MUTUUM CASES Solicitor General this Court, in a resolution of May 13, 1963,

required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and

Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear
and be substituted as appellants in accordance with Section 17 of
1. REPUBLIC OF THE PHILIPPINES vs. JOSE GRIJALDO
Rule 3 of the Rules of Court.
G.R. No. L-20240 December 31, 1965
The appellant likewise maintains, in support of his contention that
the appellee has no cause of action, that because the loans were
secured by a chattel mortgage on the standing crops on a land
FACTS: In the year 1943 appellant Jose Grijaldo obtained five loans owned by him and these crops were lost or destroyed through enemy
from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in action his obligation to pay the loans was thereby extinguished.
the total sum of P1, 281.97 with interest at the rate of 6% per
ISSUE: Whether or not the obligation to pay is extinguished.
annum, compounded quarterly. These loans are evidenced by five
promissory notes executed by the appellant in favor of the Bank of
Ruling: NO. This appellant’s argument is untenable. The terms of the
Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943,
promissory notes and the chattel mortgage that the appellant
P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on
executed in favor of the Bank of Taiwan, Ltd. do not support the
August 13, 1943, P200.00, all notes without due dates, but because
claim of appellant. The obligation of the appellant under the five
the loans were due one year after they were incurred. To secure the
promissory notes was not to deliver a determinate thing namely, the
payment of the loans the appellant executed a chattel mortgage on
crops to be harvested from his land, or the value of the crops that
the standing crops on his land, Lot No. 1494 known as Hacienda
would be harvested from his land. Rather, his obligation was to pay
Campugas in Hinigiran, Negros Occidental.
a generic thing — the amount of money representing the total sum
of the five loans, with interest. The transaction between the
By virtue of Vesting Order No. P-4, dated January 21, 1946, and
appellant and the Bank of Taiwan, Ltd. was a series of five contracts
under the authority provided for in the Trading with the Enemy Act,
of simple loan of sums of money. "By a contract of (simple) loan, one
as amended, the assets in the Philippines of the Bank of Taiwan, Ltd.
of the parties delivers to another ... money or other consumable
were vested in the Government of the United States. Pursuant to
thing upon the condition that the same amount of the same kind
the Philippine Property Act of 1946 of the United States, these
and quality shall be paid." (Article 1933, Civil Code) The obligation of
assets, including the loans in question, were subsequently
the appellant under the five promissory notes evidencing the loans
transferred to the Republic of the Philippines by the Government of
in questions is to pay the value thereof; that is, to deliver a sum of
the United States under Transfer Agreement dated July 20, 1954.
money — a clear case of an obligation to deliver, a generic thing.
These assets were among the properties that were placed under the
Article 1263 of the Civil Code provides:
administration of the Board of Liquidators created under Executive
Order No. 372, dated November 24, 1950, and in accordance with
In an obligation to deliver a generic thing, the loss or destruction of
Republic Acts Nos. 8 and 477 and other pertinent laws.
anything of the same kind does not extinguish the obligation.
On September 29, 1954 the appellee, Republic of the Philippines,
The chattel mortgage on the crops growing on appellant's land
represented by the Chairman of the Board of Liquidators, made a
simply stood as a security for the fulfilment of appellant's obligation
written extrajudicial demand upon the appellant for the payment of
covered by the five promissory notes, and the loss of the crops did
the account in question. The record shows that the appellant had
not extinguish his obligation to pay, because the account could still
actually received the written demand for payment, but he failed to
be paid from other sources aside from the mortgaged crops.
pay.
2. G.R. No. L-9417 December 4, 1914
On January 17, 1961 the appellee filed a complaint in the Justice of
the Peace Court of Hinigaran, Negros Occidental, to collect from the PEDRO MARTINEZ, plaintiff-appellee,
appellant the unpaid account in question. The Justice of the Peace vs.
Of Hinigaran, after hearing, dismissed the case on the ground that ANTONINO RAMOS, in his own behalf and as administrator of the
the action had prescribed. The appellee appealed to the Court of estate of his father Julian Ramos, defendant-appellant and
First Instance of Negros Occidental and on March 26, 1962 the ALEJANDRA RAMOS, defendant-appellee.
court a quo rendered a decision ordering the appellant to pay the
appellee the sum of P2, 377.23 as of December 31, 1959, plus
interest at the rate of 6% per annum compounded quarterly from
the date of the filing of the complaint until full payment was made. Facts:
The appellant was also ordered to pay the sum equivalent to 10% of
Antonino Ramos signed an obligation in favor of Pedro Martinez:
the amount due as attorney's fees and costs.
I hereby declare to be a fact that by order of my father, Julian
The appellant appealed directly to this Court. During the pendency
Ramos, I have received from Pedro Martinez one thousand nine
of this appeal the appellant Jose Grijaldo died. Upon motion by the
hundred pesos ($1,900) as a loan without interest, which I will return
within three years, and I sign. — Manila, May 2, 1900. — (Sgd.) Ruling: No. the imposition of legal interest on the equitable
Antonino Ramos. mortgage is without legal basis since there was no express
stipulation to that effect.
Ramos was appointed judicial administrator of the estate of his
deceased father, Julian. Martinez filed suit for the fulfillment of the
obligation. The committee of appraisal of the estate, decided that
this was not a debt against the estate, but against the heirs. CFI 4. Jardenil v. Solas
Batangas ordered payment of the sum. Ramos appealed from the July 24, 1942
judgment.
Facts: This is an action for foreclosure of mortgage. Solas agreed to
pay interest only up to the date of maturity. The contract is silent as
Issue: Is the obligation signed by Ramos his own personal loan?
to whether after the date of maturity, in the event of non-payment,
the debtor would continue to pay interest.
Held: Yes.
Issue: Is solas bound to pay the stipulated interest only up to the
The contract consists in that Antonino, and nobody else, will return
date of maturity as fixed in the promissory note, or up to the date
to Pedro Martinez in the time stipulated the 1,900 pesos; and the payment is effected?
allegations set up are of no avail against the wording of the contents
of the instrument. Ruling: Only up to the date of maturity. A writing must be
interpreted according to the legal meaning of its language and only
Obligation arising from contracts have legal force between the when the wording of the written instrument appears to be contrary
contracting parties and must be fullfilled in accordance with their to the evident intention of the parties that such intention must
stipulations. (Civil Code, art. 1091.) (Art. 1159 in the New Civil Code) prevail. The act of the mortgagee in 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,
Art. 1159. Obligations arising from contracts have the force of law
without making any mention of any interest which the mortgagor
between the contracting parties and should be complied with in
should pay during the additional period indicates that the true
good faith. (1091a) intention of the parties was that no interest should be paid during
the period of grace.
Contracts that may have been made subsequent to the one under
consideration, either between Antonio Ramos and his parents or
between himself and his coheirs, wherein the lender Pedro Martinez 5. Frias vs Diego-Sison
has not intervened, cannot be alleged against the plaintiff Pedro
Martinez, on the principle that the force of the law of contrast Facts: Frias (petitioner) owns a house and lot which she
cannot be extended to parties who do not intervene therein. previously purchased and is covered with a certificate of title.
Petitioner and Diego-Sison (defendant) entered into an agreement
The judgment appealed from is affirmed. wherein the property is priced at 6.4 million pesos and that
defendant will give initial amount of 3 million pesos to petitioner.
Defendant then will be given 6 months to decide whether to pursue
buying the property. If defendant chooses not to buy, petitioner is
3. Tan v. Valdehueza
given 6 months then to return the 3 million initially given by
defendant which will be considered as a loan and the property as
Facts: Arador and Valdehuesa executed two documents of deed of
security for the mortgage. Furthermore, it is stipulated in the
pacto de retro sale with right to repurchase in favor of Tan of two
agreement that for the first six months if there are no other buyers,
portions of a parcel of land. This was not registered in the Register
no interest will accrue on the 3 million. But interests will accrue on
of Deeds. After the execution of the Deed of Sale, Arador and
the “last six months only”.
Valdehueza remained in the possession of the land, taxes were
paid by them. Tan filed an action against Valdehueza and Arador as
Petitioner received 2 million in cash and a 1 million pesos post-dated
to enjoin them from entering the parcel of land and gathering nuts
check dated February 28, 1990, instead of 1991, which rendered
but this was dismissed for failure to seek immediate trial.
said check stale. Defendant decided not to buy the property and
informed petitioner of their agreement, hence, the 2 million initial
Issue: was there a pacto de retro sale?
payment treated as a loan. Petitioner failed to pay respondent.
Ruling: No. Even if the mortgage was not duly registered, it is still Furthermore, petitioner executed an affidavit of loss of owner’s
binding on the parties. Since Valdehueza remained in possession of copy of certificate title and filed for issuance of new certificate in the
the land, the contract which purported to be pacto de retro is RTC. Defendant filed a suit to stop petitioner from obtaining a new
presumed to be an equitable mortgage. certificate and also for the recovery of the 2 million plus interest.

Issue: should interest be charged? RTC ruled in favor of defendant. CA affirmed and modified the
interest from 32% to 25%. CA concluded that there was no basis for
petitioner to say that the interest should be charged for six months
only and no more; that a loan always bears interest otherwise it is 394 SCRA 11 (2002)
not a loan. Galllo

Issue: Is the petitioner correct in saying that the agreement “last six
months only” means interests shall be paid for six months only and Facts: Arwood and Consunji, as owner and contractor, respectively,
entered into a Civil, Structural and Architectural Works
no more?
Agreement for the construction of petitioner's Westwood
Condominium. The contract price for the condominium project
Ruling: No, petitioner is incorrect. While the CA’s conclusion, that a
aggregated P20,800,000.00. Despite the completion of the
loan always bears interest otherwise it is not a loan, is flawed since a condominium project, the amount of P962,434.78 remained unpaid
simple loan may be gratuitous or with a stipulation to pay interest, by Arwood. Repeated demands by Consunji for petitioner to pay
we find no error committed by the CA in awarding a 25% interest went unheeded. Thus, Consunji filed its complaint for the recovery
per annum on the two-million peso loan even beyond the second six of the balance of the contract price and for damages.
months stipulated period.
Respondent specifically prayed for the payment of the (a) amount
The general rule is that if the terms of an agreement are clear and of P962,434.78 with interest of 2% per month or a fraction thereof,
from November 1990 up to the time of payment. The trial court
leave no doubt as to the intention of the contracting parties, the
ruled in favor of the respondent.
literal meaning of its stipulations shall prevail. It is further required
that the various stipulations of a contract shall be interpreted Arwood appealed to the CA, particularly opposing the finding of the
together, attributing to the doubtful ones that sense which may trial court with regard to the imposition of the monetary interest of
result from all of them taken jointly. 2% per month on the adjudicated amount.

Their agreement speaks of two (2) periods of six months each. The The CA upheld the trial court finding basis in Article 6.03 of the
first six-month period was given to plaintiff-appellee (respondent) to Agreement concerning the imposition of the 2% interest, which
make up her mind whether or not to purchase defendant- reads:
appellant’s (petitioner's) property.
"Payment shall be made by the OWNER to the CONTRACTOR within
fifteen (15) calendar days after receipt of the Construction
The second six-month period was given to defendant-appellant to Manager's Certificate. In the event OWNER delays the
pay the P2 million loan in the event that plaintiff-appellee decided payments (i.e. beyond the stipulated time) to the CONTRACTOR of
not to buy the subject property in which case interest will be monthly progress billings, the CONTRACTOR shall have the option
charged "for the last six months only", referring to the second six- to either suspend the works on the Project until such payments
month period. This means that no interest will be charged for the have been remitted by the OWNER or continue the work but the
first six-month period while appellee was making up her mind OWNER shall be required to pay the interest at a rate of two (2%)
percent per month or the fraction thereof in days of the amount
whether to buy the property, but only for the second period of six
due for payment by the OWNER. The same interest shall be added
months after appellee had decided not to buy the property. to the billing of the following month. Furthermore, the progress
payments shall be reduced by a portion of the downpayment made
This is the meaning of the phrase "for the last six months only". by the OWNER corresponding to the value of the work completed."
Certainly, there is nothing in their agreement that suggests that
interest will be charged for six months only even if it takes
defendant-appellant an eternity to pay the loan. ISSUE: Is the imposition of a 2% per month interest on the balance
of contract price correct?
The agreement that the amount given shall bear interest for the last
six months only, i.e., referring to the second six-month period, does RULING: Yes. The Agreement or the contract between the parties is
the formal expression of the parties’ rights, duties and obligations. It
not mean that interest will no longer be charged after the second
is the best evidence of the intention of the parties. Thus, "when the
six-month period since such stipulation was made on the logical and terms of an agreement have been reduced to writing, it is
reasonable expectation that such amount would be paid within the considered as containing all the terms agreed upon and there can
date stipulated. Considering that petitioner failed to pay the amount be, between the parties and their successors in interest, no evidence
given which under the Memorandum of Agreement shall be of such terms other than the contents of the written agreement."
considered as a loan, the monetary interest for the last six months
continued to accrue until actual payment of the loaned amount. Consequently, upon the fulfillment by respondent of its obligation to
complete the construction project, petitioner had the correlative
The payment of regular interest constitutes the price or cost of the duty to pay for respondent’s services. However, petitioner refused
use of money and thus, until the principal sum due is returned to the to pay the balance of the contract price. From the moment
creditor, regular interest continues to accrue since the debtor respondent completed the construction of the condominium project
continues to use such principal amount. Otherwise, it would and petitioner refused to pay in full, there was delay on the part of
constitute unjust enrichment on the part of the debtor. petitioner. Since the Agreement stands as the law between the
parties, this Court cannot ignore the existence of such provision
providing for a penalty for every month’s delay. Neither can
6. Arwood Industries vs. DM Consunji petitioner impugn the Agreement to which it willingly gave its
consent. From the moment petitioner gave its consent, it was bound vs. OBM wherein it argued that "(I)n a suit against the receiver of a
not only to fulfill what was expressly stipulated in the Agreement national bank for money loaned to the Bank while it was a going
but also all the consequences which, according to their nature, may concern, it was error to permit plaintiff to recover interest on the
be in keeping with good faith, usage and law. loan after the bank's suspension"

A significant development of the case, the Government Service

Insurance System (GSIS) has acquired ownership of 99.93% of the
7. Overseas v. Cordero outstanding capital stock of COMBANK. The Court's Resolution
manifestly redounds to the benefit of another government
Facts:
institution, the GSIS, and to the preservation of the banking system.
Private respondent opened a 1-year time deposit with petitioner
9. Lirag vs. SSS, GR No. L-33205, August 31, 1987
bank amounting to P80,000, with interest of 6% p.a. Due to its
distressed financial condition, the bank was unable to pay. Cordero Facts: Lirag Textile Mills(Lirag) is a fabric company. They entered into
instituted an action before the CFI Manila. Petitioner raised the a “Purchase Agreement” with SSS. In the agreement, SSS will buy
defenses of insolvency and prejudice to other depositors. The lower preferred shares worth P1,000,000 from Lirag. Certificate No. 128
court, and the Court of Appeals, ruled in favor of Cordero. Hence, and 139 will be repurchased by Lirag after four years from the
the instant petition for review on certiorari. issuing of the stocks. To ensure that Lirag will repurchase, their
president, Basilio Lirag, signed as surety. If they failed to repurchase,
Certain supervening events rendered the issue moot and academic.
the entire obligation shall be due and demandable and the Lirag
Respondent’s brother and attorney-in-fact sent a letter to the
Textile Mills shall be shall be liable for 12% of the outstanding
Commercial Bank of Manila (petitioner’s successor-in-interest),
obligation as liquidated damages. Lirag also agreed to pay a dividend
acknowledging receipt of P10,000, and another manifestation for
of 8% on the net proceeds of the P1,000,000. Lirag failed to
P73,840, with waiver of damages. Upon further examination, it was
repurchase. Lirag argued that it was not able to do so because of a
found that the respondent’s brother has no SPA. Respondent’s
series of events(smuggling of foreign fabric, labor strikes,and so on).
brother submitted the SPA, with explanatory comment that the
Lirag’s argument was that SSS was a stockholder of the corporation
waiver applies only to third party claims, suits and damages, not to
and so the redemption of the stocks depended on Lirag’s financial
interest and attorney’s fees.
capability. SSS argued that the Purchase Agreement was a debt
instrument.
Issue:
Issue: Is a contract to buy stocks a debt instrument when there are
Whether respondent is entitled to interest and attorney’s fees
clear sanctions if the corporation fails to comply with its obligations?
Held:
Ruling: Yes. It is a debt instrument. A debt is defined as an obligation
The obligation to pay interest on the deposit ceases the moment the to pay money at some fixed future time, or at a time which
operation of the bank is completely suspended by the Central Bank. becomes definite and fixed by acts of either party and which they
Neither can respondent Cordero recover attorney’s fees. Petitioner’s expressly or impliedly, agree to perform in the contract. There was
refusal to pay was not due to a willful and dishonest refusal to an absolute obligation on the part of the corporation to repurchase
comply with its obligation but to restrictions imposed by Central the stocks and pay the dividends. The 12% liquidated damages
Bank. clearly shows the intent of the parties to be bound as creditor and
debtor, not as stockholder and corporation. (In a corporation, the
8. RAMOS vs. CENTRAL BANK OF THE PHILIPPINES stockholder has no right to demand repurchase and dividends; the
stockholder only waits for what income, if any, is realized by the
Facts: This involves question as to applicability of Tapia ruling corporation.) In this case, it was clear that Lirag loaned money from
wherein the Court held that "the obligation to pay interest on the SSS and coursed it through stocks. The 8% cumulative dividend were
deposit ceases the moment the operation of the bank is completely evidently interests. They did not depend on whether the corporation
suspended by the duly constituted authority, the Central Bank," to gained profits or not. The 12% liquidated damages also stands since
loans and advances by the Central Bank Lirag failed to comply with the obligation. Since these involve sums
of money which are overdue, they are bound to earn legal interest
Held: Respondents have failed to adduce any cogent argument to
from the time of demand, in this case, judicial (the time of filing the
persuade the Court to reconsider its Resolution at bar that the Tapia
action in the trial court).
ruling is fully applicable to the non-payment of interest, during the
period of the bank's forcible closure, on loans and advances made by 10. SONCUYA VS. AZZARAGA (R-U, Glenna)
respondent Central Bank.
Facts:
Respondent Central Bank itself when it was then managing the
By reason of court proceedings “Testate Estate of the Deceased Juan
Overseas Bank of Manila (now Commercial Bank of Manila) under a
Azarraga y Galvez”, defendants all Azarraga became indebted to
holding trust agreement, held the same position in Idelfonso D. Yap
Atty. Leodegario Azarraga who represented them, for Atty’s fees at the men of Azarraga, and if these animals were also the ones who
Php3,000. destroyed the coconut trees planted on the land by Azarraga.

Defendants Azarraga agreed to pay Atty. Azarraga in this manner: In May 1928, plaintiff went to the house of Azarraga to collect his
credit against all the defendants, and the special credit against
 The parcels of land in Bay-ang, New Washington, Capiz Joaquin Azarraga. On October 9, 1928, plaintiff wrote a letter
which are enumerated in the inventory are specially addressed to all the defendants telling tem of the failure of
mortgaged and subject to payment of the fees of said defendants to include in the Torrens Title of the property the two
attorney. (By 5 years, if the parties still are not able to pay encumbrances in favor of plaintiff, that if they wish to redeem said
in full the attorney’s fees, these lands shall definitely be land, payment of Php12,000 until October 31 should be given to
adjudicated to said attorney as his property in payment of him. If they do not wish to redeem it then have the portion of the
his fees. If in 5 years, the parties are able to pay in full the land segregated and transferred in his favor.
fees, these lands will still continue to be in possession of
the attorney for an additional 3 years from the date of last
payment in the event that the attorney may have kept
livestock in the said lands). Plaintiff secured on February 5, 1929 a preliminary attachment of
the properties, and the same was annotated in the registry of the
property. Seven months, this attachment was lifted because of the
filing of the bond required by the court. Defendants filed the bond,
9 months after the court approved the payment scheme, Atty and so they also ordered the cancellation of the notice of lis
decided to sell and did sell to plaintiff his credit against the pendens.
defendants for the sum of Php2,500.

On Sept. 20, 1929, defendant Hijos de la Rama entered into a

Plaintiff became the creditor of defendant Azarraga because of the contract with co-defendants Azarraga for the purpose of granting
sale of credit, he allowed defendants an extension of a few years them the credit of Php25,000, of which Php16,000 has already been
over 5 years or up to Feb. 16, 1926, within which they would have to delivered to them. This was for the Azarragas to carry on its
pay him his credit, but with the express condition of the 12% per business.
annum interest, from August 30, 1924. The term was later extended
up to April 26, 1926 at the request of the defendants, with the same
interest. Plaintiff granted another extension to expire on Oct. 31, Issues:
1928, but subject to the condition that instead of Php7,000 (12%)
charged to defendant, they should pay him Php12,000. In said 1. Was the contract entered into by the Azarraga brothers
Php7,000 and Php12,000, Php4,000 which the plaintiff already gave (defendants) with Atty. Leodegario Azarraga from whom
to defendant Joaquin Azarraga. the plaintiff derived his right, a sale with pacto de retro, or
an assignment in payment of a debt, or was it an
antichresis partaking of the nature of what was anciently
known as pacto comisorio or a mortgage, or was it merely
Joaquin Azarraga also executed in favor of the plaintiff a deed by a loan with real estate security?
which he sold to plaintiff Php4,000 (a portion of the inheritance in
the estate of Juan Azzaraga y Galvez, consisting of an undivided tract 2. Was the contract executed by Joaquin Azarraga and the
of land containing an area of 63 hectares in Bay-ang Chico, New plaintiff a sale with pacto de retro or simply a loan with
Washington, Capiz. The period of redemption would be 5 years from real estate security?
Feb. 16, 1921, extended to April 26, 1926 at an interest of 12% from
the expiration of the first term. A second extension was granted,
with a condition that instead of the payment of Php7,000,
Ruling:
Php12,000 will be paid. The deed referred to was never annotated
or inscribed in any register in the Office of the Register of Deeds.

1. It could be considered as an antichresis or pacto comisorio

– not an assignment in payment of a debt, or a sale with
Plaintiff then took possession of the whole land, placing livestock
pacto de retro because there is nothing to indicated that
therein, build sheepfolds and erected wire fences. Coconut trees
such was the intention of the defendants Azarraga, or at
were also planted by Azarraga. Some of the animals brought by the
least, they bound themselves to deliver the land in
plaintiff were wounded, but it is not known if these were caused by
question to the plaintiff and that the latter should pay
 them the value thereof; there was what may be nine days, he must have chosen the second alternative. But since
considered the resolutory condition of 5 years – and it was this was a self serving evidence, it was not admitted.
converted to a SIMPLE LOAN by the fact that plaintiff
chose to collect 12% annual interest. It is only in contracts The court looked at the conduct of the parties. Exhibit B was an
of loan, with or without guaranty that interest may be invoice of the same 350 shoes including sales tax listed as P2,450. It
demanded. It was a simple loan with security. was noted down in his own handwriting the different partial
payments of P500, P528 and lastly the P420 by check. It was obvious
that he accepted the outright sale since in making the partial
payments, he made no mention of the number of shoes sold by him
2. Plaintiff never considered the contract entered into by him and the number of shoes remaining unsold which he should have
with Joaquin as a sale with pacto de retro. If he ever considered it as done if the sale was on consignment.
such, he novated it on Feb. 1926 to a simple loan, as he began to
charge the 12% interest. The plaintiff never claimed rights of Issue: Should the interest rate be at 12% or 6% per annum?
dominion over the lands. For tax declaration purposes, he did not
declare the lands as his property. Plaintiff has no right to the various Ruling: It should only be at 6% per annum.
sums, as he never became the owner of the lands in question. He
There was an absence of stipulation as to the rate of interest so he
also has no reason to complain that his lien was not annotated in the
would be paying only 6% per annum. Exhibit A does not have any
Certificate of Title, as he also did not ask that it be stated that the
stipulation as to the rate of interest. Exhibit B was not signed by him.
lands were charged with his credit against them.
If the court would hold Co bound by Exhibit B, it was only because of
his tacit acceptance of the total value of 350 pairs of shoes.

Plaintiff alone has the right to (1) recover from defendants Azarraga
by virtue of the sale and assignment made to him by Atty.
12. ANGEL JOSE WAREHOUSING CO., INC., vs. CHELDA ENTERPRISES
Leodegario Azarraga of the credit of Php2,700 against the
and DAVID SYJUECO
defendants, plus interest at the rate of 12% per annum from Aug.
30, 1924; and (2) to recover from defendant Joaquin Azarraga the
sum of Php4,000 plus interest at the rate of 12% per annum from
April 26, 1926. FACTS

Plaintiff corporation filed suit in the Court of First Instance of Manila

on May 29, 1964 against the partnership Chelda Enterprises and
11. Royal Shirt Factory vs Co Bon Tic
David Syjueco, its capitalist partner, for recovery of alleged unpaid
loans in the total amount of P20,880.00, with legal interest from the
Duron
filing of the complaint, plus attorney’s fees of P5,000.00. Alleging
that post dated checks issued by defendants to pay said account
were dishonored, that defendants’ industrial partner, Chellaram I.
Facts: Mohinani, had left the country, and that defendants have removed
or disposed of their property, or are about to do so, with intent to
An action for the recovery of money by Royal Shirt Factory from Co defraud their creditors, preliminary attachment was also sought.
Bon Tic the sum of P1,422 to represent the balance of the price of Answering, defendants averred that they obtained four loans from
350 pairs of “Balleteenas” shoes at P7 a pair with interest at 12% per plaintiff in the total amount of P26,500.00, of which P5,620.00 had
annum been paid, leaving a balance of P20,880.00; that plaintiff charged
and deducted from the loan usurious interests thereon, at rates of
Issue: Whether it was an outright sale or a sale merely on
2% and 2.5% per month, and, consequently, plaintiff has no cause of
consignment ?
action against defendants and should not be permitted to recover
under the law. A counterclaim for P2,000.00 attorney’s fees was
Municipal court held that it was a sale on consignment while CFI
interposed. Great reliance is made by appellants on Art. 1411 of the
held that it was an outright sale.
New Civil Code. Since, according to the appellants, a usurious loan is
Ruling: It was an outright sale. void due to illegality of cause dor object, the rule of pari
delicto expressed in Article 1411, supra, applies, so that neither
In Exhibit A, an order slip contained a condition in the sale. party can bring action against each other. Said rule, however,
According to the testimony of Mr. Chebat it means that Co could appellants add, is modified as to the borrower, by express provision
either consider the sale as 1) one on consignment, sell as many of the law (Art. 1413, New Civil Code), allowing the borrower to
shoes as he could for any price and pay for it at P8 a pair and at the recover interest paid in excess of the interest allowed by the Usury
end of 9 days, return the shoes unsold; or 2) an absolute sale at P7 a Law. As to the lender, no exception is made to the rule; hence, he
pair. Since he was not able to return any of the shoes at the end of cannot recover on the contract. So — they continue — the New Civil
Code provisions must be upheld as against the Usury Law, under Translated into English this provision reads substantially as follows:
which a loan with usurious interest is not totally void, because of "Interest, to be computed upon the still unpaid capital of the loan,
Article 1961 of the New Civil Code, that: “Usurious contracts shall be shall be paid monthly, at the end of each month."
governed by the Usury Law and other special laws, so far as they are
not inconsistent with this Code.” Issue: WoN Cu-Unjieng is entitled to interest over interest?

Ruling: No. It is well settled that, under article 1109 of the Civil Code,
as well as under section 5 of the Usury Law (Act No. 2655), the
ISSUE
parties may stipulate that interest shall be compounded; and rests
for the computation of compound interest can certainly be made
Whether or not the illegal terms as to payment of interest likewise
monthly, as well as quarterly, semiannually, or annually. But in the
renders a nullity the legal terms as to payments of the principal
absence of express stipulation for the accumulation of compound
debt.
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.

HELD
The languageof the mortgage (the onenoted above) does not justify
Article 1420 of the New Civil Code provides in this regard: “In case of the charging of interest upon interest, so far as interest on the
a divisible contract, if the illegal terms can be separated from the capital is concerned. The provisio merely requires the debtor to pay
legal ones, the latter may be enforced.” interest monthly at the end of each month, such interest to be
computed upon the capital of the loan not already paid. Clearly this
In simple loan with stipulation of usurious interest, the prestation of provision does not justify the charging of compound interest upon
the debtor to pay the principal debt, which is the cause of the the interest accruing upon the capital monthly. It is true that in
contract (Article 1350, Civil Code), is not illegal. The illegality lies subsections (a), (b) and (c) of article IV of the mortgage, it is
only as to the prestation to pay the stipulated interest; hence, being stipulated that the interest can be thus computed upon sums which
separable, the latter only should be deemed void, since it is the only the creditor would have to pay out (a) to maintain insurance upon
one that is illegal. the mortgaged property, (b) to pay the land tax upon the same
property, and (c) upon disbursements that might be made by the
13. CU-UNJIENG V. MABALACAT
mortgagee to maintain the property in good condition. But the chief
thing is that interest cannot be thus accumulated on unpaid interest
Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, accruing upon the capital of the debt
Mabalacat mortgaged its property.
14. David vs. Court of Appeals
Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu
G.R. No. 115821, October 13, 1999
Unjieng filed a case against Mabalacat for foreclosure of property
and payment of attorney's fees. It also claims interest over interest. Facts: RTC Manila Judge Diaz issued a writ of attachment over the
Mabalacat insisted that the agreement for the extension of the time real properties of private respondent. Judge Diaz ordered private
of payment had the effect of abrogating the stipulation of the respondent to pay petitioner P 66, 500.00 with interest from July 24,
original contract with respect to the acceleration of the maturity of 1974, until fully paid. However, Judge Diaz amended said Decision,
the debt by non-compliance with the terms of the mortgage. so that the legal rate of interest should be computed from January 4,
1966, instead of from July 24, 1974. Private respondent appealed to
CA and SC, which both affirmed the decision of the lower court.
Subsequently, entries of judgment were made and the record of the
case was remanded to RTC Branch 27, presided by respondent Judge
NOTE : Under the second clause of the mortgage, interest should be
Cruz, for the final execution of the decision as amended.
calculated upon the indebtedness at the rate of 12 per cent per
annum. In the same clause, but in a separate paragraph, there is Upon petitioner’s motion, Judge Cruz issued an alias writ of
another provision with respect to the payment of interest expressed execution by virtue of which respondent Sheriff Pena conducted a
in Spanish in the following words: public auction. Sheriff Pena informed the petitioner that the total
amount of the judgment is P 270, 940.52. The amount included a
computation of simple interest. Petitioner, however, claimed that
the judgment award should be P 3,027,238.50, because the amount
Los intereses seran pagados mensualmente a fin de cada mes, due ought tot be based on compounded interest. Although the
computados teniendo en cuenta el capital del prestamo aun no auctioned properties were sold to the petitioner, Sheriff Pena did
not issue Certificate of Sale because there was excess in the bid
pagado.
price in the amount of P 2,941,524.47, which the petitioner failed to
pay despite notice.
Petitioner filed a motion praying that respondent Judge Cruz issue Issue: Are the payments to be applied to the principal or are they
an order directing respondent Sheriff Pena to prepare and execute a rents or interests?
certificate of sale in favor of the petitioner, placing therein the
amount of the judgment as P 3,027,238.50, the amount he bid Held:
during the auction, which he won. His reason is that compound The trial court was right in finding that these payments were applied
interest, which is allowed by Article 2212 of the Civil Code, should to the principal.
apply in this case.
The payments could not have been intended as rents because in
RTC and Ca did not favor petitioner. Petitioner argued that the CA accordance with a clause in the contract, Neri took possession of the
erred in ruling that Article 2212 of the Civil Code applies only where lands, and collected its fruits. The creditor having enjoyed the
the parties to an obligation stipulated or agreed to pay compounded beneficial use of lands delivered as security of loan, it appears to
interest. have been the intention of the parties that the creditor should be
compensated. Furthermore, in none of the contracts offered in
Issue: WON respondent appellate court erred in affirming evidence is there any promise made by defendants to pay rents. It
respondent Judge’s order for the payment of simple interest only would have been strange for such a clause to appear in Exhibits A
rather than the compounded interest and D wherein it was stipulated that the creditor took possession of
the lands and would reap the fruits of the same. It is true that in the
Ruling: Petitioner insists that in computing the interest due of the P receipts signed by Neri and by plaintiff these payments are called
66,500.00, interest should be computed at 6% on the principal sum rents. But these receipts have been prepared by Neri and by
of P 66,500.00 pursuant to Article 2209 and then “interest on the plaintiff, and defendants in their ignorance did not look into the
legal interest” should also be computed in accordance with the wording, being merely satisfied that they were proofs of payment.
language of Article 2212 of the Civil Code. In his view, said article Neither are they interests because no interest is due unless it is
meant “compound interest.” However, Article 2212 contemplates expressly stipulated. The alleged occupation of Neri, being “publicly
the presence of stipulated or conventional interest, which has known as a money lender" does not appear in the stipulation of
accrued when demand was judicially made. In cases where no facts or if that fact appeared in the record, it would not constitute
interest had been stipulated by the parties, no accrued conventional sufficient compliance with the requisite of article 1755 of the Civil
interest could further earn interest upon judicial demand. Code [Article 1956, NCC] that interest must be expressly stipulated.
The liability of plaintiff to return the excess payments is in keeping
Furthermore, “when the judgment sought to be executed ordered with article 1895 of the Civil Code [ Art. 2154 in the NCC] which
the payment of simple “legal interest” only and said nothing about provides that "when something is received which there is no right to
payment of compound interest, but the respondent judge orders collect, and which by mistake has been unduly delivered, the
payment of compound interest, then, he goes beyond the confines obligation to restore it arises." The two requisites are present: (1)
of a judgment which had become final.” Note that in this case, the there is no right to collect these excess sums; as (2) the amounts
CA made the finding that “…no interest was stipulated by the have been paid through mistake by defendants. Such mistake is
parties.” shown by the fact that the parties in their contracts never intended
that either rents or interests should be paid, and by the further fact
15. G.R. No. L-48389 July 27, 1942 that when these payments were made, they were intended by
defendants to be applied to the principal, but they overpaid the
CLEOFE VELEZ, plaintiff-appellant, amounts loaned of them.
vs.
MAXIMO BALZARSA and FLAVIA MABILIN, defendants-appellees. Article 1895 of the Civil Code [ Art. 2154 in the NCC], is therefore
applicable. This legal provision, which determines the quasi-contract
Facts: of solutio indebiti, is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the
On November 16, 1937, plaintiff in an amended complaint prayed expense of another. In the Roman Law Digest the maxim was
for the return of certain parcels of land which she alleged had been formulated thus: "Jure naturae acquum est, neminen cum alterius
sold by the defendants to her deceased husband Neri, with right of detrimento et injuria fieri locupletiorem." And the Partidas declared:
repurchase. She further alleged that defendants had remained in "Ninguno non deue enriquecerse tortizeramante con daño de otro."
possession of said land under a contract of lease, but had not paid Such axiom has grown through the centuries in legislation, in the
the agreed rentals for over two years. In their amended answer, science of law and in court decisions.
defendants alleged that the real agreement was loan secured by a
mortgage of those lands; and that the amount borrowed was only As for the amount to be returned by plaintiff, the trial court held
P2,400, and that they had however already paid P4,420.88. that the plaintiff should return only the excess sum she actually
Defendants thus prayed for the return of the excess, or P2,029.88. received (P432.63) but not the over-payment made to the deceased
Neri. If the defendants had appealed from the latter phase of the
The trial court found that the total amount loaned on various dates judgment, perhaps the application of section 749 of the Code of Civil
by the deceased husband to the defendants, was P3,067; that Procedure (now Rules 89, section 5 of the new Rules of Court) might
defendants paid P4,429.88, of which P3,997.25 was received by her have been studied. Under that provision, contingent claims which
husband and P432.63 by plaintiff; that these payments were not become absolute after the settlement of the estate of a deceased
made by way of interests or rents, but as payment for the principal; person may be enforced proportionately against the distributees of
that defendants overpaid the amount of P1,362.88. As for the the estate, and in the instant case this claim against Neri did not
amount received by deceased Neri, the court held that not having become absolute till the discovery of the mistake, after the
been presented it before the committee on appraisal and claims distribution of his estate.
during the administration of the estate of said Neri, defendants are
not entitled to its return. Plaintiff appealed from the judgment.
USURY CASES

1. INVESTORS FINANCE CORPORATION, petitioner, 2. Solangon v. Salazar

vs. AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY
DEVELOPMENT CORPORATION, respondents. June 29, 2001

Facts: Anthony Que, in behalf of AUTOWORLD, applied for a direct GR 125944

loan with FNCB. However, since the Usury Law imposed an interest
rate ceiling at that time, FNCB informed Anthony Que that it was not
Facts: On 1986, 1987, and 1990 the Solangons’ executed 3 real
engaged in direct lending; consequently, AUTOWORLD's request for
estate mortgages in which they mortgaged a parcel of land situated
loan was denied. But sometime thereafter, FNCBs Assistant Vice
in Sta. Maria, Bulacan, in favor of the Salazar to secure payment of a
President, Mr. Leoncio Araullo, informed Anthony Que that although
loan of P60, 000.00 payable within a period of four (4) months, with
it could not grant direct loans it could extend funds to AUTOWORLD
interest thereon at the rate of 6% per month (72% per annum), to
by purchasing any of its outstanding receivables at a discount. After
secure payment of a loan of P136,512.00, payable within a period of
a series of negotiations the parties agreed to execute an Installment
one (1) year, with interest thereon at the legal rate, and to secure
Paper Purchase ("IPP") transaction to enable AUTOWORLD to
payment of a loan in the amount of P230, 000.00 payable within a
acquire the additional capital it needed.
period of four (4) months, with interest thereon at the legal
Issue: whether the three (3) contracts all dated 9 February 1981 rate. This action was initiated by the Solangons to prevent the
were executed to implement a legitimate Installment Paper foreclosure of the mortgaged property. They alleged that they
Purchase (IPP) transaction or merely to conceal a usurious loan obtained only one loan form the defendant-appellee, and that was
for the amount of P60, 000.00, the payment of which was secured
Ruling: Conceal a usurious loan. by the first of the above-mentioned mortgages. The subsequent
mortgages were merely continuations of the first one, which is null
Indeed, the Usury Law recognizes the legitimate purchase of and void because it provided for unconscionable rate of interest.
negotiable mercantile paper by innocent purchasers. But even the They have already paid the defendant-appellee P78, 000.00 and
law has anticipated the potential abuse of such transactions to tendered P47, 000.00 more, but the latter has initiated foreclosure
conceal usurious loans. Thus, the law itself made a qualification. It proceedings for their alleged failure to pay the loan P230, 000.00
would recognize legitimate purchase of negotiable mercantile paper, plus interest.
whether usurious or otherwise, only if the purchaser had no
intention of evading the provisions of the Usury Law and that the Issue: Is a loan obligation that is secured by a real estate mortgage
purchase was not a part of the original usurious with an interest of 72% p.a. or 6% a month unconscionable?
transaction. Otherwise, the law would not hesitate to annul such
contracts. In the case at bar, the attending factors surrounding the Ruling: Yes, although the C.B. Circular No 905 lifted the ceiling on
execution of the three (3) contracts on 9 February 1981 clearly interest rates there is nothing in the said circular that grants lenders
establish that the parties intended to transact a usurious loan. These carte blanche authority to raise interest rates to levels which will
contracts should therefore be declared void. either enslave their borrowers or lead to hemorrhaging of their
assets. In the case of Medel vs. C.A. the S.C. has held that 5.5% per
In usurious loans, the creditor can always recover the principal debt.
month was reduced for being iniquitous, unconscionable and
However, the stipulation on the interest is considered void thus
exorbitant hence it is contrary to morals. In this case the Solangons’
allowing the debtor to claim the whole interest paid. In a loan
are in a worse situation than the Medel case (6% per month interest
of P1,000.00 with interest at 20% per annum or P200.00 per year, if
rate) the said interest rate should be reduced equitably. In the
the borrower pays P200.00, the whole P200.00 would be considered
present case, the interest rate of 72% per annum is ordered reduced
usurious interest, not just the portion thereof in excess of the
to 12 % per annum
interest allowed by law.

In the instant case, AUTOWORLD obtained a loan of P6,980,000.00.

Thereafter, it paid nineteen (19) consecutive installments 3. Spouses Pascual vs Ramos
of P216,666.66 amounting to a total
of P4,116,666.54, and further paid a balance of P6,784,551.24 to Facts: Ramos lleged that on 3 June 1987, for and in consideration of
settle it. All in all, it paid the aggregate amount of P10,901,217.78 P150,000, the Pascuals executed in his favor a Deed of Absolute Sale
for a debt of P6,980,000.00. For the 23-month period of the with Right to Repurchase over two parcels of land and the
existence of the loan covering the period February 1981 to January improvements thereon located in Bambang, Bulacan, Bulacan,
1982, AUTOWORLD paid a total of P3,921,217.78 in interests. covered by Transfer Certificate of Title. The Pascuals did not exercise
Applying the 12% interest ceiling rate mandated by the Usury Law, their right to repurchase the property within the stipulated one-year
AUTOWORLD should have only paid a total of P1,605,400.00 in period; hence, Ramos prayed that the title or ownership over the
interests. Hence, AUTOWORLD is entitled to recover the whole subject parcels of land and improvements thereon be consolidated
usurious interest amounting to P3, 921,217.78. in his favor. The Pascuals admitted having signed the Deed of
Absolute Sale with Right to Repurchase for a consideration FACTS: In the computation of the "legal interest" decreed in the
of P150,000 but averred that what the parties had actually agreed judgment sought to be executed, petitioners claim that the "legal
upon and entered into was a real estate mortgage. They further interest" should be at the rate of twelve (12%) percent per annum,
alleged that there was no agreement limiting the period within invoking in support of their aforesaid submission, Central Bank of
which to exercise the right to repurchase and that they had even the Philippines Circular No. 416. Upon the other hand, private
overpaid Ramos. respondents insist that said legal interest should be at the rate of six
(6%) percent per annum only, pursuant to and by authority of Article
The trial court found that the transaction between the parties was 2209 of the New Civil Code in relation to Articles 2210 and 2211.
actually a loan in the amount of P150,000, the payment of which
was secured by a mortgage of the property. It also found that the ISSUE: WON legal interest meant 6% as provided for under Article
Pascuals had made payments in the total sum of P344,000, and that 2209 of the Civil Code
with interest at 7% per annum, the Pascuals had overpaid the loan
by P141,500. RULING: Yes. The decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of
Ramos moved for the reconsideration of the decision, alleging that property (boat FB Pacita III together with its accessories,
the trial court erred in using an interest rate of 7% per annum in the fishing gear and equipment) and does not involve any loan, much
computation of the total amount of obligation because what was less forbearances of any money, goods or credits. As correctly
expressly stipulated in the Sinumpaang Salaysay was 7% per month. argued by the private respondents, the law applicable to the said
case is Article 2209 of the New Civil Code which reads—
CA affirmed RTC and reduced interest to 5% per month.
Art. 2209. If the obligation consists in the payment of a sum of
The Pascuals argue that the 5% per month interest is excessive, money, and the debtor incurs in delay, the indemnity for damages,
iniquitous, unconscionable and exorbitant. Moreover, respondent there being no stipulation to the contrary, shall be the payment of
should not be allowed to collect interest of more than 1% per month interest agreed upon, and in the absence of stipulation, the legal
because he tried to hide the real transaction between the parties by interest which is six percent per annum.
imposing upon them to sign a Deed of Absolute Sale with Right to
Repurchase. The above provision remains untouched despite the grant of
authority to the Central Bank by Act No. 2655, as amended. To make
Issue: Is the lower court correct in awarding 5% per month interest? Central Bank Circular No. 416 applicable to any case other than
those specifically provided for by the Usury Law will make the same
Ruling: Yes. he Pascuals should not be allowed to turn their back on
of doubtful constitutionality since the Monetary Board will be
the stipulation in that agreement to pay interest at the rate of 7%
exercising legislative functions which was beyond the intendment of
per month. The Pascuals should accept not only the favorable aspect
P.D. No. 116.
of the courts declaration that the document is actually an equitable
mortgage but also the necessary consequence of such declaration.
The interest rate of 7% per month was voluntarily agreed upon by
Ramos and the Pascuals. There is nothing from the records and, in 5. EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF
fact, there is no allegation showing that petitioners were victims of APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
fraud when they entered into the agreement with Ramos. respondents.

With the suspension of the Usury Law and the removal of interest FACTS:
ceiling, the parties are free to stipulate the interest to be imposed
on loans. Absent any evidence of fraud, undue influence, or any vice This is an action against defendants shipping company, arrastre
of consent exercised by Ramos on the Pascuals, the interest agreed operator and broker-forwarder for damages sustained by a
upon is binding upon them. This Court is not in a position to impose shipment while in defendants' custody, filed by the insurer-subrogee
upon parties contractual stipulations different from what they have who paid the consignee the value of such losses/damages.
agreed upon.
the losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage).
4. Reformina vs. Tomol
As a consequence of the losses sustained, plaintiff was compelled to
139 SCRA 260 (1985) pay the consignee P19,032.95 under the aforestated marine
insurance policy, so that it became subrogated to all the rights of
Gallo action of said consignee against defendants.

DECISION OF LOWER COURTS: * trial court: ordered payment of

damages, jointly and severally * CA: affirmed trial court.
ISSUES AND RULING: demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
(a) whether or not a claim for damage sustained on a shipment of extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
goods can be a solidary, or joint and several, liability of the common be so reasonably established at the time the demand is made, the
carrier, the arrastre operator and the customs broker; 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
YES, it is solidary. Since it is the duty of the ARRASTRE to take good
deemed to have been reasonably ascertained). The actual base for
care of the goods that are in its custody and to deliver them in good
the computation of legal interest shall, in any case, be on the
condition to the consignee, such responsibility also devolves upon
amount finally adjudged.
the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in good condition to
the consignee.
3. When the judgment of the court awarding a sum of money
The common carrier's duty to observe the requisite diligence in the becomes final and executory, the rate of legal interest, whether the
shipment of goods lasts from the time the articles are surrendered case falls under paragraph 1 or paragraph 2, above, shall be 12% per
to or unconditionally placed in the possession of, and received by, annum from such finality until its satisfaction, this interim period
the carrier for transportation until delivered to, or until the lapse of being deemed to be by then an equivalent to a forbearance of
a reasonable time for their acceptance by, the person entitled to credit.
receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. (c) whether the applicable rate of interest, referred to above, is
863). When the goods shipped either are lost or arrive in damaged twelve percent (12%) or six percent (6%).
condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of SIX PERCENT (6%) on the amount due computed from the decision,
negligence to hold it liable. dated 03 February 1988, of the court a quo (Court of Appeals) AND A
TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
(b) whether the payment of legal interest on an award for loss or be imposed on such amount upon finality of the Supreme Court
damage is to be computed from the time the complaint is filed or decision until the payment thereof.
from the date the decision appealed from is rendered; and
RATIO: when the judgment awarding a sum of money becomes final
and executory, the monetary award shall earn interest at 12% per
annum from the date of such finality until its satisfaction, regardless
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE of whether the case involves a loan or forbearance of money. The
SUPREME COURT) reason is that this interim period is deemed to be by then equivalent
to a forbearance of credit.
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor NOTES: the Central Bank Circular imposing the 12% interest per
can be held liable for damages. The provisions under Title XVIII on annum applies only to loans or forbearance of money, goods or
"Damages" of the Civil Code govern in determining the measure of credits, as well as to judgments involving such loan or forbearance
recoverable damages. of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of
II. With regard particularly to an award of interest in the concept of
indemnities in the concept of damage arising from the breach or a
actual and compensatory damages, the rate of interest, as well as
delay in the performance of obligations in general. Observe, too,
the accrual thereof, is imposed, as follows:
that in these cases, a common time frame in the computation of the
6% interest per annum has been applied, i.e., from the time the
1. When the obligation is breached, and it consists in the payment of
complaint is filed until the adjudged amount is fully paid.
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 6. EASTERN ASSURANCE vs CA (Dungog)
of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the FACTS: Vicente Tan insured his building in Dumaguete City against
provisions of Article 1169 of the Civil Code. fire with petitioner Eastern Assurance and Surety Corporation
(EASCO) for P250,000.00. On June 26, 1981, the building was
2. When an obligation, not constituting a loan or forbearance of destroyed by fire. As his claim for indemnity was refused, Tan filed a
money, is breached, an interest on the amount of damages awarded complaint for breach of contract with damages against EASCO. The
may be imposed at the discretion of the court at the rate of 6% per RTC rendered a judgement in favor of Tan.
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be Petitioner appealed to the CA, which, affirmed the decision of the
established with reasonable certainty. Accordingly, where the trial court with modification by disallowing the award of moral and
exemplary damages, attorneys fees and litigation expenses. As no Unquestionably, this case falls under the rule stated in paragraph 3.
further appeal was taken from the decision of the CA, the same Hence, the payment of 12% legal interest per annum should
became final and executory on August 25, 1993. EASCO tendered commence from August 25, 1993, the date the decision of the trial
payment of the money judgment in the amount of P250,000.00 plus court became final, up to September 30, 1994, the agreed "cut-off-
interest of 6% per annum from June 26, 1981 to July 30, 1993. date" for the payment of legal interest.
However, Tan refused to accept payment on the ground that the
applicable legal rate of interest was 12% per annum. Subsequently,
private respondent brought the matter to the Insurance
7. Nacar vs. Gallery Frames, G.R. No. 189871, August 13, 2013
Commission. On February 27, 1995, the parties agreed before the
hearing officer of the commission that the interest should be
Facts: Nacar was found to be illegally dismissed by the Labor Arbiter
computed from June 26, 1981 to September 30, 1994.
in 1998. The Labor Arbiter then ruled for backwages and separation
pay amounting to more than P150,000. Gallery Frames then
ISSUE: WON petitioner is liable to pay the 12% interest rate?
appealed to the NLRC and the case eventually reached the Supreme
HELD: Yes. In Eastern Shipping Lines, Inc. v. Court of Appeals,[7] it was Court. The Supreme Court, just like the CA, denied the petition. The
held: SC certified that the decision became final and executory on May 27,
2002. Nacar asked for a recomputation of the amount. The updated
I. When an obligation, regardless of its source, i.e., law, contracts, amount was more than P470,000. Gallery Frames filed to quash the
quasi-contracts, delicts or quasi-delicts, is breached, the contravenor writ of execution and argued that the first amount stands since that
can be held liable for damages. The provisions under Title XVIII on decision has already become final and it would be against the
"Damages" of the Civil Code govern in determining the measure of doctrine of immutability of judgments.
recoverable damages.
Issue: Should the employer pay only the amount computed at first
II. With regard particularly to an award of interest in the concept of by the Labor Arbiter?
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows: Ruling: NO. The employer should pay backwages and separation pay
computed from the time of illegal dismissal up to May 27, 2002 (the
1. When the obligation is breached, and it consists in the payment of date the Supreme Court ruled it was final and executory.) There ate
a sum of money, i.e., a loan or forbearance of money, the interest two parts of a decision. The first part deals with the finding of illegal
due should be that which may have been stipulated in writing. dismissal. The second deals with the computation of the award. By
Furthermore, the interest due shall itself earn legal interest from the its nature, the award can be recomputed. The recomputation of the
time it is judicially demanded. In the absence of stipulation, the rate consequences of illegal dismissal upon execution of the decision
of interest shall be 12% per annum to be computed from does not constitute an alteration or amendment of the final decision
default, i.e., from judicial or extrajudicial demand under and subject being implemented. The illegal dismissal ruling stands; only the
to the provisions of Article 1169 of the Civil Code. computation of monetary consequences of this dismissal is affected.

2. When an obligation, not constituting a loan or forbearance of The interest due shall itself earn interest from the time it is
money, is breached, an interest on the amount of damages awarded extrajudicially or judicially demanded. In the absence of stipulation,
may be imposed at the discretion of the court at the rate of 6% per the rate is 12% per year. The Bangko Central issued Resolution No.
annum. No interest, however, shall be adjudged on unliquidated 796 changing the rate of interest in the absence of stipulation to
claims or damages except when or until the demand can be 6%. It was effective July 1, 2013. So aside from the separation and
established with reasonable certainty. Accordingly, where the backwages, Gallery Frames should pay an interest of 12% from May
demand is established with reasonable certainty, the interest shall 27, 2002 up to June 30,2013 and 6% from July 1, 2013 until their full
begin to run from the time the claim is made judicially or satisfaction.
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the 8. PNB VS. CA (R-U, Glenna)
interest shall begin to run only from the date the judgment of the
Facts:
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
As payments for purchase of medicines, Province of Isabela issued
the computation of legal interest shall, in any case, be on the
checks drawn against its accounts with PNB in favor of seller, Lyndon
amount finally adjudged.
Pharmaceuticals Laboratories, a business operated by respondent
Ibarolla. The checks were delivered to the sellers agents who turned
3.When the judgment of the court awarding a sum of money
them over to Ibarolla except 23 checks amounting to Php98,691.90,
becomes final and executory, the rate of legal interest, whether the
which the agents appropriated after negotiating them with PNB.
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
Ibarolla filed a case on Nov. 6, 1974 before the RTC for an action for
annum from such finality until its satisfaction, this interim period
a sum of money and damages, against the Province of Isabela, its
being deemed to be by then an equivalent to a forbearance of
Treasurer, two agents and PNB.
credit.
Trial court ordered all defendants (except the treasurer who died) to loans or forbearance of any money, goods or credit does not fall
jointly and solidarily pay Ibarolla the amount due plus interest. within its coverage for its imposition is not within the ambit of the
authority of the Central Bank. When an obligation constituting a
loan or forbearance of money is breached then an interest on the
amount of damages awarded may be imposed at the discretion of
PNB’s appeal to the CA was denied. At the execution stage, the
the court at the rate of 6% per annum in accordance with Art. 2209
Sheriff computed the interest at 12%, which PNB opposed that it
of the Civil Code. Monetary judgment in favor of private respondent
should only be 6%. The court thereafter issued an order clarifying
does not involve a loan or forbearance of money, hence, the proper
that the rate is 12%.
imposable rate of interest at 6%.

Applying these rules, the interest should only be 6%. The interest
according to Eastern Shipping shall be computed from the time of
Issue:
the filing of the complaint considering that the amount adjudged
1) Whether in an action for damages, the legal rate of interest is 6% can be established with reasonable certainty. This amount being
as provided by Art. 2209 of the New Civil Code or 12% as provided merely the uncollected balance of the purchase price covered by the
by CB Circular 416, series of 1974? 23 checks. However, once the judgment becomes final and
executory, the “interim period from the finality of judgment
2) Whether such rate shall be computed from the filing of the awarding a monetary claim and until full payment thereof, is
complaint until it is fully paid. deemed to be equivalent to a forbearance of credit. In accordance
with Eastern Shipping, the rate of 12% should be imposed and
Ruling: computed from the time the judgment became final and executory
until fully satisfied.
The ruling in Eastern Shipping Lines, Inc. vs. CA provided the rule of
thumb:

When an obligation, not consisting 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 9. PLANTILLA vs. BALIWAG (2001)
6% per annum. No interest, however, shall be adjudged on
Facts:
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the
In a civil case, lower court rendered a decision ordering:
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or  Spouses Orga and Plantilla to reinstate Suiza as
extrajudicially. (Article 1169, Civil Code) but when such certainty share tenant
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date of the  That they pay Suiza unrealized shares from the
judgment of the court is made (at which time the quantification of harvests of coconut fruits from August until
damages may be deemed to have been reasonably ascertained). The reinstated the amount of P1,000 with legal
actual base for the computation of legal interest shall, in any case, interest until fully paid.
be on the amount finally adjudged.
The decision, however, did not state the interest to be charged. A
writ of execution was issued addressed to Sheriff Baliwag. Baliwag
demanded payment from the spouses representing the share of
This case does not involve a loan. PNB’s liability is based only on the
Suiza the amount of 480k, representing the coconut harvest from
judgment of the RTC declaring it solidarily liable due to its
Aug 1979 to Jan 1998 at P1,000 with 8 harvests per year with an
negligence when it failed to assure itself if the Provincial Treasurer
interest rate of 12% per annum or a total of 222% plus attorney’s
was properly authorized by Ibarolla to make endorsements of said
fees. Col. Plantilla, administrator of the spouses, filed an
checks.
administrative complaint against Baliwag charging him of serious
irregularities in implementation of the writ of execution alleging that
dispositive portion of the decision did not contain 8 harvest per year
The rate of 12% can only be applied to: and Baliwag took it upon himself to specify the number of harvests.

Issue: Whether or not Sheriff is guilty of irregularities?

Loan or forbearance of money, or to cases where money is Ruling:

transferred from one person to another and the obligation to return
the same or a portion thereof is adjudged. Any other monetary Yes, Baliwag is guilty of malfeasance, not irregularities. The
judgment which does not involve or which has nothing to do with determination of the amount due under the writ properly pertained
to the Judge. Yet, respondent assumed the task. For doing so instead unliquidated claims or damages except when or until the demand
of pointing out to the court the deficiency of the writ, he should be can be established with reasonable certainty.
sanctioned. He should not have arrogated unto himself judicial
functions that were to be performed only by the judge.

The computation of the amount due under the writ is not the duty 11. Rodzssen Supply Co. Inc. vs. Far East Bank & Trust Co. (357
of the sheriff. Such amount should have already been specifically SCRA 618)
stated in the writ if execution issued by the court under Section 3
FACTS:
Rule 39 of the 1997 Rules of Court. All that the sheriff should do
upon receipt of that writ is the ministerial duty of enforcing it.
Petitioner opened with respondent a domestic letter of credit (LOC)
in favor of Ekman and Company, Inc. (Ekman) for the purchase of
five hydraulic loaders. The first three hydraulic loaders were
10. RCBC vs ALFA received by the petitioner before the expiry of LOC and respondent
paid Ekman. The remaining two hydraulic loaders were received by
Facts: the petitioner after the expiry of LOC/contract but respondent still
paid Ekman. Petitioner refused to pay respondent. Respondent filed
Alfa on separate instances was granted by RCBC 4 letters of credit to a case. Petitioner answered by way of affirmative defense that
facilitate the purchase of raw materials for their garments business. respondent had no cause of action being allegedly in bad faith and
Alfa executed 4 trust receipts and made comprehensive surety breach of contract. The trial court and Court of Appeals ruled in
agreements wherein the signatory officers of Alfa agreed in favor of respondent to recover from the cost of two hydraulic
joint/several capacity to pay RCBC in case the company defaulted. loaders. CA also ordered the defendant to pay the plaintiff the sum
RCBC filed a case versus Alfa for a sum of money. The CA awarded of P76,000.00, representing the principal amount being claimed in
only P3M (minimum amount) to RCBC instead of P18M as stipulated this action, plus interest thereon at the rate of 12% per annum
in their contract. counted from October 1979 until fully paid

Issue: W/N the CA can deviate from the provisions of the

contract between the parties?
ISSUE:
Ruling: No. Contracting parties may establish agreements terms,
deemed advisable provided they are not contrary to law/public Whether or not the payment of 12 % interest is proper?
policy. A contract is a law between the parties. In this case it’s valid
because it was not excessive under the Usury Law. The CA RULING:
committed an error when it ruled that only P3,060,406.25 should be
No. In Eastern Shipping Lines v. CA,[14] the Court laid down the
awarded to petitioner RCBC, the Appellate Court disregarded the
following guidelines in the imposition of interest:
parties’ stipulations in their contracts of loan, more specifically,
those pertaining to the agreed (1) Interest rates, (2) service charge
xxxxxxxxx
and (3) penalties in case of any breach thereof. The CA failed to
apply the honoured doctrine” 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
Additional: (In case asked*)
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
In the determination and computation of interest of payment, this
claims or damages except when or until the demand can be
court, in Eastern Shipping Lines, Inc. (234 SCRA 18, 1994) vs Court of
established with reasonable certainty. Accordingly, where the
Appeals, through Justice Jose C. Vitug, held:
demand is established with reasonable certainty, the interest shall
When the obligation is breached and it consist in the payment of a begin to run from the time the claim is made judicially or
sum of money (i.e., loan or forbearance of money, the interest due extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
should be that which may be have stipulated in writing. be so reasonably established at the time the demand is made, the
Furthermore, the interest due shall itself earn legal interest from the interest shall begin to run only from the date the judgment of the
time it is judicially demanded. In the absence of stipulation, the rate court is made (at which time the quantification of damages may be
of interest shall be 12% per annum to be computed from default i.e., deemed to have been reasonably ascertained). The actual base for
from judicial or extrajudicial demand under and subject to the the computation of legal interest shall, in any case, be on the
provisions of Article 169 of the Civil Code. amount finally adjudged.

When the obligation, not constituting a loan or forbearance of 3. When the judgment of the court awarding a sum of money
money, is breached, and interest on the amount of damages becomes final and executory, the rate of legal interest, whether the
awarded may be imposed at the discretion of the court at the rate of case falls under paragraph 1 or paragraph 2, above, shall be 12% per
6% per annum. No interest, however, shall be adjudged on
annum from such finality until its satisfaction, this interim period First Instance, Branch XI, CEBU CITY, SHELL REFINING COMPANY
being deemed to be by then an equivalent to a forbearance of credit. (PHILS.), INC., and MICHAEL, INCORPORATED, respondents.

Although the sum of money involved in this case was payable to a Facts:
bank, the present factual milieu clearly shows that it was not a loan
or forbearance of money. Thus, pursuant to established The CFI Cebu in a civil case ordered Shell and Michael, Incorporated
jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay jointly and severally to Pacita and Francisco Reformina. CA
to pay interest at 6 percent per annum, computed from April 7, affirmed with modification. The case was remanded to the lower
1983, the time respondent bank demanded payment from court for execution. In the computation of the "legal interest",
petitioner. From the finality of the judgment until its satisfaction, petitioners claim that it should be at the rate (12%) per annum,
the interest shall be 12 percent per annum. invoking the Central Bank of the Philippines Circular No. 416. Private
respondents insist that it should be at the rate of six (6%) per annum
only, pursuant to Article 2209 of the New Civil Code in relation to
Articles 2210 and 2211.
12. Mendoza vs. Court of Appeals
Issue:
G.R. No. 116710. June 25, 2001
How much is the legal interest should a judgment debtor pay the
judgment creditor?

FACTS: Respondent was granted by respondent Philippine National Held:

Bank (PNB) credit line and Letter of Credit/Trust Receipt (LC/TR)
line. As security for the credit accommodations and for those which 6%.
may thereinafter be granted, petitioner mortgaged to respondent
PNB some of his properties. Petitioner later requested for loan The decision sought to be executed is that in an Action for Damages
restructuring and issued promissory notes, which he failed to for injury to persons and loss of property and does not involve any
comply. Respondent PNB extra-judicially foreclosed the real and loan, much less forbearances of any money, goods or credits. As
chattel mortgages, and the mortgaged properties were sold at public correctly argued by the private respondents, the law applicable to
auction to respondent PNB, as highest bidder. Petitioner filed a case the said case is Article 2209 of the New Civil Code.
in the RTC contending that foreclosure is illegal invoking promissory
This provision remains untouched despite the grant of authority to
estoppel, and secured favorable judgment. The decision of RTC was
the Central Bank by Act No. 2655, as amended. To make Central
reversed by the Court of Appeals.
Bank Circular No. 416 applicable to any case other than those
specifically provided for by the Usury Law will make the same of
doubtful constitutionality since the Monetary Board will be
ISSUE: Whether or not the foreclosure of petitioner’s real estate and exercising legislative functions which was beyond the intendment of
chattel mortgages were legal and valid as opposed to promissory P.D. No. 116.
estoppel.
Note:

Central Bank Circular No. 416 was issued and promulgated by the
RULING: YES. First, there was no promissory estoppel as the promise Monetary Board (MB) pursuant to the authority granted to the
(of respondent bank) must be plain and unambiguous and Central Bank by P.D. No. 116, which amended Act No. 2655 or the
sufficiently specific. Second, there was no meeting of the minds Usury Law.Acting pursuant to this grant of authority, the MB
leading to another contract, hence loan was not restructured. Third, increased the rate of legal interest from that of (6%) percent per
promissory notes petitioner issued were valid. Fourth, stipulation in annum originally allowed under Section I of Act No. 2655 to twelve
the mortgage, extending its scope and effect to after-acquired (12%) percent per annum. It will be noted that Act No. 2655 deals
property is valid and binding after the correct and valid process of with interest on (1) loans; (2) forbearances of any money, goods, or
extra-judicial foreclosure. Finally, record showed that petitioner did credits; and (3) rate allowed in judgments.
not even attempt to tender any redemption price during the one-
year redemption period.

13. G.R. No. L-59096 October 11, 1985 14. PHILIPPINE RABBIT BUS LINES, INC., petitioner,
vs.
PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, HON. LEONARDO I. CRUZ, Presiding Judge, Branch LVI, RTC, Third
petitioners, Judicial Region & PEDRO MANABAT, respondents.
vs.
THE HONORABLE VALERIANO P. TOMOL, JR., as Judge of the Court of Facts: In a civil case, Manabat obtained a favourable money
judgment against Philippine Rabbit, amounting to P72,500 with legal
interest. The deputy sheriff garnished bank deposits amounting to Ruling: No. The nullity of the stipulation on the usurious interest
P155,150, which is the amount of damages plus 12% interest, does not affect the lender's right to receive back the principal
computed from the filing of the complaint. Philippine Rabbit moved amount of the loan. With respect to the debtor, the amount paid as
to dissolve the garnishment, asserting that it was willing to pay, but interest under a usurious agreement is recoverable by him, since the
only at 6% interest. payment is deemed to have been made under restraint, rather than
voluntarily. The stipulation regarding usurious interest is separable
Issue: What is the proper rate of interest to be applied? from the contract of loan.

Ruling: 6%. Central Bank Circular No. 416, which amended Act No.
2655 (Usury Law), increased the rate of legal interest from 6% to
12%. Act No. 2655 deals with interest on: (1) loans; (2) forbearance 16. David vs CA
of any money, goods, or credits; and (3) rate allowed in judgments.
The judgments spoken of and referred to are judgments in litigations Facts: Judge Diaz issued a writ of attachment over the real
involving loans or forbearance of any money, goods or credits. Any properties of private respondents. Judge Diaz ordered private
other kind of monetary judgment is not within the ambit of the respondent to pay petitioner P 66,500.00 with interest from July 24,
authority granted to the Central Bank. Action for damages for injury 1974, until fully paid. He amended decision so that the legal rate of
to persons and loss of property does not involve any loan, much less interest should be computed from January 4, 1966, instead of from
forbearance of any money, goods or credits. The applicable law is July 24, 1974. Private respondent appealed to CA and SC, which both
Art. 2209 of the New Civil Code, which prescribes legal interest at affirmed the decision of the lower court. Sheriff Peña conducted a
6%. public auction. Sheriff Peña informed the petitioner that the total
amount of the judgment is P 270,940.52. The amount included a
computation of simple interest. Petitioner, however, claimed that
the judgment award should be P 3,027,238.50, because the amount
15. First Metro Investment v Este De Sol due ought to be based on compounded interest. Although the
auctioned properties were sold to the petitioner, Sheriff Peña did
Nov. 15, 2001
not issue the Certificate of Sale because there was an excess in the
bid price in the amount of P 2,941,524.47, which the petitioner
GR 141811
failed to pay despite notice. RTC judge issue an order directing
Facts: Petitioner FMIC granted respondent a loan of Seven Million respondent Sheriff Peña to prepare and execute a certificate of sale
Three Hundred Eighty Five Thousand Five Hundred Pesos in favor of the petitioner, placing therein the amount of the
(P7,385,500.00) to finance the construction of a sports complex at judgment as P 3,027,238.50, the amount he bid during the auction
Montalban, Rizal. Respondent also executed, as provided for by the which he won. His reason is that compound interest, which is
Loan Agreement, an Underwriting Agreement with underwriting fee, allowed by Article 2212 of the Civil Code, should apply in this case.
annual supervision fee and consultancy fee with Consultancy
Issue: Is the lower court wrong in ordering the payment of
Agreement for four (4) years, coinciding with the term of the loan.
simple interest only rather than compounded interest?
The said fees were deducted from the first release of loan.
Respondent failed to meet the schedule of repayment. Petitioner
Ruling: Petitioners contention is that interest due of the P
instituted an instant collection suit. The trial court rendered its
66,500.00, interest should be computed at 6% on the principal sum
decision in favor of petitioner. The Court of Appeals reversed the
of P 66,500.00 pursuant to Article 2209 and then "interest on the
decision of the trial court in favor of herein respondents after its
legal interest" should also be computed in accordance with the
factual findings and conclusion.
language of Article 2212 of the Civil Code. In his view, said article
meant "compound interest". However, Article 2212 contemplates
Issue: Whether or not the Underwriting and Consultancy
the presence of stipulated or conventional interest which has
Agreements were merely used to camouflage the usurious interest
accrued when demand was judicially made. In cases where no
charged by the petitioner.
interest had been stipulated by the parties, no accrued conventional
Ruling: Yes. Several facts and circumstances (6 circumstances interest could further earn interest upon judicial demand.
enumerated by the SC. Refer lang to full txt kay taas) taken Furthermore, “when the judgment sought to be executed ordered
altogether show that the Underwriting and Consultancy Agreements the payment of simple "legal interest" only and said nothing about
were simply cloaks or devices to cover an illegal scheme employed payment of compound interest, but the respondent judge orders
by petitioner FMIC to conceal and collect excessively usurious payment of compound interest, then, he goes beyond the confines
interest. Art. 1957 provides that contracts and stipulations, under of a judgment which had become final.” In this case, no interest was
any cloak or device whatever, intended to circumvent the laws stipulated by the parties.
against usury shall be void.

Issue: Does a stipulation providing usurious interest invalidate the

whole loan contract?