CAROLYN M. GARCIA vs. RICA MARIE S.

THIO
FACTS:
Two crossed check payable to certain Mariou Santiago were given to the respondent
by the petitioner the first check covers one-hundred thousand US dollar and the
second check covers five-hundred thousand pesos.
Petitioner alleged that on February 24, 1995, respondent borrowed from her the
amount of US$100,000 with interest thereon at the rate of 3% per month, which
loan would mature on October 26, 1995. The amount of this loan was covered by
the first check. On June 29, 1995, respondent again borrowed the amount of
P500,000 at an agreed monthly interest of 4%, the maturity date of which was on
November 5, 1995. The amount of this loan was covered by the second check. For
both loans, no promissory note was executed since petitioner and respondent were
close friends at the time. Respondent paid the stipulated monthly interest for both
loans but on their maturity dates, she failed to pay the principal amounts despite
repeated demands.
Respondent denied that she contracted the two loans with petitioner and countered
that it was Marilou Santiago to whom petitioner lent the money. She claimed she
was merely asked by petitioner to give the crossed checks to Santiago. She issued
the checks not as payment of interest but to accommodate petitioners request that
respondent use her own checks instead of Santiagos.
The lower court decided in favor of the petitioner stating that there is a contract of
load between the two but the appellate court reversed the decision finding that
there is nothing in the record that shows that respondent received money from
petitioner.
ISSUE: Whether or not there is a contract of loan between the petitioner and the
respondent.
HELD:
Yes, there is a contract of loan between the petitioner and the respondent. A loan is
a real contract, not consensual, and as such is perfected only upon the delivery of
the object of the contract. This is evident in Art. 1934 of the Civil Code which
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 itself
shall not be perfected until the delivery of the object of the contract.
Upon delivery of the object of the contract of loan (in this case the money received
by the debtor when the checks were encashed) the debtor acquires ownership of
such money or loan proceeds and is bound to pay the creditor an equal amount.

In the case at bar, it is undisputed that the checks were delivered to respondent.
The decision of the Court of Appeals was reversed and set-aside.
NOTE: The held is supposedly short, but for further clarification, I included the
reasons why did the Court believe that there is contract between the respondent
and petitioner.
This is supported by the following reasons:
1. First, respondent admitted that petitioner did not personally know Santiago. It
was highly improbable that petitioner would grant two loans to a complete
stranger without requiring as much as promissory notes or any written
acknowledgment of the debt considering that the amounts involved were
quite big. Respondent, on the other hand, already had transactions with
Santiago at that time.
2. Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose
name appeared in both parties list of witnesses) testified that respondents
plan was for petitioner to lend her money at a monthly interest rate of 3%,
after which respondent would lend the same amount to Santiago at a higher
rate of 5% and realize a profit of 2%.33 This explained why respondent
instructed petitioner to make the checks payable to Santiago. Respondent
has not shown any reason why Ruiz testimony should not be believed.
3. Third, for the US$100,000 loan, respondent admitted issuing her own checks
in the amount of P76,000 each (peso equivalent of US$3,000) for eight
months to cover the monthly interest. For the P500,000 loan, she also issued
her own checks in the amount of P20,000 each for four months.34 According
to respondent, she merely accommodated petitioners request for her to
issue her own checks to cover the interest payments since petitioner was not
personally acquainted with Santiago.35 She claimed, however, that Santiago
would replace the checks with cash.36 Her explanation is simply incredible. It
is difficult to believe that respondent would put herself in a position where
she would be compelled to pay interest, from her own funds, for loans she
allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided
by the rule that for evidence to be believed, it must not only proceed
from the mouth of a credible witness, but must be credible in itself
such as the common experience of mankind can approve as probable
under the circumstances. We have no test of the truth of human
testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous,
and is outside of juridical cognizance.
4. Fourth, in the petition for insolvency sworn to and filed by Santiago, it was
respondent, not petitioner, who was listed as one of her (Santiagos)
creditors.

5. Last, respondent inexplicably never presented Santiago as a witness to

corroborate her story. The presumption is that "evidence willfully suppressed
would be adverse if produced." Respondent was not able to overturn this
presumption.

ALBOS vs. EMBISAN

FACTS:
On October 17, 1984, petitioners entered into an agreement, denominated as "Loan
with Real Estate Mortgage," with respondent spouses Nestor and Iluminada Embisan
(spouses Embisan) in the amount of P84,000.00 payable within 90 days with a
monthly interest rate of 5%. To secure the indebtedness, petitioners mortgaged to
the spouses Embisan a parcel of land in Project 3, Quezon City, measuring around
207.6 square meters and registered under their name, as evidenced by Transfer
Certificate Title No. 257697. Payments are made but there are times that the
petitioners fails to pay which led to the the request of extension of the loan
obligation which are also granted. Along with the grant of extensions, a stipulation
was made which would make the 5% interest compounded. Unfortunately, such
change in the contract was not deduced to writing. The subject parcel land was
extra-judicially foreclose and was auctioned. The herein respondents became the
highest bidder. The petitioners are forced to sign an agreement that would make
them lease to the parcel of land which was now owned by the respondents. The
petitioners filed a suit to declare the extra-judicial foreclosure void on the ground
that they already paid the principal amount. The lower court dismissed the case as
well as the Court of Appeals. Thus, this petition.
ISSUE: Whether or not the stipulation compounding the interest charged should
specifically be indicated in a written agreement.
HELD:
Yes, the stipulation compounding the interest charged should specifically be
indicated in a written agreement. In accordance with Article 1956 No interest shall
be due unless it has been expressly stipulated in writing.
As mandated by the foregoing provision, payment of monetary interest shall be due
only if: (1) there was an express stipulation for the payment of interest; and (2) the

agreement for such payment was reduced in writing. Thus, the Court has held that
collection of interest without any stipulation thereof in writing is prohibited by law.
In the case at bar, it is undisputed that the parties have agreed for the loan to earn
5% monthly interest, the stipulation to that effect put in writing. When the
petitioners defaulted, the period for payment was extended, carrying over the terms
of the original loan agreement, including the 5% simple interest. However, by the
third extension of the loan, respondent spouses decided to alter the agreement by
changing the manner of earning interest rate, compounding it beginning June 1986.
Given the circumstances, the Court rule that the first requirementthat there be an
express stipulation for the payment of interestis not sufficiently complied with, for
purposes of imposing compounded interest on the loan. The requirement does not
only entail reducing in writing the interest rate to be earned but also the manner of
earning the same, if it is to be compounded.
Also, imposing 5%
unconscionable.

monthly

interest,

whether

compounded

or

simple,

is

Thus, the stipulation in the Loan with Real Estate Mortgage imposing an interest of
5% monthly is declared void and in view of the nullity of the interest imposed on the
loan which affected the total arrearages upon which foreclosure was based, the
foreclosure of mortgage, Certificate of Sale, Affidavit of Consolidation, Deed of Final
Sale, and Contract of Lease are declared void.