OSCAR RAMOS V CA

180 SCRA 635

FACTS: Sometime in January, 1959, private respondent Adelaida Ramos borrowed from her
brother, petitioner Oscar D. Ramos, the amounts of P5,000.00 and P9,000.00 in connection with
her business transaction with one Flor Ramiro, Fred Naboa and Atty. Ruperto Sarandi involving
the recovery of a parcel of land in Tenejeros, Malabon. The said amount was used to finance the
trip to Hawaii of Ramiro, Naboa and Atty. Sarandi. As security for said loan, private respondent
Adelaida Ramos executed in favor of petitioners two (2) deeds of conditional sale dated May 27,
1959 and August 30, 1959, of her rights, shares, interests and participation respectively over Lot
No. 4033 covered by Original Certificate of Title No. 5125 registered in the name of their parents,
Valente Ramos and Margarita Denoga, now deceased, and Lot No. 4221 covered by Transfer
Certificate of Title No. 10788 then registered in the names of Socorro Ramos, Josefina Ramos
and Adelaida Ramos.
Upon the failure of said private respondent as vendor a retro to exercise her right of
repurchase within the redemption period, aforenamed petitioner filed a petition for consolidation
and approval of the conditional sale of Lot No. 4033 in Special Proceedings No. 5174, entitled
"Intestate Estate of the late Margarita Denoga," and a petition for approval of the pacto de retro
sale of Lot No. 4221 in the former Court of First Instance of Tarlac acting as a cadastral court.
The probate court and cadastral court granted the petitions.
Private respondents had been and remained in possession of these properties until
sometime in 1964 when petitioner took possession thereof.
On February 28, 1968, private respondent filed Civil Case No. 4168 with the then Court
of First Instance of Tarlac for declaration of nullity of orders, reformation of instrument, recovery
of possession with preliminary injunction and damages. The complaint therein alleged that the
deeds of conditional sale, dated May 27, 1959 and August 30, 1959, are mere mortgages and
were vitiated by misrepresentation, fraud and undue influence and that the orders dated January
22, 1960 and April 18, 1960, respectively issued by the probate and cadastral courts, were null
and void for lack of jurisdiction. The court ruled that the contract between the parties is a loan
secured by a real estate mortgage, and set aside the titles issued in favor of the petitioner. CA
affirmed.

ISSUE: Whether a loan contract which is made to appear as a conditional sale can be interpreted
as an equitable mortgage.

RULING: Yes. Several undisputed circumstances persuade this Court that the questioned deeds
should be construed as equitable mortgages: (1) plaintiff vendor remained in possession until
1964 of the properties she allegedly sold in 1959 to defendants; (2) the sums representing the
alleged purchase price were actually advanced to plaintiff by way of loans; and (3) the properties
allegedly purchased by defendant Oscar Ramos and his wife have never been declared for
taxation purposes in their names. Such a conclusion is buttressed by the other circumstances
catalogued by respondent court especially the undisputed fact that the two deeds were executed
by reason of the loan extended by petitioner Oscar Ramos to private respondent Adelaida Ramos
and that the purchase price stated therein was the amount of the loan itself.
The above-stated circumstances are more than sufficient to show that the true intention
of the parties is that the transaction shall secure the payment of said debt and, therefore, shall be
presumed to be an equitable mortgage under Paragraph 6 of Article1602 herein before quoted.
Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one
circumstance is enough. The said article expressly provides therefor "in any of the following
cases," hence the existence of any of the circumstances enumerated therein, not a concurrence
nor an overwhelming number of such circumstances, suffices to give rise to the presumption that
the contract with the right of repurchase is an equitable mortgage.
On the faces thereof, the contracts purport to be sales with pacto de retro;
however, since the same were actually executed in consideration of the aforesaid loans said
contracts are indubitably equitable mortgages. The rule is firmly settled that whenever it is
clearly shown that a deed of sale with pacto de retro, regular on its face, is given as security for a
loan, it must be regarded as an equitable mortgage.
Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by
contracts of sale with right of repurchase, such as the circumvention of the laws against usury
and pactum commissorium. In the present case before us, to rule otherwise would contravene
the legislative intent to accord the vendor a retro maximum safeguards for the protection of his
legal rights under the true agreement of the parties.
The Petition is denied, and the CA ruling is affirmed.

OVERSEAS BANK OF MANILA V. CA & TAPIA

105 SCRA 49

FACTS: Tapia, in behalf of Enrique de Champourcin, instituted an action against the Overseas
Bank of Manila to enforce collection of the proceeds of a time deposit for which TOBM had issued
a certificate for P100,000.00, with an interest rate of 4 1/2% per annum. The lower court ruled for
Tapia. TOBM appealed.
During the pendency of the appeal, TOBM was excluded by the Central Bank under
Monetary Board Resolution No. 1263 from inter-bank clearing, and its operations were
suspended by a Central Bank resolution. In another resolution, the Central Bank forbade TOBM
to do business preparatory to its forcible liquidation. These Resolutions were, however, annulled
and set aside by the Supreme Court in its decision in Ramos vs. Central Bank, L-29350,
promulgated October 4, 1971. To assure maximum protection to its depositors, creditors and the
public interest, the rehabilitation, normalization and stabilization thereof was also ordered by the
Supreme Court. Nevetheless, the CB resolution suspending TOBM's business operations had
actually been implemented starting 2 August 1968, before it was annulled, and that as of this
writing TOBM has yet to resume operations in accordance with the aforesaid program of
rehabilitation approved by this Honorable Supreme Court.
The CA affirmed the lower court decision in toto.

ISSUE: Whether or not a person who has deposited money to a bank whose operations have
been suspended by the Central Bank is entitled to the payment of interest.

RULING: No. The Court held that it is utterly unfair to award private respondent his prayer for
payment of interest on his deposit during the period that petitioner bank was not allowed by the
Central Bank to operate.
It is a matter of common knowledge, that what enables a bank to pay stipulated interest
on money deposited with it is that thru the other aspects of its operation it is able to generate
funds to cover the payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities from which it can derive income, it is
inconceivable how it can carry on as a depository obligated to pay stipulated interest. It should be
deemed read into every contract of deposit with a bank that the obligation to pay interest on the
deposit ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operation by the
Central Bank has been subsequently declared illegal by the Supreme Court, for before the
Court's order, the bank had no alternative under the law than to obey the orders of the Central
Bank. Whatever be the juridical significance of the subsequent action of the Supreme Court, the
stubborn fact remained that the petitioner was totally crippled from then on from earning the
income needed to meet its obligations to its depositors. If such a situation cannot, strictly
speaking, be legally denominated as "force majeure", as maintained by private respondent, We
hold it is a matter of simple equity that it be treated as such.
Judgment is rendered modifying the decision of the Court of Appeals under review in the
sense that the judgment of the trial court requiring petitioner to pay interest on private
respondent's deposit from August 13, 1968 up to the reopening for normal operations of petitioner
is reversed, and petitioner is declared free from any liability therefor, and that with regard to his
deposit of P100,000.00, it is Our judgment that he secure payment thereof by negotiating with
petitioner in accordance with the terms of the Rehabilitation Program of TOBM approved by this
Court on October 23, 1974.

BANCO FILIPINO SAVINGS MORTGAGE BANK V NAVARRO

152 SCRA 346

FACTS: Private respondent Florante del Valle (Borrower) obtained from Banco Filipino a loan of
P41,300 secured by a real estate mortgage. It is to be amortized within 15 years at 12% interest
annually. An escalation clause is indicated in the promissory note evidencing the loan.
In 1976, the Central Bank issued Circular No. 494 , increasing the maximum rate of
interest at 19% per annum. Said circular was issued pursuant to the authority granted to the
Monetary Board by P.D. No. 116 to prescribe the maximum rate or rates for the loan or renewal
thereof.
Based on said circular, Banco Filipino gave notice to borrower Del Valle of the increase
of interest rate from 12% to 17% per annum, effective March 1, 1976. Also, on September 24,
1976, Ms. Mercedes Paredes of the Central Bank, wrote a letter to Del Valle, advising the latter of
Resolution No. 1155 prescribing the guidelines to govern interest rate adjustments.
Del Valle sued Banco Filipino for Declaratory Relief before CFI Manila.
Praying that the escalation clause be declared be null and void; and that Banco Filipino be
ordered to desist from enforcing the increased rate of interest on Del Valle’s loan
Banco Filipino argued that the escalation clause signed by Del Valle authorized the bank
to increase the interest rate once a law, such as Circular No. 494, was passed increasing the
interest rate.
CFI nullified the escalation clause and ordered the bank to desist from enforcing the
increased rate, saying that P.D. 116 does not expressly grant the Central Bank authority to
maximize interest rates retroactively.
Banco Filipino filed a certiorari petition before the SC. The Court impleaded the Central
Bank, arguing that the issuance of its circulars is a valid exercise of its authority to prescribe
maximum rates of interest, and based on the general principles of contract, the Escalation Clause
is a valid provision in the loan agreement, provided that: the increased rate imposed or charged
by the bank does not exceed the ceiling fixed by law/Monetary Board; the increase is made
effective not earlier than the effectivity of the law/regulation authorizing such an increase, and the
remaining maturities of the loans are more than 730 days as of the effectivity of the
loan/agreement.

ISSUE: Whether or not Banco Filipino can Increase the interest rate on the loan under the
escalation clause?

RULING: No. The Supreme Court ruled that, while an escalation clause was valid, the enactment
of Circular No. 494 issued by the Monetary Board could not warrant the automatic increase in the
interest rate because the said Circular is not the “law” contemplated by the parties, nor should
said Circular be held to apply to loans secured by real estate mortgage because it will defeat the
policy behind the Usury Law.
As a matter of law, the escalation clause is not substantively unconscionable. These are
widely used in commercial contracts in an effort to maintain fiscal stability and to retain the ‘real
dollar’ value to the price terms of long term contracts.
In an Escalation Clause that authorizes an automatic increase in interest rates in the
event that a law is enacted which allows such increases, a Central Bank Circular is not included
as “law”. Although having the force and effect of law, is not strictly a statute or law. Also, for an
escalation clause to be valid, it must include a de-escalation clause.

FIRST METRO V ESTE DEL SOL

369 SCRA 99
FACTS: FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban, Rizal.
Under the agreement, the interest was 16% pa based on the diminishing balance. In case of
default, an acceleration clause was provided and the amount due is subject to 20% one-time
penalty on the amount due and such amount shall bear interest at the highest rate permitted by
law. respondent executed a REM, individual continuing suretyship and an underwriting
agreement whereby FMIC shall underwrite the public offering of one P120,000 common shares of
respondent’s capital stock for one-time underwriting fee of P200,000. For failure to pay its
obligation, FMIC caused the foreclosure of the REM. At the public auction, FIC was the highest
bidder. Petitioner filed to collect for alleged deficiency balance against respondents since it failed
to collect from the sureties, plus interest at 21% pa. the trial court ruled in favor of FMIC.
Respondents appealed before the CA which held that the fees provided for in the Underwriting
and Consultacy Agreements were mere subterfuges to camouflage the excessively usurious
interest charged. The CA ordered FMIC to reimburse petitioner representing what is ue to
petitioner and what is due to respondent.

ISSUE: Whether or not the interests are lawful

HELD: No. an apparently lawful loan is usurious when it is intended that additional compensation
for the loan be disguised by an ostensibly unrelated contract for the payment by the borrower for
the lender’s services which re of little value or which are not in fact to be rendered. Article 1957
clearly provides: contracts and stipulations, under any cloak or device whatever, intended to
circumvent the law against usury shall be void. The borrower may recover in accordance with the
laws on usury.