1.

LIWANAG VS CA, 281

SCRA 225 (1997) #1
CAMASO

It is evident that Liwanag could not dispose of

the money as she pleased because it was only
delivered to her for a single purpose, namely,
for the purchase of cigarettes, and if this was
not possible then to return the money to
Rosales. Since in this case there was no transfer
of ownership of the money delivered,

Facts:
Petitioner Carmen Liwanag (Liwanag) and a
certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked
her to join them in the business of buying and
selling cigarettes. Convinced of the feasibility of
the venture, Rosales readily agreed. Under their
agreement, Rosales would give the money
needed to buy the cigarettes while Liwanag and
Tabligan would act as her agents, with a
corresponding 40% commission to her if the
goods are sold; otherwise the money would be
returned to Rosales.
Consequently, Rosales
gave several cash advances to Liwanag and
Tabligan amounting to P633,650.00.

2. HERRERA VS PETROPHIL
CORP, GR No. 48349, 29
Dec. 1986 #2 ANTIOJO
FACTS:
On December 5, 1969, Herrera and ESSO
Standard, (later substituted by Petrophil Corp.,)
entered into a lease agreement, whereby the
former leased to the latter a portion of his
property for a period of 20 yrs. subject to the
condition that monthly rentals should be paid
and there should be an advance payment of
rentals for the first eight years of the contract,
to which ESSO paid on December 31, 1969.
However, ESSO deducted the amount of 101,
010.73 as interest or discount for the eight
years advance rental.

During the first two months, Liwanag and

Tabligan made periodic visits to Rosales to
report on the progress of the transactions. The
visits, however, suddenly stopped, and all
efforts by Rosales to obtain information
regarding their business proved futile.
Alarmed by this development and believing that
the amounts she advanced were being
misappropriated, Rosales filed a case of estafa
against Liwanag.

On August 20, 1970, ESSO informed

Herrera that there had been a mistake in the
computation of the interest and paid an
additional sum of 2,182.70; thus, it was reduced
to 98, 828.03.

The Trial Court rendered Liwanag guilty as

charged, which was affirmed with modification
by the CA.
Issue:

As such, Herrera sued ESSO for the sum

of 98, 828.03, with interest, claiming that this
had been illegally deducted to him in violation
of the Usury Law.

WON the transaction entered by Liwanag and

Rosales can be considered as a simple loan
only?

ESSO argued that amount deducted was

not usurious interest but rather a discount given
to it for paying the rentals in advance. Judgment
on the pleadings was rendered in favor of ESSO.
Thus, the matter was elevated to the SC for only
questions of law were involve.

Held:
No. In a contract of loan once the money is
received by the debtor, ownership over the
same is transferred.
Being the owner, the
borrower can dispose of it for whatever purpose
he may deem proper. The receipt made by
Liwanag indicates that the money delivered to
Liwanag was for a specific purpose, that is, for
the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be
returned to Rosales.

ISSUE: Whether the contract between the

parties is one of loan or lease?
RULING:
Contract between the parties is one of
lease and not of loan. It is clearly denominated a
"LEASE AGREEMENT." Nowhere in the contract is

there any showing that the parties intended a

loan rather than a lease. The provision for the
payment of rentals in advance cannot be
construed as a repayment of a loan because
there was no grant or forbearance of money as
to constitute an indebtedness on the part of the
lessor. On the contrary, the defendant-appellee
was discharging its obligation in advance by
paying the eight years rental, and it was for this
advance payment that it was getting a rebate or
discount.

Petitioner Kim Yong Chan (Kim) was

employed as a researcher in Aquaculture
Department of the Southeast Asian Fisheries
Development Center (SEAFDEC) with head office
in Tigbauan, Iloilo. His work, being the head in
his unit, requires him to travel to various
selected provinces in the country. On June 15
1982, Kim was issued Travel Order 2222 which
covered his travels to different places in Luzon
from June 16 to July 21. He received P6,438 cash
advance under such TO. Within the same period,
he was issued another travel order, TO 2268,
requiring him to travel from head office to Roxas
City from June 30 to July 4. He received P495
cash advance.

There is no usury in this case because no

money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use
its money already in his possession. There was
neither loan nor forbearance but a mere
discount which the plaintiff-appellant allowed
the defendant-appellee to deduct from the total
payments because they were being made in
advance for eight years. The discount was in
effect a reduction of the rentals which the lessor
had the right to determine, and any reduction
thereof, by any amount, would not contravene
the Usury Law.

He presented both travel orders for

liquidation. When the Travel Expense Reports
were audited, it was discovered that there was
an overlap of 4 days (June 30-July 3) in the two
travel orders for which Kim collected per diems
twice. The total amount charged and collected
by Kim when he did not actually and physically
travel is P1,230. Kim claimed that he made
make-up trips he failed to undertake under TO
2222 because he was recalled to the head
office.

The difference between a discount and a

loan or forbearance is that the former does not
have to be repaid. The loan or forbearance is
subject to repayment and is therefore governed
by the laws on usury.

`
2 complaints for Estafa were filed against
him. One was dismissed for failure to prosecute.
The other one convicted him. The RTC affirmed
the decision of MTC. CA dismissed Kims appeal
for being filed out of time.
ISSUE:
Whether Kim is criminally liable
for the crime of Estafa

To constitute usury, "there must be loan

or forbearance; the loan must be of money or
something circulating as money; it must be
repayable absolutely and in all events; and
something must be exacted for the use of the
money in excess of and in addition to interest
allowed by law."

HELD: No.
For him to be convicted, it must be
proven that he had the obligation to deliver or
return the same money, good or personal
property that he had received. The Court ruled
that Kim has no obligation to return the same
money (cash advance) he received.

It has been held that the elements of

usury are (1) a loan, express or implied; (2) an
understanding between the parties that the
money lent shall or may be returned; that for
such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be
paid, as the case may be; and (4) a corrupt
intent to take more than the legal rate for the
use of money loaned. Unless these four things
concur in every transaction, it is safe to affirm
that no case of usury can be declared.

Under EO no.10, Cash advances are to be

liquidated within 30 days after projected return
of the employee, otherwise there will be a
corresponding salary deduction. Liquidation
means settling of indebtedness. An employee
who liquidates cash advance is in fact paying
back his debt in the form of a loan of money
advanced to him by his employer, as per diems
and allowances. Similarly, as stated in the
assailed decision of the lower court, "if the
amount of the cash advance he received is less
than the amount he spent for actual travel . . .

3. KIM VS PEOPLE, GR No.

84719, 25 Jan. 1991 #3
CASTRO S
FACTS:

he has the right to demand reimbursement from

his employer the amount he spent coming from
his personal funds. In other words, the money
advanced by either party is actually a loan to
the other.

questioned lots for 75 years continuously and

peacefully and has constructed permanent
structures thereon. Both sets of Heirs now argue
that Vicar is barred from setting up the defense
of ownership and/or long and continuous
possession of the two lots in question since this
is barred by prior judgment of the CA (the one
stated in the Background case) under the
principle of res judicata. Plaintiffs contend that
the question of possession and ownership have
already been determined by the CA and
affirmed by the Supreme Court. After yet
another unfavorable decision, Vicar filed a
petition for review before the SC.

Under Art.1953, it is provided that the

person who receives a loan acquires the
ownership thereof. Applying the foregoing in the
present case, ownership of the money was
transferred to Kim. Hence, he was under no
legal obligation to return the same cash or
money.

4. CATHOLIC VICAR
APOSTOLIC OF THE MT.
PROV. VS CA, 165 SCRA
515 (1988) #4 CASTRO J

Issue: WON Vicar can claim ownership over the

land in question?
Ruling:
NO. Petitioner questions the ruling
of respondent Court of Appeals when it clearly
held that it was in agreement with the findings
of the trial court that the Decision of the Court
of Appeals (the one in the background facts) on
the question of ownership of Lots 2 and 3,
declared that the said Court of Appeals did not
positively declare private respondents as
owners of the land, neither was it declared that
they were not owners of the land, but it held
that the predecessors of private respondents
were possessors of Lots 2 and 3, with claim of
ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated
the trust by declaring the properties in its name
for taxation purposes. When petitioner applied
for registration of Lots 2 and 3 in 1962, it had
been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription
requires possession for ten years, but always
with just title (which the petitioner does not
have). Extraordinary acquisitive prescription
requires 30 years (petitioner is in possession for
only 11 years). Private respondents were able to
prove that their predecessors' house was
borrowed by petitioner Vicar after the church
and the convent were destroyed. They never
asked for the return of the house, but when they
allowed its free use, they (the Heirs) became
bailors in commodatum and the petitioner the
bailee. The bailees' failure to return the subject
matter of commodatum to the bailor did not
mean adverse possession on the part of the
borrower. The bailee held in trust the property
subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it
declared the lots for taxation purposes. The
action of petitioner Vicar by such adverse claim
could not ripen into title by way of ordinary

Facts:
Background: Catholic Vicar filed an
application for registration of title over Lots 1, 2,
3, and 4 which were situated in La Trinidad,
Benguet. The said lots were the sites of the
Catholic Church building, convents, high school
building,
school
gymnasium,
and
other
structures. The Heirs of Juan Valdez and
EgmidioOctaviano opposed the registration of
lots 2 and 3 respectively. After trial the land
registration court ruled in favor of Vicar but the
CA reversed the lower courts decision and
dismissed Vicars application over lots 2 and 3.
The Supreme Court sustained the ruling of the
CA. Thereafter, the Heirs of Octaviano filed with
the CFI a Motion for Execution praying that they
be placed in possession of Lot 3 but the lower
court denied the motion on the ground that the
CAs prior decision did not grant the Heirs any
affirmative relief. The Heirs appealed the denial
of their motion but the case was also dismissed
by the CA.
It was at that stage that the instant
cases were filed. The Heirs of Octaviano filed a
case for recovery of possession of Lot 3 and the
Heirs of Valdez likewise filed the same case over
Lot 2. At the trial, the Heirs of Octaviano
presented Fructuoso Valdez. The latter testified
on the ownership of the land by their
predecessors-in-interest, EgmidioOctaviano. On
the other hand, Vicar presented the Register of
Deeds of Benguet, Atty. NicanorSison, who
testified that the land is not covered by any title
in the name of EgmidioOctaviano. Vicar claims
that they have been in possession of the

acquisitive prescription because of the absence

of just title.

5.

those referred to in Articles 1941 and 1949, he

is not entitled to reimbursement. (n)
Art. 1951. The bailor who, knowing the flaws of
the thing loaned, does not advise the bailee of
the same, shall be liable to the latter for the
damages which he may suffer by reason thereof.
(1752)

Obligations of the bailee (Arts. 1941

1945) #5 DEIMRY

6. Obligations of the bailor

(arts. 1946 1952) #6
DINGLASAN

Art. 1952. The bailor cannot exempt himself

from the payment of expenses or damages by
abandoning the thing to the bailee. (n)

SECTION 3. - Obligations of the Bailor

OBLIGATIONS OF THE BAILOR
1. The primary obligation of the bailor is to
allow the bailee the use of the thing loaned for
the duration of the period stipulated or until
the accomplishment of the purpose for which
the commodatum was constituted
a.
However, the lender may demand its
return or temporary use if he has the urgent
need of the thing
or
if
the
borrower
commits an act of ingratitude
2. PRECARIUM: a kind of commodatum where
the bailor may demand the thing at will. In this
kind of commodatum, the lender may demand
at will the return of thing under the
following circumstances:
a.
If neither the duration of the contract nor
the use to which the thing loaned should be
devoted, has been stipulated; or
b.
If the use of the thing is merely
tolerated by the owner.
c. the law recognizes the urgency as well as it
is gratuitous.
d.
Take note that in precarium, there is no
stipulated period or the use is merely tolerated
3. He may demand the immediate return of
the thing if the bailee commits any act of
ingratitude
a.
If the bailee should commit some offenses
against the person, honor or the property of the
bailor, or
of
his
wife,
and
children
under
his
parental authority
b. If thebailee imputes to the bailor any
criminal offense or any act involving moral
turpitude, even
though he should prove it, unless the crime or
act has been committed against himself, his
wife and
children under his authority
c.
If thebailee unduly refuses the bailor
support when the bailee is legally or morally
bound to give support
4.
He has the obligation to refund
extraordinary expenses for the preservation of

Art. 1946. The bailor cannot demand the return

of the thing loaned till after the expiration of the
period stipulated, or after the accomplishment
of the use for which the commodatum has been
constituted. However, if in the meantime, he
should have urgent need of the thing, he may
demand its return or temporary use.
In case of temporary use by the bailor, the
contract of commodatum is suspended while the
thing is in the possession of the bailor. (1749a)
Art. 1947. The bailor may demand the thing at
will, and the contractual relation is called a
precarium, in the following cases:
(1) If neither the duration of the contract nor the
use to which the thing loaned should be
devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by
the owner. (1750a)
Art. 1948. The bailor may demand the
immediate return of the thing if the bailee
commits any act of ingratitude specified in
Article 765. (n)
Art. 1949. The bailor shall refund the
extraordinary expenses during the contract for
the preservation of the thing loaned, provided
the bailee brings the same to the knowledge of
the bailor before incurring them, except when
they are so urgent that the reply to the
notification cannot be awaited without danger.
If the extraordinary expenses arise on the
occasion of the actual use of the thing by the
bailee, even though he acted without fault, they
shall be borne equally by both the bailor and the
bailee, unless there is a stipulation to the
contrary. (1751a)
Art. 1950. If, for the purpose of making use of
the thing, the bailee incurs expenses other than

the thing loanedit is him who profits from the

said expenses anyway.
a.
As a rule, notice is required because it is
possible that the bailor may not want to
incur the
extraordinary expenses at all
b. An exception of course is where there is
urgency that the reply to the notification cannot
be awaited without danger
c. you have to determine if its ordinary or
extraordinary
d. why
would
you
advance
for
the
extraordinary expenses when you can return
the
thing and make the lender pay for the
expenses?
5.
Regarding, extraordinary expenses arising
from the actual use of the thing, the division of
liability between the bailor and bailee is 50-50.
This is the default rule but the parties may
stipulate for a different apportionment.
6. For expenses other than ordinary expenses
and expenses for the preservation and use of
the thing, the bailor is not liable for the same.
7. He is liable to the bailee for damages in
case he has knowledge of flaws of the thing
loaned, and he didn't advise the bailee of the
same
a. There is flaw or defect in the thing loaned
b. The flaw or defect is hidden
c. The bailor is aware thereof
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of
the said flaw or defect
8. He cannot excuse himself from liability for
any expense or damages by abandoning the
thing to the bailee

agreement was actually a loan secured by

mortgage; and that plaintiff's cause of action is
for accionpubliciana, outside the jurisdiction of
an inferior court.
MeTC
ruled
in
favor
of
private
respondent, but RTC reversed its decision,
saying that the real transaction over the subject
property was not a sale but a loan secured by a
mortgage thereon. On appeal, the CA reversed
the decision of the RTC.
Issue:
1.
Whether or not Better Homes Realty and
Housing Corp had acquired ownership over the
property in question.
2.
Whether or not petitioner should be
ejected from the premises in question
Held
1.
No. the agreement between the private
respondent and N. Domingo Realty & Housing
Corporation is one of equitable mortgage. First,
possession of the property in the controversy
remained with Petitioner Manuel Lao who was
the beneficial owner of the property, before,
during and after the alleged sale. It is settled
that a "pacto de retro sale should be treated as
a mortgage where the (property) sold never left
the possession of the vendors." Second, the
option given to Manuel Lao to purchase the
property in controversy had been extended
twice through documents executed by the
President and Chairman of the Board of Better
Homes Realty & Housing Corporation. Third,
unquestionably, Manuel Lao and his brother
were in such "dire need of money" that they
mortgaged their townhouse units registered
under the name of N. Domingo Realty
Corporation, the family corporation put up by
their parents, to Private Respondent Better
Homes Realty & Housing Corporation. Since the
borrower's urgent need for money places the
latter at a disadvantage vis-a-vis the lender who
can thus dictate the terms of their contract, the
Court, in case of an ambiguity, deems the
contract to be one which involves the lesser
transmission of rights and interest over the
property in controversy.

7. LAO VS CA, 275 SCRA 237

(1997) #7 GALICINAO
Facts:
Private respondent Better Homes Realty
and Housing Corp. filed a complaint for unlawful
detainer with the Metc on the ground that
petitioner Lao occupied its property without
rent, but on its pure liberality with the
understanding that he would vacate the
property upon demand. However, despite
demand to vacate, Lao refused to vacate the
premises.

2.
No. There was no sale of the disputed
property. Hence, it still belongs to petitioner's
family corporation, N. Domingo Realty &
Development Corporation. Private respondent,
being a mere mortgagee, has no right to eject
petitioner.

Lao claimed that he is the true owner of

the property; that the private respondent
purchased the same from N. Domingo Realty
and
Development
Corporation,
but
the

with a companion option to buy is null and void

even if no usury is involved.

8. CLARAVALL VS CA, 190

SCRA 439 (1990) #8
MOGELLO

Under Article 1604 a contract purporting

to be an absolute sale shall be presumed to be
an equitable mortgage, should any of the
conditions in Article 1602 be present. Otherwise
stated, the presence of only one circumstance
defined in Article 1602 is sufficient for a contract
of sale with right to repurchase to be presumed
an equitable mortgage.

FACTS:
Appellant Loreto Claravall and
Victoria H. Claravall obtained loans from the
Development Bank of the Philippines (DBP) in
the amount of P52,000.00 for the construction
of a commercial building on their property
situated in the Municipality of Ilagan, Isabela. To
secure the loan, a mortgage was executed upon
said property in favor of the DBP. Claravall was
unable to pay the amortization over said loan
and the DBP threatened to foreclose the
mortgage.

ART. 1602. The contract shall be presumed to be

an equitable mortgage, in any of the following
cases:
(1) When the price of a sale with right to
repurchase is unusually inadequate;
(2) When the vendor remains in possession as
lessee or otherwise;
(3) When upon or after the expiration of the
right
to
repurchase
another
instrument
extending the period of redemption or granting
a new period is executed;
(4) When the purchaser retains for himself a
part of the purchase price;
(5) When the vendor binds himself to pay the
taxes on the thing sold;
(6) In any other case where it may be fairly
inferred that the real intention of the parties is
that the transaction shall secure the payment of
a debt or the performance of any other
obligation.

However, Claravall was able to pay DBP

by executing a deed of sale over the property in
question with a 5-year option to repurchase the
same with a certain Juan Ang-angan.
Claravall exercised the said right to
repurchase the property from Ang-angan by
obtaining a loan from spouses Francisco and
Carolina Ramirez in the amount of P75,000.00. A
deed of sale dated December 29, 1965 was
executed over the same property by the
Claravalls in favor of Ramirez.
Another instrument was entered into by
Claravall and Ramirez which granted Claravall
an option to repurchase the property in question
within a period of two (2) years from December
29, 1965 but not earlier nor later than the
month of December, 1967, for the sum of
P10,000.00 payable at the time of repurchase.

ART. 1604. The provisions of Article 1602 shall

also apply to a contract purporting to be an
absolute sale.
Under Article 1604 a contract purporting
to be an absolute sale shall be presumed to be
an equitable mortgage, should any of the
conditions in Article 1602 be present. Otherwise
stated, the presence of only one circumstance
defined in Article 1602 is sufficient for a contract
of sale with right to repurchase to be presumed
an equitable mortgage.

At the expiration of the 2-year period,

appellant Claravall failed to redeem the property
in question and because of this they brought
suit against Francisco and Carolina Ramirez to
compel the latter to sell the property in question
back to them (Claravall).

9. JAVIER VS DE GUZMAN,
192 SCRA 434 (1990) #9
PALILEO

The lower court rendered judgment in

favor of defendants, the Ramirez spouses,
(private respondents herein) which was affirmed
in toto by respondent court.
ISSUE:
WON the contract of loan with
mortgage made to appear in paper as absolute
sale is null and void.

FACTS:
On 7 December 1987, Efren Javier, and
his mother, Lolita Javier, borrowed P200,000.00
from Respondent Judge with interest orally
agreed upon at ten per cent (10%) monthly,

HELD: Yes. A contract of loan with mortgage

made to appear in paper as an absolute sale

They tendered to the latter UCPB Check No. BNE

012872, dated 7 January 1988, in the amount of
P220,000.00. The drawer of the check was
actually Donato Belen, a brother-in-law of Efren,
as the Javiers had no personal checking
account. The following day, Respondent
required them to sign a Memorandum of
Agreement, which they did. Two of the
conditions imposed were interest at the rate of
twenty per cent (20%) per month, compounded
monthly, and should they fail to pay the loan
and its interest upon maturity on 7 January 1988
and the check is deposited and dishonored, an
appropriate charge for violation of Batas
PambansaBlg. 22 may be filed at Respondent's
option. When the Javiers defaulted on due date
because of business reverses, partial payments
in the total amount of P177,000.00 were made
to Respondent between 6 January 1988 and 16
June 1988. Meanwhile, the check, which was
deposited by Respondent on 14 April 1988, was
dishonored by the drawee bank.

Pedro in both instances, of having committed

estafa against him and his wife, of dishonesty
and of conduct unbecoming of a government
official. Feeling harassed, Complainants filed
this administrative charge against Respondent
Judge on four counts of "dishonorable conduct,
ISSUE: WON the respondent judge can be held
liable for the usurious interest.
HELD:
No. As to the usurious rate of interest,
while that issue was considered by Justice de la
Fuente as irrelevant since the Usury Law is now
legally inexistent pursuant to Central Bank
Circular No. 905 and the interest now legally
chargeable depends upon the agreement of
lender and borrower (Liam Law v. Olympic
Sawmill Co., G.R. No. L-30771, May 28, 1984,
129 SCRA 439), she found that the interest
charged on the loan was exorbitant. While he
had every right to protect his investment, and
while the contract of loan entered into between
him and the Javiers was legal per se,
Respondent rendered it unconscionable by
imposing a penalty of twenty per cent (20%)
interest per month compounded monthly.
Respondent was equivocal as to the repayments
that were made to him by the Javiers. In his
Verified Complaint before the Trial Court, he
averred failure to repay. However, in the
computation attached to his Motion for
Judgment on the Pleadings, he made mention of
"alleged payments being accepted by (him) at
face value" and included them in the
determination of the balance due.

On 8 September 1988, Respondent

instituted suit for a "Sum of Money and
Damages with Prayer for the Issuance of a Writ
of Preliminary Attachment" in the Regional Trial
Court of Makati, Metro Manila, against the
spouses Pedro and Lolita Javier, and their son,
Efren, for the recovery of the "sum of
P220,000.00 with 20% interest/penalty a month
compounded monthly from January 7, 1988 until
fully paid," computed at P622,871.67. Judgment
on the pleadings was rendered on 3 February
1989 ordering the Javiers to pay Respondent
Judge the "sum of P608,871.67 with 20%
interest/penalty a month compounded monthly
beginning September 8, 1988 until fully paid"
and the "sum equal to 10% of the amounts due
and recoverable as reimbursement of attorney's
fees and litigation expenses". In the meantime,
an Order granting execution pending appeal was
issued by the Trial Court on 14 April 1989. The
Javiers appealed to the Court of Appeals where
the case still pends. Still later, Respondent filed
in Manila two (2) criminal complaints, the first,
for violation of B.P. Blg. 22 against Efren, who,
however, was acquitted, and the second, for
Estafa against Complainants and Lolita Javier,
which complaint was dismissed.

Respondent also brought suit to collect

the staggering sum of P622,871.67 despite
payments by the debtors of approximately
P177,000.00 of the original P200,000.00 loan.
Although not illegal under the terms of the
Memorandum of Agreement, as in fact, the Trial
Court had ruled in Respondent's favor, it does
not necessarily follow that it was moral and fair.
Respondent is not a hard-boiled and callous
businessman. He is a Judge.
Finding Respondent Judge, Salvador P. de
Guzman, Jr. guilty on three (3) counts, of
irresponsible,
improper
and
dishonorable
conduct in disregard of the Code of Judicial
Ethics, he is severely censured, with a stern
warning that a repetition of the said acts or
similar acts in the future shall receive graver
sanctions.

On 21 March 1989, Respondent further

filed
an
administrative
charge
against
Complainant father, Pedro, with the Bureau of
Internal Revenue where the latter was
employed. Earlier, an administrative charge
against Pedro had also been filed with the Civil
Service Commission on 3 March 1989 accusing

credit agreement's escalation clause, and in

relation to Central Bank Circular No. 905.
Ruling:

10.

No, PNB cannot.

Moreover, respondent bank's reliance on

C.B. Circular No. 905, Series of 1982 did not
authorize the bank, or any lending institution for
that matter, to progressively increase interest
rates on borrowings to an extent which would
have made it virtually impossible for debtors to
comply with their own obligations. True,
escalation clauses in credit agreements are
perfectly valid and do not contravene public
policy. Such clauses, however, (as are
stipulations in other contracts) are nonetheless
still subject to laws and provisions governing
agreements between parties, which agreements
while they may be the law between the
contracting parties implicitly incorporate
provisions of existing law. Consequently, while
the Usury Law ceiling on interest rates was lifted
by C.B. Circular 905, nothing in the said circular
could possibly be read as granting respondent
bank carte blanche authority to raise interest
rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their
assets. Borrowing represents a transfusion of
capital from lending institutions to industries
and businesses in order to stimulate growth.
This would not, obviously, be the effect of PNB's
unilateral and lopsided policy regarding the
interest rates of petitioners' borrowings in the
instant case.

ALMEDA VS CA, 256

SCRA 292 #10 PAVICO

Facts:
In 1981, PNB granted herein petitioner
several loan/credit accommodations totaling
P18.0 Million pesos payable in a period of six
years at an interest rate of 21% per annum. To
secure the loan, the spouses Almeda executed a
Real Estate Mortgage Contract covering a 3,500
square meter parcel of land, together with the
building erected thereon (the Marvin Plaza)
located at Pasong Tamo, Makati, Metro Manila. A
credit agreement embodying the terms and
conditions of the loan was executed between
the parties.
The agreement contains
xxxxxxxxx
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; provided, that the
interest rate on this/these accommodations
shall be correspondingly decreased in the event
that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In
either case, the adjustment in the interest rate
agreed upon shall take effect on the effectivity
date of the increase or decrease of the
maximum interest rate.

11.
GARCIA VS THIO, 518
SCRA 433 (2007) #11 RIEGO
FACTS:

Between 1981 and 1984, petitioners

made several partial payments on the loan
totaling. P7,735,004.66, 2 a substantial portion
of which was applied to accrued interest. Said
interest rate thereupon increased from an initial
21% to a high of 68% between March of 1984 to
September, 1986. Before the loan matures,
petitioner filed a complaint in the lower court for
declaratory relief and with prayer for a writ of
preliminary injunction and temporary restraining
order. The lower court issued the writ of
preliminary injunction which was appealed in
the CA which rendered the assailed Decision.
Hence this petition.

Two crossed check payable to certain

Mariou Santiago were given to the respondent
by the petitioner the first check covers onehundred 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

Issue: Whether or not PNB could unilaterally

raise interest rates on the loan, pursuant to the

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.

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.

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.

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.

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:

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:

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
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

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

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.

Facts:
On May 9, 1974, respondent, through its Japan
Branch, entered into an International Passenger
Sales Agency Agreement with petitioner,
authorizing the latter to sell its air transport
tickets. Petitioner failed to remit the proceeds
of the ticket sales, for which reason, respondent
filed a collection suit against petitioner before
the Tokyo District Court which rendered
judgment on January 29, 1981, ordering
petitioner to pay respondent the amount of
"83,158,195 Yen and damages for the delay at
the rate of 6% per annum from August 28, 1980
up to and until payment is completed." Unable
to execute the decision in Japan, respondent
filed a case to enforce said foreign judgment
with the Regional Trial Court (RTC) of Manila,
Branch 54. However, the case was dismissed on
the ground of failure of the Japanese Court to
acquire jurisdiction over the person of the
petitioner. Respondent appealed to the Court of
Appeals, which affirmed the decision of the RTC.

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.

12.

RA 8183 (11 July

1996) #12 TITO

Republic Act No. 8183

Repealing RA 529

June 11, 1996

Thereafter, the RTC issued a writ of execution

for foreign courts decision. The petitioner filed
for certiorari, asserting it has already made
partial payments. The CA lowered the amount
to be paid and included in its decision that the
amount may be paid in local currency at rate
prevailing at time of payment. The Supreme
Court partly affirmed the decision. The RTC
issued a writ of execution of decision ruling that
Sharp is to pay Northwest the sum of
83,158,195 yen at the exchange rate prevailing
on the date of the foreign judgment plus 6% per
annum until fully paid, 6% damages and 6%
interest.
On appeal, the Court of Appeals
reduced the interest and it ruled that the basis
of the conversion of Petitioners liability in its
peso equivalent should be the prevailing rate at
the time of payment and not the rate on the
date of the foreign judgment

"AN ACT TO ASSURE THE UNIFORM VALUE OF

PHILIPPINE COIN AND CURRENCY."
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress
assembled::
Section 1. All monetary obligations shall be
settled in the Philippine currency which is legal
tender in the Philippines. However, the parties
may agree that the obligation or transaction
shall be settled in any other currency at the
time of payment.
Sec. 2. Republic Act Numbered Five Hundred
Twenty-Nine (R.A. No. 529), as amended entitled
"An Act to Assume the Uniform Value of
Philippine Coin and Currency," is hereby
repealed.
Sec. 3. This Act shall take effect fifteen (15)
days after its publication in the Official Gazette
or in two (2) national newspapers of general
circulation. The BangkoSentralngPilipinas and
the Department of Finance shall conduct an
intensive information campaign on the effect of
this Act.
Approved: June 11, 1996

Issue:
WON the conversion of CF Sharps liability in its
peso equivalent basing on the prevailing rate at
the time of the establishment of the obligation
is correct?
Held:

13.
CF SHARP & CO. VS
NORTHWEST AIRLINES, GR
NO. 133498, 18 APRIL 2002
#13 CAMASO

No. Petitioners contention that it is Article 1250

of the Civil Code that should be applied is
untenable. The rule that the value of the
currency at the time of the establishment of the
obligation shall be the basis of payment finds

10

application only when there is an official

pronouncement or declaration of the existence
of an extraordinary inflation or deflation.

definitely and finally pronounced, no matter how

convinced he may be from the examination of
the pertinent records of the validity of that
conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced
by final judgment of a competent court. At best,
what Premiere Development Bank has against
respondent corporations is just a claim, not a
debt. At worst, it is a speculative claim.

The repeal of R.A. No. 529 by R.A. No. 8183 has

the effect of removing the prohibition on the
stipulation of currency other than Philippine
currency, such that obligations or transactions
may now be paid in the currency agreed upon
by the parties. Just like R.A. No. 529, however,
the new law does not provide for the applicable
rate of exchange for the conversion of foreign
currency-incurred obligations in their peso
equivalent. It follows, therefore, that the
jurisprudence established in R.A. No. 529
regarding the rate of conversion remains
applicable. Thus, in Asia World Recruitment, Inc.
v. National Labor Relations Commission,13 the
Court, applying R.A. No. 8183, sustained the
ruling of the NLRC that obligations in foreign
currency may be discharged in Philippine
currency based on the prevailing rate at the
time of payment. The wisdom on which the
jurisprudence interpreting R.A. No. 529 is based
equally holds true with R.A. No. 8183. Verily, it is
just and fair to preserve the real value of the
foreign exchange- incurred obligation to the
date of its payment.

15.

Maybank Philippines
Inc. (formerly PNBRepublic Bank) vs.
Tarrosa#15 CASTRO S

FACTS:
Sps. Tarrosa obtained from petitionerbank Maybank a loan in the amount of P91,000
secured by a Real Estate Mortgage (parcel of
land in San Carlos City, Negros Occidental).
After paying the said loan, Sps. Tarrosa obtained
a second loan in the amount of P60,000 payable
on March 11, 1984. The spouses failed to pay
upon maturity. The spouses received their final
demand letter sometime in April 1998. They
offered to pay a lesser amount, which Maybank
refused. Thereafter, Maybank commenced
extrajudicial foreclosure. The subject property
was eventually sold to Philmay Property Inc.
after a public auction sale proceeding.

Petition is denied.

14.
PREMIER
DEVELOPMENT BANK VS
FLORES, 574 SCRA 66, 16
DEC 2008 #14 ANTIOJO

The spouses filed a complaint for

declaration of nullity and invalidity of the
foreclosure and of the public auction sale
proceedings. They averred, among others, that
Maybanks right to foreclosure had prescribed or
is barred by laches. The RTC ruled that
Maybanks right to foreclosure, reckoned from
the time the mortgage indebtedness became
due and demandable on March 11, 1984, had
already prescribed. It ruled in favor of the
spouses. The CA affirmed the RTC ruling that the
prescriptive period should be reckoned from
March 11, 1984.

FACTS:
ISSUE:Whether PDB has a claim or a debt to the
other corporations?
RULING:
A distinction must be made between a
debt and a mere claim. A debt is an amount
actually ascertained. It is a claim which has
been formally passed upon by the courts or
quasi-judicial bodies to which it can in law be
submitted and has been declared to be a debt.
A claim, on the other hand, is a debt in embryo.
It is mere evidence of a debt and must pass thru
the process prescribed by law before it develops
into what is properly called a debt. Absent,
however, any such categorical admission by an
obligor
or
final
adjudication,
no
legal
compensation or off-set can take place. Unless
admitted by a debtor himself, the conclusion
that he is in truth indebted to another cannot be

ISSUE:
Whether CA erred in finding that
Maybanks right to foreclose over the
subject
property
was
barred
by
prescription.
HELD: No.
An action to enforce a right arising from
a mortgage should be enforced within 10 years

11

from the time the right of action accrues when

the mortgagor defaults in payment of his
obligation to the mortgagee. Mere delinquency
in payment does not necessarily mean delay in
legal concept.

change orders for P2,622,610.30. They also

agreed that Pan Pacific shall be entitled to a
price adjustment in case of increase in labor
costs and prices of materials. Pursuant to the
contract,
Pan
Pacific
commenced
the
mechanical works in the project site, the PCIB
Tower II extension building. The project was
completed and accepted by the respondent in
1992. However, in 1990 labor costs and prices
of materials escalated. So in 1991, in
accordance with the escalation clause, Pan
Pacific claimed a price adjustment of P5.1M. In
response, the respondent bank appointed TCGI
Engineers to assess if the said claim was
correct. The latter recommended to respondent
that the price adjustment should be pegged at
P3.7M only. Pan Pacific contended that with this
recommendation, respondent was already
estopped from disclaiming liability of at least
P3.7M in accordance with the escalation clause.
Due to the extraordinary increases in the costs
of labor and materials, Pan Pacifics operational
capital was becoming inadequate. However,
respondent withheld the payment of the price
adjustment under the escalation clause despite
Pan Pacifics repeated demands. To add insult,
the respondent bank instead offered a loan to
the petitioner to enable them to have something
to work with. Out of desperation, and the
promise that the price adjustments would be
released soon, the petitioner accepted the loan
and they were required to issue a promissory
note. Not a single centavo was received by the
petitioner, all of the amount of the loan was
given to the employees for their salary.
Petitioners repeated demands were just
ignored. Meanwhile, the loan matured and the
respondent is now the one demanding payment
with interest. Petitioner refused to pay the loan
contending that it would not have accepted the
loan if only the respondent released the money
that was rightfully theirs. They also contend that
the promissory note they issued did not contain
their true intentions. They maintained that the
loan should be considered as an advanced
payment for the balance of the respondent and
hence, the promissory is void for lack of
consideration. The petitioner filed a complaint
and judgment was rendered in their favor. As a
result the respondent was ordered to pay the
unpaid balance with 12% per annum interest.
The petitioners partially appealed the decision
with respect to the interest. Petitioners claimed
that the interest rate applicable should be the
18% bank lending rate because that is what
they have agreed upon in the contract.

In order that the debtor may be in

default, it is necessary that: (a) the obligation
be demandable and already liquidated; (b) the
debtor delays performance; and (c) the creditor
requires
the
performance
judicially
or
extrajudicially, unless demand is not necessary i.e., when there is an express stipulation to that
effect; where the law so provides; when the
period is the controlling motive or the principal
inducement for the creation of the obligation;
and where demand would be useless.
In the present case, both the CA and the
RTC reckoned the accrual of Maybank's cause of
action to foreclose the real estate mortgage
over the subject property from the maturity of
the second loan on May 11, 1984. The CA
reckoned the accrual after construing the par.5
of the REM.
In no way did the mentioned paragraph
affect the general parameters of default,
particularly the need of prior demand under
Article 1169 of the Civil Code, considering that it
did not expressly declare: (a) that demand shall
not be necessary in order that the mortgagor
may be in default; or (b) that default shall
commence upon mere failure to pay on the
maturity date of the loan. Hence, the CA erred
in construing the above provision as one
through which the parties had dispensed with
demand as a condition sine qua non for the
accrual of Maybank's right to foreclose the real
estate mortgage over the subject property, and
thereby, mistakenly reckoned such right from
the maturity date of the loan on March 11,
1984.

16.

Pan Pacific Service

Contractors Inc., vs.
Equitable PCI Bank #16
CASTRO

Facts:
Pan Pacific Service Contractors, Inc. (Pan
Pacific) is engaged in contracting mechanical
works on air conditioning system. They entered
into a contract with the respondent for P20M.
Pan Pacific and respondent also agreed on nine

12

Issue: WON erred in fixing in fixing the interest

rate at 12% instead of the 18% bank lending
rate.

17.

Ruling:

Pua vs. Lo Bun Tioing

#17 C/O DINGLASAN

FACTS:

YES. It is settled that the agreement or

the contract between the parties is the formal
expression of the parties rights, duties, and
obligations. It is the best evidence of the
intention of the parties. Thus, when the terms of
an agreement have been reduced to writing, it
is considered as containing all the terms agreed
upon and there can be, between the parties and
their successors in interest, no evidence of such
terms other than the contents of the written
agreement. When the terms of a contract are
clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its
stipulations governs. In these cases, courts have
no authority to alter a contract by construction
or to make a new contract for the parties. The
Courts duty is confined to the interpretation of
the contract which the parties have made for
themselves without regard to its wisdom or folly
as the court cannot supply material stipulations
or read into the contract words which it does not
contain. It is only when the contract is vague
and ambiguous that courts are permitted to
resort to construction of its terms and determine
the intention of the parties. The written
agreement entered into between petitioners and
respondent provides for an interest at the
current bank lending rate in case of delay in
payment and the promissory note charged an
interest of 18%. To prove petitioners entitlement
to the 18% bank lending rate of interest,
petitioners presented the promissory note
prepared by respondent bank itself. This
promissory note, although declared void by the
lower courts because it did not express the real
intention of the parties, is substantial proof that
the bank lending rate at the time of default was
18% per annum. Absent any evidence of fraud,
undue influence or any vice of consent
exercised by petitioners against the respondent,
the interest rate agreed upon is binding on
them.

Ting TingPua extended a loan to

respondent spouses Benito Lo Bun Tiong and
Caroline Siok Chung Teng , vouched by her
sister, Lilian in 1988, with a total amount of P
1,795,000 covered by 176 check with an oral
agreement that the same shall incur 2%
compounding interest every month.. The
checksissued by the spouses were subsequently
dishonored by the drawee bank upon
presentment. On demand, the spouses pleaded
for more time because of their financial
difficulties. Pua obliged and simply reminded the
respondents of their indebtedness from time to
time.
Several years later, in 1996, when their
financial situation turned better, respondents
called the petitioner for the computation of their
loan obligation. Hence, petitioner handed them
a computation dated Oct 2, 1996 which showed
that at the agreed 2% compounding interest per
month, the amount payable to the petitioner
rose to P13,218,544,20. The respondents asked
Pua to reduce the amount to P 8,250,000.00.
Wanted to get paid , petitioner agreed to the
lowered amount.
Respondents then delivcered to Pua a
check bearing the reduced amount. In turn,
respondents demanded for the return of the 17
previously dishonored checks. Pua however,
said that she will do so only after the
encashment of their payment.
Like the 17 checks.the check payment
was dishonored, Hence, Pua filed a complaint to
collect the money owed by respondents.
On defense, Caroline denied having owed
Pua as well as issuing the checks. The husband,
Benito contends that he and Caroline had been
separated and did not know anything about the
loan.
After trial, the RTC issued its Decision
dated January 31, 2006 in favor of petitioner. In
holding thus, the RTC stated that the possession
by petitioner of the checks signed by Caroline,
under the Negotiable Instruments Law, raises
the presumption that they were issued and
delivered for a valuable consideration. On the
other hand, the court a quo discounted the

13

testimony for the defense completely denying

respondents loan obligation to Pua.
The trial court, however, refused to order
respondents to pay petitioner the amount of PhP
8,500,000 considering that the agreement to
pay interest on the loan was not expressly
stipulated in writing by the parties. The RTC,
instead, ordered respondents to pay the
principal amount of the loan as represented by
the 17 checks plus legal interest from the date
of demand. As rectified,36 the dispositive
portion of RTCs Decision reads:
Defendant-spouses Benito Lo Bun Tiong and
Caroline SiokChingTeng, are hereby ordered
jointly and solidarily:

18.
Advocates for Truth
in Lending Inc. vs.
BangkoSentral Monetary
Board#18 DINGLASAN no
available resource material
for the digest
19.
Andal vs. PNB#19
GALICINAO

1.To pay plaintiff P1,975,000.00 plus 12%

interest per annum from September 30, 1998,
until fully paid;
2. To pay plaintiff attorneys fees of
P200,000.00; and
3.To pay the costs of the suit.
On motion for reconsideration, the
appellate court set aside the RTC Decision
holding that Asiatrust Bank Check No.
BND057550 was an incomplete delivered
instrument and that petitioner has failed to
prove
the
existence
of
respondents
indebtedness to her. Hence, the CA added,
petitioner does not have a cause of action
against respondents.

Facts:
Petitioners-spouses obtained a loan from,
for which they executed (12) promissory notes
undertaking to pay the bank the principal loan
with varying interest rates per interest period. It
was agreed upon by the parties that the rate of
interest may be increased or decreased for the
subsequent interest periods, with prior notice to
petitioners-spouses. To secure payment for the
loan, petitioners-spouses executed in favor of
the bank a real estate mortgage using as
collateral 5 parcels of land including all
improvements therein.

ISSUE:
WON the 12% compounding
interest on the loan may be collected by the
plaintiff.
HELD: NO, respondents cannot be obliged to
pay the interest of the loan on the ground that
the supposed agreement to pay such interest
was not reduced to writing. 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
inwriting.68 Thus, the collection of interest in
loans or forbearance of money is allowed only
when these two conditions concur: (1) there was
an express stipulation for the payment of
interest; (2) the agreement for the payment of
the interest was reduced in writing.69 Absent
any of these two conditions, the money debtor
cannot be made liable for interest. Thus,
petitioner is entitled only to the principal
amount of the loan plus the allowable legal
interest from the time of the demand,70 at the
rate of 6% per annum.

When the bank advised petitionersspouses to pay their loan obligation, the latter
complied to avoid foreclosure of the properties
subject of the real estate mortgage. However,
despite payment PNB proceeded to foreclose
the real estate mortgage so petitioners-spouses
filed a case with the RTC
Petitioners-spouses alleged that the
exorbitant
rate
of
interest
unilaterally
determined and imposed by PNB prevented
them from paying their obligation. They also
alleged that they signed the promissory notes in

14

blank, relying on the representation of PNB that

they were merely proforma bank requirements.
PNB contended that the penalty charges
imposed on the loan was expressly stipulated
under the credit agreements and in the
promissory notes.

under a Deed of Sale with Assumption of

Mortgage.
That as soon as our obligation has been
duly settled, the bank is authorized to release
the mortgage in favor of the vendees and for
this purpose VENDEES can register this
instrument with the Register of Deeds for the
issuance of the titles already in their names.

RTC rendered judgment in favor of

petitioners-spouses. The CA affirmed the
decision, but it also denied petitioners-spouses
contention that no interest is due on their
principal loan obligation from the time of
foreclosure until finality of the judgment
annulling the foreclosure sale.
Issue: Whether no interest is due
petitioners-spouses loan obligation

Evangelines father, petitioner Alfredo

Ong, later went to Land Bank to inform it about
the sale and assumption of mortgage.3 Atty.
Edna Hingco, the Legazpi City Land Bank Branch
Head, told Alfredo and his counsel Atty. Ireneo
de Lumen that there was nothing wrong with the
agreement with the Spouses Sy but provided
them with requirements for the assumption of
mortgage. They were also told that Alfredo
should pay part of the principal which was
computed at PhP 750,000 and to update due or
accrued interests on the promissory notes so
that Atty. Hingco could easily approve the
assumption of mortgage. Two weeks later,
Alfredo issued a check for PhP 750,000 and
personally gave it to Atty. Hingco. A receipt was
issued for his payment. He also submitted the
other documents required by Land Bank, such
as financial statements for 1994 and 1995. Atty.
Hingco then informed Alfredo that the certificate
of title of the Spouses Sy would be transferred in
his name but this never materialized. No notice
of transfer was sent to him.

on the

Held:
No. That the rate of interest was
subsequently
declared
illegal
and
unconscionable does not entitle petitionersspouses to stop payment of interest.1wphi1 It
should be emphasized that only the rate of
interest was declared void. The stipulation
requiring petitioners-spouses to pay interest on
their loan remains valid and binding. They are,
therefore, liable to pay interest from the time
they defaulted in payment until their loan is
fully paid.

20.
Land Bank of the
Philippines vs. Ong #20
MOGELLO

Alfredo later found out that his

application for assumption of mortgage was not
approved by Land Bank. The bank learned from
its credit investigation report that the Ongs had
a real estate mortgage in the amount of PhP
18,300,000 with another bank that was past
due. Alfredo claimed that this was fully paid
later on. Nonetheless, Land Bank foreclosed the
mortgage of the Spouses Sy after several
months. Alfredo only learned of the foreclosure
when he saw the subject mortgage properties
included in a Notice of Foreclosure of Mortgage
and Auction Sale at the RTC in Tabaco, Albay.
Alfredos other counsel, Atty. Madrilejos,
subsequently talked to Land Banks lawyer and
was told that the PhP 750,000 he paid would be
returned to him.

FACTS:
On March 18, 1996, spouses
Johnson and Evangeline Sy secured a loan from
Land Bank Legazpi City in the amount of PhP 16
million. The loan was secured by three (3)
residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6
million of the loan would be short-term and
would mature on February 28, 1997, while the
balance of PhP 10 million would be payable in
seven (7) years. The Notice of Loan Approval
dated February 22, 1996 contained an
acceleration clause wherein any default in
payment of amortizations or other charges
would accelerate the maturity of the loan.1

ISSUE:
WON
Alfredos
conditional
payment constitutes forbearance of money.

Subsequently, however, the Spouses Sy

found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their
mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangelines mother,

HELD: No. Forbearance of money refers to the

contractual obligation of the lender or creditor
to desist for a fixed period from requiring the

15

borrower or debtor to repay the loan or debt

then due and for which 12% per annum is
imposed as interest in the absence of a
stipulated rate.

corporation, majority of the capital of which is

owned by Filipino citizens.
Respondent Amalgamated Management
and Development Corporation (AMDC), a
domestic corporation, had as its main business
the hauling of different commodities within the
Middle East countries. Its co-respondents
Felimon R. Cuevas (Cuevas) and Jose A. Saddul,
Jr. (Saddul) were, respectively, its President and
Vice-President.

In the instant case, Alfredos conditional

payment to Land Bank does not constitute
forbearance of money, since there was no
agreement or obligation for Alfredo to pay Land
Bank the amount of PhP 750,000, and the
obligation of Land Bank to return what Alfredo
has conditionally paid is still in dispute and has
not yet been determined. Thus, it cannot be said
that Land Banks alleged obligation has become
a forbearance of money.

AMDC obtained from the National

Commercial Bank of Saudi Arabia (NCBSA) a
loan amounting to SR3.3 million (equivalent to
P9,000,000.00). As the security for the
guaranty, Amalgamated Motors Philippines
Incorporated (AMPI), a sister company of AMDC,
acted as an accommodation mortgagor, and
executed in favor of the petitioner a real estate
mortgage over two parcels of land located in
Dasmarias. AMDC also executed in favor of the
petitioner a deed of undertaking dated April 21,
1982,[6] with Cuevas and Saddul as its coobligors. In the deed of undertaking, AMDC,
Cuevas, and Saddul jointly and severally bound
themselves to pay to the petitioner, as obligee,
whatever damages or liabilities that the
petitioner would incur by reason of the guaranty.

21.
Estores vs.
Supangan#21 PALILEO

AMDC defaulted on the obligation. Upon

demand, the petitioner paid the obligation to
NCBSA. By subrogation and pursuant to the
Deed of Undertaking, the petitioner then
demanded that AMDC, Cuevas and Saddul
should pay the obligation, but its demand was
not complied with. Hence, it extra-judicially
foreclosed the real estate mortgage.
Petitioner sued AMDC, Cuevas and
Saddul on the premise that the procees were
insufficient to cover balance.

22.
Phil. Export and
Foreign Loan Guarantee
Corp. vs. Amalgamated
Management and Devt.
Corp#22 PAVICO

RTC, ruled in favor of

Petitioner,
however, Cuevas and Saddul were absolved
and the lower court fixed the interest rate from
16% to 6% per annum(accruing interest until
deficiency claim is fully paid)
On appeal, the CA affirmed in toto the
decision.

Facts:

Issue: Whether the CA erred in declaring that

AMDC was liable to pay interest and penalty
charge at the rate of only 6% per annum instead
of 16% per annum

The petitioner, is a government-owned

and controlled-corporation created by virtue of
Presidential Decree No. 1080, as amended by
Republic Act No. 8497. Its primary purpose is to
guarantee the foreign loans, in whole or in part,
granted to any domestic entity, enterprise, or

Ruling:

16

No, the CA did not err.

HELD:
We do not subscribe to the petitioners
submission.

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.

In contracts, the law empowers the

courts to reduce interest rates and penalty
charges that are iniquitous, unconscionable and
exorbitant.[33] Whether an interest rate or
penalty charge is reasonable or excessive is
addressed to the sound discretion of the courts.
In determining
what is iniquitous
and
unconscionable, courts must consider the
circumstances of the case.

23.

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.

Albos vs. Embisan#23

RIEGO

FACTS:
On October 17, 1984, petitioners entered
into an agreement, denominated as "Loan with
Real Estate Mortgage," with respondent spouses
Nestor
and
IluminadaEmbisan
(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.

Given the circumstances, the Court rule

that the first requirementthat there be an
express stipulation for the payment of interest
is 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% monthly interest,
whether
compounded
or
simple,
is
unconscionable.
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.

ISSUE: Whether or not the stipulation

compounding the interest charged should
specifically be indicated in a written agreement.

17

24.

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. This is
apparent from the Statement of Account
prepared by the spouses Embisan themselves.

Albos vs. Embisan#24

TITO

Facts:

Article 1956 of the New Civil Code, which refers

to monetary interest, provides: 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 collection of
interest without any stipulation thereof in
writing is prohibited by law.

On October 17, 1984, petitioners entered into

an agreement,denominated as Loan with Real
Estate Mortgage,2 with respondent spouses
Nestor
and
IluminadaEmbisan
(spouses
Embisan) i 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.
257697.3chanrobleslaw
For failure to settle their account upon maturity,
petitioner Aida Albos requested and was given
an extension of eleven (11) months, when the
said deadline came , petitioners failed to pay his
obligation, on agreement of the parties, another
extension on the second time and obligations
remained unpaid. Thus, when the petitioners
requested a third extension, as will later be
alleged by the respondent spouses, an
additional eight (8) months was granted on the
condition that the monthly 5% interest from
then on, i.e. June 1986 onwards, will be
compounded. This stipulation, however, was not
reduced in writing.
Issue:
Whether or not the stipulation compounding the
interest charged should specifically be indicated
in a written agreement.
Held:
YES. Article 1956 of the New Civil Code, which
refers to monetary interest, provides:
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.
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

18