 With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public
officials committed in the performance of their duties, on the movables, money or
securities obtained by them;
Ø He asserts that, as a preferred creditor, he was entitled to the entire monetary value of
his shares.
Held: Petitioner’s argument is incorrect. Article 2241 refers only to specific
movable property. His claim was for the payment of money, which is generic property
and not specific or determinate. Petitioner’s CSPI shares were specific or determinate
movable properties. But after they were sold, the money raised from the sale became
generic and were commingled with the cash and other assets of Philfinance. Unlike
shares of stock, money is a generic thing. It is designated merely by its class or genus
without any particular designation or physical segregation from all others of the same
class. This means that once a certain amount is added to the cash balance, one can no
longer pinpoint the specific amount included which then becomes part of a whole mass
of money.
Considering that petitioner did not fall under any of the provisions applicable to
preferred creditors, he was deemed an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled
to a rate of recovery of only 15% of his money claim.
EASTERN SHIPPING LINES v. CA
FACTS:
This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by
the insurer-subrogee who paid the consignee the value of such losses/damages.
the losses/damages were sustained while in the respective and/or successive custody
and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and
broker (Allied Brokerage).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee against defendants.
DECISION OF LOWER COURTS: * trial court: ordered payment of damages,
jointly and severally * CA: affirmed trial court.
ISSUES AND RULING:
(a) whether or not a claim for damage sustained on a shipment of goods can be a
solidary, or joint and several, liability of the common carrier, the arrastre operator and
the customs broker;
YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the goods in good
condition to the consignee.
The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until
the lapse of a reasonable time for their acceptance by, the person entitled to receive
them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost
or arrive in damaged condition, a presumption arises against the carrier of its failure
to observe that diligence, and there need not be an express finding of negligence to
hold it liable.
(b) whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed
from is rendered; and
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME
COURT)
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion
of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
(c) whether the applicable rate of interest, referred to above, is twelve percent (12%)
or six percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision, dated 03
February 1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon
finality of the Supreme Court decision until the payment thereof.
RATIO: when the judgment awarding a sum of money becomes final and executory,
the monetary award shall earn interest at 12% per annum from the date of such finality
until its satisfaction, regardless of whether the case involves a loan or forbearance of
money. The reason is that this interim period is deemed to be by then equivalent to a
forbearance of credit.
NOTES: the Central Bank Circular imposing the 12% interest per annum applies
only to loans or forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general. Observe, too, that in these cases, a common
time frame in the computation of the 6% interest per annum has been applied, i.e.,
from the time the complaint is filed until the adjudged amount is fully paid.
--------------------
(Compensatory, Penalty or Indemnity Interest)
Rules on Interest:
· Interest upon an obligation which calls for the payment of money, absent a
stipulation, is thelegal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
· But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty. Here, interest should be counted from the date
of the decision (when the amount of damages are ascertained).
· 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 interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
Rules of thumb (on the award of interests):
 *NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799 (amending Circular No. 905) effective July 1, 2013,
and the case of NACAR V. GALLERY FRAMES AND/OR BORDEY (2013). Therefore, there is no need to distinguish now the
obligations breached as the legal interest applicable is 6%.
1) When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.
2) With regard particularly to an award of interest in the concept of ACTUAL AND
COMPENSATORY DAMAGES, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
a) Obligation breached: consists in the payment of a sum of money, i.e., a loan or
forbearance of money
Interest Due:
i) that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded.
ii) 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. (amended to 6%)
b) Obligation breached: not constituting a loan or forbearance of money,
Interest due: may be imposed at the discretion of the court at the rate of 6% per
annum.
Ø No interest, however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
o Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code)
o When such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
c) When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (amended to 6%)
CRISMINA GARMENTS v. CA
Lessons Applicable: Interest (Torts and Damages)
Laws Applicable: Article 1589 on the Civil Code, Article 2209 of the Civil Code
FACTS:
 February 1979 - April 1979: Crismina Garments, Inc. contracted the services
of D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls
denims for P76,410
 At first, the Crismina was told that the sewing of some of the pants were defective
so it offered to take them back but then she was told it was good already and asked
her to return for her check.
 Crismina failed to pay and told her that 6,164 pairs were defective and asked for
actual damages of P49,925.51
 RTC: favored D'Wilmar P76,140 at 12% per annum, P5,000 attorney's fees and
cost of suit
 CA: affirmed but delete the attorney's fees
ISSUE: W/N they should impose 12% interest for an obligation which is not a loan
in the absence of stipulation
HELD: NO. Appealed Decision is MODIFIED. The rate of interest shall be
6%/annum, computed from the time of the filing of the Complaint in the trial
court until the finality of the judgment. If the adjudged principal and the interest
(or any part thereof) remain unpaid thereafter, the interest rate shall be 12% per
annum computed from the time the judgment becomes final and executory until it is
fully satisfied.
 Article 1589 on the Civil Code
 [t]he vendee [herein petitioner] shall owe interest for the period between the
delivery of the thing and the payment of the price . . . should he be in default from
the time of judicial or extrajudicial demand for the payment of the price.
 Article 2209 of the Civil Code
 If the obligation consists in the payment 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 6%/annum
 Usury Law
 rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve per cent (12%) per annum
 award of interest in the concept of actual and compensatory damages, the rate of ----------------
interest, as well as the accrual thereof
(Compensatory, Penalty or Indemnity Interest)
 When the obligation is breached, and it consists in the payment of a sum of
*Amending the Eastern Shipping Doctrine
money, i.e., a loan or forbearance of money, the interest due should be that which
*Important: because this case discusses the amendment of the legal interest in loan
may have been stipulated in writing
and forbearance of money, credits or goods from 12% to 6% effective July 1, 2013.
 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 Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
796, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and,
subject to the provisions of Article 1169 of the Civil Code
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the
 When an obligation, not constituting a loan or forbearance of money, is breached,
pertinent portion of which reads:
an interest on the amount of damages awarded may be imposed at the discretion
Section 1. The rate of interest for the loan or forbearance of any money, goods or
of the court at the rate of 6% per annum.
credits and the rate allowed in judgments, in the absence of an express contract as to
 No interest, however, shall be adjudged on unliquidated claims or damages except
such rate of interest, shall be six percent (6%) per annum.
when or until the demand can be established with reasonable certainty
 where the demand is established with reasonable certainty, the interest shall begin
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
to run from the time the claim is made judicially or extrajudicially (Art. 1169,
interest that would govern the parties, the rate of legal interest for loans or forbearance
Civil Code) but when such certainty cannot be so reasonably established at the
of any money, goods or credits and the rate allowed in judgments shall no longer be
time the demand is made, the interest shall begin to run only from the date the
12% per annum but will now be 6% per annum effective July 1, 2013.
judgment of the court is made (at which time the quantification of damages may
Ø It should be noted, nonetheless, that the new rate could only be applied prospectively
be deemed to have been reasonably ascertained).
and not retroactively. Consequently, the 12% per annum legal interest shall apply only
 The actual base for the computation of legal interest shall, in any case, be . . . the
until June 30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the
amount finally adjudged.
prevailing rate of interest when applicable.
 When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
paragraph 2, above, shall be 12% per annum from such finality until its
Shipping Lines are accordingly modified to embody BSP-MB Circular No. 799, as
satisfaction, this interim period being deemed to be by then an equivalent to
follows:
forbearance of credit
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
 amount due in this case arose from a contract for a piece of work, not from a loan
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
or forbearance of money, the legal interest of six percent (6%) per annum should
The provisions under Title XVIII on "Damages" of the Civil Code govern in
be applied.
determining the measure of recoverable damages.
 Furthermore, since the amount of the demand could be established with certainty
II. With regard particularly to an award of interest in the concept of actual and
when the Complaint was filed, the six percent (6%) interest should be computed
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
from the filing of the said Complaint.
as follows:
 But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year
New guidelines in the award of interest:
1.) When the obligation is breached, and it consists in the payment of a sum of money,
BSP-MB RESOLUTION NO. 796 (MAY 16, 2013) 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
NACAR v. GALERY FRAMES shall be 6% per annum to be computed from default, i.e., from judicial or
 extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2.) When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3.) When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit.

Application in this case: The interest of 12% per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013
until their full satisfaction, is awarded.