ARTICLE 1156

G.R. No. 130994, September 18, 2002, Spouses. Felimon and Maria Barrera vs. Spouses
Emiliano and Maria Concepcion Lorenzo

Facts:
On December 4, 1990, spouses Barrera, petitioners, borrowed P230,000.00 from spouses
Miguel and Mary Lazaro. The loan was secured by a real estate mortgage over petitioners'
residential lot. A month and a half later, the Lazaro spouses informed petitioners that they would
transfer the loan to spouses Lorenzo, respondents. Consequently, petitioners executed another
real estate mortgage over their lot, this time in favor of the respondents to secure the loan of
P325,000.00, which the latter claimed as the amount they paid spouses Lazaro..
The mortgage contract provides, among others, that the new loan shall be payable within
three (3) months, or until August 14, 1991; that it shall earn interest at 5% per month; and that
should petitioners fail to pay their loan within the said period, the mortgage shall be foreclosed.
When petitioners failed to pay their loan in full on August 14, 1991, respondents allowed
them to complete their payment until December 23, 1993. On this date, they made a total payment
of P687,000.00.
On January 17, 1994, respondents wrote petitioners demanding payment of P325,000.00,
plus interest, otherwise they would foreclose the mortgage. In turn, petitioners responded, claiming
that they have overpaid their obligation and demanding the return of their land title and refund of
their excess payment.
Respondents filed a petition for extrajudicial foreclosure of mortgage while petitioners filed
a complaint for the return of their TCT No. T-42.373 (M), sum of money and damages.
The trial court held that the stipulated 5% monthly interest to be paid by petitioners
corresponds only to the period from May 14, 1991 up to August 14, 1991, the term of the loan.
Thereafter, the monthly interest should be 12% per annum. The trial court concluded that
petitioners made an overpayment.
Upon appeal, the Court of Appeals reversed the decision of the RTC and held that until
such time that the Barreras have fully paid their total indebtedness, the 5% monthly interest
subsists, there being no stipulation to the contrary. To hold otherwise is grossly unfair.

Issue:
Whether the 5% monthly interest on the loan was only for three (3) months, or from May
14, 1991 up to August 14, 1991, as maintained by petitioners, or until the loan was fully paid.

Ruling:
Article 1956 of the Civil Code mandates that "(n)o interest shall be due unless it has been
expressly stipulated in writing." To wit, there is no written agreement between the parties that the
loan will continue to bear 5% monthly interest beyond the agreed three-month period. Applying
then the above provision, the trial court correctly held that the monthly interest of 5% corresponds
only to the three-month period of the loan, or from May 14, 1991 to August 14, 1991, as agreed
upon by the parties in writing. Thereafter, the interest rate for the loan is 12% per annum.
In Eastern Shipping Lines, Inc. vs. Court of Appeals, this Court laid down the following
doctrine:
"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."

G.R. No. 173227, January 20, 2009, Sebastian Siga-an vs. Alicia Villanueva

Facts:
Respondent filed a complaint for sum of money against petitioner. Respondent alleged that
she was a businesswoman engaged in supplying office materials and equipments to the Philippine
Navy Office (PNO), while petitioner was a military officer and comptroller of the PNO. Respondent
claimed that petitioner approached her inside the PNO and offered to loan her the amount of
P540,000.00 of which the loan agreement was not reduced in writing and there was no stipulation
as to the payment of interest for the loan. Respondent issued a check worth P500,000.00 to
petitioner as partial payment of the loan. She then issued another check in the amount of
P200,000.00 to petitioner as payment of the remaining balance of the loan of which the excess
amount of P160,000.00 would be applied as interest for the loan.
Not satisfied with the amount applied as interest, petitioner pestered her to pay additional
interest and threatened to block or disapprove her transactions with the PNO if she would not
comply with his demand. Thus, she paid additional amounts in cash and checks as interests for
the loan. She asked petitioner for receipt for the payments but was told that it was not necessary
as there was mutual trust and confidence between them. According to her computation, the total
amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the excess amount to the former. It
ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00, and
that the alleged interests due should not be included in the computation of respondent’s total
monetary debt because there was no agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the amount of
P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to
the principle of solutio indebiti.

Issue:
Whether or not interest was due to petitioner; whether or not the principle of solutio indebiti
applies in this case.

Ruling:
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 in writing. As can be gleaned from
the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing.
Here, petitioner and respondent did not agree on the payment of interest for the loan.
Neither was there convincing proof of written agreement between the two regarding the payment
of interest.
However, there are instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay,
a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on
the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that
interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent on this point.
All the same, the interest under these two instances may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a compensation for the use
or forbearance of money. In other words, the two instances apply only to compensatory interest
and not to monetary interest. The case at bar involves petitioner’s claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan.
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has
been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be
applied. It was duly established that respondent paid interest to petitioner. Respondent was under
no duty to make such payment because there was no express stipulation in writing to that effect.
There was no binding relation between petitioner and respondent as regards the payment of
interest. The payment was clearly a mistake. Since petitioner received something when there was
no right to demand it, he has an obligation to return it.
G.R. No. 187678, April 10, 2013, Spouses Ignacio Juico and Alice Juico vs. China Banking
Corporation

Facts:
Spouses Juico (petitioners) obtained a loan from China Banking Corporation (respondent)
as evidenced by two Promissory Notes. The loan was secured by a Real Estate Mortgage. When
petitioners failed to pay the monthly amortizations due, respondent demanded the full payment of
the outstanding balance with accrued monthly interests. The mortgaged property was then sold at
public auction.
Afterward, petitioners received a demand letter from respondent for the payment of the
amount of deficiency after applying the proceeds of the foreclosure sale to the mortgage debt. As
its demand remained unheeded, respondent filed a collection suit in the trial court.
At the trial, respondent presented Ms. Yu, its Senior Loans Assistant, as witness. She
testified that she handled the account of petitioners. Ms. Yu reiterated that the interest rate changes
every month based on the prevailing market rate and she notified petitioners of the prevailing rate
by calling them monthly before their account becomes past due. When asked if there was any
written authority from petitioners for respondent to increase the interest rate unilaterally, she
answered that petitioners signed a promissory note indicating that they agreed to pay interest at
the prevailing rate.
The trial court ruled that the stipulation relating to the interest rate is valid since petitioner
admitted reading the promissory notes before signing them. This being the case, petitioners’
principal obligation subsists but at a reduced amount after applying the proceeds of the foreclosure
sale. The CA then affirmed the trial court’s decision.
Petitioners contend now before the Court that the interest rates imposed by respondent
are not valid. They insist that the interest rates were unilaterally imposed by the bank and thus
violate the principle of mutuality of contracts. They argue that the escalation clause in the
promissory notes does not give respondent the unbridled authority to increase the interest rate
unilaterally. Any change must be mutually agreed upon.
Issue:
Whether or not the interest rates imposed upon petitioner by respondent are valid.
Ruling:
An escalation clause is void where the creditor unilaterally determines and imposes an
increase in the stipulated rate of interest without the express conformity of the debtor.
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as
the case may be, the interest rate/service charge presently stipulated in this note without any
advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated
by the Central Bank of the Philippines or appropriate government entities, increasing or decreasing
such interest rate or service charge.
While the latter is not strictly an escalation clause, its clear import was that interest rates
would vary as determined by prevailing market rates. Evidently, the parties intended the interest
on petitioners’ loan, including any upward or downward adjustment, to be determined by the
prevailing market rates and not dictated by respondent’s policy. Also, there is no indication that
petitioners were coerced into agreeing with the foregoing provisions of the promissory notes. In
fact, petitioner Ignacio, a physician engaged in the medical supply business, admitted having
understood his obligations before signing them.
This notwithstanding, the Court hold that the escalation clause is still void because it grants
respondent the power to impose an increased rate of interest without a written notice to petitioners
and their written consent. Respondent’s monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement based on the new imposed
interest with corresponding computation of the total debt should have been provided by the
respondent to enable petitioners to make an informed decision. An appropriate form must also be
signed by the petitioners to indicate their conformity to the new rates. Compliance with these
requisites is essential to preserve the mutuality of contracts.
Article 1957
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

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 6% 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.

When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion
of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

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 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become final and executory
prior to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.
G.R. No. 172139, December 8, 2010, Jocelyn Toledo vs. Marilou Hyden
Facts:

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent Marilou M. Hyden
(Marilou). From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously paying
Marilou the stipulated monthly interest by issuing checks and depositing sums of money in the
bank account of the latter. However, the total principal amount remained unpaid. Thus, in April
1998, Marilou visited Jocelyn in her office at CAP in Cebu City where an "Acknowledgment of
Debt" for the principal amount was signed by Jocelyn with two of her subordinates as witnesses.
Also on said occasion, Jocelyn issued five checks to Marilou representing renewal payment of her
five previous loans. In June 1998, Jocelyn asked Marilou for the recall of a check and replaced the
same with six checks, in staggered amounts.
After honouring three checks, Jocelyn ordered the stop payment on the remaining checks
and on October 27, 1998, filed with the RTC of Cebu City a complaint against Marilou.

Jocelyn claimed that the application of her total payment to interest alone is illegal,
unfounded, unjust, oppressive and contrary to law because there was no written agreement to pay
interest.
On the contrary, Marilou alleged that Jocelyn voluntarily obtained the said loans knowing fully well
that the interest rate was at 6% to 7% per month. In fact, a 6% to 7% advance interest was already
deducted from the loan amount given to Jocelyn.

Issue:
Whether or not the imposition of interest at the rate of six percent (6%) to seven percent
(7%) is contrary to law, morals, good customs, public order or public policy.

Ruling:
The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances
of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling
on interest effective January 1, 1983, parties to a loan agreement have wide latitude to stipulate
interest rates. Nevertheless, such stipulated interest rates may be declared as illegal if the same
is unconscionable.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the
same carried with it an interest rate of 6% to 7% per month, yet she did not complain. In fact, when
she availed of said loans, an advance interest of 6% to 7% was already deducted from the loan
amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to
7% per month and paying for the same, Jocelyn cannot now go to court to have the said interest
rate annulled on the ground that it is excessive, iniquitous, unconscionable, exorbitant, and
absolutely revolting to the conscience of man. "This is so because among the maxims of equity
are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with
clean hands.
G.R. No. 197861, June 5, 2013, Spouses Mallari vs. Prudential Bank

Facts:
Petitioners spouses Florentino and Aurea Mallari (petitioners) obtained again from
respondent bank another loan of ₱1.7 million. They stipulated that the loan will bear 23% interest
p.a. Petitioners executed a Deed of Real Estate Mortgage6 in favor of respondent bank covering
petitioners' property.
Petitioners failed to settle their loan obligations with respondent bank, thus, the latter,
through its lawyer, sent a demand letter to the former for them to pay their obligations. Respondent
bank filed with RTC a petition for the extrajudicial foreclosure of petitioners' mortgaged property
for the satisfaction of the latter's obligation of ₱1,700,000.00 secured by such mortgage, thus, the
auction sale was set.
Petitioners then filed a complaint claiming, among others, that: there were onerous terms
and conditions imposed by respondent bank when it tried to unilaterally increase the charges and
interest over and above those stipulated. Petitioners asked the court to restrain respondent bank
from proceeding with the scheduled foreclosure sale.
Respondent bank argued that the interest rates were clearly provided in the promissory
notes, which were used in computing for interest charges and that petitioners were fully apprised
of the bank's terms and conditions.

Issue:
Whether or not the 23% p.a. interest rate on petitioners' ₱1,700,000.00 loan to which they
agreed upon is excessive or unconscionable under the circumstances.

Ruling:
Jurisprudence establish that the 24% p.a. stipulated interest rate was not considered
unconscionable, thus, the 23% p.a. interest rate imposed on petitioners' loan in this case can by
no means be considered excessive or unconscionable.
As such, the Court ruled that the borrowers cannot renege on their obligation to comply
with what is incumbent upon them under the contract of loan as the said contract is the law between
the parties and they are bound by its stipulations.