Siga-an v. Villanueva
G.R 173227, January 20,2009
Chico-Nazario, J.
Doctrine: 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. The 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.
Facts:
Respondent Alicia Villanueva filed a complaint for sum of money against petitioner
Sebastian Siga-an. Villanueva is a businesswoman and supplier of materials for
Philippine Navy Office (PNO), where Sig-an is a comptroller. That in 1992,
respondent was approached by petitioner and offered a loan in the amount of
P540,000. Villanueva issued a check in 1993 amounting to P500,000 as payment and
another for P200,000 for the remaining balance, the excess of 160,000 from the total
amount of loan of P540,000 will be applied as interest. Sig-an not satisfied with the
interest demand for additional payment, and if Villanueva will not ay her business
transactions with PNO would be put on hold, since these are subject to Sig-an
approval as comptroller. Overall, VIllanueva payments for loan and interest
accumulated to P1,200,000.
(Petitioner’s argument)
Petitioner denied that he offered loan. That Villanueva was the one asked for a loan
twice. That in the second loan, Villanueva asked for restructuring of payment, and
Sig-an proposed that the Villanueva make a promissory note, of the obligation with
interest. And thus no overpayment since it was indicated in the said promissory note
that it is for the payment of the loan inclusive of interest. That Villanueva issued
post dated checks as guarantee but bounced and thus he filed a criminal case against
her for violation of Batas Pambansa Blg 22.
(Respondent’s argument)
That it was petitioner who made a promissory note and she was told to copy it in her
own handwriting; that all her transactions with the PNO were subject to the approval
of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her
transactions with the PNO if she would not pay interest; that being unaware of
the law on interest and fearing that petitioner would make good of his threats if
she would not obey his instruction to copy the promissory note, she copied the
promissory note in her own handwriting; and that such was the same promissory
note presented by petitioner as alleged proof of their written agreement on
interest.
RTC ruled respondent's obligation was only to pay the loaned amount of
P540,000.00, and that the alleged interests due should not be included in the
computation of respondent's total monetary debt because there was no
agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the
amount of P660,000.00 through mistake, petitioner should return the said amount
to respondent pursuant to the principle of solutio indebiti.
The Court of appeals affirmed the RTC’s ruling.
Issue:
Was Villanueva liable to pay interest.?
Ruling:
No.
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. 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.
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.
However, there are instances in which an interest may be imposed even in the
absence of express stipulation, verbal or written, regarding payment of interest.
Article 2209 of the Civil Code states that if the obligation consists in the payment
of a sum of money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no stipulation on the
payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code
provides that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
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. It is evident that respondent
did not really consent to the payment of interest for the loan and that she was
merely tricked and coerced by petitioner to pay interest. Hence, it cannot be
gainfully said that such promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan between petitioner and
respondent.
As to the the interest under two exceptions may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other words, the two
instances apply only to compensatory interest and not to monetary interest. The
case at bar involves petitioner's claim for monetary interest. Further, said
compensatory interest is not chargeable in the instant case because it was not
duly proven that respondent defaulted in paying the loan.
Hence, as earlier found, no interest was due on the loan because there was no
written agreement as regards payment of interest.
Mendoza v. Spouses Gomez
G.R. No. 160110, June 18, 2014
Perez, J.
Doctrine: Interest by way of damages has been defined as interest allowed in actions
for breach of contractor tort for the unlawful detention of money already due. This type
of interest is frequently called "moratory interest." Interest as a part of damage, is
allowed, not byapplication of arbitrary rules, but as a result of the justice of the
individual case and as compensation to the injured party.
Facts:
As a result of a vehicular collision resulting in driver's negligence, respondents
suffered physical injuries and the Isuzu truck sustained extensive damages. Hence,
this case for damages. After weighing the evidence, the RTC found Mendoza liable
for direct personal negligence under Article 2176 of the Civil Code, and it also found
Lim vicariously liable under Article 2180 of the same Code. RTC rendered judgement
in favor of respondents and against the petitioners. Displeased, petitioners appealed
to the CA. After evaluating the damages awarded by the RTC, such were affirmed by
the CA with the exception of the award of unrealized income which the CA ordered
deleted. Hence, this present petition
Issue:
Was the CA correct in awarding the attorney’s fees in this case?
Ruling:
NO, the CA was not correct in this case in awarding the attorney’s fees. In all cases,
the attorney’s fees and expenses of litigation must be reasonable. From the very
opening sentence of Article 2208 of the Civil Code, it is clearly intended to retain the
award of attorney’s fees as the exception in our law, as the general rule remains that
attorney’s fees are not recoverable in the absence of a stipulation thereto, the reason
being that it is not sound policy to set a premium on the right to litigate.
In the case at bar, the RTC Decision had nil discussion on the propriety of attorney’s
fees, and it merely awarded such in the dispositive. The CA Decision, on the other
hand, merely stated that the award of attorney’s fees is merited as such is allowed
when exemplary damages are awarded. Following established jurisprudence,
however, the CA should have disallowed on appeal said award of attorney’s fees
as the RTC failed to substantiate said award. Generally, as provided in the Rules
of Court, costs shall be allowed to the prevailing party as a matter of course.
In the present case, the award of costs of suit to respondents, as the prevailing
party, is in order. Interest by way of damages has been defined as interest
allowed in actions for breach of contractor tort for the unlawful detention of
money already due. This type of interest is frequently called "moratory interest."
Interest as a part of damage, is allowed, not by application of arbitrary rules, but
as a result of the justice of the individual case and as compensation to the
injured party.
Silos v. Philippine National Bank
G.R. No. 181045, July 2, 2014
Castillo, J.
Doctrine: Any increase in the rate of interest made pursuant to an escalation clause
must be the result of agreement between the parties.
Facts:
Sps. Silos obtained a revolving credit line from PNB secured by a mortgage, issued 8
promissory notes, and signed a Credit Agreement which provides that the loan shall
be subject to interest at the rate of 19.5% per annum and that the Borrower agrees
that the Bank may modify the interest rate depending on whatever policy the latter
may adopt in the future. The Sps. issued 8 promissory notes containing interest rates
ranging from 19.5%-32% which they religiously paid. An Amendment to Credit
Agreement was executed by the parties which provided that PNB may modify the
interest rate in the loan depending on whatever policy it may adopt in the future,
including without limitation, the shifting from the floating interest rate system to
the fixed interest rate system, or vice versa. Pursuant to this, Sps. Silos issued 18
promissory notes, with interest rates ranging from 16%-26%, which they settled
except for the last note. Respondent regularly renewed the line from 1990 up to
1997 and petitioners made good on the promissory notes, religiously paying the
interests without objection or fail, except when the interest rates soared due to the
Asian financial crisis. Petitioners’ sole outstanding promissory note became past due.
Issue:
Should the interest rate provisions in the Credit Agreement and in the Amendment to
the same be declared null and void?
Ruling:
Yes. Because of concern for the unequal status of borrowers vis-a-vis the banks, the
Court’s cases have fashioned the rule that any increase in the rate of interest made
pursuant to an escalation clause must be the result of agreement between the
parties. With the present Credit Agreement, the element of consent or agreement by
the borrower is now completely lacking, which makes PNB’s unlawful act all the
more reprehensible. It is plainly obvious from the undisputed facts of the case that
PNB unilaterally altered the terms of its contract with petitioners by increasing
the interest rates on the loan without the prior assent of the latter. Thus, the
interest rates imposed and indicated in the 2nd up to the 26th promissory notes
are declared null and void.
Buenaventura v. Metropolitan Bank and Trust Co.
G.R. No. 167082, August 3, 2016
Bersmanin, J.
Doctrine: The obligatory force of the stipulations between the parties called for the
imposition of the interest rates stipulated in the promissory notes.
Facts:
Involved here are two loans of the petitioner from the respondent On January 20,
1997 and April 17, 1997, specifically:(1) the principal amount of P1,500,000.00
covered by Promissory Note No. 232663 to be paid on or before July 1, 1997 with
interest and credit evaluation and supervision fee (CESF) at the rate of 17.532% per
annum and penalty charge of 18% per annum based on the unpaid principal to be
computed from the date of default until full payment of the obligation; and (2) the
principal amount of P1,500,000.00 covered by Promissory Note No. 232711 to be
paid on or before April 7, 1998 with interest and CESF at the rate of 14.239% per
annum and penalty charge of 18% per annum based on the unpaid principal to be
computed from the date of default until full payment of the obligation. Despite
demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of
P2,061,208.08 and P1,492,236.37, respectively, as of July 15, 1998, inclusive of
interest and penalty.
The RTC adjudged the petitioner liable to pay to the respondent the total of
P3,553,444.45 representing her outstanding obligation, including accrued interests
and penalty charges under the promissory notes, plus attorney's fees. On appeal,
the CA ruled that she was liable to the respondent for the sum of P3,553,444.45
with interest and penalties at 14.239% per annum and 18% per annum, respectively,
from July 15, 1998 until fully paid.
Issue:
(1)Is there a need to revise the monetary awards of the CA?
(2)Is the penalty charge warranted?
Ruling:
(1) Yes, the Court that the respondent had no legal basis for imposing rates
far higher than those agreed upon and stipulated in the promissory notes. In
Mallari v. Prudential Bank the Court has opined that "the borrowers cannot
renege on their obligation to comply with what is incumbent upon them under
the contract of loan as the said contract is the law between the parties and
they are bound by its stipulations."
In the case The total of P3,553,444.45 was the final sum of the computations
contained in the statements of past due interest and penalty charges as of
July 15, 1998 , and was inclusive of interest at the rate of 34.991% (on the
principal of P1,500,000.00) and 27.901% (on the principal of P1,200,000.00).
Yet, such interest rates were different from the interest rates stipulated in the
promissory notes, namely: 14.239% for Promissory Note No. 232711 and
17.532% for Promissory Note No. 232663. The claimed aggregate outstanding
loan obligation of the respondents included interests of almost double the
rates stipulated by the parties.
Therefore the P3,553,444.45 has an aggregate inclusive of the interest (i.e., at
the rates of 34.991% and 27.901% per annum); and that the penalty charges
contravened the express provisions of the promissory notes, both the RTC and
CA erred in the conclusion of the monetary awards. In addition the CA could
not validly apply the lower interest rate of 14.239% per annum to the whole
amount of P3,553,444.45 in contravention of the stipulation of the parties.
(2) Yes, the penalty charge was warranted the same was warranted for being
expressly stipulated in the promissory notes. In Government Service Insurance
System v. Court of Appeals , this Court has ruled that the New Civil Code
permits an agreement upon a penalty apart from the monetary interest. If the
parties stipulate this kind of agreement, the penalty does not include the
monetary interest, and as such the two are different and distinct from each
other and may be demanded separately.
There is no doubt that the petitioner is liable for both the stipulated monetary
interest and the stipulated penalty charge of 18% per annum based on any
unpaid principal from the date of default. The penalty charge is also called
penalty or compensatory interest.
Spouses Limso v. Philippine National Bank
G.R. Nos. 158622, 169441, 172958, 173194, 196958,197120, 205463,
January 27, 2016
Leonen, J.
Doctrine: There is no mutuality of contract when the interest rate in a loan agreement
is set at the sole discretion of one party. Nor is there any mutuality when there is no
reasonable means by which the other party can determine the applicable interest rate.
These types of interest rates stipulated in the loan agreement are null and void.
However, the nullity of the stipulated interest rate does not automatically nullify the
provision requiring payment of interest. Certainly, it does not nullify the obligation to
pay the principal loan obligation.
Facts:
Spouses Limso and Davao Sunrise Investment and Development Corporation took
out a loan secured by real estate mortgages from PNB. To secure the loan, real
estate mortgages were constituted on four parcels of land registered with the
Registry of Deeds of Davao City. Spouses Limso and Davao Sunrise had difficulty in
paying their loan. In 1999, they requested that their loan be restructured. After
negotiations, Spouses Limso, Davao Sunrise, and Philippine National Bank executed
a Conversion, Restructuring and Extension Agreement. Despite the restructuring of
their loan, they were still unable to pay. PNB sent demand letters. Still, Spouses
Limso and Davao Sunrise failed to pay. On August 21, 2000, PNB filed a Petition for
Extrajudicial Foreclosure of Real Estate Mortgage before the Sheriff's Office in
Davao City. PNB was declared the highest bidder. After the foreclosure sale, but
before the Sheriff could issue the Provisional Certificate of Sale, Spouses Limso and
Davao Sunrise filed a Complaint for Reformation or Annulment of contract against
PNB, Atty. Marilou D. Aldevera, in her capacity as Ex-Officio Provincial Sheriff of
Davao City, and the Register of Deeds of Davao City.
Spouses Limso and Davao Sunrise contended that the interest rates were imposed
unilaterally and were not stipulated in writing, in violation of Article 1956 of the
Civil Code. Further, the letters sent by PNB to Davao Sunrise were not agreements
but mere notices that the interest rates were increased by PNB.
PNB contended that Spouses Limso and Davao Sunrise were notified as to the
applicable interest rates, and their consent was obtained before the effectivity of
the agreement. There was no unilateral imposition of interest rates since the
rates were dependent on the prevailing market rates. Philippine National Bank
further argues that loan agreements with escalation clauses, by their nature,
"would not indicate the exact rate of interest applicable to a loan precisely
because it is made to depend by the parties to external factors such as market
indicators and/or government regulations affecting the cost of money."
Issue:
Was the interest rates imposed by PNB usurious and unconscionable?
Ruling:
Yes.While the Usury Law was suspended by Central Bank Circular No. 905, Series
of 1982, unconscionable interest rates may be declared illegal. The suspension of
the Usury Law did not give creditors an unbridled right to impose arbitrary
interest rates. To determine whether an interest rate is unconscionable, the
mechanical application of pre-established floors would be wanting. The lowest
rates that have previously been considered unconscionable need not be an
impenetrable minimum. What is more crucial is a consideration of the parties'
contexts. Moreover, interest rates must be appreciated in light of the
fundamental nature of interest as compensation to the creditor for money lent to
another, which he or she could otherwise have used for his or her own purposes
at the time it was lent. It is not the default vehicle for predatory gain. As such,
interest need only be reasonable. It ought not be a supine mechanism for the
creditor's unjust enrichment at the expense of another. (Spouses Abella v.
Spouses Abella)
In the case at bar, a reading of the interest provisions in the original agreement
and the Conversion, Restructuring and Extension Agreement shows that the
interest rates imposed by PNB were usurious and unconscionable. From the terms
of the loan agreements, there was no way for Spouses Limso and Davao Sunrise
to determine the interest rate imposed on their loan because it was always at the
discretion of PNB. Nor could Spouses Limso and Davao Sunrise determine the
exact amount of their obligation because of the frequent changes in the interest
rates imposed. The loan agreements merely stated that interest rates would be
imposed. However, the specific interest rates were not stipulated, and the
subsequent increases in the interest rates were all at the discretion of PNB.
Therefore, the interest rates imposed by Philippine National Bank were usurious
and unconscionable.
Spouses Jonsay v. Solidbank Corporation
G.R. No. 206459. April 6, 2016
Reyes, J.
Doctrine: The "unilateral determination and imposition" of increased rates is "violative
of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code."
One-sided impositions do not have the force of law between the parties, because such
impositions are not based on the parties' essential equality.
Facts:
Momarco, controlled and owned by the Spouses Jonsay, obtained loans from
Solidbank for which the Spouses Jonsay executed a blanket mortgage over three
parcels of land. The loans were consolidated under one promissory note for the
combined amount of P60,000,000.00. The stipulated rate of interest was 18.75% per
annum, along with an escalation clause tied to increases in pertinent Central Bankdeclared
interest rates, by which Solidbank was eventually able to unilaterally
increase the interest charges up to 30% per annum. Momarco religiously paid the
monthly interests charged by Solidbank. Claiming business reverses brought on by
the 1997 Asian financial crisis, Momarco tried unsuccessfully to negotiate a
moratorium or suspension in its interest payments. Due to persistent demands by
Solidbank, Momarco made its next, and its last, monthly interest payment.
Solidbank applied the said payment to Momarco's accrued interest for February
1998. Momarco sought a loan from Landbank of the Philippines to pay off its
aforesaid debt but its application fell through.
Solidbank proceeded to extrajudicially foreclose on the mortgage, and at the auction
sale submitted the winning bid representing Momarco's outstanding loans, interests
and penalties, plus attorney's fees But Momarco claims that on the date of the
auction the fair market value of their mortgaged lots had increased sevenfold Sheriff
Perocho issued a certificate of sale to Solidbank. A month before the expiration of
the period to redeem the lots, petitioners filed a Complaint against Solidbank,
Sheriff Perocho and the Register of Deeds of Calamba, Laguna, for Annulment of the
Extrajudicial Foreclosure of Mortgage, Injunction, Accounting and Damages with
Prayer for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction
contending that the amount claimed by Solidbank as Momarco's total loan
indebtedness is bloated and Solidbank's interest charges are illegal for exceeding
the legal rate of 12% per annum. RTC granted the petitioners' application for
temporary restraining order and ruled that the mortgage contract and the
promissory notes prepared by Solidbank, which the Spouses Jonsay signed in
blank, were contracts of adhesion; and ruled in favor of petitioners finding among
others that the extrajudicial foreclosure is void and ordered the reduction of the
interest rate of the indebtedness to 12% per annum. The CA rendered judgment
affirming the RTC in toto. However, upon appeal, the CA find the extrajudicial
foreclosure valid but affirmed the reduction of interest rate to 12%.
Issue:
May Solidbank unilaterally increase the interest rate without prior notice to and
consent of the borrower.
Ruling:
No. The unilateral determination and imposition" of increased rates is "violative
of the principle of mutuality of contracts ordained in Article 1308 of the Civil
Code which provides that the contracts must bind both contracting parties its
validity or compliance cannot be left to the will of one of them. One-sided
impositions do not have the force of law between the parties, because such
impositions are not based on the parties' essential equality. In the case at bar,
although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving respondent an unbridled right
to adjust the interest independently and upwardly would completely take away
from petitioners the "right to assent to an important modification in their
agreement" and would also negate the element of mutuality in their contracts.
"While the Usury Law ceiling on interest rates was lifted by [Central Bank]
Circular No. 905, nothing in the said Circular grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets." Thus, the Court disregarded
the unilaterally escalated interest rates and imposed the mutually stipulated
rates, which it applied up to the maturity of the loans. Thereafter, the Court
imposed the legal rate of 12% per annum on the outstanding loans, or 6% per
annum legal rate on the excess of the borrower's payments.
Security Bank Corporation v. Spouses Rodrigo and Erlinda Mercado
G.R. No. 192934. June 27, 2018
Jardaleza, J.
Doctrine: Stipulations as to the payment of interest are subject to the principle of
mutuality of contracts. As a principal condition and an important component in
contracts of loan, interest rates are only allowed if agreed upon by express stipulation
of the parties, and only when reduced into writing. Any change to it must be mutually
agreed upon, or it produces no binding effect.
Facts:
Security Bank granted the spouses Mercado a revolving credit line in the amount of
₱1,000,000.00. The agreement included a stipulation on the payment of interest on
outstanding availments, and a stipulation on late payment charges. An addendum to
the agreement stipulated that the interest on outstanding availments were to be
paid based on annual rate computed and billed monthly by Security Bank on the
basis of its prevailing monthly rate. The addendum also states that the spouses
Mercado give their continuing consent without need of additional confirmation to
the interests stipulated as computed by Security Bank.
To secure the credit line, the spouses Mercado executed a real estate mortgage in
favor of Security Bank. The spouses Mercado again executed another real estate
mortgage in favor of Security Bank to secure an additional amount of ₱7,000,000.00
under the same revolving credit agreement.
Later, the spouses Mercado defaulted in their payment under the agreement. Security
Bank had made demands upon the spouses Mercado, but these were unheeded. Thus,
it filed petitions for extrajudicial foreclosure of the two mortgages with the RTC of
Lipa City and the RTC of Batangas City.
The foreclosure sales were held wherein Security Bank was adjudged the winning
bidder in both instances. The spouses Mercado offered to redeem the properties for
₱10,000,000.00, but Security Bank made a counter-offer of ₱15,000,000.00. The
spouses Mercado then filed a complaint for annulment of the foreclosure sale with
the RTC of Batangas City.
The spouses Mercado argued that the foreclosure sales were void because
Security Bank caused only one corrective publication. They also contended that
the property in San Jose should not have been foreclosed together with the
properties in Batangas City, having been covered by a separate mortgage. Also
assailed were the interests and penalties imposed by Security Bank for allegedly
being unconscionable, violating the principle of mutuality of contracts.
Security Bank countered that the mistake in the original notice is inconsequential
or minor since it only pertains to a letter and number in the technical description.
It also insists that the interests it imposed respect the principle of mutuality of
contracts, as they were “floating-rate interests.”
The RTC ruled in favor of the spouses Mercado. The CA affirmed the RTC’s ruling
with modification.
Issue:
Were the interests and penalties imposed by Security Bank void?
Ruling:
Yes. The principle of mutuality of contracts embodied in Article 1308 of the Civil
Code states that contracts must bind both contracting parties, and its validity or
compliance cannot be left to the will of one of them. Meanwhile, Article 1956 of
the Civil Code provides that no interest shall be due unless it has been expressly
stipulated in writing. Taken together, the two provisions lay down the rule that
payment of interest cannot be left to the will of one of the contracting parties,
and consent thereto must be expressly made in writing. When the imposition of
interest is one-sided, indeterminate, and its stipulation worded in such a way that
the borrower will agree to whatever amount of interest the lender may fix, such
agreement to pay interest is void. Thus, the Supreme Court had ruled in a
plethora of jurisprudence that escalation clauses are valid so long as they are
coupled with a de-escalation clause for any downward changes imposed by law or
the Monetary Board of the Bangko Sentral ng Pilipinas. Likewise valid are
agreements to pay “floating-rate interest,” so long as their imposition is not
potestative, is based on reasonable and valid grounds, such as prevailing market
rates, and is agreed upon by the parties in writing.
In this case, Security Bank was given unbridled authority to impose whatever
rate of interest it may will. The stipulation in the credit line agreement
supposedly manifesting the spouses Mercado’s continuing consent to any change
in the interest rates on the availments goes to show its lopsidedness. No standard
of reference was provided as the basis for the computation of interests, except
for “Security Bank’s prevailing lending rate,” which is hardly an objective
standard, unlike prevailing market rates, which are outside of the bank’s control.
This makes the imposition of the interest left solely upon the will of Security
Bank, and thus void for violating the principle of mutuality of contracts.
Spouses Pen v. Spouses Julian
G.R. No. 160408, Jan. 11, 2016
Bersamin, J.
Doctrine: Article 2088 of the Civil Code prohibits the creditor from appropriating the
things given by way of pledge or mortgage, or from disposing of them; any stipulation
to the contrary is null and void.
Facts:
Respondent Linda Julian obtained a loan from petitioner Adelaida Pen, wherein a real
estate mortgage was executed over a real property of the respondents. Respondents
eventually defaulted in their loan so petitioner decided to foreclose said real estate
mortgage. Sensing that this will cause her embarrassment, respondent offered their
mortgaged property as payment in kind instead.
Respondent then executed a two (2) page Deed of Sale effectively transferring the
ownership to petitioners. Eventually, respondents offered to repurchase the subject
property on several occasions but none of them materialized. The respondents then
instituted a civil complaint and filed an adverse claim and lis pendens which were
annotated at the back of the title to the property. They argued that at the time the
mortgage was executed, they were required by petitioner Adelaida to sign a one page
document purportedly an "Absolute Deed of Sale". Said document did not contain any
consideration, and was "undated, unfilled and unnotarized".
When negotiations between the petitioner and respondent turned sour, the latter
found out, upon verification with the Registry of Deeds of Quezon City, that the title
to the mortgaged property had already been registered in the name of petitioner
Adelaida Pen.
This prompted respondent to file an Affidavit of Adverse Claim with the RTC alleging
bad faith on petitioner. The RTC held that the executed sale was void due to lack of
consideration. The CA also affirmed the nullification of sale but not because of the
supposed lack of consideration as the RTC had indicated, but because of the deed of
sale having been executed at the same time as the real estate mortgage, which
rendered the sale as a prohibited pactum commissorium.
Issue:
Was the sale between the parties a pactum commissorium?
Ruling:
Yes. The sale between the parties was a pactum commissorium. Article 2088 of the
Civil Code prohibits the creditor from appropriating the things given by way of
pledge or mortgage, or from disposing of them; any stipulation to the contrary is
null and void. The elements for pactum commissorium to exist are as follows, to
wit: (a) that there should be a pledge or mortgage wherein property is pledged or
mortgaged by way of security for the payment of the principal obligation; and (b)
that there should be a stipulation for an automatic appropriation by the creditor
of the thing pledged or mortgaged in the event of non-payment of the principal
obligation within the stipulated period. The first element was present considering
that the property of the respondents was mortgaged by Linda in favor of Adelaida
as security for the farmer's indebtedness. As to the second, the authorization for
Adelaida to appropriate the property subject of the mortgage upon Linda's default
was implied from Linda's having signed the blank deed of sale simultaneously
with her signing of the real estate mortgage. The haste with which the transfer of
property was made upon the default by Linda on her obligation, and the eventual
transfer of the property in a manner not in the form of a valid dacion en pago
ultimately confirmed the nature of the transaction as a pactum commissorium.
It is notable that in reaching its conclusion that Linda's deed of sale had been
executed simultaneously with the real estate mortgage, the CA first compared the
unfilled deed of sale presented by Linda with the notarized deed of sale adduced
by Adelaida. The CA justly deduced that the completion and execution of the
deed of sale had been conditioned on the non-payment of the debt by Linda, and
reasonably pronounced that such circumstances rendered the transaction pactum
commissorium. The Court should not disturb or undo the CA's conclusion in the
absence of the clear showing of abuse, arbitrariness or capriciousness on the part
of the CA.
Estores v. Spouses Supangan
G.R. No. 175139, April 18, 2012
Del Castillo, J.
MEANING FOREBEARANCE OF MONEY
Doctrine: Forbearance of money, goods or credits refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or
credits pending happening of certain events or fulfillment of certain conditions.
Facts:
Petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan
entered into a Conditional Deed of Sale whereby petitioner offered to sell, and
respondent-spouses offered to buy, a parcel of land in Cavite for the sum of P4.7M.
After almost seven years from the execution of the contract and notwithstanding
payment of P3.5M on the part of respondent-spouses, petitioner failed to comply
with her obligations under the contract. This prompted the respondent-spouses to
demand the return of the amount of P3.5M within 15 days from receipt of letter.
Petitioner promised to return the same within 120 days. Respondent-spouses were
amenable to the proposal provided that an interest of 12% compounded annually
shall be imposed on the P3.5M. When petitioner still failed to return the amount
despite demand, respondent-spouses filed a complaint for sum of money before the
RTC. Petitioner averred that she is willing to return the amount of P3.5M but
without any interest as the same was not agreed upon because their agreement
provided only for the return of downpayment in case of breach. Respondent spouses
argued that it is only fair that interest be imposed on the amount they paid
considering that petitioner failed to return the amount upon demand and had been
using the P3.5M for her benefit.
The RTC ruled in favor of respondent spouses but reduced the rate of interest to
6%, finding the rate of 12% per annum (at the time) for loan or forbearance of
money is not applicable because the contract involved is not loan or forbearance of
money but a Conditional Deed of Sale. The CA affirmed the ruling of the RTC.
Issue:
Does the obligation in this case involve forbearance of money which required
payment of interest at the rate of 12% per annum (at the time)?
Ruling:
Yes. The Supreme Court held that the phrase “forbearance of money, goods or
credits” should refer to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions. Because the
definition of forbearance in Crismina Garments, Inc. v. Court of Appeals, which
defines forbearance as a “contractual obligation of a lender or creditor to refrain
during a given period of time from requiring the borrower or debtor to pay a loan
or debt then due and payable” describes a loan where a debtor is given a period
within which to pay a loan or debt, and in such case, “forbearance of money,
goods or credits” will have no distinct definition from a loan.
In this case, the respondent-spouses parted with their money even before the
conditions under the Conditional Deed of Sale were fulfilled. They have therefore
allowed or granted forbearance to the seller (petitioner) to use their money
pending fulfillment of the conditions. They were deprived of the use of their
money for the period pending fulfillment of the conditions under the contract and
when those conditions were breached, they are entitled not only to the return of
the principal amount paid, but also to compensation for the use of their money.
Therefore, the obligation is for forbearance of money and the legal interest of
12% (at the time) should apply.
Land Bank of the Philippines v. Onate
G.R. No. 192371, January 15, 2014
Del Castillo, J.
Doctrine: The unilateral offsetting of funds without legal justification and the
undocumented withdrawals are tantamount to forbearance of money.
Facts:
Emmanuel Oñate opened and maintained seven trust accounts with Land Bank of
the Philippines. Each trust account was covered by an Investment Management
Account (IMA) with Full Discretion, in which Oñate authorized LBP to hold, invest
and re-invest the funds, and has a corresponding passbook where deposits and
withdrawals were recorded.
Land Bank demanded from Oñate the return of P4 million it claimed to miscredited
to Trust Account No. 01-125 as his additional funds but actually represents the
total amount of the checks issued to Land Bank by its corporate borrowers as
payment for their pre-terminated loans. After Oñate refused, Land Bank unilaterally
applied the outstanding balance in all of Oñate’s trust accounts against his
resulting indebtedness by reason of the “miscrediting” of funds. To recoup the
remaining balance of Oñate’s indebtedness, Land Bank filed a Complaint for Sum of
Money seeking to recover the amount of P8,222,687.8920 plus interest at the legal
rate of 12% per annum computed from May 15, 1992 until fully paid.
Both the RTC and the CA denied the petition because Land Bank failed to establish
the source of the funds it claimed to have been erroneously credited to Oñate’s
account. It ordered Land Bank to pay Oñate the amount of undocumented
withdrawals it debited from the latter’s trust account with interest at the rate of
12% .
During the pendency of this case, however, the BSP Circular No. 799, stating that in
the absence of express stipulation between the parties, the rate of interest in loan
or forbearance of any money, goods or credits and the rate allowed in judgments
shall be 6% per annum; the same took effect on July 1, 2013.
Land Bank argues that the above Resolution applies to it because there was no
loan or forbearance of money involved; trust accounts are in the nature of
“Express Trust” and not in the nature of a regular deposit account where a
debtor-creditor relationship exists between the bank and its depositor. It was not
indebted to Oñate but merely held and managed his funds.
Oñate defends the CA’s grant of 12% per annum rate of interest as under BSP
Circular No. 416, said rate shall be applied in cases where money is transferred
from one person to another and the obligation to return the same or a portion
thereof is adjudged. In any event, Land Bank is estopped from disputing said rate
for Land Bank itself applied the same 12% per annum rate of interest when it
sought to recover the amount allegedly “miscredited” to his account.
Issue:
What is the proper interest rate to be applied?
Ruling:
The unilateral offsetting of funds without legal justification and the
undocumented withdrawals are tantamount to forbearance of money. In the
analogous case of Estores v. Supangan, 670 SCRA 95 (2012) we held that “[the]
unwarranted withholding of the money which rightfully pertains to [another]
amounts to forbearance of money which can be considered as an involuntary
loan.” Following Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78
(1994) therefore, the applicable rate of interest in this case is 12% per annum.
Land Bank is estopped from assailing the award of 12% per annum rate of
interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the outstanding
indebtedness of Oñate by using the same 12% per annum rate of interest. It was
only after the lower courts rendered unfavorable decisions that Land Bank started
to insist that the applicable rate of interest is 6% per annum.
As to the compounding of interest and the reckoning of the same, it was
suggested that “where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made101 (at which time
the quantification of damages may be deemed to have been reasonably
ascertained).”
Hence, the Court find it just and proper to reckon the running of the interest of
12% per annum, compounded yearly, for the debited amount and undocumented
withdrawals on different dates. The debited amount of P1,471,416.52, shall earn
interest beginning May 31, 2006 or the day the RTC rendered its Decision
granting said amount to Oñate.
Metropolitan Bank and Trust Company v. Chuy Lu Tan
G.R. No. 202176
Peralta, J.
Doctrine: A creditor is not precluded from recovering any unpaid balance on the
principal obligation if the extrajudicial foreclosure sale of the property subject of the
real estate mortgage results in a deficiency.
Facts:
Respondents Chuy Lu Tan (Chuy) and Romeo Tanco (Tanco) obtained five loans from
petitioner Metropolitan Bank &Trust Company (Metrobank) with the aggregate
amount of P19,900,000. The loans were evidenced by five Promissory Notes
executed by Chuy and Tnaco. A Real Estate Mortgage over a parcel of land was
executed by Chuy as a security for the said loans. A Contonuing Surety Agreement
was also executed by respondents Sy Se Hiong (Sy) and Tan Hsiu Yen (Tan) which
bound themselves solidarily liable with Chuy and Tanco for the principal amount of
the loan.
Chuy and Tanco failed to settle their loans despite demands from Metrobank for
payment. The total amount they owed was P24,353,062 which comprises the
principal amount, the interests and the penalties. As a result of such failure,
Metrobank extrajudicially foreclosed the mortgaged property and was sold to
Metrobank as the highest bidder.
However, Metrobank claimed that respondents still had deficiency of P1,641,815
despite the foreclosure of the property. Hence, Metrobank demanded from
respondents the payment of such deficiency. For failing to pay, Metrobank filed a
suit for a collection of sum of money with the RTC of Makati.
The RTC held that respondents were liable to pay said deficiency. On appeal, the CA
reverse the trial court’s ruling and held that to allow Metrobank to recover the
amount it seeks from respondents would be iniquitous, unconscionable and would
amount to unjust enrichment. Hence this petition.
Petitioner questions the ruling of the appellate court and further claims that the
deficiency claimed should not have been dismissed because respondents admitted
that they defaulted in the payment of their obligations.
Respondents, on the other hand, claims that since the supposed value of the
subject property shows that it is more than the amount of their outstanding
obligation, they can no longer be held liable for the balance.
Issue:
Are respondents still liable for the deficiency despite the foreclosure of the
mortgaged property?
Ruling:
YES, inadequacy of the price at which the property was sold at public auction
does not prevent petitioner from claiming any deficiency not covered by the said
foreclosure sale.
The fact that the mortgaged property was sold at an amount less than its actual
market value should not militate against the right to such recovery. This Court
has likewise ruled that in deference to the rule that a mortgage is simply a
security and cannot be considered payment of an outstanding obligation, the
creditor is not barred from recovering the deficiency even if it bought the
mortgaged property at the extrajudicial foreclosure sale at a lower price than its
market value notwithstanding the fact that said value is more than or equal to
the total amount of the debtor's obligation.
In this case, there is no convincing evidence nor argument which would show that
petitioner is not entitled to the deficiency it claims. The CA simply says that to
allow petitioner to recover the amount it seeks, which is allegedly over and
above the actual value of the property it bought at public auction, would amount
to unjust enrichment. However, the Court does not see any unjust enrichment
resulting from upholding the right of the petitioner to collect any deficiency from
respondents. Unjust enrichment exists when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of another
against the fundamental. principles of justice, equity and good governance. As
discussed above, there is a strong legal basis for petitioner's claim against
respondents for the balance of their loan obligation.
