Overseas Bank of Manila vs.

Cordero Facts: Private respondent opened a 1-year time deposit with petitioner bank amounting to P80,000, with interest of 6% p.a. Due to its distressed financial condition, the bank was unable to pay. Cordero instituted an action before the CFI Manila. Petitioner raised the defenses of insolvency and prejudice to other depositors. The lower court, and the Court of Appeals, ruled in favor of Cordero. Hence, the instant petition for review on certiorari. Certain supervening events rendered the issue moot and academic. Respondents brother and attorney -in-fact sent a letter to the Commercial Bank of Manila (petitioners successor-in-interest), acknowledging receipt of P10,000, and another manifestation for P73,840, with waiver of damages. Upon further examination, it was found that the respondents brother has no SPA. Respondents brother submitted the SPA, with expl anatory comment that the waiver applies only to third party claims, suits and damages, not to interest and attorney s fees. Issue: Whether respondent is entitled to interest and attorneys fees Held: The obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the Central Bank. Neither can respondent Cordero recover attorneys fees. Petitioners refusal to pay was not due to a willful and dishonest refusal to comply with its obligation but to restrictions imposed by Central Bank. THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF APPEALS and L.C. DIAZ and CO MPANY, CPAs G.R. No. 138569, Sep 11, 2003. FACT: Petitioner Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPAs, is a professional partnership engaged in the practice of accounting. In March 1976, L.C. Diaz opened a savings account with Solidbank. On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged the receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre h ad to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya and Calapre went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14 August 1991) of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000. L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial court absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the ecision of the trial court. CA denied the motion for reconsideration of Solidbank. But it modified its decision by deleting the award of exemplary damages and attorneys fees. He nce this petition. ISSUE: WON petitioner Solidbank is liable. RULING: Yes. Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. The bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deem ed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. Solidbanks Breach of its Contractual Obligation Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor. Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Solidbanks tellers must exercise a high degree of diligence in insuring that they return the pas sbook only to the depositor or his authorized representative. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same. In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees. But Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana. The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise beca use this is the only way to insure that the bank will comply with its fiduciary duty Proximate Cause of the Unauthorized Withdrawal Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent. L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.

Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. The antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence. We do not apply the doctrine of last clear chance to the present case. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract Mitigated Damages Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced. In PBC v. CA where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, petitioners, vs. THE HONORABLE VALERIANO P. TOMOL, JR This is a a Petition for Review on certiorari of the Resolution of CFI-Cebu Judge Tomol for an action for Recovery of Damages for injury to Person and Loss of Property.On June 7, 1972, judgment was rendered by the Court of First instance of Cebu in Civil Case No. R-11279, 2 the dispositive portion of which reads WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: (g) Plaintiffs Pacita and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita Ill together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. On appeal to the then Court of Appeals, the trial court's judgment was modified to reads as follows WHEREFORE. the judgment appealed from is modified such that defendants-appellants Shell Refining Co. (Phils.), Inc. and Michael, Incorporated are hereby ordered to pay ... The two (2) defendants- appellants are also directed to pay P100,000.00 with legal interests from the filing of the complaint until paid as compensatory and moral damages and P41,000.00 compensation for the value of the lost boat with legal interest from the filing of the complaint until fully paid to Pacita F.Reformina and the heirs of Francisco Reformina. The liability of the two defendants for an the awards is solidary. Petitioners' motion for the reconsideration of the questioned Resolution having been denied, they now come before Us through the instant petition praying for the setting aside of the said Resolution and for a declaration that the judgment in their favor should bear legal interest at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular No. 416 dated July 29, 1974. ISSUE How much, by way of legal interest, should a judgment debtor pay the judgment creditor?WON legal interest meant 6% as provided for under Article 2209 of the Civil Code .What kind of judgment is covered under USURY Law? RULING Article 2209 of the Civil Code is applicable in case at bar. It must be noted that the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads Art. 2209. If the obligation consists in the payment of a 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 interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which was beyond the intendment of P.D. No. 116. Central Bank Circular No. 416 which provides By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as the "Usury Law" the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) per cent per annum. This Circular shall take effect immediately. (Italics supplied) The judgments spoken of and referred to are Judgments in litigations involving loans or forbearance of any 'money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. Eastern Shipping Lines, Inc V. Court Of Appeals | July 12, 1994 | Vitug, J. Keywords: FACTS____________________________________________________________ This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading shipment was insured under plaintiff's Marine Insurance Policy for P36,382,466.38 Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial court. ISSUE (1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time the complaint is filed from the date the decision appealed from is rendered. HELD (1) The Court held that the legal interest is 6% computed from the decision of the court a quo. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money. The interest due shall be 12% PA to be computed fro default, J or EJD. (2) From the date the judgment is made. Where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or EJ but when such certainty cannot be so reasonably established at the time the demand is made, the interest shll begin to run only from the date of judgment of the court is made. (3) The Court held that it should be computed from the decision rendered by the court a quo. Medel vs. CA [299 SCRA 481 (Nov 27 1998)] Usury Law Facts: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced by several promissory notes agreeing to an interest rate of 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for collection of the full amount of the loan. RTC declared that the promissory notes were genuine, however, it ruled that although the Usury Law had been repealed, the interest charged by Gonzales on the loans was unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or credit of 12% per annum. CA reversed the ruling of the RTC holding that the Usury Law had become legally inexistent. Hence, this petition for review on certiorari. Issue: Whether or not the interest rate stipulated upon was valid. Held: NO. SC held that the stipulated rate of interest at 5.5% per month on the P500,000 loan was excessive. However, it could not consider the rate usurious because CB Circular No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that said law is now legally inexistent. CB Circular 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity. A CB Circular cannot repeal a law. Only a law can repeal another law. By virtue of this circular, the Usury Law has been rendered ineffective. Interest can no be charged as lender and borrower may agree upon. Nevertheless, SC held that the interest of 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note was unconscionable, and hence, contrary to morals, if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. SC ordered that the interest of 12% per annum and additional 1% a month penalty charge as liquidated damages reasonable. INVESTORS FINANCE CORPORATION, petitioner,vs.AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY DEVELOPMENT CORPORATION,respondents. FACTS: Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing company doing business with private respondent Autoworld Sales Corporation (AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation (BARRETTO). Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied. But sometime thereafter, FNCB's Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed "IPP" transaction was (1) First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments of P216,666.66. Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD; (2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be "flowed back" to AUTOWORLD; (3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to FNCB; and (4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed "IPP" transaction. The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof. On 9 February 1981 the parties signed three (3) contracts to implement the "IPP" transaction: (1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No. 129763 for the price of P12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations. (3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment. After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum. AUTOWORLD and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00. To secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB. Thereafter, AUTOWORLD began paying the installments. In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments of P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction. On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter's computation of its outstanding balances. On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded. Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account. On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84. According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction. The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of thePromissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days.

On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest. ISSUE: We stress at the outset that this petition concerns itself only with the first transaction involving the alleged' "IPP" worth P6,980,000.00, which was implemented through the three (3) contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate. The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase ("IPP") transaction or merely to conceal a usurious loan. HELD: The three (3) contracts were executed to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. "However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury." The following circumstances show that such scheme was indeed employed: First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.As far as it was concerned, it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other. Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved which were executed on the same day. Also, petitioner was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six (6) months prior to the sale. If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner's own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD. Second, petitioner insists that the 9 February 1981 transaction was a legitimate "IPP" transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to be "flowed back" to AUTOWORLD. And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6,980,000.00. It can be seen that out of the nine (9) items of appropriation stated (in the letter), Item Nos. 2-8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter, BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it. Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO. The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in any manner it wanted. It would not have been obliged to follow the "Application of Proceeds" stated in petitioner's letter. Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a "loan." In that letter, petitioner stated that the "loan proceeds" amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be "flowed back" to AUTOWORLD. If it were a genuine "IPP" transaction then petitioner would not have designated the money to be released as "loan proceeds" and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD. Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan. And no longer having a need to cloak the exorbitant interest rate, the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face. We are therefore of the impression that had there been no interest rate ceilings in 1981, petitioner would not have resorted to the fictitious "IPP" transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that the P6,980,000.00 was really a usurious loan extended to AUTOWORLD. Petitioner anchors its defense on Sec. 7 of the Usury Law which states Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the original usurious transaction. In any case however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in any case of litigation, also the costs and such attorney's fees as may be allowed by the court. Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise, the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on usury. In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. These contracts should therefore be declared void. Having declared the transaction between the parties as void, we are now tasked to determine how much reimbursement AUTOWORLD is entitled to. The Court of Appeals, adopting the computation of AUTOWORLD in its plaintiff-appellant's brief, ruled According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78 in interests from appellant. This is not denied by the appellee. Computed at 12% the effective interest should have been P1,545,400.00. Hence, appellant may recover P2,586,035.44, representing overpayment arising from usurious interest rate charged by appellee. While we do not dispute the appellate court's finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt. However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of P4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23-month period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests.Applying the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests. Hence, AUTOWORLD is entitled to recover the whole usurious interest amounting to P3,921,217.78. Macalalag vs. People of the Philippines December 20, 2006 Facts: Petitioner Theresa Macalalag obtained loans from Grace Estrella on 2 separate occasions, each in amount of P100,000.00 , bearing an interest of 10% per month. She consistetntly paid the interest , however finding the interest rates so burdensome, Macalalag requested Estrella for reduction of the same to which the latter agreed. Subsequently, Macalalag executed an affirmation receipt promising to pay Estrella the value of the loans in the amount of P200,000.00 within 2 months from date of its execution plus 6% interest per month for each loan. As security for the payment of the aforesaid loans,

Macalalag issued 2 PNB checks, each amounting to P100,000.00 in favor of Estrella. But said check were dishonored , for reason that the account to which it is drawn was already closed. Estrella sent notice of dishonor and demand to make good said checks to Macalalag, but the latter failed to do so. Hence Estrella filed 2 criminal complaint against Macalalag for violation of BP 22. Macalalag pleaded not guilty and stated that she already made payments over and above the value of the said checks amounting to P355,837.98. Estrella admitted such payment but claimed that the same amount was applied to the payment of the interest. Trial Court found her guilty as well as the Court of Appeals with modification that she is liable only for 1 count of BP 22. Issue: WON Macalalag had already paid her obligations to Estrella Held: In the Instant case, it has been established that Macalalg made a total payment of P355,837.00( P156,000 paid in 1996 and P199, 837.98 paid in 1997). Hence, the amount of 156,000 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan, thus Macalalag can no longer be held liable for violation of BP 22 in so far as the first check is concerned. With respect to the second check, there is no doubt that Macalalag is liable under BP 22, since the check he represented for payment bounced for reason account closed. Hence her obligation to Estrella was not fully paid.

Cuyco vs Cuyco Facts: Petitioners obtained a loan in the amount of P1,500,000 from respondents,secured by a Real Estate Mortgage over a parcel of land with improvements in Cubao. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000. Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan obligations. Thus, respondents filed a complaint for foreclosure of mortgage with the RTC of AC. They alleged that petitioners loans were secured by the real estate mortgage; that as of August 3 1, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% mo c; and that petitioners refusal to settle the same entitles the respondents to foreclose the real estate mortgage. Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% pa and that there was no agreement that the same will be compounded monthly. The RTC ruled in favor of respondents. The CA modified and ruled that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000 and P500,000. As regards the loans obtained in the amounts of P150,000.00, P200,000.00 and P250,000.00, the CA held that the parties never intended the same to be secured by the real estate mortgage. The CA also found that the trial court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. Issue: As to the interest rates Ratio: Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of 18% per annum computed from the filing of the complaint until fully paid was not provided in the real estate mortgage contract, thus, the same has no legal basis. We are not persuaded. While a contract is the law between the parties, it is also settled that an existing law enters into and forms part of a valid contract without the need for the parties expressly making reference to it. Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest due. The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. CA: 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 CC. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof, respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in paragraph 1. Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Courts Decision. Such interest is not due to stipulation but due t o the mandate of the law as embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied. ONG vs. ROBAN LENDING CORPORATION FACTS: (7/14/99 3/20/00) Petitioner spouses obtained several loans from respondents in the total amount of P4M. These loans were secured by a real estate mortgage. (2/12/01) The parties executed an Amendment to Amended Real Estate Mortgage consolidating their loans inclusive of charges thereon which totaled to P5.9M. The parties executed a Dacion in Payment Agreement wherein petitioners assigned the properties to respondent in settlement of their total obligation. (April 2002) Petitioners filed a complaint before RTC Tarlac for the declaration of mortgage contract as abandoned, accounting and damages alleging that the MOA and the Dacion in Payment executed are void for being pactum commissorium. Petitioners alleged that the loans extended to them were founded on several P/N which provided for 3.5% monthly interest rates, 5% penalty per month on the total amount due and demandable and 25% attorney's fees. Petitioners decried these additional charges as illegal and unconscionable" as they hardly allow any borrower any chance of survival in case of default. The respondent maintained the legality of its transactions with petitioner stating the Dacion is lawful and valid as it is recognized under the Civil Code and that the accumulated interest and other charges computed for more than 2 years would stand reasonable and valid taking into consideration that the principal loan is P4M. RTC: no pactum commissorium. Complaint dismissed CA: upheld RTC ISSUE: WON the charges are unconscionable RULING: YES. SC held that the monthly interest rate of 3.5% or 42% per annum unconscionable. Respecting the charges on the loans, courts may reduce interest rates, penalty charges and attorney's fees if they are iniquitous or unconscionable. The penalty fee at the monthly rate of 5% or 60% per annum of the total amount due and demandable principal + interest, with the interest not paid when due added to and becoming part of the principal and likewise bearing interest at the same rate, compounded monthly unconscionable and reduces it to 12% per annum. Elements of Pactum Commissorum which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings are: 1. there should be a property mortgaged by way of security for the payment of the principal obligation 2 there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.

MACALINAO V. BPI, 600 SCRA 67 FACTS: Petitioner Ileana Macalinao defaulted on the payment of her BPI credit card dues. There was a stipulation in a contract that the charges and/or balance shall earn 3% per month and additional penalty fee of another 3% per month. The Regional Trial Court reduced the 3% monthly interest to 2%. On appeal of the case, the Court of Appeals reversed the decision of the RTC holding that petitioner Macalinao freely availed herself of the credit card facility offered by respondent Bank of the Philippine Islands to general public; contracts of adhesion are not invalid per se. Petitioner assailed the appellate courts decision alleging that the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. ISSUE: Whether or not the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. HELD: The interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. The Supreme Court held that the interest rate and penalty charge of 3% per month or the 36% per annum should be reduced to 2% per month or 24% per annum. In a long line of cased decided by the Supreme Court, it considered the 36% per annum to be excessive and unconscionable. Citing Article1229, in exercising this power to determine what is iniquitous and unconscionable; courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one maybe totally just and equitable in another. In the instant case, Macalinao made partial payments to BPI .Therefore, the interest rate and penalty charge of 3% per month or 36% per annum should be reduced to 2% per month or 24% per annum. Lotto vs BpI Facts: Lotto Restaurant Corporation got a loan of P3,000,000.00 from the DBS Bank at an interest rate of 11.5% per annum. The promissory note it executed provided that Lotto would pay DBS a monthly amortization of P35,045.69 for 180 months. To secure payment of the loan, its General Manager, mortgaged to DBS a condominium unit that belonged to it.DBS increased the interest to 19% per annum, Lotto contested the increase and stopped paying the loan. After respondent BPI acquired DBS, Lotto tried to negotiate with BPI for reduction of interest but the latter agreed to reduce it to only 14.7% per annum, which was still unacceptable to Lotto.BPI foreclosed the mortgage on Lottos condominium unit to satisfy its unpaid claim To stop the foreclosure, Lotto filed against BPI with the Regional Trial Court (RTC) of Manila in Civil Case 02-105415 an action for reformation or annulment of real estate mortgage with prayer for a temporary restraining order (TRO) and preliminary injunction. The RTC issued a TRO.RTC rendered a decision in Lottos favor, finding that DBS breached the stipulations in the promissory note when it unilaterally increased the interest rate on its loan from 11.5% to 19% per annum. Further, the RTC held that the mortgage on the condominium unit was void since the Lotto Board of Directors did not authorize Go to sign the document.CA held that Lotto was estopped from questioning the validity of the promissory note and the real estate mortgage since, having authorized Go to take out a loan from the bank, it followed that it also authorized her to provide the security that the loan required. It also declared that the 11.5% was only up to December 24, 2000, and that the increase to 19% was valid based on the prevailing market rate. Issue: Whether or not DBS, now BPI, validly adjusted the rate of interest on Lottos loan from 11.5% to 19% per annum beginning on December 24, 2000? Held: It is plainly clear from paragraph 7 above that the 11.5% per annum interest was to apply to the period December 24, 1999 to December 24, 2000 ("12.24.99-12.24.00"). They form but one statement of the stipulated interest rate and the period to which such interest rate applied. Additionally, the statement of applicable interest rate bears an asterisk sign, which footnoted the information that "[t]hereafter interest to be based on prevailing market rate." This means that the rate of interest would be adjusted to the prevailing market rate after December 24, 2000.Lotto claims that the asterisk sign after the figure "180" means that the interest would be adjusted to the prevailing market rate at the end of 180 months. But Lotto's interpretation would have a ridiculous implication since that "180 months" is the statement of the payout period for the loan. The loan would have been paid after 180 months and, therefore, there would be no occasion for charging Lotto a new rate of interest on a past loan. Besides such interpretation would directly contravene the clear provision of paragraph 7 that the 11.5% per annum interest was to apply only to the period December 24, 1999 to December 24, 2000. As held in Manila International Airport Authority v. Judge Gingoyon, various stipulations in a contract must be read together and given effect as their meanings warrant. Taken together, paragraphs 7 and 8intended the 11.5% interest rate to apply only to the first year of the loan. As to BPIs right to foreclose, the records show that Lotto defaulted in its obligation when it unjustifiably stopped paying its amortizations after the first year. Consequently, there is no question that BPI (which succeeded DBS) had a clear right to foreclose on Lottos collateral.