Castro vs Palenzuela

FACTS:

Respondents were owners of several fishponds which, through their duly appointed
Attorney-in-fact and co-respondent Palenzuela, were leased to petitioners spouses Castro for a
period of five years.

The lease expired but petitioners did not vacate and continued to occupy and operate the
fishponds for an additional 41 days. Respondent had previously sent a letter to spouses Castro
declaring them as trespassers and demanding settlement of the latter’s outstanding obligations,
including back rentals, interest and the supposed one-month additional rent.

Respondents then instituted an action for collection of a sum of money with damages in the
RTC, which held that petitioners violated the terms of the lease and ordered petitioners to pay,
among others, P863,769.00, by way of actual or compensatory damages.

Petitioners went up to the CA on appeal arguing that the Decisions of the RTC is erroneous and
the awards excessive but petitioners concede that in the absence of stipulation as to interest,
respondents are entitled only to 6% annual interest as indemnity for damages. Respondents
claim that the interest should be paid at 12% per annum, and not merely 6% on the outstanding
obligation. The CA dismissed the appeal and sustained in toto the decision of the RTC.

ISSUE: Whether or not the proper interest rate is 6% and not 12%

RULING: Negative.

On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per annum,
collected from the time of extrajudicial demand. Back rentals in this case are equivalent to a
loan or forbearance of money.

G.R. No. 114286 April 19, 2001

THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK),petitioner
vs.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM
and SPOUSE, respondents

FACTS:

Respondents Continental Cement Corporation and Lim obtained from petitioner Consolidated
Bank and Trust Corporation a Letter of Credit, which was used to purchase 500,000 L bunker
fuel oil from Petrophil Corporation. On the same date, respondent Corporation paid a marginal
deposit and in relation to the transaction, executed a trust receipt with Lim as signatory.
Petitioners filed a complaint for sum of money with application for preliminary attachment
against respondents, claiming that the latter failed to turn over the goods covered by the trust
receipts or the proceeds thereof. In answer, respondents averred that the transaction between
them was a simple loan and not a trust receipt transaction.
The trial court dismissed the complaint. Both parties appealed to the CA which partially modified
the Decision by deleting the award of attorney's fees in favor of respondents and instead
ordered respondent Corporation to pay petitioner. Hence, the instant petition.

ISSUE: Whether or not the transaction involved is a loan transaction or a trust receipt
transaction

RULING:

Transaction is a loan transaction.

Petitioner has also failed to convince us that its transaction with respondent Corporation is really
a trust receipt transaction instead of merely a simple loan, as found by the lower court and the
Court of Appeals.
The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This situation
is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject
of the trust receipt occurred long before the trust receipt itself was executed. More specifically,
delivery of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7,
1982 and was completed by July 19, 1982.13 Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982.14 On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.

The danger in characterizing a simple loan as a trust receipt transaction was explained in
Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners' situation. Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity, which should not be
the basis for criminal prosecution in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and admitted that it was only
after collection of the money, as manifested by its Affidavit of Desistance.

CITIBANK AND INVESTORS FINANCE CORPORATION VS MODESTA SABENIANO

G.R. NO. 156132
OCTOBER 16, 2006

FACTS: Modesta Sabeniano is a client of Citibank and FNCB Finance. On February 1978,
Sabeniano obtained a loan of Php 200,000 from Citibank. This loan was followed with several
other loans – some were paid, while some were not. Those that were not paid upon maturity
were rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as of September 1979.

These loans were secured by Sabeniano’s money market placements with FNCB Finance
through a Deed of Assignment plus a Declaration of Pledge which states that all present and
future fiduciary placements held in her personal and/or joint name with Citibank Switzerland, will
secure all claims that Citibank may have or, in the future, acquire against her.

The Deeds of Assignment were duly notarized, while the Declaration of Pledge was not
notarized and Citibank’s copy was undated, while that of Sabeniano bore the date, September
24, 1979.

Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to
request payment. Her total unpaid loan initially amounted to Php 2,123,843.20 (inclusive of
interests).

Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of
Sabeniano’s money market placement from FNCB Finance which totaled Php 1,022,916.66 and
her deposits with Citibank which totaled Php 31,079.14 to set-off her loan.

This reduced the unpaid balance to Php 1,069,847.40 as previously mentioned. Since the loan
remains unpaid, Citibank proceeded to execute the Declaration of Pledge and remitted a total of
$149,632.99 from Sabeniano’s Citibank-Geneva accounts to off-set the loan.

Sabeniano then filed a complaint against Citibank for damages and specific performance (for
proper accounting and return of the remitted proceeds from her personal accounts). She also
contended that the proceeds of 2 promissory notes (PN) from her money market placements
with Citibank were rolled over or reinvested into the petitioner bank, and these should also be
returned to her.

Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank was
ordered to return the $149,632.99 to Sabeniano’s Citibank-Geneva account with a legal interest
of 12% per annum. The RTC also ordered Sabeniano to pay her outstanding loan to Citibank
without interests and penalty charges.

Both parties appealed to the CA which affirmed the RTC’s decision, but further ruled entirely in
favor of Sabeniano – holding that Citibank failed to establish her indebtedness and that all the
executed deeds should be returned to her account. The case has now reached the Supreme
Court.

ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan
was valid and legal.

HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as
this was properly documented and sufficient in evidence. Thus, the execution of deeds was
valid, especially that the agreement was duly notarized, signed and prepared in accordance with
the law.

The court also ordered Citibank to return the amount of P318,897.34 and P203,150.00 plus
14.5% per annum to Sabeniano. This is the total amount from the 2 PNs which were executed
despite being reinvested in said bank. The bank was also ordered to pay moral damages of
P300,000, exemplary damages for P250,000, attorney’s fees of P200,000.

The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity,
Citibank cannot exercise automatic remittance from Sabeniano’s Citibank Geneva account to
off-set her outstanding loan.
The court also noted that the pledge was filled out irregularly – it was not notarized and
Citibank’s copy bore no date. The original copy was not also produced in court.

Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered her
to pay the remaining balance of her loan which amounts to P1,069,847.40 as of 5 September
1979. These loans continue to earn interest based on the maturity date that were agreed and
stipulated upon by the parties.

PRISMA CONSTRUCTION v. MENCHAVEZ

FACTS:

December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA, obtained a
P1M loan from the respondent, with monthly interest of P40,000.00 payable for 6 months, or a
total obligation of P1,240,000.00 payable within 6 mos. To secure the payment of the loan,
Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal capacity
and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the 6-month period.
As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of
P1,364,151.00, to which respondent applied a 4% monthly interest.
On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid
balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest
was not provided in the promissory note. Pantaleon also denied that he made himself personally
liable and that he made representations that the loan would be repaid within six (6) months.
RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan that
would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month
period. RTC ordered the petitioners to jointly and severally pay the respondent the amount of
P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.
Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly
interest. CA favored respondent but noted that the interest of 4% per month, or 48% per annum,
was unreasonable and should be reduced to 12% per annum. MR denied hence this petition.

ISSUE:
Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of
interest apply to the 6-month payment period only or until full payment of the loan?

RULING:

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.
Courts have no authority to alter the contract by construction or to make a new contract for the
parties; a court’s duty is confined to the interpretation of the contract the parties made for
themselves without regard to its wisdom or folly, as the court cannot supply material stipulations
or read into the contract words the contract does not contain. It is only when the contract is
vague and ambiguous that courts are permitted to resort to the interpretation of its terms to
determine the parties’ intent.
In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his personal
capacity and as authorized by the Board, executed the promissory note. Thus, the P1M loan
shall be payable within 6 months. The loan shall earn an interest of P40,000.00 per month, for a
total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be
computed at 4% interest per month, but no such rate of interest was stipulated in the promissory
note; rather a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that “no interest shall be due unless it has
been expressly stipulated in writing.” The payment of interest in loans or forbearance of money
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 interest at a stipulated rate. The collection of interest
without any stipulation in writing is prohibited by law.
The interest of P40,000.00 per month corresponds only to the six-month period of the loan, or
from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.
When the 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 of the Civil Code.
The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00
per month for six months, not to a 4% rate of interest payable within a 6-month period.
No issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put
in issue by the petitioners; they only assailed the application of a 4% interest rate, since it was
not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations,
clauses, terms and conditions they have agreed to, which is the law between them, the only
limitation being that these stipulations, clauses, terms and conditions are not contrary to law,
morals, public order or public policy. The payment of the specific sum of money of P40,000.00
per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing
from the records and, in fact, there is no allegation showing that petitioners were victims of fraud
when they entered into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a
period of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter,
interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners
during the pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be
deducted from the total amount due, computed as indicated above. We remand the case to the
trial court for the actual computation of the total amount due.

S.C. MEGAWORLD CONSTRUCTION AND DEV. CORPORATION VS PARADA (G.R.NO.

183804)
FACTS:
Petitioner S.C. Megaworld Construction and Development Corporation bought electrical lighting
materials from Genlite Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna.
Petitioner failed to pay said purchase on due date, but blamed it on its failure to collect under its
sub-contract with the Enviro Kleen Technologies, Inc. (Enviro Kleen).
It was however able to persuade Enviro Kleen to agree to settle its above purchase, but after
paying the respondent P250,000.00 on June 2, 1999, Enviro Kleen stopped making further
payments, leaving an outstanding balance of P816,627.00. It also ignored the various demands
of the respondent, who then filed a suit in the RTC.
Petitioner denied liability and claimed that it was released from its indebtedness to the
respondent by reason of the novation of their contract, which, it reasoned, took place when the
latter accepted the partial payment of Enviro Kleen in its behalf, and thereby acquiesced to the
substitution of Enviro Kleen as the new debtor in the petitioner’s place.
RTC - Ruled in favor of respondent. As follows:
WHEREFORE, judgment is hereby rendered for the [respondent].

[The petitioner] is hereby ordered to pay the [respondent] the following:

A. the sum of [P]816,627.00 representing the principal obligation due;
B. the sum equivalent to twenty percent (20%) per month of the principal obligation due from
date of judicial demand until fully paid as and for interest; and
C. the sum equivalent to twenty[-]five [percent] (25%) of the principal sum due as and for
attorney’s fees and other costs of suits.
The compulsory counterclaim interposed by the [petitioner] is hereby ordered dismissed for lack
of merit.
CA – Concurred with RTC decision. CA noted that there is nothing in the two (2) letters of the
respondent to Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply that he
consented to the alleged novation, and, particularly, that he intended to release the petitioner
from its primary obligation to pay him for its purchase of lighting materials. The appellate court
cited the RTC’s finding9 that the respondent informed Enviro Kleen in his first letter that he had
served notice to the petitioner that he would take legal action against it for its overdue account,
and that he retained his option to pull out the lighting materials and charge the petitioner for any
damage they might sustain during the pull-out.

ISSUE:
Whether or not the interest imposed to be paid by petitioner is proper
RULING: No.

Pursuant to Article 2209 of the Civil Code, except as provided under Central Bank Circular No.
905, and now under Bangko Sentral ng Pilipinas Circular No. 799, which took effect on July 1,
2013, the respondent may be awarded interest of six percent (6%) of the judgment amount by
way of actual and compensatory damages.

It appears from the recital of facts in the trial court’s decision that the respondent demanded
interest of two percent (2%) per month upon the balance of the purchase price of P816,627.00,
from judicial demand until full payment. There is then an obvious clerical error committed in the
fallo of the trial court’s decision, for it incorrectly ordered the defendant therein to pay “the sum
equivalent to twenty percent (20%) per month of the principal obligation due from date of judicial
demand until fully paid as and for interest.”

A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error
made by a clerk or a transcriber; a mistake in copying or writing. The Latin maxims Error
placitandi aequitatem non tollit (“A clerical error does not take away equity”), and Error scribentis
nocere non debit (“An error made by a clerk ought not to injure; a clerical error may be
corrected”) are apt in this case. Viewed against the landmark case of Medel v. CA, an award of
interest of 20% per month on the amount due is clearly excessive and iniquitous. It could not
have been the intention of the trial court, not to mention that it is way beyond what the plaintiff
had prayed for below.

It is settled that other than in the case of judgments which are void ab initio for lack of
jurisdiction, or which are null and void per se, and thus may be questioned at any time, when a
decision is final, even the court which issued it can no longer alter or modify it, except to correct
clerical errors or mistakes.

The foregoing notwithstanding, of more important consideration in the case before us is the fact
that it is nowhere stated in the trial court’s decision that the parties had in fact stipulated an
interest on the amount due to the respondent. Even granting that there was such an agreement,
there is no finding by the trial court that the parties stipulated that the outstanding debt of the
petitioner would be subject to two percent (2%) monthly interest. The most that the decision
discloses is that the respondent demanded a monthly interest of 2% on the amount outstanding.

Article 2209 of the Civil Code provides that “[i]f 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 the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum.” Pursuant to the said provision,
then, since there is no finding of a stipulation by the parties as to the imposition of interest, only
the amount of 12% per annum47 may be awarded by the court by way of damages in its
discretion, not two percent (2%) per month, following the guidelines laid down in the landmark
case of Eastern Shipping Lines v. Court of Appeals,48 to wit:chanrobles virtua1aw 1ibrary
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the 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 of the Civil Code.

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.49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or forbearance of money, goods
or credit describes a contractual obligation whereby a lender or creditor has refrained during a
given period from requiring the borrower or debtor to repay the loan or debt then due and
payable.51 Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods, or credit, the governing provision
is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently
provides:chanrobles virtua1aw 1ibrary
“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 the interest agreed upon, and in the absence of stipulation, the legal interest, which
is six per cent per annum.”
The term “forbearance,” within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply
only to loans or forbearance of money, goods, or credits, as well as to judgments involving such
loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies “when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general,” with
the application of both rates reckoned “from the time the complaint was filed until the [adjudged]
amount is fully paid.” In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition “that the courts are vested with
discretion, depending on the equities of each case, on the award of interest.”52 (Citations
omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29, 1974,53 in the absence of
a written stipulation, the interest rate to be imposed in judgments involving a forbearance of
credit shall be 12% per annum, up from 6% under Article 2209 of the Civil Code. This was
reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law
from January 1, 1983.54 But if the judgment refers to payment of interest as damages arising
from a breach or delay in general, the applicable interest rate is 6% per annum, following Article
2209 of the Civil Code.55 Both interest rates apply from judicial or extrajudicial demand until
finality of the judgment. But from the finality of the judgment awarding a sum of money until it is
satisfied, the award shall be considered a forbearance of credit, regardless of whether the
award in fact pertained to one, and therefore during this period, the interest rate of 12% per
annum for forbearance of money shall apply.

But notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of
the Bangko Sentral ng Pilipinas approved the revision of the interest rate to be imposed for the
loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest. Thus, under BSP Circular No. 799,
issued on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now back at
six percent (6%), viz:chanr
Bangko Sentral ng Pilipinas
OFFICE OF THE GOVERNOR

CIRCULAR NO. 799

Series of 2013

Subject: Rate of interest in the absence of stipulation

The monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1. 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 an express contract as to such rate of interest,
shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

FOR THE MONETARY BOARD:

DIWA C. GUINIGUNDO
Officer-In-Charge

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

234 SCRA 78

FACTS
Two fiber drums owned by Eastern Shipping from Japan were shipped. The shipment
was insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service,
which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from
Metro, one drum opened and without seal. Allied delivered 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. As consequence of the loss, the insurance company paid the
consignee, so that it became subrogated to all the rights of action of consignee against the
defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed
before the trial court. The trial court ruled in favor of plaintiff and 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.

Solid Homes vs. IAC

FACTS:

Solid Homes, Inc. is the owner and developer of a subdivision project known as Greenheights
Newton Subdivision located in Antipolo. V.V. Soliven Realty Corporation sold lots in this
subdivision and Pedro B. de la Pea was one of its brokers. In January 1976, De la Pea was
introduced to Colonel Benjamin V. Zabat and his wife Luningning (respondents) for the purpose
of making them interested in buying lots in Greenheights. De la Pea offered Lot Nos. 1, 2 and 3
of Block 8 of Greenheights. Respondents agreed to buy Lot No. 1 of Block 8 while expressing
their desire to purchase Lot Nos. 2 and 3.

The purchase price for Lot No. 1 was P53,280.00 with down payment of 20% of the purchase
price or P10,656.00. The parties agreed to pay the down payment of P10,656.00 according to
the following arrangementpayment of P500.00 upon execution of the Reservation Application
and the remainder to be offset by the value of G.I. sheets which respondents undertook to
deliver to petitioners.
On 29 January 1976, G.I. sheets worth P14,291.60 were delivered to Solid Homes, Inc. Zabat
signed and delivered to De la Pea the reservation agreements for Lot Nos. 1, 2 and 3. As the
value of the G.I. sheets was higher than the agreed down payment for Lot No. 1, V.V. Soliven
applied the excess of the value of the G.I. sheets as down payment for Lot Nos. 2 and 3.

However, Solid Homes, Inc. still sold Lot Nos. 2 and 3 to third parties on 2 March 1976, alleging
failure of respondents to submit the reservation application for Lot Nos. 2 and 3 on time.

Respondents were only informed of the sale of Lot Nos. 2 and 3 in May 1976. Thus, on 11 May
1976

Respondents filed an action for specific performance or rescission of contract with damages on
29 September 1976 before the CFI, praying that petitioners comply with the agreement for
petitioners to sell to respondents Lot Nos. 1, 2 and 3 or, that petitioners return their payments,
together with interest and damages.

Trial court rendered a Decision in favor of respondents, ordering petitioners to return to

respondents the sum of P15,938.00 with interest thereon at the legal rate computed from 11
February 1976 until full restoration. IAC affirmed with modification ordering petitioners to return
to respondents the sum of P16,438.00 with interest thereon at 12% per annum from date of first
demand, 11 May 1976, until full payment.

ISSUE:

W/N the appelate court imposed the correct interest rate (at 12%)

HELD:

Respondents cause of action in this case arose from petitioners failure to reserve lots intended
to be purchased by respondents in accordance with their contract. This prompted respondents
to rescind the contract. The trial court ordered petitioners to return the sum of P15,938.00 with
interest and to pay damages to respondents. The IAC affirmed the trial courts decision with
modification by ordering petitioners to return to respondents P16,438.00 with interest at 12% per
annum and to pay moral damages.

The prevailing doctrine in Eastern Shipping teaches that, with respect to an award of interest in
the concept of actual and compensatory damages, interest on the amount of damages awarded
may be imposed at the discretion of the Court at the rate of 6% per annum for a breach of an
obligation not constituting a loan or forbearance of money. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially. But when such certainty cannot be 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.

The ruling of the appellate court imposing the interest rate of 12% is incompatible with the
consistently reiterated doctrine in Eastern Shipping. In this case, an interest of only 6% should
be imposed on the obligation of petitioners as such obligation did not constitute a loan or
forbearance of credit. The 6% interest imposed on the principal obligation of P16,438.00 shall
commence on the date of first demand as determined by the lower court which is 11 May 1976.

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS

Facts:

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence
the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation
pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January
24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because Nacar did not
appeal hence as to him, that decision became final and executory.

WON appropriate interest may be claimed by the petitioner.

YES. SC ruled Petitioner shall be entitled to interest. In the case of Eastern Shipping Lines, Inc.
vs. CA, among the guidelines laid down by the Supreme Court regarding the manner in
computing the legal interest is - When the judgment of a court awarding a sum of money
becomes final and executory, the rate of legal interest shall be 12% per annum from such
finality until its satisfaction. In addition to this, the Banko Sentral ng Pilipinas Monetary Board
(BSP-MB), in its Resolution No. 796 dated May 16, 2013 declared that the rate of interest for the
loan or forbearance of any money, goods or credits the rate allowed in judgments, in the
absence of an express contract as to such rate of interest shall apply until June 30, 2013.
Afterwards, the new rate of 6% per annum shall be the prevailing rate of interest when
applicable.
The responsent was ordered to pay interest of 12% per annum of the total money awards,
computed from May 27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013 until their
full satisfaction.

MAKATI SHANGRI-LA HOTEL AND RESORT, INC., petitioner, vs. ELLEN JOHANNE
HARPER, JONATHAN CHRISTOPHER HARPER, and RIGOBERTO GILLERA, respondents.
[G.R. No. 189998. August 29, 2012.]

FACTS:
November 1999, Christian Harper came to Manila on a business trip as the Business
Development Manager for Asia of ALSTOM Power Norway AS, an engineering firm with
worldwide operations. He checked in at the Shangri-La Hotel. He was due to check out on
November 6, 1999. In the early morning of that date, however, he was murdered inside his hotel
room by still unidentified malefactors.
At around 11:00 am of November 6, 1999, a Caucasian male entered the Alexis Jewelry Store
in Glorietta and expressed interest in purchasing a Cartier lady's watch valued at P320,000.00
with the use of two Mastercard credit cards and an American Express credit card issued in the
name of Harper. But the customer's difficulty in answering the queries phoned in by a credit card
representative sufficiently aroused the suspicion of saleslady Anna Liza Lumba who asked for
the customer's passport upon suggestion of the credit card representative to put the credit cards
on hold. Probably sensing trouble for himself, the customer hurriedly left the store, and left the
three credit cards and the passport behind.
In the meanwhile, Harper's family in Norway must have called him at his hotel room to inform
him about the attempt to use his American Express card. Not getting any response from the
room, his family requested Raymond Alarcon, the Duty Manager of the Shangri-La Hotel, to
check on Harper's room. Alarcon and security personnel went to Room 1428 at 11:27 a.m., and
were shocked to discover Harper's lifeless body on the bed.
Respondents commenced this suit in the RTC to recover various damages from petitioner
pertinently alleging:
“The murderer succeeded to trespass into the area of the hotel's private rooms area and into the
room of the said deceased on account of the hotel's gross negligence in providing the most
basic security system of its guests, the lack of which owing to the acts or omissions of its
employees was the immediate cause of the tragic death of said deceased.”
RTC ruled in favor of the respondents. CA affirmed.
Petitioner argues that respondents failed to prove its negligence; that Harper's own negligence
in allowing the killers into his hotel room was the proximate cause of his own death; and that
hotels were not insurers of the safety of their guests.

ISSUE: Whether or not petitioner had committed negligence and corollarily, whether its
negligence was the immediate cause of the death of Christian Harper.

HELD: YES

Makati Shangri-La Hotel, to stress, is a five-star hotel. The "reasonable care" that it must
exercise for the safety and comfort of its guests should be commensurate with the grade and
quality of the accommodation it offers. If there is such a thing as "five-star hotel security", the
guests at Makati Shangri-La surely deserves just that.
When one registers (as) a guest of a hotel, he makes the establishment the guardian of his life
and his personal belongings during his stay. It is a standard procedure of the management of
the hotel to screen visitors who call on their guests at their rooms. The murder of Harper could
have been avoided had the security guards of the Shangri-La Hotel in Makati dutifully observed
this standard procedure."
It could be gleaned from findings of the trial court that its conclusion of negligence on the part of
defendant-appellant is grounded mainly on the latter's inadequate hotel security, more
particularly on the failure to deploy sufficient security personnel or roving guards at the time the
ghastly incident happened.
A review of the testimony of Col. De Guzman reveals that on direct examination he testified that
at the time he assumed his position as Chief Security Officer of defendant-appellant, during the
early part of 1999 to the early part of 2000, he noticed that some of the floors of the hotel were
being guarded by a few guards, for instance, 3 or 4 floors by one guard only on a roving
manner. He then made a recommendation that the ideal-set up for an effective security should
be one guard for every floor, considering that the hotel is L-shaped and the ends of the hallways
cannot be seen. At the time he made the recommendation, the same was denied, but it was
later on considered and approved on December 1999 because of the Centennial Celebration.
It could be inferred from the foregoing declarations of the former Chief Security Officer of
defendant-appellant that the latter was negligent in providing adequate security due its guests.
With confidence, it was repeatedly claimed by defendant-appellant that it is a five-star hotel.
Unfortunately, the record failed to show that at the time of the death of Christian Harper, it was
exercising reasonable care to protect its guests from harm and danger by providing sufficient
security commensurate to it being one of the finest hotels in the country. In so concluding, WE
are reminded of the Supreme Court's enunciation that the hotel business like the common
carrier's business is imbued with public interest. Catering to the public, hotelkeepers are bound
to provide not only lodging for hotel guests but also security to their persons and belongings.
The twin duty constitutes the essence of the business.

Metropolitan Bank and Trust Company v Ana Grace Rosales

GR No. 183204, January 13, 2004

FACTS:

In 2000, respondent Ana Grace Rosales, an owner of a travel agency, and her mother Yo Yuk
To opened a Joint Peso Account with petitioner bank. In May 2002, respondent Rosales
accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s visa from
the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open
a savings account.
On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts. On
September 3, 2003, petitioner filed a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit and Use of Falsified Documents against the respondent. It was
alleged that the respondents are the ones responsible for the unauthorized withdrawal for
$75,000 from Liu Chiu Fang’s account. Petitioner alleged that on February 5, 2003, it received
from the PLRA a Withdrawal Clearance for the account of Liu Chiu Fang, that in the afternoon of
the same day, respondents went to inform the Escolta branch head, Gutierrez, that Liu Chiu
Fang was going to withdraw her deposits in cash. Gutierrez told respondents to come back the
following day for the bank did not have enough dollars. On February 6, respondents
accompanied an unidentified impostor who was able to withdraw Liu Chiu Fang’s dollar deposit.
On March 3, 2003, respondents opened a Joint Dollar Account with petitioner bank with an
initial deposit of $14,000. The bank later discovered that the serial numbers of the dollar notes
deposited by respondents were the same as those withdrawn by the impostor.
On 10 Sept 2004, respondents filed before the RTC of Manila a Complaint for Breach of
Obligation and Contract with Damages, against petitioner. Respondents alleged that they
attempted several times to withdraw their deposits but were unable to because petitioner had
placed their accounts under "Hold Out" status. No explanation, however, was given by petitioner
as to why it issued the "Hold Out" order. Petitioner alleged that respondents have no cause of
action because it has a valid reason for issuing the "Hold Out" order. It averred that due to the
fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang the
amount of US$75,000.0050 and to file a criminal complaint for Estafa against respondent
Rosales.

ISSUE:
Whether or not the Metrobank breached its contract with respondents Rosales.
HELD:
Yes. The Court held that Metrobank’s reliance on the “Hold Out” clause in the
Application and Agreement for Deposit Account is misplaced. Bank deposits, which are in the
nature of a simple loan or mutuum, must be paid upon demand by the depositor.
The “Hold Out” clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales,
this is not enough reason for petitioner to issue a “Hold Out” order as the case is still pending
and no final judgment of conviction has been rendered against respondent Rosales.
In fact, it is significant to note that at the time petitioner issued the “Hold Out” order, the
criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not
liable under any of the five sources of obligation, there was no legal basis for petitioner to issue
the “Hold Out” order. Accordingly, we agree with the findings of the RTC and the CA that the
“Hold Out” clause does not apply in the instant case.
In view of the foregoing, the Court found that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents’ deposit despite demand. Having breached
its contract with respondents, petitioner is liable for damages.

Triple-V vs. Filipino Merchants

FACTS:

1.) Mary Jo-Anne De Asis ate at Kamayan Restaurant. She

drove a car which was assigned to her by her employer Crispa Textile
Inc. (Crispa). She availed of the valet parking service of petitioner.
2.) The car was parked by valet attendant, Madridano. A few minutes
later, they noticed that the car was gone and its key is no longer in the
box where valet attendants usually keep the keys of cars entrusted to
them.
3.) The car was never recovered so Crispa filed a claim against its
insurer, resp. Filipino Merchants Insurance Company (FMICI).
P669,500 was given for the loss of the car.
4.) As a subrogee to Crispa’s rights, FMICI filed an action for
damages against petitioner Triple-V Food Services.
5.) Petitioner argued that the complaint failed to support allegations of
recklessness and negligence committed in the safekeeping and
custody of the car. They also said that the parking ticket provided an
explicit waiver of any right to claim indemnity for the loss of the car,
and that De Asis knowingly assumed the risk of loss.
6.) RTC ruled in favor of FMICI and ordered Triple V to pay so Triple V
appealed to the CA saying that it was not a depositary of the car and
that it exercised due diligence and prudence
7.) CA affirmed RTC saying that petitioner was a depositary and it
was negligent in its duties as a depositary and as an employer of the
valet attendant.

ISSUE: WON Triple V was a depositary and WON it was negligent

HELD: Yes

RATIO:

1. When De Asis entrusted her car, she expected its safe

return. Thus, petitioner was constituted as a depositary of the same
car and cannot evade liability even if she availed of its free valet
parking service.
2. In a contract of deposit, a person receives an object belonging to
another with the obligation of safely keeping it and returning the
same. A deposit may be constituted even without any consideration.

3. The waiver a contract of adhesion. Petitioner must not be allowed

to use its exclusionary stipulation as a shield from liability. A safe
parking space is an added attraction to the restaurant. Having said
that, customers fully expects the security of their car while dining.

Note: There was valid subrogation of rights between Crispa and

FMICI. Theft was covered in the insurance. RTC and CA ruling affirmed.