LBP VS.

ONG

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo
should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236
provides:

The creditor is not bound to accept payment or performance by a third

person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to
the debtor.

We agree with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredos payment, since as far as the
former was concerned, he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said paragraph, Alfredo
was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made
a conditional payment so that the properties subject of the Deed of Sale with
Assumption of Mortgage would be titled in his name. It is clear from the records
that Land Bank required Alfredo to make payment before his assumption of
mortgage would be approved. He was informed that the certificate of title would be
transferred accordingly. He, thus, made payment not as a debtor but as a prospective
mortgagor. But the trial court stated:

[T]he contract was not perfected or consummated because of the

adverse finding in the credit investigation which led to the disapproval of
the proposed assumption. There was no evidence presented that plaintiff
was informed of the disapproval. What he received was a letter dated May
22, 1997 informing him that the account of spouses Sy had matured but
there [were] no payments. This was sent even before the conduct of the
 credit investigation on June 20, 1997 which led to the disapproval of the
proposed assumption of the loans of spouses Sy.[13]

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of
the obligation of the Spouses Sy, since his interest hinged on Land Banks approval
of his application, which was denied. The circumstances of the instant case show
that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment
for his own interest and not on behalf of the Spouses Sy, recourse is not against the
latter. And as Alfredo was not paying for another, he cannot demand from the
debtors, the Spouses Sy, what he has paid.

Unjust enrichment

Land Bank maintains that the trial court erroneously applied the principle of
equity and justice in ordering it to return the PhP 750,000 paid by Alfredo. Alfredo
was allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it accepted Alfredos tender of
PhP 750,000. It reasons that it did not unduly enrich itself at Alfredos expense during
the foreclosure of the mortgaged properties, since it tendered its bid by subtracting
PhP 750,000 from the Spouses Sys outstanding loan obligation. Alfredos recourse
then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based
on the principle of unjust enrichment. Land Bank is correct in arguing that it has no
obligation as creditor to recognize Alfredo as a person with interest in the fulfillment
of the obligation. But while Land Bank is not bound to accept the substitution of
debtors in the subject real estate mortgage, it is estopped by its action of accepting
Alfredos payment from arguing that it does not have to recognize Alfredo as the new
debtor. The elements of estoppel are:

First, the actor who usually must have knowledge, notice or

suspicion of the true facts, communicates something to another in a
 misleading way, either by words, conduct or silence; second, the other in
fact relies, and relies reasonably or justifiably, upon that communication;
third, the other would be harmed materially if the actor is later permitted
to assert any claim inconsistent with his earlier conduct; and fourth, the
actor knows, expects or foresees that the other would act upon the
information given or that a reasonable person in the actors position would
expect or foresee such action.[17]

By accepting Alfredos payment and keeping silent on the status of Alfredos

application, Land Bank misled Alfredo to believe that he had for all intents and
purposes stepped into the shoes of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it
was the banks Lending Center that should have notified Alfredo of his assumption
of mortgage disapproval is unavailing. The Lending Centers lack of notice of
disapproval, the Tabaco Branchs silence on the disapproval, and the banks
subsequent actions show a failure of the bank as a whole, first, to notify Alfredo that
he is not a recognized debtor in the eyes of the bank; and second, to apprise him of
how and when he could collect on the payment that the bank no longer had a right
to keep.

Moreover, the Civil Code likewise requires under Art. 19 that [e]very person must,
in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith. Land Bank, however,
did not even bother to inform Alfredo that it was no longer approving his assumption
of the Spouses Sys mortgage. Yet it acknowledged his interest in the loan when the
branch head of the bank wrote to tell him that his daughters loan had not been
paid.[22] Land Bank made Alfredo believe that with the payment of PhP 750,000, he
would be able to assume the mortgage of the Spouses Sy. The act of receiving
payment without returning it when demanded is contrary to the adage of giving
someone what is due to him. The outcome of the application would have been
different had Land Bank first conducted the credit investigation before accepting
Alfredos payment. He would have been notified that his assumption of mortgage had
been disapproved; and he would not have taken the futile action of paying PhP
750,000. The procedure Land Bank took in acting on Alfredos application cannot be
said to have been fair and proper.

As to the claim that the trial court erred in applying equity to Alfredos case, we hold
that Alfredo had no other remedy to recover from Land Bank and the lower court
properly exercised its equity jurisdiction in resolving the collection suit.

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445
is AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn
interest at 6% per annum reckoned from December 12, 1997, and the total
aggregate monetary awards will in turn earn 12% per annum from the finality of
this Decision until fully paid.

SPOUSES SOLANGON VS SALAZAR

Parenthetically, petitioners are questioning the rate of interest involved here. They maintain
that the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6%
per month is not unconscionable.

The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law
had been repealed by Central Bank Circular No. 905 there is no more maximum rate of interest and
the rate will just depend on the mutual agreement of the parties. Obviously, this was in consonance
with our ruling in Liam Law v. Olympic Sawmill Co.4

The factual circumstances of the present case require the application of a different jurisprudential
instruction. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing
in the said circular grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.5 In Medel v. Court of
Appeals,6 this court had the occasion to rule on this question - whether or not the stipulated rate of
interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the
aforementioned interest was not usurious, this Court held that the same must be equitably reduced
for being iniquitous, unconscionable and exorbitant, thus:

"We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we
can not consider the rate ‘usurious’ because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law and that the Usury Law is now ‘legally
inexistent.’

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court
held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latter’s effectivity. Indeed, we have held that ‘a Central Bank Circular can not
repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of
 Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular 905, the Usury Law has
been rendered ineffective.’ ‘Usury Law has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon.’

Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and hence,
contrary to morals (‘contra bonos mores’), if not against the law. The stipulation is
void. The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable." (Emphasis supplied)

In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated
interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate.
Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest
of 12% per annum is deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to

the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per annum.

An irregular deposit is a deposit of money or other consumable thing, in which the permission to use it
would result to its consumption but will not in any way convert it into a simple loan since the contract’s
principal purpose is still the safekeeping, not the consumption of the thing.