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NATIONAL POWER CORPORATION vs.

THE COURT damages suffered by the respondents and the acts


OF APPEALS and omissions attributed to the former. That it was the
respondents who assumed the risk of residing near the
G.R. No. 96410 July 3, 1992 Angat River, and even assuming that respondents
NOCON, J.: suffered damages, the cause was due to a fortuitous
FACTS: In the early morning hours of October 27, event and such damages are of the nature and
1978, at the height of typhoon "Kading", a massive character of damnum absque injuria, hence,
flood covered the towns near Angat Dam, particularly respondents have no cause of action against them.
the town of Norzagaray, causing several deaths and
the loss and destruction of houses, farms, plants, ISSUE: Whether petitioners can escape civil
working animals and other properties of the people liability by invoking force majeure as the
residing near the Angat River. Private respondents proximate cause of the loss and damage.
blamed the sudden rush of water to the reckless and
imprudent opening of all the three (3) floodgates of HELD: No. Petitioners cannot escape liability because
the Angat Dam spillway, without prior warning to the their negligence is the proximate cause of the loss and
people living near or within the vicinity of the dam. In damage. Act of God or force majeure, by definition,
view of these, an action for damages was filed by are extraordinary events not foreseeable or avoidable,
respondents. The trial court ruled in favor of the latter. events that could not be foreseen, or which, though
Likewise the Court of Appeals affirmed with said foreseen, are inevitable. It is therefore not enough that
decision. Hence, a petition for review on certiorari was the event should not have been foreseen or
instituted by the National Power Corporation (NPC) and anticipated, as is commonly believed, but it must be
Benjamin Chavez, Plant Superintendent of NPC. one impossible to foresee or to avoid. 7 As a general
Petitioners denied private respondents' allegations rule, no person shall be responsible for those events
and, by way of defense, contended that they have which could not be foreseen or which though foreseen,
maintained the water in the Angat Dam at a safe level were inevitable.
and that the opening of the spillways was done However, the principle embodied in the act of God
gradually and after all precautionary measures had doctrine strictly requires that the act must be
been taken. Petitioner NPC further contended that it occasioned solely by the violence of nature. Human
had always exercised the diligence of a good father in intervention is to be excluded from creating or
the selection of its officials and employees and in their entering into the cause of the mischief. When the
supervision. It also claimed that written warnings were effect is found to be in part the result of the
earlier sent to the towns concerned, and that there participation of man, whether due to his active
was no direct causal relationship between the alleged intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the maintained at its maximum from October 21, until
rules applicable to the acts of God. midnight of October 26, 1978.
Generally it cannot be said that damage, injury or loss It has been held in several cases that when the
is due to an act of God where it was caused merely by negligence of a person concurs with an act of God
excessive or heavy rainfall, storms and to weather producing a loss, such person is not exempt from
conditions which are not unusual in character, those liability by showing that the immediate cause of the
which could have been reasonably anticipated or damage was the act of God. To be exempt he must be
where the injury complained of is due rather to the free from any previous negligence or misconduct by
negligence or mismanagement of man than to the which the loss or damage may have been occasioned.
disturbance of the elements or where such damage, WHEREFORE, finding no reversible error in the
injury or loss might have been mitigated or prevented Decision appealed from, the same is hereby affirmed
by diligence exercised after the occurrence. in toto, with cost against petitioner.
In the case at bar, although the typhoon "Kading" was
an act of God, petitioners can not escape liability Yobido v. Court of Appeals
because their negligence was the proximate cause of G.R. No. 113003, 17 October 1997, 281 SCRA 1
the loss and damage. The Court of Appeals found that
the defendants failed to take the necessary safeguards FACTS: In 1988, spouses Tito and Leny Tumboy and
to prevent the danger that the Angat Dam posed in a their minor children named Ardee and Jasmin, boarded
situation of such nature as that of typhoon "Kading". at Mangagoy, Surigao del Sur, a Yobido Liner bus
The representative of the "PAG-ASA" who testified in bound for Davao City.
these proceedings, Justo Iglesias, Jr., stated that based Along the way, the left front tire of the bus exploded
on their records the rainfall on October 26 and 27, causing it to fall into a ravine around three (3) feet
1978 is classified only as moderate, and could not from the road and struck a tree. The incident resulted
have caused flash floods. He testified that flash floods in the death of 28-year-old Tito Tumboy and physical
exceeds 50 millimeters per hour and lasts for at least injuries to other passengers.
two (2) hours. He stated that typhoon "Yaning" which
occurred on October 7 to 14, 1978 gave a much As a consequence thereof, a complaint for breach of
heavier rainfall than "Kading", and so did other contract of carriage, damages and attorneys fees was
previous typhoons. filed by Leny and her children against Alberta Yobido,
Also, despite of the announcements of the newspaper the owner of the bus, and Cresencio Yobido, its driver,
of the expected occurrence of a powerful typhoon before the RTC of Davao City.
code-named "Kading", the water level in the dam was
When the defendants therein filed their answer to the position that the tire blowout that caused the death of
complaint, they raised the affirmative defense of caso Tito Tumboy was a caso fortuito.
fortuito.
ISSUE: Whether or not the explosion of a newly
In 1991, the lower court rendered a decision installed tire of a passenger vehicle is a fortuitous
dismissing the action for lack of merit. On the issue of event that exempts the carrier from liability for the
whether or not the tire blowout was a caso fortuito, it death of a passenger.
found that the falling of the bus to the cliff was a result
of no other outside factor than the tire blow-out. RULING: No. As a rule, when a passenger boards a
common carrier, he takes the risks incidental to the
Dissatisfied, the plaintiffs appealed to the Court of mode of travel he has taken. After all, a carrier is not
Appeals. They ascribed to the lower court the following an insurer of the safety of its passengers and is not
errors: (a) finding that the tire blowout was a caso bound absolutely and at all events to carry them safely
fortuito; (b) failing to hold that the defendants did not and without injury. However, when a passenger is
exercise utmost and/or extraordinary diligence injured or dies while travelling, the law presumes that
required of carriers under Article 1755 of the Civil the common carrier is negligent. Thus, the Civil Code
Code, and (c) deciding the case contrary to the ruling provides:
in Juntilla v. Fontanar, and Necesito v. Paras.
Art. 1756. In case of death or injuries to passengers,
In 1993, the Court of Appeals rendered the Decision common carriers are presumed to have been at fault
reversing that of the lower court. or to have acted negligently, unless they prove that
Proving that the tire that exploded is a new Goodyear they observed extraordinary diligence as prescribed in
tire is not sufficient to discharge defendant’s burden. articles 1733 and 1755.
As enunciated in Necesito vs. Paras, the passenger has
neither choice nor control over the carrier in the Article 1755 also provides that a common carrier is
selection and use of its equipment, and the good bound to carry the passengers safely as far as human
repute of the manufacturer will not necessarily relieve care and foresight can provide, using the utmost
the carrier from liability. diligence of very cautious persons, with a due regard
for all the circumstances.
The defendants filed a motion for reconsideration of
said decision which was denied by the Court of Accordingly, in culpa contractual, once a passenger
Appeals. Hence, the instant petition asserting the dies or is injured, the carrier is presumed to have been
at fault or to have acted negligently. This disputable
presumption may only be overcome by evidence that
the carrier had observed extraordinary diligence as While it may be true that the tire that blew-up was still
prescribed by Articles 1733, 1755 and 1756 of the Civil good because the grooves of the tire were still visible,
Code or that the death or injury of the passenger was this fact alone does not make the explosion of the tire
due to a fortuitous event. Consequently, the court a fortuitous event. No evidence was presented to show
need not make an express finding of fault or that the accident was due to adverse road conditions
negligence on the part of the carrier to hold it or that precautions were taken by the jeepney driver
responsible for damages sought by the passenger. to compensate for any conditions liable to cause
accidents.
In view of the foregoing, petitioners contention that
they should be exempt from liability because the tire The sudden blowing-up, therefore, could have been
blowout was no more than a fortuitous event that caused by too much air pressure injected into the tire
could not have been foreseen, must fail. In other coupled by the fact that the jeepney was overloaded
words, the explosion of the new tire may not be and speeding at the time of the accident.
considered a fortuitous event because there are
human factors involved in the situation. BACOLOD-MURCIA MILLING CO., INC., vs.
HON. COURT OF APPEALS AND ALONSO
The fact that the tire was new did not imply that it was GATUSLAO
entirely free from manufacturing defects or that it was G.R. Nos. 81100-01 February 7, 1990
properly mounted on the vehicle. Neither may the fact
that the tire bought and used in the vehicle is of a Facts: BMMC constructed a railroad track system to
brand name noted for quality, resulting in the transport sugar cane from the plantation to the milling
conclusion that it could not explode within five days station for period of 45 years beginning the years
use. Be that as it may, it is settled that an accident 1920-1921. However by the year 1964-1965, the
caused either by defects in the automobile or through railroad tracks over at Hacienda Helvetia was closed
the negligence of its driver is not a caso fortuito that due to the expiration of the milling contract. The
would exempt the carrier from liability for damages. residents of the Angela Estates/ Hacienda Helvetia
decided not to renew the contract. Despite this, BMMC
Moreover, a common carrier may not be absolved from continues to have milling and transportation contracts
liability in case of force majeure or fortuitous event by railroad with Agro-Industrial Development of Silay-
alone. The common carrier must still prove that it was Saravia (AIDSISA) for 17 years until 1973-74.
not negligent in causing the death or injury resulting
from an accident.
Due the non-renewal of the right of way contract with contract with the Hacienda. The requisites of force
Angela Estates, BMMC was unable to transport sugar majeure: (a) breach is independent of the will of
canes of Alonso Gatuslao or of AIDSISA beginning obligor. (b) Event is unforeseeable or
1968. Gatuslao on various dates requested unavoidable, (c) and the event renders the
transportation facilities from BMMC to no avail. fulfillment of obligation impossible. Applying the
Gatuslao filed for a Breach of Contract against BMMC criteria, the closure of the railroad track is not force
and asks for rescission of contract and damages. majeure. BMMC should have anticipated it and
BMMC argues that the inability to use its railways provided for the eventuality. BMMC took the risk that
system is due to force majeure. In order to comply the Hacienda Helvetia will not renew their contract.
they hired private trucks as movers of to haul the Thus, the closure of the track in the Hacienda,
sugar canes. Gatuslao/AIDSISA, seriously believing that paralyzed the whole transportation system. It was die
BMMC is particularly unable to transport and mill their to the contract termination, which BMMC has
sugar canes, opted to use trucks provided by Bacolod- knowledge that caused the Breach of Contract with the
Murcia Agricultural Cooperative Marketing Association, other plantations. Since the closure of the rail road
Inc. (BM-ACMA). Further, its inability to do so in effect track is a not a case of fortuitous event, the issue is
rescinds the milling contract. whether or not BMMC is capable of providing adequate
and efficient transportation facilities of the canes of
BMMC also filed a complaint against AIDSISA and BM- AIDSIA and other planters. Evidence shows that BMMC
ACMA seeking specific performance of milling contract. is the one who committed breach of contract. A letter
It alleges that Gatuslao/AIDSISA violated the contract from BMMC was even quoted by the SC. The letter was
by hiring the services of BM-ACMA. The 2 complaints suggesting planters to explore other solutions to the
were consolidated fro trial the CFI- Negros Occidental. problem of milling and transportation. Thus, AIDSIA
Lower court rendered judgment rescinding the milling hiring BM-ACMA is a matter of self-preservation and is
contract and damages of Php2,625 and Php5,000 not in anyway a breach of contract.
attorney’s fees. BMMC appealed. CA affirmed the CFI
decision. Philcomsat vs. Globe Telecom
G.R No. 147324, May 25, 2004, 429, SCRA 153
Issue: Whether or not the inability of BMMC to comply
with milling contract due to the closure of the railroad FACTS: On 07 May 1991, Philcomsat and Globe
track right of way over Helvetia is force majeure entered into an Agreement whereby Philcomsat
obligated itself to establish, operate and provide an
Held: No, The closure of the railroad track way at IBS Standard B earth station (earth station) within Cubi
Hacienda Helvetia is due to the expiration of their Point for the exclusive use of the USDCA. The term of
the contract was for 60 months, or five (5) years. In as basis for the letter of termination Section 8
turn, Globe promised to pay Philcomsat monthly (Default) of the Agreement.
rentals for each leased circuit involved. At the time of
the execution of the Agreement, both parties knew ISSUE: Whether or not the non-ratification by the
that the Military Bases Agreement between the Senate of the Treaty of Friendship, Cooperation and
Republic of the Philippines and the US (RP-US Military Security and its Supplementary Agreements
Bases Agreement) was to expire. Under Section 25, constitutes force majeure (fortuitous event) which
Article XVIII of the 1987 Constitution, foreign military exempts Globe from complying with its obligations
bases, troops or facilities, which include those located under the Agreement.
at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly RULING: Yes. Globe asserts that Section 8 of the
concurred in by the Senate and ratified by a majority Agreement is not contrary to Article 1174 of the Civil
of the votes cast by the people in a national Code because said provision does not prohibit parties
referendum when the Congress so requires, and such to a contract from providing for other instances when
new treaty is recognized as such by the US they would be exempt from fulfilling their contractual
Government. obligations. Globe also claims that the termination of
the RP-US Military Bases Agreement constitutes force
Subsequently, Philcomsat installed and established the majeure and exempts it from complying with its
earth station at Cubi Point and the USDCA made use of obligations under the Agreement.
the same. Philcomsat and Globe agreed in Section 8 of the
Agreement that the following events shall be deemed
On 16 September 1991, the Senate passed and events constituting force majeure:
adopted a resolution expressing its decision not to
concur in the ratification of the Treaty of Friendship, 1. Any law, order, regulation, direction or request of
Cooperation and Security and its Supplementary the Philippine Government;
Agreements that was supposed to extend the term of 2. Strikes or other labor difficulties;
the use by the US of Subic Naval Base, among others. 3. Insurrection;
4. Riots;
In a letter dated 06 August 1992, Globe notified 5. National emergencies;
Philcomsat of its intention to discontinue the use of the 6. War;
earth station in view of the withdrawal of US military 7. Acts of public enemies;
personnel from Subic Naval Base after the termination 8. Fire, floods, typhoons or other catastrophies or acts
of the RP-US Military Bases Agreement. Globe invoked of God;
9. Other circumstances beyond the control of the to include the appropriate interests. On May 10, 2005,
parties. the Labor Arbiter issued an Order granting the motion,
but only up to the amount of P11,459.73. The Labor
Article 1174, which exempts an obligor from liability on Arbiter reasoned that it is the October 15, 1998
account of fortuitous events or force majeure, refers Decision that should be enforced considering that it
not only to events that are unforeseeable, but also to was the one that became final and executory.
those which are foreseeable, but inevitable: However, the Labor Arbiter reasoned that since the
decision states that the separation pay and backwages
Art. 1174. Except in cases specified by the law, or are computed only up to the promulgation of the said
when it is otherwise declared by stipulation, or when decision, it is the amount of P158,919.92 that should
the nature of the obligation requires the assumption of be executed. Thus, since petitioner already
risk, no person shall be responsible for those events receivedP147,560.19, he is only entitled to the balance
which, could not be foreseen, or which, though of P11,459.73. Further, petitioner posits that he is also
foreseen were inevitable. entitled to the payment of interest from the finality of
the decision until full payment by the respondents.
Clearly, the foregoing facts are either unforeseeable,
or foreseeable but beyond the control of the parties. Issue: Whether petitioner is entitled payment of
There is nothing in the enumeration that runs contrary legal interest
to, or expands, the concept of a fortuitous event under
Article 1174. Held: Yes.

NACAR VS. GALLERY FRAMES AND BORDEY, JR. In Eastern Shipping Lines vs. CA:

Facts: Pet. Nacar filed a complaint for constructive 1. When the obligation is breached, and it consists in
dismissal before NLRC against Resp. Gallery. NLRC the payment of a sum of money, i.e., a loan or
rendered decision in favor of pet. and found that he forbearance of money, the interest due should be that
was dismissed from employment without a valid or just which may have been stipulated in writing.
cause. Thus, he was awarded backwages and Furthermore, the interest due shall itself earn legal
separation pay amounting to P 158,919.92. An Entry of interest from the time it is judicially demanded. In the
Judgment was later issued certifying that the absence of stipulation, the rate of interest shall be
resolution became final and executory on May 27, 12% per annum to be computed from default, i.e.,
2002. Petitioner filed a Manifestation and Motion from judicial or extrajudicial demand under and
praying for the re-computation of the monetary award
subject to the provisions of Article 1169 of the Civil interest that would govern the parties, the rate of legal
Code. interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no
2. When an obligation, not constituting a loan or longer be twelve percent (12%) per annum - as
forbearance of money, is breached, an interest on the reflected in the case of Eastern Shipping Lines - but
amount of damages awarded may be imposed at the will now be six percent (6%) per annum effective July
discretion of the court at the rate of 6% per annum. No 1, 2013. It should be noted, nonetheless, that the new
interest, however, shall be adjudged on unliquidated rate could only be applied prospectively and not
claims or damages except when or until the demand retroactively. Consequently, the twelve percent (12%)
can be established with reasonable certainty. per annum legal interest shall apply only until June 30,
Accordingly, where the demand is established with 2013. Come July 1, 2013 the new rate of six percent
reasonable certainty, the interest shall begin to run (6%) per annum shall be the prevailing rate of interest
from the time the claim is made judicially or when applicable.
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the Nonetheless, with regard to those judgments that have
time the demand is made, the interest shall begin to become final and executory prior to July 1, 2013, said
run only from the date the judgment of the court is judgments shall not be disturbed and shall continue to
made (at which time the quantification of damages be implemented applying the rate of interest fixed
may be deemed to have been reasonably ascertained). therein.
The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged. Decision of SC as to legal interest awarded to
petitioner:
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal 3) interest of twelve percent (12%) per annum of the
interest, whether the case falls under paragraph 1 or total monetary awards, computed from May 27, 2002
paragraph 2, above, shall be 12% per annum from to June 30, 2013 and six percent (6%) per annum from
such finality until its satisfaction, this interim period July 1, 2013 until their full satisfaction.
being deemed to be by then an equivalent to a
forbearance of credit. The Labor Arbiter is hereby ORDERED to make another
re-computation of the total monetary benefits awarded
However, under BSP-MB Circular No. 799 which and due to petitioner in accordance with this Decision.
modified Eastern Shipping Lines vs CA ruling, in the
absence of an express stipulation as to the rate of
Abella v. Abella (GR 195166)
In their Answer, respondents alleged that the amount
In a loan or forbearance of money, according to the involved did not pertain to a loan they obtained from
Civil Code, the interest due should be that stipulated in petitioners but was part of the capital for a joint
writing, and in the absence thereof, the rate shall be venture involving the lending of money.
12% per annum.
Recently, however, the Bangko Sentral ng Pilipinas Specifically, respondents claimed that they were
amending Section 2 of Circular No. 905, Series of approached by petitioners, who proposed that if
1982: respondents were to "undertake the management of
Section 1. The rate of interest for the loan or whatever money [petitioners] would give them,
forbearance of any money, goods or credits and the [petitioners] would get 2.5% a month with a 2.5%
rate allowed in judgments, in the absence of an service fee to [respondents]." The 2.5% that each
express contract as to such rate of interest, shall be party would be receiving represented their sharing of
six percent (6%) per annum. the 5% interest that the joint venture was supposedly
This Circular shall take effect on 1 July 2013. going to charge against its debtors. Respondents
further alleged that the one year averred by
FACTS: Petitioners alleged that respondents obtained a petitioners was not a deadline for payment but the
loan from them in the amount of P500,000.00. The term within which they were to return the money
loan was evidenced by an acknowledgment receipt placed by petitioners should the joint venture prove to
dated March 22, 1999 and was payable within one (1) be not lucrative. Moreover, they claimed that the
year. Petitioners added that respondents were able to entire amount of P500,000.00 was disposed of in
pay a total of P200,000.00—P100,000.00 paid on two accordance with their agreed terms and conditions and
separate occasions—leaving an unpaid balance of that petitioners terminated the joint venture,
P300,000.00. prompting them to collect from the joint venture's
borrowers. They were, however, able to collect only to
On March 22, 1999, respondents executed an the extent of P200,000.00; hence, the P300,000.00
acknowledgment receipt to petitioners, which states: balance remained unpaid.

This is to acknowledge receipt of the Amount of Five Trial Court ruled in favor of petitioners. Ordering
Hundred Thousand (P500,000.00) Pesos from Mrs. respondents to pay the petitioner the sum of P300,000
Alma R. Abella, payable within one (1) year from date with interest of 30% per annum.
hereof with interest. The CA ruled that while respondents had indeed
Annie C. Abella (sgd.) Romeo M. Abella (sgd. entered into a simple loan with petitioners,
respondents were no longer liable to pay the and return it, in which case the contract is called a
outstanding amount of P300,000.00. CA noted that commodatum; or money or other consumable thing,
while the acknowledgement receipt showed that upon the condition that the same amount of the same
interest was to be charged, no particular interest rate kind and quality shall be paid, in which case the
was specified. Thus, at the time respondents were contract is simply called a loan or mutuum.
making interest payments of 2.5% per month, these
interest payments were invalid for not being properly Commodatum is essentially gratuitous.
stipulated by the parties. Since petitioners' charging of
interest was invalid, the Court of Appeals reasoned Simple loan may be gratuitous or with a stipulation to
that all payments respondents made by way of pay interest.
interest should be deemed payments for the principal
amount of P500,000.00.aThe Court of Appeals further In commodatum the bailor retains the ownership of the
noted that respondents made a total payment of thing loaned, while in simple loan, ownership passes to
P648,500.00, which, as against the principal amount of the borrower.
P500,000.00, entailed an overpayment of
P148,500.00. Applying the principle of solutio indebiti, Art. 1953. A person who receives a loan of money or
the Court of Appeals concluded that petitioners were any other fungible thing acquires the ownership
liable to reimburse respondents for the overpaid thereof, and is bound to pay to the creditor an equal
amount of P148,500. amount of the same kind and quality.

ISSUE 1. WON the party entered into a 2. 12% per annum. In a loan or forbearance of money,
simple loan or mutuum as agreement? according to the Civil Code, the interest due should be
2. Whether interest accrued on respondents' that stipulated in writing, and in the absence thereof,
loan from petitioners, If so, at what rate? the rate shall be 12% per annum.

RULING: Recently, however, the Bangko Sentral ng Pilipinas


1. As noted by the CA and RTC, respondents entered Monetary Board, approved the following revisions
into a simple loan or mutuum, rather than a joint governing the rate of interest in the absence of
venture, with petitioners. stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of
Art. 1933. By the contract of loan, one of the parties 1982:LawlibraryofCRAlaw
delivers to another, either something not consumable ChanRoblesVirtualawlibrary
so that the latter may use the same for a certain time
Section 1. The rate of interest for the loan or was freely and voluntarily signed by both parties. Leia
forbearance of any money, goods or credits and the Ventura was the co-maker. Eusebio defaulted from
rate allowed in judgments, in the absence of an paying. Security Bank sued for collection.
express contract as to such rate of interest, shall be
six percent (6%) per annum. DECISION OF LOWER COURTS:
This Circular shall take effect on 1 July 2013. * RTC: Judge Gorospe of the Makati RTC ordered
Eusebio to pay but he lowered the interest rate to 12%
Applying this, the loan obtained by respondents from per annum.
petitioners is the conventional interest at the rate of * directly to SC in petition for certiorari.
12% per annum, the legal rate at the time the parties
executed their agreement. Proceeding from these ISSUES & RULING:
premises, we find that respondents made an 1. Should the rate of interest on a loan or forbearance
overpayment in the amount of P3,379.17. of money, goods or credits, as stipulated in a contract,
far in excess of the ceiling prescribed under or
Petitioners Spouses Salvador and Alma Abella are pursuant to the Usury Law, prevail over Section 2 of
DIRECTED to jointly and severally reimburse Central Bank Circular No. 905 which prescribes that
respondents Spouses Romeo and Annie Abella the the rate of interest thereof shall continue to be 12%
amount of P3,379.17, which respondents have per annum? or whether or not the 23% rate of interest
overpaid. per annum agreed upon by petitioner bank and
respondents is allowable and not against the Usury
Law?

Yes, the rate per contract prevails.

From the examination of the records, it appears that


SECURITY BANK AND TRUST COMPANY v RTC- indeed the agreed rate of interest as stipulated on the
MAKATI three (3) promissory notes is 23% per annum. The
G.R. No. 113926 applicable provision of law is the Central Bank Circular
October 23, 1996 No. 905 which took effect on December 22, 1982:

FACTS: In 1983, Eusebio acquired 3 separate loans Sec. 1. The rate of interest, including commissions,
from Security Bank amounting to P265k. The agreed premiums, fees and other charges, on a loan or
interest rate was 23% per annum. The promissory note forbearance of any money, goods or credits,
regardless of maturity and whether secured or interest on the principal balance owing to petitioner by
unsecured, that may be charged or collected by any respondent in the presence of a valid stipulation. In a
person, whether natural or judicial, shall not be subject loan or forbearance of money, the interest due should
to any ceiling prescribed under or pursuant to the be that stipulated in writing, and in the absence
Usury Law, as amended. thereof, the rate shall be 12% per annum. Hence, only
in the absence of a stipulation can the court impose
Only in the absence of stipulations will the 12% rate be the 12% rate of interest.
applied or if the stipulated rate is grossly excessive.
APPLICABLE PROVISION OF LAW:
Further, Eusebio never questioned the rate. He merely Central Bank Circular No. 905 which took effect on
expressed to negotiate the terms and conditions. The December 22, 1982, particularly Sections 1 and 2
promissory notes were signed by both parties which state:
voluntarily. Therefore, stipulations therein are binding
between them. Sec. 1. The rate of interest, including commissions,
premiums, fees and other charges, on a loan or
2. Do the Courts have the discretion to arbitrarily forbearance of any money, goods or credits,
override stipulated interest rates of promissory notes regardless of maturity and whether secured or
and stipulated interest rates of promissory notes and unsecured, that may be charged or collected by any
thereby impose a 12% interest on the loans, in the person, whether natural or judicial, shall not be subject
absence of evidence justifying the imposition of a to any ceiling prescribed under or pursuant to the
higher rate? Usury Law, as amended.

NO. The rate of interest was agreed upon by the Sec. 2. The rate of interest for the loan or forbearance
parties freely. Significantly, respondent did not of any money, goods or credits and the rate allowed in
question that rate. It is not for respondent court a quo judgments, in the absence of express contract as to
to change the stipulations in the contract where it is such rate of interest, shall continue to be twelve per
not illegal. Furthermore, Article 1306 of the New Civil cent (12%) per annum.
Code provides that contracting parties may establish
such stipulations, clauses, terms and conditions as All the promissory notes were signed in 1983 and,
they may deem convenient, provided they are not therefore, were already covered by CB Circular No.
contrary to law, morals, good customs, public order, or 905. Contrary to the claim of respondent court, this
public policy. We find no valid reason for the circular did not repeal nor in anyway amend the Usury
respondent court a quo to impose a 12% rate of Law but simply suspended the latter's effectivity.
agreement; interest rate increased to a high of 68%
Almeda vs CA 256 SCRA 292 (1996) between March 1984 to Sept 1986 before the loan was
to mature in March 1988, the spouses filed a petition
FACTS: In 1981, Philippine National Bank granted to for declaratory relied with prayer for a writ of
petitioners, spouses Ponciano Almeda and Eufemia preliminary injunction and TRO—spouses sought
Almeda, several loan/credit accommodations totaling clarification as to WON the PNB could unilaterally raise
P18 Million payable in 6 years at an interest rate of interest rates on the loan, pursuant to the credit
21% per annum agreement’s escalation clause

To secure the loan, spouses executed a Real Estate The lower court issued TRO; by this time the spouses
Mortgage Contract covering a 3.5 K sq.m. parcel of were already in default of their loan obligations--->
land and the building erected thereon (the Marvin invoking the law on Mandatory Foreclosure (Act 3135
Plaza) located at Pasong Tamo, Makati and PD 385), PNB countered by ordering the
extrajudicial foreclosure of petitioners’ mortgaged
A credit agreement with the ff pertinent terms and properties----> lower court, however, issued a
conditions: interest of 21% per annum, payable semi- supplemental writ of preliminary injunction
annually in arrears, the first interest payment to
become due and payable 6 months from date of initial PNB posted a counterbond and the trial court dissolved
release of loan the supplemental writ; PNB once more set a new date
 ”the Bank reserves the right to increase the for the foreclosure of Marvin Plaza
interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the Spouses tendered to PNB the amount of 40,142,518
future...the adjustment in the interest rate agreed pesos (interest calculated at 21%); PNB refused to
upon shall take effect on the effectivity date of the accept---> spouses formally consigned the amount
increase/decrease of the maximum interest rate.” with the RTC which granted the writ of preliminary
injunction enjoining the foreclosure of Marvin Plaza
Between 1981 and 1984 petitioners made several
partial payments on the loan totaling 7,735,004.66, a Judge Capulong refused to lift WPI. PNB filed petition
substantial portion of which was applied to accrued for Certiorari, Prohibition and Mandamus with CA. On
interest August 1993 CA rendered its decision setting aside the
assailed orders and upholding respondent’s right to
March 31, 1984 the bank, over petitioners’ protests, foreclose the mortgaged property pursuant to Act
raised the interest rate to 28% pursuant to their credit 3135 and PD 385
- PNB unilaterally altered the terms of its contract with
ISSUES petitioners by increasing the interest rates on the loan
without prior assent of the latter
1. WON PNB was authorized to raise its interest - the manner of agreement is itself explicitly stipulated
rates from 21% to as high as 68% under the by the Civil Code in
credit agreement Art.1956 “no interest shall be due unless it has been
expressly stipulated in writing”--- what has been
2. WON PNB is granted the authority to stipulated in writing is that petitioners were bound
foreclose the Marvin Plaza under the mandatory merely to pay 21% interest, subject to possible
foreclosure provisions of PD385 escalation or de-escalation when the circumstances
warrant it, it is within the limits allowed by law, and
HELD upon agreement
1. Any contract which appears to be heavily weighed - in PNB v. CA, PNB was unauthorized from unilaterally
in favor of one of the parties so as to lead to an raising the interest rate partly because the increase
unconscionable result is void. Any stipulation violated the principle of mutuality of contracts
regarding the validity or compliance of the contract expressed in Art.1308 of the CC “the contract must
which is left solely to the will of one of the parties, is bind both contracting parties; its validity or compliance
likewise, invalid. cannot be left to the will of one of them”
2. In facilitating collection of debts through the - increases were arbitrary
automatic foreclosure provisions of PD 385, the - escalation clauses in credit agreements are perfectly
government is, however, not exempted from observing valid and do not contravene public policy. However,
basic principles of law, and ordinary fairness and they are still subject to laws and provisions governing
decency under the due process clause of the agreements between parties, which agreements
Constitution. implicitly incorporate provisions of existing law
- the credit agreement requires that the increase be
RATIO within the limits allowed by law—refers to legislative
1. – the binding effect of any agreement between enactments not admin circulars (PNB relied on CB
parties to a contract is premised on two settled Circular No. 905) as shown in the credit agreement
principles: that any obligation arising from contract where there is a distinction made between “law or the
has the force of law between the parties; and that Monetary Board Circulars”
there must be mutuality between the parties based on -Banco Filipino Savings and Mortgage Bank v. Navarro:
their essential equality distinction between a law and an admin regulation is
recognized in the Monetary Board guidelines;
guidelines thus presuppose that a Central Bank counterclaim for P2,000.00 attorney’s fees was
regulation is not within the term ‘any law’ interposed.
- petitioners never agreed in writing to pay the
increased interest rates demanded by PNB. Great reliance is made by appellants on Art. 1411 of
the New Civil Code which states:
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-
appellee,
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, Art. 1411. When the nullity proceeds from the illegality
defendants-appellants. of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari
FACTS: Plaintiff corporation filed suit in the Court of delicto, they shall have no action against each other,
First Instance of Manila on May 29, 1964 against the and both shall be prosecuted. Moreover, the provisions
partnership Chelda Enterprises and David Syjueco, its of the Penal Code relative to the disposal of effects or
capitalist partner, for recovery of alleged unpaid loans instruments of a crime shall be applicable to the things
in the total amount of P20,880.00, with legal interest or the price of the contract.
from the filing of the complaint, plus attorney’s fees of
P5,000.00. Alleging that post dated checks issued by This rule shall be applicable when only one of the
defendants to pay said account were dishonored, that parties is guilty; but the innocent one may claim what
defendants’ industrial partner, Chellaram I. Mohinani, he has given, and shall not be bound to comply with
had left the country, and that defendants have his promise.
removed or disposed of their property, or are about to
do so, with intent to defraud their creditors, Since, according to the appellants, a usurious loan is
preliminary attachment was also sought. void due to illegality of cause or object, the rule of pari
delicto expressed in Article 1411, supra, applies, so
Answering, defendants averred that they obtained four that neither party can bring action against each other.
loans from plaintiff in the total amount of P26,500.00, Said rule, however, appellants add, is modified as to
of which P5,620.00 had been paid, leaving a balance the borrower, by express provision of the law (Art.
of P20,880.00; that plaintiff charged and deducted 1413, New Civil Code), allowing the borrower to
from the loan usurious interests thereon, at rates of recover interest paid in excess of the interest allowed
2% and 2.5% per month, and, consequently, plaintiff by the Usury Law. As to the lender, no exception is
has no cause of action against defendants and should made to the rule; hence, he cannot recover on the
not be permitted to recover under the law. A contract. So — they continue — the New Civil Code
provisions must be upheld as against the Usury Law, Thousand Five Hundred Pesos (P7,385,500.00) to
under which a loan with usurious interest is not totally finance the construction and development of the Este
void, because of Article 1961 of the New Civil Code, del Sol Mountain Reserve, a sports/resort complex
that: “Usurious contracts shall be governed by the project located at Barrio Puray, Montalban, Rizal.
Usury Law and other special laws, so far as they are
not inconsistent with this Code.” (Emphasis ours.) Under the terms of the Loan Agreement, the proceeds
of the loan were to be released on staggered basis.
ISSUE: Whether or not the illegal terms as to Interest on the loan was pegged at sixteen (16%)
payment of interest likewise renders a nullity percent per annum based on the diminishing balance.
the legal terms as to payments of the principal The loan was payable in thirty-six (36) equal and
debt. consecutive monthly amortizations. In case of default,
an acceleration clause was, among others, provided
HELD and the amount due was made subject to a twenty
(20%) percent one-time penalty on the amount due
Article 1420 of the New Civil Code provides in this and such amount shall bear interest at the highest rate
regard: “In case of a divisible contract, if the illegal permitted by law from the date of default until full
terms can be separated from the legal ones, the latter payment thereof plus liquidated plus attorney’s fees
may be enforced.” equivalent to twenty-five (25%) percent of the sum
sought to be recovered.
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, Respondent Este del Sol also executed, as provided for
which is the cause of the contract (Article 1350, Civil by the Loan Agreement, an Underwriting Agreement
Code), is not illegal. The illegality lies only as to the with underwriting fee, annual supervision fee and
prestation to pay the stipulated interest; hence, being consultancy fee with Consultancy Agreement for four
separable, the latter only should be deemed void, (4) years, coinciding with the term of the loan The said
since it is the only one that is illegal. fees were deducted from the first release of
loan.Respondent Este del Sol failed to meet the
First Metro Investment vs. Este. Del Sol schedule of repayment in accordance with a revised
G.R. No. 141811, November 15, 2001, 369 SCRA Schedule of Amortization. Accordingly, petitioner FMIC
99 caused the extrajudicial foreclosure of the real estate
mortgage on June 23, 1980. At the public auction,
FACTS: Petitioner FMIC granted respondent Este del petitioner FMIC was the highest bidder of the
Sol a loan of Seven Million Three Hundred Eighty-Five mortgaged properties. Failing to secure from the
individual respondents the payment of the alleged In usurious loans, the entire obligation does not
deficiency balance, despite individual demands sent to become void because of an agreement for usurious
each of them, petitioner instituted the instant interest; the unpaid principal debt still stands and
collection suit against the respondents to collect the remains valid but the stipulation as to the usurious
alleged deficiency balance. interest is void, consequently, the debt is to be
considered without stipulation as to the interest.
ISSUE: Whether or not the fees provided for in
the Underwriting and Consultancy Agreements In simple loan with stipulation of usurious interest, the
were mere subterfuges to camouflage the prestation of the debtor to pay the principal debt,
excessively usurious interest charged. which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the
RULING: prestation to pay the stipulated interest; hence, being
separable, the latter only should be deemed void,
Yes. The Loan, Underwriting and Consultancy since it is the only one that is illegal. Thus, the nullity
Agreements are separate and independent of the stipulation on the usurious interest does not
transactions. The Underwriting and Consultancy affect the lender’s right to receive back the principal
Agreements which were executed and delivered amount of the loan. With respect to the debtor, the
contemporaneously with the Loan Agreement were amount paid as interest under a usurious agreement is
exacted by petitioner FMIC as essential conditions for recoverable by him, since the payment is deemed to
the grant of the loan. An apparently lawful loan is have been made under restraint, rather than
usurious when it is intended that additional voluntarily.
compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by
the borrower for the lender’s services which are of
little value or which are not in fact to be rendered,
such as in the instant case. In this connection, Article
1957 of the New Civil Code clearly provides that:

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.

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