Case Matrix for Credit Transacitons

Credit Transactions Case Matrix SY 2010-2011

CASE TITLE FACTS/ISSUES/(KEYWORDS) DECISIONS/DOCTRINES

Money Market transaction is in the form of simple loan or mutuum1. Allied

Banking Corp. Vs. Lim Sio Wan(549 SCRA 504; 2008)

ALLIED BANKING CORPORATION, PETITIONER, VS. LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., AND PRODUCERS BANK, RESPONDENTS.G.R. No. 133179, March 27, 2008 VELASCO JR., J.:

(Money market placements; pre-terminated without the depositor’s authority; the Wan; Allied check in payment for the proceeds of the Lim Sio Wan’s deposit was deposited in Metrobank for the account of FCC as Producers Bank payment of its obligation to FCC)

Facts:On November 14, 1983, respondent Lim Sio Wan deposited with Allied a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983.

On Dec. 5, 1983, a person claiming to be Lim Sio Wan called up an officer of Allied and instructed the latter to pre-terminate her money market placement, and to issue manager’s check (MC) representing the proceeds of the placement and be given to one Deborah Santos. Later, Santos arrived at the bank and accordingly the MC payable to Lim Sio Wan given to Ms. Santos. The check was cross-checked “For Payee’s account only.” Thereafter, said check was deposited in Metrobank (herein respondent) for the account of Filipinas Cement Corp. (FCC), with a forged signature of Lim Sio Wan. This fact was later on confirmed by Allied to Metrobank.

Few months prior to this occasion, FCC had made a money market placement with Producers Bank amounting to P2M where Ms. Santos was the money market trader for said account. Upon

Held:Yes. It was held that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor. The Court gave the following statutory bases:

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Thus, a bank deposit is in the nature of a simple loan or mutuum and this includes a money market placement. A money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money market placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor

Eppie D. Severino PSU School of Law



maturity of said placement, December 5, 1983, FCC demanded from said bank payment of proceeds thereof. This was the same date on which Ms. Santos had received from Allied the MC representing the proceeds of Ms. Lim’s pre-terminated placement. The MC was deposited in the account of FCC maintained at Metrobank, purportedly presenting the proceeds of its placement with the Producers Bank. In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Bank’s payment of its obligation to FCC.

When Ms. Lim decided to withdraw said money market placement upon its maturity, Allied bank informed her that upon her instructions, it was already pre-terminated and the proceeds was already given to her on Dec. 5,1983. However, Ms. Lim denied this giving such instructions and receiving the payment. But Allied refused to her, claiming that the latter had authorized the pre-termination of the placement and its subsequent release to Santos.

As a result, Ms. Lim filed a complaint against Allied to recover the proceeds of her money market placement. Later on, an amended complaint was filed to include Metrobank as a party defendant. The RTC rendered its decision in favor of Ms. Lim ordering Allied to pay the plaintiff. Allied appealed with the CA. But the latter affirming and modifying the judgment of the RTC ordering Allied and Metrobank to pay Ms. Lim Sio Wan on a 60:40 ratio, respectively. Hence, this petition.

Issue:Whether Allied should be made liable to Ms. Lim Sio Wan despite the fact that it had already issued an MC in the latter’s favor, and thus its obligation has been extinguished.

in interest, or any person authorized to receive it." Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it.

Since there was no effective payment of Lim Sio Wan's money market placement, the bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof.

However, the decision of the CA was affirmed by the SC on the premise that Allied should not be solely made liable to Lim Sio Wan. The liability of the Allied is concurrent with that of the Metrobank, although not equally liable. The reason is that both bank have failed to exercise proper diligence due from a financial institution. Allied is negligent in issuing the MC to Santos without first confirming with Lim Sio Wan if the latter had indeed authorized Santos to pre-terminate her placement and to receive the proceeds thereof. Metrobank, as last indorser of the check, is likewise negligent when it indorsed the check without first verifying the authenticity of Lim Sio Wan’s indorsement and when it accepted the check despite the fact that it was cross-checked payable only to payee’s account.




Article 1956: No interest shall be due unless it has been expressly stipulated2. Siga-an vs.

Villanueva (576 SCRA 696; 2009)

SEBASTIAN SIGA-AN, Petitioner, vs.ALICIA VILLANUEVA, Respondent.G.R. No. 173227 January 20, 2009Chico-Nazario, J:

(Loan P540,000; But all in all paid to Siga-an a total amount of P1,200,000; Villanueva-business woman; Siga-an= comptroller Phil. Navy Office (PNO); Proprietary of the interest charged despite the absence of written agreement as to interest)

Facts:Alicia Villanueva is businesswoman who is engaged in supplying office materials and equipment to Phil. Navy Office (PNO), wherein Mr. Sebastian Siga-an is the comptroller. Sometime in 1992, Ms. Villanueva was able to secure a loan from Mr. Siga-an amounting to P540,000, since she needed capital for her business transactions with the PNO. The loan agreement was not reduced into writing and there was not stipulation as to the payment of interest for the loan. Eventually, Ms. Villanueva was able to render partial payment on the loan by issuing a check worth P500,000. Two months later, she again issued a check with an amount of P200,000 in favor of Mr. Siga-an, the latter claiming that the excess of P160,000 is to be applied as interest for the loan. However, not satisfied with the amount of interest that the Mr. Siga-an had collected from her, the former pestered her to pay additional interest and threatened her that her transactions with the PNO would be blocked since he is the comptroller of said office and all said transactions were subject to his approval. Because of such threat, she paid the additional interest in cash and in checks. According to her computation, she had paid a total amount of P1.2M to Siga-an, inclusive of the principal and interest. Doubtful of the propriety of the amount of interest

Held: The decision of the appellate court is affirmed but reducing the amount to be refunded and the amount of damages to be awarded to the respondent.

First Issue: Yes. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. 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. As can be gleaned from the foregoing provision, 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, it was held that collection of interest without any stipulation therefor in writing is prohibited by law.

It appears that petitioner and respondent 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. Respondent testified that although she accepted petitioner’s offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan. As to the promissory note that the petitioner had presented to show that there was indeed an agreement as to the interest, it was held that such promissory note cannot be gainfully pertains to an express stipulation of the interest or written agreement of the loan because the respondent was only tricked and coerced by the petitioner to write said note.

Second Issue:

The petitioner argues that solutio indebiti does not apply in this case, and therefore he has no obligation to return the excess amount paid by the respondent. It was held that




which she paid Siga-an, she consulted her lawyer. The latter told her that Mr. Siga-an could not validly collect interest from her because of the absence of any agreement between her and her creditor regarding payment of interest. By reason thereof, Ms. Villanueva sent a demand letter to Mr. Siga-an asking for the return of the excess of P660,000. Despite receipt of the demand letter, Siga-an ignored her claim for reimbursement. Thus, Villanueva filed a complaint with the RTC for sum of money, wherein said court rendered a decision in favor of Villanueva ordering Siga-an to refund the amount of P660,000 plus interest and to pay for the damages prayed for. Such decision was appealed to the CA by Siga-an, but the appellate court affirmed the decision of the in toto. Hence, this petition.

Issues:1. Whether the petitioner (Siga-an) is entitled to a

monetary interest on the loan granted to respondent (Villanueva) in the absence of any agreement as to the interest.

2. Whether solutio indebiti is applicable, hence the amount paid by the respondent representing interest on loan be refunded to her.

the payment was clearly a mistake and the respondent has an obligation to return it. The principle of solutio indebitiapplies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. It has been held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Hence, the respondent has no duty to make the interest payment because there was no express stipulation in writing to that effect.

Unilateral action to increase interest rates and successive increase thereof, a violation of Article 1308 and 1956 of the Civil Code, respectively




3. PNB vs. CA; Ambrosio Padilla (196 SCRA 536; 1991)

PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS and AMBROSIO PADILLA, respondents.G.R. No. 88880. April 30, 1991.Griño-Aquino, J:

Facts:In 1982, Ambrosio Padilla, herein private respondent, applied for, and was granted by petitioner PNB, a credit line of P321.8 million, secured by a real estate mortgage, for a term of two years, with 18% interest per annum. Padilla executed in favor of the PNB a Credit Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The Promissory Notes, uniformly authorized the PNB to increase the stipulated 18% interest per annum "within the limits allowed by law at any time depending on whatever policy it [PNB] mayadopt in the future; Provided, that, the interest rate on the note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board."

However, two years thereafter, when the P1.8 million credit line has matured on July 4, 1984, PNB within the period of only four months has increased the 18% interest rate on the borrower’s loan obligation three times: (a) to 32% in July 1984,; (b) to 41% in October 1984; and (c) to 48% in November 1984. Several letters were sent by Padilla to PNB requesting the latter to increase the interest rate from 18% but to be fixed at 21% or 24% per annum. However, PNB despite the objection of Padilla and without authority from the Monetary Board still effected such increases of interest rates within the aforesaid intervening period. For this reason, Padilla was compelled to file a complaint with the RTC praying to declare that the unilateral increase of interest rates by PNB is illegal and not valid nor binding upon Padilla. It was also

Held:The Court held in a negative. Those increases were null and void, for if the Monetary Board itself was not authorized to make such changes oftener once a year, even less so may a bank, which is subordinate to the Board. While the debtor did agree in the Deed of Real Estate Mortgage that the interest rate may be increased during the life of the contract "to such increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe" or "within the limits allowed by law," no law was ever passed in July to November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% per annum, and no documents were executed and delivered by the debtor to effectuate the increases. To unilaterally and successively increase the agreed rate of interest from 18% to 48% within a span of four months is a clear violation of PD 116 which limits such changes to once every 12 months.

The Court further held, the 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." A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is void. Likewise, the increases imposed by PNB contravene Art. 1956 of the Civil Code which provides that no interest shall be due unless it has been expressly stipulated. Here, the debtor never agreed in writing to pay the interest increases fixed by PNB beyond the 24% per annum; hence, he is not bound to pay a higher rate than that.

The petition for review was denied for lack of merit.




prayed that the amount paid representing the excess interest be reimbursed to him. But the complaint was dismissed by the lower court because according to the latter the increase of interests was properly made. Padilla appealed to the CA. The appellate court reversed the decision of the RTC, hence this petition for review.

Issue:Whether PNB, within the term of the loan which it granted to Padilla, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased.

Judgment of court awarding a sum of money becomes final and executory; rate of interest: 12%4. Int’l. INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Held:




Container Terminal Services vs. FGU Insurance Corp. (556 SCRA 174; 2008)

PETITIONER, VS. FGU INSURANCE CORPORATION, RESPONDENT.G.R. No. 161539, June 27, 2008AUSTRIA-MARTINEZ, J.:

Facts:The liability of International Container Terminal Services, Inc., (ICTSI), the petitioner in this case, arose from a lost shipment of "14 Cardboards 400 kgs. of Silver Nitrate, shipped by Hapag-Lloyd AG through the vessel Hannover Express from Hamburg, Germany on July 10, 1994, with Manila, Philippines as the port of discharge, and Republic Asahi Glass Corporation (RAGC) as consignee. Said shipment was insured by FGU Insurance Corporation (FGU). When RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the shipment, petitioner, which was the arrastre contractor, could not find it in its storage area. At the request of petitioner, the NBI conducted an investigation. The AAREMA Marine and Cargo Surveyors, Inc. also conducted an inquiry. Both found that the shipment was lost while in the custody and responsibility of petitioner.

As insurer, FGU (respondent) paid RAGC the amount of P1,835,068.88 on January 3, 1995. In turn, FGU sought reimbursement from petitioner, but the latter refused. This constrained FGU to file with the RTC of Manila a civil action for a sum of money.

After trial, the RTC rendered its decision finding petitioner liable. The said court ordered the petitioner to pay FGU the amount of P1,875, 068.88 with 12% interest per annum from January 3, 1995 until fully paid. Attorney’s fees and other litigation expenses were likewise adjudged against the petitioner. Petitioner appealed to the (CA), which, in the assailed decision, affirmed the RTC Decision. A motion for reconsideration was filed

Yes. The CA did not commit any error in affirming the judgment of the lower court. The case of Eastern Shipping Lines, Inc. vs. CA is instructive. The Court in said case, inscribed the rule of thumb in the application of interest to imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, 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 application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to FGU. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest.

(Be it noted, however, that the facts of the case at bar did not indicate neither the judgment of the RTC nor of the CA has become final and executory.)




which the CA denied. Hence, the present petition for review on certiorari questioning the propriety of the imposition of 12% interest despite the fact that the obligation purportedly breached does not constitute a loan of forbearance of money.

Issue:Whether the imposition of 12% interest on an obligation that does not constitute a loan of forbearance of money is proper.

Interest accruing from unpaid interest; Where the court’s judgment which did not provide for the payment of interest has already become final,No interest may be awarded.




5. Solid Bank Corp. vs. CA(379 SCRA 159; 2002)

SOLIDBANK CORPORATION, petitioner, vs.COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents. G.R. No. 138131 March 12, 2002YNARES-SANTIAGO, J.:

Facts:This case originated from a civil case involving Solidbank Corp., as plaintiff (herein petitioner) vs. Wear Me Garments, the Go Family, Leonila Cui and Prudential Guarantee as defendants (the latter as herein private respondent). The defendants in said case obtained several credit accommodations from Solidbank and assigned to it as additional collateral two fire insurance policies issued separately by Prudential and Oriental. The assets covered by these policies were subsequently foreclosed and acquired by Solidbank, but before they could be removed from the factory, a fire broke out and destroyed them. Thus, on July 27, 1995, the RTC of Manila issued a decision declaring, among others, the Prudential and Oriental are held jointly and severally liable to Solidbank to the extent of the respective insurance coverages assigned to the latter. There was no mention in the dispositive portion of the said decision as regards the interest. The said decision became final and executory on February 23, 1998.

On July 10, 1998, upon motion of the petitioner (Solidbank), the trial court issued a writ of execution and pursuant therewith, a demand letter was sent to Prudential which contain the amount of collectible from the latter. The total assessment of P9,210,666.66 includes the following: (a) the sum insured: P5,000,000; (b) interest at 12%p.a., for 2024 days: P3,373,333.33; and (c) 10% attorney’s fees: P837,333.33. However, before Prudential raised the issue to the CA, it paid the total execution amount to Solidbank, subject to the final determination of its

Held:First issue:The Court held that the imposition of interest by the sheriff of 12% interest on the liability of Prudential is void. It is a settled general principle that a writ of execution must conform substantially to every essential particular of the judgment promulgated. Execution not in harmony with the judgment is bereft of validity. It must conform, more particularly, to that ordained or decreed in the dispositive portion of the decision.Corollary thereto, it must be stressed that a judgment which has acquired finality becomes immutable and unalterable, and hence may no longer be modified in any respect except only to correct clerical errors or mistakes — all the issues between the parties being deemed resolved and laid to rest.

In the case at bar, the dispositive portion of the decision subject of the assailed order and writ of execution specifically limited the liability of private respondent to the following: 1) P5 million, representing the extent of the insurance coverage assigned to petitioner; 2) 10% attorney's fees; and 3) the cost of suit. Clearly, no mention was made as to the payment of interest. If the trial court intended to impose interest on the amount adjudged against private respondent, it would have expressly so stated, but it did not. Hence, it cannot, in the execution of the July 27, 1995 decision, modify the same by ordering private respondent to pay interest. Accordingly, the July 9, 1998 Writ of Execution, imposing interest on the amount for which private respondent was held liable, as well as the Order dated August 18, 1998, sustaining the computation and imposition by the sheriff of a 12% interest on the subject liability, are void.

Second issue:The Court find merit in the third issue raised by petitioner. The interest imposed by the respondent court on the amount refundable to private respondent in excess of P9,210,666.66, is in the concept of damages which must have factual and legal basis. As no justification was given by the respondent court, the award of interest cannot be affirmed. Moreover, it would be iniquitous to hold petitioner liable for the errors committed by the trial court and the sheriffs concerned in the execution of the decision. Hence, the interest imposed by respondent Court of Appeals should be deleted.




liability under the decision of the lower court. Prudential filed a motion to correct the writ of execution and asking the lower court to delete the imposition of the interest and other charges, saying that it was only liable for the sum insured and attorney’s fees; and that it should be refunded the excess. However, the motion was denied by the lower court. Prudential filed a petition for review with the CA which granted such petition and set aside the assailed Order and Writ of Execution issued by the trial court. Included in the appellate court’s decision is an order whereby Solidbank is ordered to refund the excess paid by Prudential, plus interest thereon. Hence, the instant petition.

Issues:1. Whether the imposition of interest in the writ of

execution against Prudential is proper despite the absence of provision in the dispositive portion of the lower court’s decision as regards the payment of interest.

2. Whether the imposition of interest on the amount to be refunded by Solidbank is proper.

Usurious contracts declared void; form of contract not conclusive; contract void only as to interest involved; determination of interest payable in kind6. Briones vs.

Cammayo AURELIO G. BRIONES, plaintiff-appellee, Held:1




(41 SCRA 404; 1971)

vs.PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.Carlos J. Antiporda for plaintiff-appellee.Manuel A. Cammayo for defendants-appellants.G.R. No. L-23559 October 4, 1971 DIZON, J.:

Facts:Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo Cammayo, et.al., to recover from them, jointly and severally, the amount of P1,500, plus damages, attorney’s fees and costs of suit. Defendants executed a real estate mortgage as security for the loan of P1,200 given to Primitivo Cammayo upon the usurious agreement that defendant will pay Briones. The latter reserved and secured himself, out of the alleged loan of P1,500, the amount of P300 as interest for one year. Although the mortgage contract was executed for securing the payment of P1,500 for a period of one year, without interest, the truth and the real fact is that Briones delivered to the Primitivo only the sum of P1,200 and withheld the sum of P300 which was intended as advance interest for one year. On account of said loan of P1,200, Primitivo paid to his creditor during the period from Oct. 1955 to July 1956 the total sum of P330, which the latter, illegally and unlawfully refused to acknowledge as partial payment of the loan but considered the payment as an interest of the said loan for an extension of another term of one year. It was interposed by the defendant that the plaintiff, by taking and receiving interest in excess of what is allowed by law, committed a flagrant violation of the Usury Law. The MTC

The Court held in the affirmative insofar as the principal loan is concerned. In other words, the loan is valid but the interest thereon is usurious. It has been declared by the Court in several cases that, in any event, the debtor in a usurious contract of loan should pay the creditor the amount of which he justly owes him. Although a usurious contract is void and the creditor has no right of action to recover the interest in excess of the lawful rate, this does not mean that the debtor may keep the principal received by him as loan – thus unjustly enriching himself to the damage of the creditor. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.

Insofar as the interest is concerned, the plaintiff in the present case, can only recover the principal of the loan from Primitivo, with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint.

1 Castro, Fernando, and Concepcion, JJ., dissenting: In a contract which is tainted with usury, that is, with a stipulation (whether written or unwritten) to pay usurious interest, the prestation to pay such interest is an integral part of the cause of the contract. It is also the controlling cause, for a usurer lends his money not just to have it returned but indeed, to acquire in coordinate gain. Article 1957, which declares the contract itself – not merely the stipulation to pay usurious interest –void, necessarily regards the prestation to pay usurious interest as an integral part of the cause, making it illegal.




rendered judgment sentencing Primitivo and his co-defendants to pay Briones the sum of P1,500 with interest at the legal rate from Feb. 22, 1962. This decision was assailed by the defendants upon appeal. However, the CA affirmed said decision but reducing the amount to be paid by the defendants deleting the usurious interest of P120 including attorney’s fees of P200. The defendant in this present appeal claim that the decision of the trial court and of the appellate court is erroneous in sentencing them to pay the principal of the loan considering that the same is tainted with usury.

Issue:1. In a loan with usurious interest, may the creditor recover

the principal of the loan?




Usury Law is not repealed nor amended by CB Circular No. 905; merely suspended its effectivity; Nevertheless, courts may reduce the interest rate if it finds that the interest agreed upon is iniquitous or unconscionable.

7. Medel, etal., vs. CA, etal. (G.R. No. 131662 27 Nov. 1998)

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents.G.R. No. 131622. November 27, 1998PARDO, J.:

Facts:Servando and Leticia, married to Dr. Rafael Medel (petitioners) obtained several loans on various dates covering the period Nov 7, 1985 to July 11, 1986 from Veronica Gonzales (respondents) who was engaged in money lending business. Two promissory notes were executed to evidence the loans and each of the promissory notes contain the same terms and condition that each of the loan shall be subject to an interest rate of 6% per month, payable in two months. The proceeds received by the petitioner from each of the loan were net of the interest due. The last loan that petitioners obtained on June 11 1986 amounting to P300,000 was secured with a real estate mortgage where the property mortgaged belonged to Leticia Yaptinchay. Petitioners failed to pay all of the loans including interests upon their respective maturity. Thus, on July 23, 1986 petitioners consolidated all of their unpaid loans totaling P440,000 and added another loan of P60,000, bringing their indebtedness to P500,000. A promissory note was executed in favor of Veronica which stipulated that the loan will be payable in August 23, 1986 and that it shall be subject

Held: Insofar as the first issue is concerned, it was held that CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended its effectivity. The interest charged could not be said “usurious,” as the petitioners argue, because the Court has consistently held that the above circular has expressly removed the interest ceilings prescribed by the Usury and that the said law is now legally inexistent in this jurisdiction. Interest can now be charged as lender and borrower may agree upon.

Nevertheless, in response to the second issue that needs to be resolved, it was held that the interest of 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and hence contrary to morals (“contra bonos mores”), if not against the law. The stipulation is void. The courts shall reduce equitably the interest rate and liquidated damages, whether intended as a penalty or as an indemnity it they are iniquitous or unconscionable.

The SC reversed and set aside the decision of the CA and thereby affirming and reviving the judgment of the lower court.




to an interest rate of 5.5% per month plus 2% service p.a. until fully paid. Upon maturity of the promissory note, the borrowers failed to pay the indebtedness of P500,000, plus interests and penalties. Thus, Veronica was compelled to file a complaint before the RTC for collection of the full amount of the loan including interests and other charges. The lower court declared that although the Usury Law had been repealed, the interest charged on the loan was unconscionable and therefore should be reduced to 12% per annum pursuant to provision of the Civil Code. Upon appeal, Veronica argued that the 12% interest per annum on loans is applicable only in the absence of stipulation on interest rate, but not when the parties agreed thereon. The CA sustained Veronica’s contention. Hence, this present petition for review on certiorari.

Issues: Whether the Usury Law is still effective or has it been repealed by CB Circular 905.Whether the stipulated interest rate of 5.5% per month on loan is usurious and therefore considered void.




Although the effectivity of the Usury Law is suspended, Court may be warranted to declare the interest illegal if it finds that such interest is unconscionable8. Castro vs.

Tan (G.R. No. 168980 24 Nov. 2009)

SPS. ISAGANI CASTRO and DIOSDADA CASTRO, vs.ANGELINA DE LEON TAN, SPS. CONCEPCION T. CLEMENTE and ALEXANDER C. CLEMENTE, SPS. ELIZABETH T. CARPIO and ALVIN CARPIO, SPS. MARIE ROSE T. SOLIMAN and ARVIN SOLIMAN and JULIUS AMIEL TAN, Respondents.G.R. No. 168940 November 24, 2009

DEL CASTILLO, J.:

Facts:On February 17, 1994, Angelina de Leon Tan and her husband Ruben Tan were able to obtain a loan amounting to P30,000 from Sps. Isagani and Diosdada Castro. The loan was secured with a real property mortgage which consisted of residential lot owned by Sps. Tan. A Kasulatan ng Sanglaan ng Lupa at Bahay (Kasulatan) was executed in favor of Sps. Castro under which the spouses Tan undertook to pay the mortgage debt within 6 months

Held:

The Court finds that the petition lacks merit. It was held that while the Court agreed with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the CB No. 905 which suspended the Usury Law ceiling on interest effective, it is also worth stressing that interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which grants lenders complete discretion (carte blanche) to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. In this case, the 5% monthly interest rate, of 60% per annum, compounded monthly, stipulated in the Kasulatan is excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is void ab initio for being violative of Art. 13062 of the Civil Code. Therefore, it is more consonant with justice that the Court upheld the decision of the CA in equitably reducing the subject interest rate to the legal interest of 12% per annum which is deemed fair and reasonable.

2 Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.




or until August 17, 1994, with an interest rate of 5% per month, compounded monthly. Unfortunately, the husband of Angelina Tan died and she was left with the responsibility of paying the loan. In short, she failed to pay the loan upon maturity. However, she offered to pay spouses Castro the principal amount of P30,000 plus a portion of the interest but the creditor refused and instead demanded payment of the total accumulated sum of P359,000. Sps. Castro instituted an extra-judicial foreclosure of mortgage. They emerged as the sole bidder and the redemption period expired without the property being redeemed.

Respondent Tan, et.al., filed a Complaint for Nullification of Mortgage and Foreclosure and/or Partial Rescission of Documents and Damages before the RTC of Malolos, Bulacan. They alleged, inter alia, that the interest rate imposed on the principal amount of P30,000.00 is unconscionable. The trail court ruled in favor of the respondent and reduced the interest rate to 12% per annum. This decision was appealed to the CA, but the latter affirmed said decision. Hence, this present petition.

Issue:Whether the interest rate agreed upon by the parties in the Kasulatan is valid since the Bangko Sentral has removed the ceiling on the rate of interest the parties may stipulate.
