WEEK 2 existence of the right to repurchase, or the sum of P375 per month,

based upon the value of the property, amounted to usury.

CREDIT TRANSACTION

CASE DIGESTS ISSUE: WoN the contract in question is a mortgage

TOLENTINO v. GONZALES SY CHIAM HELD: No.

------------------
RATIO: The contract is a pacto de retro and not a mortgage. There is not a
FACTS: word, a phrase, a sentence or a paragraph in the entire record, which
1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio justifies this court in holding that the said contract of pacto de retro is a
purchased Luzon Rice Mills, Inc., parcel of land in Tarlac for mortgage and not a sale with the right to repurchase.
P25,000.00 to be paid in three installments.
a. First installment is P2,000 due on or before May 2, 1921 The purpose of the contract is expressed clearly that there can certainly be
b. Second installment is P8,000 due on or before May 31, 1921 no doubt as to the purpose of the Tolentino to sell the property in question,
c. Third installment of P15,000 at 12% interest due on or before reserving the right only to repurchase the same:
Nov 30, 1922
One of the conditions of the contract of purchase was that if Second. That is a condition of this sale that if in the course of
Tolentino and Manio failed to pay the balance of any of the five (5) years from the 1st of December, 1922, we return to
installments on the date agreed upon, the property bought would Don Benito Gonzales Sy Chiam the above-mentioned price of
revert to the original owner. seventeen thousand five hundred (P17,500), Mr. Benito
The first and second installments were paid but the balance was paid Gonzales Sy Chiam is forced to return the farm; but if it
on Dec 1, 1922 passes the above mentioned term of five (5) years without
2. On Nov 7, 1922, a representative of vendor of said property wrote exercising to the right of redemption that we have saved
Manio , notifying her that if the balance of said indebtedness was not ourselves, then this sale will be absolute and irrevocable.
paid, they would recover the property with damages for non
compliance with the condition of the contract of purchase. From the foregoing, we are driven to the following conclusions: First, that the
3. Tolentino and Manio borrowed money from Benito Gonzales Sy contract of pacto de retro is an absolute sale of the property with the right to
Chiam to satisfy their indebtedness to the vendor. repurchase and not a mortgage; and, second, that by virtue of the said
4. Gonzales agreed to loan the P17,500 upon condition that they contract the vendor became the tenant of the purchaser, under the conditions
execute and deliver to him a pacto de retro of the property. mentioned in paragraph 3 of said contact. When the vendor of property
5. The contract includes a contract of lease on the property whereby under a pacto de retro rents the property and agrees to pay a rental value for
the lessees as vendors apparently bind themselves to pay rent at the the property during the period of his right to repurchase, he thereby becomes
rate of P375 per month and whereby "Default in the payment of the a "tenant" and in all respects stands in the same relation with the purchaser
rent agreed for two consecutive months will terminate this lease and as a tenant under any other contract of lease.
will forfeit our right of repurchase, as though the term had expired
naturally" In the present case the property in question was sold. It was an absolute sale
6. Upon maturation of loan, Tolentino defaulted payment and Gonzales with the right only to repurchase. During the period of redemption the
demanded recovery of land. purchaser was the absolute owner of the property. During the period of
Tolentino’s argument: that the pacto de retro sale is a mortgage and not an redemption the vendor was not the owner of the property. During the period
absolute sale and that the rental price paid during the period of the of redemption the vendor was a tenant of the purchaser. During the period
of redemption the relation which existed between the vendor and the vendee loses his control over the property rented during the period of the contract.
was that of landlord and tenant. That relation can only be terminated by a In a contract of "loan" the thing loaned becomes the property of the obligor.
repurchase of the property by the vendor in accordance with the terms of In a contract of "rent" the thing still remains the property of the lessor. He
the said contract. The contract was one of rent. The contract was not a loan, simply loses control of the same in a limited way during the period of the
as that word is used in Act No. 2655. contract of "rent" or lease. In a contract of "rent" the relation between the
contractors is that of landlord and tenant. In a contract of "loan" of money,
Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act goods, chattels or credits, the relation between the parties is that of obligor
fixing rates of interest upon 'loans' and declaring the effect of receiving or and obligee. "Rent" may be defined as the compensation either in money,
taking usurious rates." provisions, chattels, or labor, received by the owner of the soil from the
occupant thereof. It is defined as the return or compensation for the
Usury, generally speaking, may be defined as contracting for or receiving possession of some corporeal inheritance, and is a profit issuing out of lands
something in excess of the amount allowed by law for the loan or forbearance or tenements, in return for their use. It is that, which is to paid for the use of
of money—the taking of more interest for the use of money than the law land, whether in money, labor or other thing agreed upon. A contract of
allows. "rent" is a contract by which one of the parties delivers to the other some
nonconsumable thing, in order that the latter may use it during a certain
It will be noted that said statute imposes a penalty upon a "loan" or period and return it to the former; whereas a contract of "loan", as that word
forbearance of any money, goods, chattels or credits, etc. The central idea of is used in the statute, signifies the delivery of money or other consumable
said statute is to prohibit a rate of interest on "loans." A contract of "loan," is things upon condition of returning an equivalent amount of the same kind or
very different contract from that of "rent". A "loan," as that term is used in quantity, in which cases it is called merely a "loan." In the case of a contract
the statute, signifies the giving of a sum of money, goods or credits to of "rent," under the civil law, it is called a "commodatum."
another, with a promise to repay, but not a promise to return the same thing.
To "loan," in general parlance, is to deliver to another for temporary use, on
condition that the thing or its equivalent be returned; or to deliver for CEBU INTERNATIONAL FINANCE v. CA
temporary use on condition that an equivalent in kind shall be returned with
a compensation for its use. The word "loan," however, as used in the statute, FACTS
has a technical meaning. It never means the return of the same thing. It Vicente Alegre invested with Cebu International Finance Corporation (CIFC)
means the return of an equivalent only, but never the same thing loaned. A P500,000 in cash. CIFC issued promissory note which covered private respondent’s
"loan" has been properly defined as an advance payment of money, goods or placement. CIFC issued BPI Check No. 513397 (the Check) in favor of private
credits upon a contract or stipulation to repay, not to return, the thing loaned respondent as proceeds of his matured investment. Mrs. Alegre deposited the Check
at some future day in accordance with the terms of the contract. Under the with RCBC but BPI dishonoured it, annotating therein that the “Check is subject of
contract of "loan," as used in said statute, the moment the contract is an investigation”. BPI took possession of the Check pending investigation of several
completed the money, goods or chattels given cease to be the property of counterfeit checks drawn against CIFC’s checking account. Private respondent
the former owner and becomes the property of the obligor to be used demanded from CIFC that he be paid in cash but the latter refused. Private respondent
according to his own will, unless the contract itself expressly provides for a Alegre filed a case for recovery of a sum of money against CIFC.
special or specific use of the same. At all events, the money, goods or chattels,
the moment the contract is executed, cease to be the property of the former CIFC asserts that since BPI accepted the instrument, the bank became primarily liable
owner and becomes the absolute property of the obligor. for the payment of the Check. When BPI offset the value of the Check against the
losses from the forged cheks allegedly committed by private respondent, the Check
A contract of "loan" differs materially from a contract of "rent." In a contract was deemed paid.
of "rent" the owner of the property does not lose his ownership. He simply
ISSUE HELD
Whether or not petitioner CIFC is discharged from the liability of paying the value of The Court held in the negative. No evidence was submitted by Naguiat that the
the Check. checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. The
HELD Civil Code provides that the delivery of bills of exchange and mercantile documents
The Court held in the negative. In a money market transaction, the investor is a lender such as checks shall produce the effect of payment only when they have been
who loans his money to a borrower through a middleman or dealer. A check is not cashed. It is only after the checks have been produced the effect of payment that the
legal tender, and therefore cannot constitute valid tender of payment. Since a contract of loan may have been perfected.
negotiable instrument is only substitute for money and not money, the delivery of
such an instrument does not by itself, operate as payment. Mere delivery of Article 1934 of the Civil Code provides: An accepted promise to deliver something by
checks does not discharge the obligation under a judgment. The obligation is not way of commodatum or simple loan is binding upon the parties, but the commodatum
extinguished and remains suspended until the payment by commercial document or simple loan itsel shall not be perfected until the delivery of the object of the contract.
is actually realized. (Article 1249) A loan contract is a real contract, not consensual, and as such, is perfected only upon
the delivery of the objects of the contract.
Petition denied.

PEOPLE v. PUIG & POITAS

NAGUIAT v. CA
Facts:
FACTS
Queaño applied with Naguiat a loan for P200,000, which the latter granted. Naguiat A case of Qualified Theft was filed against the respondents. This was filed by the
indorsed to Queaño Associated bank Check No. 090990 for the amount of P95,000 Iloilo provincial prosecutor, for the private complainant, Rural Bank of Potoan. It
and issued also her own Filmanbank Check to the order of Queaño for the amount of was alleged in the complaint that Puig was the cashier & Porras was the
P95,000. The proceeds of these checks were to constitute the loan granted by Naguiat Bookkeeper in the said bank, and that they took away money amounting to 15k
to Queaño. To secure the loan, Queaño executed a Deed of Real Estate Mortgage in without the consent of the bank owner, to the prejudice of the bank. However,
favor of Naguiat, and surrendered the owner’s duplicates of titles of the mortgaged the RTC dismissed the complaint for insufficiency of the information ruling that
properties. The deed was notarized and Queaño issued to Naguiat a promissory note the real parties in interest are the depositors-clients and not the bank because
for the amount of P200,000. Queaño also issued a post-dated check amounting to the bank does not acquire ownership of the money deposited in it. It also denied
P200,000 payable to the order of Naguait. The check was dishonoured for the MR.
insufficiency of funds. Demand was sent to Queaño. Shortly, Queaño, and one Ruby
Reubenfeldt met with Naguiat. Queaño told Naguiat that she did not receive the Issue: WON the bank was the owner and thus, the real party in interest?
loan proceeds, adding that the checks were retained by Reubenfeldt, who purportedly Held & Rationale
was Naguiat’s agent.
Yes. Under Art 1980 of the CC, "fixed, savings, and current deposits of money in
Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared the banks shall be governed by the provisions concerning simple loans." And, Art
Deed as null and void and ordered Naguiat to return to Queaño the owner’s duplicates 1953 provides that "a person who receives a loan of money acquires the
of titles of the mortgaged lots. ownership thereof, and is bound to pay to the creditor an equal amount of the
same kind and quality." Thus, it posits that the depositors who place their
ISSUE money with the bank are considered creditors of the bank. The bank acquires
Whether or not the issuance of check resulted in the perfection of the loan contract. ownership of the money deposited by its clients, making the money taken by
respondents as belonging to the bank. Allegations in the Information that such
 employees acted with grave abuse of confidence, to the damage and prejudice
of the Bank, without particularly referring to it as owner of the money deposits, RTC upheld the validity of the promissory notes. Equitable and respondents filed their
as sufficient to make out a case of Qualified Theft. respective notices of appeal but both were denied by the RTC. Equitable moved for
the reconsideration but RTC denied due to lack of merit.
A writ of execution was thereafter issued and three real properties of Equitable were
------------- levied upon.

(Simple Loan) Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It,
· Depositors who place their money with the bank are considered creditors of the bank. however, withdrew that petition on March 30, 2004 and instead filed a petition for
The bank acquires ownership of the money deposited by its clients, making the money certiorari with an application for an injunction in the CA to enjoin the implementation
taken by respondents as belonging to the bank. and execution of the March 24, 2004 omnibus order. CA granted Equitable’s
· The relationship between banks and depositors has been held to be that of application for injunction. A writ of preliminary injunction was correspondingly
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately issued.
pointed out by petitioner, provide as follows:
· Article 1953. A person who receives a loan of money or any other fungible thing Notwithstanding the writ of injunction, the properties of Equitable previously levied
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of upon were sold in a public auction on July 1, 2004. Respondents were the highest
the same kind and quality. bidders and certificates of sale were issued to them.
· Article 1980. (supra)
· In summary, the Bank acquires ownership of the money deposited by its clients; and Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who
the employees of the Bank, who are entrusted with the possession of money of the conducted the sale in contempt for proceeding with the auction despite the injunction
Bank due to the confidence reposed in them, occupy positions of confidence. The order of the CA.
Informations, therefore, sufficiently allege all the essential elements constituting the
crime of Qualified Theft CA dismissed the petition for certiorari. It found Equitable guilty of forum shopping
because the bank filed its petition for certiorari in the CA several hours before
withdrawing its petition for relief in the RTC. Moreover, Equitable failed to disclose,
EQUITABLE PCI BANK v. NGOR
both in the statement of material dates and certificate of non-forum shopping, that it
Facts: had a pending petition for relief in the RTC.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc.
and Benjamin E. Go filed an action for annulment and/or reformation of documents Equitable moved for reconsideration but it was denied.
and contracts against petitioner Equitable PCI Bank (Equitable) and its employees,
Aimee Yu and Bejan Lionel Apas, in RTC, Branch 16 of Cebu City. They claimed that Issue:
Equitable induced them to avail of its peso and dollar credit facilities by offering low Whether or not the promissory notes were valid.
interest rates so they accepted Equitable's proposal and signed the bank's pre-printed
promissory notes on various dates beginning 1996. They, however, were unaware that Held:
the documents contained identical escalation clauses granting Equitable authority Yes.
to increase interest rates without their consent.
The RTC upheld the validity of the promissory notes despite respondents assertion that
Equitable, in its answer, asserted that respondents knowingly accepted all the those documents were contracts of adhesion.
terms and conditions contained in the promissory notes. In fact, they continuously
availed of and benefited from Equitable's credit facilities for five years.
 A contract of adhesion is a contract whereby almost all of its provisions are drafted I. Hence, payment of monetary interest is allowed only if:
by one party. The participation of the other party is limited to affixing his signature or 1) there was an express stipulation for the payment of interest; and
his adhesion to the contract. For this reason, contracts of adhesion are strictly construed 2) the agreement for the payment of interest was reduced in writing.
against the party who drafted it. · The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They therefor in writing is prohibited by law.
are, on the contrary, as binding as ordinary contracts. A party is in reality free to · Monetary interest is due only when these requirements are present.
accept or reject it. A contract of adhesion becomes void only when the dominant
party takes advantage of the weakness of the other party, completely depriving II. However, there are instances in which an interest may be imposed even in the
the latter of the opportunity to bargain on equal footing. 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
That was not the case here. As the trial court noted, if the terms and conditions payment of a sum of money, and the debtor incurs delay, a legal interest of 12%
offered by Equitable had been truly prejudicial to respondents, they would have (now 6%) per annum may be imposed as indemnity for damages if no stipulation
walked out and negotiated with another bank at the first available instance. But they on the payment of interest was agreed upon. (Compensatory interest)
did not. Instead, they continuously availed of Equitable's credit facilities for five long · This interest may be imposed only as a penalty or damages for breach of
years. contractual obligations. It cannot be charged as a compensation for the use or
While the RTC categorically found that respondents had outstanding dollar- and peso- forbearance of money. This applies only to compensatory interest and not to
denominated loans with Equitable, it, however, failed to ascertain the total amount due monetary interest.
(principal, interest and penalties, if any) as of July 9, 2001. The trial court did not
explain how it arrived at the amounts of US$228,200 and P1,000,000. In Metro Manila Solutio Indebiti
Transit Corporation v. D.M. Consunji, we reiterated that this Court is not a trier of Under Article 1960 of the Civil Code, if the borrower of loan pays interest when
facts and it shall pass upon them only for compelling reasons which unfortunately are there has been no stipulation therefor, the provisions of the Civil Code
not present in this case. Hence, we ordered the partial remand of the case for the sole concerning solutio indebiti shall be applied.
purpose of determining the amount of actual damages.
Article 2154 provides that if something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to return it arises. We
SIGA-AN v. VILLANUEVA
have held that the principle of solutio indebiti applies in case of erroneous payment of
---------------- undue interest.

(Compensatory, Penalty or Indemnity Interest) HELD: It was duly established that respondent paid interest to petitioner. Respondent
Interests: was under no duty to make such payment because there was no express stipulation
a) Monetary interest is a compensation fixed by the parties for the use or forbearance in writing to that effect. There was no binding relation between petitioner and
of money. respondent as regards the payment of interest. The payment was clearly a mistake.
b) Compensatory interest - imposed by law or by courts as penalty or indemnity for Since petitioner received something when there was no right to demand it, he has
damages. an obligation to return it.
The right to interest arises only by virtue of a contract or by virtue of damages for
delay or failure to pay the principal loan on which interest is demanded.
FRIAS v. SAN DIEGO-SISON
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. On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA
over Frias’property
  MOA consideration is 3M CA affirmed RTC with modification—32% reduced to 25%. CA said that there was
 Sison has 6 months from the date of contract’s execution to notify Frias of no basis for Frias to say that the interest should be charged for 6 months only. It said
her intention to purchase the property with the improvements at 6.4M that a loan always bears interest; otherwise, it is not a loan. The interest should
 Prior to this 6 month period, Frias may still offer the property to other persons, commence on June 7, 1991 until fully paid, with compounded bank interest prevailing
provided that 3M shall be paid to Sison including interest based on prevailing at the time [June 1991] the 2M was considered as a loan (as certified by the bank).
compounded bank interest + amount of sale in excess of 7M [should the
property be sold at a price greater than 7M] ISSUES & HOLDING – Ratio only discusses topic of INTEREST (as per syllabus)
 In case Frias has no other buyer within 6 months from the contract’s
execution, no interest shall be charged by Sison on the 3M  WON compounded bank interest should be limited to 6 months as contained
 In the event that on the 6th month, Sison would decide not to purchase the in the MOA. NO
property, Frias has 6 months to pay 3M (amount shall earn compounded bank  WON Sison is entitled to moral damages. YES
interest for the last 6 months only)  WON the grant of attorney’s fees is proper, even if not mentioned in the body
 3M treated as a loan and the property considered as the security for the of the decision. NO
mortgage
 Upon notice of intention to purchase, Sison has 6 months to pay the balance CA committed no error in awarding an annual 25% interest on the 2M even beyond
of 3.4M (6.4M less 3M MOA consideration) the 6-month stipulated period. In this case, the phrase “for the last six months only”
should be taken in the context of the entire agreement.
Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28,
1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and SC notes that the agreement speaks of two (2) periods of 6 months each (see
the Deed of Absolute Sale over the property. Sison decided not to purchase the FACTS—words in bold & underline). No interest will be charged for the 1st 6-month
property, so she notified Frias through a letter dated March 20, 1991 [Frias received period [while Sison was making up her mind], but only for the 2nd 6-month period
it only on June 11, 1991],and Sison reminded Frias of their agreement that the 2M after Sison decided not to buy the property. There is nothing in the MOA that
Sison paid should be considered as a loan payable within 6 months. Frias failed suggests that interest will be charged for 6 months only even if it takes forever for
to pay this amount. Frias to pay the loan.

Sison filed a complaint for sum of money with preliminary attachment. Sison averred The payment of regular interest constitutes the price or cost of the use of money,
that Frias tried to deprive her of the security for the loan by making a false report of and until the principal sum due is returned to the creditor, regular interest
the loss of her owner’s copy of TCT, executing an affidavit of loss and by filing a continues to accrue since the debtor continues to use such principal amount. For
petition[1] for the issuance of a new owner’s duplicate copy. RTC issued a writ of a debtor to continue in possession of the principal of the loan and to continue to
preliminary attachment upon the filing of a 2M bond. use the same after maturity of the loan without payment of the monetary interest
constitutes unjust enrichment on the part of the debtor at the expense of the
RTC found that Frias was under obligation to pay Sison 2M with compounded interest creditor.
pursuant to their MOA. RTC ordered Frias to pay Sison:
CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATION—
 2M + 32% annual interest beginning December 7, 1991 until fully paid Award of attorney’s fees deleted
 70k representing premiums paid by Sison on the attachment bond with legal
interest counted from the date of this decision until fully paid (Conventional Interest )
 100k moral, corrective, exemplary damages [liable for moral damages *example of forbearance
because of Frias’ fraudulent scheme] · Parties: Petitioner Frias as the property owner and Respondent Dra. Flora San
 100k attorney’s fees + cost of litigation Diego-Sison, entered into a Memorandum of Agreement over the subject property.
· MOA: Petitioner received P3M from respondent with the following agreement: loan was deemed paid with the irrevocable assignment of the time deposit
Ø That respondent has a period 6 months from the date of the execution of this contract certificates.
within which to notify petitioner of her intention to purchase the land at the price
ofP6.4M. Upon notice to the petitioner of respondent’s intention to purchase the PNB then filed with RTC to collect from IRC and Santos with interest. The
same, the latter has a period of another 6 months within which to pay the remaining trial court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount
balance of P3.4 million. of P700H plus interest of 9% PA, 2% additional interest and 1& PA penalty interest.
Ø In the event that on the sixth month the respondent would decide NOT to purchase the On appeal, the CA ordered OBM to pay IRC and Santos whatever amts they will to
property, the petitioner has a period of another 6 months within which to pay the sum PNB with interest.
of P3 million pesos provided that the said amount shall earn compounded bank interest
for the last 6 months only. Under this circumstance, the amount of P3 million given IRC and Santos now claim that OBM should reimburse them for whatever amts
by the respondent shall be treated as a loan. they may be adjudged to pay PNB by way of compensation for damages incurred.
· Respondent decided not to purchase the property and demanded the return of her
money with 36% interest. ISSUE
· Petitioner and respondent stipulated that the loaned amount shall earn compounded Whether or not the claim of IRC and Santos will prosper.
bank interests, and per the certification issued by Prudential Bank, the interest rate for
loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate HELD
to 25% instead of the 32% awarded by the trial court which petitioner no longer The Court held in the affirmative. The 2 time deposits matured on 11 January
assailed. 1968 and 6 February 1968, respectively. However, OBM was not allowed and
suspended to operate only on 31 July 1968 and resolved on 2 August 1968. There
Monetary Interest: The payment of regular interest constitutes the price or cost of the was a yet no obstacle to the faithful compliance by OBM of its liabilities. For
use of money and thus, until the principal sum due is returned to the creditor, regular having incurred in delay in the performance of its obligation, OBM should be
interest continues to accrue since the debtor continues to use such principal amount. It held for damages.
has been held that for a debtor to continue in possession of the principal of the loan
and to continue to use the same after maturity of the loan without payment of the OBM contends that it had agreed to pay interest only up to the dates of
monetary interest, would constitute unjust enrichment on the part of the debtor at the maturity of the CTD and that Santos is not entitled to interest after maturity dates had
expense of the creditor. expired.

SC: Affirmed the ruling of the CA as to the 25% interest rate. Thus, the interest rate While it is true that under Article 1956 of the CC, no interest shall be due
of 25% per annum awarded by the CA to a P2 million loan is fair and reasonable. unless it has been expressly stipulated in writing, this applies only to interest for
the use of money. It does not comprehend interest paid as damages. OBM is being
INTEGRATED REALTY CORP. v. PNB required to pay such interest, not as interest income stipulated in the CTD, but as
damages froM failure and delay in the payment of its obligations which thereby
FACTS compelled IRC and Santos to resort to the courts.
Raul Santos made a time deposit with OBM in the amount of P500H and he
was issued a certificate of time deposits. On another date, Santos again made a time
The applicable rule is that LI, in the nature of damages for non-compliance
deposit with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its
with an obligation to puy sum of money, is recoverable from the date judicially or
president Raul Santos, applied for a loan and/or credit line (P700H) with PNB. To
extra-judicially demand is made.
secure such, Santos executed a Deed of Assignment of the 2 time deposits.

After due dates of the time deposit certificates, OBM did not pay PNB. LIGUTAN v. CA
PNB then demanded payment from IRC and Santos, but they replied that the
FACTS: breach by petitioners of their contractual obligation, the Court sees no cogent ground
to modify the ruling of the appellate court.
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount
of P120,000.00 from Security Bank and Trust Co. The obligation matured and the The stipulated interest of 15.189% per annum, does not appear as being excessive.
bank granted an extension. Despite several demands from the Bank, petitioners failed The essence or rationale for the payment of interest, quite often referred to as
to settle the debt which then amounted to P114,416.10. The Bank sent a final demand cost of money, is not exactly the same as that as a surcharge or a penalty. A
letter however petitioners still defaulted on their obligation. The Bank then filed penalty stipulation is not necessarily preclusive of interest, if there is an
a complaint for recovery of the due amount. Petitioners instead of presenting their agreement to that effect, the two being distinct concepts which may separately be
evidence had the schedule reset for two consecutive occasions. On the third hearing demanded. The interest prescribed in loan financing arrangements is a
date, the trial court resolved to consider the case submitted for decision. fundamental part of the banking business and the core of a banks existence.

Two years later petitioners filed a motion for reconsideration which was denied by the ---------------
trial court. Petitioners then interposed an appeal with the Court of Appeals, the
appellate court affirmed the judgement of the trial court except the 2% service charge (Compensatory, Penalty or Indemnity Interest)
which was deleted pursuant to Central Bank Circular No. 763. The two parties filed The essence or rationale for the payment of interest, quite often referred to as cost of
their motions for reconsiderations and the Court of Appeals resolved the two motions: money, is not exactly the same as that of a surcharge or a penalty. A penalty
that the payment of interest and penalty commence on the date when the obligation stipulation is not necessarily preclusive of interest, if there is an agreement to that
became due and a penalty of 3% per month would suffice. The petitioners filed an effect, the two being distinct concepts which may separately be demanded. What may
omnibus motion for reconsideration which was then denied by the Court of Appeals. justify a court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefor in a valid agreement, may not equally justify
ISSUE: the non-payment or reduction of interest. Indeed, the interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the core of
Whether or not the 15.189% interest and the penalty of 3% per month (36% per annum) a bank's existence.
is exorbitant, iniquitous, and unconscionable. · Here, the stipulated interest of 15.189% on the forbearance of money was upheld by
the court as reasonable.
RULING:
CORDOVA v. REYES
Petition is DENIED.
--------------

HELD: Common Credits, Art. 2245, Art. 2251

The question of whether a penalty is reasonable or iniquitous can be partly subjective The Civil Code provisions on concurrence and preference of credits are applicable to
and partly objective. Its resolution will depend on such factors as, but not confined to, the liquidation proceedings.
the type, extent and purpose of the penalty, the nature of the obligation, the mode of
breach and its consequences, the supervening realities, the standing and relationship Issue: Was petitioner a preferred or ordinary creditor under these provisions?
of the parties, and the like, the application of which, by and large, is addressed to the Ø Petitioner argues that he was a preferred creditor because private respondents illegally
sound discretion of the court. withdrew his shares from the custodian banks and sold them without his knowledge
and consent and without authority from the SEC. He quotes Article 2241 (2) of the
The Court of Appeals, exercising its good judgement has reduced the penalty interest Civil Code:
from 5% a month to 3% a month. Given the circumstances and the repeated acts of
 With reference to specific movable property of the debtor, the following claims or the losses/damages were sustained while in the respective and/or successive custody
liens shall be preferred: and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public broker (Allied Brokerage).
officials committed in the performance of their duties, on the movables, money or
securities obtained by them; As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
Ø He asserts that, as a preferred creditor, he was entitled to the entire monetary value of P19,032.95 under the aforestated marine insurance policy, so that it became
his shares. subrogated to all the rights of action of said consignee against defendants.

Held: Petitioner’s argument is incorrect. Article 2241 refers only to specific DECISION OF LOWER COURTS: * trial court: ordered payment of damages,
movable property. His claim was for the payment of money, which is generic property jointly and severally * CA: affirmed trial court.
and not specific or determinate. Petitioner’s CSPI shares were specific or determinate
movable properties. But after they were sold, the money raised from the sale became ISSUES AND RULING:
generic and were commingled with the cash and other assets of Philfinance. Unlike
shares of stock, money is a generic thing. It is designated merely by its class or genus (a) whether or not a claim for damage sustained on a shipment of goods can be a
without any particular designation or physical segregation from all others of the same solidary, or joint and several, liability of the common carrier, the arrastre operator and
class. This means that once a certain amount is added to the cash balance, one can no the customs broker;
longer pinpoint the specific amount included which then becomes part of a whole mass
of money. YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the consignee,
Considering that petitioner did not fall under any of the provisions applicable to such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
preferred creditors, he was deemed an ordinary creditor under Article 2245: CARRIER are therefore charged with the obligation to deliver the goods in good
Credits of any other kind or class, or by any other right or title not comprised in the condition to the consignee.
four preceding articles, shall enjoy no preference.
The common carrier's duty to observe the requisite diligence in the shipment of goods
This being so, Article 2251 (2) states that: lasts from the time the articles are surrendered to or unconditionally placed in the
Common credits referred to in Article 2245 shall be paid pro rata regardless of dates. possession of, and received by, the carrier for transportation until delivered to, or until
the lapse of a reasonable time for their acceptance by, the person entitled to receive
Like all the other ordinary creditors or claimants against Philfinance, he was entitled them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
to a rate of recovery of only 15% of his money claim. Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost
or arrive in damaged condition, a presumption arises against the carrier of its failure
to observe that diligence, and there need not be an express finding of negligence to
EASTERN SHIPPING LINES v. CA
hold it liable.
FACTS:
(b) whether the payment of legal interest on an award for loss or damage is to be
This is an action against defendants shipping company, arrastre operator and broker- computed from the time the complaint is filed or from the date the decision appealed
forwarder for damages sustained by a shipment while in defendants' custody, filed by from is rendered; and
the insurer-subrogee who paid the consignee the value of such losses/damages.
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME
COURT)
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, SIX PERCENT (6%) on the amount due computed from the decision, dated 03
delicts or quasi-delicts is breached, the contravenor can be held liable for damages. February 1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT
The provisions under Title XVIII on "Damages" of the Civil Code govern in (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon
determining the measure of recoverable damages. finality of the Supreme Court decision until the payment thereof.

II. With regard particularly to an award of interest in the concept of actual and RATIO: when the judgment awarding a sum of money becomes final and executory,
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, the monetary award shall earn interest at 12% per annum from the date of such finality
as follows: until its satisfaction, regardless of whether the case involves a loan or forbearance of
money. The reason is that this interim period is deemed to be by then equivalent to a
1. When the obligation is breached, and it consists in the payment of a sum of forbearance of credit.
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 NOTES: the Central Bank Circular imposing the 12% interest per annum applies
legal interest from the time it is judicially demanded. In the absence of stipulation, only to loans or forbearance of money, goods or credits, as well as to judgments
the rate of interest shall be 12% per annum to be computed from default, i.e., involving such loan or forbearance of money, goods or credits, and that the 6%
from judicial or extrajudicial demand under and subject to the provisions of interest under the Civil Code governs when the transaction involves the payment of
Article 1169 of the Civil Code. indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general. Observe, too, that in these cases, a common
2. When an obligation, not constituting a loan or forbearance of money, is breached, time frame in the computation of the 6% interest per annum has been applied, i.e.,
an interest on the amount of damages awarded may be imposed at the discretion from the time the complaint is filed until the adjudged amount is fully paid.
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 (Compensatory, Penalty or Indemnity Interest)
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot Rules on Interest:
be so reasonably established at the time the demand is made, the interest shall begin · Interest upon an obligation which calls for the payment of money, absent a
to run only from the date the judgment of the court is made (at which time the stipulation, is thelegal rate. Such interest normally is allowable from the date of
quantification of damages may be deemed to have been reasonably ascertained). demand, judicial or extrajudicial. The trial court opted for judicial demand as the
The actual base for the computation of legal interest shall, in any case, be on the starting point.
amount finally adjudged. · But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
3. When the judgment of the court awarding a sum of money becomes final and established with reasonable certainty. Here, interest should be counted from the date
executory, the rate of legal interest, whether the case falls under paragraph 1 or of the decision (when the amount of damages are ascertained).
paragraph 2, above, shall be 12% per annum from such finality until its · Art. 2209, CC. — If the obligation consists in the payment of a sum of money, and
satisfaction, this interim period being deemed to be by then an equivalent to a the debtor incurs in delay, the indemnity for damages, there being no stipulation to the
forbearance of credit. contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
(c) whether the applicable rate of interest, referred to above, is twelve percent (12%)
or six percent (6%). Rules of thumb (on the award of interests):
 *NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799 (amending Circular No. 905) effective July 1, 2013,
Lessons Applicable: Interest (Torts and Damages)
and the case of NACAR V. GALLERY FRAMES AND/OR BORDEY (2013). Therefore, there is no need to distinguish now the
Laws Applicable: Article 1589 on the Civil Code, Article 2209 of the Civil Code
obligations breached as the legal interest applicable is 6%.

1) When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for FACTS:
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern  February 1979 - April 1979: Crismina Garments, Inc. contracted the services
in determining the measure of recoverable damages. of D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls
denims for P76,410
2) With regard particularly to an award of interest in the concept of ACTUAL AND  At first, the Crismina was told that the sewing of some of the pants were defective
COMPENSATORY DAMAGES, the rate of interest, as well as the accrual thereof, is so it offered to take them back but then she was told it was good already and asked
imposed, as follows: her to return for her check.
a) Obligation breached: consists in the payment of a sum of money, i.e., a loan or  Crismina failed to pay and told her that 6,164 pairs were defective and asked for
forbearance of money actual damages of P49,925.51
Interest Due:  RTC: favored D'Wilmar P76,140 at 12% per annum, P5,000 attorney's fees and
i) that which may have been stipulated in writing. Furthermore, the interest due cost of suit
shall itself earn legal interest from the time it is judicially demanded.  CA: affirmed but delete the attorney's fees
ii) 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 ISSUE: W/N they should impose 12% interest for an obligation which is not a loan
to the provisions of Article 1169 of the Civil Code. (amended to 6%) in the absence of stipulation
b) Obligation breached: not constituting a loan or forbearance of money,
Interest due: may be imposed at the discretion of the court at the rate of 6% per
annum. HELD: NO. Appealed Decision is MODIFIED. The rate of interest shall be
Ø No interest, however, shall be adjudged on unliquidated claims or damages except when 6%/annum, computed from the time of the filing of the Complaint in the trial
or until the demand can be established with reasonable certainty. court until the finality of the judgment. If the adjudged principal and the interest
o Accordingly, where the demand is established with reasonable certainty, the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be 12% per
shall begin to run from the time the claim is made judicially or extrajudicially (Art. annum computed from the time the judgment becomes final and executory until it is
1169, Civil Code) fully satisfied.
o 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  Article 1589 on the Civil Code
made (at which time the quantification of damages may be deemed to have been  [t]he vendee [herein petitioner] shall owe interest for the period between the
reasonably ascertained). The actual base for the computation of legal interest shall, in delivery of the thing and the payment of the price . . . should he be in default from
any case, be on the amount finally adjudged. the time of judicial or extrajudicial demand for the payment of the price.
c) When the judgment of the court awarding a sum of money becomes final and  Article 2209 of the Civil Code
executory, the rate of legal interest, whether the case falls under paragraph 1 or  If the obligation consists in the payment of money and the debtor incurs in delay,
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, the indemnity for damages, there being no stipulation to the contrary, shall be the
this interim period being deemed to be by then an equivalent to a forbearance of payment of the interest agreed upon, and in the absence of stipulation, the legal
credit. (amended to 6%) interest, which is 6%/annum
 Usury Law
 rate of interest for the loan or forbearance of any money, goods or credits and the
CRISMINA GARMENTS v. CA rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve per cent (12%) per annum
 award of interest in the concept of actual and compensatory damages, the rate of ----------------
interest, as well as the accrual thereof
(Compensatory, Penalty or Indemnity Interest)
 When the obligation is breached, and it consists in the payment of a sum of
*Amending the Eastern Shipping Doctrine
money, i.e., a loan or forbearance of money, the interest due should be that which
*Important: because this case discusses the amendment of the legal interest in loan
may have been stipulated in writing
and forbearance of money, credits or goods from 12% to 6% effective July 1, 2013.
 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 Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
796, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and,
subject to the provisions of Article 1169 of the Civil Code
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the
 When an obligation, not constituting a loan or forbearance of money, is breached,
pertinent portion of which reads:
an interest on the amount of damages awarded may be imposed at the discretion
Section 1. The rate of interest for the loan or forbearance of any money, goods or
of the court at the rate of 6% per annum.
credits and the rate allowed in judgments, in the absence of an express contract as to
 No interest, however, shall be adjudged on unliquidated claims or damages except
such rate of interest, shall be six percent (6%) per annum.
when or until the demand can be established with reasonable certainty
 where the demand is established with reasonable certainty, the interest shall begin
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
to run from the time the claim is made judicially or extrajudicially (Art. 1169,
interest that would govern the parties, the rate of legal interest for loans or forbearance
Civil Code) but when such certainty cannot be so reasonably established at the
of any money, goods or credits and the rate allowed in judgments shall no longer be
time the demand is made, the interest shall begin to run only from the date the
12% per annum but will now be 6% per annum effective July 1, 2013.
judgment of the court is made (at which time the quantification of damages may
Ø It should be noted, nonetheless, that the new rate could only be applied prospectively
be deemed to have been reasonably ascertained).
and not retroactively. Consequently, the 12% per annum legal interest shall apply only
 The actual base for the computation of legal interest shall, in any case, be . . . the
until June 30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the
amount finally adjudged.
prevailing rate of interest when applicable.
 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
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
paragraph 2, above, shall be 12% per annum from such finality until its
Shipping Lines are accordingly modified to embody BSP-MB Circular No. 799, as
satisfaction, this interim period being deemed to be by then an equivalent to
follows:
forbearance of credit
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
 amount due in this case arose from a contract for a piece of work, not from a loan
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
or forbearance of money, the legal interest of six percent (6%) per annum should
The provisions under Title XVIII on "Damages" of the Civil Code govern in
be applied.
determining the measure of recoverable damages.
 Furthermore, since the amount of the demand could be established with certainty
II. With regard particularly to an award of interest in the concept of actual and
when the Complaint was filed, the six percent (6%) interest should be computed
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
from the filing of the said Complaint.
as follows:
 But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year
New guidelines in the award of interest:
1.) When the obligation is breached, and it consists in the payment of a sum of money,
BSP-MB RESOLUTION NO. 796 (MAY 16, 2013) 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
NACAR v. GALERY FRAMES 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.
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 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.
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 be6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit.

Application in this case: The interest of 12% per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013
until their full satisfaction, is awarded.