ADDITIONAL CASES:
CIC argued it should not be made
COMMONWEALTH INSURANCE
CORPORATION vs. CA
In 1984, plaintiff-appellant Rizal Commercial Banking
Corporation (RCBC) granted two export loan lines, one,
for P2,500,000.00 to Jigs Manufacturing Corporation
(JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). JIGS and ELBA which are sister
corporations both drew from their respective credit lines,
the former in the amount of P2,499,992.00 and the latter
for P998,033.37 plus P478,985.05 from the case-to-case
basis and trust receipts. These loans were secured by
surety bonds executed by defendant-appellee
Commonwealth Insurance Company (CIC).
Specifically, the surety bonds issued by appellee CIC in
favor of appellant RCBC to secure the obligations of JIGS
totaled P2,894,128.00 while that securing ELBA’s
obligation was P1,570,000.00. Hence, the total face value
of the surety bonds issued by appellee CIC
was P4,464,128.00.
JIGS and ELBA defaulted in the payment of their
respective loans. RCBC made a written demand on
appellee CIC to pay JIG’S and ELBA’s account to the full
extend (sic) of the suretyship. CIC made several payments
in the total amount of P2,000,000.00. There having been
a substantial balance unpaid, appellant RCBC made a
final demand for but CIC ignored it. Thus, appellant
RCBC filed the Complaint for a Sum of Money against
CIC.
The Trial Court finds the defendants Commonwealth
Insurance Co. and defaulted third party defendants Jigs
Manufacturing Corporation, Elba Industries and
Iluminada de Guzman solidarily liable to pay RCBC.
Not satisfied with the trial court’s decision, RCBC filed a
motion for reconsideration praying that in addition to the
principal sum of P2,464,128.00, defendant CIC be held
liable to pay interests thereon from date of demand at the
rate of 12% per annum until the same is fully paid.
However, the trial court denied the motion.
RCBC then appealed to the Court of Appeals.
CA: CIC was ordered to pay the amount of surety bonds
plus legal interest of 12% per annum.
CIC filed a motion for reconsideration but the CA denied
the same.
Hence, herein petition.
to pay interest because its issuance of the surety bonds
was made on the condition that its liability shall in no case
exceed the amount of the said bonds.
ISSUE: WON petitioner should be held liable to pay legal
interest over and above its principal obligation under the
surety bonds issued by it.
RULING:
In Republic vs. Court of Appeals and R & B Surety and
Insurance Company, Inc. we have sustained the principle
that if a surety upon demand fails to pay, he can be held
liable for interest, even if in thus paying, its liability
becomes more than the principal obligation. The
increased liability is not because of the contract but
because of the default and the necessity of judicial
collection.12
Petitioner’s liability under the suretyship contract is
different from its liability under the law. There is no
question that as a surety, petitioner should not be made to
pay more than its assumed obligation under the surety
bonds.13 However, it is clear from the above-cited
jurisprudence that petitioner’s liability for the payment of
interest is not by reason of the suretyship agreement itself
but because of the delay in the payment of its obligation
under the said agreement. xxx Petitioner admits having
incurred in delay.
In the present case, there is no dispute that petitioner’s
obligation consists of a loan or forbearance of money. No
interest has been agreed upon in writing between
petitioner and respondent. Applying the above-quoted
rule to the present case, the Court of Appeals correctly
imposed the rate of interest at 12% per annum to be
computed from the time the extra-judicial demand was
made.
This is in accordance with the provisions of Article
116920 of the Civil Code and of the settled rule that where
there has been an extra-judicial demand before action for
performance was filed, interest on the amount due begins
to run not from the date of the filing of the complaint but
from the date of such extra-judicial demand.21 RCBC’s
extra-judicial demand for the payment of JIGS’ obligation
was made on October 30, 1984; while the extra-judicial
demand for the payment of ELBA’s obligation was made
on December 17, 1984. On the other hand, the complaint
for a sum of money was filed by RCBC with the trial court
only on September 19, 1988.
1

CALDERON vs. PEOPLE
Facts:
Elizabeth Eusebio-Calderon was charged by her aunt
Teresita Eusebio, Amelia Casanova and cousin Manolito
Eusebio with three count Estafa.
According to private complainants, petitioner assured
them that the checks will be honored upon maturity. They
gave her the money because she showed them her pieces
of jewelry which convinced them that she has the ability
to pay the loans.
In her defense, petitioner admits that she issued the checks
but alleges that it was not done to defraud her creditors.
After trial, the lower court rendered a joint decision
finding petitioner guilty beyond reasonable doubt, but
ruled that her liability for the “interest checks” was only
civil, thereby acquitting the accused but indemnify to
pay.
The Decision of the Court of Appeals which reversed and
set aside the Decision of the Regional Trial Court
acquitting the accused but ordering her to pay civil
liability.
Issues: (1) Did the Court of Appeals err in finding the
appellant civilly liable to complainants with respect to the
interest in the principal loan despite the dismissal of the
interest checks by the Regional Trial Court?
(2) Is the interest agreed upon by the parties usurious?
(3) Should the private respondents file a separate civil
complaint for the claim of Sum of Money?
Ruling:
The court finds the petition meritorious.
When petitioner appealed her conviction, the dismissal of
the interest checks by the lower court did not preclude the
Court of Appeals from reviewing such decision and
modifying her civil liability. The appeal conferred upon
the appellate court full jurisdiction and rendered it
competent to examine the records, revise the judgment
appealed from, increase the penalty and cite the proper
provision of the penal law.
Under Article 29 of the Civil Code, when the accused in
a criminal prosecution is acquitted on the ground that his
guilt has not been proven beyond reasonable doubt, a civil
action for damages for the same act or omission may be
instituted. The judgment of acquittal extinguishes the
liability of the accused for damages only when it includes
a declaration that the fact from which the civil liability
might arise did not exist. Thus, Section 1, paragraph (a)
of Rule 111 of the Rules of Court provides:
SECTION 1. Institution of criminal and civil actions. –
(a) When a criminal action is instituted, the civil action
for the recovery of civil liability arising from the offense
charged shall be deemed instituted with the criminal
action unless the offended party waives the civil action,
reserves the right to institute it separately or institutes the
civil action prior to the criminal action.
An accused who is acquitted of Estafa may nevertheless
be held civilly liable where the facts established by the
evidence so warrant. Petitioner Elizabeth Calderon is
clearly liable to the private respondents for the amount
borrowed. The Court of Appeals found that the former
did not employ trickery or deceit in obtaining money from
the private complainants, instead, it concluded that the
money obtained was undoubtedly loans for which
petitioner paid interest. The checks issued by petitioner
as payment for the principal loan constitute evidence of
her civil liability which was deemed instituted with the
criminal action.
The civil liability of petitioner includes only the principal
amount of the loan. With respect to the interest checks
she issued, the same are void. There was no written proof
of the payable interest except for the verbal agreement
that the loan shall earn 5% interest per month. Under
Article 1956 of the Civil Code, an agreement as to
payment of interest must be in writing, otherwise it cannot
be valid. Consequently, no interest is due and the interest
checks she issued should be eliminated from the
computation of her civil liability.
However, while there can be no stipulated interest, there
can be legal interest pursuant to Article 2209 of the Civil
Code. It is elementary that in the absence of a stipulation
as to interest, the loan due will now earn interest at the
legal rate of 12% per annum.
In view of our ruling that there can be no stipulated
interest in this case, there is no need to pass upon the
second issue of whether or not the interests were usurious.
2
The Decision of the Court of Appeals is AFFIRMED with
the MODIFICATION that petitioner is ordered to pay
Amelia Casanova,Teresita Eusebio, and Manolito
Eusebio as civil liability with legal interest of twelve
percent (12%) per annum until its satisfaction.
Medel vs. CA [299 SCRA 481 (Nov 27 1998)]
Usury Law
Facts: Medel obtained several loans from Gonzales
totalling P500,000. These were evidenced by several
promissory notes agreeing to an interest rate of 5.5% per
month with additional service charge of 2% per annum,
and penalty charge of 1% per month.. On maturity, Medel
failed to pay their indebtedness. Hence, Gonzales filed
with the RTC of Bulacan a complaint for collection of the
full amount of the loan.
RTC declared that the promissory notes were genuine,
however, it ruled that although the Usury Law had been
repealed, the interest charged by Gonzales on the loans
was unconscionable. Hence, RTC applied the legal rate
of interest for loan of money, goods or credit of 12% per
annum.
CA reversed the ruling of the RTC holding that the Usury
Law had become legally inexistent. Hence, this petition
for review on certiorari.
Issue: Whether or not the interest rate stipulated upon
was valid.
Held: NO. SC held that the stipulated rate of interest at
5.5% per month on the P500,000 loan was
excessive. However, it could not consider the rate
“usurious” because CB Circular No. 905 has expressly
removed the interest ceilings prescribed by the Usury Law
and that said law is now legally inexistent.
CB Circular 905 did not repeal nor in any way amend the
Usury Law but simply suspended the latter’s
effectivity. A CB Circular cannot repeal a law. Only a
law can repeal another law. By virtue of this circular, the
Usury Law has been rendered ineffective. Interest can no
be charged as lender and borrower may agree upon.
Nevertheless, SC held that the interest of 5.5% per month,
or 66% per annum, stipulated upon by the parties in the
promissory note was unconscionable, and hence, contrary
to morals, if not against the law. The stipulation is
void. The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty
if they are iniquitous or unconscionable.
SC ordered that the interest of 12% per annum and
additional 1% a month penalty charge as liquidated
damages reasonable.
[G.R. No. 144712. July 4, 2002]
SPOUSES SILVESTRE and CELIA
PASCUAL, petitioners, vs. RODRIGO V.
RAMOS, respondent.
FACTS:
This case is a petition[3] for consolidation of title or
ownership filed on 5 July 1993 with the trial court by
herein respondent Rodrigo V. Ramos (hereafter
RAMOS) against herein petitioners, Spouses Silvestre
and Celia Pascual (hereafter the PASCUALs).
On June 3, 1987, Sps. Pascual entered into a loan
agreement with Ramos in the amount of Php 150,000.00
with interest of 7% per month. As collateral the spouses
Pascual executed a Deed of Absoute Sale with Right of
Repurchase within one year covering the Spouses’
property in Bo. Taliptip, Bambang, Bulacan, Bulacan.
The Spouses defaulted in payment and failed to exercise
the right of repurchase within one. Hence the present case.
RTC Ruling
(1) First Case – RTC Ruling
The trial court found that the transaction between the
parties was actually a loan in the amount of P150,000, the
payment of which was secured by a mortgage of the
property covered by TCT No. 305626. It also found that
the PASCUALs had made payments in the total sum
of P344,000, and that with interest at 7% per annum, the
PASCUALs had overpaid the loan by P141,500.
(2) MR by Ramos – RTC Ruling
 the trial court issued on 5 June 1995 an
Order[9] modifying its decision by deleting
3
 the award of P141,500 to the PASCUALs as
overpayment of the loan and interest and
ordering them to pay RAMOS P511,000
representing the principal loan plus interest.
 It noted that during trial, the PASCUALs
never disputed the stipulated interest
rate. However, the court declared that the
7% per month interest is too burdensome and
onerous. Invoking the protective mantle of
Article 24 of the Civil Code, which mandates
the courts to be vigilant for the protection of
a party at a disadvantage due to his moral
dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the
trial court unilaterally reduced the interest
rate from 7% per month to 5% per
month. Thus, the interest due from 3 June
1987 to 3 April 1995
was P705,000. Deducting therefrom the
payments made by the PASCUALs in the
amount of P344,000, the net interest due
was P361,000. Adding thereto the loan
principal of P150,000, the total amount due
from the PASCUALs was P511,000.
CA Ruling
In its Decision[11] of 5 November 1999, the Court of
Appeals affirmed in toto the trial court’s Orders
Contention of Sps. Pascual
 the interest of either 5% or 7% a month is exorbitant,
unconscionable, unreasonable, usurious and
inequitable.
 Invoking this Court’s ruling in Medel v. Court of
Appeals,[12] they argue that the 5% per month interest
is excessive, iniquitous, unconscionable and
exorbitant. Moreover, respondent should not be
allowed to collect interest of more than 1% per month
because he tried to hide the real transaction between
the parties by imposing upon them to sign a Deed
of Absolute Sale with Right to Repurchase.
Contention of Ramos
there was nothing illegal on the rate of interest agreed
upon by the parties, since the ceilings on interest rates
prescribed under the Usury Law had expressly been
removed, and hence parties are left freely at their
discretion to agree on any rate of interest. Moreover,
there was no scheme to hide a usurious transaction.
ISSUE: Whether or not the 7% interest charge is illegal
or not.
HELD:
Interest charge
It is a basic principle in civil law that parties are bound by
the stipulations in the contracts voluntarily entered into by
them. Parties are free to stipulate terms and conditions
which they deem convenient provided they are not
contrary to law, morals, good customs, public order, or
public policy.[15]
he interest rate of 7% per month was voluntarily agreed
upon by RAMOS and the PASCUALs. There is nothing
from the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when they
entered into the agreement with RAMOS. Neither is
there a showing that in their contractual relations with
RAMOS, the PASCUALs were at a disadvantage on
account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would
entitle them to the vigilant protection of the courts as
mandated by Article 24 of the Civil Code. Apropos in our
ruling in Vales vs. Villa:
All men are presumed to be sane and normal and
subject to be moved by substantially the same
motives. When of age and sane, they must take care
of themselves. In their relations with others in the
business of life, wits, sense, intelligence, training,
ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes
to a few only, with loss and injury to others. In these
contests men must depend upon themselves – upon
their own abilities, talents, training, sense, acumen,
judgment. The fact that one may be worsted by
another, of itself, furnishes no cause of
complaint. One man cannot complain because
another is more able, or better trained, or has better
sense or judgment than he has; and when the two meet
on a fair field the inferior cannot murmur if the battle
goes against him. The law furnishes no protection to
the inferior simply because he is inferior, any more
than it protects the strong because he is strong. The
law furnishes protection to both alike – to one no more
4
or less than to the other. It makes no distinction
between the wise and the foolish, the great and the
small, the strong and the weak. The foolish may lose
all they have to the wise; but that does not mean that
the law will give it back to them again. Courts cannot
follow one every step of his life and extricate him from
bad bargains, protect him from unwise investments,
relieve him from one-sided contracts, or annul the
effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally
incompetent. Courts operate not because one person
has been defeated or overcome by another, but
because he has been defeated or
overcome illegally. Men may do foolish things, make
ridiculous contracts, use miserable judgment, and lose
money by then – indeed, all they have in the world; but
not for that alone can the law intervene and
restore. There must be, in addition, a violation of law,
the commission of what the law knows as anactionable
wrong, before the courts are authorized to lay hold of
the situation and remedy it.[16]
With the suspension of the Usury Law and the removal of
interest ceiling, the parties are free to stipulate the interest
to be imposed on loans. Absent any evidence of fraud,
undue influence, or any vice of consent exercised by
RAMOS on the PASCUALs, the interest agreed upon is
binding upon them. This Court is not in a position to
impose upon parties contractual stipulations different
from what they have agreed upon. As declared in the
decision of Cuizon v. Court of Appeals,[17]
APPLICABILITY OF THE DOCTRINE
ENUNCIATED IN MEDEL V. CA
Our ruling in Medel v. Court of Appeals[14] is not
applicable to the present case. In that case, the
excessiveness of the stipulated interest at the rate of 5.5
% per month was put in issue by the defendants in the
Answer. Moreover, in addition to the interest, the debtors
were also required, as per stipulation in the promissory
note, to pay service charge of 2% per annum and a penalty
charge of 1% per month plus attorney’s fee of equivalent
to 25% of the amount due. In the case at bar, there is no
other stipulation for the payment of an extra amount
except interest on the principal loan. Thus, taken in
conjunction with the stipulated service charge and
penalty, the interest rate of 5.5% in the Medel case was
found to be excessive, iniquitous, unconscionable,
exorbitant and hence, contrary to morals, thereby making
such stipulation null and void.
BARRERA VS LORENZO (full)
02 FIRST FIL-SIN LENDING CORPORATION,
petitioner, vs. GLORIA D. PADILLO, respondent.
G.R. No. 160533 January 12, 2005
Topic: Interpretation of a contract or agreement
Ponente: YNARES-SANTIAGO, J.
DOCTRINE: When the terms of the agreement are clear
and explicit that they do not justify an attempt to read into
it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract. (Note this doctrine was cited in the 1st case:
Gaisano Cagayan, Inc. vs. Insurance Company of North
America)
As between two parties to a written agreement, the party
who gave rise to the mistake or error in the provisions of
the same is estopped from asserting a contrary intention
to that contained therein.
_____________________________________________
___________________________________________
FACTS:
Respondent Gloria D. Padillo obtained a P500,000.00
loan from petitioner First Fil-Sin Lending Corp.
Respondent obtained another P500,000.00 loan from
petitioner. In both instances, respondent executed a
promissory note and disclosure statement.
For the first loan, respondent made 13 monthly interest
payments of P22,500.00 each before she settled the
P500,000.00 outstanding principal obligation. As regards
the second loan, respondent made 11 monthly interest
payments of P25,000.00 each before paying the principal
loan of P500,000.00. In sum, respondent paid a total of
P792,500.00 for the first loan and P775,000.00 for the
second loan.
Respondent Padillo then filed an action for sum of money
against herein petitioner before the RTC alleging that she
only agreed to pay interest at the rates of 4.5% and 5% per
annum, respectively, for the two loans, and not 4.5% and
5% per month. Respondent sought to recover the amounts
she allegedly paid in excess of her actual obligations.
5
The RTC dismissed respondent’s complaint and ordered
her to pay petitioner P311,125.00 with legal interest. On
appeal, the CA reversed and set aside the decision of the
RTC and ruled that, based on the disclosure statements
executed by respondent, the interest rates should be
imposed on a monthly basis but only for the 3-month term
of the loan. Thereafter, the legal interest rate will apply.
Hence, the instant petition.
Petitioner maintains that the interest rates are to be
imposed on a monthly and not on a per annum basis and
the monthly interest shall be imposed until the
outstanding obligations have been fully paid. On the other
hand, respondent avers that the interest on the loans is per
annum as expressly stated in the promissory notes and
disclosure statements. The provision as to annual interest
rate is clear and requires no room for interpretation.
Respondent asserts that any ambiguity in the promissory
notes and disclosure statements should not favor
petitioner since the loan documents were prepared by the
latter.
ISSUE: Whether the interest on the loans is per annum,
and not monthly, as expressly stated in the promissory
notes and disclosure statements  YES.
RULING: We agree with respondent. Perusal of the
promissory notes and the disclosure statements pertinent
to the loan obligations of respondent clearly and
unambiguously provide for interest rates of 4.5% per
annum and 5% per annum, respectively. Nowhere was it
stated that the interest rates shall be applied on a monthly
basis.
Thus, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract. It is only in instances when the language of a
contract is ambiguous or obscure that courts ought to
apply certain established rules of construction in order to
ascertain the supposed intent of the parties. However,
these rules will not be used to make a new contract for the
parties or to rewrite the old one, even if the contract is
inequitable or harsh. They are applied by the court merely
to resolve doubts and ambiguities within the framework
of the agreement.
The lower court and the CA mistook the Loan
Transactions Summary for the Disclosure Statement. The
former was prepared exclusively by petitioner and merely
summarizes the payments made by respondent and the
income earned by petitioner. There was no mention of any
interest rates and having been prepared exclusively by
petitioner, the same is self serving. On the contrary, the
Disclosure Statements were signed by both parties and
categorically stated that interest rates were to be imposed
annually, not monthly.
As such, since the terms and conditions contained in the
promissory notes and disclosure statements are clear and
unambiguous, the same must be given full force and
effect. The expressed intention of the parties as laid down
on the loan documents controls.
Notably, petitioner even admitted that it was solely
responsible for the preparation of the loan documents, and
that it failed to correct the pro forma note p.a. to per
month. Since the mistake is exclusively attributed to
petitioner, the same should be charged against it. This
unilateral mistake cannot be taken against respondent
who merely affixed her signature on the pro forma loan
agreements. As between two parties to a written
agreement, the party who gave rise to the mistake or error
in the provisions of the same is estopped from asserting a
contrary intention to that contained therein. The checks
issued by respondent do not clearly and convincingly
prove that the real intent of the parties is to apply the
interest rates on a monthly basis. Absent any proof of vice
of consent, the promissory notes and disclosure
statements remain the best evidence to ascertain the real
intent of the parties.
The same promissory note provides 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 thus properly imposed
the legal interest of 12% per annum from the time the
loans matured until the same has been fully paid on
February 2, 1999. As decreed in Eastern Shipping Lines,
Inc. v. Court of Appeals, in the absence of stipulation, the
rate of interest shall be 12% per annum to be computed
from default.
DISPOSITIVE: WHEREFORE, in view of the
foregoing, the October 16, 2003 decision of the Court of
Appeals in CA-G.R. CV No. 75183 is AFFIRMED with
the MODIFICATION that the interest rates on the July
22, 1997 and September 7, 1997 loan obligations of
respondent Gloria D. Padillo from petitioner First Fil-Sin
Lending Corporation be imposed and computed on a per
annum basis, and upon their respective maturities, the
interest rate of 12% per annum shall be imposed until full
payment. In addition, the penalty at the rate of 12% per
6
annum shall be imposed on the outstanding obligations
from date of default until full payment. SO ORDERED.
Macalinao vs. BPI
Ileana Macalinao was an APPROVED cardholder of BPI
Mastercard
She made some purchases through the use of the said
credit card and defaulted in paying for said purchases. She
subsequently received a demand letter from BPI asking
for the payment of PhP 141,518.34.
Terms and Conditions:
The charges or balance thereof remaining unpaid after
the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of
3% per month for BPI Express Credit, BPI Gold
Mastercard and an additional penalty fee equivalent to
another 3% of the amount due for every month or a
fraction of a months delay.
PROVIDED that if there occurs any change on the
prevailing market rates, BCC shall have the option to
adjust the rate of interest and/or penalty fee due on the
outstanding obligation with prior notice to the
cardholder. The Cardholder hereby authorizes BCC to
correspondingly increase the rate of such interest [in] the
event of changes in the prevailing market rates, and to
charge additional service fees as may be deemed
necessary in order to maintain its service to the
Cardholder.
Macalinao failed to settle her obligations, and thus BPI
filed a complaint for collection of sum of money.
CA Ruling:
The amount of PhP 141,518.34 already incorporated the
interest rates in the said amount. Thus, the said amount
should not be made as basis in computing the total
obligation of petitioner Macalinao. The CA also held,
however, that the MeTC erred in modifying the amount
of interest rate from 3% monthly to only 2%
considering that petitioner Macalinao freely availed
herself of the credit card facility offered by respondent
BPI to the general public.
Statement of the Issue:
Macalinao claims that the interest rate and penalty charge
of 3% per month imposed by the CA is iniquitous as the
same translates to 36% per annum or thrice the legal rate
of interest. On the other hand, respondent BPI asserts that
said interest rate and penalty charge are reasonable as the
same are based on the Terms and Conditions Governing
the Issuance and Use of the BPI Credit Card.
SC Ruling
We are of the opinion that the interest rate and penalty
charge of 3% per month should be equitably reduced to
2% per month or 24% per annum. Indeed, in the Terms
and Conditions Governing the Issuance and Use of the
BPI Credit Card, there was a stipulation on the 3% interest
rate. But, we held in Chua vs. Timan:
We need not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous,
unconscionable and exorbitant. Such stipulations are
void for being contrary to morals, if not against the law.
While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on
interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could
possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging
of their assets.
Since the stipulation on the interest rate is void, it is as
if there was no express contract thereon. Hence, courts
may reduce the interest rate as reason and equity
demand.[18]
The same is true with respect to the penalty charge.
Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by
the courts if it is iniquitous or unconscionable.
Thus, under the circumstances, the Court finds it equitable
to reduce the interest rate pegged by the CA at 1.5%
monthly to 1% monthly and penalty charge fixed by the
CA at 1.5% monthly to 1% monthly or a total of 2% per
month or 24% per annum in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the
Civil Code.
7
 credit, while the 6% per annum under Art. 2209, CC
applies "when the transaction involves the payment of
ECE REALTY and DEVELOPMENT, INC., vs. indemnities in the concept of damage arising from the
HAYDYN HERNANDEZ, (G.R. No. 212689, August breach or a delay in the performance of obligations in
06, 2014, J. Reyes) general," with the application of both rates reckoned
Facts: Respondent filed a complaint for specifi "from the time the complaint was filed until the
performance with damages against Emir Realty and [adjudged] amount is fully paid."
petitioner before the HLURB alleging that Emir Realty
But since July 1, 2013, the rate of 12% per annum from
and petitioner sold to him a 30sqm condominium unit.
finality of the judgment until satisfaction has been
Respondent paid the reservation fee of P35k and paid
brought back to 6%. Section 1 of Resolution No. 796 of
P104k to complete the downpayment.
the Monetary Board of BSP (May 16, 2013): "The rate of
In the parties' contract to sell, Emir and petitioner interest for the loan or forbearance of any money, goods
promised that the unit would be ready for occupancy in or credits and the rate allowed in judgments, in the
1999 but failed to deliver the unit at said date. By this absence of an express contract as to such rate of interest,
time, respondent had already paid P452.6k. Moreover, shall be 6% per annum."
respondent discovered that the unit only contained 26sqm
thus, he asked for a corresponding reduction of the price.
Instead, Emir and petitioner demanded that respondent
settle all his amortizations in arrears with interest.
Sometime in 2005, respondent discovered that Emir and
petitioner had sold the unit to a third party. HLURB
dropped Emir as defendant and ordered petitioner to
reimburse respondent. OP dismissed petitioner's appeal.
CA affirmed OP decision.

Issue: WON the rescission of the contract to sell and order

of refund was proper with legal interest from filing of the
complaint along with the award of moral and exemplary PHILIPPINE NATIONAL BANK petitioner, vs, THE
damages and attorney's fees to respondent. YES. HON. COURT OF "PEALS and AMBROSIO
PADILLA, respondents.
GR# 88880. April 30, 1991. GRIRO-AQUINO, J.:
HELD: Art. 2209, CC: "If the obligation consists in the
payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no
FACTS: Private respondent (PR) Ambrosio Padilla,
stipulation to the contrary, shall be the payment of the
applied for and was granted a credit line of 321.8 million,
interest agreed upon, and in the absence of stipulation, the
by petitioner PNB. This was for a term of 2 years at 18%
legal interest, which is six per cent per annum."
interest per annum and was secured by real estate
There is no doubt that ECE incurred in delay in delivering mortgage and 2 promissory notes executed in favor of
the subject condominium unit, for which reason the trial Petitioner by PR. The credit agreement and the
court was justified in awarding interest to respondent promissory notes, in effect, provide that PR agrees to be
from the filing of his complaint. There being no bound by “increases to the interest rate stipulated,
stipulation as to interest, under Article 2209 the provided it is within the limits provided for by law”.
imposable rate is 6% by way of damages, following the
Conflict in this case arose when Petitioner unilaterally
guidelines laid down in the landmark case of Eastern
increased the interest rate from 18% to: (1) 32% [July
Shipping Lines v. CA: The 12% per annum rate under CB
1984]; (2) 41% [October 1984]; and (3) 48% [November
Circular No. 416 shall apply only to loans or forbearance
1984], or 3 times within the span of a single year. This
of money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or
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was done despite the numerous letters of request made by
PR that the interest rate be increased only to 21% or 24%.
PR filed a complaint against Petitioner with the RTC. The
latter dismissed the case for lack of merit. Appeal by PR
to CA resulted in his favor. Hence the petition for
certiorari under Rule 45 of ROC filed by PNB with SC.
ISSUE: Despite the removal of the Usury Law ceiling on
interest, may the bank validly increase the stipulated
interest rate on loans contracted with third persons as
often as necessary and against the protest of such persons.
HELD: NO
RATIO: Although under Sec. 2 of PD 116, the Monetary
Board is authorized to prescribe the maximum rate of
interest for loans and to change such rates whenever
warranted by prevailing economic and social conditions,
by express provision, it may not do so “oftener than once
every 12 months”. If the Monetary Board cannot, much
less can PNB, effect increases on the interest rates more
than once a year.
Based on the credit agreement and promissory notes
executed between the parties, although PR did agree to
increase on the interest rates allowed by law, no law was
passed warranting Petitioner to effect increase on the
interest rates on the existing loan of PR for the months of
July to November of 1984. Neither there being any
document executed and delivered by PR to effect such
increase.
For escalation clauses to be valid and warrant the increase
of the interest rates on loans, there must be: (1) increase
was made by law or by the Monetary Board; (2)
stipulation must include a clause for the reduction of the
stipulated interest rate in the event that the maximum
interest is lowered by law or by the Monetary board. In
this case, PNB merely relied on its own Board
Resolutions, which are not laws nor resolutions of the
Monetary Board.
Despite the suspension of the Usury Law, imposing a
ceiling on interest rates, this does not authorize banks to
unilaterally and successively increase interest rates in
violation of Sec. 2 PD 116.
Increases unilaterally effected by PNB was in violation of
the Mutuality of Contracts under Art. 1308. This provides
that the validity and compliance of the parties to the
contract cannot be left to the will of one of the contracting
parties. Increases made are therefore void.
Increase on the stipulated interest rates made by PNB also
contravenes Art. 1956. It provides that, “no interest shall
be due unless it has been expressly stipulated in writing”.
PR never agreed in writing to pay interest imposed by
PNB in excess of 24% per annum. Interest rate imposed
by PNB, as correctly found by CA, is indubitably
excessive.
Florendo vs CA and Landbank of the Philippines GR
NO. 101771 December 17, 1996 Third Division J.
Panganiban
Facts: Florendo was an employee of Landbank of the
Philippines (LBP) from May 17, 1976 until August 16,
1984 when she voluntarily resigned. Before her
resignation, she applied for a housing loan payable in 25
years from LBP’s Provident Fund. Both parties executed
a Housing Loan Agreement and constituted a Real Estate
Mortgage and Promissory Note. After almost a year from
her resignation, LBP increased the interest rate on the loan
from 95 per annum to 17%. LBP informed Florendo and
the latter protested the increase. LBP kept on demanding
Florendo to pay the increased interest or the new monthly
installments based on the increased interest rate. Florendo
maintained that such increase is unjustified and unlawful.
Nevertheless, Florendo just disregarded the increased rate
and continued to pay the obligation under the original
contract.
Issue: WON the LBP have a valid and legal basis to
impose an increased interest rate on the housing loan.
Ruling: The increased rate imposed or charged is not
valid. In Banco Filipino, this Court, x x x, disallowed the
bank from increasing the interest rate on the subject loan
from 12% to 17% despite an escalation clause in the loan
agreement authorizing the bank to “correspondingly
increase the interest rate stipulated in this contract without
advance notice to me/us in the event the law should be
enacted increasing the lawful rates of interest that may be
charged on this particular kind of loan.”
In the case at bar, the loan was perfected on July 20, 1983.
PD No. 116 became effective on January 29, 1973. x x x
x x x x x x In the light of the CB issuances in force at that
time, respondent bank was fully aware that it could have
imposed an interest higher than 9% per annum rate for the
housing loans of its employees, but it did not. In the
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subject loan, the respondent bank knowingly agreed that
the interest rate on the petitioner’s loans shall remain at
9% unless a CB issuance is passed authorizing an increase
(or decrease) in the rate on such employee loans and the
Provident Fund Board of Trustees acts accordingly. Thus,
as far as the parties were concerned, all other onerous
factors, such as employee resignations, which could have
been used to trigger the application of the escalation
clause were considered barred or waived.
xxx
(I)t will not be amiss to point out that the unilateral
determination and imposition of increased interest rates
by the herein respondent bank is obviously violative of
the principle of mutuality of contracts ordained in Article
1308 of the Civil Code.
xxxxxxxxx
Let it be clear that this Court understands respondent’s
bank’s position that the concessional interest rate was
really intended as a means to remunerate its employees
and thus an escalation clause due to resignation would
have been a valid stipulation. But no such stipulation was
in fact made, and thus escalation provision could not be
legally applied and enforced against herein petitioners.

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