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FACTS: The respondent in this case obtained five loans from the
Bank of Taiwan in Bacolod City in 1943 (during the Japanese
occupation). To secure said loans, the respondent secured a chattel
mortgage on the standing crops on his land in Hacienda Campugas
in Hinigiran, Negros Occidental. Said loans were covered by five
corresponding promissory notes. However, after WWII, in
accordance with the Trading with the Enemy Act, the assets of Bank
of Taiwan in the Philippines were first vested onto the Government
of the United States, then to the Republic of the Philippines
(petitioner). In 1954, the petitioner, through the Chairman of the
Board of Liquidators, made a written extrajudicial demand to the
respondent for the payment of his indebtedness. It was shown that
the respondent received the demand, but failed to make payment.
As such, a complain was filed against him. The amount computed
was that the respondents debt went from P889.64 in 1943 to
P2,377.23 on December 31, 1959 given the 6% interest per annum.
ISSUE: W/N the petitioner has a cause of action considering that
the loans were secured by a chattel mortgage on the standings
crops from his land, and said crops were destroyed by enemy
action, because of that, his obligation to pay the loans was
HELD: YES, the obligation stands
The Court did not find the respondents argument tenable. This is
due to the fact that the obligation of the respondent was to pay a
generic thing the amount representing the five loans, with
interest. In short, the obligation was to deliver a sum of money a
clear case of an obligation to deliver a generic thing. The chattel
mortgage that the respondent issued was merely a security for the
fulfillment of the respondents loan covered by the five promissory
notes. Consequently, the loss of the crops did not extinguish his
obligation to pay the petitioner.
Other rulings:
The action has not prescribed (prescription does not run against
the State)

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The lower court did not err in its computation because such was
based on the Ballantyne Scale of values added to the 6% interest
per annum

FACTS: Martinez, herein petitioner, loaned Antonio Ramos, herein
respondent money. money. The loan was evidenced by a document
saying: I hereby declare to be a fact that by order of my father,
Julian Ramos, I have received from Pedro Martinez one thousand
nine hundred pesos ($1,900) as a loan without interest, which I will
return within three years, and I sign. However, on demand, Ramos
did not want to pay claiming that said money was used to finance
his parents business and only signed the loan agreement on their
behalf. Upon the passing of his parents, Ramos was appointed
judicial administrator of the estate. So, in that special proceeding,
Martinez filed a suit against Ramos for the fulfilment of his
obligation to repay the loan, since said debts were inherited from
his fathers estate. During the appraisal of the estate, the
appraising committee decided that the said debt was not against
the estate but against the heirs who had acknowledged the debt.
Ramos appealed the decision with the CFI. The court rendered the
judgment against Ramos and ordered him to pay 1450 in Mexican
Pesos and the estate of the his father being absolved from the
complaint. Ramos appealed this judgment claiming that the trial
court erred in regarding the obligation in question as a personal
one of the appellants, attempting to base it on the acts,
subsequent to the loan, where the borrower transferred to his
parents the business in which the money was invested and
transferred to the coheirs as the administrators of the property who
acknowledged such debt.
ISSUE: W/N Ramos is liable for the debt?
HELD: Yes, he is liable. Regardless of the subsequent agreements a
debtor enters into with money he has borrowed, he shall still be

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liable to return what he has borrowed to the creditor he borrowed


parcel of land, and (b) consolidation of ownership of two portions of

the second parcel of land.

Ramos argues that he should not be liable for the debt because the
money was used for the business of his father and he merely
signed on their behalf. However, according to the civil code, one
who receives as a loan money or other fungible thing, acquires
ownership thereof and is bound to return to his creditor an equal
amount of the same kind and quality.

The court ruled in favor of TAN, declaring her the absolute owner of
the first parcel of land, enjoining the defendants from entering the
said property. Defendants were also ordered to pay TAN 1200 pesos
+ 6% legal interest, and 300 pesos + 6% legal interest for the two
portions of the second parcel of land.

Furthermore, it is written in the document evidencing the loan

obtained by Ramos from Martinez that: I will return within three
years.. It is clear from the wording of the agreement that nobody
else will return the money to Martinez except Ramos. Since
obligations arising from contracts have legal force between the
contracting parties, Ramoss defend is untenable in this situation.
FACTS: Defendants herein, all surnamed Valdehueza, are brothers
and sisters and were owners of 2 parcels of land.
The first parcel of land was the subject matter of the public auction
sale wherein the plaintiff was the highest bidder. As such a
Certificate of Sale was executed in favor of LUCIA TAN, plaintiff. Due
to the failure of defendant to redeem the said land, an ABSOLUTE
DEED OF SALE was issued in favor of TAN.
The defendants executed two documents of DEED OF PACTO DE
RETRO SALE with right to repurchase in favor of the TAN for two
portions of the second parcel of land with the total amount of
P1,500. Defendants remained in the possession of the land.
The first Deed of Pacto de Retro was not registered in the Registry
of Deeds, while the second Deed of Pacto de Retro was registered.
A complaint for injunction filed by Tan to enjoin the Valdehuezas
"from entering the parcel of land and gathering the nuts therein ...."
This complaint and the counterclaim were subsequently dismissed
for failure of the parties "to seek for the immediate trial thereof,
thus evincing lack of interest on their part to proceed with the case.
An action was instituted by Lucia Tan against the defendants for (a)
declaration of ownership and recovery of possession of the first

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1) W/N the transaction was a simple loan? NO

The trial court treated the registered deed of pacto de retro as an

equitable mortgage but considered the unregistered deed of pacto
de retro "as a mere case of simple loan, secured by the property
thus sold under pacto de retro," on the ground that no suit lies to
foreclose an unregistered mortgage. It would appear that the trial
judge had not updated himself on law and jurisprudence; he cited,
in support of his ruling, article 1875 of the old Civil Code.
Under article 1875 of the Civil Code of 1889, registration was a
necessary requisite for the validity of a mortgage even as between
the parties, but under article 2125 of the new Civil Code (in effect
since August 30,1950), this is no longer so.
If the instrument is not recorded, the mortgage is nonetheless
binding between the parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the
realty taxes having been paid by them, the contracts which
purported to be pacto de retro transactions are presumed to be
equitable mortgages, whether registered or not, there being no
third parties involved.
2) W/N the payment of legal interest was proper? NO
The Valdehuezas claim that they remained in possession of the land
and gave the proceeds of the harvest to the plaintiff; that they
would suffer double prejudice if they are to pay legal interest on the
amounts stated in the pacto de retro contracts.
Nowhere in the original and the amended complaints is an
allegation of delivery to the plaintiff of the harvest from the land.
However, the imposition of legal interest on the amounts subject of
the equitable mortgages, P1,200 and P300, respectively, is without

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legal basis, for, "No interest shall be due unless it has been
expressly stipulated in writing." (Article 1956, new Civil Code)
Furthermore, the plaintiff did not pray for such interest; her claim
was a consolidation of ownership, which was properly rejected, the
contracts being equitable mortgages.

When a party sues on a written contract and no attempt is made to

show any vice therein, he cannot be allowed to lay any claim more
than what its clear stipulations accord.

FACTS: This is an action for foreclosure of mortgage. Herein
plaintiff claims that according to the mortgage deed executed with
defendant, the latter is still liable to pay for interest during the
grace period given (1 year) for payment. However, the mortgage
deed is silent as to whether after March 31, 1934 (date of
maturity), defendant is still obliged to continue paying interest in
the event of non-payment of the principal.
ISSUE: WON defendant is liable to pay the stipulated interest until
the end of the grace period provided
HELD: NO. As the contract is silent whether payment on interest is
still to be made during the grace period, it cannot be presumed
that the intention of the parties was to continue making such
payment on interest. It would be an imposition upon the debtor of
an obligation that the parties have not chosen to agree upon. Art.
1755 of the CC provides that interest shall be due only when it has
been expressly stipulated.
Furthermore, nothing in the mortgage deed shows that the terms
used by the parties are different with their evident intent. The act
of the mortgage granting a grace period of 1 year from date of
maturity within which to make payment, without making any
mention of any interest to be paid during such grace period,
indicates that the true intention of the parties was that no interest
should be paid during the grace period. Neither has the plaintiff
adduced evidence to establish that the mortgage does not express
their true agreement and asked that the deed be reformed
accordingly, under the parcel-evidence rule.

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FACTS: The respondents in this case, due to the testate

proceedings of their ascendant, became indebted to Atty.
Leodegario Azarraga, who represented them in the case. The
indebtedness was fixed at P3,000, representing attorneys fees. To
secure the debt, the respondents mortgage three parcels of land
located in Bay-ang, New Washington, Capiz, subject to the payment
of said fees. Such was approved by the court in 1919. In addition,
the said attorney was allowed to hold said land under no obligation
to pay any rent until the fees had been paid in full, if he wished.
Provided, however, that after the five-year period, if the
respondents shall not be able to pay the fees in full, then the
parcels of land shall be definitely adjudicated to the attorney as his
property as payment. After nine months of the agreement,
however, the attorney decided to sell to the petitioner his credit for
the sum of P2,500 with all the rights and stipulations therein. Upon
assuming the debt, petitioner allowed the respondents an
extension of their debt, but with an express condition that they pay
him an interest of 12% per annum. The term was later extended
again, and extended once more, with the latter extension under the
condition that instead of P7,000 and change, which was the
interest, the respondents should pay him P12,000.

On the side, Joaquin Azarraga had sold to the petitioner, for P4,000,
his portion of the inheritance in the testate estate of his ascendant,
which consisted of an undivided tract of land in Bay-ang Chico, New
Washington, Capiz. The same was granted an exemption by the
petitioner with a similar 12% interest, which represented a part of
the P12,000 the petitioner was asking for above.
It is important to note that the petitioner took possession of
practically the whole land of the respondents, placing livestock
therein. It was contended that said animals destroyed the coconut
trees planted by Joaquin Azarraga, but the same could not be

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conclusively proven, because there was a drought that was

occurring at the same time.
Sometime on May 1928, the petitioner sought to collect his debt,
including the special debt of Joaquin Azarraga. However, it was
seen that the respondents subsequently entered into a loan
contract with their co-respondents Hijos de I. de la Rama, which the
Azarragas company, the Panay Municipal Cadastre (organized on
October 1929), needed to carry on with its business. The petitioner
filed injunctions against the respondents from further contracting
loans. He claimed to have a total of four causes of action. Among
them was that the respondents owe him P118,635.68 for depriving
him of the four parcels of land that was registered in the
respondents names and mortgaged in favor of Hijos de I. de la
ISSUE: W/N the contract entered into by the respondent Azarragas
with Atty. Azarraga from who the petitioner derived his right, a loan
The decisive circumstance with regard to categorizing the debt was
the fact that the petitioner, when he extended the respondents
debt the first time was the 12% interest per annum. It is only in
contracts of loan, with or without guaranty, that interest may be
demanded. It was also ruled that the respondents had refused to
agree to the attempted third novation (the P12,000 round sum).
Thus, it was clear that the original debt that the respondents
entered into with the attorney had become a simple loan with
security. Likewise, the loan that Joaquin Azarraga entered into on
the side was a sale pacto de retro, but likewise became a simple
loan from the date the the petitioner charged him 12% interest per

Given that, the Court saw that the contention of the respondents
that the petitioner did not and could never receive the land as an
assignment in payment of a debt was well taken. It was seen that
at no time did the petitioner even assert his claim over the land. He
did not even intimate that should the respondents fail to pay their
indebtedness that he would become the owner thereof,
notwithstanding the fact that the extensions he gave the
respondents expired. As such, the Court saw that the petitioner had

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no right to the various sums he sought in his complaint in

connection to the land.


FACTS: Co Bon Tic, herein respondent, entered into an agreement
with Royal Shirt Factory, herein petitioner, where the former would
sell the 350 pairs of the latters shoes. There agreement was
evidence by two documents, Exhibit A and Exhibit B. In Exhibit
A, the parties agreed that the respondent can either sell the shoes
on consignment and sell as many shoes as he can at 8php per pair
and return was is unsold after 9 days, or consider it an absolute
sale of 350 at 7php a pair.
It was also stipulated that petitioners will charge a 12% interest for
late payment. After the 9 days, however, no shoes were returned.
However, it is worth noting, that Exhibit A was never accepted nor
signed by the respondent. Exhibit B, on the otherhand, is an invoice
of the same 350 pairs of shoes which included the price of the
shoes including its sales tax. Exhibit B was not only accepted by
the respondent but on it he noted down, in his handwriting, the
different partial payments he will be making.
Eventually, a case was filed with the Municipal Court by petitioner
to recover payment with the issue being whether the agreement
between the parties was that of an absolute sale or a consignment.
Judgment was rendered if favour of plaintiff considering it an
absolute sale and ordering respondent to pay the balance of the
unpaid shoes with interest on the amount due at the rate of 12%
per annum.
ISSUE: W/N the lower courts erred in imposing the 12% interest for
late payment and the 25% for attorneys as stated in their
HELD: Yes, the lower courts erred. The interest should only be 6%
and no attorneys fees.
First of all, with regard to whether the agreement is one of an
absolute sale or an consignment. The courts disregarded Exhibit A
due to absence of the acceptance and signature of respondent.
However, in Exhibit B, it was not only accepted by the respondent

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but he also noted down, in his handwriting, how he was gonna

make payment. Since the invoice contained the price of all 350
pairs of shoes including its sales tax, the respondent accepted the
absolute sale of all 350 and also made partial payments for the said
Furthermore, in making said partial payments, he never mentioned
how many pairs of unsold shoes he had on hand which he should
have done if it was a consignment. Also, the absence of a period as
to the return also proves that such was not intended to be a
consignment. Therefore, the court ruled that the sale was indeed
Regarding the issue at hand, the lower courts erred in imposing the
12% interest because the following was not agreed upon by the
parties. It is clear from the facts of the case that the respondent did
not accept nor sign Exhibit A which contained the agreement and
the stipulation for both the interests.
Also, neither did the respondent signs Exhibit B. If the court holds
defendant bound by Exhibit "B" at all, it is because of his tacit
acceptance of the total value of 350 pairs of shoes and by his
notation against it of his partial payments. However, the court
believes that binding him to the terms of the conditions of the sale
would be unfair.
The court also states that they consider the handwritten notes of
respondent as having overruled what was printed as to the rate of
interest. Therefore, the respondent should only be liable for 6%
interest and nothing for attorneys fees.

the completion of the condominium project, the amount of

P962,434.78 remained unpaid by petitioner. Repeated demands by
respondent for petitioner to pay went unheeded.
Respondent filed its complaint for the recovery of the balance of
the contract price and for damages against petitioner. Respondent
prayed for the payment of the unpaid amount with interest of 2%
per month from November 1990 up to the time of payment. The
trial court resolved to grant the relief prayed for by respondent.
Petitioner appealed, particularly opposing the finding of the trial
court with regard to the imposition of the monetary interest of 2%
per month. The Court of Appeals upheld the trial court. It found
basis in Article 6.03 of the Agreement concerning the imposition of
the 2% interest.
Petitioner argues that the court's decision has no basis in imposing
the 2% interest per month. Although the Agreement contained a
provision with regard to the interest, this provision was not
mentioned by the trial court in awarding interest in the dispositive
portion. This provision of the Agreement does not apply to the
claim of respondent but refers to the "monthly progress billings."
The amount of P962,434.78 is not a "monthly progress billing" and
should not therefore be subject to interest.
Furthermore, the pre-trial order of the trial court did not include
interest as one of the issues to be resolved.
ISSUE: W/N the imposition of the 2% monthly interest was proper?

FACTS: The core issue of this petition is the propriety of the

imposition of two percent (2%) interest on the amount adjudged by
the trial court and later affirmed by the Court of Appeals in favor of
respondent D.M. Consunji, Inc. and against petitioner Arwood
Industries, Inc.

The Agreement is the formal expression of the parties rights,

duties and obligations. It is the best evidence of the intention of the
parties. Consequently, upon the fulfillment by respondent of its
obligation to complete the construction project, petitioner had the
correlative duty to pay for respondents services. However,
petitioner refused to pay the balance of the contract price. From
the moment respondent completed the construction of the
condominium project and petitioner refused to pay in full, there was
delay on the part of petitioner.

Petitioner and respondent, as owner and contractor, respectively,

entered into an Agreement for the construction of petitioner's
Westwood Condominium. The contract price was P20.8M. Despite

Obviously, respondent suffered damages brought about by the

failure of petitioner to comply with its obligation on time. Damages
take the form of interest. Accordingly, the appropriate measure of


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damages in this case is the payment of interest at the rate agreed

upon, which is 2% interest for every month of delay.
Petitioner argues that the amount of P962,434.78 claimed by
respondent and later awarded by the lower courts does not refer to
"monthly progress billings," the delayed payment of which would
earn interest at 2% per month.
"Monthly progress billings" certainly form part of the contract price.
If the amount claimed by respondent is not the "monthly progress
billings" provided in the contract, what then does such amount
represent? Petitioner has not in point of fact convincingly supplied
an answer to this query. Neither has petitioner shown any effort to
clarify the meaning of "monthly progress billings" to support its
position. This leaves us no choice but to agree with respondent that
the phrase "monthly progress billings" refers to a portion of the
contract price payable by the owner (petitioner) of the project to
the contractor (respondent) based on the percentage of completion
of the project or on work accomplished at a particular stage. It
refers to that portion of the contract price still to be paid as work
progresses, after the downpayment is made.
Even supposing that petitioner has a different definition of "monthly
progress billings," it must nonetheless be interpreted in favor of
herein respondent because Article 6.03 of the Agreement, which
gives respondent the options in case of petitioners default in
payment, was obviously stipulated for respondents benefit.
Moreover, even assuming that there was a default of stipulation or
agreement on interest, respondent may still recover on the basis of
the general provision of law, which is Article 2209 of the Civil Code
Hence, even in the absence of a stipulation on interest, respondent
would still be entitled to recover the balance of the contract price
with interest.


FACTS: Respondent Vicente Cordero opened a 1-year time deposit
with petitioner Overseas Bank in the amount of P80,000, to mature
in 1 year with interest at 6% per annum. However, due to its
distressed financial condition, petitioner bank was unable to pay
respondent Cordero his time deposit together with interest.

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Respondent Cordero instituted an action in the CFI in order to

enforce payment. As a defense, the petitioner bank claimed that
the Monetary Bank found them to be in a state of insolvency, such
that all its operations were to be suspended and that the
Superintendent of Banks was to take over the assets of petitioner
bank for purposes of liquidation. They further contended that even
if judgment be in favor of respondent Cordero, satisfaction of the
same would be impossible as the Monetary Board prohibited the
former from issuing managers checks and cashiers checks. Also,
the General Banking Act (RA 337) prohibited directors and officers
of banks from making payments out of its funds after the bank had
become insolvent. Despite this, the lower courts ruled in favor of
respondent Cordero, holding petitioner bank liable to payment of
the P80,000 and 6% interest per annum. However, a letter by Julian
Cordero (brother and attorney-in-fact of Vicente Cordero, as Vicente
was in Canada at this time) showed that they have decided to
waive all damages against Commercial Bank (successor of
Overseas Bank) and agree to accept P73,840 payment of the
principal and interest. Julian Cordero clarifies, however, that not
included in the waiver of damages is the payment of interest by
Commercial Bank during the time they were closed.
ISSUE: W/N respondent Cordero is entitled to payment of the
interest on his time deposit during the time the petitioner bank was
HELD: NO. The obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the
duly constituted authority, the Central Bank. This is so because
unless a bank can lend money, engage in international transactions
and other bank and financing activities from which it can derive
income, it is inconceivable how it can continue as a depository
obligated to pay stipulated interest. Petitioner bank was crippled
from earning the income needed to meet its obligations to its
depositors. The Court ended by saying that the same formula
that exempts petitioner from the payment of interest to its
depositors during the whole period of factual stoppage of its
operations by orders of the Central Bank xxx should be, as a
matter of consistency, applicable or followed in respect to all other
obligations of petitioner which could not be paid during the period
of its actual complete closure.

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FACTS: [Not much facts were stated] In the wake of the Courts
ruling in the Tapia case, where the Court held that the obligation
to pay interest on the deposit ceases the moment the operation of
the bank is completely suspended by the duly constituted
authority, the Central Bank (CB), the latters Motion for
Reconsideration was the case to be disposed. It was noted that
during the pendency of the Motion, the Court upheld the
aforementioned ruling in two more cases.
As such, there was a significant development prior to the resolution
of the instant case, where 99.93% of respondent COMBANKs
outstanding capital stock was acquired by the GSIS. That said,
COMBANK urged for a resolution as to the issue that, in accordance
with Tapia and related cases, whether said bank is liable to corespondent CB for interest on the latters loans and advances
during the period of COMBANKs closure from August 2, 1968 to
January 8, 1981.
ISSUE: W/N the Court should reconsider the Tapia ruling
The Court saw that the CB failed to convince the Court to
reexamine its prior rulings. Quoting a case from the CA (Pablo
Roman v. Central Bank), the Court noted that: the respondent
Central Bank when called upon to deal with commercial banks and
extend to them emergency loans and advances, deals with them
not as an ordinary creditor engaged in business, but as the ultimate
monetary authority of government charged with the supervision
and preservation of the banking system.
The Court likewise noted that the Courts prior resolution in 1982
redounded to the benefit of the GSIS due to its acquisition of
COMBANK and the preservation of the banking system.

Facts: SSS, herein respondent, and Lirag Textile, herein petitioner,
entered into a purchase agreement under which SSS agreed to
purchase from Lirag Textile 1,000,000php worth of shares of stock

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subject to certain conditions. According to the conditions under said

agreement, Lirag Textile is supposed to repurchase the said shares
of stock in portions over a period of time, pay dividends, and other
Also set as a condition, in case of delay or failure to repurchase,
SSS can demand fulfilment of the entire obligation immediately and
be liable for 12% of the amount still outstanding as liquidated
damages. Under such agreement, Mr. Lirag, the president and
owner of the corporation, was made to be a surety of such
agreement in order to ensure the fulfilment of all the obligations
and conditions.
Inevitably, Lirag Textiles failed to repurchase the shares of stocks
and pay dividends. SSS demanded the fulfilment of the entire
obligation. Due to failure to comply, SSS filed an action with the
RTC. The lower court ruled in favour of SSS and required Lirag
Textile and Mr. Lirag to pay the entire obligation, the dividends, the
legal interest. Hence, this petition.
1. W/N the purchase agreement is a debt instrument? YES
The purchase agreement is a debt instrument. First and foremost,
the conditions on the purchase agreement show the intention to
have the shares of stock repurchased at scheduled dates and that
the same is an absolute obligation which does not depend on
financial ability of Lirag Textile. This absolute obligation is made
manifest by the fact that Mr. Lirag is part of the obligation as a
surety. Second, the undertaking of Lirag Textile to repurchase the
shares of stocks clearly show the intention that the said agreement
was in the form of a debt which is defined as a obligation to pay
money at some fixed future time. A true stockholder sinks or
swims with the corporation and there is no obligation to return his
shares if the corporation incurs losses. Based on the foregoing, it is
clear by the intention of the parties in the agreement that Lirag
Textile is not a true stockholder and is clearly a debtor. Therefore,
the agreement between the parties is that of a debt instrument.
2. W/N Lirag is liable to pay the 8% cumulative dividends? YES
They are liable of the 8% cumulative dividends. The amount thereof
was fixed at 8% per annum and was not made to depend upon or to

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fluctuate with the amount of profits or surplus realized, a clear

indication that the parties intended to give a sure and fixed
earnings on the principal loan. The fact that the dividends were
supposed to be paid out of net profits and earned surplus, of which
there were none, does not excuse petitioners from the payment
thereof, again for the reason that the undertaking of petitioner Mr.
Lirag as surety, included the payment of dividends and other
obligations then outstanding


FACTS: Plaintiff filed suit against Chelda Enterprises for recovery of
alleged unpaid loans in the total amount of P20,880.00, with legal
Answering, defendants averred that they obtained four loans from
plaintiff in the total amount of P26,500.00, of which P5,620.00 had
been paid, leaving a balance of P20,880.00; that plaintiff charged
and deducted from the loan usurious interests thereon, at rates of
2% and 2.5% per month, and, consequently, plaintiff has no cause
of action against defendants and should not be permitted to
recover under the law.
The court found that there remained due from defendants an
unpaid principal amount of P20,287.50; that plaintiff charged
usurious interests, of which P1,048.15 had actually been deducted
in advance; that said amount of P1,048.15 should therefore be
deducted from the unpaid principal of P20,287.50, leaving a
balance of P19,247.351. Said court held that notwithstanding the
usurious interests charged, plaintiff is not barred from collecting the
balance of P19,247.35.
ISSUE: W/N the plaintiff may still recover the principal of the loan,
even if it was a loan with usurious interest?
Art. 1411. When the nullity proceeds from the illegality of the cause
or object of the contract, and the act constitutes criminal offense,
both parties being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Xxxx

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Since, according to the appellants, a usurious loan is void due to

illegality of cause or object, the rule of pari delicto expressed in
Article 1411 applies, so that neither party can bring action against
each other. So they continue the New Civil Code provisions
must be upheld as against the Usury Law, under which a loan with
usurious interest is not totally void, because of Article 1961 of the
New Civil Code, that: "Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they are not
inconsistent with this Code."
We do not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law, a loan with
usurious interest is not totally void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari
delicto applies where a contract's nullity proceeds from illegality of
the cause or object of said contract. However, appellants fail to
consider that a contract of loan with usurious interest consists of
principal and accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest thereon. And said
two stipulations are divisible in the sense that the former can still
stand without the latter.
Article 1420 of the New Civil Code provides: "In case of a divisible
contract, if the illegal terms can be separated from the legal ones,
the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation to
pay the principal debt, which is the cause of the contract, is not
illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should
be deemed void, since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the
Usury Law. Under the latter, any person who for a loan shall have
paid a higher rate or greater sum or value than is allowed in said
law, may recover the whole interest paid. The New Civil Code, in
Article 1413 states: "Interest paid in excess of the interest allowed
by the usury laws may be recovered by the debtor, with interest
thereon from the date of payment." Article 1413, in speaking of
"interest paid in excess of the interest allowed by the usury laws"

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means the whole usurious interest, not just that part thereof in
excess of the interest allowed by law. The whole stipulation as to
interest is void, since payment of said interest is the cause or
object and said interest is illegal. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the lender.


FACTS: Co Unjieng instituted this action with the CFI for the
purpose of recovering from Mabalacat Sugar Company (Mabalacat)
an indebtedness of more than P163 with interest, as well as to
foreclose on a mortgage given by Mabalacat to secure the same.
Paragraph 5 of the mortgage instrument provided that noncompliance on the part of Mabalacat with any of the obligations
assumed in virtue of the contract will cause the entire debt to be
come due and give occasion for foreclosure of the mortgage
(ACCELERATION CLAUSE). Mabalacat failed to comply with the
obligations stated in the mortgage deed, thus the acceleration
clause took effect. However, Co Unjieng agreed to extend the time
for payment of the mortgage indebtedness subject to interim
payments to be made prior to final liquidation of the whole
indebtedness. Mabalacat failed to pay said interim payments, but
insisted that the extension of time for payment abrogated the
stipulation with respect to the acceleration of the maturity of the
debt by non-compliance with the mortgage. Furthermore,
Mabalacat claimed that Co Unjieng erred in the imposition of
interest charges in estimating the amount of indebtedness. The
trial court ruled in favor of Co Unjieng, hence this petition.
1. WON the extension of payment on indebtedness revoked the
acceleration clause
NO. As the trial court pointed out, the agreement to extend the
time of payment was voluntary and without consideration as far as
Co Unjieng is concerned; and Mabalacats failure to comply with the
terms of the extension of payment (interim payments) justified Co
Unjieng in treating such extension of payment as of no effect.
Hence, the acceleration clause still applies. Co Unjieng is justified in
treating the entire mortgage as having been accelerated for

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Mabalacats failure to pay the stipulated installments in the

mortgage deed.
2. WON Co Unjieng erred in the calculation of the interest payments
YES. The 2nd clause of the mortgage deed provided that Interest,
to be computed upon the still unpaid capital of the loan, shall be
paid monthly, at the end of each month. This clause does not
justify the charging of interest upon interest, but only requires
Mabalacat to pay interest at the end of each month, such interest
to be computed upon capital of the loan still unpaid. Article 1109 of
the civil code provides that the parties may stipulate that interest
shall be compounded xxx 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. The trial court was of the opinion
that interest could be so charged, because of a receipt showing
that the sum of P256.28 was paid by the Mabalacat to Co Unjieng
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. 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

FACTS: The present case is an action praying for the return of
certain parcels of land to the petitioner that the respondents
allegedly sold to the formers deceased husband. However, the
respondents had remained in possession of said land under a
contract of lease, but for the period of two years had not paid any
rent. Respondents, however, alleged that the real agreement was a
loan secured by a mortgage of said lands, and that the amount
borrowed was only P2,400, but they had already paid in excess of
P4,000. As such, respondents prayed for the return of the excess.

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After a perusal of the evidence, it was seen by the lower court that
the total amount loaned by the deceased to the respondents was
around P3,000, that the respondent paid P4,428.88, which were
payment on the principal, not by way of interests or rents. As such,
the lower court ordered the petitioner to return the P432.63 she
received, but not the rest the deceased received because the same
was not presented before the committee on appraisal and claims
during the administration of the deceaseds estate. Petitioner
appealed the judgment, claiming that the payments were either
rents or interests.
ISSUE: W/N the payments were intended to be applied to the
The Court saw that the five loans that were entered into by the
deceased and the respondents were secured by the mortgage of
seven parcels of land. As such, the Court saw that said loans could
not have been rents, because the deceased took possession of the
lands. The Court noted that:
The creditor having enjoyed the beneficial use of lands delivered as
security of loan, it appears to have been the intention of the parties
that the creditor should be compensated thereby. Furthermore, in
none of the contracts offered in evidence is there any promise
made by defendants to pay rents.

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Apparently, the receipts presented, which were prepared by the

deceased and petitioner, indicated the payments as rents, but the
respondents overlooked the fact and were satisfied that they were
proofs of payment.
In addition, the petitioner maintained that despite not being rents,
there must have been interests. However, the Court disposed of the
matter by invoking Article 1755 of the old Civil Code, such that no
interest is sue unless expressly stipulated. Consequently, the
amount of P1,143.50, if collected as interest, look patently like
usury, but such cannot be presumed.
Lastly, citing jurisprudence, the Court saw that the lower court was
correct in adjudicated said payments as applied to the principal.
That said, the Court ruled that the petitioner should return the
overpayment, in accordance with the quasi-contract of solutio
indebitii, because the two requisites no right to collect the sums,
and that the amounts have been paid through mistake were
present. The contracts never intended that rents or interests were
to be paid, and that when the payments were made, they were
intended by the respondents to be applied to the principal, but
As such, the Court upheld the lower courts ruling that the P432.63
be returned. The respondents could have appealed for the
remainder under the new Rules of Court at the time, but they did

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