Medel vs.

CA [299 SCRA 481 (Nov 27 1998)]

Usury LawFacts: Medel obtained several loans from Gonzales totalling P500,000.These were
evidenced by several promissory notes agreeing to an interestrate of 5.5% per month with additional
service charge of 2% per annum,and penalty charge of 1% per month.. On maturity, Medel failed to
paytheir indebtedness. Hence, Gonzales filed with the RTC of Bulacan acomplaint for collection of
the full amount of the loan.RTC declared that the promissory notes were genuine, however, it ruledthat
although the Usury Law had been repealed, the interest charged byGonzales on the loans
was unconscionable. Hence, RTC applied the legalrate of interest for loan of money, goods or credit
of 12% per annum.CA reversed the ruling of the RTC holding that the Usury Law had becomelegally
inexistent. Hence, this petition for review on certiorari.
Issue: Whether or not the interest rate stipulated upon was valid.
Held: NO. SC held that the stipulated rate of interest at 5.5% per monthon the P500,000 loan
was excessive. However, it could not consider the rate usurious because CB Circular No. 905 has
expressly removed the interest ceilings prescribed by the Usury Law and that said law is nowlegally
inexistent.CB Circular 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latters effectivity. A CB Circular cannot repeal alaw. Only a law can repeal
another law. By virtue of this circular, the UsuryLaw has been rendered ineffective. Interest can
no be charged as lender and borrower may agree upon.Nevertheless, SC held that the interest of
5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note
wasunconscionable, and hence, contrary to morals, if not against the law. Thestipulation is void. The
courts shall reduce equitably liquidated damages,whether intended as an indemnity or a penalty if
they are iniquitous or unconscionable.SC ordered that the interest of 12% per annum and
additional 1% a monthpenalty charge as liquidated damages reasonable.

MEDEL V. CA, 299 SCRA 481Exorbitant, Iniquitous, and

Unconscionable Interest
FACTS:

Four loans were involved in this case. The first loan was secured by the spouses Medel from
Gonzales in the amount of P50,000 wherein P3,000 was withheld by the latter as advance interest.
This was secured by a promissory note. The second loan obtained was for P90,000. The spouses
only received P84,000. The third loan was for P300,000 and this was secured by a real estate

mortgage. The spouses failed to pay for the aforementioned three loans. This was consolidated into
one loan in the amount of P500,000. An additional P60,000 was loaned to make the payable
P500,000. This was covered with
a promissory note containing an acceleration clause. Again the spouses failed to pay. The appellate
court modified the interest to be paid by saying that that the interest should be 5.5% per month.

HELD:
The interest was exorbitant, iniquitous, and unconscionable and hence, it contrary to morals, if not
the law.

Almeda vs CA 256 SCRA 292 (1996)

FACTS

1. in 1981, Philippine National Bank granted to petitioners, spouses

Ponciano Almeda and Eufemia Almeda, several loan/credit accommodations
totaling P18 Million payable in 6 years at an interest rate of 21% per annum
2. to secure the loan, spouses executed a Real Estate Mortgage Contract
covering a 3.5 K sq.m. parcel of land and the building erected thereon (the
Marvin Plaza) located at Pasong Tamo, Makati
3. a credit agreement with the ff pertinent terms and conditions: interest
of 21% per annum, payable semi- annually in arrears, the first interest
payment to become due and payable 6 months from date of initial release of
loan the Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may adopt
in the future...the adjustment in the interest rate agreed upon shall take
effect on the effectivity date of the increase/decrease of the maximum
interest rate.
4. between 1981 and 1984 petitioners made several partial payments on
the loan totaling 7,735,004.66, a substantial portion of which was applied to
accrued interest
5. March 31, 1984 the bank, over petitioners protests, raised the interest
rate to 28% pursuant to their credit agreement; interest rate increased to a
high of 68% between March 1984 to Sept 1986 before the loan was to
mature in March 1988, the spouses filed a petition for declaratory relied with
prayer for a writ of preliminary injunction and TROspouses sought
clarification as to WON the PNB could unilaterally raise interest rates on the
loan, pursuant to the credit agreements escalation clause
6. lower court issued TRO; by this time the spouses were already in default of
their loan obligations---> invoking the law on Mandatory Foreclosure (Act
3135 and PD 385), PNB countered by ordering the extrajudicial foreclosure of

petitioners mortgaged properties----> lower court, however, issued a

supplemental writ of preliminary injunction
7. PNB posted a counterbond and the trial court dissolved the supplemental
writ; PNB once more set a new date for the foreclosure of Marvin Plaza
8. spouses tendered to PNB the amount of 40,142,518 pesos (interest
calculated at 21%); PNB refused to accept---> spouses formally consigned
the amount with the RTC which granted the writ of preliminary injunction
enjoining the foreclosure of Marvin Plaza
9. Judge Capulong refused to lift WPI
10. PNB filed petition for Certiorari, Prohibition and Mandamus with CA
11. On August 1993 CA rendered its decision setting aside the assailed
orders and upholding respondents right to foreclose the mortgaged
property pursuant to Act 12. 3135 and PD 385.
ISSUES
1. WON PNB was authorized to raise its interest rates from 21% to as high as
68% under the credit agreement
2. WON PNB is granted the authority to foreclose the Marvin Plaza under the
mandatory foreclosure provisions of PD385
HELD
1. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.
2. In facilitating collection of debts through the automatic foreclosure
provisions of PD 385, the government is, however, not exempted from
observing basic principles of law, and ordinary fairness and decency under
the due process clause of the Constitution.
Reasoning
1. the binding effect of any agreement between parties to a contract is
premised on two settled principles: that any obligation arising from contract
has the force of law between the parties; and that there must be mutuality
between the parties based on their essential equality - PNB unilaterally
altered the terms of its contract with petitioners by increasing the interest
rates on the loan without prior assent of the latter - the manner of
agreement is itself explicitly stipulated by the Civil Code in Art.1956 no
interest shall be due unless it has been expressly stipulated in writing--what has been stipulated in writing is that petitioners were bound merely to
pay 21% interest, subject to possible escalation or de-escalation when the
circumstances warrant it, it is within the limits allowed by law, and upon
agreement - in PNB v. CA, PNB was disauthorized from unilaterally raising the
interest rate partly because the increase violated the principle of mutuality
of contracts expressed in Art.1308 of the CC the contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one

of them - increases were arbitrary - escalation clauses in credit

agreements are perfectly valid and do not contravene public policy. However,
they are still subject to laws and provisions governing agreements between
parties, which agreements implicitly incorporate provisions of existing law the credit agreement requires that the increase be within the limits allowed
by lawrefers to legislative enactments not admin circulars (PNB relied on
CB Circular No. 905) as shown in the credit agreement where there is a
distinction made between law or the Monetary Board Circulars -Banco
Filipino Savings and Mortgage Bank v. Navarro: distinction between a law and
an admin regulation is recognized in the Monetary Board guidelines;
guidelines thus presuppose that a Central Bank regulation is not within the
term any law - petitioners never agreed in writing to pay the
increased interest rates demanded by PNB
2. PD 385 was issued principally to guarantee that government financial
institutions would not be denied substantial cash inflows necessary to
finance the governments development projects by large borrowers who
resort to litigation to prevent or delay the governments collection of their
debts or loans - the dispute regarding the interest rate increases was never
settled so the exact amount of petitioners obligations could not be
determined - the foreclosure provisions could be validly invoked by PNB only
after settlement of the question involving the interest rate on the loan, and
only after the spouses refused to meet their obligations following such
determination - PNB cannot claim that there was no honest-to-goodness
attempt on the part of the spouses to settle their obligations Disposition The
unilateral and progressive increases imposed by PNB were null and void. The
decision and resolution of the CA is REVERSED AND SET ASIDE. The case is
remanded to RTC for further proceedings.

Eastern Shipping Lines, Inc. v. CA and The First

Nationwide Assurance Corp.
G.R. No. 97412 July 12, 1994
Vitug, J.
FACTS:
13 coils of uncoated 7-wire stress relieved wire strand for prestressed concrete wereshipped on board a vessel owned and operated by
Eastern Shipping Lines at Kobe, Japan,for delivery to Stresstek PostTensioning Phils., Inc. in Manila
while en route from Kobe to Manila, the carrying vessel encountered very
rough seas andstormy weather; the coils wrapped in burlap cloth and
cardboard paper were stored in thelower hold of the hatch of the vessel
which was flooded with water; the water entered thehatch when the vessel
encountered heavy weather en route to Manila; upon request,
asurvey of bad order cargo was conducted at the pier in the presence of

the representativesof the consignee and E. Razon, Inc. and it was

found that 7 coils were rusty on one side each; upon survey conducted
at the consignees warehouse it was found
thatthewettingo f t h e c a r g o w a s c a u s e d b y f r e s h w a t e r t h a t e
n t e r e d t h e h a t c h w h e n t h e v e s s e l encountered heavy weather; all
13 coils were extremely rusty and totally unsuitable forthe intended purpose
T h e Fi r s t N a t i o n w i d e A s s u r a n c e C o r p . i n d e m n i fi e d t h e c o n s i g n
e e i n t h e a m o u n t o f P171,923.00 for damage and loss to the insured
cargo
ISSUE:
WON Eastern Shipping Lines is liable
HELD:
Yes.
under Art. 1733, common carriers are bound to observe extraordinary vigilance overgoods according to all circumstances of each case
Art. 1735: In all cases other than those mentioned in Art. 1734, if
the goods are lost,destroyed or deteriorated, common carriers are
presumed to have been at fault or to haveacted negligently, unless they
prove that they observed extraordinary diligence
Since the carrier has failed to establish any caso fortuito, the presumption by
law of faultor negligence on the part of the carrier applies; and the carrier
must present evidence thatit has observed the extraordinary diligence
required by Article 1733 of the Civil Code inorder to escape liability
for damage or destruction to the goods that it had admittedlycarried
in this case. But no evidence was presented; hence, the carrier
cannot escapeliability.
Eastern Shipping Lines, Inc. v CA (Credit Transactions)
G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.

VITUG, J.:

FACTS:

This is an action against defendants shipping company, arrastre operator and brokerforwarder 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. 17361738, 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.