CREDIT TRANSACTIONS.pdf

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PART 1

A. LOAN

1. GENERAL PROVISIONS

- Articles 1933, 1934 of the Civil Code

Article 1933

By the contract of loan, one of the parties delivers to another, either something not consummable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatom is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

COMMENT:

1. Two kinds of loan

a. mutuum or simple loan, and b. commodatum.

2. Distinction between mutuum and commodatum

Mutuum Commodatum

a) Equivalent amount to be returned ( fungible things) b) May be gratuitous or onerous

( with interest)

c) Ownership goes to borrower or bailee

d) Refers to personal property only

a) Same thing to be returned ( non- fungible things)

b) Essentially gratuitous

c) Ownership retained by lender or bailor

d) May involve real or personal property

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a) R e f e r r e d t o a s l o a n f o r consumption

b) Borrower bears risks of loss c) To be paid only at the end of

period

d) Not personal in character

a) Referred to as loan for use or temporary possession

b) Resperit domino. Lender bears the risk of loss

c) To return object at end of period or return upon demand in proper cases even before the end of the period

d) Personal in character

Article 1934

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

COMMENT:

1. Nature of the contract of loan

Commodatum and loan are real contract. They are perfected by the delivery of the object loaned. On the other hand, consensual contracts are perfected by mere consent.

2. Need for delivery

To affect either a commodatum or a mutuum, a delivery either real or constructive, is essential. This is so because unless there is delivery, the borrower in commodatum cannot exercise due diligence over the thing loaned.

- In relation to: Art. 1740a of the Civil Code

If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility.

2. COMMODATUM

a)a. Nature and Effects: Art. 1935 - 1940 Civil code

Article 1935

The bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is to be paid by him who acquires the use, the contract ceases to be a commodatum.

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1. Commodatum Defined

Commodatum is a real, principal, essentially gratuitous and personal contract where the bailor or lender delivers to the bailee or borrower a non-consumable object, so that the latter may use the same for a certain period and later return it.

2. Characteristics of Commodatum as a Contract a. real (because perfected by delivery)

b. principal ( because it can stand alone by itself) c. gratuitous (otherwise, the contract is one of lease) d. personal in nature (because of the trust) (See Art. 1939)

Article 1936

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition.

COMMENT:

Subject Matter of Commodatum

Usually, only non-consumable goods may be the object of a commodatum for the thing itself should not be consumed and must be returned, but consumable thing may also the object of commodatum if the same is only for exhibition or used ad ostentationem.

Article 1937

Movable or immovable property may be the object of commodatum.

COMMENT:

Properties that may be the object of Commodatum a. immovable property

b. movable property

Article 1938

The bailor in commodatum need not be the owner of the thing loaned.

COMMENT:

Reason for the law

Bailor need not be the owner because the law said: the contract of commodatum does not transfer ownership. All that is required is that the bailor has the right to the use of the property which he is lending, and that he be allowed to alienate this right to use.

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Article 1939

Commodatum is purely personal in character. Consequently: 1) The death of either the bailor or the bailee extinguishes the

contract;

2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the bailee’s household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use.

- This article is self-explanatory

Article 1940

A stipulation that the bailee may make use of the fruits of the thing loaned is valid.

COMMENT:

Does the Bailee have right to use the fruits?

As a rule bailee is not entitled to the fruits, otherwise the contract may be one of usufruct. However, to stipulate that the bailee makes use of the fruits would not destroy the essence of a commodatum, for liberality is still the actual cause or consideration of the contract.

C

ASES on nature and effects of Commodatum

Republic v. Jose V. Bagtas 6 SCRA 262

Bailor: Jose Bagtas

Bailee: Republic of the Philippines through the Bureau of Animal Industry Facts:

Jose Bagtas borrowed three bulls from the Bureau of Animal Industry, for breeding purposes but subject to a charge of breeding fee of 10% of the book value of the bulls. The contract is from May 8, 1948 to May 7, 1949.

Upon the expiration of the contract Jose asked for a renewal for another period of one year, the Bureau then approves such renewal but limited only to one bull and asked for the return of the other two. Before the contract lapse Jose Bagtas make known of his desire to buy the three bulls, subject to the approval of the Auditor General. But Bagtas later on failed to buy three bulls and pay the book value of said bulls, and kept in his possession the bull even after the contract lapsed.

Contention of the parties: Republic:

- Bagtas should pay the book value or return the bulls Bagtas:

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- Felicidad Bagtas being the administrative of the late Jose Bagtas contends that the contract made between his husband and the Republic is a contract of commodatum, and for that reason they are not liable for the death of the one bull due to force majeure as against the claim of the Republic.

Issue:

Is the contract one of commodatum? Ruling:

The court on its decision explained that the contract may not be that of commodatum, but a contract of lease in consideration of the compensation gained or being gained. Furthermore, even if the contract be that of a commodatum they are still liable for they acted in bad faith by with holding the bulls longer than stipulated without valid reason.

Republic v. CA November 26, 1986 Bailor: Domingo P. Baloy

Bailee: U.S. Navy

Third party claimant: Republic of the Philippines

Facts:

The land in issue has been occupied by the U.S Navy by virtue of Act 627 for 57 years, and was later been abandoned. The said land is owned by Domingo P. Baloy and his heirs privately, since 1894 as attested by an Informacion Possesoria Title issued by the Spanish Government. The heirs of Domingo wishes to register the land in question in their names but they were opposed by the Republic.

- The land had become public and could not be subject to a valid registration for private ownership.

- the failure of the heirs of Domingo to comply with the 6 months period to file a claim to the subject private land barred them of any claims in the future and said land be ipso facto become public land as implied under Act 627 of the Philippine Commission, pursuant to the executive order of the President of the U.S..

Issue:

Is the occupancy by the US Navy in the concept of an owner, ripen into ownership in commodatum?

Ruling:

No. ownership is not transferred to the US Navy. The occupancy of the U.S. Navy was not in the concept of owner but partakes of the character of a commodatum, therefore it cannot militate against the title of Domingo Baloy and his successors-in-interest for ownership is not transferred.

Mina v. Pascual October 14, 1913 Bailor: Alejandra Mina through Francisco Fontanilla Bailee: Repurta Pascual through Andres Fontanilla Third party complainant or the buyer: Cu Joco Facts:

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Francisco Fontanilla (the ascendant of Alejandra Mina) is the then owner of a lot at Laoag Ilocos Norte, which with consent allowed his brother Andres Fontanilla( ascendant of Repurta Pascual) to build and erect a warehouse over said lot.

After which Repurta Pascual sold the warehouse with the lot to a certain Cu Joco. Hence, Alejandra Mina filed a case to annul said sale of the lot and warehouse. Contending that said sale is void for it is not Ruperta Pascual who is the owner of the lot and the whole of the warehouse. Thus they have no right to sell the same.

Contention of the parties:

Cu Joco:

- Contends the legality of the sale of the land warehouse for it was done through auction by which gives him a right over said properties.

Issue:

Is there a contract of commodatum?

Ruling:

The contract or agreement made between Francisco and Andres is that of a contract of commodatum; (despite the lack of definite time of us by Andres of the lot, due to personal motive of Francisco with respect to a certain Fructuoso Fontanilla)

By said contract under art. 1740, Civil Code a sale of land belonging to another, on which a building of the vendor’s is located, is null and void, for the vendor cannot sell or transfer property that does not belong to him.

Saura Import and Export Company Inc. v. DBP April 27, 1972

Bailor: Rehabilitation Finance Corp. or Development Bank of the Philippines DBP. Bailee: Saura Import and Export Company Incoporated.

Facts:

Saura Import and export Co., applied for loan to Rehabilitation Finance Corporation (RFC) which later on converted to DBP. The said bank due to disagreement as to the laid conditions imposed against herein Saura the said loan was then denied. Saura then filed a case contending that the denial of the loan made by the bank is against or violates their right under the civil code on obligation and contracts because said bank made such denial in mutual manner. There was a breach of contract.

The DBP on the other hand contends that there was no breach of contract violated; Saura’s cause of action prescribes, and that there was a contract but it was Saura who did not comply with the terms thereof.

Issue:

Was there a perfected contract of loan? Ruling:

Yes. There was indeed a perfected consensual contract, as recognized in Art. 1934 of the Civil Code which 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 the delivery of the object of the contract. “Manresa. - mutuo disenso” principle was then applied in the extinguishment of the contract; that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

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b) The bailee; 1941-1945 Civil Code:

Article 1941

The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.

COMMENT:

Duty of the borrower to pay ordinary expenses

Reason for the law: the bailee is supposed to return the identical thing, so he is obliged to take care of the thing with the diligence of a good father of a family. It follows necessarily that ordinary expenses for the use and preservation of the thing loaned must be borne by the bailee.

Article 1942

The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

1) If he devotes the thing to any purpose different from that for which it has been loaned;

2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted;

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;

4) If he lends or leases the thing to a third person, who is not a member of his household;

5) If, being able to save either the thing borrowed or his own thing, he chose to have the latter.

COMMENT:

Liability for loss due to a fortuitous event

As a rule, debtor of a thing is not responsible for its loss thru a fortuitous event. This Article gives the exceptions in a case of commodatum.

Article 1943

The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault.

COMMENT:

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Article 1944

The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses. However, the bailee has a right of retention for damages mentioned in article 1951.

COMMENT:

Bailment implies a trust that as son as the time has expired, or the purpose accomplished, the bailed property must be restored t the bailor.

Article 1945

When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.

COMMENT:

This article provides for solidary liability of Bailees

Margarita Quintos et al. v. Beck November 3, 1939

Bailor: Margarita Quintos Bailee: Beck

Facts:

Beck was a tenant of Quintos at her house on M.H. Del Pilar Steet No. 1175. Upon the novation of the contract of lease between the parties, the leassor gratuitously granted to Beck the use of the furniture (three gas heaters and four electric lamps) subject to the condition that Beck would return the same upon demand.

Later on, upon demand of the furniture by Quintos, Beck instead of delivering the same to the formers house he surrendered them to the sheriff.

Contention of the parties: Quintos:

- That since the contract of commodatum with condition as agreed upon was then violated as to the condition implied by Beck, therefore he must borne all expenses and Quintos be excluded therefrom.

Beck:

- Insisted that she should only return the furnitures upon the expiration of the lease. Issue:

Is the bailor liable for the judicial or legal expenses due to act of the bailee affecting the thing loaned?

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The costs should be borne by Beck because Quintos is the prevailing party. Beck was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon demand. It is just and equitable that he pays the legal expenses and other judicial costs which Quintos would not have otherwise defrayed.

De Los Santos v. Jarra February 10, 1910 Bailor: Felix De Los Santos

Bailee: Magdaleno Jimenea Facts:

A contact of loan ( commodatum) of ten carabaos made between Felix De Los Santos, bailor and Magdaleno Jimenea, bailee was made after the latter died. In said contract the said carabaos shall be returned to the owner until the work in the formers mill would be finished, but unluckily the bailee died, and Agustina Jarra became the administratrix of the estate of Jimenea. Felix then presented his claim to the carabaos to the commissioner of the estate of Jimenea, with the legal term, but his claim was then rejected. Hence he filed an action for the recovery of the same.

Contention of the parties: Jarra:

- contends that said carabaos were sold to Jimenea as to the 3, 4 had died due to sickness, that only 3 carabaos had been in there possession.

Issue:

Is the bailee liable for the loss of the thing loaned due to fortuitous event? Ruling:

The bailee is at fault to any damages or losses caused thereby, for he was guilty of delay for delivery to return the carabaos to the bailor or owner thereof.

In a contract of commodatum whereby one the parties delivers to the other a thing that is not perishable, “to be used for a certain time” and afterwards return it, it is imperative duty of the bailee, if he should unable to return the thing itself to the owner, to pay damages to the latter if through the fault of the bailee, the thing loaned was lost or destroyed, inasmuch as the bailor retains the ownership thereof.

Producers Bank of the Philippines v. CA and Franklin Vives Bailor: Franklin Vives

Bailee: Doronilla and Estrella Dumagpi Facts:

Franklin was asked by a friend Angeles Sanches to deposit 200,000.00 pesos in favor of his friend Doronilla and Estrella Dumagpi to be used in incorporating a business. Franklin later on agreed to give or lend the amount with the assurance that the same be delivered back to him after the lapse of 30 days or a month.

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Franklin upon knowing that Sterela ( the company) was no longer holding office in the address previously given to him, he and his wife went to the Bank wherein, to verify if their money was still intact, and they have learned that what was left is only 90,000.00 pesos, for Doronilla had withdrawn the amount missing.

By legal means Franklin demanded the return of his money (200,000.00pesos). The trial court and CA rendered decision in favor of Franklin. Hence this petition.

The Bank alleged that CA erred in its decision saying: Contention of the parties:

Petitioners:

- Claim that the transaction is a mutuum thus petitioner cannot be held liable for the return of the 200,000.00.

Issues:

1) Was there a contract of loan between the parties; and 2) Is the bank liable for any damages?

Ruling:

That the contract is that of commodatum for the subject may be consumable but the ultimate intention of the loan is not to consume the same.

Under art. 2180 of the Civil Code employers shall be held liable primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. The said manager failed to exercise due diligence to prevent the unauthorized withdrawal.

c) The bailor: articles 1946-1952 Civil Code; in re art. 765 Civil Code.

Article 1946

The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted. However, if in the meantime, he should have urgent need of the thing, he may demand its return or temporary use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession of the bailor.

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Article 1947

The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases:

1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or

2) If the use of the thing is merely tolerated by the owner. COMMENT:

Precarium

- is a special form of commodatum. In a true commodatum, the possession of the borrower is more secure. The possession of the borrower in precarium is precarious, that is , dependent on the lender’s will.

Article 1948

The bailor may demand immediate return of the thing if the bailee commits any acts of ingratitude specified in Article 765.

COMMENT:

Grounds for Ingratitude

Art. 765 of the Civil Code provides:

The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases:

1) If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental authority; 2) If the donee imputes to the donor any criminal offense, or any act involving

moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife or children under his authority;

3) If he unduly reduses him support when the donee is legally or morally bound to give support to the donor.

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Article 1949

The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary.

COMMENT:

Extraordinary Expenses

a. As a rule, the extraordinary expenses should be paid by the bailor because it is he who profits by said expenses, otherwise the thing borrowed would be destroyed.

b. Generally notice is required because the bailor should be given discretion as to what he wants to do his own property.

Article 1950

If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Article 1941 and 1949, he is not entitled to reimbursement.

- This article is self-explanatory.

Article 1951

The bailor who, knowing the flaws of the thing loaned does not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof.

COMMENT:

When a person lends, he ought to confer a benefit, and not to do a mischief. If he does not reveal the flaws, he is liable for his bad faith. The flaws referred to must be hidden defects, not obvious ones.

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Article 1952

The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee.

COMMENT:

The value of the thing borrowed might be less than the value of the expenses or damages. Manzano v. Perez Sr.

August 9, 2001 Bailor: Emilia Manzano

Bailee: Nieves M. Perez Facts:

Emilia Manzano lent her house and lot to her sister Nieves M. Perez for the latter o use it as a collateral for a projected loan, upon the promise that she would return the property immediately upon payment of her loan.

Pursuant to the previous agreement both parties end up executing deeds of conveyance for the sale of subject house and lot, in favor of Nieves in consideration of 1.00 peso plus other valuables, which was allegedly received by Emilia.

Contention of the parties: Petitioner:

- claims the subject property contending that there was no contact of sale made, that the contract made by them is that of a commodatum, and that said property be delivered back to her. All of which are made in oral.

Respondents:

- showed or presented evidence to prove and deny all belied allegation or contention of the petitioner. Like notarial document; two Kasulatan ng Bilihang Tulayan.

Issue:

Whether or not the contract be that of a sale or loan.

Ruling:

The court reiterates the evidence offered by petitioner to prove the claim is sadly lacking. Jurisprudence on the subject matter, points to the existence of a sale, not a commodatum, over the subject house and lot.

Note: oral testimony as to a certain fact depending as it does exclusively on human memory is not as reliable as written or documentary evidence.

The fact that the deed of sale was not notarized does not render the agreement null and void and without any effect. The necessity of public document is only for convenience not for validity or enforceability.

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1. Simple Loan or Mutuum

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Arts. 1953-1960 Civil Code, in relation to Art. 1933

Article 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.

COMMENT:

Ownership Passes in Mutuum

Ownership passes to the barrower, but of course he must pay later.

Article 1954

A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity, and quality shall be considered barter.

COMMENT:

Barter of Non-Consumable things

Here, the word non-fungible does not really mean non-fungible but non-consumable. Reason: if the thing were really non-fungible the identical thing must be returned. Here, an equivalent thing is returned.

Article 1955

The obligation of a person who borrows money shall be governed by the provisions of Articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the perfection of the loan shall be paid.

COMMENT:

Liabilty of Borrower of Money

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- Article 1249: The payment of debt in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance

- Article 1250: In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be th basis of payment, unless there is an agreement to the contrary.

Article 1956

No interest shall be due unless it has been expressly stipulated in writing.

COMMENT:

1. Formality for Interest (for the use of money) The interest must be stipulated in WTITING 2. How interest arises

The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay principal on which interest is demanded.

3. When interest earns interest

Interest due shall earn legal interest from the time it is judicially demanded; the obligation may be silent upon this point. (Article 2212 civil code)

4. Interest by Way of Damages

Article 2209: if the obligation consist in the payment of sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (The rate now is 12% per annum)

Article 1957

Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury.

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Article 1958

In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.

COMMENT:

Determination of Interest in kind

Value should be at the time and place of PAYMENT.

Article 1959

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal shall earn new interest.

COMMENT:

1. When accrued interest earns interest

The general rule is that accrued interest (interest due and unpaid) will not bear interest, BUT

a. If there is agreement to this effect (art. 1959), or b. If there is judicial demand (Art. 2212)

Then such accrued interest will bear interest at the legal rate (Art. 2212) unless, a differen rate is stipulated.

2. Compound interest

Compound interest is interest on accrued interest. It is valid to charge compound interest, but there must be a written agreement to this effect; otherwise said compound interest should not be charged unless it is interest charged upon judicial demand.

Article 1960

If the borrower pays interest when there has been no stipulation therefore, the provisions of this Code concerning solutio indebiti, or natural obligation, shall be applied, as the case may be.

Article 1961

Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code.

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a. Definition

a. Art. 418. - movable property is either consumable or non-consumable. To the first class belong those movables which cannot be used in manner appropriate to their nature without their being consumed; to the second class belong all the others.

b. Obligation to pay/nature of mutuum

- As to loan: money or other fungible thing: bailee is bound to pay the equal amount of the same kind and quality.

- Contract: non-fungible things: to give things of the same kind, quantity, and quality- barter

- ownership: is transferred to the bailee but he is obliged to pay to the bailor/creditor an equal amount of the same kind and quality.

c. Payment - legal mode of extinguishing an obligation by way of delivery of money, giving of a thing, or doing of an act, or not doing of an act.

d. Trust receipts - Written document signed by the entrustee and delivered to the entrustor for the former to comply with the obligations stated on the receipts, in the payment of interest. Failure of which may result to criminal or civil action against the entrustee.

Colinares et al. v. CA, and People of the Philippines September 5, 2000

Entrustor: Philippine Banking Corpoartion Entrustee: Colinares and Veloso

Facts:

Colinares and Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s convent for 40,000 pesos.

In order to pursue with the construction project due to lack of budget, Colinares applied for a commercial letter of credit with the Phil. Banking Corp. (PBC) to cover the full invoice value of the goods. They signed a pro-formal trust receipt as security.

A case in violation of P.D. 115 (trust receipt law) in relation to Art. 315 of the RPC (estafa), was filed against Colinares for their failure to comply with the demand made by the Bank against them.

Issue:

Whether or not there was a breach of contract against the trustees.

Ruling:

SC court said that. - Colinares are contractors and are not importers acquiring the goods for re-sale, but obtained the goods for their construction project.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay t may be unjust and inequitable, if not reprehensible. Such agreement is contract of adhesion which borrowers have no option but to sign lest their loan be disapproved.

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e. Interest/ forbearance / usury

i. Interest.

- The compensation which is paid by the borrower of money to the lender for its use, and generally by a debtor to his creditor, in recompense for his detention of the debt.

ii. Usury

- is contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods, chattels or credits.

iii. Interest payable in kind

- Art. 1958… if payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.

iv. Unpaid Interest. - Arts. 1959, 2212, 195.

Art.2212: interest due shall earn legal interest from the time it is judicially demanded although the obligation may be silent upon this point.

Arts 1956 and 1959: interest due and unpaid shall not earn interest. Except by way of stipulation.

v. Exception to the requirement of stipulation.

Republic v. Jose Grijaldo L-202420, Dec.31, 1965 Facts:

In 1943, Jose Grijaldo borrowed money from a bank, evidenced by five promissory notes, and secured by a chattel mortgage on the standing crops on his land. During the war, the crops were destroyed as a result of enemy action.

- he is able to pay the principal amount plus interest Grijaldo:

- he is not liable to pay principal amount and interest because his obligation is extinguished due to destruction of the standing crop.

Issue:

Must the borrower still pay? Held:

Yes, for his obligation was to pay a generic thing-money representing the loan with interest. The chattel mortgage on the crops simply stood as security for the fulfillment of his obligation, and therefore, the loss of the crops did not extinguish his obligation to pay, because the account can still be paid from sources other than said mortgaged crops.

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Overseas Bank of Manila v. Cordero March 30, 1982

Depositor: Vicente Cordero

Depositary: Overseas Bank of Manila Facts:

Vicente Cordero opened a one-year time deposit with petitioner bank in the amount of 80,000.00 pesos with interest at the rate of 6% per annum. Due to its distressed financial condition petitioner was unable to pay Cordero his said time deposit together with the interest.

RTC and CA ruled in favor of Cordero.

Contention of the parties: Cordero:

- the bank did not cease in its operation - payment of interest and attorney’s fees Issue:

Is Cordero entitled for the interest due to him by the Overseas Bank? Ruling:

No, Cordero is not entitled for the payment of interest. The Overseas Bank was totally crippled during the period of financial distressed. It must be understood that the obligation to pay interest on deposit ceases the moment the bank is completely suspended by the duly constituted authorities.

De Vera v. CA, October 18, 2001 Buyer: Gregorio De Vera

Seller: Q.P. San Diego Construction Incorporated Facts:

Gregorio De Vera entered into a Condominium Reservation Agreement with Q.P. San Diego Construction Inc. (QPSDCI). It is worth 325, 000.00 pesos, De Vera gave a down payment in cash and the balance of him is through Pag-ibig and Open- Housing Loan, which was later on approved and accepted by QPSDCI.

De Vera assumed that by way of the loan and personal payment of its obligation made by him that the subject condominium unit is already owned by him, and be entitled to its name.

QPSDCI’s failure to remit De Vera’s payment caused the mortgage of the unit be foreclosed by the funders (consist of the Syndicate Loan Agreement by different banks and companies involve in selling the subject condominium property).

De Vera filed a civil case against the Funders, praying that the mortgage between them be declared null and void; and that the condominium he had paid be titled on his name.

(20)

QPSDI:

- petitioner should deal directly to Asia Trust, because they sold the property to him and issued a DOAs thru bank.

Issue:

Is the petitioner liable to pay interest?

Ruling:

The essence of financing loan is to obtain funds through an interim loan, while the main loan is not yet available. This does not mean that the petitioner is liable to private respondent for penalties, interest and other charges that accrued by reason of non-payment of the balance of the purchase price.

Naguiat v. CA and Queano October 3, 2003 Bailor: Naguiat

Bailee: Queano Facts:

Queano applied a loan with Naguiat , which the latter granted. Naguiat for a loan in the amount of 200,000 pesos which Naguiat granted. To secure the loan Queano executed a Deed of Real Estate Mortgage in favor of Naguiat, and surrendered her owner’s duplicate of title covering the mortgage properties. A promissory note for the amount of 200,000 pesos with interest of 12% was also issued.

When Naguiat demanded the settlement of the loans, Queano claims that she did not receive the proceeds of the loan adding that checks was retained by Ruebenfeldt, Naguiat’s agent. Naguiat then sseks to foreclose of the mortgage.

Contention of the parties:

Queano:

- Queano told that Naguiat, upon the latter’s demand the settlement of the loan, Queano claims that she did not receive the proceeds of the loan adding that the checks was retained by Ruebenfeldt who was Naguiat’s agent.

Issue:

Is Queano liable to pay the principal amount with 12% interest? Held:

No, as stated by Supreme Court, a loan contract is a real contract not consensual, and such is perfected only upon the delivery of the object of the contract. In this case the object of the contract are the loan proceeds which has all told, that the lender did not remit and the borrower did not receive. That being the case, Queano is not oblige to pay the principal amount with 12% interest.

Moreover, the mortgaged which is supposed to secure the loan is null and void.

Severino Tolentino et al. v. Benito Gonzales et al. August 12, 1927

Buyer: Tolentino and Manio

Seller: Luzon Rice Mills Incorporated

(21)

Facts:

Tolentino and Manio purchased a parcel of land before Luzon Rice Mills Inc., in Tarlac to be paid by way of installment and non-payment would revolt the property to the original owner. A transfer certificate was then given to Tolentino and Manio, despite the remaining balance of 15,000.00 pesos.

The representative of the vendor then wrote the vendees to comply with its obligation or else a case be filed against them, that said obligation is due and demandable. The vendee failed to comply, hence, this cause of action and claim for the recovery of the property in question.

Contention of the parties: Tolentino:

- Borrower, it should be 6% because the contract was rent. Sy Chian:

- 12% because there was a contract of loan. Issue:

Is the contract usurious on the ground that higher interest rate was imposed? Ruling:

The Usury Law applies only to contract of loan and not to an absolute sale with right to repurchase. It is well-settled rule that the legal interest of the contract of sale is 6% per annum if there was stipulation and 12% per annum for contract of loan.

f. Usurious Transaction Cases

Aguilar vs. Rubiato 40 Phil 570 Debtor: Rubiato

Creditor: Aguilar Facts:

Juan Rubiato was the owner of various parcel of land at Nagcarlan, Province of Laguna. That Manuel Vila by way of force and fraud made Rubiato to sign a power of attorney in his favor in order to obtain a loan. That by that reason Vila and company were able to sell the property to Hilaria Aguilar, using said document. In the contract of sale the vendor was allowed to stay at the subject property but to pay rent, until demand be ordered by the purchaser.

Hilaria then never received any rent to Vila or Rubiato, hence this cause of action. Contention of the Plaintiff:

- That he is entitled to 60% interest per annum when the pacto de retro was formulated until the usury law took effect and 12% PA after such date.

Contention of the Respondent - The interest is usurious. Ruling:

Rubiato was only responsible to the plaintiff for the loan because of the inadequacy of the price which Vila obtained for the 8 parcels of land owned by Rubiato and it failed to name a lawful rate of interest.

The 60% is usurious, as such the plaintiff shall only recover 6% interest PA rate on the sum of P800.

(22)

Rono vs. Gomez 83 Phil 890 Debtor: Rono

Creditor: Gomez Facts:

Repayment of the loans given in Japanese currency during the lost war of the Pacific. Rono on October 5, 1944, received as a loan 4,000 in Japanese fiat money from Gomez and agreed to pay said debt one year after date, in the currency then prevailing that time; this was done by way of promissory note. On October 15, 1945 Rono failed to comply with its obligation, hence this cause of action.

Contention of the Plaintiff:

- That the contract is contrary to usury law because he only received P100 and now he is required to discharge P4000.

Contention of Respondent:

- That Rono should pay his debt amounting to P4000 Issue:

Whether or not the liability would remain in Japanese fiat not Philippine currency. Ruling:

Rono should pay Gomez the sum of only P100 with legal interest from the date of the filing of the complaint plus cost. Because Peso during the time of contract is somewhat valueless than that of its equivalent during the expiration of the contact which is more in value, this fact was then considered, and in order to give everyone its due and in fair Rono is to pay Gomez 100 pesos which is equivalent of peso on October 5, 1944.

Eastern ShippingLines vs. CA 234 SCRA 578

Facts:

Petitioner is a common carrier which brought the cargo of private respondent from Japan to Manila. Due to bad weather, water was able to come in the cargo hold and damaged the goods. Herein defendant brought the action to the RTC. CA ruled in favor of First National Assurance (private respondent) and ordered ESL to pay damages with interest starting from the judicial demand. Petitioner contended that the interest is usurious and that it should commence upon final order.

Contention of the parties: ESL:

- Interest should start upon final order FNA:

- Interest should start from the judicial demand. Issue:

Whether or not the contention of the petitioner (ESL) is tenable.

Ruling:

The interest due on the amount should commence from the date of judicial demand. The legal interest to be paid is 6% on the amount due computed from the decision of the court a quo.

(23)

Integrated Realty Corporation vs. PNB 174 SCRA 295

Facts:

Raul Santos was issued certificate of deposit totaling to P700, 000.00 by OBM. IRC through Raul Santos applied a loan for P700, 000.00 with PNB . To secure the loan, he executed a Deed of Assignment of the two Time Deposit in favor of PNB. OBM after due dates did not pay. Contention of the Plaintiff:

- That the Trial Court erred in its judgment ordering them to pay for the amount with additional penalty interest.

Contention of the Respondent:

- The plaintiff should pay additional penalty interest. Issues:

Whether or not OBM is liable to pay the 6.5% interest Ruling:

While it is true that under Art 1956, “no interest shall be due unless it has been expressly stipulated in writing”, this applies only to interest for the use of money. It does not comprehend interest paid as damages.

Jardenil vs. Salas 73 Phil 976 Facts:

A mortgage deed was executed between Jardenil and Salas whereby the latter agreed to pay interest to the date of maturity in March 1934.

- Should be entitled for the payment of interest up to the date of full payment of the principal.

- Should only be liable up to the date of the maturity of the PNB. Issue:

Whether or not Salas is bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the payment is affected?

Ruling:

The contract is silent as to whether after the date, in the event of non-payment, the debtor would continue to pay interest. No legal presumption as to such interest could be indulged for this would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. As such, plaintiff is only entitled to the stipulated interest of 12% on the loan. Legal interest shall accrue since judicial demand had been made.

Cu Unjeng vs.Mabalacat Sugar Co. 54 Phil 976

Surety- Siulong and Co. Mortgagor-PNB

(24)

Cu Unjieng instituted this cause of action to recover from Mabalacat Sugar Company indebtedness, with interest and to foreclose a mortgage given by the debtor to secure the same. Collection of debt-168,000.00 plus interest

- Collection of the debt plus interest. Contention of the Respondent:

- The extension of time of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity.

Issue:

What is the interest to be imposed? Ruling:

The provision merely requires the debtor to pay interest monthly at the end of each month, such to be computed upon the capital of the loan not already paid. Compound interest must be eliminated. It must always be in writing or when there is judicial demand.

GSIS vs. CA 145 SCRA 311 Debtor- Spouses Medina

Creditor- GSIS Facts:

Spouse Medina applied for a loan with the GSIS. GSIS approved said application with the following conditions: that the rate of interest is 9% per annum compounded monthly; payable in 10 years, at monthly amortization; and that any installment or amortization that remains due and unpaid shall bear interest of 9% to 12% per month. Medina’s executed 2 real estate mortgage as security in favor to GSIS.

That the Medinas defaulted in paying the monthly amortization on their loan, the GSIS imposed 9% to 12% interest on all installment due and unpaid.

- The amended REM did not supersede the original document, therefore, all interest and stipulations should be imposed.

- The compound interest should not be imposed since it was not in writing in the amended REM.

Issue:

Whether or not the compounded interest as stipulated in the original mortgage contract be enforced in the later mortgage.

Ruling:

The amendment did not replace or supersede the stipulations in the original contract. The original mortgage contract embodies the same terms and conditions as in the additional loan. The amendment should also be subject to the same terms and conditions.

Eastern Assurance vs. CA 322 SCRA 73

(25)

Insurer: Vicente Tan

Insurance company: Eastern Assurance Company

Facts:

Vicente Tan insured his building in Dumaguete City against fire with EASCO for P250, 000.00. In June 1982, the building was destroyed by fire. EASCO was then ordered to pay Tan for damages. EASCO was about to pay Tan with 6% interest per annum as legal interest of the failure to pay Tan. Tan on the other hand refused to accept said payment saying that the proper legal interest must be 12% per annum.

Note: RTC did not impose any interest to its decision. Contention of the Plaintiff:

- The applicable legal rate should be 6%per annum. Contention of the Respondent:

- The applicable rate should be 12% per annum. Ruling:

Petitioner’s contentions are without merit. The judgment of the court awarding sum of money becomes final and executor. The legal interest, whether the case falls under breach of contract constituting sum of money,i.e. loan or forbearance, or loans constituting sum of money, should be 12%. Delgado vs. Valgona 44 Phil 739 Debtor-Valgona Creditor- Delgado Facts:

Alonso sold to Delgado 12 parcels agricultural land at Goa, in the province of Camarines Sur. Alonso obtained or bought said land from certain Stickney, in the amount of 15,000.00 pesos. In said contract of sale between Alonso and Delgado, the latter is to give payment to the lots in 2 semi annual installments with15% interest, which is more than what the law required 12 % per annum, within 12 years and none compliance would make the creditor possess the lot in question.

Delagado then failed to comply with his obligation, but had already given 2,625 pesos in the previous installments. Alonso was about to move the foreclosure of the mortgage, when by way of Delgado’s lawyer he made known that the contract was usurious, hence this cause of action. On the other hand Alonso filed a cross-complaint contending that he is the aggrieved and that he must be reimbursed the amount of 15,000.00 pesos for the 12 parcel of land conveyed by him in favor of Delgado, that be deducted of the amount of 2,625 pesos.

Interest: 15% per annum, Principal-P15, 000.00 Contention of the Plaintiff:

- Recovery of the sum of P2, 625.00 paid upon by way of interest and P2, 500.00 attorney’s fees.

- Special defense that the contract in question had been entered into by him innocently and in total ignorance on his part of the existence of the Usury Law. Moved for the setting aside of the Mortgage and payment of P15,000.00.

Issue:

(26)

Ruling:

The mortgage is usurious because it is in excess of that allowed by law. Interest to be imposed should be 6% per annum.

Bataan Seedling vs. Republic 383 SCRA 590

Facts:

Bataan Seedling Association Incorporated entered into a reforestation contract with the Republic of the Philippines, represented by DENR. It undertaken a reforestation of a 50 hectares open or detruded forest land in Liyang Pilar, Bataan with a period of 3years. When BSAI failed to comply with its obligations, respondent sent notice of cancellation of the contract. BSAI did not reply, respondent filed a complaint asking among others that the mobilization fond and advance payment be refunded with 12 % interest.

Community Based Reforestation Contract with DENR with the following claims: Principal- P56, 290.69; Interest Rate- 12%

Consideration- P975, 126.61-Reforestation-50 hectares in Pilar, Bataan for 3 years. Contention of the Plaintiff:

- The order to refund the amount of P56, 269.69 with interest at the rate of 12% per annum representing the balance of the mobilization fund is palpable as being contrary to the facts.

- The rate should be at 6% per annum. Issue:

Whether or not the imposition of the 12 % interest is usurious or proper? Ruling:

The interest rate on the P56, 290.69 shall be at the 6% PA from the decision of the CA and 12% in lieu of the 6% shall b imposed upon finality of this decision, until full payment thereof.

Ligutan vs. CA 376 SCRA 560 Debtor-Ligutan and Liana

Creditor-Security Bank

Facts:

Ligutan and de la Llama obtained a loan from Security bank and Trust Company. Ligutan and Llama executed a promissory note binding themselves jointly and severally to pay the sum borrowed with an interes 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. In addition, they agreed to pay 10% of the total amount due by way of attorney’s fees of a suit were instituted to enforce payment. Despite demand, petitioners failed to pay. The filing of complaint was instituted by the bank, where the RTC rendered decision ordering petitioners to pay the sum of 14,416 pesos of corresponding interest as agreed upon plus 2% service charge.

- The imposed interest is excessive. 15.189% PA interest and 3% per month penalty rate are manifestly exorbitant, iniquitous and unconscionable.

(27)

- The rates are valid as stipulated in the PN. Ruling:

Separate rates for interest and penalty are valid because they are distinct from each other and are equally demandable due to an express stipulation. However, the interest rate is reduced to3% because there was partial payment.

RCBC vs. CA 289 SCRA 292 Debtor: Goyu and Sons, Inc.

Creditor: RCBC Facts:

Goyu and Sons Incorporated have fire claims against Malayan Insurance Company Incorporated in connection with the mortgage contracts entered into by and between RCBC and Goyu in consideration of the latter’s application for credit facilities and accommodation with RCBC in consideration of a loan from RCBC’s counterclaim, ordering Goyu to pay its loan obligation with RCBC in the amount of 68, 785.069 pesos.

Surcharges and penalties are adjudged at 2% and 3% respectively per computation. Inexplicably, the CA without even laying down the factual or legal justification for its ruling modified the trial court’s ruling and ordered Goyu to pay the principal amount.

Contention of the parties: RCBC:

- claims that Goyu should pay its loan obligation as executed by them in favor of the former.

Goyu:

- should not pay for the interest because it is not in the contract. Issue:

Is the RCBC the rightful claimant of the insurance? Ruling:

The presence of indorsements documents give rise to a right which in this case is a claim for insurance from the company. Goyu is still liable to pay its loan obligation with interest. Goyu must comply with the payment of its loan obligation with the agreed interest through RCBC had waived collection of surcharges and penalties.

Segovia vs. Dumatal 364 SCRA 159 Facts:

Segovia Dev’t Corp and JLDRDC entered into 3 identical contracts to sell 3 condo units of which out of P6.05 million as purchase price, but only P4.4 million was paid. However, later Duamtal failed to fulfill his obligation to Segonia leading to the rescission of the contract. The case was adjudicated by the HLURB until it reached the office of the President, where it was decided that

Dumatal should pay remaining outstanding balance of 3M plus additional 3% per month for each delayed payment plus 50% a contract price adjustment with 6% interest per annum from November 1990 until fully paid.

(28)

Segovia

- To pay for the remaining balance plus interest of 3% and 6% per annum as damages.

Dumatol

- 3% is grossly iniquitous. There was no basis for the imposition of the 6% per annum.

Ruling:

The 3% per month translates to 36% PA. The interest rate is reduced to 12% PA. The 6% as compensation for damage has no statutory justification because there was neither stipulation nor judicial demand to that effect.

First Metro Investment Corp. vs. Este Del Sol 369 SCRA 99

Facts:

Este Del Sol applied for a loan to the First Metro Investment, for an amount of 7M, for the construction of a resort and mountain reserve. Consequently, both parties executed a loan agreement where they stipulated that:

1) Interest on the loan was rigged at 16% P.A. based on the diminishing balance. 2) Incase of default, an acceleration clause was among others provided and the

amount due was made subject to a 20% onetime penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of 2% p.m. compounded quarterly on the unpaid balance and accrued interest. 3) Plus attorney’s fee equivalently to 20% of the sum sought to be recovered which

in no case be less than 20,000 pesos if the service of a lawyer were hired.

Later, the petitioner also imposed to the respondent that in order for the loan to be granted, an underwriting and consultancy agreement should be made, obliging the respondent to pay the petitioner a supervising and consulting fee of 200thousand for 4 years. Thus, the agreement was perfected. Later, the respondent failed to fulfill his obligation. Hence, the filing of the suit in the trial court.

- The instant collection suit against respondent to collect the alleged deficiency balance from the loan agreement including what is due to them from the Underwriting and Consultancy Agreement.

- The underwriting and consultancy agreement executed simultaneously with and as integral part of the loan agreement and which provided for the payment, were in reality subterfuges resorted to by FMIC to camouflage the usurious interest.

Issue:

Was the underwriting and consultancy agreement a device to cloak the usurious transaction made by the petitioner?

Ruling:

Art. 1957: Contracts and stipulations, under any cloak device or whatsoever….

Such penalties, liquidated damages and attorneys fees are excessive, iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chances of survival in case of default.

(29)

Banco Filipino v. CA 332 SCRA 241 Bailor:Banco Filipino

Bailee: Arcilla et al. Facts:

Arcilla et al. obtained a loan with the Banco Filipino at a rate of 12 % per annum. The loan provides an escalation clause empowering the bank to increase the interest rate as may be provided by law. The loan is payable in 19 years. Later, Central Bank circular 494 was issued increasing the ceiling of interest on loans with maturity of more than 730 days by bank and other financial groups engaged in banking transactions to 17% pursuant to the circular, from 12% interest it becaome 17%.

A suit was filed against the Banco Filipino for the annulment of the contract of loan; the trial court rendered a decision in favor of the respondent finding the interest usurious.

Contention of the parties: Petitioner’s claim:

- respondent is not entitled to refund. Respondent’s claim:

- they are entitled to the refund in as much as the escalation clause and is therefore illegal.

Ruling:

It may not although Circular Bank 494 has the force and effect of law, it is not a law and is not the law contemplated by the parties which authorized the petitioner to unilaterally raise the interest rate of the loan.

g. Special Cases

Soncuya vs. Azzaraga 65 Phil 635 Debtor: Soncuya

Creditor: Attorney Azzaraga Facts:

In payment for attorney’s fees, the defendant mortgaged his land to his lawyer. The lawyer sold the credit to the plaintiff. No payment was made. Extension was made but with express condition that 12% interest shall be paid.

- Since there was nonpayment of the property in question, ownership should be passed to him through the contract of assignment of debt and right to repurchase. Contention of the Respondent:

- The plaintiff cannot have ownership through the assignment of credit or pacto de retro because such was not stipulated, thus, does not have any right over the property.

(30)

When the plaintiff agreed to extend the period of payment plus interest, the pacto de retro contract was converted into simple loan with or without guaranty, such interest may be demanded. Herrera vs. Petrophil GR No. 48349; 12/29/86 Lessor: Herrera Lessee: Petrophil Facts:

Herrera and Petrophil entered into a lease agreement for 20 years. Petrophil made advance payments for the first 8 years subtracting there from the discount of 12% PA.

- The deduction is not proper because it is in violation of the Usury Law. The interest to be deducted should be reduced to P29, 000.00.

- The deduction was not usurious interest but a discount for paying in advance for 8 years.

Issue:

Whether or not there is a usurious transaction.s Ruling:

Discount is not unusual in a lease contract as long as it is not contrary to laws.

No usury because there is no money given by the defendant to plaintiff nor did it allow him to use its money already in his possession and there was neither loan nor forbearance, but only a mere discount which the plaintiff allowed the defendant to deduct.

Elements of Usury

1) Loan express or implied;

2) Understanding between the parties that the money shall be returned;

3) That for such loan a greater rate or interest that is allowed by law shall be paid, agreed to be paid as the case may be;

4) Corrupt intent to take more then the legal rate for the use of money loaned. Discount does not have to be paid.

Forbearance subject to repayment and is therefore governed by the laws on usury law. Equitable mortgage the deposit of title of deeds, by the owner of the estate with a person from whom her has borrowed money, with an accompanying agreement to execute a regular mortgage or by the mere deposit without even any verbal agreement respecting regular security.

Bonnevie vs. CA (Philippine Bank of Commerce-Resp) 125 SCRA 122

Facts:

Spouses Lozano mortgaged their property to secure a loan of P75, 000.00 from PBC. They executed a deed of sale in favor of Bonnevie with assumption of mortgage for P100, 000.00. PBC foreclosed the property and sold in public auction.

- The collection of interest on the loan up to July 12, 1968 extends the maturity hence the foreclosure was not proper.

(31)

- The loan matured already because it was 6 months overdue, hence the foreclosure was valid.

Ruling:

The loan matured on December 26, 1967. The payment of interest on July 12, 1968 does not thereby make the earlier act of the bank iniquitous nor does it ipso facto result in the renewal of the loan.

Santulan vs. Fule(Heirs of Lusin) 133 SCRA 762

Facts:

The collection of interest in the sum of P30, 000.00 as the value of improvement on the foreshore land. The heirs of Santulan were asked by the court to reimburse cost plus legal interest from 1955 until paid.

- The interest was not demanded by Lusin when the case was pending in the administrative agencies and in the courts; hence there is no reason for the collection of interest.

- They should be entitled to the interest applying article 2209. Ruling:

Such case is not sanctioned by Article 2209 of the Civil code because the interest was not demanded by Lusin when the case was pending. The decision of the Supreme Court did not provide for interest, hence there is no reason for the trial court to add interest.

Sentinel Insurance vs. CA (Rose Industries-Respondent) 182 SCRA 517

Facts:

Sentinel Insurance and Nemesio Azcueta Sr. bound themselves jointly and severally, to guarantee the compliance with the terms of the credit line granted by the private respondent in favor of Azcueta in the amount of P180, 000.00. Azcueta failed to perform his obligation, hence the surety was ordered to pay with 14% PA interest.

- The interest is usurious because aside from the interest, additional 2%/45 days as penalty has been imposed.

- Should be entitled to the said interest and penalty. Ruling:

Contention of the petitioner is incorrect. The damage dues do not include and are not included in the computation of interest as the two are different and distinct which may be demanded separately.

(32)

Relucio vs. Brillante 187 SCRA 405 Facts:

Both parties entered into Buy and Sell Contract over 2 residential lots. Relucio was ordered to return to Brillante the excess payment of P650,000 plus 6% Per annum.

- Respondent was obliged to pay interest on the installment payments of the unpaid balance even if paid on these due dates per schedule of payments.

- That she had never incurred delay so the stipulated interest of 6% PA is null and void.

Ruling:

Petitioner cannot anymore charge 6% interest PA. The stipulation clearly specified that the 6% interest PA was included in the installment price. The installment price had an interest component which compensated the vendor.

Ruiz vs. Canuba 191 SCRA 865 Facts:

Ruiz rents a house owned by Sanggalang amounting to P650.00. Ruiz and Sanggalang agreed that the former will buy the house and lot and will continue to pay the rental until full payment.

Due to disagreement with the amount paid, the former demands return with 24% interest compounded annually.

- That he is entitled to the interest of 24% compounded annually. Contention of the Respondent:

- That he should not be held liable to pay for the said rate. Ruling:

Where the court judgment did not provide interest, there is no reason to add interest in the judgment. Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is nor reason to grant.

Tio Khe Cheo vs. CA 202 SCRA 119 Facts:

Cheo imported 1000 kgs of fish meal. The goods were insured by EASCO. The goods were found to be damaged by the seawater rendering them useless.

- Since his claimed is based on an insurance contract, the Insurance Code should govern the interest to be applied.

(33)

- The interest to be imposed should be 6% in accordance with Article 2209 of the Civil Code.

Ruling:

The Insurance Code applies only when the court finds an unreasonable delay or refusal in the payment of the claims. The 12% in the circular refers only to loans or forbearances of money, goods or credit and court judgments.