CREDIT DIGESTS

1. SAURA IMPORT & EXPORT CO vs DEVELOPMENT

BANK OF THE PHILIPPINES (1972, Davao City, jute
mill)
FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC),
before its conversion into DBP, for an industrial loan to be used
for construction of factory building, for payment of the balance of
the purchase price of the jute machinery and equipment and as
additional working capital. In Resolution No.145, the loan
application was approved to be secured first by mortgage on the
factory buildings, the land site, and machinery and equipment to
be installed.
The mortgage was registered and documents for the promissory
note were executed. The cancellation of the mortgage was
requested to make way for the registration of a mortgage contract
over the same property in favor of Prudential Bank and Trust Co.,
the latter having issued Saura letter of credit for the release of the
jute machinery. As security, Saura execute a trust receipt in favor
of the Prudential. For failure of Saura to pay said obligation,
Prudential sued Saura.
After 9 years after the mortgage was cancelled, Saura sued RFc
alleging failure to comply with tits obligations to release the loan
proceeds, thereby prevented it from paying the obligation to
Prudential Bank.
The trial court ruled in favor of Saura, ruling that there was a
perfected contract between the parties ad that the RFC was guilty
of breach thereof.
ISSUE: Whether or not there was a perfected contract between
the parties.
HELD: The Court held in the affirmative. Article 1934
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
delivery of the object of the contract.
There was undoubtedly offer and acceptance in the case. When
an application for a loan of money was approved by resolution of
the respondent corporation and the responding mortgage was
executed and registered, there arises a perfected consensual
contract.
The application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But
this fact alone falls short of resolving the basic claim that the
defendant failed to fulfill its obligation and the plaintiff
is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of
Saura, Inc., imposing two conditions,] The imposition of those
conditions was by no means a deviation from the terms of the
agreement, but rather a step in its implementation. There was
nothing in said conditions that contradicted the terms laid down
in RFC Resolution No. 145. Evidently Saura, Inc. realized that it
could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able
in sufficient quantity this year or probably next year."
When RFC turned down the request

, the negotiations
which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously was in
no position to comply with RFC's conditions. So instead of doing

so and insisting that the loan be released as agreed upon, Saura,

Inc. asked that the mortgage be cancelled, which was done on
June 15, 1955. The action thus taken by both parties was in the
nature of mutual desistance, which is a mode of extinguishing
obligations. It is a concept that derives from the principle that
since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.
The subsequent conduct of Saura, Inc. confirms this
desistance. It did not protest against any alleged breach
of contract by RFC, or even point out that the latter's stand
was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it
believed it might have against RFC for the latter's noncompliance. In 1962 it even applied with DBP for another loan to
finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan
agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages. All these circumstances
demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance and that on the initiative of
the plaintiff-appellee itself.

2. BPI FAMILY SAVINGS BANK, INC

vs FIRST METRO INVESTMENT CORPORATION (2004)
FMIC, through its Executive Vice President Antonio Ong, opened
current account and deposited METROBANK check of P100
million with BPI Family Bank, San Francisco del Monte Branch
(Quezon City).
Ong made the deposit upon request of his friend, Ador de Asis, a
close acquaintance of Jaime Sebastian, then Branch Manager of
BPI FB San Francisco del Monte Branch. Sebastians aim was to
increase the deposit level in his Branch.
BPI FB, through Sebastian, guaranteed the payment of
P14,667,687.01 representing 17% per annum interest of P100
million deposited by FMIC. The latter, in turn, assured BPI FB
that it will maintain its deposit of P100 million for a period of one
year on condition that the interest of 17% per annum is paid in
advance.
This agreement between the parties was reached through their
communications in writing. Subsequently, BPI FB paid FMIC
17% interest or P14,667,687.01 upon clearance of the latters
check deposit.
However, on August 29, 1989, on the basis of an Authority to
Debit signed by Ong and Ma. Theresa David, Senior Manager of
FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre
Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to
Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC
issued BPI FB check for P86,057,646.72 payable to itself and
drawn on its deposit with BPI FB SFDM branch. But upon
presentation for payment, BPI FB dishonored the check as it was
"drawn against insufficient funds"
Consequently, FMIC filed with the RTC Makati City Civil Case
against BPI FB.
The trial court rendered judgment in favor of plaintiff, ordering
to pay (among others) the amount of P80 million with interest

at the legal rate from the time this complaint was filed less
P14,667,678.01. "BPI Family Bank liable for the amount of
P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. Further, this 17% interest shall itself
earn interest at 12% from October 4, 1989 until fully paid.
Petitioner BPI FB contends:
(1) that the Court of Appeals erred in awarding the 17% per
annum interest corresponding to the amount deposited by
respondent FMIC.
(2) that respondents deposit is not a special savings account
similar to a time deposit, but actually a demand deposit,
withdrawable upon demand, proscribed from earning
interest under Central Bank Circular 777.
(3) that the transaction is not valid as its Branch Manager, Jaime
Sebastian, clearly overstepped his authority in entering into such
an agreement with respondents Executive Vice President.
ISSUES:
1.
2.
3.

Whether or not respondents deposit is not a special

savings account but actually a demand deposit,
withdrawable upon demand.
Whether or not Central Bank Circular 777 proscribed
demand deposit from earning interest.
Whether or not the Court of Appeals erred in awarding
the 17% per annum interest corresponding to the
amount deposited by respondent FMIC.

HELD:
1. YES. We hold that the parties did not intend the deposit to be
treated as a demand deposit but rather as an interest- earning
time deposit not withdrawable any time. This is quite obvious
from the communications between the Branch
Manager, and Antonio Ong, respondents Executive Vice
President. Both agreed that the deposit of P100 million was nonwithdrawable for one year upon payment in advance of
the 17% per annum interest. Clearly, when respondent FMIC
invested its money with petitioner BPI FB, they intended the
P100 million as a time deposit, to earn 17% per annum interest
and to remain intact until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as "one the payment of
which cannot legally be required within such a specified number
of days."
In contrast, demand deposits are "all those liabilities of the
Bangko Sentral and of other banks which are denominated in
Philippine currency and are subject to payment in legal
tender upon demand by the presentation of
(depositors) checks."
While it may be true that barely one month and seven days from
the date of deposit, respondent FMIC demanded the withdrawal
of P86,057,646.72 through the issuance of a check payable to
itself, the same was made as a result of the fraudulent and
unauthorized transfer by petitioner BPI FB of its P80 million
deposit to Tevestecos savings account. Certainly, such was a
normal reaction of respondent as a depositor to petitioners
failure in its fiduciary duty to treat its account with the highest
degree of care.
Under this circumstance, the withdrawal of deposit by
respondent FMIC before the one-year maturity date did not

change the nature of its time deposit to one of demand

deposit.
2. NO. Petitioners argument that Central Bank regulations
prohibit demand deposit from earning interest is bereft
of merit.
Under Central Bank Circular No. 22, Series of 1994, "demand
deposits shall not be subject to any interest rate ceiling."
This, in effect, is an open authority to pay interest on demand
deposits, such interest not being subject to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In
fact, the rate ceiling was abolished and even allowed to float
depending on the market conditions. Manual of Regulations of
the Central Bank of the Philippines provide:
"Sec. 1244. Interest on time deposit. Time deposits shall not be
subject to any interest rate ceiling.
Sec. 1244.1. Time of payment. Interest on time deposit may be
paid at maturity or upon withdrawal or in advance. Provided,
however, That interest paid in advance shall not exceed the
interest for one year."

Thus, even assuming that respondents account with petitioner is

a demand deposit, still it would earn interest.
3.

Petitioner contends that such award is not in order as it had

not been prayed for by respondent in its complaint nor was it an
issue agreed upon by the parties during the pre-trial of the case.
Nonetheless, the rule is well settled that 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, as in this case. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded.
Besides, the matter of how much interest respondent is entitled
to falls squarely within the issues framed by the parties in their
respective pleadings filed with the court a quo. At any rate, courts
may indeed grant the relief warranted by the allegations and
proof even if no such specific relief is prayed for if only to
conclude a complete and thorough resolution of the issues
involved.

3. RAOUL BONNEVIE VS. THE HONORABLE COURT

OF APPEALS AND THE PHILIPPINE BANK OF
COMMERCE (1983)
FACTS: On December 6, 1966, Spouses Jose and Josefa Lozano
(Lozanos) mortgaged their property to the Philippine Bank of
Commerce (PBC) to secure a loan amounting to P75,000.
However, the amount loaned from said bank was not yet received
by the Lozanos.
On December 8, 1966, the Lozanos executed a Deed of Sale with
an Assumption of Mortgage to Honesto Bonnevie for P100,000.
Payment of the amount was to be done by paying P25,000 to the
Lozanos and P75,000 to PBC.
On December 12, 1966, the Lozanos along with one Alfonso Lim,
made a promissory note for P75,000 since the loan was not yet
received from the bank.
On May 4, 1968, Honesto Bonnevie assigned his rights under the
Deed of Sale with Assumption of Mortgage to his brother, Raoul
Bonnevie. Then, PBC applied for the foreclosure of Mortgage on

June 10, 1968 and the notice of sale was published in the Luzon
Weekly Courier on June 30, July 7, and July 14, 1968. On
Septtember 4, 1968, PBC bought the property from the public
auction for P84,387.
On October 9, 1969, Raoul and Honesto offered to repurchase the
property but were denied. Thereafter they caused an adverse
claim to be annotated on the title of the property.
The Bonnevies contend, first, that the mortgage was invalid for
lacking consideration as the Lozanos have not received the
amount. Second, that the renewals of the Lozanos of the loan
using the same property already sold rendered it null and void.
Third, the foreclosure sale lacked notice to them.
ISSUES:
1. Whether the real estate mortgage executed by the
spouses Lozano in favor of respondent bank was validly
and legally executed.
2. Whether the extrajudicial foreclosure of the said
mortgage was validly and legally effected.
3. Whether petitioners had a right to redeem the
foreclosed property.
HELD:
1. Yes. Under the law, a contract of loan being a consensual
contract, it was perfected at the same time the contract of
mortgage was executed. The fact that the Lozanos did not
collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. The
promissory note executed on December 12, 1966 is only an
evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
The argument that the renewals of the Lozanos of the loan
using the property already sold rendered it null and void, is
untenable because of the assumption of mortgage. A contract of
mortgage which prohibits the sale, disposition of, mortgage and
encumbrance of the mortgaged properties, without the written
consent of the mortgagee, and then mortgaged property is sold,
the vendee shall assume the mortgage in the terms and
conditions under which it is constituted.
In this case, the title of the property remained in the name of
the Lozano spouses so they could validly renew the loan and the
bank could rely on the certificate of title because the sale or
assignment was not registered. The doctrine of innocent
purchaser for value is applicable to an innocent mortgagee for
value. Furthermore, the petitioners voluntarily assumed the
mortgage when they entered into the Deed of Sale with
Assumption of Mortgage. As a result, they are estopped from
impugning its validity whether on the original loan or renewals
thereof.
2. Yes. Under Act No. 3135, Section 3. Notice shall be given by
posting notices of the sale for not less than twenty days in at
least three public places of the municipality or city where the
property is situated, and if such property is worth more than
four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.
The law does not require personal notice to the mortgagor. In
Basa vs Mercado, it was held that to be a newspaper of general
circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has
a bona fide subscription list of paying subscribers; that it is
published at regular intervals." In this case, there was sufficient
publication.
3. No. The petitioners assumed the mortgage without the consent
of PBC. As a result, petitioners were not validly substituted as
debtors. Furthermore, their rights were never recorded and

hence, respondent Bank is charged with the obligation to

recognize the right of redemption only of the Lozano spouses.

4. CENTRAL BANK OF THE PH vs CA

Facts:
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves,
Agusan, and covered by TCT No. T-305, and which mortgage was
annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use the
loan proceeds solely as an additional capital to develop his other
property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the

P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note
for P17,000.00 at 12% annual interest, payable within 3 years
from the date of execution of the contract at semi-annual
installments of P3,459.00 (p. 64, rec.).
On August 13, 1965, the Monetary Board of the Central Bank,
after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049 which prohibited the bank
from making new loans and investments (except investments in
government securities) excluding extensions or renewals of
already approved lloans provided that such extensions or
renewals shall be subject to review by the Superintendent of
Banks.

On August 1, 1968, Island Savings Bank, in view of non-payment

of the P17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino;
and the sheriff scheduled the auction for January 22, 1969. On
January 20, 1969, Sulpicio M. Tolentino filed a petition with the
Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to
deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings Bank
to deliver the P63,000.00 with interest of 12% per annum from
April 28, 1965, and if said balance cannot be delivered, to rescind
the real estate mortgage

Issues:
1. WON Sulpicio can maintain an action for specific
performance against Island Savings Bank
2. Is Sulpicion liable to pay the 17,000
3. Failure to pay 17,000, can his real estate mortgage be
foreclosed
Held:
1.

NO. When Island Savings Bank and Sulpicio M. Tolentino

entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations. In

reciprocal obligations, the obligation or promise of each

party is the consideration for that of the other; and when one
party has performed or is ready and willing to perform his
part of the contract, the other party who has not performed or
is not ready and willing to perform incurs in delay (Art. 1169
of the Civil Code). The promise of Sulpicio M. Tolentino to
pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued.
Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in
either case. But since Island Savings Bank is now prohibited
from doing further business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in favor of
Sulpicio M, Tolentino.

2.

YES. Rescission is the only alternative remedy left. WE rule,

however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only
insofar as such amount is concerned, as there is no doubt that
the bank failed to give the P63,000.00. As far as the partial
release of P17,000.00, which Sulpicio M. Tolentino accepted
and executed a promissory note to cover it, the bank was
deemed to have complied with its reciprocal obligation to
furnish a P17,000.00 loan. His failure to pay the overdue
amortizations under the promissory note made him a party in
default, hence not entitled to rescission (Article 1191 of the
Civil Code). If there is a right to rescind the promissory note,
it shall belong to the aggrieved party, that is, Island Savings
Bank.

Article 1192 of the Civil Code provides that in case both parties
have committed a breach of their reciprocal obligations, the
liability of the first infractor shall be equitably tempered by
the courts.

3.

Not Entirely. The real estate mortgage of Sulpicio M.

Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt. When there is partial failure of
consideration, the mortgage becomes unenforceable to the
extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p.
82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the
indebtedness actually owing to the holder of the mortgage is
less than the sum named in the mortgage, the mortgage
cannot be enforced for more than the actual sum due.

Since Island Savings Bank failed to furnish the P63,000.00

balance of the P8O,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt.
xxx
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY
IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965
TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL

AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS
REAL ESTATE MORTGAGE COVERING 21.25 HECTARES
SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75
HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND
IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO
M. TOLENTINO.
5. REPUBLIC vs BAGTAS (1962)
Facts:
Jose Bagtas borrowed from the Bureau of Animal Industry three
bulls for a period of one year for breeding purposes subject to a
government charge of breeding fee of 10% of the book value of
the books. Upon the expiration of the contract, Bagtas asked for a
renewal for another one year, however, the Secretary of
Agriculture and Natural Resources approved only the renewal for
one bull and other two bulls be returned. Bagtas then wrote a
letter to the Director of Animal Industry that he would pay the
value of the three bulls with a deduction of yearly depreciation.
The Director advised him that the value cannot be depreciated
and asked Bagtas to either return the bulls or pay their book
value. Bagtas neither paid nor returned the bulls. The Republic
then commenced an action against Bagtas ordering him to return
the bulls or pay their book value.
DECISION OF LOWER COURTS:
Trial court: After hearing, the trial Court ruled in favor of the
Republic, as such, the Republic moved ex parte for a writ of
execution which the court granted.
INTERVENING FACT: Felicidad Bagtas, the surviving spouse
and administrator of Bagtas' estate, returned the two bulls and
filed a motion to quash the writ of execution since one bull
cannot be returned for it was killed by gunshot during a Huk
raid. The Court denied her motion hence, this appeal certified by
the Court of Appeals because only questions of law are raised.
Issues:
1. Whether or not the contract was commodatum
2. Whether or not Bagtas should be held liable for its loss due to
force majeure.
Held:
1. NO, the contract is not commodatum. 2. YES, he is liable for
the loss.
A contract of commodatum is essentially gratuitous. Supreme
Court held that Bagtas was liable for the loss of the bull even
though it was caused by a fortuitous event. If the contract was
one of lease, then the 10% breeding charge is compensation
(rent) for the use of the bull and Bagtas, as lessee, is subject to
the responsibilities of a possessor. He is also in bad faith because
he continued to possess the bull even though the term of the
contract has already expired.
If the contract was one of commodatum, he is still liable because:
(1) he kept the bull longer than the period stipulated; and (2) the
thing loaned has been delivered with appraisal of its value (10%).
No stipulation that in case of loss of the bull due to fortuitous
event the late husband of the appellant would be exempt from
liability.

The original period of the loan was from 8 May 1948 to 7 May
1949. The loan of one bull was renewed for another period of one
year to end on 8 May 1950. But the appellant kept and used the
bull until November 1953 when during a Huk raid it was killed by
stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an
appraised book value, to with: the Sindhi, at P1,176.46, the
Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event
the late husband of the appellant would be exempt from liability.
Doctrine:
Loan of bulls for breeding purposes; Nature of contract affected
by payment of fee.The loan by the Bureau of Animal Industry
to the defendant of three bulls for breeding purposes for a period
of one year, later on renewed for another as regards one bull, was
subject to the payment by the borrower of breeding fee of 10% of
the book value of the bulls. If the breeding fee be considered a
compensation, the contract would be a lease of the bulls; it could
not be a contract of commodatum, because that contract is
essentially gratuitous.

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 acquisitive prescription because of the
absence of just title.
The Court of Appeals found that petitioner Vicar did not meet the
requirement of 30 years possession for acquisitive prescription
over Lots 2 and 3. Neither did it satisfy the requirement of 10
years possession for ordinary acquisitive prescription because of
the absence of just title. The appellate court did not believe the
findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from
Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the
alleged purchases were never mentioned in the application for
registration.

7. QUINTOS and ANSALDO vs BECK

6. Catholic Vicar Apostolic Inc. of Mt. Province vs. CA
21 September 1988
Facts:
- 1962: Catholic Vicar Apostolic of the Mountain Province
(Vicar), petitioner, filed with the court an application for the
registration of title over lots 1, 2, 3 and 4 situated in Poblacion
Central, Benguet, said lots being used as sites of the Catholic
Church, building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano
claimed that they have ownership over lots 1, 2 and 3. (2 separate
civil cases)
- 1965: The land registration court confirmed the registrable title
of Vicar to lots 1 , 2, 3 and 4. Upon appeal by the private
respondents (heirs), the decision of the lower court was reversed.
Title for lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his
application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1) witness,
who testified on the alleged ownership of the land in question
(Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his
written demand to Vicar for the return of the land to them; and
the reasonable rentals for the use of the land at P10,000 per
month. On the other hand, Vicar presented the Register of Deeds
for the Province of Benguet, Atty. Sison, who testified that the
land in question is not covered by any title in the name of
Egmidio Octaviano or any of the heirs. Vicar dispensed with the
testimony of Mons. Brasseur when the heirs admitted that the
witness if called to the witness stand, would testify that Vicar has
been in possession of Lot 3, for 75 years continuously and
peacefully and has constructed permanent structures thereon.
Issue: WON Vicar had been in possession of lots 2 and 3 merely
as bailee borrower in commodatum, a gratuitous loan for use.
Held: YES.
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 became bailors
in commodatum and the petitioner the bailee.

The plaintiff brought this action to compel the defendant to

return her certain furniture which she lent him for his use. She
appealed from the judgment of the Court of First Instance of
Manila which ordered that the defendant return to her the three
gas heaters and the four electric lamps found in the possession of
the Sheriff of said city.
The defendant was a tenant of the plaintiff and as such occupied
the latter's house. Upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture, subject to the
condition that the defendant would return them to the plaintiff
upon the latter's demand.
Thereafter the defendant was notified on the deed of conveyance
between plaintiff and a third party, the plaintiff required the
defendant to return all the furniture transferred to him.
The defendant declined to make delivery of all of them; instead,
before vacating the house, the he deposited with the Sheriff all
the furniture belonging to the plaintiff.
ISSUE:
1. Whether the defendant complied with his obligation to return
the furniture upon the plaintiff's demand
2. Whether the plaintiff is bound to bear the deposit fees thereof;
and
3. Whether she is entitled to the costs of litigation.

HELD:
1. The contract entered into between the parties is one of
commadatum, because under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself
to return the furniture to the plaintiff, upon the latters demand
(clause 7 of the contract, Exhibit A; articles 1740, paragraph 1,
and 1741 of the Civil Code). The obligation voluntarily assumed
by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff

at the latter's residence or house. The defendant did not comply

with this obligation when he merely placed them at the disposal
of the plaintiff, retaining for his benefit the three gas heaters and
the four eletric lamps.
2. As the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter's demand, the Court
could not legally compel her to bear the expenses occasioned by
the deposit of the furniture at the defendant's behest. The latter,
as bailee, was not entitled to place the furniture on deposit; nor
was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas
heaters and the four electric lamps.
3. As to the value of the furniture, we do not believe that the
plaintiff is entitled to the payment thereof by the defendant in
case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, the defendant has neither
agreed to nor admitted the correctness of the said value. Should
the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through
evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant
because the plaintiff is the prevailing party.
8. CONSOLIDATED BANK AND TRUST CORPORATION
V. CA
FACTS:
On July 13, 1982, respondents Continental Cement Corporation
and Gregory T. Lim obtained from petitioner Consolidated Bank
and Trust Corporation Letter of Credit in the amount of
P1,068,150.00. On the same date, respondent Corporation paid a
marginal deposit of P320,445.00 to petitioner. The letter of
credit was used to purchase around 500,000 liters of bunker fuel
oil from Petrophil Corporation, which the latter delivered directly
to respondent Corporation in its Bulacan plant. In relation to the
same transaction, a trust receipt for the amount of P1,001,520.93
was executed by respondent Corporation, with respondent Lim
as signatory.
Claiming that respondents failed to turn over the goods covered
by the trust receipt or the proceeds thereof, petitioner filed a
complaint for sum of money with application for preliminary
attachment before the Regional Trial Court of Manila.
On September 17, 1990, the trial court rendered its Decision,
dismissing the Complaint and ordering petitioner to pay
respondents the following amounts under their counterclaim:
P490,228.90 representing overpayment of respondent
Corporation, with interest thereon at the legal rate from July 26,
1988 until fully paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the CA, which partially modified the
Decision by deleting the award of attorneys fees in favor of
respondents and, instead, ordering respondent Corporation to
pay petitioner P37,469.22 as and for attorneys fees and litigation
expenses.
ISSUES:
(1) Whether or not the agreement among the parties as to the
floating of interest rate is valid under applicable
jurisprudence and the rules and regulations of the Central
Bank

(2) Whether or not the respondent appellate court grievously

erred in not considering the transaction at bar as a trust
receipt transaction instead of merely a simple loan.
(3) Whether or not the respondent appellate court grievously
erred in not holding private respondent spouses label under
the trust receipt transaction
RULING:
(1) Neither do we find error when the lower court and the Court
of Appeals set aside as invalid the floating rate of interest
exhorted by petitioner to be applicable. The pertinent provision
in the trust receipt agreement of the parties fixing the interest
rate states:
I, WE jointly and severally agree to any increase or decrease
in the interest rate which may occur after July 1, 1981, when
the Central Bank floated the interest rate, and to pay
additionally the penalty of 1% per month until the amount/s
or instalments/s due and unpaid under the trust receipt on
the reverse side hereof is/are fully paid.
We agree with respondent CA that the foregoing stipulation is
invalid, there being no reference rate set either by it or by the
Central Bank, leaving the determination thereof at the sole will
and control of petitioner.
While it may be acceptable, for practical reasons given the
fluctuating economic conditions, for banks to stipulate that
interest rates on a loan not be fixed and instead be made
dependent upon prevailing market conditions, there should
always be a reference rate upon which to peg such variable
interest rates. A stipulation ostensibly signifying an agreement to
any increase or decrease in the interest rate, without more,
cannot be accepted by this Court as valid for it leaves solely to the
creditor the determination of what interest rate to charge against
an outstanding loan.

(2) NO. Inasmuch as the debtor received the goods subject of

the trust receipt before the trust receipt was entered into, the
transaction in question was a simple loan and not a trust receipt
agreement.

Prior to the date of execution of the trust receipt, ownership of

the goods was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust receipt
transaction, wherein the goofs belong in the ownership to the
bank and are only released to the importer in trust after the loan
is granted.

In the case at bar, the delivery to respondent Corporation of the

goods subject if the trust receipt occurred long before the trust
receipt itself was executed. The delivery receipt was only
executed nearly 2 months after full delivery of the oil to
respondent Corporation.

Trust Receipts Law does not seek to enforce payment of the

loan, rather it punishes the dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner.

[Here, it is clear on the part of Petitioners there was neither

dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBS. Petitioners continually endeavored to meet
their obligations as shown by several receipts issued by PBC
acknowledging payment of the loan.
The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be
unjust and inequitable if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign
lest their loan be disapproved. The resort to this scheme leaves
poor and hapless borrowers at the mercy of banks, and is prone
to misinterpretation, as had happened in this case. Eventually,
PBC showed its true colors and admitted that it was only after
collection of the money, as manifested by its Affidavit of
Desistance.
By all indications, then, it is apparent that there was really no
trust receipt transaction that took place. Evidently, respondent
Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to
the former.
(3) We are not convinced that respondent Gregory T. Lim and
his spouse should be personally liable under the subject trust
receipt. Petitioners argument that respondent Corporation and
respondent Lim and his spouse are one and the same cannot be
sustained.

9. REPUBLIC vs GRIJALDO
Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of
P1,281.97 with interest at the rate of 6% per annum, compounded
quarterly.
By virtue of Vesting Order No. P-4, and the Enemy Act, the
assets in the Philippines of the Bank of Taiwan, Ltd. were vested
in the Government of the United States.
These assets, including the loans in question, were subsequently
transferred to the Republic of the Philippines by the Government
of the United States under Transfer Agreement.
Appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written
extrajudicial demand upon the appellant for the payment of the
account in question.
The appellant contends: (1) that the appellee has no cause of
action against the appellant because the loans were secured by a
chattel mortgage on the standing crops on a land owned by him
and these crops were lost or destroyed through enemy action,
hence his obligation to pay the loans was thereby extinguished;
(2) that if the appellee has a cause of action at all, that action had
prescribed; and
(3) that the lower court erred in ordering the appellant to pay the
amount of P2,377.23.
ISSUE:
1. Whether or not there is no cause of against appellant; t hat the
appellee has no privity of contract with the appellant.

2. Whether or not Grijaldos obligation to pay the loans before

the Republic (if there is a privity of contract between them) was
extinguished when his crops used as security in the chattel
mortgage for the five loans obtained from Taiwan Bank were lost
or destroyed through enemy action.
HELD:
1. NO. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank
of Taiwan was a private contract of loan. However, pursuant to
the Trading with the Enemy Act, as amended, and Executive
Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of
Taiwan, Ltd., an entity which was declared to be under the
jurisdiction of the enemy country (Japan), were vested in the
United States Government and the Republic of the Philippines,
the assets of the Bank of Taiwan, Ltd. were transferred to and
vested in the Republic of the Philippines. The successive transfer
of the rights over the loans in question from the Bank of Taiwan,
Ltd. to the United States Government, and from the United
States Government to the government of the Republic of the
Philippines, made the Republic of the Philippines the successor
of the rights, title and interest in said loans, thereby creating a
privity of contract between the appellee and the appellant.
The confiscation of the assets of the Bank of Taiwan, Ltd. being
an involuntary act of war, and sanctioned by international law,
the United States succeeded to the rights and interests of said
Bank of Taiwan, Ltd. over the assets of said bank. As successor in
interest in, and transferee of, the property rights of the United
States of America over the loans in question, the Republic of the
Philippines had thereby become a privy to the original contracts
of loan between the Bank of Taiwan, Ltd. and the appellant. It
follows, therefore, that the Republic of the Philippines has a legal
right to bring the present action against the appellant Jose
Grijaldo.
2. NO. The terms of the promissory notes and the chattel
mortgage that the appellant executed in favor of the Bank of
Taiwan, Ltd. do not support the claim of appellant. The
obligation of the appellant under the five promissory notes was
not to deliver a determinate thing namely, the crops to be
harvested from his land, or the value of the crops that would be
harvested from his land. Rather, his obligation was to pay a
generic thing the amount of money representing the total
sum of the five loans, with interest.
The transaction between the appellant and the Bank of Taiwan,
Ltd. was a series of five contracts of simple loan of sums of
money.
"By a contract of (simple) loan, one of the parties delivers to
another a money or other consumable thing upon the condition
that the same amount of the same kind and quality shall be paid."
-Article 1933, Civil Code.
The obligation of the appellant under the five promissory notes
evidencing the loans in questions is to pay the value thereof; that
is, to deliver a sum of money a clear case of an obligation to
deliver, a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
The chattel mortgage on the crops growing on appellant's land

simply stood as a security for the fulfillment of appellant's

obligation covered by the five promissory notes, and the loss of
the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the
mortgaged crops.

inasmuch as issuance of the title has not yet been effected

because of the take over by Comsavings Bank of Royal Savings
Bank, the period specified under Section 25 of P.D. No. 957 has
not begun to run for the purpose of redemption.
ISSUE/S:
1.

10. CASA FILIPINA DEVELOPMENT CORP vs

EXECUTIVE SECRETARY (1992)
DOCTRINE: It is, thus, evident that if a particular rate of
interest has been expressly stipulated by the parties, that interest,
not the legal rate of interest, shall be applied.
FACTS: On June 30, 1986, private respondent Jose Valenzuela,
Jr. filed a complaint against petitioner Casa Filipina
Development Corporation before the Office of Appeals,
Adjudication and Legal Affairs (OAALA) of the then Human
Settlements Regulatory Commission (now Housing and Land
Use Regulatory Board) for its failure to execute and deliver the
deed of sale and transfer certificate of title.
On January 21, 1987, the OAALA rendered judgment in favor of
private respondent, relying on Section 25 of Presidential Decree
No. 957 (Regulating the Sale of Subdivision Lots and
Condominiums, Providing Penalties for Violations thereof),
which provides:
Sec. 25.
Issuance of Title The owner or
developer shall deliver the title of the lot or unit to
the buyer upon full payment of the lot or unit. No fee
except those required for the registration of the deed
of sale in the Registry of deeds shall be collected for
the issuance of such title. In the event a mortgage
over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, the owner of or
developer shall redeem the mortgage or the
corresponding portion thereof within six months
from such issuance in order that the title over any
fully paid lot or unit may be secured and delivered to
the buyer in accordance herewith.
Petitioner then filed an appeal before the Housing and Land
Use Regulatory Board. In petitioner's memorandum, it
narrated the events that transpired which led to its failure to
deliver the title, namely: its original mortgagee bank was Royal
Savings Bank which was absorbed by Comsavings Bank
apparently due to bankrunptcy; Comsavings Bank is not
amenable to petitioner's earlier arrangement with Royal
Savings Bank on individual redemption of title, thus, it
demanded that petitioner's obligations should be paid prior to
the release of any individual title. petitioner cannot seasonably
meet such demand due to the inability of the past
administration to put up a viable and progressive economic
program that brought it into a fix situation wherein it has no
participation either intentionally or by negligence.
On October 6, 1987, the HLURB dismissed petitioner's appeal
for lack of merit and affirmed in toto the questioned decision
of the OAALA
Petitioner asseverates that in granting both remedies of specific
performance and rescission, public respondent ignored a wellpronounced rule that these remedies cannot be availed of at the
same time. Furthermore the amount of 24% interest imposed by
the OAALA in case of refund is high and without basis. Finally,

WON both remedies of specific performance and rescission

cannot be availed of at the same time.
2. WON the amount of 24% interest imposed by the OAALA in
case of refund is high and without basis
3. WON the period specified under Section 25 of P.D. No. 957 has
not begun to run for the purpose of redemption
HELD:
1. YES. It is plain enough in the OAALA decision that rescission
is being ordered only in the event specific performance is not
feasible. Moreover, petitioner is already estopped from raising
this issue because in its appeal memorandum submitted before
the HLURB, it leaded that: .Appellant prays that it be given a
period/time to redeem the title or the demand for issuance of
title be suspended from the Comsavings Bank before any deed of
absolute sale be executed so that the Transfer Certificate of Title
be issued and/or refund be ordered.
2. NO. The 24% interest was valid. The ruling in Reformina v.
Tomol, it must be underscored, deals exclusively with cases
where damages in the form of interest is due but no specific
rate has been previously set by the parties. In such cases,
the legal interest of 12% per annum must be applied. In the
present case, however, the interest rate of 24% per annum was
mutually agreed upon by petitioner and private respondent in
their contract to sell this was the interest rate imposed on
private respondent for the payment of the installments on the
contract price and there is no reason why this same interest rate
should not be equally applied to petitioner which is guilty of
violating the reciprocal obligation.
3. The argument of petitioner that the issuance of the title is a
prerequisite to the running of the six month period of
redemption, fails to convince Us. Otherwise, the owner or
developer can readily concoct a thousand and one reasons as
justifications for its failure to issue the title and in the process,
prolong the period within which to deliver the title to the buyer
free from any liens or encumbrances. Additionally, by not
issuing/delivering the title of the lot to private respondent upon
full payment thereof, petitioner has already violated the explicit
mandate of the first sentence of Section 25 of P.D. No. 957. If We
were to count the six month period of redemption from the
belated issuance of the title, petitioner will have a lot to gain from
its own non-observance of said provision.
(Section 25 of P.D. No. 957 imposes an obligation on the part of
the owner or developer, in the event the mortgage over the lot or
unit is outstanding at the time of the issuance of the title to the
buyer, to redeem the mortgage or the corresponding portion
thereof within six months from such issuance.)
11. PHILIPPINE NATIONAL BANK vs CA and AMBROSIO
PADILLA (1991)
FACTS: Private respondent, Ambrosio Padilla, applied for and
was granted a credit line of 321.8million, by petitioner PNB. This
was for a term of 2 years at 18% interest per annum and was
secured by real estate mortgage and 2 promissory notes executed
in favor of petitioner by PR. The credit agreement and the
promissory notes, in effect, provide that private respondent
agrees to be bound by increases to the interest rate stipulated,
provided it is within the limits provided for by law.

Conflict in this case arose when Petitioner unilaterally increased

the interest rate from 18% to:
(1) 32% [July 1984];
(2) 41% [October 1984]; and
(3) 48% [November 1984], or 3 times within the span of
a single year. This was done despite the numerous letters of
request made by PR that the interest rate be increased only to
21% or 24%.
Respondent filed a complaint against Petitioner with the
RTC. The latter dismissed the case for lack of merit. Appeal by
respondent to CA resulted in his favor. Hence the petition for
certiorari under Rule 45 of ROC filed by PNB with SC.
ISSUE: Whether or not the bank may validly increase the
stipulated interest rate on loans as often as it deemed necessary,
despite the removal of Usury Law ceiling on interests.
HELD: NO. Although under Sec. 2 of PD 116, the Monetary
Board is authorized to prescribe the maximum rate of interest
for loans and to change such rates whenever warranted by
prevailing economic and socialconditions, by express
provision, it may not do so oftener than once every
12 months. If the Monetary Board cannot, much less can PNB,
effect increases on the interest rates more than once a year.
In this case, basing on the credit agreement and promissory
notes executed between the parties, although respondent agreed
to increase on the interest rates allowed by law, there was no law
that was passed warranting petitioner to effect increase on the
interest rates on the existing loan of respondent for the months
of July to November of 1984. Neither there being any document
executed and delivered by respondent to effect such increase.
For escalation clauses to be valid and warrant the increase of the
interest rates on loans, there must be:
(1) increase was made by law or by the Monetary Board;
(2) stipulation must include a clause for the reduction of the
stipulated interest rate in the event that the maximum interest is
lowered by law or by the Monetary board.
In this case, PNB merely relied on its own Board Resolutions,
which are not laws nor resolutions of the Monetary Board.
Despite the suspension of the Usury Law, imposing a ceiling on
interest rates, this does not authorize banks to unilaterally and
successively increase interest rates in violation of Sec. 2 PD 116.
Increases unilaterally effected by PNB was in violation of the
Mutuality of Contracts under Art. 1308. This provides that the
validity and compliance of the parties to the contract cannot be
left to the will of one of the contracting parties. Increases made
are therefore void. Such a contract is a veritable trap for the
weaker party whom the courts of justice must protect against
abuse and imposition.
Increase on the stipulated interest rates made by PNB also
contravenes Art. 1956. It provides that, no interest shall be due
unless it has been expressly stipulated in writing. Respondent
never agreed in writing to pay interest imposed by PNB in excess
of 24% per annum. Interest rate imposed by PNB, as correctly
found by CA, is indubitably excessive.
12. RELUCIO vs GARFIN
Private respondent Zeida B. Brillante-Garfin filed a complaint in
the lower court for specific performance with damages against
petitioner Irene P. Relucio, to compel the latter to: (a) execute, in
compliance with the Contract to Buy and Sell in question, a final

deed of sale in favor of the former over two (2) residential

subdivision lots in the Mariano Village Subdivision, Naga City;
and (b) construct paved roads on the northern and southern
sides of the lots
Private respondent alleged that the lots, which have a total
contract price of P10,800.00, have already been paid for; that as
the law allows the charging of interest only as monetary interest
or as compensatory interest, none of which have obtained in her
case, as she had never incurred in delay in the payment of
installments due, the stipulated interest of six percent (6%) per
annum on the outstanding balance is null and void; and that the
amount of 650.00 representing overpayment be returned to her.
Petitioner resisted the complaint, maintaining that private
respondent, contrary to the latter's allegations, is obliged to pay
interest on the installment payments of the unpaid outstanding
balance even if paid on their "due dates" per schedule of
payments
ISSUE: Whether or not petitioner may validly charge interest on
installment payments, notwithstanding that private respondent
had been prompt in her monthly payments
HELD: YES. stipulation clearly specified that an interest charge
of six percent (6%) per annum was included in the monthly
installment price: private respondent could not have helped
noticing that P89.45 multiplied by 180 monthly installments
equals P16,101.00, and not P10,600.00. The contract price of
P10,800.00 may thus be seen to be the cash price of the
subdivision lots, that is, the amount payable if the price of the
lots were to be paid in cash and in full at the execution of the
contract; it is not the amount that the vendor will have received
in the aggregate after fifteen (15) years if the vendee shall have
religiously paid the monthly installments. The installment price,
upon the other hand, of the subdivision lots-the sum total of the
monthly installments (i.e., P16,101.00) typically, as in the instant
case, has an interest component which compensates the vendor
for waiting fifteen (15) years before receiving the total principal
amount of P10,600.00.
that mere prompt payment of the monthly installments as they
fell due would obviate application of the interest charge of six
percent (6%) per annum, is to ignore that simple economic fact.
Vendor and vendee are legally free to stipulate for the payment of
either the cash price of a subdivision lot or its installment price.
Should the vendee opt to purchase a subdivision lot via the
installment payment system, he is in effect paying interest on the
cash price, whether the fact and rate of such interest payment is
disclosed in the contract or not. The contract for the purchase
and sale of a piece of land on the installment payment system in
the case at bar is not only quite lawful; it also reflects a very wide
spread usage or custom in our present day commercial life.

13. Eastern Shipping Lines, Inc v. CA and Mercantile

Insurance Co.
Facts: On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS EASTERN
COMET" owned by defendant Eastern Shipping Lines under Bill
of Lading. The shipment was insured under plaintiff's Marine
Insurance Policy.
Upon arrival of the shipment in Manila on December 12, 1981, it
was discharged unto the custody of defendant Metro Port

Service, Inc. The latter excepted to one drum, said to be in bad

order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service, Inc.,
one drum opened and without seal.
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake
The consignee suffered losses totaling P19,032.95, due to the
fault and negligence of defendants. 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
There is no doubt ,as in this petition brought solely by Eastern
Shipping Lines, which, being the carrier and not having been able
to rebut the presumption of fault, is, in any event, to be held
liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage while in
the successive possession of appellants" (the herein petitioner
among them)
Nonetheless, Eastern Shipping Lines, Inc., the common carrier,
attributes error and grave abuse of discretion on the part of the
appellate court when it held that the grant of interest of
claim of private respondent should have commence
from the date of filing of the complainant at the rate of
12% per annum instead of from the date of the decision of the
trail court and only at the rate of 6% per annum. Private
respondents claim being indisputably un-liquidated.
Issues:
1. 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
2. Whether the applicable rate of interest, referred to above, is
twelve percent 12% or six percent 6%
Held: The legal interest to be paid is 6% on the amount
due computed from the decision. A 12% interest, in lieu of
6% shall be imposed on such amount upon finality of the decision
until payment thereof.
According to the jurisprudence, 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
extra-judicially 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.
In case at bar, the breach of obligation does not constitute a loan
or forbearance of money but transaction which involves the
payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in
general. Hence, the 6% interest under the Civil Code governs not
the 12% per annum of the Central Bank Act which applies only to
loans or forbearance.
Furthermore, the interest shall begin to run only from the date of
judgment of the court is made because it was not reasonably
established that judicially or extra-judicially was made.
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 and 12% interest per annum of the
Central Bank Act 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.

14. PHILIPPINE AMERICAN ACCIDENT INSURANCE

COMPANY vs FLORES
Respondent Judge Flores rendered a judgment in favor of the
Respondent Navalta asking Petitioner Phil-Am Accident
Incurance Company Inc. to pay the former the amount of
P75,000.00 with legal interest from Oct. 1968, as attorneys fees
and the cost of the suit.
Petitioner paid respondent the principal amount with legal
interest at 6% per annum from Oct 1968 to Apr. 30 1978 (in
accordance with Art. 2209 of the CC which provides: If the
obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum."

This appears to be the basis for the awarding interest at the legal
rate from
Oct. 1968, although the debt was judicially demanded only on
July 6 1970) and attorneys fees and the cost of the suit. Later on,
Respondent advised the petitioner that payment was not in full
satisfaction of the judgment because he has to pay
compound interest or additional sum of P10, 375.77. The
respondent secured a writ if execution upon the refusal of the
petitioner to pay the additional sum claimed; which was affirmed
by the Judge. Hence this review.
ISSUE: Whether or not the petitioner is obligated to pay
compound interest under the judgment.
HELD: NO. The questioned Order cannot be sustained. The
judgment which was sought to be executed ordered the payment
of simple "legal interest" only. It said nothing about the payment

of compound interest. Accordingly, when the respondent judge

ordered the payment of compound interest he went beyond the
confines of his own judgment which had been affirmed by the
Court of Appeals and which had become final.
Private Respondent invokes Sec. 5 of the Usury Law which
reads in part as follows: In computing the interest on any
obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by
agreement, or in default thereof, whenever the debt is
judicially claimed in which case it shall draw sic per centum
per annum interest xxx as well as Art. 2212 of the Civil Code
which stipulates: Interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be

silent upon this point. Both legal provisions are inapplicable for
they contemplate the presence of stipulated or conventional
interest which had accrued when demand was judicially made.
In this case, no interest had been stipulated by the parties. In
other words, there was no accrued conventional interest which
could further earn interest upon judicial demand. Wherefore,
decision was set aside.
Doctrine: Both Art. 2212 of the Civil code and Section 5 of the
Usury Law refer to stipulated or
conventional interest and does not apply where no interest was
stipulated by the parties.