People vs. Concepcion, 44 Phil.

126 [1922]
FACTS:
Venancio Concepcion, President of the Philippine National
Bank and a member of the Board thereof, authorized an
extension of credit in favor of "Puno y Concepcion, S. en C. to
the manager of the Aparri branch of the Philippine National
Bank. "Puno y Concepcion, S. en C." was a co-partnership
where Concepcion is a partner. Subsequently, Concepcion was
charged and found guilty in the Court of First Instance of
Cagayan with violation of section 35 of Act No.2747. Section
35 of Act No. 2747 provides that the National Bank shall not,
directly or indirectly, grant loans to any of the members of the
board of directors of the bank nor to agents of the branch
banks. Counsel for the defense argue that the documents of
record do not prove that authority to make a loan was given,
but only show the concession of a credit. They averred that
the granting of a credit to the co-partnership "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, is not a "loan" within the
meaning of section 35 of Act No. 2747.
ISSUE:
Whether or not the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, a "loan"
within the meaning of section 35 of Act No. 2747.
HELD:
The Supreme Court ruled in the affirmative. The "credit" of an
individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what
he may promise. A "loan" means the delivery by one party
and the receipt by the other party of a given sum of money,
upon an agreement, express or implied, to repay the sum
loaned, with or without interest. The concession of a "credit"
necessarily involves the granting of "loans" up to the limit of
the amount fixed in the "credit,"

Saura Import and Export Co., Inc. vs. DBP, 44 SCRA 445
[1972]
FACTS:
Saura Inc. applied to the Rehabilitation Finance Corp (before
its conversion to DBP) for a loan of 500k secured by a first
mortgage of the factory building to finance for the
construction of a jute mill factory and purchase of factory
implements. RFC accepted and approved the loan application
subject to some conditions which Saura admitted it could not
comply with. Without having received the amount being
loaned, and sensing that it could not at anyway obtain the full
amount of loan, Saura Inc. then asked for cancellation of the
mortgage which RFC also approved. Nine years after the
cancellation of the mortgage, Saura sued RFC for damages for
its non-fulfilment of obligations arguing that there was indeed
a
perfected
consensual
contract
between
them.
ISSUES:
Whether or not there was a perfected consensual contract?
Whether or not there was a real contract of loan which would
warrant recovery of damages arising out of breach of such
contract?
HELD:
On the first issue, yes, there was indeed a perfected
consensual contract, as recognized in Article 1934 of the Civil
Code. There was undoubtedly offer and acceptance in this
case: 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 second issue and
the basic claim that the defendant failed to fulfil its obligation
and the plaintiff is therefore entitled to recover damages. The
action thus taken by both partiesSaura's request for
cancellation and RFC's subsequent approval of such
cancellationwas in the nature of mutual desistance what
Manresa terms "mutuo disenso" which is a mode of
extinguishing obligations. It is a concept derived from the
principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its
extinguishment. In view of such extinguishment, said
perfected consensual contract to deliver did not constitute a
real contract of loan.

BPI Investment Corp. vs. Court of Appeals, 377 SCRA

117 [2002]

FACTS:
Frank Roa obtained a loan with interest rate of 16
1/4%/annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of BPI Investment Corp.
(BPIIC), for the construction of a house on his lot in New
Alabang Village, Muntinlupa. He mortgaged the house and lot
to AIDC as security for the loan. In 1980: Roa sold the house
and lot to ALS Management & Development Corp. and Antonio
Litonjua for P850K who paid P350K in cash and assumed the
P500K indebtness of ROA with AIDC. AIDC proposed to grant
ALS and Litonjua a new loan for P500K with interested rate of
20%/annum and service fee of 1%/annum on the outstanding
balance
payable
within
10
years
through
equal
monthly amortization of P9,996.58 and penalty interest of
21%/annum/day from the date the amortization becomes due
and payable. In March 1981: ALS and Litonjua executed a
mortgage deed containing the new stipulation with the
provision that the monthly amortization will commence on
May 1, 1981.
In August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35
reducing the P500K principal loan to P457,204.90. September
13, 1982: BPIIC released to ALS and Litonjua P7,146.87,
purporting to be what was left of their loan after full payment
of Roas loan. On June 1984: BPIIC instituted foreclosure
proceedings against ALS and Litonjua on the ground that they
failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984 amounting to P475,585.31. August 13,
1984: Notice of sheriff's sale was published. Then on February
28, 1985: ALS and Litonjua filed Civil Case No. 52093 against
BPIIC alleging that they are not in arrears and instead they
made an overpayment as of June 30, 1984 since the P500K
loan was only released September 13, 1982 which marked the
start of the amortization and since only P464,351.77 was
released
applying
legal
compensation
the
balance
of P35,648.23 should be applied to the monthly amortizations.
RTC ruled in favor of ALS and Litonjua and against BPIIC that
the loan granted by BPI to ALS and Litonjua was only in the
principal sum of P464,351.77 and awarding moral damages,
exemplary damages and attorneys fees for the publication.
CA Affirmed reasoning that a simple loan is perfected upon
delivery of the object of the contract which is on September
13, 1982

ISSUE:
Whether or not the contract of loan was perfected only on
September 13, 1982 or the second release of the loan?

HELD:
YES. The court AFFIRMED WITH MODIFICATION as to the award
of damages. The award of moral and exemplary damages in
favor of private respondents is DELETED, but the award to
them of attorneys fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against
petitioner. Obligation to pay commenced only on October 13,
1982, a month after the perfection of the contract. The
contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for
that of the other. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with
what is incumbent upon him. Consequently, petitioner could
only demand for the payment of the monthly amortization
after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. It was
found that BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually
released and the date when it was released. Such negligence
resulted in damage for which an award of nominal damages
should be given. SSS where we awarded attorneys fees
because private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private respondents
as attorneys fees

Bonnevie vs. Court of Appeals, 125 SCRA 122 [1983]

FACTS:
Spouses Lozano mortgaged their property to secure the
payment of a loan amounting to 75K with private respondent
Philippine Bank of Communication (PBCom). The deed of
mortgage was executed on 12-6-66, but the loan proceeds
were received only on 12-12-66. Two days after the execution
of the deed of mortgage, the spouses sold the property to the

petitioner Bonnevie for and in consideration of 100k25K of

which payable to the spouses and 75K as payment to PBCom.
After which, Bonnevie defaulted payments to PBCom
prompting the latter to auction the property after Bonnivie
failed to settle despite subsequent demands, in order to
recover the amount loaned. The latter now assails the validity
of the mortgage between Lozano and PBCom arguing that on
the day the deed was executed there was yet no principal
obligation to secure as the loan of P75,000.00 was not
received by the Lozano spouses, so that in the absence of a
principal obligation, there is want of consideration in the
accessory contract, which consequently impairs its validity
and
fatally
affects
its
very
existence.
ISSUE: Whether or not there was a perfected contract of loan?
HELD:
Yes. From the recitals of the mortgage deed itself, it is clearly
seen that the mortgage deed was executed for and on
condition of the loan granted to the Lozano spouses. The fact
that the latter did not collect from the respondent Bank the
consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract,
the herein contract of loan was perfected at the same time
the contract of mortgage was executed. 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.

Central Bank of the Phils. vs. Court of Appeals, 139

SCRA 46 [1985]

Tolentino may choose bet specific performance or rescission

w/ damages in either case. But considering that the bank is
now prohibited from doing business, specific performance
cannot be granted. Rescission is the only remedy left, but the
rescission should only be for the P63K balance.
2) The promissory note gave rise to Sulpicio M. Tolentinos
reciprocal obligation to pay the P17,000.00 loan when it falls
due. 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. If Tolentino had
not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in
default as there was no date for him to perform his reciprocal
obligation to pay. Since both parties were in default in the
performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to
furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
3) Since Island Savings Bank failed to furnish the P63,000.00
balance of the P80,000.00 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.

FACTS:
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. The
loan called for a lump sum of P80,000, repayable in semiannual instalments for 3 yrs, with 12% annual interest. After
the agreement, a mere P17K partial release of the loan was
made by the bank and Tolentino and his wife signed a
promissory note for the P17,000 at 12% annual interest
payable w/in 3 yrs. An advance interest was deducted fr the
partial release but this pre-deducted interest was refunded to
Tolentino after being informed that there was no fund yet for
the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was
suffering liquidity problems, prohibited the bank fr making
new loans and investments. And after the bank failed to
restore its solvency, the Central Bank prohibited Island
Savings Bank from doing business in the Philippines. Island
Savings Bank in view of the non-payment of the P17K filed an
application for foreclosure of the real estate mortgage.
Tolentino filed petition for specific performance or rescission
and damages with preliminary injunction, alleging that since
the bank failed to deliver P63K, he is entitled to specific
performance and if not, to rescind the real estate mortgage.

Republic vs. Bagtas, 6 SCRA 262 [1962]

FACTS:
On May 8, 1948, Jose Bagtas borrowed from the Bureau of
Animal Industry three bulls for one year for breeding purposes
upon payment of a breeding fee of 10% of the book value of
the bulls. After one year, the contract was renewed but only
for one bull. Bagtas offered to buy the bulls at book value less
depreciation, but the Bureau told him that he should either
return the bulls or pay for their book value. Bagtas failed to
pay the book value, so the Republic filed an action with the
CFI Manila to order the return of the bulls or the payment of
the book value. Felicidad Bagtas, the surviving spouse and
administratrix of the decedents estate, said that the two bulls
have already been returned in 1952, and that the remaining
one died of gunshot during a Huk raid. It was established that
the two bulls were returned, thus, there is no more obligation
on the part of Bagtas. With regards the bull not returned,
Felicidad maintained that the obligation is extinguished since
the contract is that of a commodatum and that the loss
through fortuitous event should be borne by the owner.
ISSUE:
Whether or not the contract entered into between Bagtas and
the Republic is that of commodatum making Bagtas not liable
for the death of the bull.

ISSUES:

HELD:

1) Whether or not Tolentinos can collect from the bank for

damages?

A contract of commodatum is essentially gratuitous. If the

breeding fee be considered compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the responsibilities of a
possessor in bad faith because she had continued possession
of the bull after the expiry of the contract. Even if the contract
be commodatum, still Bagtas is liable because article 1942 of
the Civil Code provides that a bailee in a contract of
commodatum is liable for loss of the things even if it should
be through a fortuitous event if he keeps it longer than the
period stipulated or if the thing loaned has been delivered
with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous
event. The loan of one bull was renewed for another period of
one year but Bagtas kept and used the bull more than one
year where during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased
husband of Bagtas, the bulls had each an appraised book
value. 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.

2) Whether or not the mortgagor is liable to pay the amount

covered by the promissory note?
3) Whether or not the real estate mortgage can be foreclosed?

HELD:
1) The loan agreement implied reciprocal obligations. When
one party is willing and ready to perform, the other party not
ready nor willing incurs in delay. When Tolentino executed real
estate mortgage, he signified willingness to pay. That time,
the banks obligation to furnish the P80K loan accrued. Now,
the Central Bank resolution made it impossible for the bank to
furnish the P63K balance. The prohibition on the bank to make
new loans is irrelevant because it did not prohibit the bank
from releasing the balance of loans previously contracted.
Insolvency of debtor is not an excuse for non-fulfilment of
obligation but is a breach of contract. The banks asking for
advance interest for the loan is improper considering that the
total loan hasnt been released. A person cant be charged
interest for non-existing debt. The alleged discovery by the
bank of overvaluation of the loan collateral is not an issue.
The bank officials should have been more responsible and the
bank bears risk in case the collateral turned out to be
overvalued. Furthermore, this was not raised in the pleadings
so this issue cant be raised. The bank was in default and

Catholic Vicar Apostolic of the Mt. Province vs. CA, 165

SCRA 515 [1988]
FACTS:

Catholic Vicar of the Mountain Province (Vicar for brevity)

filed with the CFI of Baguio, Benguet an application for
registration of title for Lots 1,2,3 and 4 of Psu-194357
situated at Poblacion Central, La Trinidad, Benguet. Said
lots being the sites of the Catholic Church building,
convents, school, etc. Upon learning of the application, the
Heirs of Juan Valdez and the Heirs of Emigdio Octaviano
filed an Answer/Opposition thereto on Lots 2 and
3,respectively, asserting ownership and title thereto. The
land registration court promulgated its decision confirming
the registrable title to Vicar. Both heirs of Valdez and
Octaviano appealed to the Court of Appeals.
The CA modified the decision of the land registration court
and found that Lots 2 and 3 were possessed by the
predecessors-in-interest of private respondents under
claim of ownership in good faith from 1906 to 1951; that
Vicar has been in possession of the same lots as bailee in
commodatum up to 1951, when Vicar repudiated the trust
and when it applied for registration in1962; that Vicar had
just been in possession as owner for 11years, hence there
is no possibility of acquisitive prescription which requires
10 years possession with just title and 30 years possession
without. 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.

ISSUE:
Whether or not petitioner Vicar's failure to return the subject
property to private respondents would constitute an adverse
possession that would entitle Vicar to have a just title over the
questioned lots.

HELD:
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 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 found that the predecessors-in-interest
and private respondents were possessors under claim of
ownership in good faith from 1906; that petitioner Vicar
was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951.

Pajuyo vs. Court of Appeals, 430 SCRA 492 [2004]

Facts: Pajuyo entrusted a house to Guevara for the latter's use
provided he should return the same upon demand and with
the condition that Guevara should be responsible of the
maintenance of the property. Upon demand Guevara refused
to return the property to Pajuyo. The petitioner then filed an
ejectment case against Guevara with the MTC who ruled in
favor of the petitioner. On appeal with the CA, the appellate
court reversed the judgment of the lower court on the ground
that both parties are illegal settlers on the property thus have
no legal right so that the Court should leave the present
situation with respect to possession of the property as it is,
and ruling further that the contractual relationship of Pajuyo
and
Guevara
was
that
of
a
commodatum.
ISSUE:
Whether or not there is a contractual relationship of Pajuyo
and
Guevara
that
of
a
commodatum?
HELD:
No. The Court of Appeals theory that the Kasunduan is one of
commodatum is devoid of merit. In a contract of
commodatum, one of the parties delivers to another
something not consumable so that the latter may use the
same for a certain time and return it. An essential feature of

commodatum is that it is gratuitous. Another feature of

commodatum is that the use of the thing belonging to another
is for a certain period. Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor,
he can demand the return of the thing at will, in which case
the contractual relation is called a precarium. Under the Civil
Code, precarium is a kind of commodatum. The Kasunduan
reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan
did not require Guevarra to pay rent, it obligated him to
maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different
from that of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is akin to
a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease. The
tenants withholding of the property would then be unlawful.

Republic vs. Grijaldo, 15 SCRA 681 [1965]

FACTS:
Grijaldo obtained five loans from the Bank of Taiwan in the
total sum of P1,281.97 with interest at the rates of 6% per
annum compounded quarterly. These were evidenced by five
promissory notes. These loans were crop loans and were
considered to be due one year after they were incurred. As a
security for the payment of the loans, a chattel mortgage was
executed on the standing crops of his land. The assets in the
Bank of Taiwan were vested in the US Govt which were
subsequently transferred to the Republic of the Philippines.
Republic of the Philippines is now demanding the payment of
the account. Justice of Peace dismisses the case on the
ground of prescription. CA rendered a decision ordering the
appellant to pay the appellee.

Defendants contentions:
1) The appellee has no cause of action against appellant since
the transaction was with Taiwan Bank.
2) That if the appellee has a cause of action at all, it had
prescribed
3) The lower court erred in ordering the appellant to pay
P2,377.23

ISSUE:
Whether or not Republic of the Philippines can still collect
from Grijaldo?

HELD:
Yes. The obligation of the contract was not to deliver a
determinate thing, it was a generic thing the amount of
money representing the total sum of his loans. The
destruction of anything of the same kind does not extinguish
the obligation. 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. Also,
prescription does not run against the State.

Tan vs. Valdehueza, 66 SCRA 61 [1975]

FACTS:
An action instituted by the plaintiff-appellee Lucia Tan against
the defendants-appellants Arador Valdehueza and Rediculo
Valdehueza for (a) declaration of ownership and recovery
of possession of the parcel of land described in the first cause
of action of the complaint, and (b) consolidation of ownership
of two portions of another parcel of (unregistered) land
described in the second cause of action of the complaint,
purportedly sold to the plaintiff in two separate deeds of pacto
de retro. Parcel of land described in the first cause of action
was the subject matter of the public auction sale in Oroquieta,
Misamis Occidental, wherein the TAN was the highest
bidder . Due to the failure of defendant Arador Valdehueza to
redeem the said land within the period of one year as being
provided by law, MR. VICENTE D. ROA who was then the ExOfficio Provincial Sheriff executed an ABSOLUTE DEED OF
SALE in favor of the plaintiff LUCIA TAN. Civil case 2002 was a

complaint for injunction filed by Tan on July 24, 1957 against

the Valdehuezas, to enjoin them "from entering the abovedescribed parcel of land and gathering the nuts therein
" This complaint and the counterclaim were
subsequently dismissed. The Valdehuezas appealed to the
lower court alleging that it erred in making a finding on the
second cause of action that the transactions between the
parties were simple loan, instead, it should be declared as
equitable mortgage.

secured or unsecured, that may be charged or collected by

any person, whether natural or judicial, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as
amended.
Only in the absence of stipulations will the 12% rate be
applied or if the stipulated rate is grossly excessive.
Further, Eusebio never questioned the rate. He merely
expressed to negotiate the terms and conditions. The
promissory notes were signed by both parties voluntarily.
Therefore, stipulations therein are binding between them.

ISSUE:

HELD:
The trial court treated the registered deed of pacto de retro as
an equitable mortgage but considered the unregistered deed
of pacto de retro "as a mere case of simple loan, secured by
the property thus sold under pacto de retro," on the ground
that no suit lies to foreclose an unregistered mortgage. It
would appear that the trial judge had not updated himself on
law
and jurisprudence; he cited, in support of his ruling, article
1875 of the old Civil Code and decisions of this Court circa
1910 and 1912. Under article 1875 of the Civil Code of 1889,
registration was a necessary requisite for the validity of a
mortgage even as between the parties, but under article 2125
of the new Civil Code (in effect since August 30,1950), this is
no longer so. 4 If the instrument is not recorded, the mortgage
is nonetheless binding between the parties. (Article 2125, 2nd
sentence).

The Valdehuezas having remained in possession of the land

and the realty taxes having been paid by them, the contracts
which purported to be pacto de retro transactions are
presumed to be equitable mortgages, 5 whether registered or
not, there being no third parties involved.

Security Bank & Trust Co. vs. RTC Makati, 263 SCRA
483 [1996];
FACTS:
In 1983, Eusebio acquired 3 separate loans from Security
Bank amounting to P265k. The agreed interest rate was 23%
per annum. The promissory note was freely and voluntarily
signed by both parties. Leia Ventura was the co-maker.
Eusebio defaulted from paying. Security Bank sued for
collection.

2) NO. The rate of interest was agreed upon by the parties

freely. Significantly, respondent did not question that rate. It is
not for respondent court a quo to change the stipulations in
the contract where it is not illegal. Furthermore, Article 1306
of the New Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy. We
find no valid reason for the respondent court a quo to impose
a 12% rate of interest on the principal balance owing to
petitioner by respondent in the presence of a valid stipulation.
In a loan or forbearance of money, the interest due should be
that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum. Hence, only in the absence of a
stipulation can the court impose the 12% rate of interest.

Toring vs. Ganzon Olan, 568 SCRA 376 [2008];

FACTS:
Petitioner's spouses Toring obtained a loan amounting to P6M
at 3% interest per month from respondents spouses Olan. It
was secured by the real estate mortgage. For less than a
month, the parties have executed a deed of absolute sale
conveying the mortgaged property to the respondents.
Thereafter, the respondents gave the petitioner an option to
buy the land for P10M. An agreement that if the option is
exercised only after 2 months, the purchase price will increase
at the rate of P300,000 or 3% thereof every month and
thereafter, at the rate of P381,000 or 3.81% thereof every
month. Petitioners filed a complaint on the ground that the
interest of 3% & 3.81% are unconscionable. The Trial Court
and the Court of Appeals upheld the said stipulated interest
rates.
ISSUE:
Whether or not
unconscionable?

the

stipulated

interest

rates

were

HELD:
DECISION OF LOWER COURTS:
* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to
pay but he lowered the interest rate to 12% per annum.
* directly to SC in petition for certiorari.

ISSUES:
1) Should the rate of interest on a loan or forbearance of
money, goods or credits, as stipulated in a contract, far in
excess of the ceiling prescribed under or pursuant to the
Usury Law, prevail over Section 2 of Central Bank Circular No.
905 which prescribes that the rate of interest thereof shall
continue to be 12% per annum? or whether or not the 23%
rate of interest per annum agreed upon by petitioner bank
and respondents is allowable and not against the Usury Law?
2) Do the Courts have the discretion to arbitrarily override
stipulated interest rates of promissory notes and stipulated
interest rates of promissory notes and thereby impose a 12%
interest on the loans, in the absence of evidence justifying the
imposition of a higher rate?

HELD:
1) Yes, the rate per contract prevails.
From the examination of the records, it appears that indeed
the agreed rate of interest as stipulated on the three (3)
promissory notes is 23% per annum. The applicable provision
of law is the Central Bank Circular No. 905 which took effect
on December 22, 1982:
Sec. 1. The rate of interest, including commissions, premiums,
fees and other charges, on a loan or forbearance of any
money, goods or credits, regardless of maturity and whether

The Supreme Court held that they were unconscionable. In a

loan or forbearance of money, according to the Civil Code, the
interest due should be that stipulated in writing, and in the
absence thereof, the rate shall be 12% per annum. The court
reduced the stipulated interest rate to 1% per month.

Phil. National Bank vs. Court of Appeals, 196 SCRA 536

[1991]
FACTS:
Private respondent (PR) Ambrosio Padilla, applied for and was
granted a credit line of 321.8 million, 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 PR 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%.
PR filed a complaint against Petitioner with the RTC. The
latter dismissed the case for lack of merit. Appeal by PR to CA
resulted in his favor. Hence the petition for certiorari under
Rule 45 of ROC filed by PNB with SC.
ISSUE:
Despite the removal of the Usury Law ceiling on interest, may
the bank validly increase the stipulated interest rate on loans
contracted with third persons as often as necessary and
against the protest of such persons.

HELD: NO
RATIO: 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 social conditions, 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.
Based on the credit agreement and promissory notes
executed between the parties, although PR did agree to
increase on the interest rates allowed by law, no law was
passed warranting Petitioner to effect increase on the interest
rates on the existing loan of PR for the months of July to
November of 1984. Neither there being any document
executed and delivered by PR 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.
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. PR
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.