1. PEOPLE VS. CONCEPCION, 44 PHIL. 126 FACTS:

Venancio Concepcion, President of the Philippine National Bank and a member of theBoard thereof, authorized an extension of credit in favor of "Puno y Concepcion, S. en C. to themanager of the Aparri branch of the Philippine National Bank. "Puno y Concepcion, S. en C."was a co-partnership where Concepcion is a partner. Subsequently, Concepcion was charged andfound guilty in the Court of First Instance of Cagayan with violation of section 35 of Act No.2747. Section 35 of Act No. 2747 provides that the National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agentsof the branch banks. Counsel for the defense argue that the documents of record do not provethat authority to make a loan was given, but only show the concession of a credit. They averredthat the granting of a credit to the co-partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National Bank, is not a "loan" within the meaning of section 35 of Act No. 2747.

ISSUE:

Whether or not the granting of a credit of P300,000 to the co-partnership "Puno yConcepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a"loan" within the meaning of section 35 of Act No. 2747.

HELD:

The Supreme Court ruled in the affirmative. The "credit" of an individual means hisability to borrow money by virtue of the confidence or trust reposed by a lender that he will paywhat he may promise. A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned,with or without interest. The concession of a "credit" necessarily involves the granting of "loans"up to the limit of the amount fixed in the "credit,"

2. CAROLYN M. GARCIA VS. RICA MARIE S. THIO, GR. NO. 154878, MARCH 16, 2007 FACTS:

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garccia a crossed check in the amount of $100,000.00 payable to the order of Marilou Santiago. Thereafter, Carolyn received from Rica payments of the sum due. In June1995, Rica received another check in the amount of P500,000.00 from Carolyn and payable tothe order of Marilou. Payments were made by Rica representing interests. There was failure to pay the principal amount hence a complaint for sum of money with damages was filed byCarolyn. Rica contended that she had no obligation to petitioner as it was Marilou who wasindebted as she was merely asked to deliver the checks to the latter and that the check paymentsshe issued were merely intended to accommodate Marilou. The RTC ruled in favor of Carolyn but the CA reversed on the ground that there was no contract between Rica and Carolyn as thereis nothing in the record that shows that respondent received money from petitioner and that thechecks received by respondent, being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

ISSUE:

Whether or not there was a contract of loan between petitioner and respondent.

HELD:

There Court ruled in the affirmative. A loan is a real contract, not consensual, and assuch is perfected only upon the delivery of the object of the contract. Art. 1934 of the Civil Code provides that an accepted promise to deliver something by way of commodatum or simple loanis binding upon the parties, but the commodatum or simple loan itself shall not be perfected untilthe delivery of the object of the contract. Upon delivery of the object of the contract of loan (inthis case the money received by the debtor when the checks were encashed the debtor acquiresownership of such money or loan proceeds and is bound to pay the creditor an equal amount. It isundisputed that the checks were delivered to respondent. However, these checks were crossedand payable not to the order of respondent but to the order of a certain Marilou Santiago. TheSupreme Court agrees with petitioner that delivery is the act by which the res or substancethereof is placed within the actual or constructive possession or control of another. Althoughrespondent did not physically receive the proceeds of the checks, these instruments were placedin her control and possession under an arrangement whereby she actually re-lent the amounts toSantiago. Hence, Rica is the debtor and not Marilou. 3. SAURA IMPORT & EXPORT CO. VS DBP GR NO. L-24968, 27 APRIL 972

FACTS Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan to be used for construction of factory building, for payment of the balance of the purchase price of the jute machinery and equipment and as additional working capital. In Resolution No.145, the loan application was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. The cancellation of the mortgage was requested to make way for the registration of a mortgage contract over the same property in favor of Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to pay said obligation, Prudential sued Saura.

After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to comply with tits obligations to release the loan proceeds, thereby prevented it from paying the obligation to Prudential Bank.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties ad that the RFC was guilty of breach thereof.

ISSUE Whether or not there was a perfected contract between the parties.

HELD The Court held in the affirmative. Article 1934 provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until delivery of the object of the contract.

There was undoubtedly offer and acceptance in the case. When an application for a loan of money was approved by resolution of the respondent corporation and the responding mortgage was executed and registered, there arises a perfected consensual contract.4. BPI INVESTMENT CORPORATION, VS. COURT OF APPEALS FEBRUARY 15 2002 Facts:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with AIDC.

AIDC was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roas debt and secured by the same property. Private respondents executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of Roas loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984.

ALS and Litonjua alleged that they should not be made to pay amortization before the actual release of the P500,000 loan in August and September 1982. According to private respondents, a perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the consideration of the other party. Private respondents conclude, they did not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its obligation under the loan contract.

Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed.

Issue: Whether or not a contract of loan is a consensual contract.

Held: A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract.[5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.

In the present case, the loan contract between BPI and ALS & Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, private respondents obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract.[7]

We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other.[8]As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.[9]Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.

Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of Court,[10] factual matters need not tarry us now. On these points we are bound by the findings of the appellate and trial courts.

5. PANTALEON VS AMERICAN EXPRESS G.R. NO. 174269, MAY 8 2009 FACTS:After the Amsterdam incident that happened involving the delay of American Express Card to approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint for moral and exemplary damages before the RTC against American Express. He said that he and his family experienced inconvenience and humiliation due to the delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the award of damages in favor of Pantaleon, holding that AmEx had not breached its obligations to Pantaleon, as the purchase at Coster deviated from Pantaleon's established charge purchase pattern.

ISSUE:1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.2. Whether or not AmEx is liable for damages.

RULING:1. Yes.The popular notion that credit card purchases are approved within seconds, there really is no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customers purchase, much less one specifically contracted upon by the parties. One hour appears to be patently unreasonable length of time to approve or disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioners purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that AmExs credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason why it could not have promptly informed Pantaleon the reason for the delay, and duly advised him that resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative. The somewhat unusual attending circumstances to the purchase at Coster that there was a deadline for the completion of that purchase by petitioner before any delay would redound to the injury of his several traveling companions gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by Pantaleon, as concluded by the RTC.

6. PRODUCERS BANK OF THE PHILIPPINES VS. COURT OF APPEALS, GR NO. 115324

FACTS:

Sometime in 1979, private respondent Franklin Vives, upon request of his friendAngeles Sanchez and relying on the assurance that he could withdraw his money within amonths time, issued a check in the amount of Two Hundred Thousand Pesos in favor of SterelaMarketing and Services owned by one Col. Arturo Doronilla. Subsequently, private respondentand his wife found out that Sterela cant be found on the address previously given to then, sothey went to petitioner Producers Bank of the Philippines to verify if their money was stillintact. They were informed that part of the amount had been withdrawn by Doronilla and that thelatter instructed the bank to debit from the savings account the amount and deposit it in hiscurrent account Private respondent filed an action for recovery of sum of money againstDoronilla, Sanchez, Dumagpi and petitioner. The trial court ruled in favour of herein privaterespondents. On appeal of the case, the appellate court affirmed the decision of the RTC.Petitioner contends that the transaction between private respondent and Doronilla is a simpleloan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction wasonerous as Doronilla was obliged to pay interest. Hence, petitioner argues that it cannot be heldliable because it is not privy to the transaction between the latter and Doronilla. Privaterespondent, on the other hand, argues that the transaction between him and Doronilla is not amutuum but an accommodation, since he did not actually part with the ownership of his P200,000.00 but retained some degree of control over his money through his wife who wasmade a signatory to the savings account and in whose possession the savings account passbook was given.

ISSUE:

Whether or not the contract between Sanchez and Doronilla and Vives is a contract of commodatum, thus making petitioner Bank liable.

HELD:

Supreme Court held that the contract is commodatum. Although in view of Article 1933of the Civil Code, the object in commodatum is non-consumable, but Article 1936 of the CivilCode provides Consumable goods may be the subject of commodatum if the purpose of thecontract is not the consumption of the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only for purposes of exhibition or when the intention of the partiesis to lend consumable goods and to have the very same goods returned at the end of the periodagreed upon, the loan is commodatum and not a mutuum. The evidence shows that privaterespondent merely "accommodated" Doronilla by lending his money without consideration, as afavor to his good friend Sanchez. It was however clear to the parties to the transaction that themoney would not be removed from Sterelas savings account and would be returned to privaterespondent after thirty (30) days. 7. COLITO T. PAJUYO VS. COURT OF APPEALS, GR. NO. 146364, JUNE 3, 2004

FACTS:

In June 1979, petitioner Colito T. Pajuyo purchased the rights over a property fromPedro Perez. Thereafter, he constructed a house therein and he and his family lived there. Later,Pajuyo agreed to let private respondent Eddie Guevarra to live in the house for free provided thatthe latter maintain the cleanliness and orderliness of the house. They also agreed that Guevarrashould leave the premises upon demand. Subsequently, when Pajuyo told Guevarra that heneeded the house, Guevarra refused, hence an ejectment case was filed. Guevarra claimed thatPajuyo had no valid title or right of possession over the lot where the house stands because thelot is within the 150 hectares set aside for socialized housing. The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusalto vacate the house on Pajuyos demand made Guevarras continued possession of the houseillegal. Aggrieved, Guevarra appealed to the Regional Trial Court which only affirmed the MTCdecision. At the CA, the latter reversed the RTC decision. The Court of Appeals ruled that theKasunduan is not a lease contract but a commodatum because the agreement is not for a pricecertain. Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, theappellate court held that Guevarra has a better right over the property under Proclamation No.137. At that time, Guevarra was in physical possession of the property.

ISSUE:

Whether or not the contract between petitioner and private respondent is one of commodatum.

HELD:

The Supreme Court held that the contract is not a commodatum. In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature of commodatum is that it isgratuitous. Another feature is that the use of the thing belonging to another is for a certain period.Thus, the bailor cannot demand the return of the thing loaned until after the expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing atwill, in which case the contractual relation is called a precarium. The Kasunduan reveals that theaccommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. Whilethe Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property ingood condition. The imposition of this obligation makes the Kasunduan a contract different froma commodatum. The effects of the Kasunduan are also different from that of a commodatum.

8. REPUBLIC VS. BAGTASFACTS: On 8 May 1948 Jose V. Bagtas borrowed from the Bureau of Animal Industry 3 bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari,-P1,320.56 and a Sahiniwal-P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. Bagtas offered to pay the value of the three bulls with a deduction of yearly depreciation however, Director of Animal Industry advised that they either be returned or their book value paid.Jose V. Bagtas failed to pay the book value of the three bulls or to return them, So, the Republic commenced an action against him.

RTC ordered Bagtas to pay the value of the 3 bulls plus breeding fees. However, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate,alleged that the two bull Sindhi and Bhagnari were returned and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal.That the death of bull was due to force majeure, as the contract is commodatum, she is relieved from the duty of returning the bull or paying its value to the appellee.

ISSUE: WON the contract was commodatum making Bagtas not liable for death of the Bull.

RULING: No. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

(note :court ruled that the 2 bulls were returned as evidenced by memorandum receipt)

9. QUINTOS VS BECK NOVEMBER 3, 1939 FACTS: Beck was a tenant of the Margarita Quintos and as such occupied the latter's house. On January 14, 1936, upon the novation of the contract of lease between the Margarita Quintos and the Beck, the former gratuitously granted to the latter the use of the furniture, among these were three gas heaters and 4 electric lamps, subject to the condition that the latter would return them upon the formers demand. The Margarita Quintos sold the property to Maria and Rosario Lopez and on September 14, 1936, Beck was notified of the conveyance, and was given sixty days to vacate the premises. There after Beck was required to return all the furniture. On November 5, 1936, Beck wrote to the Margarita Quintos reiterating that she may call for the furniture in the ground floor of the house. Beck wrote another letter to the Margarita Quintos informing her that he could not give up the 3 gas heaters and the 4 electric lamps because he would use them until the 15th of the same month when the lease in due to expire. Margarita Quintos refused to get the furniture in view of the fact that the Beck had declined to make delivery of all of them. On November 15th, before vacating the house, the Beck deposited with the Sheriff all the furniture belonging to the Margarita Quintos. The TC ruled in favour of Beck holding that Quintos violated the contract by not calling for all the furniture on November 5, 1936, when the Beck placed them at their disposal. On appeal of the case, the Court of First Instance of Manila affirmed the lower courts decision. Hence, this petition.

ISSUE: WON the TC erred in ruling that Quintos failed to comply with her obligation to get the furniture when they were offered to her.

HELD: The contract entered into between the parties is one of commadatum, because under it, Margarita Quintos gratuitously granted the use of the furniture to the Beck, reserving for herself the ownership thereof; by this contract the Beck bound himself to return the furniture to the Margarita Quintos, upon the latters demand. The obligation voluntarily assumed by the Beck to return the furniture upon the Margarita Quintos's demand, means that he should return all of them to the Margarita Quintos at her residence or house. Beck did not comply with this obligation when he retained for his benefit the three gas heaters and the four electric lamps.

The TC, therefore, erred when it held that Quintos failed to comply with her obligation to get the furniture when they were offered to her. Beck, as bailee, was not entitled to place the furniture on deposit; nor was the Margarita Quintos under a duty to accept the offer to return the furniture, because the Beck wanted to retain the three gas heaters and the four electric lamps. The appealed judgment is modified and the Beck is ordered to return and deliver to the Margarita Quintos, in the residence or house of the latter, all the furniture, including the 3 gas heaters and the 4 electric lamps

10. PEOPLE VS. PUIG AND PORRAS G.R. NOS. 173654-765 AUGUST 28, 2008Facts: On 7 November 2005, the Iloilo Provincial Prosecutor's Office filedbefore RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondentsTeresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier andBookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc.It was alleged in the information that Teresita Puig and Romeo Porras took awayP15,000 without the consent of the owner Bank to the prejudice and damage of thebank.The RTC dismissed the case for insufficiency of the information ruling that thereal parties in interest are the depositors-clients and not the bank because thebank does not acquire ownership of the money deposited in it.Hence petitioner Rural Bank went directly to the court via petition forcertiorari.Petitioner explains that under Article 1980 of the New Civil Code, "fixed,savings, and current deposits of money in banks and similar institutions shallbe governed by the provisions concerning simple loans." Corollary thereto,Article 1953 of the same Code provides that "a person who receives a loan ofmoney or any other fungible thing acquires the ownership thereof, and is boundto pay to the creditor an equal amount of the same kind and quality." Thus, itposits that the depositors who place their money with the bank are consideredcreditors of the bank. The bank acquires ownership of the money deposited by itsclients, making the money taken by respondents as belonging to the bank.Issue: Whether or not the Bank acquired ownership of the money deposited in itto be able to hold the respondents liable for qualified theft which requiresthat there must be taking of the money without the consent of the owners.Held: The petition is meritoriousBanks where monies are deposited, are considered the owners thereof. This isvery clear not only from the express provisions of the law, but from establishedjurisprudence. The relationship between banks and depositors has been held to bethat of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, asappropriately pointed out by petitioner, provide as follows:Article 1953.A person who receives a loan of money or any other fungible thingacquires the ownership thereof, and is bound to pay to the creditor an equalamount of the same kind and quality.Article 1980. Fixed, savings, and current deposits of money in banks and similarinstitutions shall be governed by the provisions concerning loan.In a long line of cases involving Qualified Theft, the Court has firmlyestablished the nature of possession by the Bank of the money deposits therein,and the duties being performed by its employees who have custody of the money orhave come into possession of it. The Court has consistently considered theallegations in the Information that such employees acted with grave abuse ofconfidence, to the damage and prejudice of the Bank, without particularlyreferring to it as owner of the money deposits, as sufficient to make out a caseof Qualified TheftIn summary, the Bank acquires ownership of the money deposited by its clients;and the employees of the Bank, who are entrusted with the possession of money ofthe Bank due to the confidence reposed in them, occupy positions of confidence.The Informations, therefore, sufficiently allege all the essential elementsconstituting the crime of Qualified Theft.WHEREFORE, premises considered, the Petition for Review on Certiorari is herebyGRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissingCriminal cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE.11. BPI FAMILY BANK VS. FRANCO G.R. NO. 123498 NOVEMBER 23, 2007 J.

FACTS:

On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soonthereafter, FMIC also opened a time deposit account with the same branch of BPI-FB On August 31, 1989, Franco opened three accounts, namely, a current, savings, and timedeposit, with BPI-FB. The total amount of P2,000,000.00 used to open these accounts istraceable to a check issued by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, thefunding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB fromFMICs time deposit account and credited to Tevestecos current account pursuant to anAuthority to Debit purportedly signed by FMICs officers. It appears, however, that the signatures of FMICs officers on the Authority to Debit wereforged. BPI-FB, debited Francos savings and current accounts for the amounts remainingtherein. In the meantime, two checks drawn by Franco against his BPI-FB current account weredishonored and stamped with a notation account under garnishment. Apparently, Francoscurrent account was garnished by virtue of an Order of Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Francos receipt of notice that his accounts were under garnishment. It was only onMay 15, 1990, that Franco was impleaded in the Makati case. Immediately, upon receipt of suchcopy, Franco filed a Motion to Discharge Attachment. On May 17, 1990, Franco pre-terminatedhis time deposit account.BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time depositaccount representing advance interest paid to him. Consequently, in light of BPI-FBs refusal toheed Francos demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the Manila RTC the subject suit.

ISSUE : WON Respondent had better right to the deposits in the subject accounts which are partof the proceeds of a forged Authority to Debit

HELD: NO

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, butnot as a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecosaccount. BPI-FB conveniently forgets that the deposit of money in banks is governed by the CivilCode provisions on simple loan or mutuum. As there is a debtor-creditor relationship between abank and its depositor, BPI-FB ultimately acquired ownership of Francos deposits, but suchownership is coupled with a corresponding obligation to pay him an equal amount on demand.Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demandingpayment of BPI-FBs obligation by drawing checks against his current account, or asking for therelease of the funds in his savings account. Thus, when Franco issued checks drawn against hiscurrent account, he had every right as creditor to expect that those checks would be honored byBPI-FB as debtor.More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Francobased on its mere suspicion that the funds therein were proceeds of the multi-million peso scamFranco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to takewhatever action it pleases on deposits which it supposes are derived from shady transactions,would open the floodgates of public distrust in the banking industry.Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know thesignatures of its customers. Having failed to detect the forgery in the Authority to Debit and inthe process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liabilitythereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawalsfrom their respective accounts without the appropriate court writ or a favorable final judgment.12. FRIAS VS. SAN DIEGO-SISON, GR. NO. 155223, APRIL 4, 2007

FACT:

Petitioner Bobie Rose V. Frias owned a house and lot which she acquired from IslandMasters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale. She enteredinto a MOA with respondent Flora San Diego-Sison. In the MOA, they had agreed among othersthat in the event that on the 6

th

month of the 6-month period to purchase land, respondent woulddecide not to purchase, the petitioner has a period of another 6 months to pay P3M provided thatthe said amount shall earn compounded bank interest for the last six months only. Respondentdecided not to purchase the property so what happened was that the P3M would be considered asa loan payable within six months. Petitioner failed to pay the P2M. Consequently, respondent filedwith the RTC a complaint for sum of money. RTC rules in favor of respondent and orders the payment of P2M plus compounded interest at 32% interest per annum pursuant to the MOA.Petitioner appeals to CA. The CA affirms RTC decision with modification with regard to theinterest from32% to 25%. Petitioner opposed to the said decision contending that the interest iscontrary to the parties Memorandum of Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has the period of another sixmonths to pay the loan with compounded bank interest for the last six months only; that the CAsruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which provides that no interest shall be due unless it has been expresslystipulated in writing.

ISSUE:

Whether or not the compounded bank interest should be limited to six months ascontained in the MOA.

HELD:

The agreement stipulated in the MOA that the amount given shall bear compounded bank interest for the last six months only (referring to the second six-month period), does not meanthat interest will no longer be charged after the second six-month period since such stipulationwas made on the logical and reasonable expectation that such amount would be paid within thedate stipulated. Considering that the petitioner failed to pay the amount given which under theMOA shall be considered as a loan, the monetary interest for the last six months continued toaccrue until the actual payment of the loaned amount. The payment of regular interest constitutesthe price or cost of the money use and thus, until the principal sum due is returned to the creditor,regular interest continues to accrue since the debtor continues to use such principal amount.

13. CONCEPCION VS. CAThe spouses Antonio E.A. Concepcion and Manuela S. Concepcion assail, via the instant petition for review on certiorari, the decision, dated 15 September 1995, of the Court of Appeals, affirming with modification the judgment of the Regional Trial Court ("RTC"), Branch 157, of Pasig City, that dismissed the complaint of herein petitioners against private respondents.

The facts, hereunder narrated, are culled from the findings of the appellate court.

On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and Trust Company) granted to the Concepcions a loan amounting to P1,400,000.00. The Concepcions, in turn, executed in favor of the bank a promissory note and a real estate mortgage over their property located at 11 Albany St., Greenhills, San Juan, Metro Manila. The loan was payable in equal quarterly amortizations for a period of fifteen (15) years and carried an interest rate of sixteen percent (16%) per annum. The promissory note provided that the Concepcions had authorized -

"x x x the Bank to correspondingly increase the interest rate presently stipulated in this transaction without advance notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member banks, and/or the interest rate on savings and time deposit, and/or the interest rate on such loans and/or advances."

In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984, increasing the quarterly amortizations from P67,830.00 to, respectively, P77,619.72, P104,661.10, and P123,797.05 for the periods aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72 and P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of P123,797.05 (starting due date of 17 April 1985).

In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the payment of the arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a final demand letter, dated 26 August 1985, for the payment of P393,878.81, covering the spouses' due account for three quarterly payments plus interest, penalty, and service charges. Still, no payment was received.

On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition for extrajudicial foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale was issued on 15 May 1986, setting the public auction sale on 11 June 1986. The notice was published in the newspaper "Mabuhay." A copy of the notice was sent to the Concepcions at 59 Whitefield St., White Plains Subdivision, Quezon City and/or at 11 Albany St., Greenhills Subdivision, San Juan, Metro Manila. The public auction sale went on as scheduled with the bank emerging as the highest bidder. A Certificate of Sale was issued in favor of the bank.

The Concepcions were unable to exercise their right of redemption within the one-year period provided under Act No. 3135. The bank thus consolidated its title over the property and, after the cancellation of the title in the name of the Concepcions, a new transfer certificate of title (No. 090-R) was issued in the name of Home Savings Bank and Trust Company.

On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new certificate of title was issued in the latter's name.

Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust Company, the Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro Manila, for the cancellation of the foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of nullity of the unilateral increases of the interest rates on their loan. The spouses likewise claimed damages against the defendants. The Concepcions, having learned of the sale of the property to Asaje Realty Corporation, filed an amended complaint impleading the realty corporation and so praying as well for the cancellation of the sale executed between said corporation and the bank and the cancellation of the certificate of title issued in the name of Asaje.

On 31 August 1992, the trial court found for the defendants and ruled:

"In view of all the foregoing premises, this Court finally concludes that the plaintiffs have no cause of action either against defendant Home Savings Bank & Trust Company or defendant Asaje Realty Corporation; and under the circumstances of this case, it deems it just and equitable that attorney's fees and expenses of litigation should be recovered by said defendants.

"WHEREFORE, judgment is hereby rendered dismissing the amended complaint of plaintiffs Spouses Antonio E.A. Concepcion and Manuela S. Concepcion against the defendants for lack of merit, and ordering the said plaintiffs to pay attorney's fees and expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank & Trust Company and in the amount of P25,000.00 to defendant Asaje Realty Corporation, in addition to their respective costs of suit.

"SO ORDERED."

The Concepcions went to the Court of Appeals.

On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as follows:

"Under the facts and circumstances of the case at bench, the award of attorney's fees, expenses of litigation and costs of suit in favor of defendant-appellee should be deleted. It is not a sound policy to place a penalty on the right to litigate, nor should counsel's fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA 558).

"WHEREFORE, the appealed judgment is AFFIRMED with the modification that the award of attorneys fees, litigation expenses and costs of suit in favor of defendant-appellees are deleted from the dispositive portion.

"SO ORDERED."

The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they have been denied their contractually stipulated right to be personally notified of the foreclosure proceedings on the mortgaged property.

There is some merit in the petition.

The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court. Each mode, peculiarly, has its own requirements.

In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135 is the law applicable; the provision reads:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city."

The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not precluded from exacting additional requirements.

In the case at bar, the mortgage contract stipulated that -

"All correspondence relative to this Mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the Mortgagee, or that no person was found at the address given, or that the address is fictitious or cannot be located, shall not excuse or relieve Mortgagor from the effects of such notice."

The stipulation, not being contrary to law, morals, good customs, public order or public policy, is the law between the contracting parties and should be faithfully complied with.

Private respondent bank maintains that the stipulation that "all correspondence relative to (the) Mortgage x x x shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee" gives the mortgagee an alternative to send its correspondence either at the old or the new address given. This stand is illogical. It could not have been the intendment of the parties to defeat the very purpose of the provision referred to which is obviously to apprise the mortgagors of the bank's action that might affect the property and to accord to them an opportunity to safeguard their rights. The Court finds the bank's failure to comply with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither petitioners' subsequent opportunity to redeem the property nor their failed negotiations with the bank for a new schedule of payments, can be a valid justification for the breach.

The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from private respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser in good faith. The realty corporation purchased the property when the title was already in the name of the bank. It was under no obligation to investigate the title of the bank or to look beyond what clearly appeared to be on the face of the certificate.

Private respondent bank, however, can still be held to account for the bid price of Asaje Realty Corporation over and above, if any, the amount due the bank on the basis of the original interest rate, the unilateral increases made by the bank having been correctly invalidated by the Court of Appeals.

The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle. Hence:

"Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that, because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so that the contract lacked mutuality. In most instances, however, these attacks have been unsuccessful.

"The Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not substantively unconscionable.

"Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal stability and to retain `real dollar' value to the price terms of long term contracts. The provision is a common one, and has been universally upheld and enforced. Indeed, the Federal government has recognized the efficacy of escalator clauses in tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension benefits and labor contracts negotiated by most of the major labor unions are other examples. That inflation, expected or otherwise, will cause a particular bargain to be more costly in terms of total dollars than originally contemplated can be of little solace to the plaintiffs."

In Philippine National Bank vs. Court of Appeals, the Court further elucidated, as follows:

"It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind.

"Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.

"We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held -

"`x x x (T)he unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code:

"`ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.'

"In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void x x x. Hence, even assuming that the x x x loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative `to take it or leave it' x x x. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citations omitted.)"

Even if we were to consider that petitioners were bound by their agreement allowing an increase in the interest rate despite the lack of advance notice to them, the escalation should still be subject, as so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on savings and time deposit, or of the interest rate on such loans and advances. The notices sent to petitioners merely read:

Letter of 19 July 1984:

"Please be informed that the Bank has increased the interest rate of your existing loan from 21 to 30% per annum beginning October 17, 1984. This increase of interest rate is in accordance with the provision of Section 2 of Presidential Decree No. 1684 amending Act No. 2655. This provision of the decree is reiterated under paragraph 1 of your Promissory Note. Your quarterly amortization has been increased to P104,661.10.

"We trust that you will be guided accordingly."

Letter of 14 November 1984:

"On account of the prevailing business and economic condition, we are compelled to increase the interest rate of your existing loan from 30% to 38% per annum effective November 17, 1984. This increase is in accordance with your agreement (escalation clause) in your promissory note/s.

"In view of this increase in the interest rate of your loan, your Quarterly amortization correspondingly increased to P123,797.05 commencing on April 17, 1985.

"We trust that you will understand our position and please be guided accordingly."

Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding that there are no sufficient valid justifications aptly shown for the unilateral increases by private respondent bank of the interest rates on the loan.

WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private respondent Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the bid price it received from Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of the loan computed at the original interest rate. This case is REMANDED to the trial court for the above determination. No costs.

SO ORDERED.

14. EASTERN SHIPPING LINES, INC VS. HON. COURT OF APPEALS Facts: On December 4, 1981, two fiber drums of riboflavin were shipped from Japan for delivery vessel owned by defendant Eastern Shipping Lines. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake.

Plaintiff contended that due to the damage sustained by said drum, the consignee suffered losses due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same and plaintiff was compelled to pay the consignee under the marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants.

Appellate court found that there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition. But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.

Also found that 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. CA ordered Eastern to pay the amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid.

Issue: Whether or not the grant of the interest on the claim of private respondent should commence from the date of filing of the complaint.

Held: No.

As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee.

The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

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

15. SEBASTIAN SIGA-AN VS. ALICIA VILLANUEVA JANUARY 20, 2009 FACTS: Alicia Villanueva was a businesswoman engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) while Sebastian Siga-an was a military officer and comptroller of the PNO. Villanueva claimed that sometime in 1992, Siga-an approached her and offered to loan her the amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted Siga-ans proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the payment of interest for the loan.

On 31 August 1993, Villanueva issued a check worth P500,000.00 and on 31 October 1993, another, in the amount of P200,000.00. Siga-an told her that since she paid a total amount of P700,000.00 for the P540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest, Siga-an pestered her to pay additional interest. Siga-an threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked Siga-an for receipt for the payments but Siga-an told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount she paid to Siga-an for the loan and interest accumulated to P1,200,000.00. Upon being advised by her lawyer, Villanueva sent a demand letter to Siga-an asking for the return of the excess amount of P660,000.00. Siga-an, however, ignored her claim for reimbursement. Hence, Villanueva instituted a complaint for sum of money against Siga-an. the RTC ordered Siga-an to refund the excess amount to Villanueva pursuant to the principle of solutio indebiti. On appeal, the CA affirmed the decision of the RTC.

ISSUE: WON interest was due to Siga-an. NO.

HELD: Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. Payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.

It appears that Siga-an and Villanueva did not agree on the payment of interest for the loan. Neither was there convincing proof of written agreement between the two regarding the payment of interest. Villanueva testified that although she accepted Siga-ans offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan. It is evident that Villanueva did not really consent to the payment of interest for the loan and that she was merely tricked and coerced by Siga-an to pay interest and issue a promissory note recognizing interest on the loan. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of interest or written agreement of interest on the loan between Siga-an and Villanueva.

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 CC states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 CC provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest. The case at bar involves Siga-ans claim for monetary interest. Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that Villanueva defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest.

16. LIGUTAN VS. COURT OF APPEALS, GR. NO. 138677, FEBRUARY 12, 2002

FACTS:

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan from privaterespondent Security Bank and Trust Company. Petitioners executed a promissory note to pay thesum loaned with an interest of 15.189% per annum upon maturity and to pay a penalty of 5%every month on the outstanding principal and interest in case of default. On maturity of theobligation, petitioners failed to settle the debt despite several demands from the bank.Consequently, the bank filed a complaint for recovery of the due amount. After trial of the case,the Trial court ruled in favour of the Bank, ordering petitioners to pay the respondent the sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 5% per month penaltycharge among others. On appeal of the case, petitioners prayed for the reduction of the 5%stipulated penalty for being unconscionable. The Court of Appeals ruled that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice. But still, petitioners dispute the said decision.

ISSUE:

Whether or not the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loanobligation are exorbitant, iniquitous and unconscionable.

HELD:

The question of whether a penalty is reasonable or iniquitous can be partly subjectiveand partly objective. Its resolution would depend on such factors as, but not necessarily confinedto, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breachand its consequences, the supervening realities, the standing and relationship of the parties, andthe like, the application of which, by and large, is addressed to the sound discretion of the court.The essence or rationale for the payment of interest is not exactly the same as that of a surchargeor a penalty. A penalty stipulation is not necessarily preclusive of interest. What may justify acourt in not allowing the creditor to impose full surcharges and penalties, despite an expressstipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence. The Court of Appeals, exercising itsgood judgment in the instant case, has rightly reduced the penalty interest from 5% a month to3% a month.17. UCPB VS SPOUSES BELUSOGR NO. 159912, AUGUST 17, 2007PONENTE: CHICO-NAZARIO, J.Facts:1.

Petition for Review on

Certiorari

declaring void the interest rate provided in the promissory notesexecuted by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB)2.

UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement wherebythe latter could avail from the former credit of up to a maximum amount of P1.2 Million pesosfor a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissorynotes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificatesof Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreementwas subsequently amended to increase the amount of the Promissory Notes Line to a maximumof P2.35 Million pesos and to extend the term thereof to 28 February 1998.3.

On 30 April 1997, the payment of the principal and interest of the latter two promissory notes

were debited from the spouses Belusos account with UCPB; yet, a consolidated loan

for P1.3Million was again released to the spouses Beluso under one promissory note with a due dateof 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended tothem by UCPB, the spouses Beluso executed two more promissory notes for a totalof P350,000.00. However, the spouses Beluso alleged that the amounts covered by these lasttwo promissory notes were never released or credited to their account and, thus, claimed thatthe principal indebtedness was only P2 Million.4.

The spouses Beluso, however, failed to make any payment of the foregoing amounts.5.

On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligationof P

2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply

therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spousesBeluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00.6.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damagesagainst UCPB with the RTC of Makati City.7.

Trial court declared in its judgment that:a.

the interest rate used by [UCPB] voidb.

the foreclosure and Sheriffs Certificate of

Sale voidc.

UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosured.

UCPB to pay [the spouses Beluso] the amount of P

50,000.00 by way of attorneys fees

e.

UCPB to pay the costs of suit.f.

Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.8. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-

appellant UCPB is not liable for attorneys fees or the costs of suit.

ISSUES:

1. Whether or not interest rate stipulated was void

Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and itviolates the Truth in lending Act.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined

by the

Branch Head is indeed dependent solely on the will of petitioner UCPB.

Under such provision, petitionerUCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) arate as determined by the Branch Head. As UCPB is given this choice, the rate should be categoricallydeterminable in

both

choices. If either of these two choices presents an opportunity for UCPB to fix the rate at

will, the bank can easily choose such an option, thus making the entire interest rate provision violative of theprinciple of mutuality of contracts.In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution,are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does notsufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissorynotes which is required in TRuth in Lending Act

2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if declared amount by UCPB was excessive.

Yes. Default commences upon judicial or extrajudicial demand.

[26]

The excess amount in such a demand doesnot nullify the demand itself, which is valid with respect to the proper amount. There being a valid demand onthe part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the properamount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12%legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed,

thus: There being no valid stipulation as to interest, the legal rate of interest shall be charged.

[27]

It seemsthat the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contractstipulation providing the compounding of interest. The provisions in the Credit Agreement and in thepromissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests hasfurthermore been declared by this Court to be legal.

3. Whether or not foreclosure was void

No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the spousesBeluso. Despite being excessive, the spouses Beluso are considered in default with respect to the properamount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may beforeclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts towhich UCPB is rightfully entitled.

18. CARPO VS. CHUA & DY NG, GR. NOS. 150773 & 153599, SEPTEMBER 30, 2005

FACTS:

Herein petitioner spouses David Carpo and Rechilda Carpo contracted a loan fromEleanor Chua and Elma Dy Ng for a certain sum of money payable within six (6) months with aninterest rate of six percent (6%) per month secured by a mortgaged of the spouses Carpo of their residential house and lot. Petitioners failed to pay the loan upon demand. Consequently, the realestate mortgage was extrajudicially foreclosed, mortgaged property sold at a public auction, andthe house and lot was awarded to respondents, who were the only bidders. Unable to exercisetheir right of redemption by petitioners, a certificate of sale was issued in the name of respondents. However, petitioners continued to occupy the said house and lot, thus respondentsfile a petition for writ of possession which was granted by the Trial Court. Petitioners filed acomplaint for annulment of real estate mortgage and the consequent foreclosure proceedingsclaiming that the rate of interest stipulated in the principal loan agreement is clearly null and voidfor being excessive, iniquitous, unconscionable and exorbitant. Consequently, they also arguethat the nullity of the agreed interest rate affects the validity of the real estate mortgage.

ISSUE:

Whether or not the agreed rate of interest of 6% per month or 72% per annum is soexcessive, iniquitous, unconscionable and exorbitant that it should have been declared null andvoid.

HELD:

In a long line of cases, the Supreme Court has invalidated similar stipulations on interestrates for being excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establishsuch stipulations, clauses, terms and conditions as they may deem convenient, provided they arenot contrary to law, morals, good customs, public order, or public policy. In the ordinary course,the codal provision may be invoked to annul the excessive stipulated interest. In the case at bar,the stipulated interest rate is 6% per month, or 72% per annum. By the standards set by jurisprudence, this stipulation is similarly invalid.