SAURA IMPORT & EXPORT V DBP [GR No. L-24968 (APRIL 27, 1972)]

Nature:

Ponente: Makalintal

Facts:

• Saura applied to the Rehabilitation Finance Corporation (RFC; now DBP) for an industrial loan of P500K to be used as follows: 250K for the construction of a factory building for the manufacture of jute sacks; 240,900 to pay the balance of the purchase price of the jute mill machinery and equipment; and 9,100 as additional working capital

• Jan. 7, 1954: Resolution No. 145. Approved loan application of P500K to be secured by a 1st mortgage on the bldg to be constructed and land with explicit provision on how proceeds were to be used (above); that Mr. & Mrs. Saura, Arellano, Caolboy, Estabillo and China Engineers shall sign promissory notes jointly with the corp; and that release shall be made at bank’s discretion subject to availability of funds and the bldg’s construction progress

• Jan. 6: Saura wrote to RFC requesting that instead of having China Engineers sign as co-maker on the promissory notes, Saura would put up a 123,500 bond instead (equal amount as that promised by China); Roca would substitute Arellano

• Resolution No. 736 – designating members of the Board of Governors to re-examine aspects of the loan

• Saura informed RFC that China had again agreed to sign as a co-signer

• Loan documents were executed

• Resolution 3989-RFC decided to reduce the loan to 300K

• China cancelled its promissory note

• Saura informed RFC that China will at any time reinstate their signature as co-signer if RFC releases the 500K loan

• Resolution No. 9083 – restored loan to 500K with conditions: (1) DARNR shall certify that the raw material needed are available in the immediate vicinity and that there is prospect of increased production to provide adequately for the requirements of the factory

• Saura wrote to RFC that according to the Bureau of Forestry, “kenaf will not be available in sufficient quantity this year or probably even next year” and asked for the proceeds to 67,586.09 for raw materials and labor

• RCF replied that “Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory wouldn’t be in line with our principle in approving the loan”

• Negotiations came to a standstill

• Deed of mortgage in favor of RFC was cancelled and was thereafter mortgaged to Prudential Bank (to secure its obligation-bought jute machinery)

• Saura failed to pay its obligation to Prudential, who then sued Saura

• 1964 (Almost 9 years after): Saura commenced action for damages alleging RFC’s failure to release the proceeds approved

• RTC rendered decision in favor of Saura

Issue/s: WON DBP is liable for damages for failure to fulfil its obligation

Held: NO

Ratio:

• There was indeed a perfected consensual contract under NCC1934

• RFC entertained the loan application on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf

• The imposition of the conditions set out in Resolution No. 9038 was by no means a deviation from the terms of the agreement but a step in its implementation.

• No contradiction with Resolution No. 145

• When Saura wrote to RFC asking that out of the loan agreed upon the sum of 67,585.09 be released for raw material and labor was a deviation from the terms laid down in Resolution No. 145.

• Saura was obviously in no position to comply with RFC’s conditions. So instead of doing so, Saura asked that the mortgage be cancelled, which was done.

• The action thus taken by both parties was in the nature of mutual desistance which is a mode of extinguishing obligations.

Dispositive: Reversed.

BPI INvestment Corp. vs. CA and ALS mgt.

Facts:

Roa obtained a loan from AIDC, predecessor of BPI. He mortgaged his house and lot in New Alabang Village as security for the loan.

Roa sold the prop to ALS and Litonjua, 350K cash + 500k-assumption of Roa's indebtedness w/ AIDC.

March 1981 , AIDC issued a new loan to ALS to be applied to Roa's debt w/same security. It was released August (update of Roa's arreages)-Sept (7K+ - what was left of loan after deducting Roa’s arreages) 1982. Amortization commenced May 1981 (as stipulated in the contract).

June 1984, BPI instituted foreclosure proceedings against ALS for non-payment from May 1981-June 1984.

Feb 1985, ALS and Litonjua filed a civil case for damages against BPI. They alleged they were not in arrears because a simple loan is perfected only upon the delivery of the object of the contract.

Hence it was perfected only on Sept 1982, the date when BPI released the balance. So payment of monthly amortizations should commence only on Oct 1982 (despite the agreement that it shall commence May 1981). In fact, according ALS, there was overpayment.

Also, ALS contends that a perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the consideration of the other party - so neither incurs in delay if the other is not ready to comply. In this case, ALS will not incur delay as long as the total loan is not yet released by BPI.

BPI contends that contract of loan is a consensual contract, perfected at the time the contract of mortgage was executed - March 31, 1981 (under Bonnevie v CA). Also, that the loan was actually release on March 31, 1981 and delay in the release is attributable to ALS.

Issue: WON the contract of loan is perfected despite non-delivery, if it was agreed upon

Held: NO

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. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of A1934. It is an accepted promise to deliver something by way of simple loan.

A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. The promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization. So 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. 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.

We can not properly declare BPIIC in bad faith because ALS made irregular payments, but, 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 ALS and the date when it was released. So nominal damages – 25K is awarded.

Naguiat v. CA

Facts1. Queano asked for a loan with Naguiat = 200k2. Naguiat indorsed to Queano, Associated Bank check

for the amount of 95k which was earlier issued to Naguiat by the corporate resources financing Corporation

3. She also issued her own filmanbank Check to the order of Queano for 95k (95x2 = 190)

4. To secure the loan, Queano executed a deed of real estate mortgage in favor of Naguiat and surrendered to her the owner’s duplicates of the titles covering the mortgage

5. Queano then issued a promissory note for 200k with interest 12% per annum payable on Sept 11, 1980

6. Queano also issued a Security Bank check postdated 11 Sept for 200k and payable to the order of Naguiat

7. However upon presentment on Sept 1,, Security Bank dishonored the check for insufficiency of funds. Queano, the next day, asked Security Bank to stop payment of her postdated check but the bank rejected the request to its policy not to honor such requests if the check is drawn against insufficient funds

8. Naguiat sent a demand letter which Queano received and shortly after she sent Reubenfeldt to meet with Naguiat. At the meeting, Queano told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt who purportedly was Naguiat’s agent.

9. Naguiat applied for extrajudicial foreclosure of the mortgage with the sheriff who then scheduled the foreclosure. 3 days before, QUEANO filed a case before the RTC seeking the annulment of the mortgage deed. Court stopped the auction sale.

10.RTC – deed of real estate mortgage null and void and ordered Naguiat to return to Queano the duplicates of her titles

11.Naguiat appealed before CA which CA affirmed

Issue: W/N Queano is liable to Naguiat (for payment of loan)Held: NORatio

1. Naguiat claims that the mortgage deed enjoys the presumption that the recitals of facts are true

2. SC says – this is a question of fact, not of law!3. The findings of the TC and CA are supported by the

evidence on record. CA is correct in ruling that the presumption of truthfulness of the recitals in a public document was DEFEATED by the clear and convincing evidence in this case that pointed to the absence of consideration.

4. No evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed/deposited.

5. The mere issuance of the checks did not result in the perfection of the contract of loan.

6. It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected

1934: 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 contract

7. A loan contract is a real contract, not consensual and as such is perfected only upon the delivery of the object of the contract

8. The objects of the contract are the loan proceeds which Queano would enjoy ONLY upon encashment of the checks signed or indorsed by Naguiat.

9. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and bank records which Naguiat failed to give.

10.Thus, mortgage is null and void. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life and without which cannot exist as an independent contract. A mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by it.

CIFC v. CA, Alegre• On April 25, 1991, Vicente Alegre, invested with CIFC, a quasi-banking institution, is engaged in money market operations, five hundred thousand (P500,000.00) pesos, in cash. • Petitioner issued a promissory note worth P516,238.67 (covering private respondent's placement plus interest at twenty and a half 20.5%) which was to mature on May 27, 1991.• On May 27, 1991, CIFC issued BPI Check (the CHECK) worth P514,390.94 in favor of Alegre as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner's current account with the Bank of the Philippine Islands (BPI).• On June 17, 1991, Alegre’s wife deposited the CHECK with Rizal Commercial Banking Corp. (RCBC), in Palawan. BPI dishonored the CHECK and took custody of it pending an investigation of several counterfeit checks drawn against CIFC's checking account. BPI used the check to trace the perpetrators of the forgery.• Alegre notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in cash. CIFC refused the request and instructed private respondent to wait for its ongoing bank reconciliation with BPI.

• Alegre made a formal demand for the payment of his money market placement. But CFIC required an impossible condition that the original check must first be surrendered.

February 25, 1992, Alegre filed a complaint for recovery of a sum of money against the petitioner with the Regional Trial Court of Makati (Alegre v CFIC)

July 13, 1992, CIFC filed against BPI, a separate civil action for collection of a sum of money with the RTC. (CIFC v BPI)BPI allegedly unlawfully deducted from CIFC's checking account, counterfeit checks amounting to P1,724,364.58. The action included the prayer to collect the amount of the dishonored CHECK paid to Vicente Alegre.

On July 27, 1993, BPI filed a separate collection suit against Vicente Alegre with the RTC. (BPI v Alegre)Vicente Alegre allegedly was behind the forgery of several CIFC checks amounting to P1,724,364.58. BPI admitted to the fact of the Compromise Agreement where it would honor the CHECK thus the claim was decreased by P514K.

In response to Alegre's complaint, CIFC filed a motion for leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemnity, with

CIFC and BPI entered into a Compromise Agreement* and agreed for - BPI to pay CIFC P1,724,364.58 + litigation expenses, debit the sum of P514,390.94 from CIFC current account Alegre’s CHECK.

The records are silent on the outcome of this case.-END-

respect to Alegre's claim. On July 23, 1992, the trial court granted CIFC's motion. BPI moved to dismiss the third-party complaint on the ground of pendency of another action (CIFC v BPI). So trial court dismissed the third-party complaint. TC during hearing found that BPI encashed and deducted the said amount from the account of CIFC, proceeds in its custody in accordance with the Compromise Agreement 5 it entered with CIFC to end the litigation in CIFC v BPI. -to be continued below-

-In case CIFC is adjudged liable to Vicente Alegre in Alegre v CIFC (see first columnß) CIFC can no longer go after BPI.-END-

• September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre. • CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial court.

ISSUE:

WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE PRESENT CASE. YES.HELD: CIFC contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinent laws to govern its money market transaction with private respondent, and not paragraph 2 of Article 1249 of the Civil Code and was already discharged from the liability of paying the value of the CHECK:

1. There was "ACCEPTANCE" of the subject check by BPI, the drawee bank, as defined under the Negotiable Instruments Law, and therefore, BPI, the drawee bank, became primarily liable for the payment of the check.2. BPI has not validly DISHONORED the subject check; and3. The act of BPI of debiting/deducting the value of the check from its account amounted to liability under the subject check based on Section 137 of the Negotiable Instruments Law, which states: “Liability of drawee retaining or destroying bill — Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses to return the bill accepted or non-accepted to the Holder,within twenty-four hours after such delivery…he will be deemed to have accepted the same.” Since BPI accepted the instrument, the bank became primarily liable for the payment of the CHECK.

Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the "payment of debts." It provides that:

“The payment of debts in money shall be made in the currency stipulated, and if it is not possible…in the currency, which is legal tender in the Philippines.The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.”

Accdg to Perez vs. Court of Appeals, a "money market is a market dealing in standardized short-term credit instruments

(involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. Here the money market transaction between CIFC and Alegre is in the nature of a loan. Thus upon the dishonor by BPI of CIFC’s payment check to Alegre, Alegre could immediately file an action for the recovery of the value of the check.In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. August 12, 1927SEVERINO TOLENTINO and POTENCIANA MANIO v BENITO GONZALEZ SY CHIAMFACTS:

• ANTECEDENT FACTS: Sometime prior to the 28th day of November, 1922, the Tolentino and Manio (T and M) purchased from Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon, in Tarlac for P25,000, payable in three installments at 12 % interest rate:• 1st installment - P2,000 – May 2, 1921 <= duly paid• 2nd - P8,000 – May 31, 1921 <= duly paid• 3rd - P15,000 – November 30, 1922. • Agreed that on failure of T and M to pay any of the installments on the due dates, the property bought would revert to the original owner.• November, 1922 Luzon Rice Mill wrote a letter to Manio, stating that if the balance, an action would be brought for the purpose of recovering the property with damages.• Realizing that they would be unable to pay the bal which amounted to P16,965.09, applied for a loan with defendant SY CHIAM for the purpose of satisfying their indebtedness to Luzon Rice Mill. SY CHIAM agreed to loan P17K on the condition that the plaintiffs execute and deliver to him a pacto de retro of the land with

camarin. They executed a “pacto de retro” with lease. The contract, under the conditions mentioned in paragraph 3, provided that Manio was to become the tenant of SY CHIAM the rent being P375. Default in the payment of the rent for two consecutive months will terminate this lease and will forfeit our right of repurchase.• On or about the 1st day of December, 1922, T and M by means of a check paid Luzon Rice the sum of P16,965.09, hence the vendor (Luzon Rice Mill) of issued TCT in favor of T and M.•

Issues:

a. Is the contract in question a pacto de retro or a mortgage? PACTO DE RETROb. Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount per month as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allowed by law?c. May the contract in the present case may be modified by parol evidence?

HELD:a. It is a pacto de retro and not a mortgage.

• The contract was clear that purpose of the T and M was to sell the property in question, reserving the right only to repurchase the same. • Manio, recognizing the absolute sale of the property, entered into a contract with Sy CHIAM by virtue of which she became the "tenant" of the purchaser. • We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not construe an instrument to one of sale with pacto de retro, with the stringent and onerous effect which follows, unless the terms of the document and the surrounding circumstances require it. However, there is not a word, a phrase, a sentence or a paragraph in the entire record, which

justifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto."• The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a personal right stipulated between the vendee and the vendor, to the end that the latter may again acquire the ownership of the thing alienated.• Court cited Berenguer case: Sale with right of repurchase is employed as a method of loan. In practice many cases occur where the consummation of a pacto de retro sale means the financial ruin of a person; it is also, unquestionable that in pacto de retro sale, interests often intervene, in the form of the price of the lease of the thing sold. But in the present case, unlike others heard by this court, there is no proof that the sale with right of repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan.

b. May a tenant 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? • 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. 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. • 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 said statutes prohibit a rate of interest on "loans." • A contract of "loan," is very different contract from that of "rent.

LOAN

RENT

Definition

an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract.

the compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof.

Ownership

the moment the contract is completed, the money, goods or chattels given cease to be the property of the former owner and becomes the absolute property of the obligor.

owner of the property does not lose his ownership but loses his control over the property rented during the period of the contract

relation between the parties

obligor and obligee landlord and tenant.

Contract contract of "loan" ß delivery of money or other consumable

contract of rent ß contract by which one of the parties delivers to

things upon condition of returning an equivalent amount of the same kind or quantity.

the other some nonconsumable thing, in order that the latter may use it during a certain period and return it to the formerIn the case of a contract of "rent," under the civil law, it is called a "commodatum."

Value The value of money, goods or credits is easily ascertained

amount of rent to be paid for the use and occupation of the property may depend upon a thousand different conditions; (e.g. farm land rent à location, prices of commodities, proximity to the market, etc; house rent à conditions of business, general prosperity or depression, adaptability to particular purposes.)

• 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. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country.

**MALCOLM dissented saying it was an equitable mortgage which tried to evade prosecution due to usurious interests.

TELENGTAN BROTHERS & SONS, INC., Petitioner, vs.UNITED STATES LINES, INC. and CA, Respondents. G.R. No. 132284 February 28, 2006 GARCIA, J.:

Facts: Telengtan (domestic corp) is doing business under the name La Suerte Cigar & Cigarette Factory. United States Lines Inc. (foreign corp) engaged in overseas shipping. During the period material, the provisions of the Far East Conference Tariff No. 12 were specifically made applicable to Philippine containerized cargo from the U.S. and Gulf Ports, effective with vessels arriving at Philippine ports on and after December 15, 1978. After that date, consignees who fail to take delivery of their containerized cargo within the 10-day free period are liable to pay demurrage charges.

Between 1979-1980, goods of Telengtan loaded in containers aboard US lines vessels arrived in Manila from US. After the 10 day free period, Telengtan failed to withdraw its goods from the containers. US Lines claims that Telengtan incurred on all those shipments a demurrage in the total amount of 94k which the latter refused to pay despite repeated demands. US Lines filed the action on June 1981.

Telengtan says it’s not liable because it never entered into a contract or agreement to be bound by demurrage. And that US Lines never made any formal demands. By way of counterclaim, Telengtan said that upon arrival of the goods, it presented the Bills of Lading (B/Ls) and pertinent documents covering seven (7) shipments and demanded from US Lines delivery of all the goods covered by the aforesaid B/Ls, only to be informed that US lines had already unloaded the goods from the container vans, stripped them of their contents which contents were then stored in warehouses and refused to deliver the goods covered by the B/Ls. US Lines required Telengtan to pay the amount of P123,738.04 before the goods can be released.

TC- ruled in favor of US lines. Both the provisions of the contract (bill of lading) and the interpretation by the courts to these provisions are to the effect that demurrage may be

collected. On many previous occasions Telengtan paid demurrage to US lines. Therefore Telengtan is stopped from claiming that it didn’t know of demurrage being charged by US Lines.

TC: It was found that the removal was done with authority from the Bureau of Customs. When US lines requested for authority to remove consigned goods from its vans and deposited them in warehouses, they had already given consignee sufficient time to take delivery of the shipment. But Telengtan did not. By its inaction, Telengtan was guilty of bad faith. Once it had received the notice of arrival of the carrier in port, it was incumbent on consignee to put wheels in motion in order that the shipment could be delivered to it. The inaction of Telengtan would only indicate that it had no intention of taking delivery except at its own convenience thus preventing carrier from taking on other shipments and from leaving port.

CA affirmed TC.

Telengtan questions the findings of their liability on demurrage and say that there is no evidence to support the decision of courts regarding the recomputation of the amount to be paid. [“…the amount of P99,408.00 which sum will bear interest at the legal rate from the date of the filing of the complaint till full payment plus attorney’s fees in the amount of 20% of the total sum due, all of which shall be recomputed as of the date of payment in accordance with the provisions of Article 1250 of the Civil Code. Exemplary damages in the amount of P80,000.00 are also granted…..”]

The main issue of the case: WON Telengtan is liable to pay for demurrage. Held: Yes.

Relevant issue:WON there was extraordinary inflation (A1250). /WON there should be recomputation.Held: No. No.

Ratio on inflation (NOTE: just see the ratio on demurrage after the dispositive part of this digest) :

The Court holds that there has been no extraordinary inflation within the meaning of Article 1250 of the Civil Code.

Article 1250 of the Civil Code states:In case an extraordinary inflation or deflation of the currency stipulated should supervene, 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.

Extraordinary inflation or deflation, exists when there is an unusual increase or decrease in the purchasing power of the Philippine peso which is 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. Extraordinary inflation can never be assumed; he who alleges the existence of such phenomenon must prove the same.

US Lines failed to prove the occurrence of extraordinary inflation.Even if the price index of goods and services may have risen

during the intervening period, this increase, without more, cannot be considered as resulting to "extraordinary inflation" as to justify the application of Article 1250.

The erosion of the value of the Philippine peso in the past three or four decades is characteristics of most currencies. The decline in the purchasing power of the Philippine currency, such downward trend of the peso cannot be considered as the extraordinary phenomenon contemplated by A1250. Furthermore, absent an official pronouncement or declaration by competent authorities of the existence of extraordinary inflation during a given period, as here, the effects of extraordinary inflation, if that be the case, are not to be applied.

A1250 clearly provides that the value of the peso at the time of the establishment of the obligation shall control and be the basis of payment of the contractual obligation, unless there is "agreement to the contrary." It is only when there is a contrary agreement that extraordinary inflation will make the value of the currency at the time of

payment, not at the time of the establishment of obligation, the basis for payment.

An agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation.

Dispositive: WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the order for recomputation as of the date of payment in accordance with the provisions of Article 1250 of the Civil Code is deleted.

Ratio on demurrage (for more knowledge): The goods loaded for shipment to Manila on respondent’s vessels in container vans on a "House/House Containers-Shippers Load, Stowage and Count" basis. This shipping arrangement means that the shipping company’s container vans are to be brought to the shipper for loading of its goods; that from the shipper’s warehouse, the goods in container vans are brought to the shipping company for shipment; that the shipping company, upon arrival of its ship at the port of destination, is to deliver the container vans to the consignee’s compound or warehouse; and that the shipper (consignee) is supposed to load, stow and count the goods from the container van.

Telengtan is at fault for not taking delivery of its cargo from the container vans within the 10-day free period, an inaction which led respondent to deposit the same in warehouse/s. Had it done so, then there would not have been any need of depositing the cargo in a warehouse. The authority secured is indicative of GF. The authority relieved respondent of its obligations under the B/Ls when it caused the containers to be stripped and the goods stored in bonded warehouses.

The B/Ls allow the goods carried to be delivered to bonded warehouses for the shipper’s and/or consignee’s account if it

does not take possession or delivery thereof as soon as they are at its disposal for removal. It provides that: The carrier shall not be required to give any notification whatsoever of arrival, discharge or any disposition of or action taken with respect to the goods, … even though the goods are consigned to order with provision for notice to a named person.

The carrier or master may appoint a stevedore or any other persons to unload and take delivery of the goods and such delivery from ship's tackle shall be considered complete and all responsibility of the carrier shall then terminate.

It is agreed that when possession of the goods is received or taken by the customs or other authorities or by any operator of any lighter, craft, … or other facilities whether selected by the carrier or master, shipper of consignee, whether public or private, such authority or person shall be considered as having received possession and delivery of the goods solely as agent of and on behalf of the shipper and consignee, …. Also if the consignee does not take possession or delivery of the goods as soon as the goods are at the disposal of the consignee for removal, the goods shall be at their own risk and expense, delivery shall be considered complete and the carrier may, subject to carrier's liens, send the goods to store, warehouse, put them on lighters or other craft, put them in possession of authorities, dump, permit to lie where landed or otherwise dispose of them, always at the risk and expense of the goods, and the shipper and consignee shall pay and indemnify the carrier for any loss, damage, fine, charge or expense whatsoever suffered or incurred in so dealing with or disposing of the goods, or by reason of the consignee's failure or delay in taking possession and delivery as provided herein.

EQUITABLE PCI BANK, AIMEE YU and BEJAN LIONEL APAS v. NG SHEUNG NGORDecember 19, 2007

• October 7, 2001, Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin E. Go filed an action for

annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the RTC, alleging that:

• Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates. • They signed pre-printed promissory notes on various dates beginning 1996, unaware of identical escalation clauses which granted Equitable authority to increase interest rates without their consent.

• Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions, and even availed of the credit facilities for five years.• RTC ruling:

• That Ng et al’s loan amounted to USD 855K and PhP1M.• Escalation clause ß invalid based on the principle of mutuality of contracts.• There was a steep depreciation of the peso during the intervening period and the existence of extraordinary deflation, thus, 1996 dollar exchange rate must be used in computing Ng Sheung Ngor’s dollar-denominated loans. • Equitable to pay moral and exemplary damages to Ng.

• Equitable and Ng et. al filed their respective notices of appeal. Both were denied for non-filing of appeal fees.• Equitable moved for the reconsideration of the March 1, 2004. Ng Sheung Ngor moved for execution.• RTC in an Omnibus Order issued a writ of execution on March 24 à three real properties of Equitable were levied upon.• March 30, 2004 Equitable filed a petition for relief with RTC, withdrew it on the same day, and then filed a petition for certiorari with an application for an injunction of the execution of the March 24 order in the CA ß granted.

• Despite the CA Injunction order, the properties of Equitable were sold in a public auction which were bought by Ng as the highest bidder.• August 10, 2004 Equitable moved to annul the auction sale and to hold in contempt the sheriff who executed the auction in spite of the CA injunction. • October 28, 2005 the CA dismissed the petition for certiorari by Equitable on grounds of forum shopping. It found that Equitable filed its petition for certiorari in the CA several hours before withdrawing its petition for relief in the RTC. Moreover, Equitable failed to disclose, both in the statement of material dates and certificate of non-forum shopping that it had a pending petition for relief with RTC. • Equitable filed MR ß denied.

Issues (minus the procedural ones on forum shopping and petition for certiorari):

1. WON THE PROMISSORY NOTES WERE VALID. YES. 2. WON the Escalation Clause Violated The Principle Of Mutuality Of Contracts. yes.3. WON there was extraordinary inflATION. no.

HELD/RATIO:1. YES. The promissory notes were contracts of adhesion. Contracts of adhesion are not invalid per se. 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. But this was not the case here. 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. 2. YES. 2 reasons:

a. Principle of Mutuality, violated. Escalation clauses are not void per se. However, when they grant the creditor unbridled right to adjust the interest independently and upwardly as in this case, without the debtor’s consent, the agreement

is void. 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.The escalation clause in this case merely provided that:“If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be determined by the bank.”

Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had no choice but to accept them. This set-up violated Art. 1308.

b. Requisite provisions, lacking. To be valid an escalation clause must provide:

a. that the rate of interest will only be increased if the maximum rate of interest is increased by law or by the Monetary Board; and b. will only be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause).

The escalation clause did not contain any of these provisions, hence, void.

With regard to the proper rate of interest, because the escalation clause was annulled, the principal amount of the loan was subject to the original or stipulated rate of interest. (New Sampaguita Builders v. Philippine National Bank). Thus:

• Loans from January 10, 2001 to July 9, 2001 à Ng et. al. should pay Equitable the interest rates of 12.66% p.a. (for dollar-denominated loans) and 20% p.a. (for peso-denominated loans)

• From July 9, 2001 à Ng et al should pay at a legal interest of 12% p.a. (all amounts due. (Eastern Shipping Lines v. Court of Appeals)

3. NO. Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse situation. Art 1250 of the Civil Code provides: 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 ng Pilipinas (BSP);2. that the obligation was contractual in nature; and 3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.

BSP never declared a situation of extraordinary inflation and 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) as there was no such stipulation either in the promissory note or loan agreement.

ALMEDA V BATHALA MARKETING

Ponente: Nachura, J.

Facts: Ponciano Almeda agreed to lease a portion of the Almeda Compound in Makati to Bathala Marketing for a monthly rental of 1M+ for a term of 4 years. During the effectivity of the contract, Ponciano died. The heirs of Ponciano then informed Bathala that the former shall assess and collect Value Added Tax from its monthly rentals. Bathala refused saying that the rentals fixed in the contract shall include the VAT since the VAT law was long been effect when the contract was entered into. The heirs then filed for ejectment.

Issue: WON the payment of VAT may be imposed on Bathala

Held: No

Ratio: 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. The existing contracts of lease show that Ponciano did not charge the lessee the 10% VAT nor provided for its additional imposition when they renewed the contract of lease. Hence, the heirs are estopped from shifting to the respondents the burden of paying the VAT.

JARDENIl v SOLAS

July 24, 1942

Facts:

- Solas and Jardenil entered into a mortgage deed where Solas would pay Jardenil on or before March 31, 1934,

P2.4k with interest at 12%. Solas also transferred his land by way of mortagage to Jardenil.

- It seems that Solas was unable to pay thus an action for foreclosure of mortgage was instituted

ISSUE: WON Solas is bound to pay stipulated interest up to date of maturity or up to date payment is effected

HELD:

- RULE: Writing must be interpreted to legal meaning of its language and only when wording of the written instrument appears to be contrary to the evident intention of the parties that such intention must prevail

- As found in the mortgage deed, Solas agreed to pay interest only up to the date of maturity, or until March 31, 1934. The contract is silent as to whether after the date, in case of non-payment, Solas would continue to pay interest. SC can’t construe it that way sine under CC Art 1755, "interest shall be due only when it has been expressly stipulated."

- act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period, indicates that the true intention of the parties was that no interest should be paid during the period of grace

- (X) mutual mistake that deed failed to express their agreement otherwise jardenil would have brought evidence.

o 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.

DISPOSITION: Jardenil is, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8, 1932 to March 31, 1934. He shall also be entitled to legal interest upon the principal and the accrued interest from April 1, 1935, until full payment, since extrajudicial demands have been made on expiration of year of grace

DISSENT, Paras:

- Rate of 12 per cent per annum should be paid up to the date of payment of the whole indebtedness is made since (1) payment of interest is expressly stipulated (2)March 31, 1934 date was merely inserted as date of maturity, not up to what day interest should be paid (3) payment of interest is clearly implied from the nature of the transaction which is only a renewal of the obligation.

CU UNJIENG E HIJOS vs. THE MABALACAT SUGAR CO.

G.R. No. L-32644

October 4, 1930

1. Cu Unjieng filed action to recover P163,000 (debt with interest) from Mabalacat Sugar Company

- and action to foreclose mortgage

- and action to recover the sum of P1,206, paid by him for insurance upon the mortgaged property

2. RTC: in favor of Cu Unjieng

- Mabalacat to pay P163, 534.73 with interest of 12 percent per year, compounded monthly from May 1929, plus P2, 412

for insurance premiums with interest of 12% a year each month, otherwise property will be foreclosed.

Issue #1: W it is propert to apply interest charges in the debt - No.

- the second clause of the mortgage states: "interest should be calculated at 12 % per annum." In a separate paragraph, it also provides: "Interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month."

- under article 1109 (old civil code) and the Usury Law, the parties may stipulate that interest shall be compounded. 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.

- here, the language of the contract 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.

Issue # 2: W there was an instance of usurious interest - Yes

- There was 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. Such payment was usurious, being in excess of 12 % which is allowed to be charged, under section

2 of the Usury Law, when a debt is secured by mortgage upon real property.

Bachrach Garage and Taxicab Co. vs. Golingco:

" 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."

Tan v. CA and CCP

Petition for review from CADe Leon

Tan obtained from the Cultural Center of the Philippines (CCP) 2 loans for P2M each, for a total of P4M, evidenced by 2 promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Tan defaulted but after a few partial payments he had the loans restructured by CCP, and he accordingly executed a promissory note on August 31, 1979 in the amount of P3,411,421.32 payable in 5 installments.

Tan failed to pay any installment on the said restructured loan.

First letter: he proposed to CCP a mode of paying the restructured loan.

Second letter: he 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.

No favorable response was made to said letters. Instead CCP wrote a letter dated May 30, 1984 to Tan demanding full payment, within 10 days from receipt of said letter, of the restructured loan which as of April 30, 1984 amounted to P6,088,735.03.

August 29, 1984: CCP filed in the RTC of Manila a complaint for collection of a sum of money against Tan after

the latter failed to settle his said restructured loan obligation.Tan's defense: he merely accommodated a friend,

Wilson Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP. Lucman can't be found now.

RTC: Tan is ordered to pay the amount of P7,996,314.67, representing CCP’s outstanding account as of August 28, 1986, with the corresponding stipulated interest and charges thereof, until fully paid, plus attorney’s fees in an amount equivalent to 25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs. [Note: It compounded interest on surcharges, therefore it looks really large as compared to the loan total.]

Stop! Breakitdown:Principal P2,838,454.68

Interest P 576,167.89

Surcharge P4,581,692.10

P7,996,314.67

Tan appealed to the Court of Appeals insofar as it charged interest, surcharges, attorney’s fees and exemplary damages against the petitioner.

CA: affirmed RTC. But modified the decision of the trial court by deleting the award for exemplary damages and reducing the amount of awarded attorney’s fees to five percent (5%).

Tan filed a petition for review to the SC. He is asking for the non-imposition of interest on the surcharges inasmuch as the compounding of interest on surcharges is not provided in the promissory note.

ISSUES:

1. W/N there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorney’s fees. YES.

The promissory note expressly provides for the

imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan.

The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan constitutes the monetary interest on the note and is allowed under NCC 1956. On the other hand, the stipulated two percent (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.

Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately.

The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the stipulated penalty charge.

2. W/N interest may accrue on the penalty interest without violating NCC 1959. YES.

NCC 1959: 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.

Tan contends: 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.

But 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 NCC 1959. [As in, interest on interest was imposed by the RTC because

the penalty imposed in their agreement is in the form of interest -> it's allowed.]

NCC 2212 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 respondent CCP on August 29, 1984. Hence, the courts a quo did not err in ruling that the petitioner is bound to pay the interest on the total amount of the principal, the monetary interest and the penalty interest.

3. W/N there may be reduction of the penalty due to the partial payments Tan made. YES.

Tan seeks the reduction of the penalty due to the said partial payments, pursuant to NCC 1229 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 in accordance with Bachrach Motor Company v. Espiritu.

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 petitioner’s several partial payments and the fact he is liable under the note for the two percent (2%) penalty charge per month on the total amount due, compounded monthly, for twenty-one (21) years since his default in 1980, we find it fair and equitable to reduce the penalty charge to a straight twelve percent (12%) per annum on the total amount due starting August 28, 1986, the date of the last Statement of Account.

___

On the issue of attorney’s fees, the appellate court ruled correctly and justly in reducing the trial court’s award of

twenty-five percent (25%) attorney’s fees to five percent (5%) of the total amount due.

RCBC v. CA [289 SCRA 292 (1998)]Facts:

• GOYU (Goyu ans Sons) applied for credit facilities and accomodations with RCBC. After due evaluation, a credit facility in the amount of P30 million was initially granted. Upon GOYU's application, RCBC increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million

• As security for its credit facilities with RCBC, GOYU executed two real estate mortgage and two chattel mortgage in favor of RCBC, which were registered with the Registry of Deeds. 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 10 insurance policies from Malayan Insurance (MICO). In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan Insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU

• On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity.

• 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 a complaint for specific performance and damages. RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO denied GOYU's claims.

• However, because the endorsements do not bear the signature of any officer of GOYU, the trial court, as well

as the Court of Appeals, concluded that the endorsements are defective and held that RCBC has no right over the insurance proceeds.

• TC: On the Counterclaim of defendant RCBC, ordered the plaintiff to pay its loan obligations with defendant 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.

• CA: On RCBC's Counterclaim, ordered the plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest, surcharges and penalties.

Side Issue: Whether or not RCBC has a right over the insurance proceeds.

Held: YESGOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds ofinsurance 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: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.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.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.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.

Issue: Whether or not the CA erred in not assessing interest on the obligation of Goyu to RCBC

Held: YES (It deleted interest without stating any justification)

Ratio:

• 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.

• Rules in computing interest (Eastern Shipping Lines, Inc. vs. Court of Appeals):

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.

→ 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)

→ 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. The total amount due RCBC at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other stipulated interests and charges until fully paid.

Eastern Shipping Lines vs CA and Mercantile Insurance Co.July 12, 1994Vitug, J.

Facts:-On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by Eastern Shipping. The shipment was insured by Mercantile Insurance.

-On December 12, 1981, the shipment arrived at Manila and discharged to Metro Port Service, Inc. (the arrastre operator), which excepted to one drum in bad order.

-On January 7, 1982, Allied Brokerage received the shipment from Metro Port, with one drum opened and without seal.

-On January 8 and 14, Allied made deliveries to the consignee which excepted to one drum which contained spillages and the rest of the content being fake/adulterated.

-The consignee allegedly suffered losses of P19,032.95, which Mercantile paid under the insurance.-Mercantile, as subrogee, filed a case against Eastern, Metro Port, and Allied.

-Lower court’s decision: Defendants to pay Mercantile jointly and severally the amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaint, until fully paid.

-CA affirmed the lower court’s decision in toto. Eastern appealed to SC.

Issues:-WON Eastern is jointly / severally liable with the other defendants-What is the proper interest rate and from when should it be imposed?

Held/Ratio:-Liablility of Eastern

There is a factual finding that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.

-InterestReview of Previous Decisions

The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of 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). In the "second group" would be 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).

First Group: the basic issue focuses 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 or a delay in the performance of obligations in general.

Second Group: Also observed the applicability of 12% and 6% but varied as to the date when the interest should run. 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 different rules from the decisions were explained by the court as follows: 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.

“Rules of thumb for future guidance”I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 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.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 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.

Dispositive:The petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

G.R. No. 160533 January 12, 2005

FIRST FIL-SIN LENDING CORPORATION v. GLORIA D. PADILLO

FACTS: The Corporation granted two loans in favor of Padillo, each worth P500k. The controversy revolves around

the interests charged by the Corporation. According to the Corporation, the interest was on a monthly basis. According to Padillo, it was per annum. Because Padillo had paid her loans with monthly interests, she now files suit to recover what she had paid in excess. The SC ruled that the interest rates were on a yearly basis, as it clearly appears on the Note. The alleged mistake by the Corporation in failing to change “per month” to “PA” is barred by estoppel, estopping party from asserting a contrary intention to that contained in the contract.

.

1. Two Contracts of Loan b/w Lender Corp. and Borrower Gloria

a. July 22, 1997: Loan for P500k b. September 7, 1997: Loan for P500kc. Both were each secured by a Promissory Note

and Disclosure Statement2. Gloria’s Full Payment of Principal with Interests,

accordingly: a. For First Loan: 13 monthly interest payments of

P22,500 before she settled the P500k outstanding principal obligation on February 2, 1999, ALLEGEDLY Pursuant to 4.5% Interest Per Month. THUS Paying a TOTAL of P792,500

b. For Second Loan: 11 monthly interest payments of P25k each before paying the principal loan of P500k on February 2, 1999, ALLEGEDLY Pursuant to 5% interest per month. THUS Paying a TOTAL of P775k

3. COMPLAINT for Sum of Money (Jan. 27, 2000) by Gloria v. Corp. in RTC Manila

a. Alleging that she only agreed to pay the interest rates of 4.5% and 5% PER ANNUM, NOT Per Month

b. Thus sought recovery of what she paid in excess4. RTC: Dismissed Complaint BUT Granted Corp’s

COUNTERCLAIM

a. Gloria estopped from questioning the provisions of the promissory notes by issuing checks representing 4.5% and 5% monthly interest rates

b. Gloria to pay i. P311,125 with legal interest from

February 3, 1999 until fully paid ii. 10% of the amount due as attorney’s fees

and costs of the suit5. CA (Upon Appeal by Gloria): Reversed. Return Excess

a. Corp. to return P114k to Gloriai. Based on Disclosure Statements, Interest

rates applied monthly only for first 3-month term of the loans. Thereafter, the legal interest rate shall apply

ii. Penalty charge of 1% per day of delay is unconscionable, amounting to 365% per annum THUS Reduced to 1% per month or 12% per annum

b. Delete AF c. Counterclaims Dismissed.

6. Petition for Review (Rule 45) by Corp. to SC a. Interest rates are monthly, NOT PAb. Change of penalty charge from 1% per day to

per month violates freedom of contract

HELD: Return Interests BECAUSE Promissory Notes clearly provides PA basis of interest AND Unconscionable

7. Promissory Notes’ provision on annual interest rate is clear and requires no room for interpretation

a. Promissory Notes and Disclosure Statements clearly provide for interest rates of P4.5% and 5% PA. It categorically states that interest rates were to be imposed annually. Nowhere does it state that they shall apply monthly. Thus, No room for interpretation.

b. The Loan Transactions Summary which the Corporation prepared and used to estop Gloria from denying monthly interest was a mere

summary of the payments made by Gloria and the income earned by Corp.

c. IF There’s any doubt in the Notes or Disclosure Statements, the Ambiguity must be construed against its maker, which is the Corp.

i. Alleged mistake by Corp., admitting that it failed to correct the pro forma note "p.a." to "per month," is a mistake exclusively attributed to it. A party who gave rise to the mistake or error in the provisions of the contract is estopped from asserting a contrary intention to that contained therein.

8. Penalty Charge is Unconscionablea. Promissory notes provide that "x x x any and all

remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid." The CA correctly imposed the 12% PA legal interest, pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, that "in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default."

b. 1% penalty per day of delay is highly unconscionable

c. NCC 1229: Courts shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable

9. Deletion of AF BEC. Without basis

Petitioners -Integrated Realty Corp (IRC) and Raul Santos vs Respondent PNB and

Petitioner -Overseas Bank Manila (OBM) vs Respondents CA and IRC and Raul Santos

June 28, 1989

Case: Petition for Review on Certiorari

Facts: Raul Santos made a time deposit with OBM for the values of 500k and 200k on Jan 11 and Feb 6 1967 respectively.

-On Feb 9 1967, Santos and IRC applied for a credit line/loan worth 700k with PNB, to secure said loan/credit line, it executed a Deed of assignment over the time deposits.

-After due dates of said time deposits, OBM did not pay them to PNB. Hence, it demanded payment from IRC and Santos.

-IRC and Santos then disclaimed such liability, saying that obligation was extinguished upon acceptance of the assignments of the time deposits.

-An action was commenced by PNB vs Santos and IRC to collect on their debt, IRC and Santos alleged again that their obligation was extinguished and that it is not answerable for the bank's insolvency.

-IRC and Santos then filed a counterclaim against PNB and a crossclaim against OBM, praying that it be liable to pay whatever amount IRC and Santos should be adjudged to pay PNB. OBM answered with denial.

-RTC rendered this judgment:

1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff, jointly and solidarily, the total amount of P 700,000.00 plus interest at the rate of 9% per annum from maturity dates of the two promissory notes on January 11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February 28, 1968 and additional penalty interest of 1% per annum of the Id amount of P 700,000.00 from the time of maturity of Id loan up to the time the said amount of P 700,000.00 is actually paid to the plaintiff;

2. The defendants topay l0% of the amount of P 700,000.00 as and for attorney's fees;

3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment.

-Appeal to CA, resulting in deletion of number 3 above.

Issues: W/N Assignment of Time Deposit is payment. - No

W/N OBM is liable for interest over the Time Deposits. - Yes

Issue 1 – The time deposit assignment was a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. Hence, its purpose was only as a security, add to this the fact IRC and Santos executed promissory notes to fulfill their obligation.

Issue 2 – The court found that OBM has been in a troubled financial state even during April 1967, this was cause for concern with the CB. However, it was only in August 1968 that it was ordered by the CB to suspend operations.

-It was held that normally, a bank is not liable for interest payments in deposits given it during that time of suspended

operations, this is due to the fact that since a bank does not operate, it cannot lend out money in order to earn interest for deposits. This applies even if the suspension was subsequently annulled by the SC.

-While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages, the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts.

Dispositive portion: pars 1 and 2 of CA decision affirmed, holding IRC and Santos liable to PNB for damages and attorney's fees. It added portion adjudging OBM liable to IRC and Santos for the value of the TDs with 6.5% as interest prior to the period that it was under cessation of operations and 6.5% interest from demand by PNB and 6% from April 6, 1968.

Bataan Seedling v. DENR

Facts:

Petitioner Bataan Seedling Association entered into a Community Based Reforestation Contract on October 26, 1990 with the Republic of the Philippines (represented by DENR)

Under said contract, BSAI, in consideration of the amount of P975,126.61, bound itself to undertake the reforestation of a fifty-hectare open/denuded forest land in Bataan within 3 years.

BSAI likewise undertook to report to the DENR any event or condition which delays or may delay or prevent completion of the work, and submit progress billings and accomplishment reports

A mobilization fund amounting to 75,054 was allotted and released by respondent to enable BSAI to start with the project, but the fund was to be returned to respondent upon completion of the project or deducted from the periodic release of moneys to petitioners

Believing that petitioners failed to comply with their obligations under the contract, respondent sent a notice of cancellation dated July 31, 1992 to petitioner Carlos Valencia, President of BSAI Grounds: a) The association failed to fully plant/establish the whole 50-hectare during the first year of operations b) The seedlings raised in the nursery were disposed of to other contractors and the seedlings left were practically overgrown indicating lack of proper care. c) Inspite of the fact that a forest fire occurred sometime in December, 1991, no report was ever made to the DENR d) The Association even failed to submit to the DENR accomplishment reports and other relevant information required and expected from it. e) The PENRO/CENRO monitoring and Evaluation Team which inspected the project area said no laborers were observed at the project area during the time of the field inspections.

Since there was no response to their notice of cancellation respondent filed a Complaint for Damages against petitioners praying that the latter jointly and solidarily pay actual damages in the amount of P75,054.25 representing the portion of the mobilization fund released to them. and P62,450.22 as the amount paid under the accomplishment bills, P137,504.47.

RTC: respondent had sufficient grounds to cancel the contract but saw no reason why the mobilzation fund and the advance payments should be refunded, or that petitioners should be liable for liquidated damages

CA: modified RTC decision and ordered petitioners to return the mobilization fund amounting to P56,290.69 plus 12% interest.

Issue: Did the CA commit error in imposing 12% interest on the return of the mobilization fund? YES IT DID.

Ratio: The Court quotes Eastern Shipping Lines: “When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.”

Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract. The subject contract does not contain any stipulation as to interest. However, the amount that is due the respondent does not represent a loan or forbearance of money. The word forbearance is defined, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. The contract between petitioner and respondent is a Community Based Reforestation Contract by virtue of which petitioner

undertook the reforestation of a fifty-hectare open/denuded forest land. The amount of P56,290.69 due to respondent, represents the balance of the mobilization fund which petitioner is obliged to return because of its failure to fully comply with its undertaking to plant the entire area with seedlings within the period contracted for reforestation. Under the reforestation contract, the fund released to petitioner was supposed to be returned to respondent upon completion of the project or deducted from the periodic releases of money. Clearly, the amount of Fifty Six P56,290.69 was neither a loan nor forbearance of money.

DISPOSITIVE: WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following MODIFICATIONS:

1) The interest to be paid on the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) shall be at the rate of 6% per annum from the Court of Appeals Decision dated October 14, 1998. A twelve percent (12% ) interest, in lieu of six percent (6%) shall be imposed upon finality of this decision, until full payment thereof.

G.R. No. 134972 March 22, 2001

SPS. ERNESTO and MINA CATUNGAL vs. DORIS HAO

KAPUNAN, J.:

Facts:

- December 28, 1972, the original owner, Aniana Galang, leased a three-storey building situated at Quirino Avenue, Baclaran, Parañaque, Metro Manila, to the Bank of the Philippine Islands (BPI) for a period of about fifteen (15) years, to expire on June 20, 1986.

- BPI subleased the ground floor of said building to respondent Doris Hao.

- August 24,1984, Galang and respondent executed a contract of lease on the second and third floors of the building. The lease was for a term of four (4) years commencing on August 15, 1984 and ending on August 15, 1988.

- On August 15, 1986, petitioner spouses Emesto 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, respondent filed a complaint for Annulment of Sale with Damages

o The RTC granted the injunction and annulled the subject contract. The CA reversed and dismissed the complaint. The SC affirms the CA.

- Upon expiration of the lease agreements, petitioner spouses sent demand letters to respondent for her to vacate the building. The demand letters were unheeded by respondent causing petitioners to file two complaints for ejectment

- January 22, 1997, the MeTC of Parañaque rendered a Decision on the ejectment cases:

o Defendant Hao who is in actual possession of the property and all persons claiming rights

under her to vacate the premises in question and to pay the plaintiffs the amount of P20,000.00 a month from June 28, 1988, until she finally vacates the premises and to pay attorney's fees of P20,000.00.

- Petitioners filed a motion for clarificatory or amended judgment: Compensation for the use of the subject property's second and third floors and attorney's fees as prayed for in Civil Case No. 7767 were not awarded.

- In response to said motion, the MeTC issued an Order dated March 3, 1997:

o Defendant Hao who is in actual possession of the property … 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 … until she finally vacates the premises

- Petitioners sought reconsideration, MeTC instead of resolving passed on the issue to RTC who decided:

o amount of rentals which is hereby increased to P20,000.00 a month for the ground floor starting June 28,1988 and P10,000.00 a month for the second floor and also P10,000.00 a month for the third floor (or) a total of P40,000.00 monthly rentals commencing June 28, 1988 until the subject property has been vacated and possession thereof turner [sic] over to the plaintiffs-appellees

- Respondent elevated her case to the Court of Appeals:

o MODIFIED by reducing the amount of rentals for both the second and third floors from P20,000.00 to P10,000.00 monthly. With this modification, the judgment below is AFFIRMED in all other respects.

- Both parties filed their respective motions for reconsideration to the Court of Appeals. The CA decided (order complained of) for the respondent:

o It ruled that the motion for reconsideration filed by the petitioners before the MeTC was a prohibited pleading under the Rules of Summary Procedure. Such being the case, said motion for reconsideration did not produce any legal effect and thus the amended judgment of the MeTC had become final and executory insofar as the petitioners are concerned.

o Reducing the monthly rentals for the first/ground floor from P20,000.00 to P8,000.00 and for the second and third floors from P10,000.00 each to P5,000.00 for both floors.

Issue: W/N the amount of monthly rentals which respondent should pay the petitioners as forced lessors of said property from 20 June 1988 (for the ground floor) and 15 August 1988 until 6 January 1998 (for the second and third floors), or a period of almost ten years should be that mandated by the CA (that reduced from the rate given by the MeTC 8k for the first floor, 5k for the 2nd and 3rd ones) [the 2 clashing orders are in bold lettering in the facts]

Held: NO, considering the value of the property and the prevailing rates in the area the rates given by the MeTC (20k for the 1st floor and 10k each for the 2nd and 3rd floors) are proper.

- no consensual lessor-lessee relationship between the parties.

- We cannot allow the respondent to insist on the payment of a measly sum of P8,000 for the rentals of the first floor of the property in question and P5,000.00 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

- fair rental value:

o RTC basis: 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

o CA basis: 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. 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. Not having appealed the case to the RTC, the amended judgment of the MeTC fixing the rental rate at P13,000.00 is final and executory as far as petitioners are concerned.

- MAIN TOPIC (INTEREST):

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:

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.

o 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.

Dispositive:

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 respondent's 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;

-

CONSOLIDATED BANK & TRUST CO. V CA [G.R. No. 138569 (SEPT. 11, 2003)]

Nature: Petition for Review

Ponente: Carpio

Facts:

• 14 August 1991, L.C. Diaz through its cashier, Macaraya instructed the messenger, Calapre, to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

• Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the

passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to L.C. Diaz and reported the incident to Macaraya.

• Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook.

• Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on PBC. This PBC check of L.C. Diaz was a check that it had long closed. PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

• 15 August 1991, L.C. Diaz through its CEO Diaz, called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account but learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Murillo who denied signing. A certain Noel Tamayo received the P300K

• L.C. Diaz charged its messenger, Ilagan and one Verdazola with Estafa through Falsification of Commercial Document Dismissed

• L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused

• L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank Dismissed

• CA reversed

Issue/s: WON Solidbank is liable for breach of contract due to negligence, or culpa contractual

Held: YES

Ratio:

• Contract between the bank and its depositor is governed by the provisions on simple loan (NCC1980)

• The bank is the debtor and the depositor is the creditor

• The law imposes on banks high standards in view of the fiduciary nature of banking (Section 2 of RA 87911)

• NCC1172 provides that responsibility arising from negligence in the performance of every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.

o Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

1 State recognizes the fiduciary nature of banking that requires high standards of integrity and performance

o L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz.

o Solidbank failed to discharge its burden of disproving negligence on its part. Solidbank did not present to the trial court Teller No. 6. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case.

o Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.

• Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.

• This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability

• Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff

Dispositive: Affirmed.

Mendoza vs. CA

Facts:

Mendoza is engaged in the domestic and international trading of raw materials and chemicals (under business name Atlantic Exchange Philippines). 1978, he was granted by PNB 500K credit line & a 1M Letter of Credit/Trust Receipt line.

As security, he mortgaged to PNB 3 parcels of land, house and lot and machinery and equipment. The real estate mortgage provided for an escalation clause ("rate of interest subject to increase w/in the rates allowed by law, as the Board of Directors of the mortgagee may prescribe for its debtors").

Mendoza executed 3 promissory notes for the 500k credit line. Also, he executed 11 "Application for Commercial Letter of Credit" for the 1M.

2 Promissory Notes (w/ principal amounts P2,651,118.86 and P1,536,798.73) superseded and novated the 3 promissory notes and 11 “Application and Agreement for Commercial Letter of Credit”. Said notes contained an escalation clause ("which interest rate the BANK may increase within the limits allowed by law at any time depending on whatever policy it may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board").

Pursuant to the escalation clauses of the 2 promissory notes, the interest rate on the principal amount in

Promissory Note No. 127/82 was increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while the interest rate on the accrued interest per Promissory Note No. 128/82 was increased from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984.

Petitioner failed to pay so PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to PNB, as highest bidder.

Mendoza filed a complaint for specific performance, nullification of the extra-judicial foreclosure and damages against respondents PNB. He contends that Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan, not 2-year term (as shown in the notes) because the 2 Promissory Notes evidencing a 2-year restructuring period or with the due maturity date “December 29, 1984” were filled out fraudulently by respondent PNB; hence, it was not yet due and demandable; he explains that two Promissory Notes Nos. 127/82 and 128/82 were signed by him in blank with the understanding that they were to be subsequently filled out; that the escalation clauses in the 2 Promissory Notes were null and void.

PNB denies that petitioner's loan obligations were restructured to 5 years and maintains that the two (2) Promissory Notes were filled out regularly and became due as of December 29, 1984.

Issue: WON increase in interest rate is binding upon the debtor who did not consent thereto, by virtue of an escalation clause? WON estoppel applies?

Held: NO, no.

The bank increased the interest rates on the 2 Promissory Notes without the prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per annum on

Promissory Note No. 128/82. As held in several cases, the unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.

Contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture.

It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance. Estoppel will not lie against the petitioner regarding the increase in the stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82 inasmuch as he was not even informed beforehand by respondent bank of the change in the stipulated interest rates.

Dispositive: Increase in the stipulated interest rates of 21% per annum and 18% per annum appearing on the Promissory is hereby declared null and void.

First Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc

Facts1. January 31, 1978 – FMIC granted Este del Sol a loan of

7,385,500M to finance the construction of Este del Sol Mountain Reserve, a sports/resort complex.

2. Under the terms, the proceeds of the loan were to be released on a staggered basis, interest was 16%/year based on diminishing value, payable in 36 equal and consecutive monthly amortizations to start at the beginning of the 13th month from date of the first release.

3. In case of default, an acceleration clause was provided – the amount due was subject to a (1) 20%

one-time penalty on the amount and (2) such amount shall bear interest at the highest rate permitted by law from the date of default until full payment per month compounded quarterly on the unpaid balance and accrued interests together plus all other fees (atty’s fees, etc)

4. Este del Sol executed several documents as security for payment

a. Real estate mortgage over 2 parcels of land in clusive of all improvements- machineries, equipment, furniture

b. Continuing Suretyship agreements by individuals to gurantee the payment up to the aggregate sum of 7.5M each

5. Este del Sol also executed Underwriting agreement (included in the Loan Agreement)

a. where FMIC shall underwrite on a best-efforts basis the public offering of 120k common shares of its capital stock for a one-time underwriting fee of 200k.

b. Plus, for supervising the public offering of the shares, Este del Sol shall pay FMIC an annual fee of 200k/annum for 4 years.

c. Consultancy fee of 332,500 by Este del Sol to FMIC per year for four years.

6. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed where Este del Sol engaged the services of FMIC for a fee as consultant to render general consultancy services

7. FMIC billed Este del Sol for the amounts of a. 200k – underwriting fee in connection with the

public offering of the common shares of stock of Este del Sol

b. 1.33M –as consultancy free for a period of four years

c. 200k as supervision fee for the year 1978 in accordance with the Underwriting Agreement

d. The said amounts of fees were deemed paid by Este del Sol to FMIC which deducted the same from the first release of the loan.

8. However, Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization. It had a balance of 12.67 M

9. Thus FMIC caused the extrajudicial foreclosure of the real estate mortgage. FMIC was the highest bidder for 9M. the total amount of 3.189 M was deducted there from for sheriff’s notice of sale, sheriff’s fees, attorney’s fees, etc leaving a balance of 5.81 M which was applied to interests and penalty charges and partly against the principal.

10.Thus, the remaining balance of the debt was 6.86M.11.Failing to secure from the individual respondents as

sureties of the loan of Este del Sol, the payment of the deficiency balance, despite individual demands, FMIC filed an instant collection suit against them for 6.86M plus 21%/annum from June 24, 1980 until fully paid, 25% for atty’s fees and costs.

12.Este del Sol, in their answer claimed that the Underwriting and Consultancy Agreements were in reality fraudulent, FMIC just imposed them to camouflage the usurious interests being charged

13.RTC: in favor of FMIC. CA reversed decision providing that the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by FMIC.

Issue: W/N there was a usurious loan (RTC says NO, CA says YES, thus SC)Held/Ratio: yes, the loan was usurious

1. First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 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.

2. Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity.

3. 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

a. The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement.

b. under the Underwriting Agreement payment of the supervision and consultancy fees was set for a period of four (4) years to coincide ultimately 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.

c. The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting agreement and specifically mentioned that such underwriting agreement is a condition precedent for petitioner FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMIC's employees, that such Underwriting Agreement is "part and parcel of the Loan Agreement

d. Este del Sol was billed by petitioner on February 28, 1978 1.33M as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is 332,500.00 per annum for 4 years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement

e. The Underwriting, Supervision and Consultancy fees in the amounts 200k and 1.33M were billed by FMIC to Este del Sol on the same occasion of the first partial release of the loan in the amount of 2,382,500. It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to FMIC 1.73M as part of the amount loaned to Este del Sol

f. 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. There was really no need for an Underwriting Agreement since Este del Sol had its own licensed marketing arm to sell its shares

g. FMIC failed to comply with its obligation under the Consultancy Agreement, aside from the fact that there was no need for a Consultancy Agreement

4. 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 lender's services which are of little value or which are not in fact to be rendered

5. 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.

6. Angel Jose Warehousing: 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.

7. 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.

8. The nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the principal amount of the loan.

9. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily

10. The amount of 93M for the stipulated attorney’s fees equivalent to 25% of the alleged amount due is unconscionable.