7. Chee Kiong Yam v.

Malik
GR No-50550-52 October 31, 1979

Facts: Petitioners filed a petition for certiorari, prohibition and mandamus with preliminary
injunction against the respondent Judge Malik who ruled that several cases of estafa through
misappropriation filed against the petitioners should be admitted for trial in his sala. It must be
noted that all complainants admitted that the money which the petitioners did not return were
obtained from them by the latter in a form of loans.

Issue: Can there be a crime of estafa for non-payment of a loan?

Held: No. In order that a person be convicted of Swindling (Estafa) under Art. 315 of the
Revised Penal Code, it must be proven that he has the obligation to deliver or return the same
money, goods or personal property that he received. Petitioners had no such obligation to return
the same money, i.e., the bills or coins, which they received from private respondents. This is so
because as clearly stated in criminal complaints, the related civil complaints and the supporting
sworn statements, the sums of money that petitioners received were loans. In U.S. vs. Ibañez, 19
Phil. 559, 560 (1911), the Supreme Court held that it is not estafa for a person to refuse to pay
his debt or to deny its existence.

It is the opinion of the Court that when the relation is purely that of debtor and creditor, the
debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay
or by denying the indebtedness.

It appeared that respondent judge failed to appreciate the distinction between the two types of
loan, mutuum and commodatum, when he performed the questioned acts. He mistook the
transaction between petitioners and private respondents to be commodatum wherein the
borrower does not acquire ownership over the thing borrowed and has the duty to return the same
thing to the lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the
Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty provided by
law does not exceed prision correccional or imprisonment for not more than six (6) years, or fine
not exceeding P6,000.00 or both, The amounts allegedly misappropriated by petitioners range
from P20,000.00 to P50,000.00. The penalty for misappropriation of this magnitude exceeds
prision correccional or 6 year imprisonment. (Article 315, Revised Penal Code), Assuming then
that the acts recited in the complaints constitute the crime of estafa, the Municipal Court of Jolo
has no jurisdiction to try them on the merits. The alleged offenses are under the jurisdiction of
the Court of First Instance.

People v. Puig & Porras

Facts:
Respondents were conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank and with intent of gain, did
then and there willfully, unlawfully and feloniously take, steal and carry away the sum of
P15,000.00, Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.

However, the trial court did not find the existence of probable cause because (1) the element of
‘taking without the consent of the owners’ was missing on the ground that it is the depositors-
clients, and not the Bank, which filed the complaint in these cases, who are the owners of the
money allegedly taken by respondents and hence, are the real parties-in-interest; and (2) the
Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the
respondents and the offended party that would have created a high degree of confidence between
them which the respondents could have abused.".

Issue:
Whether or not the 112 informations for qualified theft sufficiently allege the element of taking
without the consent of the owner, and the qualifying circumstance of grave abuse of confidence.

Held:
Yes.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the
Informations and, therefore, because of this defect, there is no basis for the existence of probable
cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal
contending that the Informations for Qualified Theft sufficiently state facts which constitute (a)
the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent
to gain and without the consent of the owner, which is the Bank.

The RTC Judge based his conclusion that there was no probable cause simply on the insufficiency
of the allegations in the Informations concerning the facts constitutive of the elements of the
offense charged.

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. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the 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.
BPI FAMILY BANK VS. FRANCO
G.R. No. 123498 November 23, 2007
J. Nachura

FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon
thereafter, FMIC also opened a time deposit account with the same branch of BPI-FB

On August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit,
with BPI-FB. The total amount of P2,000,000.00 used to open these accounts is traceable to a
check issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, to
Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the
P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMIC’s time deposit
account and credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly
signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were
forged. BPI-FB, debited Franco’s savings and current accounts for the amounts remaining therein.
In the meantime, two checks drawn by Franco against his BPI-FB current account were dishonored
and stamped with a notation “account under garnishment.” Apparently, Franco’s current account
was garnished by virtue of an Order of

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-
FB prior to Franco’s receipt of notice that his accounts were under garnishment. It was only on
May 15, 1990, that Franco was impleaded in the Makati case. Immediately, upon receipt of such
copy, Franco filed a Motion to Discharge Attachment. On May 17, 1990, Franco pre-terminated
his time deposit account.

BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit
account representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to
heed Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed on
June 4, 1990 with the Manila RTC the subject suit.

ISSUE: WON Respondent had better right to the deposits in the subject accounts which are part
of the proceeds of a forged Authority to Debit

HELD: NO
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account.
BPI-FB conveniently forgets that the deposit of money in banks is governed by the Civil Code
provisions on simple loan or mutuum. As there is a debtor-creditor relationship between a bank
and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership
is coupled with a corresponding obligation to pay him an equal amount on demand. Although BPI-
FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of
BPI-FB’s obligation by drawing checks against his current account, or asking for the release of the
funds in his savings account. Thus, when Franco issued checks drawn against his current account,
he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam
Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take
whatever action it pleases on deposits which it supposes are derived from shady transactions,
would open the floodgates of public distrust in the banking industry.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the
process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability
thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from
their respective accounts without the appropriate court writ or a favorable final judgment.

Bobie Rose V. Frias vs Flora San Diego-Sison

GR No. 155223, April 4, 2007

FACTS:
Bobie Rose Frias owns a house and lot acquired from Island Masters Reality and Development
Corporation (IMRDC) through a Deed of Sale and covered by transfer certificate of title (TCT)
in the name of IRMDC.
Frias, as the First Party, and Dra. Flora San Diego-Sison as the Second Party, entered into a
Memorandum of Agreement (MOA) over the property with the following terms and conditions:
“xxx for and in consideration of the sum of P3,000,000.00 receipt of which is hereby
acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as
follows:
That the SECOND PARTY has a period of 6 months from the date of the execution of this
contract xxx to notify the FIRST PARTY of her intention to purchase xxx at a price of
P6,400,000.00 xxx another six months within which to pay the remaining balance of P3.4
million.
xxx
That in case the FIRST PARTY has no other buyer within the first six months from the six
months from the execution of this contract, no interest shall be charged by the SECOND PARTY
on the P3million however, in the event that on the sixth month the SECOND PARTY would
decide not to purchase the aforementioned property, the FIRST PARTY has a period of another
six months within which to pay the sum of P3 million pesos provided that the said amount shall
earn compounded bank interest for the last six months only. Under this circumstance, the amount
of P3 million given by the SECOND PARTY shall be treated as a loan and the property shall be
considered as the security for the mortgage which can be enforced in accordance with law.”
 Frias received from San Diego-Sison P2million cash and P1million post-dated check dated
February 28, 1990, instead of 1991, which rendered the check stale. Frias then gave the TCT in
the name of IRMDC and the Deed of Absolute Sale over the property between Frias and
IRMDC.
San Diego-Sison decided not to purchase the property and informed Frias through a letter
reminding of the agreement that the amount of P2Million be considered as a loan payable within
6 months. However, Frias failed to pay San Diego-Sison who later filed a complaint for sum of
money with preliminary attachment. Also, San Diego-Sison averred that Frias tried to deprive
her of the security for the loan when Frias made a false report of the loss of her owner’s copy of
the TCT and be issued a new owner’s duplicate copy of said title.
The trial court ordered Frias to pay San Diego-Sison the sum of P2million plus interest at the rate
of 32% per annum beginning December 7, 1991 due to the compounded interest stipulated in the
MOA. The appellate court affirmed the trial court’s decision but modified the rate of interest
from 32% to 25% effective June 7, 1991 when the interest rate prevailing in 1991 ranged from
25% to 32% per annum and that the P2Million was considered as a loan in June 1991.
Frias argued that the interest rate was contrary to the MOA because it provided that if San
Diego-Sison would decide not to purchase the property, Frias has the period of another six
months to pay the loan with compounded bank interest for the last six months only.
ISSUES:
Whether the compounded bank interest should be limited to 6 months only as stipulated in the
contract.
Whether CA committed error in awarding 25% interest per annum on the 2million peso loan
even beyond the second 6 months stipulated period.
Whether San Diego-Sison is entitled to moral damages.
HELD:
The Court said that the phrase “for the last six months only” should be taken in the context of the
entire agreement. It agreed with CA’s interpretation of the phrase:
“Their agreement speaks of two periods of six months each. The first six- month period was
given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase
defendant-appellant’s (petitioner’s) property. The second six-month period was given to
defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to
buy the subject property in which case interest will be charged “for the last six months only”,
referring to the second six-month period. This means that no interest will be charged for the first
six-month period while appellee was making up her mind whether to buy the property, but only
for the second period of six months after appellee had decided not to buy the property. This is
the meaning of the phrase “for the last six months only”. Certainly, there is nothing in their
agreement that suggests that interest will be charged for six months only even if it takes
defendant-appellant an eternity to pay the loan.”
Having considered it as a loan, the monetary interest for the last six months continued to accrue
until actual payment of the loaned amount.
The court further explained why interest must be paid:
“ The payment of regular interest constitutes the price or cost of the use of money and thus, until
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.”
The Court found no error in awarding 25% interest per annum on the P2Million loan even
beyond the six months stipulated period. “The general rule is that if the terms of an agreement
are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of
its stipulations shall prevail. It is further required that the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of
them taken jointly.” Besides, Frias and San Diego-Sison agreed and as stipulated in the contract
that the loaned amount shall earn compounded bank interests.
Yes. The court agreed with “the findings of the trial court and the CA that petitioner’s act of
trying to deprive respondent of the security of her loan by executing an affidavit of loss of the
title and instituting a petition for the issuance of a new owner’s duplicate copy of TCT No.
168173 entitles respondent to moral damages. Moral damages may be awarded in culpa
contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad
faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud.” Xxx
“Petitioner’s actuation would have deprived respondent of the security for her loan were it not
for respondent’s timely filing of a petition for relief whereby the RTC set aside its previous order
granting the issuance of new title. Thus, the award of moral damages is in order
Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.

Facts: Respondent filed a complaint for sum of money against petitioner. Respondent claimed that
petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00 of
which the loan agreement was not reduced in writing and there was no stipulation as to the payment
of interest for the loan. Respondent issued a check worth P500,000.00 to petitioner as partial
payment of the loan. She then issued another check in the amount of P200,000.00 to petitioner as
payment of the remaining balance of the loan of which the excess amount of P160,000.00 would
be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner
pestered her to pay additional interest and threatened to block or disapprove her transactions with
the PNO if she would not comply with his demand. Thus, she paid additional amounts in cash and
checks as interests for the loan. She asked petitioner for receipt for the payments but was told that
it was not necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation
to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that
respondent’s obligation was only to pay the loaned amount of P540,000.00, and that the alleged
interests due should not be included in the computation of respondent’s total monetary debt
because there was no agreement between them regarding payment of interest. It concluded that
since respondent made an excess payment to petitioner in the amount of P660,000.00 through
mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio
indebiti. Also, petitioner should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of example
or correction for the public good, plus attorney’s fees and costs of suit.

Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio
indebiti applies to the case at bar.

Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan and no interest was due on the loan because
there was no written agreement as regards payment of interest. Article 1956 of the Civil Code,
which refers to monetary interest, specifically mandates that no interest shall be due unless it has
been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest;
and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the
two conditions is required for the payment of monetary interest. Thus, we have held that collection
of interest without any stipulation therefor in writing is prohibited by law.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as
interest. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has
been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision
provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no right
to receive such payment becomes obligated to return the same. The quasi-contract of solutio
indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense
of another. The principle of solutio indebiti applies where (1) a payment is made when there exists
no binding relation between the payor, who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not through liberality or some other
cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of
undue interest.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary
damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and threatened to block her transactions
with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of
agreement thereto. Thus, the award of exemplary damages is appropriate so as to deter petitioner
and other lenders from committing similar and other serious wrongdoings.
Sps. Juico vs. China Banking Corporation 695 SCRA 520 (2013) doc
There is no indication that petitioners were coerced into agreeing with the foregoing provisions
of the promissory notes. In fact, petitioner Ignacio, a physician engaged in the medical supply
business, admitted having understood his obligations before signing them. At no time did
petitioners protest the new rates imposed on their loan even when their property was foreclosed
by respondent.

This notwithstanding, we hold that the escalation clause is still void because it grants respondent
the power to impose an increased rate of interest without a written notice to petitioners and their
written consent. Respondent’s monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt should have been provided by
the respondent to enable petitioners to make an informed decision. An appropriate form must
also be signed by the petitioners to indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties’ essential equality.45

Modifications in the rate of interest for loans pursuant to an escalation clause must be the result
of an agreement between the parties. Unless such important change in the contract terms is
mutually agreed upon, it has no binding effect.46 In the absence of consent on the part of the
petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. Hence,
we consider as invalid the interest rates in excess of 15%, the rate charged for the first year.

SPOUSES EDUARDO AND LYDIA SILOS, PETITIONERS, VS. PHILIPPINE

NATIONAL BANK, RESPONDENT.
G.R. No. 181045, July 02, 2014

CREDIT TRANSACTION CASE > ESCALATION CLAUSE

DOCTRINE: In loan agreements, it cannot be denied that the rate of interest is a principal
condition, if not the most important component. Thus, any modification thereof must be mutually
agreed upon; otherwise, it has no binding effect.
Moreover, the Court cannot consider a stipulation granting a party the option to prepay the loan
if said party is not agreeable to the arbitrary interest rates imposed. Premium may not be placed
upon a stipulation in a contract which grants one party the right to choose whether to continue
with or withdraw from the agreement if it discovers that what the other party has been doing all
along is improper or illegal.

FACTS:

 Spouses Silos have been in business for about two decades of operating a department store
and buying and selling ready-to-wear apparel.
 Spouses Silos then secured a revolving credit line with Philippine National Bank (PNB)
through a real estate mortgage as a security. After two years, their credit line increased.
 They then signed a Credit Agreement, which was also amended 2 years later, and several
Promissory Notes (PN) as regards their Credit Agreements with PNB. The said loan was
initially subjected to a 19.5% interest rate per annum.
 In the Credit Agreements, Spouses Silos bound themselves to the power of PNB to modify
the interest rate depending on whatever policy that PNB may adopt in the future without
need of notice upon them. Thus, the said interest rates played from 16% to as high as 32%
per annum.
 Spouses Silos acceded to the policy by pre-signing a total of 26 PNs leaving the individual
applicable interest rates at hand blank since it would be subject to modification by PNB.
 Spouses Silos regularly renewed and made good on their PNs, religiously paid the interests
without objection or fail. However, during the 1997 Asian Financial Crisis, Spouses Silos
faltered when the interest rates soared. The 26th PN became past due and despite repeated
demands by PNB, they failed to make good on the note. Thus, PNB foreclosed and
auctioned the involved security for the mortgage.
 Spouses Silos instituted an action to annul the foreclosure sale on the ground that the
succeeding interest rates used in their loan agreements was left to the sole will of PNB, the
same fixed by the latter without their prior consent and thus, void.
 The RTC ruled that such stipulation authorizing both the increase and decrease of interest
rates as may be applicable is valid.
 The CA affirmed the RTC decision.

ISSUE:
Whether or not PNB, on its own, modify the interest rate in a loan agreement without
violating the mutuality of contracts.

HELD:
NO. PNB cannot modify the interest rate in a loan agreement on its own.

However, contrary to the stubborn insistence of petitioner bank, the said law and circular
did not authorize either party to unilaterally raise the interest rate without the other's
consent.

It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one
who contracts, his act has no more efficacy than if it had been done under duress or by a
person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially when it
affects an important aspect of the agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital component, for it can make or break a
capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of
any binding effect.

We cannot countenance petitioner bank's posturing that the escalation clause at bench gives
it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan.
 That would completely take away from private respondents the right to assent to an
important modification in their agreement, and would negate the element of mutuality in
contracts.

RATIO:
Article 1308 of the Civil Code:Art. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.
 SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners,
vs.
SPOUSES ROMEO ABELLA AND ANNIE ABELLA, Respondents.
 G.R. No. 195166
 Facts:
 On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a
Complaint for sum of money and damages with prayer for preliminary attachment against
respondents Spouses Romeo and Annie Abella before the Regional Trial Court, Branch 8,
Kalibo, Aklan. In their Complaint, petitioners alleged that respondents obtained a loan from
them in the amount of P500,000.00. The loan was evidenced by an acknowledgment receipt
dated March 22, 1999 and was payable within one (1) year. Petitioners added that
respondents were able to pay a total of P200,000.00— P100,000.00 paid on two separate
occasions—leaving an unpaid balance of P300,000.00. In their Answer (with counterclaim
and motion to dismiss), respondents alleged that the amount involved did not pertain to a
loan they obtained from petitioners but was part of the capital for a joint venture involving
the lending of money. In the Decision dated December 28, 2005, the Regional Trial Court
ruled in favor of petitioners. It noted that the terms of the acknowledgment receipt executed
by respondents clearly showed that: (a) respondents were indebted to the extent of
P500,000.00; (b) this indebtedness was to be paid within one (1) year; and (c) the
indebtedness was subject to interest. Thus, the trial court concluded that respondents
obtained a simple loan, although they later invested its proceeds in a lending
enterprise. The Regional Trial Court adjudged respondents solidarily liable to petitioners.
The Court of Appeals noted that while the acknowledgement receipt showed that interest
was to be charged, no particular interest rate was specified. Thus, at the time respondents
were making interest payments of 2.5% per month, these interest payments were invalid
for not being properly stipulated by the parties.
 Issue:
 Whether or not interest accrued on respondents’ loan from petitioners. If so, at what
rate?
 Held:
 Yes, interest accrued on respondents’ loan. Article 1956 of the Civil Code spells
out the basic rule that "no interest shall be due unless it has been expressly stipulated in
writing." The controversy, however, stems from the acknowledgment receipt’s failure to
state the exact rate of interest. Jurisprudence is clear about the applicable interest rate if a
written instrument fails to specify a rate. In Spouses Toring v. Spouses Olan, this court
clarified the effect of Article 1956 of the Civil Code and noted that the legal rate of interest
(then at 12%) is to apply: "In a loan or forbearance of money, according to the Civil Code,
the interest due should be that stipulated in writing, and in the absence thereof, the
rate shall be 12% per annum." The Monetary Board, in its Resolution No. 796 dated 16
 May 2013, approved the following revisions governing the rate of interest in the absence
of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of
1982. Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or forbearance of
any money, goods or credits and the rate allowed in judgments shall no longer be twelve
percent (12%) per but will now be six percent (6%) per annum effective July 1, 2013.

July 31, 2002 demand to june 30, 2013 – 12% //// july 1, 2013 - july 7, 2015 6%
Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is
unconscionable. As emphasized in Castro v. Tan,50 the willingness of the parties to enter into a
relation involving an unconscionable interest rate is inconsequential to the validity of the
stipulated rate:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law,
in principles of justice, or in the human conscience nor is there any reason whatsoever which may
justify such imposition as righteous and as one that may be sustained within the sphere of public
or private morals.51
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals,
and the law."52redarclaw

In determining whether the rate of interest is unconscionable, the mechanical application of pre-
established floors would be wanting. The lowest rates that have previously been considered
unconscionable need not be an impenetrable minimum. What is more crucial is a consideration
of the parties' contexts. Moreover, interest rates must be appreciated in light of the fundamental
nature of interest as compensation to the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes at the time it was lent. It is not the default
vehicle for predatory gain. As such, interest need only be reasonable. It ought not be a supine
mechanism for the creditor's unjust enrichment at the expense of another.

Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest.
Compounded at this rate, respondents' obligation would have more than doubled—increased to
219.7% of the principal—by the end of the third year after which the loan was contracted if the
entire principal remained unpaid. By the end of the ninth year, it would have multiplied more
than tenfold (or increased to 1,060.45%). In 2015, this would have multiplied by more than 66
times (or increased to 6,654.17%). Thus, from an initial loan of only P500,000.00, respondents
would be obliged to pay more than P33 million. This is grossly unfair, especially since up to the
fourth year from when the loan was obtained, respondents had been assiduously delivering
payment. This reduces their best efforts to satisfy their obligation into a protracted servicing of a
rapacious loan.

The legal rate of interest is the presumptive reasonable compensation for borrowed money.
While parties are free to deviate from this, any deviation must be reasonable and fair. Any
deviation that is far-removed is suspect. Thus, in cases where stipulated interest is more than
twice the prevailing legal rate of interest, it is for the creditor to prove that this rate is required by
prevailing market conditions. Here, petitioners have articulated no such justification.

In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
application of any interest rate other than that specifically provided for by the parties in their loan
document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific
stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is
unconscionable. The conventional interest due on the principal amount loaned by respondents
from petitioners is held to be 12% per annum.
Ligutan vs. CA 376 SCRA 560
Tolomeo Ligutan and Leonidas dela Llana

vs.

Hon. Court of Appeals and Security Bank and Trust Company

Vitug, J. :

Facts:

On November 3, 1982 the Security Bank and Trust Company filed a complaint in Regional Trial
Court of Makati against Tolomeo Ligutan and Leonidas dela Llana for obtaining a loan in the
amount of P120,000.00 which they executed a promissory note binding themselves, jointly and
severally to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to
pay a penalty of 5% every month on the outstanding principal and interest in case of default but
the petitioners defaulted on their obligation. Two years later petitioners filed a motion for
reconsideration but the court denied the motion. Then the petitioners interposed an appeal with
the Court of Appeals, questioning the rejection by the trial court of their motion to present
evidence and assailing the imposition of the 2% service charge, the 5% per month penalty charge
and 10% attorney’s fees. In its decision on March 7, 1996, the appellate court affirmed the
judgment of 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

1111Despite several demands from the bank, petitioners failed to settle the debt which, as of 20
May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter
to petitioners informing them that they had five days within which to make full payment. Since
petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the
Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

After petitioners had filed a joint answer to the complaint, the bank presented its evidence and,
on 27 March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the
hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and
their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court
resolved, to consider the case submitted for decision.

Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the
order of the trial court declaring them as having waived their right to present evidence and
prayed that they be allowed to prove their case. The court a quo denied the motion in an order,
dated 5 September 1988, and on 20 October 1989, it rendered its decision,1 the dispositive
portion of which read:111

Eastern shipping lines check notes

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment th
NACAR V GF
NACAR VS GALLERY FRAMES

FACTS

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On October
15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the
Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January
24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because Nacar did not
appeal hence as to him, that decision became final and executory.

ISSUE:

Whether or not the Labor Arbiter is correct.

RULING

No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases
where the dismissed employee wins, or loses but wins on appeal). The first part is the ruling that
the employee was illegally dismissed. This is immediately final even if the employer appeals –
but will be reversed if employer wins on appeal. The second part is the ruling on the award of
 backwages and/or separation pay. For backwages, it will be computed from the date of illegal
dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals, then the
end date shall be extended until the day when the appellate court’s decision shall become final.
Hence, as a consequence, the liability of the employer, if he loses on appeal, will increase – this
is just but a risk that the employer cannot avoid when it continued to seek recourses against the
Labor Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.

Anent the issue of award of interest in the form of actual or compensatory damages, the Supreme
Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by the
promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which
lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as
follows:

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, accordingly, issued Circular No.
799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be 12% per annum but will now be
6% per annum effective July 1, 2013.
It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the 12% per annum legal interest shall apply only until June 30, 2013.
Come July 1, 2013 the new rate of 6% per annum shall be the prevailing rate of interest when
applicable.

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil 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:

New guidelines in the award of interest:

1.) When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
 In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2.) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on 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 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

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.
Estores check doc