Credit Transactions

Liwanag vs. CA, G.R. No. 114398 October 24, 1997

Petitioner was charged with the crime of estafa
Liwanag and a certain Thelma Tabligan went to the house of complainant Rosales and asked her to
join them in the business of buying and selling cigarettes. Convinced of the feasibility of the venture,
Rosales readily agreed. Under their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise the money would be returned to Rosales.
Consequently, Rosales gave several cash advances to Liwanag and Tabligan amounting to
P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the
progress of the transactions. The visits, however, suddenly stopped, and all efforts by Rosales to
obtain information regarding their business proved futile.
HELD: The elements of estafa are present, as follows: (1) that the accused defrauded another by
abuse of confidence or deceit; and (2) that damage or prejudice capable of pecuniary estimation is
caused to the offended party or third party, and it is essential that there be a fiduciary relation
between them either in the form of a trust, commission or administration.
The language of the receipt could not be any clearer. It indicates that the money delivered to
Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and between the
parties, we have ruled that when money or property have been received by a partner for a specific
purpose
(such
as
that
obtaining
in the instant case) and he later misappropriated it, such partner is guilty of estafa.
Neither can the transaction be considered a loan, since in a contract of loan once the money is
received by the debtor, ownership over the same is transferred. Being the owner, the borrower can
dispose of it for whatever purpose he may deem proper. Since in this case there was no transfer of
ownership of the money delivered, Liwanag is liable for conversion under Art. 315, par. l(b) of the
Revised Penal Code.

BPI vs CA, February 15, 2002

Petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected
upon the delivery of the object of the contract, the loan contract in this case was perfected only on
September 13, 1982. Petitioner claims that a contract of loan is a consensual contract, and a loan
contract is perfected at the time the contract of mortgage is executed conformably with our ruling in
Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed was executed, hence, the amortization and
interests on the loan should be computed from said date.
Private respondents assert that based on Article 1934 of the Civil Code, a simple loan is perfected
upon the delivery of the object of the contract, hence a real contract. In this case, even though the
loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982, when the
full loan was released to private respondents. They submit that petitioner misread Bonnevie. To give

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meaning to Article 1934, according to private respondents, Bonnevie must be construed to mean
that the contract to extend the loan was perfected on March 31, 1981 but the contract of loan itself
was only perfected upon the delivery of the full loan to private respondents on September 13,
1982.chanroblesvirtuallawlibrary
HELD: We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. Petitioner misapplied
Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract falls
under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by
way of simple loan.
The loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected
only on September 13, 1982, the date of the second release of the loan. Following the intentions of
the parties on the commencement of the monthly amortization, as found by the Court of Appeals,
private respondents obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other. i[8] As
averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981,
one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that
neither party incurs in delay, if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. ii[9] Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its obligation under
the loan contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.

Equitable vs NG, Dec. 19, 2007

Respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin E. Go filed an action for
annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC),
Branch 16 of Cebu City. They claimed that Equitable induced them to avail of its peso and dollar
credit facilities by offering low interest rates so they accepted Equitable's proposal and signed the
bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware
that the documents contained identical escalation clauses granting Equitable authority to increase
interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions
contained in the promissory notes. In fact, they continuously availed of and benefited from
Equitable's credit facilities for five years.
THE PROMISSORY NOTES WERE VALID
It is erroneous, to conclude that contracts of adhesion are invalid per se. They are, on the contrary,
as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion
becomes void only when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing. That was not the case
here. As the trial court noted, if the terms and conditions offered by Equitable had been truly
prejudicial to respondents, they would have walked out and negotiated with another bank at the first
available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities
for five long years.
ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF MUTUALITY OF CONTRACTS

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Article 1308 of the Civil Code holds that a contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is
reduced by law or by the Monetary Board (de-escalation clause).
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank we
held that, because the escalation clause was annulled, the principal amount of the loan was subject
to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum. Consequently, respondents should pay Equitable the interest
rates of 12.66% p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated
loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of
12% p.a. on all amounts due.
THERE WAS NO EXTRAORDINARY DEFLATION
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
intervene, the value of the currency at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be
proven:
1.
that there was an official declaration of extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP);
2.
that the obligation was contractual in nature;
3.
that the parties expressly agreed to consider the effects of the extraordinary inflation or
deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation.Moreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that
there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.

Rodelo G. Polotan, Sr. vs CA, G.R. No. 119379, 25 September 1998.

Private respondent Security Diners International Corporation (Diners Club), a credit card company,
extends credit accomodations to its cardholders for the purchase of goods and other services from
member establishments.
Petitioner argues that the provision on interest rate is obscure and ambiguous and not susceptible of
reasonable interpretation particularly the terms prime rate, prevailing market rate and guiding rate.
In effect, there was no meeting of minds. As such, this being a contract of adhesion, any ambiguity
should be resolved against the one who caused it.
Petitioners contract with private respondent in this case, expressly provides for an escalation clause
but not a de-escalation clause. The Supreme Court ruled that notwithstanding this, the contract
provides a leeway for the interest rate to be reduced in case the prevailing market rates dictate its
reduction and that said provision on the increase of interest rates is not dependent solely on the will
of private respondent as it is also dependent on the prevailing market rates.

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A contract of adhesion is one in which one of the contracting parties imposes a ready-made
form of contract which the other party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his signature or
his adhesion thereto, giving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing.
Admittedly, the contract containing standard stipulations imposed upon those who seek to
avail of its credit services was prepared by the Company. There is no way a prospective credit
card holder can object to any onerous provision as it is offered on a take-it-or-leave-it basis.
Being a contract of adhesion, any ambiguity in its provisions trust be construed against the
Company. Nevertheless, these types of contracts have been declared as binding ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely.
The binding effect of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from a contract has the force of law between the
parties; and (2) that there must be mutuality between the parties based on their essential
equality. Any contract which appears to be heavily weighed in favor of one of the parties so as
to lead to an unconscionable result is void. Any stipulation regarding the validity or
compliance of the contract which is left solely to the will of one of the parties, is likewise,
invalid. It is important to stress that the Court is not precluded from ruling out blind
adherence to their terms if the attendant facts and circumstances show that they should be
ignored for being obviously too one-sided.

Espiritu vs Landrito , April 4, 2007

This is a petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision of
the Court of Appeals. The Court of Appeals, fixed the interest rate of the loan between the parties at
12% per annum, and ordered the Spouses Zoilo and Primitiva Espiritu (Spouses Espiritu) to reconvey
the subject property to the Spouses Landrito conditioned upon the payment of the loan.
HELD: Although any action seeking to impose either civil or criminal liability had already prescribed,
this Court frowns upon the underhanded manner in which the Spouses Espiritu imposed interest and
charges, in connection with the loan.
Article 1956. No interest shall be due unless it has been stipulated in writing.
The omission of the Spouses Espiritu in specifying in the contract the interest rate which was actually
imposed, in contravention of the law, manifested bad faith.
In several cases, this Court has been known to declare null and void stipulations on interest and
charges that were found excessive, iniquitous, and unconscionable. In declaring void the stipulations
authorizing excessive interest and charges, the Court declared that although the Usury Law was
suspended by Central Bank Circular No. 905, s. 1982, effective on 1 January 1983, and consequently
parties are given a wide latitude to agree on any interest rate, 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.
Stipulation authorizing iniquitous or unconscionable interests are contrary to morals, if not against
the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void from the
beginning. The nullity of the stipulation on the usurious interest does not, however, affect the
lenders right to recover the principal of the loan. Nor would it affect the terms of the real estate
mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be
exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered

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without the stipulation of the excessive interest. A legal interest of 12% per annum will be added in
place of the excessive interest formerly imposed.
It has not yet been shown that the Spouses Landrito had already failed to pay the correct amount of
the debt and, therefore, a foreclosure sale cannot be conducted in order to answer for the unpaid
debt. The foreclosure sale conducted upon their failure to pay P874,125 in 1990 should be nullified
since the amount demanded as the outstanding loan was overstated; consequently it has not been
shown that the mortgagors the Spouses Landrito, have failed to pay their outstanding obligation.
Moreover, if the proceeds of the sale together with its reasonable rates of interest were applied to
the obligation, only a small part of its original loans would actually remain outstanding, but because
of the unconscionable interest rates, the larger part corresponded to said excessive and iniquitous
interest.
As a result, the subsequent registration of the foreclosure sale cannot transfer any rights over the
mortgaged property to the Spouses Espiritu. Significantly, the records show that the property
mortgaged was purchased by the Spouses Espiritu and had not been transferred to an innocent
purchaser for value. This means that an action for reconveyance may still be availed of in this case.
The provisions of the Real Estate Mortgage are not annulled and the principal obligation stands. In
addition, the interest is not completely removed; rather, it is set by this Court at 12% per annum.
Should the Spouses Landrito fail to pay the principal, with its recomputed interest which runs from
the time the loan agreement was entered into on 5 September 1986 until the present, there is
nothing in this Decision which prevents the Spouses Espiritu from foreclosing the mortgaged
property.
Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals.

Patron vs. Union Bank, 569 scra 738, Oct. 17, 2008
The Spouses Ramon and Luzviminda Patron (petitioners), doing business under the name Ala Golden
Grains Rice Mill, obtained on September 9, 1988 a P2,000,000 quedan loan from respondent
International Corporate Bank (Interbank) which was guaranteed by respondent Quedan and Rural
Credit Guarantee Corporation (Quedancor).
Petitioner Ramon Patron's letter to UBP dated January 31, 1994 appealing for a condonation and/or
reduction of the penalty charges of 2% per annum on the promissory note for P4,900,000 which
matured on August 9, 1993 and requesting a restructuring of said loan, [26] as well as petitioners'
counsel's letter to UBP dated January 10, 1994 seeking clarification on "x x x why [Ramon Patron]
should be liable for this additional 2% a month beginning August 9, 1993, when the note falls due
only on February 4, 1994,"[27] should dissipate any doubts on, and unquestionably reflect the
admission by petitioners of, their liability to respondent UBP.
Thus, petitioners' obligation under Promissory Note No. AGL93-0004 to UBP stands. However, a
recomputation of the amount which they owe UBP is in order.
As earlier mentioned, the Court of Appeals erred in basing petitioners' liability on Promissory Note
No. AGL93-0022 which was accomplished by them in support of the August 1993 application for
renewal of loan but which was disapproved. Petitioners' liability should be based on Promissory Note
No. AGL93-0004, which stipulates an interest of 23% per annum, and that "interest not paid when
due shall be added to and constitute a part of the principal and likewise bear interest at the same
rate."[28] This Court finds such interest rate unconscionable, however, and reduces it to 12% per
annum.[29] The monthly penalty charge of 2% of the amount due and demandable is, likewise, under
the circumstances attendant to this case, unconscionable, considering that partial payments had
been made on the principal.[30] Thus, in Palmares v. Court of Appeals,[31] this Court, citing its earlier

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minute resolution of May 16, 1994 in G.R. No. 112614, eliminated the penalty charge altogether on
the ground that:
Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of
the penalty interest of three (3%) per month of the total amount due but unpaid should be equitably
reduced. The purpose for which the penalty interest is intended - that is, to punish the obligor - will
have been sufficiently served by the effects of compounded interest. Under the exceptional
circumstances in the case at bar x x x the penalty stipulated in the parties' promissory note is
iniquitious and unconscionable and may be equitably reduced further by eliminating such penalty
interest altogether.
The penalty charge of 2% per month should thus be eliminated. Petitioners' liability stands then at
P1,634,464.44. Following Eastern Shipping Lines, Inc. v. Court of Appeals, [33] this amount shall earn
12% interest per annum from the time of extrajudicial demand on September 30, 1994 until it is fully
paid.
In view of the stipulation in Promissory Note No. AGL93-0004 providing for the payment of attorney's
fees equivalent to 10% of the amount due and demandable, this Court awards P163,446.44 to UBP
as attorney's fees.

WHEREFORE, the Decision of the Court of Appeals dated September 11, 2006 is AFFIRMED with
MODIFICATION. The interest rate in Promissory Note No. AGL93-0004 is reduced to 12% per annum,
and the penalty charge is deleted.

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