Philippine National Bank vs.

Bacani
G.R. No. 194983 June 20, 2018

Facts:
Respondent Rodolfo Bacani was the registered owner of a parcel of land located in Centro
East, Santiago, Isabela, with an area of 618 square meters covered by Transfer Certificate of Title
No. 114296. The other respondents in this case occupy the subject property.
A loan amounting to Php 80,000.00 was obtained by the Spouses Bacani from PNB. The
subject property was used as security thereof. When the spouses Bacani failed to pay their debt, the
PNB extrajudicially foreclosed the property. It was later on awarded to the highest bidder who had
a bid amount of Php 148,960.74. The spouses failed to redeem their property. As a result, Rodolfo's
title was cancelled, and in its place, TCT No. T-185028 was issued in the name of PNB.
Sometime in 1989, PNB issued SEL Circular No. 8-7/89, revising its policy on the disposition
of acquired assets. Subject to certain conditions, former owners or their heirs, as the case may be,
were given priority in the re-acquire their foreclosed assets '"on negotiated basis without public
bidding." Spouses Bacani negotiated with PNB to reacquire their property. They manifested their
intention to buy the property in writing. Initially, the spouses offered Php 150,000.00 to purchase
the property but they later on increased the offer to Php 220,000.00. Mr. Santos, the Branch
Manager of PNB Cauayan Branch, advised them to increase their offer because their current offer is
low. Spouses Bacani accordingly offered to repurchase the subject property for Php 200,000.00 in
cash and Php 100,000.00 payable in instalments for two years, or an aggregate amount of Php
300,000.00. However, the PNB refused to accept their offer because their offer was low and instead,
the subject property would be sold in a public auction. The spouses, then, increased their offer to
Php 350,000.00 but the PNB set the floor bid price to Php 4,000,000.00.
Finally, the property was sold to Renato de Leon for Php1,500,000.00. And a transfer
certificate of title was then issued under his name. Renato later on filed an ejectment case against
the respondents, which was granted by the Municipal Trial Court of Santiago City. The respondents
were ordered to vacate the subject property, and their houses were demolished.
The respondents filed a complaint for the annulment of the sale and Renato's title over the
subject property, together with a prayer for the payment of damages with the Regional Trial Court
of Santiago City. The trial court ruled in favour of the respondents and it found that the PNB acted
in bad faith by failing to give preference to the Spouses Bacani's offer to purchase the subject
property. The Court of Appeals affirmed the decision of the trial court. The CA also noted that the
Spouses Bacani's time deposit in the amount of USD 12,585.27 on October 2, 1992, which was
renewed and increased to USD 13,707.22 as of October 23, 2000, was a clear manifestation of the
Spouses Bacani's financial capability and earnest desire to repurchase the subject property. The CA
also applied the doctrine on constructive trust as regards Renato's acquisition of title over the
subject property, in order to justify its reconveyance to the Spouses Bacani.
Issue:
Whether PNB rightfully acquired the property through the foreclosure sale?

Ruling:
Yes. The Court held that in extrajudicial foreclosures of real estate mortgage, the debtor, his
or her successors-in-interest, or any judicial creditor or judgment creditor of said debtor, is granted
a period of one year within which to redeem the property. The redemption period is reckoned from
the registration of the certificate of sale with the Register of Deeds. When the debtor, or the
successors-in-interest as the case may be, fails to redeem the property within the prescribed
statutory period, the consolidation of ownership in favor of the purchaser becomes a matter of
right. At that point, the purchaser becomes the absolute owner of the property, and may, as a
necessary consequence, exercise all the essential attributes of ownership.
The Court also explained that the Spouses Bacani cannot insist on repurchasing the subject
property without complying with the requirements in the bank circular that the Spouses Bacani
themselves repeatedly invoked. PNB was not obliged to accept the proposal of the Spouses Bacani
simply by virtue of their status as former owners, especially since they failed to observe the
requirements under the bank circular. PNB was, therefore, justified in declining these offers to
repurchase.
Furthermore, considering that the reacquisition of the subject property involves a contract,
there should be a meeting of the minds as to its terms and conditions. When the offer is not
accepted by either party, the contract is not perfected and there is no binding juridical relation
between the parties. The Spouses Bacani, therefore, cannot demand to repurchase the property, in
the absence of PNBs consent to the offer. At most, the PNB circular grants a privilege to the Spouses
Bacani as the former owners, to be given priority in the disposition of the subject property. It does
not confer an enforceable and absolute right to reacquire the property, to the prejudice of PNB as
the absolute owner.
The Court also explained that bank deposits are in the nature of a simple loan or  mutuum,
which must be paid upon demand by the depositor. As such, the deposit of whatever amount to PNB
creates a debtor-creditor relationship between the bank and the depositor. PNB, as the recipient of
the deposit, is duty-bound to pay or release the amount deposited whenever the depositor so
requires.
Finally, the Court held that, by the very nature of the deposit, PNB could not have assumed
that the Spouses Bacani's alleged time deposit account was meant as an option money intended to
secure the privilege of buying the subject property within a given period of time, especially since
there was no option contract between them. Neither may PNB consider the deposit as a down
payment on the price of the subject property because there was no perfected contract of sale.
 Tolentino vs. Gonzales
50 Phil. 558

Facts:
Tolentino and Manio purchased a land from Luzon Rice Mills, Inc. for Php25,000.00 payable
in three instalments. The first instalment of Php2,000.00 was due on or before May 2, 1921; the
second instalment of Php8,000 was due on or before May 31, 1921; the balance of Php15,000 at 12
per cent interest was due and payable on or about the November 30, 1922. The contract of
purchase provided that the failure of the purchasers to pay the balance of said purchase price or
any of the instalments on the date agreed upon, the property bought would revert to the original
owner.
The first and second instalments were paid upon the due dates. Before the balance had
become due and demandable, the representative of the vendor notified the purchasers that if they
fail to pay their indebtedness, they will file an action to recover the subject property with damages.
In order to comply with their obligation, they obtained a loan of Php17,500.00 from Gonzales with a
condition that they will execute and deliver to him a pacto de retro of said property. The plaintiffs
executed and delivered the contract to Gonzales on November 28, 1922. Their balance to Luzon
Rice Mills, Inc. was also paid on December 1, 1922. The vendor of said property had issued to the
purchasers transfer certificate of title to said property upon the payment of the balance of
Php15,000.00 with interest.
The plaintiffs failed to pay their obligation to Gonzales prompting the latter to file an action
to recover the land. However, the plaintiffs argued that he pacto de retro sale was a mortgage and
not a sale with the right to repurchase. The trial court ruled in favor of Gonzales.

Issues:
I.
Whether the contract between the plaintiffs and Gonzales constitutes a pacto de retro or a
mortgage.
II.
Whether a tenant may charge his landlord with a violation of the Usury Law upon the
ground that the rent he pays, based on the real value of the property, amounts to a usurious rate of
interest.

Rulings:
I.
The contract between the plaintiffs and Gonzales is a pacto de retro and not a mortgage.
 The purpose of the contract is expressed clearly therein that there can certainly be no doubt
as to the purpose of the plaintiff to sell the property in question, reserving the right only to
repurchase the same. The intention to sell with the right to repurchase cannot be more clearly
expressed. Furthermore, the Court explained that the contract of pacto de retro is an absolute sale
of the property with the right to repurchase and not a mortgage, and that, by virtue of said contract,
the vendor became the tenant of the purchaser under the condition stipulated in their contract. It
shall be noted that the plaintiffs agreed that the contract in question is a pacto de retro.
II.
No, the tenant cannot charge his landlord with a violation of the Usury Law. In the case at
bar, the vendor became the tenant of the property by virtue of the pacto de retro.
The Court pointed out that 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 the contract of loan, on the other
hand, the thing loaned becomes the property of the obligor. In the contract of rent, the thing still
remains to the lessor.
In relation to the foregoing discussion, the term “rent” is defined as a compensation either
money, provisions, chattels, or labor, delivered by the owner of the soil from the occupant thereof;
whereas a contract of loan, it signifies the delivery of money or other consumable things upon
condition of returning the equivalent amount of the same kind or quantity. The contract of rent is
called a commodatum in civil law.
Therefore, Court ruled that, since the Usury Law refers only to the contracts of loan, it is not
applicable to the case.

Republic vs. Grijaldo

15 SCRA 681

Facts:
Appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan,
Ltd. in Bacolod City, in the total sum of Php1,281.97 with interest rate of 6% per annum,
compounded quarterly. These loans are evidenced by five promissory notes executed by the
appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, Php600.00; on June 3,
1943, Php159.11; on June 18, 1943, Php22.86; on August 9, 1943, Php300.00; on August 13, 1943,
Php200.00, all notes without due dates, but because the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
The assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of
the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets,
including the loans in question, were subsequently transferred to the Republic of the Philippines by
the Government of the United States under Transfer Agreement dated July 20, 1954. The Republic
of the Philippines, represented by the Chairman of the Board of Liquidators, made a written
extrajudicial demand upon the appellant for the payment of the account in question. The record
shows that the appellant had actually received the written demand for payment, but he failed to
pay.
The appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question but the action was
dismissed on the ground that the action has already prescribed. An appeal was then filed to the
Court of First Instance of Negros Occidental which rendered a decision ordering the appellant to
pay the appellee the sum of Php2,377.23 plus interest of 6% per annum compounded quarterly
from the date of the filing of the complaint until full payment was made. The appellant was also
ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs. The
appellant appealed directly to the Supreme Court but appellant Grijaldo died during the pendency
of the appeal.

Issue:
Whether the obligation of Grijaldo was distinguished.

Ruling:
No. The Court ruled that the obligation of the appellant under the five promissory notes was
not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of
the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing,
the amount of money representing the total sum of the five loans, with interest. The transaction
between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of
sums of money. Article 1933 of the Civil Code provides that, by a contract of simple loan, one of the
parties delivers to another, money or other consumable thing upon the condition that the same
amount of the same kind and quality shall be paid. The obligation of the appellant under the five
promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a
sum of money, a clear case of an obligation to deliver, a generic thing.
Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security
for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the
crops did not extinguish his obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.
 PNB vs. CA
196 SCRA 536

Facts:
Private respondent Ambrosio Padilla applied for a credit line of Php1.8 million from PNB
secured by a real estate mortgage for a term of two years with 18% interest per year. The former
executed a Credit Agreement, two promissory notes in the amount of Php900,000.00 each and a
real estate motgage in favor of the latter. In the said Credit Agreement, Padilla agreed to be bound
by the rules and regulations of the Central Bank including those it may adopt in the future. The real
estate mortgage contract also provided that the rate of interest charged on the obligation secured
by the mortgage as well as the interest on the amount which may have been advanced by the
mortgagee shall be subject during the life of the contract.
The PNB informed Padilla that his credit line will expire soon and that if he wish to renew
the line for another year, he is directed to submit his request. Padilla was also informed that the
present policy of the bank requires at least 30% reduction of principal before the line can be
renewed. In compliance therewith, Padilla paid PNB the amount of Php540,000.00, the equivalent
of 30% of his total indebtedness. Afterwards, he requested for the renewal of his credit line for
another two years under the same arrangement and for the increase of interest of his mortgage
loan from 18% to 21%.
As years passed, PNB had increased the interest rate from 18%to 32% and eventually
reached 48% prompting Padilla to file an action against the PNB. However, the trial court ruled that
the increase of the interest was properly made. The said ruling was subsequently reversed by the
Court of Appeals.

Issue:
Whether the bank, within the term of the loan which it granted to the private respondent,
may unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased.

Ruling:
No. P.D. no. 116 expressly provides that the changes or increase of the interest rate should
not be made oftener than once every 12 months.
The Court also held that PNB’s successive increases of the interest rate on Padilla’s loan
were arbitrary as they violated an express provision of the Credit Agreement. The increases
imposed by PNB also contravene Article 1956 of the Civil Code which provides that “no interest
shall be due unless it has been expressly stipulated in writing.” Clearly, the debtor never agreed in
writing to pay the interest increases fixed by PNB beyond 24% per annum, hence, he is not bound
to pay a higher rate than that.

Medel vs. CA
299 SCRA 481

Facts:
Servando Franco and Leticia Medel obtained four loans from Veronica R. Gonzales, who was
engaged in the money lending business under the name "Gonzales Credit Enterprises.” In the first
loan, Servando and Leticia borrowed Php50,000.00 but Veronica retained Php3,000.00, as advance
interest for one month at 6% per month. the second loan was Php90,000.00, payable in two
months, at 6% interest per month. They received only Php84,000.00, out of the proceeds of the
loan. The third loan was in the amount of Php300,000.00 which was secured by a real estate
mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia
executed a promissory note in favor of Veronica to pay the sum of Php300,000.00. However, only
the sum of Php275,000.00, was given to them out of the proceeds of the loan. Lastly, Servando and
Leticia obtained another loan for the amount of Php60,000.00, bringing their indebtedness to a
total of Php500,000.00. They executed a promissory note to evidence the loan.
On the maturity of all the loans, Servando and Leticia failed to pay their indebtedness,
prompting Veronica R. Gonzales and her husband Danilo G. Gonzales, to file with the Regional Trial
Court of Bulacan a complaint for collection of the full amount of the loan including interests and
other charges. After due trial, the lower court declared that the due execution and genuineness of
the four promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to
the conscience". Hence, the trial court applied "the provision of the New Civil Code" that the "legal
rate of interest for loan or forbearance of money, goods or credit is 12% per annum." Said decision
was later on modified by the Court of Appeals which ordered the defendants to pay the plaintiffs
the sum of Php500,000.00 plus 5.5% monthly interest.

Issue:
Whether the 5.5% interest rate per month on the loan is usurious.

Ruling:
No. The Court agreed with petitioners that the stipulated rate of interest at 5.5% per month
on the Php500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, the
Court cannot consider the rate "usurious" because this Court has consistently held that Circular No.
905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest
ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent."
 Nevertheless, the Court find the interest at 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to
morals ("contra bonos mores"), if not against the law. The stipulation is void. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous
or unconscionable.

Cuaton vs. Salud

Jan. 27, 2004

Facts:
Respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for
foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his
mother, Conchita Cuaton, with the Regional Trial Court of General Santos City. The trial court
declared the mortgage as void, because it was executed by Mansueto Cuaton in favor of Rebecca
Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in
whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter
alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total
Php610,000.00 representing interests of 10% and 8% per month for the period February 1992 to
August 1992. The said decision was affirmed by the Court of Appeals.

Issue:
Whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan
obligation of petitioner to respondent Rebecca Salud are valid.

Ruling:
No. In the present case, the 10% and 8% interest rates per month on the one-million-peso
loan of petitioner are even higher than those previously invalidated by the Court in some cases.
Accordingly, the reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals
(‘contra bonos mores’), if not against the law. Under Article 1409 of the Civil Code, these contracts
are inexistent and void from the beginning. They cannot be ratified nor the right to set up their
illegality as a defense be waived.

Tan vs. CA
Oct. 19, 2001
Facts:
 Petitioner Antonio Tan obtained two loans each in the principal amount of Php2,000,000.00
or in the total principal amount of Php4,000,000.00 from respondent Cultural Center of the
Philippines evidenced by two promissory notes with maturity dates on May 14, 1979 and July 6,
1979, respectively. Petitioner defaulted but after a few partial payments he had the loans
restructured by respondent CCP, and petitioner accordingly executed a promissory note in the
amount of Php3,411,421.32 payable in five installments. Petitioner Tan failed to pay any
installment on the said restructured loan.
Petitioner requested and proposed to respondent CCP the following mode of paying the
restructured loan; (a) 20% of the principal amount of the loan upon the respondent giving its
conformity to his proposal; and (b) the balance on the principal obligation payable in 36 equal
monthly installments until fully paid. On October 20, 1983, petitioner again sent a letter to
respondent CCP requesting for a moratorium on his loan obligation until the following year
allegedly due to a substantial deduction in the volume of his business and on account of the peso
devaluation. No favorable response was made to said letters. Instead, respondent CCP, through
counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full payment, within ten
days from receipt of said letter, of the petitioner’s restructured loan which as of April 30, 1984
amounted to Php6,088,735.03.
Respondent CCP filed in the RTC of Manila a complaint for collection of a sum of money
against the petitioner after the latter failed to settle his said restructured loan obligation. While the
case was pending in the trial court, the petitioner filed a Manifestation wherein he proposed to
settle his indebtedness to respondent CCP by proposing to make a down payment of Php140,000.00
and to issue twelve checks every beginning of the year to cover installment payments for one year,
and every year thereafter until the balance is fully paid. However, respondent CCP did not agree to
the petitioner’s proposals and so the trial of the case ensued.
The trial court ordered the defendant to pay plaintiff, the amount of Php7,996,314.67,
representing defendant’s outstanding account as of August 28, 1986, with the corresponding
stipulated interest and charges thereof, until fully paid, plus attorney’s fees in an amount equivalent
to 25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs. This
decision was affirmed by the Court of Appeals.

Issue:
Whether there are contractual and legal bases for the imposition of the penalty, interest on
the penalty and attorney’s fees.

Ruling:
Yes. Article 1226 of the New Civil Code provides that:
In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.
 The Court explained that penalty clauses can be in the form of penalty or compensatory
interest. Thus, the compounding of the penalty or compensatory interest is sanctioned by and
allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering
that there is an express stipulation in the promissory note permitting the compounding of interest.
The fifth paragraph of the said promissory note provides that: "Any interest which may be due if
not paid shall be added to the total amount when due and shall become part thereof, the whole
amount to bear interest at the maximum rate allowed by law." Therefore, any penalty interest not
paid, when due, shall earn the legal interest of 12% per annum, in the absence of express
stipulation on the specific rate of interest, as in the case at bar.
In the case at bar, the promissory note expressly provides for the imposition of both
interest and penalties in case of default on the part of the petitioner in the payment of the subject
restructured loan.
Furthermore, Article 2212 of the New Civil Code provides that "Interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent upon this
point." In the instant case, interest likewise began to run on the penalty interest upon the filing of
the complaint in court by respondent CCP on August 29, 1984. Hence, the courts a quo did not err in
ruling that the petitioner is bound to pay the interest on the total amount of the principal, the
monetary interest and the penalty interest.