BPI Investment Corporation v.

Court of Appeals (2002) FACTS: Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), the predecessor of BPIIC, for the construction of a house on his lot in Muntinlupa. Said house and lot were mortgaged to AIDC to secure the loan. Roa sold the house and lot to ALS and Litonjua for P85K. They paid P350K in cash and assumed the P500K balance of Roas indebtedness with AIDC. o The latter, however, was not willing to extend the old interest rate to ALS and Litonjua and proposed to grant them a new loan of P500k to be applied to Roas debt and secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable. March, 1981. ALS and Litonjua executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981. On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents loan of P500,000. On 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. In 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, amounted to P475,585.31. On February 28, 1985, ALS and Litonjua filed civil case against BPIIC. o They alleged that they were not in arrears in their payment, but in fact made an overpayment. They maintained that they should not be made to pay amortization before the actual release of the P500K loan in August and September 1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the balance of P35,648.23 should be applied to the initial monthly amortization for the loan. On August 31, 1988, the trial court rendered its judgment in civil cases in favor of ALS and Litonjua. CA affirmed. Hence, this petition. ISSUE: WON a contract of loan is a consensual contract DECISION: NO. AFFIRMED with MODIFICATION. A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. HELD: In Saura Import and Export Co. Inc. vs. DBP, petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract which under normal circumstances could have made the bank liable for not releasing the loan. However, since the fault was attributable to petitioner therein, the court did not award it damages. A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the real contract of loan which

requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower. o The loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the CA, ALS and Litonjuas obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract. A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. o The promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. 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. o Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, BPIIC 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. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981. ALS and Litonjua were irregular in their payment of amortization. The Court cannot declare BPIIC in bad faith, thus ruling out the award of moral and exemplary damages. However, in our view, 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 to private respondents and the date when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.

Naguiat v. Court of Appeals (2003) FACTS: Queao applied with Naguiat for a loan in the amount of P200K, which Naguiat granted. Naguiat indorsed to Queao checks for the amount of P95K, which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank check to the order of Queao for the amount of P95K. The proceeds of these checks were to constitute the loan granted by Naguiat to Queao. To secure the loan, Queao executed a Deed of Real Estate Mortgage in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties. Queao also issued a SBTC check for the amount of P200K and payable to the order of Naguiat. Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. Queao requested Security Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds. Queao received a letter from Naguiat demanding settlement of the loan. Queao and Ruebenfeldt met with Naguiat. Queao told Naguiat that she did not receive the proceeds of the loan since checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. Naguiat applied for extrajudicial foreclosure of the mortgage.

Three days before the scheduled sale, Queao filed the case before the RTC, seeking the annulment of the mortgage deed. The trial court eventually stopped the auction sale. o RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged lots. CA affirmed. Hence, the present petition.

ISSUE: WON Queano had actually received the loan proceeds DECISION: NO. Decision AFFIRMED. Naguiat did not remit and the Queano did not receive the proceeds of the loan. It follows that the mortgage which is supposed to secure the loan is null and void. HELD: No evidence was submitted by Naguiat that the 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. It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides: o An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract in this case, the objects of the contract are the loan proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos account. The existence of an agency (agency by estoppel) relationship between Naguiat and Ruebenfeldt is supported by evidence. Ruebenfeldt was not a stranger. Naguiat instructed Ruebenfeldt to withhold the checks she issued or indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Farralese, and it was in connection with that transaction that Queao came to know Naguiat. It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220K payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement. o As a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. Whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to her account of Naguiat.

Garcia v. Thio (2007) FACTS: Rica Thio received from Carolyn Garcia a crossed check in the amount of $100K payable to the order of Marilou Santiago. Thereafter, Carolyn received from Rica payments. Again, Rica received a check in the amount of P500K from Carolyn and payable to the order of Marilou and payments were again made by her representing interests.

There was failure to pay the principal amounts hence, a complaint for sum of money with damages was filed. Rica contended that she had no obligation to her as it was Marilou who was indebted as she was merely asked to deliver the checks to Marilou and that the check payments she issued were merely intended to accommodate Marilou. The RTC ruled in favor of Carolyn but the CA reversed on the ground that there was no contract between Rica and Carolyn.

ISSUES: WON there was a contract of loan between Carolyn and Rica WON the debtor is liable to pay interest since there was no written agreement to pay interest DECISION: Yes. Yes. Decision REVERSED. There was a contract of loan between Carolyn and Rica. HELD: A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. This is evident in Art. 1934 of the Civil Code which provides: o An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. o Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquired ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. It is undisputed that the checks were delivered to Rica. However, these checks were crossed and payable not to the order of Rica but to the order of a certain Marilou Santiago. o The Court agrees with Carolyn. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Although Rica did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Marilou. Several factors support this conclusion. o (1) Carolyn did not know personally Marilou. This was admitted by Rica, hence, it is not possible for Carolyn to grant loans in such big sum of money even without any acknowledgment of debt. It was Rica who had transactions with Marilou. o (2) It is unbelievable that Rica would put herself in a position where she would be compelled to pay interest out of her own funds for loans she never contracted. o (3) When Marilou filed a petition for insolvency, it was Rica who was listed as a debtor. Hence, Rica is the debtor and not Marilou. No interest shall be due unless it has been expressly stipulated in writing. (Art. 1956, CC). o Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

Hence, Rica is liable for the payment of legal interest per annum to be computed from the date when she received the demand letter. From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.

Cinco v. CA (2009) FACTS: Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700K from Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a PN and secured by a REM over the spouses Go Cincos land and 4-storey building. Under the terms of the promissory note, the P700K loan was subject to a monthly interest rate of 3% or 36% per annum and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989, Ma nuels outstanding obligation with MTLC amounted to P1,071,256.66, which amount included the principal, interest, and penalties. To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with PNB and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved the loan application for P1.3M; the release of the amount, however, was conditioned on the cancellation of the mortgage in favor of MTLC. Manuel went to the house of Ester Servacio (Ester), MTLCs President, to inform her that there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the information, but she claimed that the banks officers informed her that Manuel had no pending loan application with them. When she told Manuel of the banks response, Manuel assured her there was money with the PNB and promised to execute a document that would allow her to collect the proceeds of the PNB loan. Manuel executed a SPA authorizing Ester to collect the proceeds of his PNB loan. The banks officers confirmed the existence of the P1.3M, but they required Ester to first sign a deed of release/cancellation of mortgage before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3 M loan proceeds. As the MTLC loan was already due, Ester instituted foreclosure proceedings. To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages, and preliminary injunction before the RTC. o The spouses Go Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan to obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC. She claimed that she had no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC; the SPA merely authorized her to collect the proceeds of the loan. RTC ruled in favor of the spouses Go Cinco. CA reversed. ISSUE: WON the spouses acts is equivalent to payment that extinguished the MTLC loan DECISION. NO. Decision REVERSED. HELD: Obligations are extinguished, among others, by payment or performance, the mode most relevant to the factual situation in the present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the performance, in any other

manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be." In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These provisions must be read in relation with the other rules on payment under the Civil Code, which rules impliedly require acceptance by the creditor of the payment in order to extinguish an obligation. o In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB loan an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the already-approved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan. Had Ester presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of the sum of money would have been effected and the obligation extinguished. As the records show, Ester refused to collect and allow the cancellation of the mortgage. Esters refusal of the payment was without basis. o Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the mortgage before the proceeds of the PNB loan could be released. o There is nothing legally objectionable in a mortgagors ac t of taking a second or subsequent mortgage on a property already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior rights of previous mortgages. If the mortgagor-owner is allowed to convey the entirety of his interests in the mortgaged property, reason dictates that the lesser right to encumber his property with other liens must also be recognized. Ester, therefore, could not validly require the spouses Go Cinco to first obtain her consent to the PNB loan and mortgage. Besides, with the payment of the MTLC loan using the proceeds of the PNB loan, the mortgage in favor of the MTLC would have naturally been cancelled. We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC loan. Manuel had already expressed intent to pay his loan with MTLC and thus requested for an updated statement of account. o The SPA not only allowed Ester to collect the proceeds of the PNB loan, without giving her the accompanying authority, although verbal, to apply these proceeds to the MTLC loan. Even Esters actions belie her claim as she in fact even went to the PNB to collect the proceeds. In sum, the surrounding circumstances of the case simply do not support Esters position. While Esters refusal was unjustified and unreasonable, The Court cannot agree with Manuels position that this refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when it provides that o ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. o A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage, which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged properties from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for specific performance and damages.

Under these circumstances, while no completed tender of payment and consignation took place sufficient to constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. No reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the mortgage to MTLC as a condition to the release of the proceeds of the PNB loan, upon PNBs acknowledgment that the proceeds of the loan are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to cover the total amount of the loan to MTLC, as payment for Manuels loan with MTLC .

Ligutan v. Court of Appeals (2002) FACTS: Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120K from SBTC. They also executed a PN binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. o In addition, they agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment.

Despite several demands from the bank, Ligutan and dela Llana failed to settle the debt. The bank sent a final demand letter to them informing them that they had five days within which to make full payment. Since they still defaulted on their obligation, the bank filed with RTC, a complaint for recovery of the due amount. RTC ruled for the bank. CA affirmed except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration. Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties.

ISSUE: WON the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and unconscionable DECISION: No. Petition DENIED. HELD: A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous

or unconscionable or if the principal obligation has been partly or irregularly complied with. The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, 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 of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. o The CA, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court. Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded. What may 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 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 a bank's existence. Bearing in mind that the rate of attorneys fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorneys fees to be reasonable.

Tan v. CA (2001) FACTS: Antonio Tan obtained 2 loans each in the principal amount of P2M from CCP evidenced by 2 PNs. Tan defaulted but after a few partial payments he had the loans restructured by CCP, and he accordingly executed a PN in the amount P3,411,421.32 payable in 5 installments. Tan failed to pay any installment on the said restructured loan. Tan requested and proposed to CCP a mode of paying the restructured loan, i.e., (a) 20% of the principal amount of the loan upon the respondent giving its conformity to his proposal; and (b) the balance on the principal obligation payable in 36 equal monthly installments until fully paid. Tan again sent a letter to respondent CCP requesting for a moratorium on his loan obligation until the following year allegedly due to a substantial deduction in the volume of his business and on account of the peso devaluation. CCP wrote a letter to Tan demanding full payment, within 10 days from receipt of said letter, of the restructured loan which as of April 30, 1984 amounted P6,088,735.03. CCP filed in the RTC a complaint for collection of a sum of money against Tan after the latter failed to settle his said restructured loan obligation. o Tan interposed the defense that he merely accommodated a friend, Wilson Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen.

RTC ruled for CCP. Tan appealed the decision of the trial court to the CA insofar as it charged interest, surcharges, attorneys fees and exemplary damages against the petitioner. CA affirmed. o CA did not accept Tans claim for modification on the basis of alleged partial or irregular performance, there being none. Tans offer or tender of payment cannot be deemed as a partial or irregular performance of the contract, not a single centavo appears to have been paid by the defendant.

ISSUE: WON there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorneys fees DECISION: YES. AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%) per annum starting from August 28, 1986. HELD: Article 1226 of the New Civil Code provides that: o In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. In the case at bar, the PN expressly provides for the imposition of both interest and penalties in case of default on the part of Tan in the payment of the restructured loan. The stipulated 14% per annum interest charge until full payment of the loan constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil Code. On the other hand, the stipulated 2% per month penalty is in the form of penalty charge which is separate and distinct from the monetary interest on the principal of the loan. o Article 2209 of the New Civil Code which provides that: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. The penalty charge of 2% per month in the case at bar began to accrue from the time of default by Tan. There is no doubt that Tan is liable for both the stipulated monetary interest and the stipulated penalty charge. The penalty charge is also called penalty or compensatory interest. Article 1959 of the New Civil Code, provides that: o Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. o According to Tan, there is no legal basis for the imposition of interest on the penalty charge for the reason that the law only allows imposition of interest on monetary interest but not the charging of interest on penalty. He claims that since there is no law that allows imposition of interest on penalties, the penalties should not earn interest. But as we have already explained, penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering that: First, there is an express stipulation in the PN permitting the compounding of interest. The fifth paragraph of the said promissory note provides that: Any interest which may be due if not paid shall be added to the total amount when due and shall become part thereof, the whole amount to bear interest at the maximum rate allowed by law. Therefore,

any penalty interest not paid, when due, shall earn the legal interest of 12% per annum, in the absence of express stipulation on the specific rate of interest, as in the case at bar. Second, Article 2212 of the New Civil Code provides that Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. In the instant case, interest likewise began to run on the penalty interest upon the filing of the complaint in court by CCP. The statement of account also shows that the amounts stated therein are net of the partial payments amounting to a total of P452,561.43 which were made during the period from May 13, 1983 to September 30, 1983. Tan now seeks the reduction of the penalty due to the said partial payments. The principal amount of the PN was P3,411,421.32 when the loan was restructured on August 31, 1979. As of August 28, 1986, the principal amount of the said restructured loan has been reduced to P2,838,454.68. Thus, Tan contends that reduction of the penalty is justifiable pursuant to Article 1229 of the New Civil Code which provides that: The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Tan insists that the penalty should be reduced to ten percent (10%) of the unpaid debt. There appears to be a justification for a reduction of the penalty charge but not necessarily to ten percent 10% of the unpaid balance of the loan as suggested by petitioner. Inasmuch as Tan has made partial payments which showed his good faith, a reduction of the penalty charge from 2% per month on the total amount due, compounded monthly, until paid can indeed be justified under the said provision of Article 1229 of the New Civil Code. o In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on the total amount due to be unconscionable inasmuch as the same appeared to have been compounded monthly. Considering Tans several partial payments and the fact he is liable under the note for the 2% penalty charge per month on the total amount due, compounded monthly, for 21 years since his default in 1980, the Court finds it fair and equitable to reduce the penalty charge to a straight 12% per annum on the total amount due starting August 28, 1986, the date of the last Statement of Account. o The Court also took into consideration the offers of Tan to enter into a compromise for the settlement of his debt by presenting proposed payment schemes to respondent CCP. The said offers at compromise also showed his good faith despite difficulty in complying with his loan obligation due to his financial problems. Tan alleges that his obligation to pay the interest and surcharge should have been suspended because the obligation to pay such interest and surcharge has become conditional, that is dependent on a future and uncertain event which consists of whether Tans request for condonation of interest and surcharge would be recommended by the COA and the Office of the President to the House of Representatives for approval as required under Section 36 of Presidential Decree No. 1445. Since the condition has not happened allegedly due to the private respondents reneging on its promise, his liability to pay the interest and surcharge on the loan has not arisen. This is Tans contention. o However, the running of the interest and surcharge was not suspended by the CCPs promise to assist Tan in applying for relief therefrom through the Commission on Audit and the Office of the President.

RCBC v. CA (1998) FACTS:

GOYU applied for credit facilities and accommodations with RCBC. RCBC, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs executive committee. o A credit facility in the amount of P30M was initially granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs executive committee increased GOYUs credit facility to P50M, then to P90M, and finally to P117M. As security, GOYU executed two REMs and two CMs in favor of RCBC. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance, the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU. One of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity. o MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed complaint for specific performance and damages at the RTC. RTC rendered judgment in favor of GOYU. All parties appealed. GOYU was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial courts findings of liability on their part. The Court of Appeals partly granted GOYUs appeal, but sustained the findings of the trial court with res pect to MICO and RCBCs liabilities.

ISSUE: WON RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss. DECISION: Yes. HELD: It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for RCBC, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who

prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: o 1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. o 2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. o 3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said endorsements. o 4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties. The Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended.

This brings us to the next relevant issue to be resolved, which is, the extent of GOYUs outstanding obligation with RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the actual amount of GOYUs liability to RCBC. The CA simply echoed the declaration of the trial court finding that GOYUS total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the

trial courts exclusion of Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for not only are these dated after the fire, but also because the signatures of either GOYU or any its representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly: o The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the ordinary course of business had been followed. The CA erred in placing much significance on the fact that the excluded PNs are dated after the fire. It failed to consider that said notes had for their origin transactions consummated prior to the fire. o The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYUs judicial admission of liability in the amount of P116,301,992.60 full force and effect It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the mortgaged property will, nonetheless, have to be applied as payment against GOYUs obligation. But, contrary to the lower courts findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its aforequoted letter dated March 9, 1993, wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993. o The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993. The need for the payment of interest due upon the principal amount of the obligation, which is the cost of money to RCBC was duly recognized by the trial court when it ruled favorably on RCBCs counterclaim, ordering GOYU to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down the factual or legal justification for its ruling, modified the trial courts ruling and ordered GOYU to pay the principal amount of P68,785,069.04 without any interest, surcharges and penalties. The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeals outright deletion of the payment of interest as agreed upon in the respective promissory notes. For the computation of the interest due to be paid to RCBC, the following rules laid down in Eastern Shipping Lines, Inc. vs. CA, shall apply, to wit: o I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. o II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially

demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or 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 of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial court in its decision such agreed interest rates must be followed. On the issue of payment of surcharges and penalties, the Court partly agree that GOYUs pitiful situation must be taken into account. o The Court does not agree, however, that payment of any amount as surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its responsible officers may have relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, the Court cannot accept the lower courts finding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and penalties is another. Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides: o ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable. The Court must consider the circumstances of each case. Given the circumstances under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYUs offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit BB), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward. Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU. o Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies.

Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent. It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man. The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in withholding payment to GOYU. In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance and the other for foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of action. The Court of Appeals was too accommodating in giving due consideration to this argument of GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R CV No. 46247, the case having been elevated by RCBC.

UCPB v. Beluso (2007) FACTS: UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their PNs, a REM over parcels of land as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35M and to extend the term thereof to 28 February 1998. The spouses Beluso availed themselves of the credit line under the following Promissory Notes: PN # 8314-96-00083-3 8314-96-00085-0 8314-96-000292-2 Date of PN 29 April 1996 2 May 1996 20 November 1996 Maturity Date 27 August 1996 30 August 1996 20 March 1997 Amount Secured P 700,000 P 500,000 P 800,000

The three PNs were renewed several times. The payment of the principal and interest of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3M was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total ofP350,000.00: Date of PN Maturity Date Amount Secured

PN #

97-00363-1

11 December 1997

28 February 1998

P 200,000

98-00002-4 2 January 1998 28 February 1998 P 150,000 However, the spouses Beluso alleged that the amounts covered by these last two PNs were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2M. In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03. From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the spouses Beluso, as follows: Amount Secured P P 200,000 700,000 Interest Penalty Total

PN # 97-00363-1 97-00366-6

31% 36% P 225,313.24 30.17% 32.786% P 795,294.72 (7 days) (102 days) 97-00368-2 P 1,300,000 28% 30.41% P 1,462,124.54 (2 days) (102 days) 98-00002-4 P 150,000 33% 36% P 170,034.71 (102 days) The spouses Beluso, however, failed to make any payment of the foregoing amounts. UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00. The Spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City. o RTC ruled in favor of the spouses Beluso. CA affirmed. ISSUE: WON the provision on interest rate agreed upon between the parties is void DECISION: Yes HELD: Article 1308 of the Civil Code provides: o Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined by the Branch Head is indeed dependent solely on the will of UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts. Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate as determined by the Branch Head gives the latter unfettered discretion on what the rate may be. As regards the rate indicative of the DBD retail rate, the same cannot be considered as valid for being akin to a prevailing rate or prime rate allowed by this Court in Polotan.

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily determine the interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar does not specify any margin above or below the DBD retail rate. UCPB can peg the interest at any percentage above or below the DBD retail rate, again giving it unfettered discretion in determining the interest rate. It should be pointed out that the authority to review the interest rate was given to UCPB alone as the lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above or below these considerations. In view of the Separability Clause cannot save either of the two options of UCPB as to the interest to be imposed, as both options violate the principle of mutuality of contracts. UCPB likewise failed to convince us that the spouses Beluso were in estoppel. o Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy. o The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance.

Equitable PCI Bank v. Ng Sheung Ngor (2007) FACTS: Ng Sheung Ngor, Ken Appliance Division, Inc. and Go filed an action for annulment and/or reformation of documents and contracts against Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the RTC. o They claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates so they accepted Equitable's proposal. They, however, were unaware that docs contained identical escalation clauses granting Equitable authority to increase interest rates without their consent. RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents' loans amounting to US$228,200 andP1,000,000. o The trial court, however, invalidated the escalation clause contained therein because it violated the principle of mutuality of contracts. Nevertheless, it took judicial notice of the steep depreciation of the peso during the intervening period and declared the existence of extraordinary deflation. o RTC ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans. RTC issued an omnibus order denying Equitable's MR for lack of merit and ordered the issuance of a writ of execution in favor of respondents.

According to the RTC, because respondents did not move for the reconsideration of the previous order (denying due course to the parties notices of appeal), the February 5, 2004 decision became final and executory as to both parties and a writ of execution against Equitable was in order. o A writ of execution was thereafter issued and three real properties of Equitable were levied upon. Equitable filed a petition for certiorari with an application for an injunction in the CA to enjoin the implementation and execution of the omnibus order. CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly issued. Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction. Respondents were the highest bidders and certificates of sale were issued to them. Equitable moved to annul the auction sale and to cite the sheriffs who conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA. CA dismissed the petition for certiorari. It found Equitable guilty of forum shopping.

ISSUE: WON the promissory notes were valid DECISION: Yes HELD: It is erroneous, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as ordinary contracts. A party is in reality free to 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 the latter of the opportunity to bargain on equal footing. o That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five long years. ESCALATION CLAUSE VIOLATEDTHE PRINCIPLE OF MUTUALITY OF CONTRACTS Article 1308 of the Civil Code holds that a contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. For this reason, we have consistently held that a valid escalation clause provides: o 1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary Board; and o 2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause). With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank we held that, because the escalation clause was annulled, the principal amount of the loan was subject to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12% per annum. Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollardenominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.

THERE WAS NO EXTRAORDINARY DEFLATION Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven:

1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ngPilipinas (BSP); o 2. that the obligation was contractual in nature; o 3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation. Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity.

MENDOZA vs CA G.R.No. 116710, June 25,2001 Facts: PNB extended P500,000 credit line and P1 million letter of credit in favor of Mendoza. As security for the credit accomodations, he mortgaged real and personal properties to PNB. The real estate mortgage provided for an escalation clause. He also executed 3 promissory notes covering the P500,000 credit line in 1979. The said notes also provided for an interest at the rate of 12% per annum until paid , and that PNB may raise the interest without further notice. He also executed 11 Application and Agreement for the commercial letter of credit providing for 9% interest per annum from the date of drafts until the arrival of payment in New York and that the bank may increase the interest without further notice. The bank sent a letter to Mendoza, informing him that the interest rates increased to 14% per annum. Mendoza made some proposals for the restructuring of his past due accounts into 5 year term loan and for an additional P2 million letter of credit. However, PNB did not approve his proposal and reduced the letter of credit to P 1 million only. Mendoza claimed that he was forced to sign 2 blank promissory notes and claimed that his proposal for 5 year restructuring of his past due accounts was approved . He also alleged thAt PNB violated their agreement because PNB inserted 21% instead of 18% in the first promissory note and 18% instead of 12% in the second promissory note. The 2 promissory notes also provided escalation clauses. The 2 newly executed promissory notes novated the three 1979 promissory notes and 11 Application and Agreement for Commercial Letter of Credit executed by Mendoza earlier. After sometime, pursuant to the escalation clause, the interests in the two promissory notes were again increased. Due to Mendozas failure to pay the 2 promissory notes, PNB foreclosed the real and personal mortgages. Mendoza filed for specific performance, nullification of foreclosure and damages. Issue: Whether or not the interest rates imposed on the 2 newly executed promissory notes were valid. Ruling: The Court upheld the validity of the 2 newly executed promissory notes on the ground that private transactions are presumed to be fair and regular. However, it ruled that interest rates imposed on the 2 newly executed promissory notes are not valid on the ground that Mendoza was not informed beforehand by PNB of the change in the stipulated interest rates. It held that unilateral determination and imposition of increased interest rates by PNB is violative of the principle of mutuality of contract. Contract changes must be made with the consent of the contractiong parties. The minds of all parties must meet as to the proposed modification, especially when

it affects an important aspect of the agreement. No one receiving a proposal to change a contract to which the party is obliged to answer the proposal, and his silence per se cannot be construed as acceptance.

CU-UNJIENG V. MABALACAT Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, Mabalacat mortgaged its property. Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu Unjieng filed a case against Mabalacat for foreclosure of property and payment of attorney's fees. It also claims interest over interest. Mabalacat insisted that the agreement for the extension of the time of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of the debt by noncompliance with the terms of the mortgage. The issue related on this case is the interest over interest. Issue: WoN Cu-Unjieng is entitled to interest over interest. Ruling: It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests for the computation of compound interest can certainly be made monthly, as well as quarterly, semiannually, or annually. But in the absence of express stipulation for the accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed, and then the rate at which interest upon accrued interest must be computed is fixed at 6 per cent per annum. In this case, there was no compound interest in the agreement.

In the present case, however, the language which we have quoted above does not justify the charging of interest upon interest, so far as interest on the capital is concerned. The provision quoted merely requires the debtor to pay interest monthly at the end of each month, such interest to be computed upon the capital of the loan not already paid. Clearly this provision does not justify the charging of compound interest upon the interest accruing upon the capital monthly. It is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the interest can be thus computed upon sums which the creditor would have to pay out (a) to maintain insurance upon the mortgaged property, (b) to pay the land tax upon the same property, and (c) upon disbursements that might be made by the mortgagee to maintain the property in good condition. But the chief thing is that interest cannot be thus accumulated on unpaid interest accruing upon the capital of the debt. The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the Mabalacat Sugar Company, which the court considered as an interpretation by the parties to the contract and a recognition by the debtor of the propriety of compounding the interest earned by the capital. But the exhibit referred to is merely a receipt showing that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in excess of 12 per cent which is allowed to be charged, under section 2 of the Usury Law, when a debt is secured by mortgage upon real property. The Exhibit 1 therefore adds no support to the contention of the plaintiff that interest upon interest can be accumulated in the manner adopter by the creditor in this case. The point here ruled is in exact conformity with the decision of this court in Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that interest cannot be allowed in the absence of stipulation, or in default thereof, except when the debt is judicially claimed; and when the debt is judicially claimed, the interest upon the interest can only be computed at the rate of 6 per cent per annum.

It results that the appellant's second assignment of error is well taken, and the compound interest must be eliminated from the judgment. With respect to the amount improperly charged, we accept the estimate submitted by the president and manager of the Mabalacat Sugar Company, who says that the amount improperly included in the computation made by the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff creditor had the right to charge interest, in the manner adopted by it, upon insurance premiums which it had paid out; and if any discrepancy of importance is discoverable by the plaintiff in the result here reached, it will be at liberty to submit a revised computation in this court, upon motion for reconsideration, wherein interest shall be computed in accordance with this opinion, that is to say, that no accumulation of interest will be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall draw interest at the rate of 6 per cent from the date of the institution of the action.

GIL JARDENIL vs.HEFTI SALAS FACTS: Salas and Jardenil entered into a mortgage deed where Salas would p a y J a r d e n i l o n o r b e f o r e M a r c h 3 1 , 1 9 3 4 , P 2 , 0 0 0 w i t h t h e interests of that amount at the rate of 12% per annum. Solas also yields and transferred by way of mortgage, in favor of Jardenil, a parcel of land described in the mortgage deed. The contract is silent as to whether after the date of maturity, in the event of non-paym ent, the debtor would continue to pay interest. Solas was unable to pay thus an action for foreclosure of mortgage was instituted. Argument: Solas has agreed to pay interest only up to the date of maturity, or until March 31, 1934. ISSUE:Whether or not Solas is bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected. HELD: The Supreme Court ruled that Salas is bound to pay the stipulated interest only up to the date of maturity. As the contract is silent as to whether after that date, in the event of non-paym ent, the debtor would continue to pay interest; the Court cannot impose upon the debtor an obligation that the parties have not chosen to agree upon. Ar t ic l e 1 7 55 of the Civil C o de pro v i d es th at in t er es t s h a ll be d ue on l y wh e n i t h as b e en ex pr es s l y s t i pu l at ed . "T h e wr i t in g m us t b e i nt er pre t ed ac c or d in g t o t h e l eg a l m ea n i ng of i ts l an g ua g e ( s ec t io n 28 6 , Ac t N o. 1 90 , n o w s e c ti o n 5 8, Ru l e 12 3), a nd on l y wh e n t h e wor d i ng of th e wr it t en ins tr um en t a pp e ars t o be c on tr ar y t o th e e v id e nt i nt e nt i on of t h e p art i es t h at s uc h in t en ti o n m us t pr e v ai l . ( Ar t ic le 12 8 1, C i v i l Co d e.) T he ac t of t he m or t g ag e of gr a nt i ng t o t h e m ort ga g or o n th e s am e da t e of ex ec ut i on of t he d e ed of m ortg a ge , a n ex t e ns i o n of on e ye ar f r om t he da t e of m atur it y wi t h i n wh ic h t o m ak e pa ym en t, wi t h ou t m ak in g a n y m e nt i on o f a n y i nt er es t wh ic h t he m ort g ag or s h o u ld pa y dur i n g th e a dd i t io n a l per i o d, i n d ic a t es t h at t he tr u e i nt e nt i on of t he par t ies was t h at n o i nt eres t s h ou l d b e p a id d ur in g t he per i od of gr a c e.

GSIS vs. CA (1986) FACTS: Spouses Medina applied with GSIS for a loan of P600k. The GSIS Board of Trustees, approved under Resolution 5041 only the amount of P350k, subject to the following conditions: o that the rate of interest shall be 9% per annum compounded monthly; repayable in 10 years at a monthly amortization of P4,433.65 including principal and interest, and that any installment or amortization that remains due and unpaid shall bear interest at the rate of 9%/12% per month. The Office of the Economic Coordinator, in a 2nd Indorsement further reduced the approved amount to P295k. The Medinas accepting the reduced amount, executed a promissory note and a real estate mortgage in favor of GSIS. GSIS and the Office of the Economic Coordinator, upon request of the Medinas, both approved the restoration of the amount of P350k (P295k + P55k) originally approved by the GSIS. This P350,000.00 loan was denominated by the GSIS as Account No. 31055. The Medinas executed in favor of the GSIS an Amendment of Real Estate Mortgage Upon application by the Medinas, the GSIS Board of Trustees adopted Resolution 121 as amended by Resolution 348 approving an additional loan of P230k in favor of the Medinas on the security of the same mortgaged properties and additional properties, to bear interest at 9% per annum compounded monthly and repayable in ten years. This additional loan of P230k was denominated by the GSIS as Account No. 31442. The Medinas having defaulted in the payment of the monthly amortization on their loan, the GSIS imposed 9%/12% interest on an installments due and unpaid. Also, the Medinas began defaulting in the payment of fire insurance premiums. The GSIS notified the Medinas that they had arrearages in the amount of P575,652.42, and demanded payment within 7 days from notice, otherwise, it would foreclose the mortgage. The GSIS filed an Application for Foreclosure of Mortgage with the Sheriff. The Medinas filed with the CFI a complaint praying that a restraining order or writ of preliminary injunction be issued. However, in view of Sec 2 of PD 385, no restraining order or writ of preliminary injunction was issued by the trial court. The Medinas made a last partial payment in the amount of P209,662.80. Under a Notice of Sale on Extra-Judicial Foreclosure, the real properties of the Medinas were sold at public auction to the GSIS as the highest bidder. The Medinas filed an Amended Complaint with the trial court, praying for (a) the declaration of nullity of their two real estate mortgage contracts with the GSIS as well as of the extrajudicial foreclosure proceedings; and (b) the refund of excess payments, plus damages and attorney's fees. o The trial court declared the extra-judicial foreclosure of real estate mortgage contracts null and void and the Sheriff's Certificate of Sale in favor of the GSIS of no legal force and effect; and directing the Medinas to pay the GSIS the sum of P1,611.12 in full payment of their obligation to the latter with interest of 9% per annum until fully paid. The Court of Appeals, affirmed with modification. Hence this petition.

ISSUE: WON the interest rates on the loan accounts of the spouses are usurious DECISION: Decision of CA REVERSED.

HELD: Accordingly, payments made by the Medinas in the total amount of P991,845.53 was applied as follows: the amount of P600,495.51 to Account No. 31055, P466,965.31 of which to interest and P133,530.20 to principal and P390,845.66 to Account No. 31442, P230,774.29 to interest and P159,971.37 to principal. The Medinas maintain that there is no express stipulation on compounded interest in the amendment of mortgage contract so that the compounded interest stipulation in the original mortgage contract which has been superseded cannot be enforced in the later mortgage. Hence the Medinas claim an overpayment in Account No. 31055. o To recapitulate, the difference in the computation lies in the inclusion of the compounded interest as demanded by the GSIS on the one hand and the exclusion thereof, as insisted by the Medinas on the other. There appears no ambiguity whatsoever in the terms and conditions of the amendment of the mortgage contract. On the contrary, an opposite conclusion cannot be otherwise but absurd. As correctly stated by the GSIS in its brief, a careful perusal of the title, preamble and body of the Amendment of Real Estate Mortgage, taking into account the prior, contemporaneous, and subsequent acts of the parties, ineluctably shows that said Amendment was never intended to completely supersede the mortgage contract. First, the title "Amendment of Real Estate Mortgage" recognizes the existence and effectivity of the previous mortgage contract. Second, nowhere in the aforesaid Amendment did the parties manifest their intention to supersede the original contract. On the contrary in the WHEREAS clauses, the existence of the previous mortgage contract was fully recognized and the fact that the same was just being amended as to amount and amortization is fully established as to obviate any doubt. Third, the Amendment of Real Estate Mortgage dated July 6, 1962 does not embody the act of conveyancing the subject properties by way of mortgage. In fact the intention of the parties to be bound by the unaffected provisions of the mortgage contract expressed in unmistakable language is clearly evident in the last provision of the Amendment of Real Estate Mortgage which reads: It is hereby expressly understood that with the foregoing amendment, all other terms and conditions of the said real estate mortgage dated April 4, 1962, insofar as they are not inconsistent herewith, are hereby confirmed, ratified and continued to be in full force and effect, and that the parties hereto agree that the amendment be an integral part of said real estate mortgage. (Emphasis supplied). o A review of prior, contemporaneous, and subsequent acts supports the conclusion that both contracts are fully subsisting insofar as the latter is not inconsistent with the former. The fact is the GSIS, as a matter of policy, imposes uniform terms and conditions for all its real estate loans, particularly with respect to compounding of interest As to whether or not the interest rates on the loan accounts of the Medinas are usurious, it has already been settled that the Usury Law applies only to interest by way of compensation for the use or forbearance of money. Interest by way of damages is governed by Article 2209 of the Civil Code of the Philippines which provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon,... In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreement, the penalty does not include the interest, and as such the two are different and distinct things which may be demanded separately. Reiterating the same principle in the later case of

Equitable Banking Corp. (supra), where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law. Based on the finding that the GSIS had the legal right to impose an interest 9% per annum, compounded monthly, on the loans of the Medinas and an interest of 9%/12% per annum on all due and unpaid amortizations or installments, there is no question that the Medinas failed to settle their accounts with the GSIS which as computed by the latter reached an outstanding balance of P630,130.55 as of April 12, 1975 and that the GSIS had a perfect right to foreclose the mortgage. In the same manner, there is obvious error in invalidating the extra-judicial foreclosure on the basis of a typographical error in the Sheriff's Certificate of Sale which stated that the mortgage was foreclosed on May 17, 1963 instead of February 17, 1963. There is merit in GSIS' contention that the Sheriff's Certificate of Sale is merely provisional in character and is not intended to operate as an absolute transfer of the subject property, but merely to Identify the property, to show the price paid and the date when the right of redemption expires. Hence the date of the foreclosed mortgage is not even a material content of the said Certificate.

Eastern Shipping Lines vs. CA (1994) Facts: On 4 December 1981, 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel SS Eastern Comet owned by Eastern Shipping under Bill of Lading YMA-8. The shipment was insured under Mercantile Insurance for P36,382,466.38. Upon arrival of the shipment in Manila, it was discharged unto the custody of Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to Mercantile Insurance. Allied Brokerage Corporation received the shipment from Metro Port Service, one drum opened and without seal. Allied Brokerage made deliveries of the shipment to the consignees warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. Due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of the shipping company, arrastre operator and broker-forwarder. Claims were presented against them who failed and refused to pay the same. As a consequence of the losses sustained, Mercantile Insurance was compelled to pay the consignee P19,032.95 under the marine insurance policy, so that it became subrogated to all the rights of action of said consignee against the shipping company, etc. The trial court rendered judgment (1) ordering the shipping company, the arrastre operator and the broker-forwarder to pay Mercantile Insurance, in solidum, the amount of P19,032.95 with the present legal interest of 12% per annum from the date of filing of this complaints, until fully paid; P3,000.00 as attorneys fees, and costs; and dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. CA affirmed in toto the judgment of the court a quo. The Supreme Court partly granted the petition. The Court affirmed the appealed decision with the modification that the legal interest to be paid is 6% on the amount due computed from the decision, dated 3 February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.

1. Duration of common carriers duty to observe requisite diligence The common carriers duty to observe the requisite diligence in the shipment of goods lasts from the

time the articles are surrendered to or unconditionally placed in the 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 them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). 2. Presumption of carriers negligence in case of loss, damage of goods; None of the exclusive exceptions can be applied 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 hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to the case at bar. 3. The rationale why the carrier and arrastre operator are made liable in solidum In Firemans Fund Insurance vs. Metro Port Services (182 SCRA 455), the Court has explained in holding the carrier and the arrastre operator liable in solidum, in the manner that The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). 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, such responsibility also devolves upon the Carrier. Both the Arrastre and the Carrier are therefore charged with the obligation to deliver the goods in goods condition to the consignee. The pronouncement, however, does not imply that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. 4. First group of cases on variances on the Courts ruling on legal interest In the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. angas (1992), the basic issue focus on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach of a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. 5. Second group of cases on variances on the Courts ruling on legal interest The cases of Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988), did not alter the pronounced rule on the application of the 6% or 12% interest per annum, depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand.

Unlike, however, the first group which remained consistent in holding that the running o f the legal interest should be from the time of the filing of the complaint until fully paid, the second group varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof, then, interest should be from the date of the decision. American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be computed from the finality of (the) decision until paid. The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. 6. Rules in the determination of legal interests a. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. b. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. a. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Article 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 of 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 of finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

ACT NO. 2655 - AN ACT FIXING RATES OF INTEREST UPON LOANS AND DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES AND FOR OTHER PURPOSES

Section 1. The rate of interest for the loan or forbearance of any money goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that

purpose in accordance with the authority hereby granted. Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions. In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or personal, or choses in action, a higher rate of interest or greater sum or value, including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or credits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such real estate or an interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted: Provided, That the rate of interest under this section or the maximum rate of interest that may be prescribed by the Monetary Board under this section may likewise apply to loans secured by other types of security as may be specified by the Monetary Board. Sec. 3. No person or corporation shall directly or indirectly demand, take, receive or agree to charge in money or other property, real or personal, a higher rate or greater sum or value for the loan or forbearance of money, goods, or credits where such loan or forbearance is not secured as provided in Section two hereof, than fourteen per centum per annum or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted. Sec. 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate, charge, demand, take or receive any higher rate or greater sum or value for any loan or forbearance than two and one-half per centum per month when the sum lent is less than one hundred pesos; two per centum per month when the sum lent is one hundred pesos or more, but not exceeding five hundred pesos; and fourteen per centum per annum when it is more than the amount last mentioned; or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted. A pawnbroker or pawnbroker's agent shall be considered such, for the benefits of this Act, only if he be duly licensed and has an establishment open to the public. It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn offered by a person into two or more fractions in order to collect greater interest than the permitted by this section. It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the pawner to pay an additional charge as insurance premium for the safekeeping and conservation of the article pawned. Sec. 4-a. The Monetary Board may eliminate, exempt from, or suspend the effectivity of, interest rate ceilings on certain types of loans or renewals thereof or forbearances of money, goods, or credit, whenever warranted by prevailing economic and social conditions. Sec. 4-b. In the exercise of its authority to fix the maximum rate or rates of interest under this Act, the Monetary Board shall be guided by the following: 1. The existing economic conditions in the country and the general requirements of the national economy; 2. The supply of and demand for credit; 3. The rate of increase in the price levels; and 4. Such other relevant criteria as the Monetary Board may adopt. Sec. 5. In computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement: Provided, That whenever compound interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the equivalent of the

maximum rate prescribed by the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annum interest or such rate as may be prescribed by the Monetary Board. No person or corporation shall require interest to be paid in advance for a period of more than one year: Provided, however, That whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board. Sec. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed to be taken or received, may recover the whole interest, commissions, premiums penalties and surcharges paid or delivered with costs and attorneys' fees in such sum as may be allowed by the court in an action against the person or corporation who took or received them if such action is brought within two years after such payment or delivery: Provided, however, That the creditor shall not be obliged to return the interest, commissions and premiums for a period of not more than one year collected by him in advance when the debtor shall have paid the obligation before it is due, provided such interest, and commissions and premiums do not exceed the rates fixed in this Act. Sec. 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills, notes, and other contracts or evidences of debts, and all deposits of goods or other things, whereupon or whereby there shall be stipulated, charged, demanded, reserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum or value for the loan or renewal or forbearance of money, goods, or credits than is hereinbefore allowed, shall be void: Provided, however, That no merely clerical error in the computation of interest, made without intent to evade any of the provisions of this Act, shall render a contract void: Provided, further, That parties to a loan agreement, the proceeds of which may be availed of partially or fully at some future time, may stipulate that the rate of interest agreed upon at the time the loan agreement is entered into, which rate shall not exceed the maximum allowed by law, shall prevail notwithstanding subsequent changes in the maximum rates that may be made by the Monetary Board: And Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of this Act and said purchase was not a part of the original usurious transaction. In any case, however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in case of litigation, also the costs and such attorney's fees as may be allowed by the court. Sec. 8. All loans under which payment is to be made in agricultural products or seed or in any other kind of commodities shall also be null and void unless they provide that such products or seed or other commodities shall 6e appraised at the time when the obligation falls due at the current local market price: Provided, That unless otherwise stated in a document written in a language or dialect intelligible to the debtor and subscribed in the presence of not less than two witnesses, any contract advancing money to be repaid later in agricultural products or seed or any other kind of commodities shall be understood to be a loan, and any person or corporation having paid otherwise shall be entitled in case action is brought within two years after such payment or delivery to recover all the products or seed delivered as interest, or the value thereof, together with the costs and attorney's fees in such sum as may be allowed by the court. Nothing contained in this section shall be construed to prevent the lender from taking interest for the money lent, provided such interest be not in excess of the rates herein fixed. Sec. 9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed against said person or corporation before a competent court to recover the money or other personal or real property, seeds or agricultural products, charged or received in violation of the provisions of this Act. The lack of taking an oath to an answer to a complaint will mean the admission of the facts contained in the latter. Sec. 9-a. The Monetary Board shall promulgate such rules and regulations as may be necessary to implement effectively the provisions of this Act. Sec. 10. Without prejudice to the proper civil action violation of this Act and the implementing rules and regulations promulgated by the Monetary Board shall be subject to criminal prosecution and the guilty person shall, upon conviction, be sentenced to a fine of not less than fifty pesos nor more than five hundred pesos, or to imprisonment for not less than thirty days nor more than one year, or both, in the discretion of the court,

and to return the entire sum received as interest from the party aggrieved, and in the case of non-payment, to suffer subsidiary imprisonment at the rate of one day for every two pesos: Provided, That in case of corporations, associations, societies, or companies the manager, administrator or gerent or the person who has charge of the management or administration of the business shall be criminally responsible for any violation of this Act. Sec. 11. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby repealed. Sec. 12. This Act shall take effect on the first day of May, nineteen hundred and sixteen. ENACTED, February 24,1916.

Tolentino vs. Gonzales Sy Chiam (1927) FACTS: Appellants purchased of the Luzon Rice Mills, Inc., a parcel of land with the camarin, for the price of P25,000, promising to pay in three installments. The first installment of P2,000 was due on or before the 2nd day of May, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th day of November, 1922. o One of the conditions of that contract of purchase was that on failure of the purchaser to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought would revert to the original owner. The payments due on the 2nd and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922, in the manner which will be explained below. The representative of the vendor of the property wrote a letter to the appellant Potenciana Manio, notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of recovering the property Upon receiving the letter of the vendor of said property, the purchasers, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. An application was made to the defendant Sy Chiam for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property. Tolentino defaulted in the payment of the loan. In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro. The terms of the contract quoted by the plaintiffs to the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us in construing said contract to be a mere "loan" with guaranty. In every case in which this court has construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract were incompatible or inconsistent with the theory that said contract was one of purchase and sale. ISSUE: WON a tenant (Tolentino) can charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest

DECISION: No. Decision AFFIRMED. HELD: First, that the contract of pacto de retro is an absolute sale of the property with the right to repurchase and not a mortgage; and, second, that by virtue of the said contract the vendor became the tenant of the purchaser. When the vendor of property under a pacto de retro rents the property and agrees to pay a rental value for the property during the period of his right to repurchase, he thereby becomes a "tenant" and in all respects stands in the same relation with the purchaser as a tenant under any other contract of lease. The appellant contends that the rental price paid during the period of the existence of the right to repurchase, or the sum of P375 per month, based upon the value of the property, amounted to usury. o Usury, generally speaking, may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money the taking of more interest for the use of money than the law allows. (Dunham vs. Gould) The collection of a rate of interest higher than that allowed by law is condemned by the Philippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the payment of a specific amount of rent It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way during the period of the 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, goods, chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either in money, 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 possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of "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 period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning an equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum." The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation of the property may depend upon a thousand different conditions; as for example, farm lands of exactly equal productive capacity and of the same physical value may have a different rental value, depending upon location, prices of commodities, proximity to the market, etc. Houses may have a different rental value due to location, conditions of business, general prosperity or depression, adaptability to particular purposes, even though they have exactly the same original cost. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or rural community.

In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period of redemption the vendor was not the owner of the property. During the period 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 was that of landlord and tenant. That relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655. As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make contracts for parties. They made their own contract in the present case. There is not a word, a phrase, a sentence or paragraph, which in the slightest way indicates that the parties to the contract in question did not intend to sell the property in question absolutely, simply with the right to repurchase. What has been said above with reference to the right to modify contracts by parol evidence, sufficiently answers the third questions presented above. The language of the contract is explicit, clear, unambiguous and beyond question. It expresses the exact intention of the parties at the time it was made. With reference to the improvements made upon said property by the plaintiffs during the life of the contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action the right guaranteed to them under article 361 of the Civil Code.

First Metro Investment vs. Este del Sol Mountain (2001) FACTS: FMIC granted Este del Sol a loan of P7,385,500 to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project. Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at 16% per annum based on the diminishing balance. The loan was payable in 36 equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization. o In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a 20% percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment plus liquidated damages at the rate of 2% per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorneys fees equivalent to 25% of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired. Este del Sol executed several documents as security for payment, among them, (a) a Real Estate Mortgage over 2 parcels of land being utilized as the site of its development project inclusive of all improvements; and (b) individual Continuing Suretyship agreements to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of P7.5M each. Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement whereby FMIC shall underwrite on a best-efforts basis the public offering of P120k common shares of Este del Sols capital stock for a one-time underwriting fee of P200k. o In addition to the underwriting fee, the Underwriting Agreement provided that for supervising the public offering of the shares, Este del Sol shall pay FMIC an annual supervision fee of P200k per annum for a period of 4 consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol

to petitioner FMIC a consultancy fee of P332,500.00 per annum for a period of four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed whereby respondent Este del Sol engaged the services of FMIC for a fee as consultant to render general consultancy services. Since Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98 per the petitioners Statement of Account. FMIC caused the extrajudicial foreclosure of the real estate mortgage. At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for P9M. o The total amount of P3,188,630.75 was deducted therefrom, that is, for the publication fee for the publication of the Sheriffs Notice of Sale, P4,964; for Sheriffs fees for conducting the foreclosure proceedings, P15k; and for Attorneys fees, P3,168,666.75. o The remaining balance of P5,811,369.25 was applied to interests and penalty charges and partly against the principal, thereby leaving a balance of P6,863,297.73 on the principal amount of the loan. Failing to secure from the individual sureties of the loan of Este del Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each of them, petitioner instituted the instant collection suit against the respondents to collect the alleged deficiency plus interest at 21% per annum and 25% as for attorneys fees and costs. The trial court rendered its decision in favor of FMIC, ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorneys fees, plus costs of suit. CA reversed. It found and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by the FMIC on the loan of Este del Sol; and that the stipulated penalties, liquidated damages and attorneys fees were excessive, iniquitous, unconscionable and revolting to the conscience, and declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due as attorneys fees would be reasonable and suffice to compensate petitioner FMIC for those items. Hence, the instant petition.

ISSUE: WON the entire obligation becomes void in view of the usurious interest imposed on a related agreement DECISION: NO. Decision AFFIRMED. HELD: First, there is no merit to FMICs contention that Central Bank Circular 905 which took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into, govern it. More significantly, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity. The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed. Second, when a contract between 2 parties is evidenced by a written instrument, such document is ordinarily the best evidence of the terms of the contract. Courts only need to rely on the face of written contracts to determine the intention of the parties. However, this rule is not without exception. The form of the contract is not conclusive for the law will not

permit a usurious loan to hide itself behind a legal form. In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by FMIC to conceal and collect excessively usurious interest, and these are: o a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement. Furthermore, under the Underwriting Agreement payment of the supervision and consultancy fees was set for a period of 4 years to coincide with the term of the Loan Agreement. This fact means that all the said agreements which were executed simultaneously were set to mature or shall remain effective during the same period of time. o b) The Loan Agreement dated stipulated for the execution and delivery of an underwriting agreement and specifically mentioned that such underwriting agreement is a condition precedent for FMIC to extend the loan to Este del Sol, indicating and as admitted by FMICs employees, that such Underwriting Agreement is part and parcel of the Loan Agreement. o c) Respondent Este del Sol was billed P1.33M as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is for P332,500 per annum for 4 years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement. o d) The Underwriting, Supervision and Consultancy fees in the amounts of P200k, and P1.33M, respectively, were billed by petitioner to respondent Este del Sol on February 22, 1978, that is, on the same occasion of the first partial release of the loan in the amount of P2,382,500. It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and Consultancy fees were deducted and apparently paid, thus, reverting back to FMIC the total amount of P1.73M as part of the amount loaned to Este del Sol. o e) FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation under the Underwriting Agreement. Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm. o f) FMIC failed to comply with its obligation under the Consultancy Agreement, aside from the fact that there was no need for a Consultancy Agreement, since Este del Sols officers appeared to be more competent to be consultants in the development of the projected sports/resort complex. All the foregoing established facts and circumstances clearly belie the contention of FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent transactions. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lenders services which are of little value or which are not in fact to be rendered o Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest.

Trade & Investment Development Corp. vs. Roblett Industrial(2006) FACTS: Under the surety bond, Paramount bound itself jointly and severally with Roblett to pay TIDC to the extent of P11,775,611.35 for whatever damages and liabilities the latter may suffer by virtue of its counterguarantee. Paramount further agreed to pay TIDC interest thereon at the rate of 18% per annum from the date of receipt of TIDCs first demand letter up to the date of actual payment. In support of its motion for reconsideration, Paramount submits the following grounds: (1) Paramount issued a bidders bond and not a performanc e or guarantee bond so that when Roblett executed the sub-contract agreement, Paramount was released from liability; (2) TIDC is guilty of misrepresentation and concealment in securing Paramounts continuing commitment to answer for Robletts repayment sch eme; (3) TIDC and Roblett entered into a rehabilitation program which novated the principal obligation of the parties resulting in the discharge of Paramount; (4) the subject surety bond expired without any claim being made against the same; and (5) Paramount is not liable for attorneys fees.

ISSUE: WON the payment of interest should commence from the date of the judicial demand DECISION: YES. HELD: With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon them. Nevertheless, Paramounts liability should commence from the date of judicial demand and not from the date TIDC made a formal notice of demand to Paramount. This is but fair as the delay in the performance of Paramount is attributable to the failure of TIDC to inform the former of the developments in the negotiations with Roblett. Paramount argues that it is made liable for approximately P48 million, the bulk of which is the interest charge and not the principal amount. It then submits that the interest is clearly iniquitous, unconscionable and exorbitant, thus contrary to morals. o While the Court recognizes the right of the parties to enter into contracts and who are expected to comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another. o In the instant case, the resulting interest charge has turned out to be excessive in the context of its base computation period, and hence, unwarranted in fact and in operation. We are not unmindful of the length of time this case has been pending in court for which the amount involved has ballooned to the outrageous amount of more than P45 million which is four times the principal debt. o While we have sustained the validity of much higher interest rates of 21% per annum in Bautista case and 24% per annum in Garcia case as the factual circumstances therein warrant, it is well to note that compared to the instant case, the said cases were litigated for a shorter period of time12 years and 3 years, respectively. Here, the complaint was filed in the lower court on 5 June 1990 or sixteen (16) years ago. Consequently, the already huge principal debt swelled to a considerably disproportionate sum. Thus, we deem an interest rate of 12% per annum is more reasonable under the circumstances.

Bacolor vs. Banco Filipino (2007) FACTS: (Feb. 11, 1982) Sp Bacolor, obtained a loan of P244k from Banco Filipino. They executed a promissory note providing that the amount shall be payable within a period of 10 years with a monthly amortization of P5,380; that the interest rate shall be 24% per annum, with a penalty of 3% on any unpaid monthly amortization; that there shall be a service charge of 3% per annum on the loan; and that in case bank seeks the assistance of counsel to enforce the collection of the loan, petitioners shall be liable for 10% of the amount due as attorneys fees and 15% of the amount due as liquidated damages. As security for the loan, petitioners mortgaged with bank their parcel of land. (Mar 11, 1982 to July 10, 1991) petitioners paid bank P412, 199.36. Thereafter, they failed to pay the remaining balance of the loan. Their indebtedness as of July 31, 1992 amounts to P840,845.61. Bank instituted an action for extra-judicial foreclosure of mortgage. Prior thereto, Spouses filed with the same RTC, a complaint for violation of the Usury Law against bank. They alleged that the provisions of the promissory note constitute a usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service charge, attorneys fees and liquidated damages, and (3) deductions for surcharges and insurance premium. In their amended complaint, petitioners further alleged that, during the closure of bank, it ceased to be a banking institution and, therefore, could not charge interests and institute foreclosure proceeding. RTC rendered its decision dismissing petitioners complaint, holding that: o (1) The terms and conditions of the Deed of Mortgage and the Promissory Note are legal and not usurious. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money etc., regardless of maturity x x x, shall not be subject to any ceiling under or pursuant to the Usury Law, as amended (CB Circular no. 905). Hence, the 24% interest per annum is allowed under P.D. No. 166. o (2) The closure of Banco Filipino did not suspend or stop its usual and normal banking operations like the collection of loan receivables and foreclosures of mortgages. CA affirmed. Hence, this petition.

ISSUE: WON the interest rate is excessive and unconscionable DECISION: NO. Decision AFFIRMED. HELD: Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated in writing. Here, the parties agreed in writing that the rate of interest on the loan shall be 24% per annum. At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary Board of the Central Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest rates on a certain class of loans.

In the present case, the term of the subject loan is for a period of 10 years. Considering that its maturity is more than 730 days, the interest rate is not subject to any ceiling following the above provision. Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as amended by P.D. 116. This Court has consistently held that for sometime now, usury has been legally noninexistent and that interest can now be charged as lender and borrower may agree upon. Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, this Court has ruled that: o With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon them. There is no indication in the records that any of the incidents which vitiate consent on the part of petitioners is present. Indeed, the interest rate agreed upon is binding on them. With respect to the penalty and service charges, the same are unconscionable or excessive. Petitioners invoke this Courts rulings in Almeda vs. Court of Appeals and Medel vs. Court of Appeals to show that the interest rate in the subject promissory note is unconscionable. Their reliance on these cases is misplaced. In Almeda, what this Court struck down as being unconscionable and excessive was the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus: o It is plainly obvious, therefore, from the undisputed facts of the case that bank unilaterally altered the terms of its contract by increasing the interest rates of the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956, that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of the interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest x x x. Petitioners also cannot find refuge in Medel. In this case, what this Court declared as unconscionable was the imposition of a 66% interest rate per annum. In the instant case, the interest rate is only 24% per annum, agreed upon by both parties. By no means can it be considered unconscionable or excessive. In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, this Court ruled that the banks closure did not diminish the authority and powers of the designated liquidator to effectuate and carry on the administration of the bank. Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez, where one of the issues was whether respondent bank can collect interest on its loans during its period of liquidation and closure, this Court held: o In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership of Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated liquidator to administer and continue the banks transactions. The Court allowed the bank l iquidator to continue receiving collectibles and receivables or paying off creditors claims and other transactions pertaining to normal operations of a bank. Among these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank was allowed to collect interests on its loans while under liquidation, provided that the interests were legal. In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or unconscionable; and that during the closure of respondent bank, it could still function as a bonding institution, hence, could continue collecting interests from petitioners

SIGA-AN vs. VILLANUEVA (2009) FACTS: (30 March 1998) Villanueva filed a complaint for sum of money against Siga-an before the RTC. Villanueva alleged that she was a businesswoman engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) while Siga-an was a military officer and comptroller of the PNO from 1991 to 1996. Villanueva claimed that in 1992, Siga-an approached her inside the PNO and offered to loan her the amount of P540k. Since she needed capital for her business transactions with the PNO, she accepted petitioners proposal. The loan agreement was no t reduced in writing. Also, there was no stipulation as to the payment of interest for the loan. (31 August 1993) Villanueva issued a check worth P500k to Siga-an as partial payment of the loan. (31 October 1993) She issued another check in the amount of P200k as payment of the remaining balance of the loan. o Siga-an told her that since she paid a total amount of P700k, the excess amount of P160,000.00 would be applied as interest for the loan. Siga-an pestered her to pay additional interest. Siga-an threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. According to her computation, the total amount she paid to Siga-an for the loan and interest accumulated to P1.2M. Villanueva consulted a lawyer regarding the propriety of paying interest on the loan despite absence of agreement to that effect. Her lawyer told her that Siga-an could not validly collect interest on the loan because there was no agreement regarding payment of interest. Since she paid a total amount of P1.2M for the P540k worth of loan, and upon being advised by her lawyer that she made overpayment, she sent a demand letter asking for the return of the excess amount of P660k. Siga-an ignored her claim for reimbursement. Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as attorneys fees. RTC rendered a Decision holding that Villanueva made an overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to the former. CA affirmed in toto the RTC Decision. Hence, this petition.

ISSUE: WON Villanueva should pay interest for the loan DECISION: NO. Decision AFFIRMED with modification. HELD: Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. 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. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of

interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there proof of written agreement between the two regarding the payment of interest. Respondent testified that although she accepted offer of loan amounting to P540k, there was, nonetheless, no verbal or written agreement for her to pay interest. Siga-an presented a handwritten promissory note wherein respondent purportedly admitted owing petitioner "capital and interest." Respondent, however, explained that it was petitioner who made a promissory note and she was told to copy it in her own handwriting; that all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her transactions with the PNO if she would not pay interest; that being unaware of the law on interest and fearing that petitioner would make good of his threats if she would not obey his instruction to copy the promissory note, she copied the promissory note in her own handwriting; and that such was the same promissory note presented by petitioner as alleged proof of their written agreement on interest. Petitioner did not rebut the foregoing testimony. It is evident that respondent did not really consent to the payment of interest for the loan and that she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of interest or written agreement of interest on the loan between petitioner and respondent. We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid oral contract of loan amounting to P540,000.00, they, nonetheless, never intended the payment of interest thereon. While the CA mentioned in its Decision that it concurred in the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled to the payment of interest on the loan. EXCEPTIONS: There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. o The two instances apply only to compensatory interest and not to monetary interest. The case at bar involves petitioners claim for monetary interest. The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. o It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to return it. Records show that respondent received a loan amounting to P540k from petitioner. Respondent issued two checks with a total worth of P700k in favor of petitioner as payment of the loan. These checks were subsequently encashed by Since we have previously found that petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies to the instant case, petitioner should return to respondent the

excess amount of P160,000.00 and P175,000.00 or the total amount ofP335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00 to P335,000.00. As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless, respondents conviction therein does not affect our ruling in the instant case. The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as payment of the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal cases. Further, the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter paid to petitioner.

Finally, the RTC and the CA imposed a 12% rate of legal interest on the amount refundable to respondent computed from 3 March 1998 until its full payment. This is erroneous. We held in Eastern Shipping Lines, Inc. v. Court of Appeals, that 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 rate of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit. In the present case, petitioners obligation arose from a quasi -contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorneys fees, to be computed from the time of the extra -judicial demand on 3 March 1998, up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction.

Almeda vs. Bathala Marketing Industries (2008) FACTS: (May 1997) Bathala Marketing, as lessee, represented by its pres Garcia, renewed its Contract of Lease with Ponciano Almeda, as lessor, husband of petitioner Eufemia and father of petitioner Romel Almeda. o Under the said contract, Ponciano agreed to lease a portion of the Almeda Compound, for a term of 4 years from May 1, 1997 unless sooner terminated as provided in the contract. The contract of lease contained the following pertinent provisions which gave rise to the instant case: SIXTH: It is expressly understood by the parties hereto that the rental rate stipulated is based on the present rate of assessment on the property, and that in case the assessment should hereafter be increased or any new tax, charge or burden be imposed by authorities on the lot and building where the leased premises are located, LESSEE shall pay, when the rental herein provided becomes due, the additional rental or charge corresponding to the portion hereby leased; provided, however, that in the event that the present assessment or tax on said property should be reduced, LESSEE shall be entitled to reduction in the stipulated rental, likewise in proportion to the portion leased by him;

SEVENTH: In case an extraordinary inflation or devaluation of Philippine Currency should supervene, the value of Philippine peso at the time of the establishment of the obligation shall be the basis of payment; During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. In a letter, petitioners advised Bathala that the former shall collect VAT on its monthly rentals. Bathala contended that VAT may not be imposed as the rentals fixed in the contract of lease were supposed to include the VAT therein, considering that their contract was executed when the VAT law had long been in effect. Respondent received another letter from petitioners informing the former that its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250 of the Civil Code. R espondent opposed petitioners demand and insisted that there was no extraordinary inflation to warrant the application of Article 1250. On March 10, 1998, petitioners filed an action for ejectment, rescission and damages against respondent for failure of the latter to vacate the premises after the demand. RTC ruled in favor of Bathala and against petitioners declaring that Bathala Marketing is not liable for the payment of VAT of 10% of the rent for the use of the leased premises; and declaring that it is not liable for the payment of any rental adjustment, there being no extraordinary inflation or devaluation, as provided in the Seventh Condition of the lease contract, to justify the same. CA affirmed. It agreed with the conclusions of law and the application of the decisional rules on the matter made by the RTC. However, it found that the trial court exceeded its jurisdiction in granting affirmative relief to the respondent, particularly the restitution of its excess payment.

ISSUE: WON Bathala Marketing should pay the VAT and the increased monthly rental DECISION: NO. Petition DENIED. HELD: The Court is disposed to entertain the instant declaratory relief action instead of dismissing it, notwithstanding the pendency of the ejectment/rescission case before the trial court. The resolution of the present petition would write finis to the parties dispute, as it would settle once and for all the question of the proper interpretation of the two contractual stipulations subject of this controversy. As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination of the appellate court, viz.: o Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to pass it on to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property in the ordinary course of business, whether for commercial or residential use, when the gross annual receipts exceed P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the 10% VAT by the lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the part of the lessor, under the terms of the statute. The word may in the statute, generally speaking, denotes that it is directory in nature. It is generally permissive only and operates to confer discretion. o In this case, despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716, granting the lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of January 1, 1996, the original lessor, Ponciano Almeda did not charge the lessee-appellee the 10% VAT nor provided for its additional imposition when they renewed the contract of lease in May 1997. More significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the lessee-appellee after the execution of the May 1997 contract of lease. The inevitable implication is that the lessor intended not to avail of the option granted him by law to shift the 10% VAT upon the lessee-appellee. x x x.

In short, petitioners are estopped from shifting to respondent the burden of paying the VAT. Petitioners reliance on the sixth condition of the contract is, likewise, unavailing. This provision clearly states that respondent can only be held liable for new taxes imposed after the effectivity of the contract of lease, that is, after May 1997, and only if they pertain to the lot and the building where the leased premises are located. Considering that RA 7716 took effect in 1994, the VAT cannot be considered as a new tax in May 1997, as to fall within the coverage of the sixth stipulation. Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or devaluation. o Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the contract stipulation speaks of extraordinary inflation or devaluation while the Code speaks of extraordinary inflation or deflation. Essential to contract construction is the ascertainment of the intention of the contracting parties, and such determination must take into account the contemporaneous and subsequent acts of the parties. This intention, once ascertained, is deemed an integral part of the contract. While, indeed, condition No. 7 of the contract speaks of extraordinary inflation or devaluation as compared to Article 1250s extraordinary inflation or deflation, we find that when the parties used the term devaluation they really did not intend to depart from Article 1250 of the Civil Code. Condition No. 7 of the contract should, thus, be read in harmony with the Civil Code provision. Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods, resulting in a substantial and continuing rise in the general price level. In a number of cases, this Court had provided a discourse on what constitutes extraordinary inflation, thus: o [E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. The factual circumstances obtaining in the present case do not make out a case of extraordinary inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We would like to stress that the erosion of the value of the Philippine peso in the past three or four decades, starting in the mid-sixties, is characteristic of most currencies. And while the Court may take judicial notice of the decline in the purchasing power of the Philippine currency in that span of time, such downward trend of the peso cannot be considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by competent authorities of the existence of extraordinary inflation during a given period, the effects of extraordinary inflation are not to be applied.

CATUNGAL vs. HAO (2001) FACTS: (Dec 28, 1972) The original owner, Aniana Galang, leased a three-storey to BPI for a period of about 15 years, to expire on June 20, 1986. During the existence of the lease, BPI subleased the ground floor of said building to Doris Hao. (Aug 24, 1984) Galang and BPI executed a contract of lease on the 2nd and 3rd floors of the bldg. The lease was for a term of 4 years commencing on August 15, 1984 and ending on August 15, 1988. On August 15, 1986, petitioner spouses Ernesto and Mina Catungal bought the property from Aniana Galang.

Invoking her right of first refusal purportedly based on the lease contract between her and Aniana Galang, Hao filed a complaint for Annulment of Sale with Damages. Meanwhile, the lease agreement between BPI and Galang expired. Upon expiration of the lease agreements, spouses Catungal sent demand letters to Hao for her to vacate the building. The demand letters were unheeded by respondent causing petitioners to file two complaints for ejectment in the MeTC. The institution of the ejectment cases prompted respondent to file an action for injunction in the RTC, to stop the MeTC from proceeding pending the settlement of the issue of ownership. o These two cases for annulment of sale and for injunction were also consolidated before the RTC of Makati which rendered a Decision, granting the injunction and annulling the contract of sale between Aniana Galang and petitioners. CA reversed. SC denied respondent's petition. The MeTC, after the reversal of the decision for injunction, proceeded with the trial of the ejectment cases. (Jan 22, 1997) MeTC of Paranaque rendered a Decision ordering the Doris T. Hao who is in actual possession of the property to vacate the premises in question and to pay the plaintiffs the amount of P20k a month from June 28, 1988, until she finally vacates the premises. Petitioners filed a motion for clarificatory or amended judgment on the ground that although MeTC ordered the defendant to vacate the entire subject property, it only awarded rent or compensation for the use of said property and attorney's fees for said ground floor and not the entire subject property. Compensation for the use of the subject property's second and third floors and attorney's fees as prayed for were not awarded. o MeTC clarified in such a way that the dispositive portion would read as follows: in view of the foregoing, judgment is hereby rendered ordering the defendant Doris T. Hao who is in actual possession of the property and all persons claiming rights under her to vacate the premises and to pay the plaintiffs the amount of P8,000.00 a month in Civil Case No. 7666 for the use and occupancy of the first floor of the premises in question from June 28, 1998 until she finally vacates the premises and to pay the plaintiff a rental of P5,000.00 a month in Civil Case No. 7667 from June 28, 1988, until she finally vacates the premises (Sept 30, 1997) RTC, rendered a Decision affirming with modification the decision. o In the Light of the foregoing, the appealed decision, being in accordance with law, is hereby affirmed as to the order to vacate the property in question and modified as to the amount of rentals which is hereby increased to P20k a month for the ground floor starting June 28, 1988 and P10k a month for the second floor and also P10k a month for the third floor (or) a total of P40k monthly rentals commencing June 28, 1988 until the subject property has been vacated and possession thereof turner [sic] over to the plaintiffs-appellees; CA affirmed with modification. From 20k to 10k. Upon MR, the amended judgment of the MeTC had become final and executory insofar as the petitioners are concerned. The dispositive portion of the CA's resolution reads as follows: o MODIFIED by reducing the monthly rentals for the first/ground floor from P20k to P8k and for the second and third floors from P10k each to P5k for both floors.

ISSUE: WON Hao should pay the 8k and 5k rentals DECISION: NO. Judgment is hereby rendered in favor of Spouses Catungal by reinstating the decision of the RTC, with modifications, and ordering respondent to further pay: 1. The sum of Twenty Seven Thousand Pesos (P27,000.00), corresponding to the difference between the P40,000.00 awarded by the Regional Trial Court and the P13,000.00 awarded by the Metropolitan Trial Court, as monthly arrears, computed from respondents unlawful detainer, 20 June 1988 (for the ground floor) and 15 August 1988 (for the second and third floors) of the subject property until the time she vacated the premises on 7 January 1998;

2. Legal interest of twelve percent (12%) per annum on the foregoing sum from the date of notice of demand on 27 September 1988 until fully paid; 3. The sum of Twenty Thousand Pesos (P20,000.00) as and for attorneys fees and; HELD: There existed no consensual lessor-lessee relationship between the parties. At most, what we have is a forced lessor-lessee relationship inasmuch as the respondent, by way of detaining the property without the consent of herein petitioners, was in unlawful possession of the property belonging to petitioner spouses. We cannot allow the respondent to insist on the payment of a measly sum of P8k for the rentals of the first floor of the property in question and P5k for each of the second and the third floors of the leased premises. The plaintiff in an ejectment case is entitled to damages caused by his loss of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of the 1997 Rules of Civil Procedure is limited to rent or fair rental value or the reasonable compensation for the use and occupation of the property. What therefore constitutes the fair rental value in the case at bench? o The Court (MeTC) a quo misappreciated the nature of the property, its location and the business practice in the vicinity and indeed committed an error in fixing the amount of rentals in the aforementioned Order. Said premises is situated along Quirino Avenue, a main thoroughfare in Barangay Baclaran, Paranaque, Metro Manila, a fully developed commercial area and the place where the famous shrine of the Mother of Perpetual Help stands. Withal, devotees, traders, tourists and practically people from all walks of life visit said barangay making it suitable for commerce, not to mention thousand of residents therein. Needless to say, every square meter of said community is valuable for all kinds of business or commerce of man. o Further, considering that the questioned property has three floors and strategically located along the main road and consistent with the prevailing rental rates in said business area which is between P20,000.00 and P30,000.00 as testified to by Divina Q. Roco, a real estate agent and Mina Catungal, this Court finds the amount of P20,000.00 a month for the ground floor and P10,000.00 a month each for the second floor and third floor or a total of P40,000.00 monthly rentals as appropriate and reasonable rentals for the use and occupation of said premises. The RTC correctly took judicial notice of the nature of the leased property subject of the case at bench based on its location and the commercial viability. The above quoted assessment by the RTC of the Baclaran area, where the subject property is located, is fairly grounded. o Furthermore, the RTC also had factual basis in arriving at the said conclusion, the same being based on testimonies of witnesses, such as real estate broker Divina Roco and the petitioner Mina Catungal. o The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it is settled jurisprudence that courts may take judicial notice of the general increase in rentals of lease contract renewals much more with business establishments. The increased award of rentals ruled by the RTC is reasonable given the circumstances of the case at bench. We note that respondent was able to deny petitioners the benefits, including possession, of their rightful ownership over the subject property for almost a decade. The Court of Appeals failed to justify its reduction of the P40,000.00 fair rental value as determined by the RTC. Neither has respondent shown that the rental pegged by the RTC is exorbitant or unconscionable. This is because the burden of proof to show that the rental demanded is unconscionable or exorbitant rests upon private respondent as the lessee. Here, respondent neither discharged this burden when she omitted to present any evidence at all on what she considers to be fair rental value, nor did she controvert the evidence submitted by petitioners by way of testimonies of the real estate broker and petitioner Mina Catungal.

The Court of Appeals merely anchored its decision to reduce the P40,000.00 rental on procedural grounds. According to the Court of Appeals, the motion for reconsideration filed by petitioners before the MeTC is a prohibited pleading under the Rule on Summary Procedure and did not have any effect in stalling the running of the period to appeal the decision nor could it be considered as notice of appeal and consequently this affected the elevation of the case to the RTC. o We disagree. A reading of the order issued by the MeTC will show that said court elevated the issue on the amount of rentals raised by the petitioner to the RTC because the appeal of respondent had already been perfected. It will be to the advantage of both parties that this Court refrain from acting on the said Motion for Reconsideration so as to expedite the remanding (sic) of this Court to the RTC. When the MeTC referred petitioners motion to the RTC for its disposition, respondent could have opposed such irregularity in the proceeding. This respondent failed to do. Before this Court, respondent now insists that the petition should be denied on the ground that the Motion for Reconsideration filed before the MeTC is a prohibited pleading and hence could not be treated as a notice of appeal. Respondent is precluded by estoppel from doing so. The CA in the assailed Decision correctly observed that the peculiar circumstances attendant to the ejectment cases warrant departure from the presumption that a party who did not interject an appeal is satisfied with the adjudication made by the lower court. o Hence, while the entrenched procedure in this jurisdiction is that a party who has not himself appealed cannot obtain from the appellate court affirmative relief other than those granted in the decision of the lower court, the peculiar circumstances attendant to the ejectment cases warrant a departure therefrom. The rule is premised on the presumption that a party who did not interpose an appeal is satisfied with the adjudication made by the lower court. Respondent spouses, far from showing satisfaction with the clarificatory order of March 3, 1997, assailed it in their motion for reconsideration which, however, was referred to the RTC for appropriate action in view of the appeal taken by the petitioner. Clearly, the increase in the damages/rentals awarded by the MTC was an issue the RTC could validly resolve in the ejectment cases. Respondent, argues that ejectment cases are tried under the Revised Rule on Summary Procedure, hence, the motion for reconsideration filed by petitioner was a prohibited pleading and could not take the place of the required notice of appeal. o The argument by respondent is misleading. Simply because the case was one for ejectment does not automatically mean that the same was triable under the Rules of Summary Procedure. o In their complaint, petitioners prayed, among others, for rentals for the period covering June 1988 to April 1989, at a rate of P20k for the first floor alone, as well as P10k for attorney's fees. Clearly, considering the amount of rentals and damages claimed by petitioners, said case before the MeTC was not governed by the Rules on Summary Procedure. Said case was governed by the ordinary rules where the general proposition is that the filing of a motion for reconsideration of a final judgment is allowed. In the interest of substantial justice, in this particular case, we rule that the MeTC did not err in treating the motion for reconsideration filed by petitioner as a notice of appeal. Finally, respondent questions why petitioners would want to reinstate the RTC decision when in fact they had already applied for a writ of execution of the 8 March 1997 Decision. Respondent is of the view that since petitioners had already moved for the execution of the decision awarding a smaller amount of damages or fair rental value, the same is inconsistent with a petition asking for a greater fair rental value and, therefore, a possible case of unjust enrichment in favor of the petitioners. We are not persuaded. o As above discussed, the petitioners have long been deprived of the exercise of their proprietary rights over the leased premises and the rightful amount of rentals at the rate of P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of P27,000.00, which is the difference between P40,000.00 awarded

by the Regional Trial Court and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said amount of P27,000.00 should rightly be the subject of another writ of execution being distinct from the subject of the first writ of execution filed by petitioners. The Court also awards interest in favor of petitioners. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we gave the following guidelines in the award of interest:

II With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon in twelve percent (12%) per annum from the time of extra-judicial demand on September 27, 1988.

PNB v. ENCINA (2008) FACTS: As addl capital for their metal craft business, ENCINA obtained a P500k loan with PNB, secured by a promissory note, a real estate mortgage, and a credit agreement, on parcels of land. Encina obtained an additional P200k loan with PNB as additional capital for palay production, embodied in a credit agreement and a promissory note, secured by the same parcels of land. The loan obligations of plaintiffs-appellants ENCINA were fully paid. Another loan in the amount of P400k as capital for a common carrier business was obtained by ENCINA with PNB, secured by a promissory note and a time loan commercial credit agreement, likewise secured by the parcels of land. PNB subsequently granted a P1,250,000.00 all purpose credit facility to ENCINA to be used by ENCINA exclusively for their metal craft business. ENCINA availed of the amount of P1,050,000.00 of the credit facility, evidenced by a promissory note secured by the same parcels of land as well. ENCINA later on availed of the remaining P200,000.00 credit facility, secured by a promissory note. On the maturity date of the P1,250,000.00 loan obligation, ENCINA failed to pay, prompting PNB to demand. Demands were left unheeded, prompting PNB to file a petition for sale of the mortgaged properties with Ex-Officio Sheriff of the RTC. Titles to the subject properties were consolidated in PNBs name. A contract of lease was executed between PNB and ENCINA over the subject properties, pursuant to a request made by ENCINA that they be allowed by PNB to lease the subject premises for a monthly rental of P7,500.00. ENCINA sued PNB in an action for the nullification of foreclosure sale and damages, with prayer for extension and/or grace period, with the RTC alleging:

that their loan obligations, being agricultural, hence, with longer gestation periods, should have been restructured by PNB for a longer period of at least seven years; o that no penalties should have been imposed by PNB; o that the extra-judicial foreclosure sale of their properties was null and void; that for being in violation of the Usury Law, the loan contracts and all accessory contracts pertaining thereto were null and void; and that the foreclosure proceedings under RA 3135 were not complied with, hence, the entire foreclosure proceedings were null and void. The trial court dismissed the complaint. CA reversed principally on its finding that there was no definite agreement as to the interest rate to be imposed on the loan. Therefore, the loan cannot be said to have matured so as to justify the extrajudicial foreclosure of the mortgaged properties. o CA declared null and void the interest rate imposed by PNB on the loan obtained from it by respondents and the consequent extrajudicial foreclosure of the properties offered as security for the loan. o

ISSUE: WON the interest rate is reasonable DECISION: Petition GRANTED in part. HELD: Encina spouses never challenged the validity of their loan and the accessory contracts with PNB on the ground that they violated the principle of mutuality of contracts in view of the provision therein that the interest rate shall "be set by management." Their only contention concerning the interest rate was that the charges imposed by the bank violated the Usury Law. The Usury Law had been rendered legally ineffective by Resolution 224 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 and removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. Thus, the trial court was correct in ruling that the second cause of action was without basis. In any event, the CA ruled that even if there was no stipulated interest rate, the mortgage itself remained valid. If that is so, the foreclosure proceedings cannot be invalidated based solely on the alleged violation of the principle of mutuality. o The illegality lies only in the failure to stipulate or agree on the interest leaving it to only one of the parties to fix or determine. Being separable, only the interest unilaterally fixed by one party should be deemed void, which cannot be interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the lender. Since the promissory notes and the real estate mortgage are valid and only the unilaterally imposed interest rates are wholly void, ENCINA have still to be directed to pay PNB the principal amount of the loan which remains valid with interest at the legal rate of 12% per annum from the date the loan was granted up to full payment, less payments already made, within ninety (90) days from the finality of the decision, otherwise, the PNB shall be entitled to foreclose the mortgaged property and sell the same at public auction to satisfy the loan.

UY v. PEOPLE (2008) FACTS: Uy was charged before the RTC with Estafa under Article 315, par. 2 of the RPC o Uy defrauded Mr. Eugene Yu, as follows, to wit: The said accused under false and fraudulent representations which he made to said Eugene Yu convinced said Eugene Yu to invest in the said low cost housing project in the amount of P3,500,000.00 and by means of other similar deceit, which representations he well knew were false and

fraudulent and were only made to induce the aforementioned Eugene Yu to give and deliver as in fact the said Eugene Yu gave and delivered the said amount of P3,500,000.00 to the accused, to the damage and prejudice of said Mr. Eugene Yu in the said amount of P3,500,000.00, Philippine Currency. RTC found Uy guilty of estafa. The trial court approved the surety bond posted by petitioner and directed the latter's release from custody unless further detention was warranted in any other case. CA affirmed but reduced the minimum of the indeterminate sentence imposed on him.

ISSUE: (relevant) WON the CA erred in not finding that the true nature of the Agreement between petitioner-appellant and the private complainant was that of a simple loan DECISION: Decision AFFIRMED with the MODIFICATION that the interest on the amount of P4,500,000.00 shall be 6% per annum computed from 30 May 1996. Upon the finality of this decision, the interest on said amount shall be 12% per annum.

HELD:
Private complainant maintains that what they entered into was an Investment Agreement, while Uy claims that the contract between them was a contract of loan. The Court is convinced that the transaction that was entered into was an Investment Agreement and not a simple loan. It is very clear from the document that Yu shall invest P3,500,000.00 in the development of parcel of land (owned by Uy) into a low-cost housing subdivision to be undertaken Uy. Petitioner tries to alter or contradict their agreement by claiming that their true intention was to have a simple loan agreement. He alleged that before signing the document, he even told private complainant: "Pare utang lang ito, I issued a check, bakit kailangan pa natin itong investment agreement. We do not give credence to petitioner's allegations. He is thus denying entering into an investment agreement. His denial will not prevail over the clear and unequivocal provisions of the investment contract. The prosecution has established the presence of all the elements of the offense. Petitioner falsely represented to private complainant that he had an on going low-cost housing project Relying on petitioner's fraudulent misrepresentations, private complainant invested P3,500,000.00 in said project. Said amount was given by means of a check and handed over to petitioner simultaneously with the signing of the Investment Agreement. As it turned out, per certification from the HLURB, petitioner did not have any low-cost housing project. Private complainant indeed suffered damage. He did not get his return of investment because the check he received from petitioner in the amount of P4,500,000.00 was dishonored. Moreover, petitioner neither paid private complainant the 6% compounded interest on said amount or balance thereon, nor did he allow private complainant to acquire a portion or portions of the low-cost housing subdivision in lieu of the payment of any unpaid amount or balance. It could not have been the intention of the parties in the Investment Agreement that the repayment of the investment, which was made on October 30, 1995 and payable with interest after six (6) months from date of execution of the Agreement as stipulated in the agreement be done by way of a check drawn five (5) months earlier. Obviously, the intention is to postdate the check. This circumstance should not adversely affect the cause of action of complainant because as regard the complainant, the check he received from the accused in exchange [for] the check he gave the latter, is due six months from the signing of the Investment Agreement. Yu did not commit a violation of the Anti-Usury Law. o First, petitioner failed to specify which provision of said law was violated by private complainant.

Second, the effectivity of the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982 effective 1 January 1983. We now go to the penalty. o The trial court sentenced petitioner to suffer the indeterminate penalty "of ten (10) years of prision mayor, as minimum, to twenty (20) years as prision (sic) temporal, as maximum." It also ordered petitioner to pay the private complainant the amount of P4,500,000.00 plus twelve percent (12%) interest per annum from 30 May 1996 until fully paid, and to pay the costs of suit. The Court of Appeals affirmed the conviction but modified the penalty imposed, more particularly the minimum of the indeterminate sentence, which was reduced to two (2) years and four (4) months of prision correccional. Under the Indeterminate Sentence Law, the maximum term of the penalty shall be "that which in view of the attending circumstances, could be properly imposed" under the Revised Penal Code and the minimum shall be "within the range of the penalty next lower to that prescribed" for the offense. We agree with both lower courts that petitioner should be ordered to pay private complainant the amount of P4,500,000.00 as actual damages representing private complainant's investment and unrealized profit pursuant to the Investment Agreement. The 12 % interest per annum on said amount as imposed by the lower courts from 30 May 1996 should be reduced to 6% per annum in accordance with the Investment Agreement. After this decision has become final, the interest thereon shall be 12% per annum.

SVENDSEN v. PEOPLE (2008)

FACTS: Cristina Reyes (Cristina) extended a loan to Svendsen in the amount of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he failed to settle the balance thereof which had reached P380,000 inclusive of interest. Cristina thus filed a collection suit, which was eventually settled when Svendsen paid her P200,000 and issued in her favor an International Exchange Bank check (the check) in the amount of P160,000 representing interest. The check was co-signed by one Wilhelm Bolton. When the check was presented for payment it was dishonored. Cristina, thus sent a letter to Svendsen informing him that the check was dishonored and demanding that he make it good within 5 days from receipt thereof. Cristina filed a complaint against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22. An Information dated April 13, 1999 for violation of B.P. Blg. No. 22 was filed. Bolton having remained at large, the trial court never acquired jurisdiction over his person. Court found Svendsen guilty. RTC affirmed. CA affirmed. Hence, the present petition for review. ISSUE: WON Svendsen is guilty for violation of BP 22 DECISION: Decision REVERSED. HELD:

The evidence for the prosecution failed to prove the second element ((2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment). o While the registry receipt, which is said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented, there is no proof that he or a duly authorized agent received the same. Receipts for registered letters including return receipts do not

themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the letters. o For failure then to prove all the elements of violatio n of B.P. Blg. 22, petitioners acquittal is in order. Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to be repaired through the imposition of the corresponding penalty, whereas with respect to the personal injury of the victim, it is sought to be compensated through indemnity, which is civil in nature. The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate court, ordering Svendsen to pay private complainant Cristina civil indemnity of P160k representing his civil obligation covered by subject check deserves circumspect examination, however, given that the obligation of petitioner to pay 10% interest per month on the loan is unconscionable and against public policy. o The P160k check petitioner issued to Cristina admittedly represented unpaid interest. By Cristinas information, the interest was computed at a fixed rate of 10% per month. While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing therein grants lenders carte blanche to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Stipulations authorizing such interest are contra bonos mores, if not against the law. They are, under Article 1409 of the New Civil Code, inexistent and void from the beginning. The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive, iniquitous and unconscionable cannot thus be sustained. This Court deems it fair and reasonable then, consistent with existing jurisprudence, to adjust the civil indemnity to P16,000, the equivalent of petitioner s unpaid interest on the P200,000 loan at 12% percent per annum as of February 2, 1999, the date of the check, plus 12% per annum interest to be computed from April 29, 1999, the date of judicial demand (date of the filing of the Information) up to the finality of this judgment. After the judgment becomes final and executory until the obligation is satisfied, the total amount due shall bear interest at 12% per annum. Respecting petitioners claim that since the promissory note incorporating the stipulated 10% interest per month was not presented, there is no written proof thereof, hence, his obligation to pay the same must be void, the same fails. As reflected above, Cristina admitted such stipulation.

DBP v. FAMILY FOOD (2009) FACTS: FAMILY FOODS, a partnership owned and operated by spouses Centeno obtained an industrial loan of P500k from DBP. The loan was evidenced by a promissory note and payable in 7 years, with quarterly amortizations of P31,760.40. The loan carried an interest rate of 18% per annum, and penalty charge of 8% per annum. As security, spouses Centeno executed a real estate mortgage on the parcels of land. FAMILY FOODS was granted an additional loan of P440k, payable on or before November 8, 1989, with interest at 22% per annum and penalty charge of 8%. The loan was, likewise, secured by the same real estate and chattel mortgages. FAMILY FOODS failed to pay the loans when they became due. Demand to pay was made, but it was not heeded. DBP filed a petition for extrajudicial foreclosure of mortgage. The sale proceeded, and the properties were awarded to DBP as the highest bidder. Before the redemption period expired, FAMILY FOODS entered into a contract of lease over the foreclosed properties with DBP for agreed monthly rentals of P12k. Spouses Centeno

paid P24,000.00 as advanced rentals, but refused to pay the succeeding rentals. They, likewise, failed to redeem the foreclosed properties; hence, DBP consolidated its title over the same. Spouses Centeno filed a suit for Annulment of Sale with Prayer for Issuance of a Writ of Injunction and/or Restraining Order. They admitted obtaining loans in the amount of P940,000.00 from DBP, but claimed that they made substantial payments amounting to P773,466.59. DBP, however, imposed interest and other charges in excess of those provided in the promissory note and in the real estate and chattel mortgages, thus, unnecessarily increasing their outstanding obligation. RTC rendered a decision dismissing the complaint CA modified the RTC decision. While upholding the validity of the auction sale, the CA reduced the interest rates and penalty charges stipulated in the 2 promissory notes for being iniquitous and unconscionable.

ISSUE: WON the interest rate is usurious DECISION: NO. Petition GRANTED. HELD: Spouses own evidence shows that they agreed on the stipulated interest rates of 18% and 22%, and on the penalty charge of 8%, in each promissory note. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions that they deem convenient, provided these are not contrary to law, morals, good customs, public order, or public policy. There is nothing in the records, and in fact, there is no allegation, showing that respondents were victims of fraud when they signed the promissory notes. Neither is there a showing that in their contractual relations with DBP, respondents were at a disadvantage on account of their moral dependence, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 CC. Likewise, the 18% and 22% stipulated rates of interest in the two (2) promissory notes are not unconscionable or excessive, contrary to the CA ruling. o In Garcia v. Court of Appeals, this Court sustained the interest rates of 18% and 24% per annum on the loans obtained by Chemark from Security Bank. Also, in Bautista v. Pilar Development Corporation, the validity of the 21% interest rate was upheld. Thus, the stipulated rates on respondents promissory notes cannot be stricken down for being contrary to public policy. o Similarly, we uphold the validity of the 8% penalty charge. In Development Bank of the Philippines v. Go, this Court had the occasion to state that the 8% penalty charge is valid, viz.: This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. The nonperformance gives rise to the presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse the failure of the performance was due to either force majeure or the acts of the creditor himself. In this case, respondents failed to discharge the burden. Thus, they cannot avoid the payment of the agreed penalty charge.

GENATO v. BAYHON (2009) FACTS: On October 18, 1990, respondents Benjamin M. Bayhon, Melanie Bayhon, Benjamin Bayhon Jr., Brenda Bayhon, Alina Bayhon-Campos, Irene Bayhon-Tolosa and the minor Gino Bayhon, as represented by his mother Jesusita M. Bayhon, filed an action before the RTC. Respondents sought the declaration of nullity of a dacion en pago allegedly executed by resp Benjamin Bayhon in favor of Genato. Benjamin Bayhon alleged that he obtained from Genato a loan amounting to P 1M; that to cover the loan, he executed a Deed of Real Estate Mortgage over a land; that, however, the execution of the Deed of Real Estate Mortgage was conditioned upon the personal assurance of the petitioner that the said instrument is only a private memorandum of indebtedness and that it would neither be notarized nor enforced according to its tenor. Respondent further alleged that he filed a separate proceeding for the reconstitution of TCT before the RTC. Genato filed an Answer in Intervention in the said proceeding and attached a copy of an alleged dacion en pago covering said lot. Respondent assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had died 3 years earlier, had executed it. Genato filed an action for specific performance, before the RTC. He alleged that respondent failed to pay the loan and executed a dacion en pago in favor of the petitioner. The dacion en pago was inscribed and recorded with the RD. Petitioner further averred that despite demands, respondent refused to execute the requisite documents to transfer to him the ownership of the lot subject of the dacion en pago. Trial Court upheld the respondents liability to the Genato and ordered the latter to pay the sum of Php 5,647,130.00. This amount included the principal, the stipulated interest of 5% per month, and the penalty; and, was calculated from the date of demand until the date the RTC rendered its judgment. CA reversed.

ISSUE: WON the dacion en pago was void DECISION: YES HELD: The subject dacion en pago is a simulated or fictitious contract, and hence void. The evidence shows that at the time it was allegedly signed by the wife of the respondent, his wife was already dead. The loan in this case was contracted by respondent. He died while the case was pending before the CA. While he may no longer be compelled to pay the loan, the debt subsists against his estate. No property or portion of the inheritance may be transmitted to his heirs unless the debt has first been satisfied. Petitioners remedy lies in filing a claim against the estate of the deceased respondent. The interest has been pegged at 5% per month, or 60% per annum. This is unconscionable, hence cannot be enforced. In light of this, the rate of interest for this kind of loan transaction has been fixed in the case of Eastern Shipping Lines v. Court of Appeals , at 12% per annum, calculated from October 3, 1989, the date of extrajudicial demand. Php 1,000,000.00 27,870.00 55,000.00 20,000.00 897,130.00

Principal Less: Partial Payments

Plus: Interest (12% per annum x 20 years) TOTAL:

2,153,552.00 Php 3,050,682.00

MACALINAO v. BPI (2009) FACTS: Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of BPI. Macalinao made some purchases through the use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter from BPI, demanding payment of the amount of P141,518.34. Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month. For failure of Macalinao to settle her obligations, BPI filed with the MeTC a complaint for a sum of money against her and her husband. MeTC ruled in favor of BPI and ordered Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month. RTC affirmed in toto the decision of the MeTC. The CA affirmed with modification the Decision of the RTC. ISSUE: WON the interest rate is usurious DECISION: YES. Petition partially GRANTED. HELD: The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum o BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI. In the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand. The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states: o Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another. o The records would reveal that Macalinao made partial payments to BPI, as indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable. Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

CASTRO v. TAN (2009) FACTS: Angelina de Leon Tan, and her husband Ruben were the former registered owners of a residential lot. They entered into an agreement with spouses Castro denominated as Kasulatan ng Sanglaan ng Lupa at Bahay (Kasulatan) to secure a loan of P30k they obtained from the latter. Under the Kasulatan, the spouses Tan undertook to pay the mortgage debt within six months, with an interest rate of 5% per month, compounded monthly. When her husband died, Tan was left with the responsibility of paying the loan. However, she failed to pay the same upon maturity. She offered to pay petitioners the principal amount of P30k plus a portion of the interest but petitioners refused and instead demanded payment of the total accumulated sum of P359,000.00. Petitioners caused the extrajudicial foreclosure of the real estate mortgage and emerged as the only bidder in the auction sale that ensued. Tan, joined by respondents Sps. Clemente et al, filed a Complaint for Nullification of Mortgage and Foreclosure and/or Partial Rescission of Documents and Damages before the RTC. They alleged that the interest rate imposed on the principal amount of P30,000.00 is unconscionable. RTC ruled for Tan. CA affirmed that the interest rate stipulated in the Kasulatan is iniquitous or unconscionable and, thus, its equitable reduction to the legal rate of 12% per annum is warranted. ISSUE: WON the interest rate is usurious DECISION: YES. Decision AFFIRMED. HELD: The Court of Appeals correctly found that the 5% monthly interest, compounded monthly, is unconscionable and should be equitably reduced to the legal rate of 12% per annum. o Interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which 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. The 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. CA correctly imposed the legal interest of 12% per annum in place of the excessive interest stipulated in the Kasulatan.

GUARANTY PALMARES v. CA and M.B. LENDING (1988) FACTS: Pursuant to a promissory note, M.B. Lending extended a loan to the spouses Azarraga, together with Palmares, in the amount of P30k payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date.

I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this Promissory Note for Short-Term Loan: That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above principal maker of this note; That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note subject to the same conditions above-contained. Palmares and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment. Consequently, on the basis of Palmares's solidary liability under the promissory note, corporation filed a complaint against Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter. In her Amended Answer with Counterclaim, Palmares alleged that immediately after the loan matured, she offered to settle the obligation with corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited. RTC dismissed the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Azarraga who are primarily liable on the instrument. CA reversed. CA declared that Palmares is a surety since she bound herself to be solidarily liable with the Azarraga spouses, when she signed as a co-maker. As such, Palmares is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation. Hence this petition for review on certiorari.

ISSUE: WON the contract is one of surety or guaranty

DECISION: Surety. Decision AFFIRMED. HELD: Palmares expressly bound herself to be solidarily liable with the principal. The terms of the contract are clear, explicit and unequivocal that Palmares's liability is that of a surety. Her pretension that the terms "jointly and severally or solidarily liable" contained in the 2nd par of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is opposed to her manifestation that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability. Fraud must be established by clear and convincing evidence, mere preponderance of evidence not even being adequate. Palmares's attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly, self-serving allegations. o Palmares is estopped to assert that she did so under a misapprehension of their legal effect. The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. o The undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the promissory note do not contain any other condition for the enforcement of corporation's right against Palmares. It has not been shown, either in the contract or the pleadings, that corporation agreed to proceed against Palmares only if and when the defaulting principal has become insolvent. Palmares erroneously invokes the rule on strictissimi juris, which holds that when the meaning of a contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction applicable to all written contracts, then the liability of the surety, under his contract, as thus interpreted and construed, is not to be extended beyond its strict meaning. The rule, however, will apply only after it has been definitely ascertained that the contract is one of suretyship and not a contract of guaranty. It cannot be used as an aid in determining whether a party's undertaking is that of a surety or a guarantor. The stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph. Several factors support the finding that petitioner is a surety. For one, when Palmares was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the account with corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal. For another, Palmares presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses. This can only be construed to mean that the payments made by the principal debtors were considered by corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant and simultaneous compliance of Palamares's obligation with that of her

principals only goes to show that, from the very start, Palmares considered herself equally bound by the contract of the principal makers. A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. A surety usually enters into the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument, and the same consideration usually supports the obligation for both the principal and the surety. Palmares has agreed that corporation may demand payment of the loan from her in case the principal maker defaults, subject to the same conditions expressed in the promissory note. Significantly, paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the suit is a sufficient demand. A surety is not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The underlying principle is that a suretyship is a direct contract to pay the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made, without any demand upon the principal whatsoever or any notice of default. As an original promisor and debtor from the beginning, he is held ordinarily to know every default of his principal. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The neglect of the creditor to sue the principal does not discharge the surety, even if such delay continues until the principal becomes insolvent. And, in the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, or that he need not trouble himself. o The raison d'tre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. Leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. In order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. o The mere fact that corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve here in petitioner from the consequences of her undertaking. Besides, the burden is on the surety to show that she has been discharged by some act of the creditor. Palmares cannot compel corporation to accept the amount she is willing to pay because the moment the latter accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, then the obligation shall be deemed fully complied with. The penalty charge of 3% per month and attorney's fees equivalent to 25% of the total amount due are highly inequitable and unreasonable. It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00 had already been paid even before the filing of the present case. Article 1229 of the Civil

Code provides that the court shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. And, even if there has been no performance, the penalty may also be reduced if it is iniquitous or leonine. The economic impact of the penalty interest of 3% per month on total amount due but unpaid should be equitably reduced. The purpose for which the penalty interest is intended that is, to punish the obligor will have been sufficiently served by the effects of compounded interest. The penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.

SPOUSES TOH v. SOLIDBANK and FIRST BUSINESS PAPER, KENNETH and VICTORIA LI (2005) FACTS: Solidbank agreed to extend an "omnibus line" credit facility worth P10M in favor of FBPC. o The terms and conditions of the agreement as well as the checklist of documents necessary to open the credit line were stipulated in a "letter-advise" of the Bank addressed to FBPC and to its President, Kenneth Ng Li. The documents essential for the credit facility and submitted for this purpose: o (a) Board Resolution or excerpts of the Board of Directors Meeting, duly ratified by a Notary Public, authorizing the loan and security arrangement as well as designating the officers to negotiate and sign for FBPC specifically stating authority to mortgage, pledge and/or assign the properties of the corporation; o (b) agreement to purchase Domestic Bills; and, o (c) Continuing Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li. The spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and Vice-President, respectively, of FBPC, while respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li were President and General Manager, respectively, of the same corporation. It is not disputed that the credit facility as well as its terms and conditions was not cancelled or terminated, and that there was no prior notice of such fact as required in the "letteradvise," if any was done. Luis Toh and Vicky Tan Toh and Kenneth Ng Li and Ma. Victoria Ng Li signed the required Continuing Guaranty, which was embodied in a public document prepared solely by Bank. The terms of the instrument defined the contract arising therefrom as a surety agreement and provided for the solidary liability of the signatories. o The Continuing Guaranty set forth no maximum limit on the indebtedness that FBPC may incur and for which the sureties may be liable. o The surety also contained a de facto acceleration clause if "default be made in the payment of any of the instruments, indebtedness, or other obligation" guaranteed by petitioners and respondents. So as to strengthen this security, the Continuing Guaranty waived rights of the sureties against delay or absence of notice or demand on the part of Bank, and gave future consent to the Bank's action to "extend or change the time payment, and/or the manner, place or terms of payment," including renewal, of the credit facility or any part thereof in such manner and upon such terms as the Bank may deem proper without notice to or further assent from the sureties. o The effectivity of the Continuing Guaranty was not contingent upon any event or cause other than the written revocation with notice to the Bank that may be executed by the sureties.

FBPC started to avail of the credit facility and procure letters of credit. FBPC opened 13 letters of credit and obtained loans totaling P15,227,510.00. Bank received information that spouses Li had fraudulently departed from their conjugal home. Bank served a demand letter upon FBPC and Luis Toh invoking the acceleration clause in the trust receipts of FBPC and claimed payment for P10,539,758.68 as unpaid overdue accounts on the letters of credit plus interests and penalties within 24 hours from receipt thereof. The Bank also invoked the Continuing Guaranty executed by petitioner-spouses Luis Toh and Vicky Tan Toh who were the only parties known to be within national jurisdiction to answer as sureties for the credit facility of FBPC. Bank filed a complaint for sum of money with ex parte application for a writ of preliminary attachment against FBPC, spouses Li, and spouses Toh. The Bank relinquished possession of all the attached properties to third-party claimants except for 2 insignificant items as it allegedly could barely cope with the yearly premiums on the attachment bonds. Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the complaint where they admitted being part of FBPC from its incorporation on 29 August 1991, which was then known as "MNL Paper, Inc.," until its corporate name was changed to "First Business Paper Corporation." o Petitioner-spouses however could not be certain whether to deny or admit the due execution and authenticity of the Continuing Guaranty. They could only allege that they were made to sign papers in blank and the Continuing Guaranty could have been one of them. The trial court promulgated its Decision finding FBPC liable to pay Solid Bank but absolving spouses Luis Toh and Vicky Tan Toh of any liability. o The court a quo found that petitioners "voluntarily affixed their signature[s]" on the Continuing Guaranty and were thus "at some given point in time willing to be liable under those forms," although it held that Spouses Toh were not bound by the surety contract since the letters of credit it was supposed to secure were opened long after they had ceased to be part of FBPC. CA reversed the Decision of the trial court. o It ratiocinated that the provisions of the surety agreement did not "indicate that Spouses Luis and Vicky Toh x x x signed the instrument in their capacities as Chairman of the Board and Vice-President, respectively, of FBPC only." Hence, the court a quo deduced, "[a]bsent any such indication, it was error for the trial court to have presumed that the appellees indeed signed the same not in their personal capacities." CA also ruled that as petitioners failed to execute any written revocation of the Continuing Guaranty with notice to respondent Bank, the instrument remained in full force and effect when the letters of credit were availed of by respondent FBPC.

ISSUE: WON the Bank could collect from the spouses Toh DECISION: NO. Decision AFFIRMED. HELD: The Continuing Guaranty is a valid and binding contract of spouses as it is a public document that enjoys the presumption of authenticity and due execution. Spouses Toh "voluntarily affixed their signature[s]" on the surety agreement and were thus "at some given point in time willing to be liable under those forms.". There is no basis for Spouses to limit their responsibility so long as they were corporate officers and stockholders of FBPC. Nothing in the Continuing Guaranty restricts their contractual undertaking to such condition or eventuality. In fact the obligations assumed by

them therein subsist "upon the undersigned, the heirs, executors..." Verily, if they intended not to be charged as sureties after their withdrawal from FBPC, they could have simply terminated the agreement by serving the required notice of revocation. The Bank also should be bound by the contract. Insofar as Spouses stipulate in the Continuing Guaranty that Bank "may at any time, or from time to time, in [its] discretion x x x extend or change the time payment," this provision even if understood as a waiver is confined per se to the grant of an extension and does not surrender the prerequisites therefor as mandated in the "letter-advise." In other words, the authority of the Bank to defer collection contemplates only authorized extensions, that is, those that meet the terms of the "letter-advise." o While the Bank may extend the due date at its discretion pursuant to the Continuing Guaranty, it should nonetheless comply with the requirements that domestic letters of credit be supported by 15% marginal deposit extendible 3 times for a period of 30 days for each extension, subject to 25% partial payment per extension. o Furthermore, the assurance of the sureties in the Continuing Guaranty that "no act or omission of any kind on [the Bank's] part in the premises shall in any event affect or impair this guaranty must also be read "strictissimi juris" for the reason that petitioners are only accommodation sureties, i.e., they received nothing out of the security contract they signed. Thus said, the acts or omissions of the Bank conceded by petitioners as not affecting nor impairing the surety contract refer only to those occurring "in the premises," or those that have been the subject of the waiver in the Continuing Guaranty, and stretch to no other. Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms of his contract, and while he is liable to the full extent thereof, his accountability is strictly limited to that assumed by its terms. The extensions of the letters of credit made by Bank without observing the rigid restrictions for exercising the privilege are not covered by the waiver stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under Art. 2079 of the Civil Code, "[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty." o As a result of these illicit extensions, Spouses Toh are relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil Code. Several suspicious circumstances that militate against the enforcement of the Continuing Guaranty against the accommodation sureties. Firstly, the guaranty was executed more than 30 days from the original acceptance period as required in the "letter-advise." Thereafter, barely 2 days after the Continuing Guaranty was signed, corporate agents of FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of FBPC ensued in the month of June 1993, which the Bank did not investigate although such were made known to it. There is no explanation on record for the worthlessness of the trust receipts in favor of the Bank when these documents ought to have added more security to the indebtedness of FBPC. The Bank has in fact no information whether the trust receipts were indeed used for the purpose for which they were obtained. To be sure, the goods subject of the trust receipts were not entirely lost since the security officer of Bank who conducted surveillance of FBPC even had the chance to intercept the surreptitious transfer of the items under trust. In addition, the attached properties of FBPC, except for 2 of them, were abandoned by Bank although the bonds were considerably reduced by the trial court. o The consequence of these omissions is to discharge the surety, petitioners herein, under Art. 2080 of the Civil Code, or at the very least, mitigate the liability of the surety up to the value of the property or lien released. For the same reason, the grace period granted by respondent Bank represents unceremonious abandonment and forfeiture of the 15% marginal deposit and the 25% partial payment as fixed in the "letter-advise." These payments are unmistakably additional securities intended to protect both Bank and the sureties in the event that the principal debtor FBPC becomes insolvent during the extension period. Compliance with these

requisites was not waived by petitioners in the Continuing Guaranty. For this unwarranted exercise of discretion, Bank bears the loss; due to its unauthorized extensions to pay granted to FBPC, spouses Toh are discharged as sureties under the Continuing Guaranty. Finally, the foregoing omission or negligence of respondent Bank in failing to safe-keep the security provided by the marginal deposit and the 25% requirement results in the material alteration of the principal contract, i.e., the "letter-advise," and consequently releases the surety. This inference was admitted by the Bank through the testimony of its lone witness that "[w]henever this obligation becomes due and demandable, except when you roll it over, (so) there is novation there on the original obligations." As has been said, "if the suretyship contract was made upon the condition that the principal shall furnish the creditor additional security, and the security being furnished under these conditions is afterwards released by the creditor, the surety is wholly discharged, without regard to the value of the securities released, for such a transaction amounts to an alteration of the main contract."

ONG v. PCIB (2005) FACTS: Baliwag Mahogany Corp (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Spouses Alfredo and Susana Ong are its President and Treasurer, respectively. PCIB filed a case for collection of a sum of money against spouses. Bank sought to hold spouses liable as sureties on the 3 promissory notes they issued to secure some of BMC's loans, totalling P5M. The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans. Spouses acted as sureties for these loans and issued 3 promissory notes for the purpose. Under the terms of the notes, it was stipulated that bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMC's insolvency, or if it is declared to be in a state of suspension of payments. Bank granted BMC's loan applications. BMC filed a petition for rehabilitation and suspension of payments with the SEC after its properties were attached by creditors. Bank considered debtor BMC in default of its obligations and sought to collect payment thereof from spouses as sureties. A MOA was executed by BMC, spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which bank is included). Spouses moved to dismiss the complaint. They argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to spouses who acted as BMC's sureties in their contracts of loan with respondent bank. The trial court denied the motion to dismiss. CA affirmed. Hence this appeal. ISSUE: WON the Bank could collect from the spouses DECISION: YES. Decision AFFIRMED. HELD: Reliance of spouses on Arts 2063 (compromise between creditor and debtor) and 2081 (guarantor may set up all the defenses which pertain to the debtor) of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMC's debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself.

A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. Under the suretyship contract entered into by spouses with bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to respondent bank. Under Article 1216 of the Civil Code, bank as creditor may proceed against spouses as sureties despite the execution of the MOA. Respondent bank's right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor. The creditor bank may go against the surety alone without prior demand for payment on the principal debtor. The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of collection suits by the creditor banks pertain only to the property of the principal debtor BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the liabilities of the sureties whose properties are separate and distinct from that of the debtor BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks was approved by the SEC whose jurisdiction is limited only to corporations and corporate assets. It has no jurisdiction over the properties of BMC's officers or sureties.

SEVERINO v. SEVERINO (1931) FACTS: Fabiola Severino is the recognized natural daughter of Melecio Severino. Upon the death of Melecio, he left considerable property and litigation ensued between his widow, Felicitas Villanueva, and Fabiola, on the one part, and other heirs of the deceased on the other part. A compromise was effected by which Guillermo, a son of Melecio Severino, took over the property pertaining to the estate of his father at the same time agreeing to pay P100k to Felicitas and Fabiola. This sum of money was made payable, first, P40k in cash upon the execution of the document of compromise, and the balance in three several payments of P20k at the end of one year; two years, and three years respectively. To this contract the appellant Enrique Echaus affixed his name as guarantor. o The first payment of P40k was made on the date when the contract of compromise was executed; and of this amount Fabiola received P10k. Of the remaining P60k, all as yet unpaid, Fabiola is entitled to P20k. At the time of the compromise agreement was executed Fabiola had not yet been judicially recognized as the natural daughter of Melecio, and it was stipulated that the last P20k corresponding to Fabiola and the last P5,000 corresponding to Felicitas should retained on deposit until the definite status of Fabiola should be established. The judicial decree to this effect was entered in the CFI, and as the money which was contemplated to be held in suspense has never in fact been paid to the parties entitled, it results that the point respecting the deposit referred to has ceased to be of moment. An action was instituted in the CFI by Fabiola, with whom is joined her husband Ricardo Vergara, for the purpose of recovering the sum of P20k from Guillermo and Enrique Echaus, the latter in the character of guarantor for the former.

Trial court ruled for Fabiola. But it was declared that execution should issue first against the property of Guillermo, and if no property should be found execution for the remainder should be issued against the property of Enrique Echaus as guarantor. Echaus appealed, but his principal, Guillermo Severino, did not.

ISSUE: WON Echaus is liable as guarantor DECISION: YES. Judgment AFFIRMED. HELD: The money claimed has never been paid and is still owing to the plaintiff; and the only defense worth noting is the assertion on the part of Echaus that he received nothing for affixing his signature as guarantor to the contract which is the subject of suit and that in effect the contract was lacking in consideration as to him. A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) o The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the dismissal of the action which Felicitas and Fabiola had instituted against Guillermo was an adequate consideration to support the promise on the part of Guillermo to pay the sum of money. o The promise of the Echaus as guarantor therefore binding. It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to the principal or his guarantor. SOUTHERN MOTORS v. BARBOSA (1956) FACTS: Southern Motors brought action against Eliseo Barbosa, to foreclose a real estate mortgage, as security for the payment of the sum of P2,889.53 due to said Plaintiff from one Alfredo Brillantes, who had failed to settle his obligation in accordance with the terms and conditions of the corresponding deed of mortgage. Barbosa filed an answer admitting the allegations of the complaint and alleging, by way of special and affirmative defense: o That the Defendant herein has executed the deed of mortgage Annex A for the only purpose of guaranteeing as surety and/or guarantor the payment of the above mentioned debt of Mr. Alfredo Brillantes in favor of the Plaintiff. o That the Plaintiff until now has no right action against the herein Defendant on the ground that said Plaintiff, without motive whatsoever, did not intent or intent to exhaust all recourses to collect from the true debtor Mr. Alfredo Brillantes the debt contracted by the latter in favor of said Plaintiff, and did not resort nor intends to resort all the legal remedies against the true debtor Mr. Alfredo Brillantes, notwithstanding the fact that said Mr. Alfredo Brillantes is solvent and has many properties within the Province of Iloilo. Southern Motors moved for summary judgment in the CFI which was denied upon the ground that it is premature. The case was referred to another branch for action, upon motion for reconsideration. Decision was affirmed. ISSUE: WON Barbosa can be held liable for the debt of Brillantes DECISION: YES. Decision AFFIRMED. HELD: The deed of mortgage executed by him specifically provides:

That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and assigns shall well and truly perform the full obligations abovestated according to the terms thereof, then this mortgage shall be null and void, otherwise it shall remain in full force and effect, in which event herein mortgagor authorizes and empowers herein mortgagee-company to take any of the following actions to enforce said payment;. o (a) Foreclose, judicially or extrajudicially, the chattel mortgage above referred to and/or also this mortgage, applying the proceeds of the purchase price at public sale of the real property herein mortgaged to any deficiency or difference between the purchase price of said chattel at public auction and the amount of P2,889.53, together with its interest hereby secured; or o (b) Simply foreclose this mortgage judicially in accordance with the provisions of section 2, Rule 70, Rules of Court, or extra- judicially under the provisions of Act No. 3135 and Act No. 4118, to satisfy the full amount of P2,889.53, together with its interest of 12 per cent per annum. The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has not been given as special security for the payment of the principal obligation. Guarantees, without any such pledge or mortgage, are governed by Title XV of said Code, whereas pledges and mortgages fall under Title XVI of the same Code, in which the following provisions, among others, are found: o ART. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. o ART. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. It has been held already (Saavedra vs. Price), that a mortgagor is not entitled to the exhaustion of the property of the principal debtor. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him until after the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the case. o

E. ZOBEL v. CA (1998) FACTS: Spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with CBTC (now SOLIDBANK) in the amount of P2,875,000 to finance the purchase of 2 maritime barges and one tugboat which would be used in their molasses business. o The loan was granted subject to the condition that spouses execute a chattel mortgage over the 3 vessels to be acquired and that a continuing guarantee be executed by Ayala International, now E. Zobel, Inc., in favor of SOLIDBANK. Spouses defaulted in the payment of the entire obligation upon maturity. SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against spouses and E. Zobel. E. Zobel moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety.

Court ruled for Solidbank. CA affirmed.

ISSUE: WON E. Zobel can be held liable for the loan of the spouses DECISION: YES. Decision AFFIRMED. HELD: Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. 9 The contract executed by E. Zobel in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. o the undersigned is now obligated to you as surety and in order to induce you o upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does hereby guarantee, the punctual payment, at maturity or upon demand, to you of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the obligation. This can be gleaned from a reading of the stipulations in the contract, to wit: o Should the Borrower at this or at any future time furnish, or should be heretofore have furnished, another surety or sureties to guarantee the payment of his obligations to you, the undersigned hereby expressly waives all benefits to which the undersigned might be entitled under the provisions of Article 1837 of the Civil Code (beneficio division), the liability of the undersigned under any and all circumstances being joint and several; The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word " guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor. But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence that may impair the contract. o ... No act or omission of any kind on your part in the premises shall in any event affect or impair this guaranty, nor shall same be affected by any change which may arise by

reason of the death of the undersigned, of any partner (s) of the undersigned, or of the Borrower, or of the accession to any such partnership of any one or more new partners.

INTERNATIONAL FINANCE CORP v. IMPERIAL TEXTILE MILLS (2005) FACTS: International Finance Corporation (IFC) and [Resp] Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of US$7M, payable in 16 semi-annual installments of US$437,500.00 each, with interest at the rate of 10% per annum on the principal amount of the loan advanced and outstanding from time to time. A Guarantee Agreement was executed with ITM, Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties. ITM and Grandtex agreed to guarantee PPICs obligations. PPIC paid the initial installments. The payments were rescheduled as requested by PPIC. Despite the rescheduling, however, PPIC defaulted. IFC served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan and all its accrued interests. Despite such notice, PPIC failed to pay. IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC. IFC and DBP were the only bidders during the auction sale. Despite the sale, there was still balance. IFC demanded ITM and Grandtex, as guarantors, to pay. However, the outstanding balance remained unpaid. IFC filed a complaint with the RTC against PPIC and ITM for the payment. The trial court held PPIC liable for the payment of the outstanding loan plus interests. It also ordered PPIC to pay IFC its claimed attorneys fees. However, the court relieved ITM. The CA reversed the Decision, insofar as ITM was exonerated from any obligation to IFC. ISSUE: WON ITM is liable for the debt of PPIC DECISION: YES. Decision MODIFIED. HELD: The obligations of the guarantors are meticulously expressed in the following provision: o Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as primary obligors and not as sureties merely , the due and punctual payment of the principal of, and interest and commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated maturity or upon prematuring, all as set forth in the Loan Agreement and in the Notes. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those words. The use of the two words does not limit the Contract to a mere guaranty. The specific stipulations in the Contract show otherwise. The Agreement specifically stated that the corporation was jointly and severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a surety. Pursuant to Art. 1216, CC (creditor may proceed against any one of the solidary debtors), IFC was justified in taking action directly against ITM. The use of the word guarantee does not ipso facto make the contract one of guaranty. This Court has recognized that the word is frequently employed in business transactions to

describe the intention to be bound by a primary or an independent obligation. The very terms of a contract govern the obligations of the parties or the extent of the obligors liability. The finding of solidary liability is in line with the premise provided in the Whereas clause of the Guarantee Agreement. The execution of the Agreement was a condition precedent for the approval of PPICs loan from IFC. Consistent with the position of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning ignorance of its solidary liability. A suretyship is merely an accessory or a collateral to a principal obligation. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute; or equivalent to that of a regular party to the undertaking. With the present finding that ITM is a surety, it is clear that the CA erred in declaring the former secondarily liable. A surety is considered in law to be on the same footing as the principal debtor in relation to whatever is adjudged against the latter.

INTRA-STRATA v. REPUBLIC (2008) FACTS: Grand Textile is a local manufacturing corporation. It imported from different countries various articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse. To secure the payment of the Customs obligations pursuant to Section 1904 of the Tariff and Customs Code (Code), Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These bonds, the terms of which are fully quoted below, commonly provide that the goods shall be withdrawn from the bonded warehouse "on payment of the legal customs duties, internal revenue, and other charges to which they shall then be subject." Without payment of the taxes and customs duties, Grand Textile withdrew the imported goods. The Bureau of Customs demanded payment from Grand Textile as importer, and from Intra-Strata and PhilHome as sureties. All three failed to pay. The Govt filed a collection suit against the parties with the RTC. CA affirmed. ISSUE: WON the withdrawal of the stored goods, wares, and merchandisewithout notice to the suretiesreleased them from any liability DECISION: NO. Decision AFFIRMED. HELD: The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor although he possesses no direct or personal interest over the latters obligations and does n ot receive any benefit. That the bonds under consideration are surety bonds is not disputed; the petitioners merely assert that they should not be liable for the reasons summarized above. Two elements, both affecting the suretyship agreement, are material in the issues the petitioners pose. The first

is the effect of the law on the suretyship agreement; the terms of the suretyship agreement constitute the second. A feature of the petitioners bonds, not stated expressly in the bonds themselves but one that is true in every contract, is that applicable laws form part of and are read into the contract without need for any express reference. This feature proceeds from Article 1306 of the Civil Code pursuant to which we had occasion to rule: It is to be recognized that a large degree of autonomy is accorded the contracting parties. Not that it is unfettered. They may, according to Article 1306 of the Civil Code "establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy." The law thus sets limits. It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied therein. The contracting parties need not repeat them. They do not even have to be referred to. Every contract thus contains not only what has been explicitly stipulated but also the statutory provisions that have any bearing on the matter ." The obligation to pay, principally by the importer, is shared by the latter with a willing third party under a suretyship agreement under Section 1904 of the Code which itself provides: o Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond After articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other charges shall have been determined, the Collector shall require from the importer, an irrevocable domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, and other charges conditioned upon the withdrawal of the articles within the period prescribed by Section 1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then be subject and upon compliance with all legal requirements regarding their importation. We point these out to stress the legal basis for the submission of the petitioners bonds and the conditions attaching to these bonds. As heretofore mentioned, there is, firstly, a principal obligation belonging to the importer-obligor as provided under Section 101; secondly, there is an accessory obligation, assumed by the sureties pursuant to Section 1904 which, by the nature of a surety agreement, directly, primarily, and equally bind them to the obligee to pay the obligors obligation. The second element to consider in a suretyship agreement relates to the terms of the bonds themselves, under the rule that the terms of the suretyship are determined by the suretyship contract itself. We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous. o No significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The petitioners lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditorobligee in the importation transaction is the payment by the importer-obligor of the duties, taxes, and charges due before the importation process is concluded. To support the conclusion that they should be released from the bonds they issued, the petitioners argue that upon the issuance and acceptance of the bonds, they became direct parties to the bonded transaction entitled to participate and actively intervene, as sureties, in the handling of the imported articles; that, as sureties, they are entitled to notice of any act

of the bond obligee and of the bond principal that would affect the risks secured by the bond; and that otherwise, the door becomes wide open for possible fraudulent conspiracy between the bond obligee and principal to defraud the surety. o The surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties undertaking. Under these terms, the surety is not entitled as a rule to a separate notice of default, nor to the benefit of excussion, and may be sued separately or together with the principal debtor. The words of this Court in Palmares v. CA are worth noting: o Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principals default. o Significantly, nowhere in the petitioners bonds does it state that prior notice is required to fix the sureties liabilities. Without such express requirement, the creditors right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filing of the collection suit was sufficient notice to the sureties of their principals default. The government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or any of its agencies arising from unauthorized or illegal acts of public officers. This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents.

DE LOS SANTOS v. VIBAR (2008) FACTS: Cecilia de los Santos (Cecilia) and Priscila Bautista Vibar (Priscila) were former co-workers in the Medical Department of the SSS. They were close friends for 33 years. Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed money and borrowed P100k from Priscila. De Leon issued a promissory note. Cecilia signed as a guarantor of de Leons loan. De Leon asked Priscila for another loan. Together with Cecilia and Avelina Conte, de Leon went to Priscilas house. Priscila and her sister, Atty. Josefina Bautista (Atty. Bautista), were present in the same gathering. After some discussion, they all agreed that the outstanding P100k loan together with the accrued interest would be deducted from the new loan of P500k. De Leon signed a typewritten promissory note, which he brought with him, acknowledging the debt of P500k payable within 12 months. Then, Cecilia signed as a witness under the phrase "signed in the presence of." However, Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon, in his own handwriting, inserted the word "guarantor" besides Cecilias name, as Cecilia nodded her head to what de Leon was doing. De Leon also added the phrase, "as security for this loan this TCT is being submitted by way of mortgage." De Leon failed to pay any of the monthly installments . Priscilas counsel then sent de Leon a demand letter asking for payment of the principal loan with interest and penalties. De Leon failed to respond. Priscilas counsel again sent a demand letter not only to de Leon as principal debtor, but also to Cecilia. Cecilia was being made to answer for de Leons debt as the latters guarantor. Cecilia then remitted to Priscila P15k to pay one months interest on

the loan. However, this was the only payment Cecilia made to Priscila as Cecilia claimed she had no money to pay the full amount. After several failed attempts to collect the loan, Priscila filed with the RD an adverse claim on the property registered under TCT. However, the RD denied the registration of Priscilas claim on several grounds. Priscila filed an action for recovery of money with the RTC, against de Leon and Cecilia. De Leon did not file an answer and the trial court declared him in default. Cecilia filed an answer denying that she signed as guarantor of de Leons loan. TC ruled in favor of Cecilia and dismissed the complaint for insufficiency of evidence. Upon MR, the trial court modified its decision and ruled that de Leon acted fraudulently or in bad faith in refusing to pay his debt to Priscila. However, the trial court affirmed its decision dismissing the complaint against Cecilia. The trial court ruled that there was no express consent given by Cecilia binding her as guarantor. CA affirmed ruling against de Leon but modified as to Cecilia. Hence, this petition.

ISSUE: WON Cecilia can be made to answer for the debt of de Leon DECISION: YES. Decision AFFIRMED. HELD: We rule that Cecilia was a guarantor of de Leons loan . o Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to the promissory note and Cecilias actions as the best evidence to prove that Cecilia signed as guarantor. The promissory note indicates that Cecilia signed as a witness, as manifested by the typewritten format. However, the word "guarantor" as handwritten beside Cecilias name makes Cecilia a guarantor. Firstly, Cecilias act of "nodding her head" signified her assent to the insertion of the word "guarantor." The word "guarantor" could have been inserted by Cecilia herself, or by someone authorized by Cecilia. Cecilia, by nodding her head, authorized de Leon, who prepared the promissory note, to insert the word "guarantor." Since de Leon made the insertion only after Atty. Bautista had raised the need for Cecilia to be a guarantor, a positive or negative reaction was expected from Cecilia, who responded by giving her nod of approval. Otherwise, Cecilia should have immediately expressed her objection to the insertion of the word "guarantor." Secondly, Priscila would not have extended a loan to de Leon without the representations of Cecilia. Cecilia arranged for de Leon and Priscila to meet so that de Leon could borrow money from Priscila. Cecilia vouched for de Leons capacity to pay. As a friend and common link between the borrower and lender, Cecilia took active part in the first loan of P100,000 and even signed as guarantor. On the second promissory note, the word "guarantor" again appears, admitted by both Cecilia and Priscila as an insertion made by de Leon at the time of signing. o The first loan of P100k, which Cecilia guaranteed, was paid from the proceeds of the second loan. As shown by the intervention of Atty. Bautista in bringing up the need for Cecilia to act as guarantor, Priscila would not have granted the second bigger loan of P500k without the guaranty of Cecilia. It was only natural for Priscila to commit to the second bigger loan subject at least to the same guarantee as the first smaller loan. Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed. However, the records show that Cecilia had several meetings with Priscila and the latters counsel before the demand letters were sent. In these meetings, Cecilia acknowledged her liability as guarantor but simply claimed that she had no money to pay Priscila. In fact, Cecilia made an initial payment of P15,000 as partial compliance of her obligation as guarantor. This only shows that Cecilia never denied her liability to Priscila as guarantor until this case was filed in court.

Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the status of the property mentioned in the promissory note as a mortgage security for de Leons loan. Here, Cecilia clearly stated that she "appears to be a guarantor" in the promissory note. This serves as a written admission that Cecilia knew she was a guarantor. During the trial, Cecilia did not impugn the letter or its contents. In fact, Cecilia submitted this letter in evidence. It is axiomatic that the written word "guarantor" prevails over the typewritten word "witness." In case of conflict, the written word prevails over the printed word. o The rationale for this rule is that the written words are the latest expression of the will of the parties. Thus, in this case, the latest expression of Cecilias will is that she signed the promissory note as guarantor. Cecilias conduct in the course of the negotiations and contract signing shows that she consented to be a guarantor of the loan as witnessed by everyone present. Her act of "nodding her head," and at the same time even smiling, expressed her voluntary assent to the insertion of the word "guarantor" after her signature. It is the same as saying that she agreed to the insertion. Also, Cecilias acts of making the partial payment of P15,000 and writing the letter to the Register of Deeds sustain the ruling that Cecilia affirmed her obligation as de Leons guarantor to the loan. Thus, Cecilia is now estopped from denying that she is a guarantor.

BITANGA v. PYRAMID (2008) FACTS: PYRAMID CONSTRUCTION ENGG CORP. filed with the RTC a Complaint for specific performance and damages with application for the issuance of a writ of preliminary attachment against the Bitanga and Marilyn. Pyramid alleged that it entered into an agreement with Macrogen Realty, of which Bitanga is the President, to construct for the latter the Shoppers Gold Building. Pyramid commenced civil, structural, and architectural works on the construction project. However, Macrogen Realty failed to settle respondents progress billings. Bitanga, through his representatives and agents, assured Pyramid that the outstanding account of Macrogen Realty would be paid, and requested respondent to continue working on the construction project. PYRAMID suspended work on the construction project since the conditions that it imposed for the continuation, including payment of unsettled accounts, had not been complied with by Macrogen Realty. Pyramid instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. Bitanga, through counsel, then conveyed his purported willingness to amicably settle the arbitration case. Before the arbitration case could be set for trial, Pyramid and Macrogen Realty entered into a Compromise Agreement, with Bitanga acting as signatory for and in behalf of Macrogen Realty. o Under the Compromise Agreement, Macrogen Realty agreed to pay the total amount of P6M in six equal monthly installments, with each installment to be delivered on the 15th day of the month, beginning 15 June 2000. o Macrogen Realty also agreed that if it would default in the payment of two successive monthly installments, immediate execution could issue against it for the unpaid balance, without need of judgment or decree from any court or tribunal. o Bitanga guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing a Contract of Guaranty in favor of Pyramid Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement.

Pyamid moved for the issuance of a writ of execution against Macrogen Realty, which CIAC granted. The sheriff filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of with the Planters Bank. Respondent then made a written demand on Bitanga, as guarantor of Macrogen Realty, to pay the P6M, or to point out available properties of the Macrogen Realty within the Philippines sufficient to cover the obligation guaranteed. It also made verbal demands on petitioner. Yet, Pyramids demands were left unheeded. Bitanga filed with the RTC his Answer to Pyramids Complaint averring that h e never made representations that Macrogen Realty would faithfully comply with its obligations under the Compromise Agreement. He did not offer to guarantee the obligations of Macrogen Realty to entice respondent to enter into the Compromise Agreement but that, on the contrary, it was Pyramid that required Macrogen Realty to offer some form of security for its obligations before agreeing to the compromise. o As a special and affirmative defense, Bitanga argued that the benefit of excussion was still available to him as a guarantor since he had set it up prior to any judgment against him. RTC rendered a partial Decision ordering SPOUSES BENJAMIN BITANGA and MARILYN ANDAL BITANGA to pay. CA reversed that Marilyn Bitanga is adjudged not liable, whether solidarily or otherwise, with her husband the Benjamin Bitanga, under the compromise agreement or the contract of guaranty.

ISSUE: WON Marilyn could be held liable for the loan of Macrogen DECISION: YES. Decision AFFIRMED. HELD: Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. The provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latters demand fo r payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. Despite having been served a demand letter at his office, Bitanga still failed to point out properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Such failure on petitioners part forecloses his right to set up the defense of excussion. Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty which he found was its deposit of P20,242.23 with the Planters Bank. Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. o Art. 2059. This excussion shall not take place: (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. DIO v. CA (1992) FACTS:

Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from METROBANK. Norberto Uy and Jacinto Uy Dio executed separate Continuing Suretyships in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK any indebtedness of UTEFS up to the aggregate sum of P300K while Jacinto Uy Dio agreed to be bound up to the aggregate sum of P800K. UTEFS, through Uy Tiam, obtained another credit accommodation from METROBANK, in which credit accommodation was fully settled before an irrevocable letter of credit was applied for and obtained by the business entity. The Irrevocable Letter of Credit in the sum of P815,600 covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0." It was applied for and obtain by UTEFS without the participation of Norberto Uy and Jacinto Uy Dio as they did not sign the document denominated as "Commercial Letter of Credit and Application." Also, they were not asked to execute any suretyship to guarantee its payment. Neither did METROBANK nor UTEFS inform them that the Letter of Credit has been opened and the Continuing Suretyships separately executed in February, 1977 shall guarantee its payment. The 1979 letter of credit was negotiated. METROBANK paid Planters Products the amount of P815,600.00 which payment was covered by a Bill of Exchange. Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK and Trust Receipt whereby the former acknowledged receipt in trust from the latter of the aforementioned goods from Planters Products which amounted to P815,600. Being the entrusted, the former agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Dio, demanding payment of the amount due. Informed of the amount due, UTEFS made partial payments to the Bank which were accepted by the latter. Dio denied his liability for the amount demanded and requested METROBANK to send him copies of documents showing the source of his liability. In its reply, the bank informed him that the source of his liability is the Continuing Suretyship. As a rejoinder, Dio maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. METROBANK filed a complaint for collection of a sum of money with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded Dio and Uy as parties-defendants. TC dismissed the complaint against Dino and Uy. CA reversed. o CA held that the Continuing Suretyship Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam's outstanding as well as future obligations; each suretyship arrangement was intended to remain in full force and effect until METROBANK would have been notified of its revocation. Since no such notice was given by the petitioners, the suretyships are deemed outstanding and hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam.

ISSUE: WON Dino and Uy are still liable for the second transaction DECISION: Yes. Petition PARTIALLY GRANTED. HELD: Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing,

covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. The pertinent portion of paragraph I of the suretyship agreement executed by petitioner Uy provides thus: I. For and in consideration of any existing indebtedness to the BANK of UY TIAM (hereinafter called the "Borrower"), for the payment of which the SURETY is now obligated to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request, or for the account of the Borrower, either with or without security, and/or to purchase or discount, or to make any loans or advances evidence or secured by any notes, bills, receivables, drafts, acceptances, checks, or other instruments or evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the punctual payment at maturity to the loans, advances credits and/or other obligations hereinbefore referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to the BANK by the Borrower, together with any and all expenses which may be incurred by the BANK in collecting all or any such instruments or other indebtedness or obligations herein before referred to, and/or in enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or cause any and all such payments to be made strictly in accordance with the terms and provisions of any agreement(s) express or implied, which has (have) been or may hereafter be made or entered into by the Borrow in reference thereto, regardless of any law, regulation or decree, unless the same is mandatory and non-waivable in character, nor or hereafter in effect, which might in any manner affect any of the terms or provisions of any such agreement(s) or the Bank's rights with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness; provided, however, that the liability of the SURETY hereunder shall not exceed at any one time the aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY (P300,000.00) (irrespective of the currenc(ies) in which the obligations hereby guaranteed are payable), and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to above. 13

Paragraph IV of both agreements stipulate that: VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY, from any liability as to any instruments, loans, advances or other obligations hereby

guaranteed, which may be held by the BANK, or in which the BANK may have any interest at the time of the receipt (sic) of such notice. The foregoing stipulations unequivocally reveal that the suretyship agreement in the case at bar are continuing in nature. Neither have they denied the fact that they had not revoked the suretyship agreements. Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to grant any application for credit accommodation (letter of credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its terms, each suretyship is a continuing one which shall remain in full force and effect until the bank is notified of its revocation. Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." Court does not agree. o First of all, the succeeding article provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly, Article 2052 speaks about a valid obligation, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. Indeed, the Continuing Suretyship Agreements signed by Dio and Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bond himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. In the case at bar, both agreements provide for liability for interest and expenses. They further provide that SURETY further agrees to pay the BANK a reasonable compensation for and as attorney's fees and costs of collection, which shall not in any event be less than 10% of the amount due. Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs. The last two items are pegged at not less than 10% of the amount due.

BANK OF COMMERCE and TAALA v. SPOUSES FLORES (2010) FACTS: Spouses Flores borrowed money from Bank in the amount of P900k. They executed a Real Estate Mortgage over the condominium unit as collateral. Spouses again borrowed P1.1M from Bank, which was also secured by a mortgage over the same property. Spouses paid P1,011,555.54. On the face of the receipt, it was written that the payment was "in full payment of the loan and interest." Spouses then asked Bank to cancel the mortgage annotations since the loans secured by the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of P4,633,916.67, representing the outstanding obligation. Bank applied for extra-judicial foreclosure of the mortgages over the condominium unit. Stephen Z. Taala, a notary public, was tasked to preside over the auction sale.

Spouses filed suit with the RTC assailing the validity of the foreclosure and auction sale of the property. They averred that the loans secured by the property had already been paid in full. RTC granted Spouses prayer for issuance of a writ of preliminary injunction. RTC, however, dismissed the complaint. CA reversed.

ISSUE: WON the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property DECISION: YES. Decision REVERSED. HELD: A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract. Under Article 2053 of the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions, it has been held that the use of particular words and expressions, such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time" or "on such time" that the principal debtor may require, has been construed to indicate a continuing guaranty. o The language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of CCT, and as security for all amounts that respondents may owe bank. It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. Portion of the REM: the MORTGAGOR [Andres Flores] has transferred and conveyed, as by these presents it/he does hereby transfer and convey, by way of First Mortgage, to the MORTGAGEE [Bank of Commerce], its successors and assigns, all its/ his rights, title and interest to that parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, including all other rights or benefits annexed to or inherent therein now existing or which may hereafter exist, A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage until the full amounts of the advancements are paid. Spouses full payment of the loans annotated on the title of the property shall not effect the release of the mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage.