TOLENTINO vs GONZALES (G.R. No.

26085) Augsut 12,1927

Pacto de retro
A contract of sale with the stipulation that the vendor shall have the right to buy
back the property within the agreed period. He may repurchase the property within
the period stipulated in the contract but which can not exceed ten years. If there is
no stipulation in the contract, the period shall be deemed for four years.
Usurious / Usury - contracting for or receiving something in excess of the amount
allowed by law for the loan or forbearance of moneythe taking of more interest for
the use of money than the law allows. It seems that the taking of interest for the
loan of money, at least the taking of excessive interest has been regarded with
abhorrence from the earliest times

Facts:

Sometime before November 28, 1922, the appellants

purchased a piece of land from Luzon Rice Mills, Inc. for the
sum of P 25,000.00
The purchase was to be paid in three amortizations in the
amounts of P 2,000.00 on or before May 2, 1921, P 8,000.00
on or before May 31, 1921 and the remaining balance of P
15,000.00 was to be paid on or before November 30, 1922 at
12% interest
Realizing that they will not be able to pay the remaining
balance with interest on or before November 30, 1922, the
appellants herein executed a pacto de reto sale with the
defendants, BENITO GONZALES and SY CHIAM
the defendants herein issued a check in the amount of P
16,965.09 and cash in the amount of
P 534.91 or total of P
17,500.00
Part of the pacto de retro sale stipulates that a rent in the
amount of P 375.00 per month is to be paid by the appellants
for use of the subject property
The appellants herein contend that the rent of P 375.00 is
usurious, based on the value of the property

Issue:
Is the contract a pacto de retro sale or a mortgage?
Ruling:
The contract is pacto de retro and the appellees herein are not guilty of
usury.
It is clear in the words of the pacto de retro sale contract that it is indeed
a pacto de retro sale. The parties to the said contract could not have
made their intentions any clearer. Although it is a bitter pill to swallow,
the appellants herein consented to the rent of P 375.00 per month for the
use of the land.
Article 1281 of the Civil Code provides: "If the terms of a contract are
clear and leave no doubt as to the intention of the contracting parties, the
literal sense of its stipulations shall be followed."
Article 1282 provides: "in order to judge as to the intention of the
contracting parties, attention must be paid principally to their conduct at
the time of making the contract and subsequently thereto."
"There is not a word, a phrase, a sentence or paragraph found in said
contract which needs explanation. The parties thereto entered into said
contract with the full understanding of its terms and should not now be
permitted to change or modify it by parol evidence." - Ponente
The decision appealed from is AFFIRMED by the Supreme Court
dissent of Justice Malcolm
"I regret to have to dissent from the comprehensive majority decision. I
stand squarely on the proposition that the contract executed by the
parties was merely a clever device to cover up the payment of usurious
interest. The fact that the document purports to be a true sale with right
of repurchase means nothing. The fact that the instrument includes a
contract of lease on the property whereby the lessees as vendors
apparently bind themselves to pay rent at the rate of P375 per month
and whereby "Default in the payment of the rent agreed for two
consecutive months will terminate this lease and will forfeit our right of
repurchase, as though the term had expired naturally" does mean
something, and taken together with the oral testimony is indicative of a
subterfuge hiding a usurious loan." QUINTOS v BECK (G.R. No. L-46240) November 3, 1939
Commodatum
Commodatum refers to a gratuitous loan of a movable property which is to be
returned undamaged to the lender. The word commodatum comes from the Latin
word commodore which means to lend. It is a loan for use at loan. This
arrangement is for the sole benefit of the borrower. It is one of three types of
contracts for permissive use,. When the debtor of a contract binds himself to return
to the creditor a movable property which the creditor has given to the debtor for
personal use, without any consideration, then such contract is called the contract of
commodatum.

Facts:

On January 14, 1936, upon the novation of the contract of

lease between the plaintiff and the defendant, the former
gratuitously granted to the latter the use of the furniture
described in the third paragraph of the stipulation of facts,
subject to the condition that the defendant would return them
to the plaintiff upon the latter's demand

The plaintiff sold the property to Maria Lopez and Rosario

Lopez and on September 14, 1936, these three notified the
defendant of the conveyance, giving him sixty days to vacate
the premises under one of the clauses of the contract of lease
On November 5, 1936, the defendant, through another person,
wrote to the plaintiff reiterating that she may call for the
furniture in the ground floor of the house. On the 7th of the
same month, the defendant wrote another letter to the plaintiff
informing her that he could not give up the three gas heaters
and the four electric lamps because he would use them until
the 15th of the same month when the lease in due to expire
Before vacating the premises, the defendant herein deposited
the subject furniture to the Sheriff
The lower court ordered the parties herein that the costs of the
return of the furniture of appellant must be divided in pro rata
by the parties and that the parties hereto are to pay their
respective legal fees
The appellant appealed the decision of the lower court and
alleged that it had erred in its decision of charging the
appellant costs for the return of the furniture

Issue: Whether the defendant complied with his obligation to return the
furniture upon the plaintiff's demand, thusconstituting commodatum?
Ruling:
The Supreme Court held that the contract entered into by the parties is
one of commodatum. Therefore, the appellee acted in bad faith in not
returning the furniture lent to them by the appellees.
The Supreme Court reversed the decision of the lower court and charged
all the costs to the appellee.
FRIAS VS SAN DIEGO-SISON (G.R. No. 155223) April 4, 2007
Facts:

Bobie Rose Frias, acting through her attorney-in-fact Marie

Regine Fujita, is the owner of a house an lot located at Ayala
Alabang, which she acquired from Island Masters Realty and
Development Corporation by virtue of a Deed of Sale dated
Nov. 16, 1990.
Dec. 7, 1990 Frias and Dra. San Diego-Sison entered into a
MOA over the said property with the terms being:

Sison has a period of 6 months from the date of

execution of the contract within which to notify Frias
of her intention to purchase the aforementioned
parcel of land together within the improvements
thereon at the price of P6,400,000. Upon notice to
Frias of Sisons intention to purchase the same, the
latter has a period of another 6 months within which
to pay the remaining balance of P3,400,000.

Prior to the 6 month-period given to Sison within

which to decide whether or not to purchase the
abovementioned property, Frias may still offer the
said property to other persons who may be
interested to buy the same provided that the amount
of P3M shall be paid to the latter including interest
based on prevailing compounded bank interest plus
the amount of the sale in excess of P7M, should the
property be sold at a price more than P7M.

That in case Frias has no other buyer within the first

six months from the execution of this contract, no
interest shall be charged by Sison on the P3M.
However, in the event that on the 6th month Sison
would decide not to purchase the aforementioned
property, Frias has a period of another 6 months
within which to pay the sum of P3M provided that
the said amount shall earn compounded bank
interest for the last six months only. Under this
circumstance, the amount of P3M given by Sison
shall be treated as a loan and the property shall be
considered as the security of the mortgage which
can be enforced in accordance with law.

Frias received P2M in cash from Sison and P1M in a

post-dated check dated Feb. 28, 1990, instead of
1991, rendering the check stale. Frias then gave
Sison the aforementioned property in the name of
IMRDC and the Deed of Absolute Sale over the
property between Frias and IMRDC. However, Sison
decided not to purchase the property and notified
Frias through a letter, dated March 20, 1991, which
Frias only received on June 11, 1991. The letter
reminded Frias of their agreement that the amount
of P2M which Frias received from Sison should be
considered as a loan, payable within 6 months. Frias
failed to pay within the specified period.

On April 1, 1993, Sison filed a complaint for sum of

money with preliminary attachment against Frias in
RTC-Manila. The Executive Judge then issued a writ

of preliminary attachment upon the filing of a bond in

the amount of P2M on April 6, 1993.
The RTC found that Frias was under obligation to
pay Sison the amount of P2M plus compounded
interest pursuant to the MOA. It was also found that
Frias, through her amended answer, employed a
fraudulent scheme in where the end result was to
deprive Sison of her only security to her loaned
money, when Frias executed an affidavit of loss and
instituted a petition for the issuance of an owners
duplicate title knowing that the TCT was in Sisons
possession.

Issue:
Whether or not the compounded bank interest should be limited to six
months as contained in the MOA
Ruling:
NO. The MOA executed between Frias and Sison on December 7, 1990
is the law between the parties. In resolving an issue based upon a
contract, we must first examine the contract itself, especially the
provisions thereof which are relevant to the controversy. The general rule
is that if the terms of an agreement are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of its
stipulations shall prevail. It is further required that the various stipulations
of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly. In this case,
the phrase for the last six months only should be taken in the context of
the entire agreement.
Their agreement speaks of two periods of six months each.
The first six-month period was given to Sison to make up her mind
whether or not to purchase Friass property. The second six-month
period was given to Frias to pay the P2M loan in the event that Sison
decided not to buy the subject property, in which case interest will be
charged for the last six months only, referring to the second sixmonth period. That means that no interest will be charged for the first
six-month period while Sison was making up her mind whether to buy
the property, but only for the second six months after Sison had decided
not to buy the property.
The agreement that the amount given shall bear compounded bank
interest for the last six months only (the second six-month period), does
not mean that interest will no longer be charged after the second sixmonth period since such stipulation was made on the logical and
reasonable expectation that such amount will be paid within the
stipulated date. Since Frias failed to pay the amount given, which under
the MOA shall be considered a loan, the monetary interest for the last six
months continued to accrue until actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of
money and thus, until the principal sum due is returned to the creditor
[Sison], regular interest continues to accrue since the debtor [Frias]
continues to use such principal amount. It has been held that for a debtor
to continue in the possession of the principal of the loan and to continue
the use of the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the part of the
debtor at the expense of the creditor.
Both parties stipulated that the loaned amount shall earn compounded
bank interests, and per the certification issued by Prudential Bank, the
interest rate for loans in 1991 ranged from 25%-32% per annum. The CA
reduced the interest rate to 25%, instead of the 32% awarded by the TC.
We find the interest rate of 25% per annum awarded by the CA to a P2M
loan is fair and reasonable.

Republic vs. (Grijaldo G.R. No. L-20240) December 31, 1965

Facts:

1943 Jose Grijaldo obtained five loans from the Bank of

Taiwan, Ltd., in Bacolod City, in the total sum of P1,281.97 with
interest at the rate of 6% per annum, compounded quarterly.
The loans were evidenced by 5 promissory notes executed by
Grijaldo in favor of the Bank of Taiwan. All notes did not have
any due dates, for they were due one year after they were
incurred. Grijaldo secured the payment of the loans by
executing a chattel mortgage on the standing crops of his land,
Hacienda Campugas in Hinigaran.

The Vesting Order No. P-4 of 1946, and under the authority
provided for in the amended Trading with the Enemy Act, the
assets in the Philippines of the Bank of Taiwan were vested in
the government of the US. The assets of the Bank, including
the loans in question, were subsequently transferred to the
Republic of the Philippines by the US government under the
transfer agreement dated July 20, 1954.

On Sept 29, 1954, the Republic of the Philippines [RP],

represented by the Chairman of the Board of Liquidators,
made a written extrajudicial demand upon Gijaldo for the
payment of the account in question. The record shows that
Grijaldo had actually received the written demand, but failed to
pay.

The aggregate amount due as principal of the five loans in

question, computed under the Ballantyne scale of values
at the time that the loans were incurred in 1943, was
P889.64. The interest due thereon at the rate of 6% per

annum compounded quarterly, computed as of Dec. 31,

1959, was P2,377.23.
July 17, 1961. RP filed a complaint in the Justice of Peace
Court of Hinigaran to collect from Grijaldo the unpaid account
in question. The Justice of Peace dismissed the case after
hearing due to prescription. RP then appealed to CFI-Negros
Occidental, and the court ordered Grijaldo to pay the sum of
P2,377.23 as of Dec. 31, 1959, plus interest at the rate of 6%
per annum, compounded quarterly from the date of filing of the
complaint until full payment was made.
Grijaldo appealed to the SC, but died during the pendency of
the appeal. His heirs were made parties to the case in his
stead.

Issue 1:
Whether or not RP has a cause of action against Grijaldo; and,
Ruling:
YES, RP has a cause of action against Grijaldo. In discussing the first
point of contention, the appellant maintains that the appellee has no
privity of contract with the appellant. It is claimed that the transaction
between the Taiwan Bank, Ltd. and the appellant, so that the appellee,
Republic of the Philippines, could not legally bring action against the
appellant for the enforcement of the obligation involved in said
transaction. This contention has no merit. It is true that the Bank of
Taiwan, Ltd. was the original creditor and the transaction between the
appellant and the Bank of Taiwan was a private contract of loan.
However, pursuant to the Trading with the Enemy Act, as amended, and
Executive Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan,
Ltd., an entity which was declared to be under the jurisdiction of the
enemy country (Japan), were vested in the United States Government
and the Republic of the Philippines, the assets of the Bank of Taiwan,
Ltd. were transferred to and vested in the Republic of the Philippines.
The successive transfer of the rights over the loans in question from the
Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the
Philippines, made the Republic of the Philippines the successor of the
rights, title and interest in said loans, thereby creating a privity of contract
between the appellee and the appellant.
As successor in interest in, and transferee of, the property rights of the
United States of America over the loans in question, the Republic of the
Philippines had thereby become a privy to the original contracts of loan
between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore,
that the Republic of the Philippines has a legal right to bring the present
action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the
appellee has no cause of action, that because the loans were secured by
a chattel mortgage on the standing crops on a land owned by him and
these crops were lost or destroyed through enemy action his obligation
to pay the loans was thereby extinguished. This argument is untenable.
The terms of the promissory notes and the chattel mortgage that the
appellant executed in favor of the Bank of Taiwan, Ltd. do not support the
claim of appellant. The obligation of the appellant under the five
promissory notes was not to deliver a determinate thing namely, the
crops to be harvested from his land, or the value of the crops that would
be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five
loans, with interest.
The chattel mortgage on the crops growing on appellant's land simply
stood as a security for the fulfillment of appellant's obligation covered by
the five promissory notes, and the loss of the crops did not extinguish his
obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.
Issue 2: Whether or not the lower court erred in ordering Grijaldo to
pay the amount of P2,377.23.
Ruling:
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum
compounded quarterly from the date of the filing of the complaint. The
sum total of the five loans obtained by the appellant from the Bank of
Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the
Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in
Japanese war notes in June 1943 is equivalent to P889.64 in genuine
Philippine currency which was considered the aggregate amount due as
principal of the five loans, and the amount of P2,377.23 as of December
31, 1959 was arrived at after computing the interest on the principal sum
of P889.64 compounded quarterly from the time the obligations were
incurred in 1943.

ANGEL WAREHOUSING V CHELDA (G.R. No. L-25704)

1968
Facts:

Issues:
1.
2.

April 24,

Angel Jose Warehousing instituted an action for the recovery

of the amount loaned amounting to P 20, 800 with legal
interest.
The lower court found that there was indeed a balance of P 20,
800 and that the plaintiff charged usurious interests. The same
court ruled that the plaintiff is not barred from collecting the
principal amount notwithstanding the usurious interests.
In a loan with usurious interest, may the creditor recover the
principal of the loan?
Does the illegal term as to the payment of interest renders the
contract null because of the nullity of its legal terms to pay the
debt?

Ruling:
1.

YES. A loan with usurious interest is not totally void, only

insofar as the interest. Rule of pari delicto cannot be applied
on this case. SC stated that the contract of loan consists of 2
separate contracts the contract to pay the principal amount
as the principal contract, and the contract for the payment of
interest as the accessory. These 2 contracts are divisible in the
sense that the principal contract can stand on its own without
the accessory.
As stated in Article 1273 of the NCC, the renunciation of the
principal shall extinguish the accessory, but the waiver of the
latter leave the former in force.

2.

NO. In cases of divisible contracts, Article 1420 of the NCC

provides that if the illegal terms can be separated from the
legal term, then the legal term can still be enforce. In loans
with usurious interests, the illegality only lies with the payment
of interest, and being separable, will only be the one void since
it is the only one illegal.

AFFIRMED.
CU UNJIENG HIJOS V MABALACAT (GR 32644, OCT. 9, 1930)
Facts:

Issues:
1.

2.

An action was instituted by Cu Unjieng Hjos against Mabalacat

for the payment of an indebtedness amounting to P 163, 000
with interest as well as the foreclosure of the mortgaged
property and recovery of attorneys fees.
Mabalacat Sugar Co., appealed the lower courts decision
favoring the plaintiff.

Issues:
1.
2.

From the date of decision. The Supreme Court cited seven cases,
grouping them into two classifications. The first group showed the legal
interest computation started from the filing of complaint while the second
group started from the date of decision.
To clarify the inconsistencies, the Supreme Court laid down the
following rules of thumb:
a. When an obligation is breached consisting of payment of a
sum of money (a loan or forbearance of money) the stipulated
and written interest shall be due. In the absence of stipulation,
12% per annum is applied. The interest due shall earn interest
itself from the time it is judicially demanded.
b. When an obligation is breached not consisting of a loan or
forbearance of money (payment of indemnities in the concept
of damage arising from the breach or a delay in the
performance of obligations), 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 will be
adjudged for unliquidated claims or damages as the demand
needs to be established with reasonable certainty.
b.1. When the demand is established with
reasonable certainty, the interest shall start from the
time the claim is made judicially or extrajudicially
based on Art. 1169, Civil Code
b.2. When the demand is made without reasonable
certainty, the interest shall begin to run only from the
date the judgment of the court is made
c. When the court has already made the awarding of a sum of
money final and executory the rate shall be at 12% per annum.
Such is made despite the consistent rulings where 12%
interest per annum applies only to loans or forbearance of
money, goods or credits, as well as to judgments involving
such loan or forbearance of money, goods or credits, and that
the 6% interest under the Civil Code governs 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.
TOMIMBANG V TOMIMBANG (GR NO.165116 AUG. 4, 2009)

Did the act of extending the payment of the mortgage

indebtedness have the effect of abrogating the stipulation of
the original contract with respect to the acceleration of the
maturity of debt?

Facts:

Were the interest charges usurious?

1.

NO. The agreement to extend is voluntary and without

consideration as far as the creditor is concerned, therefore, the
failure of the debtor to comply with the terms of the condition
justified the creditor in treating it with no effect.
2. NO. The parties agreement indicated only that interest be
made in a monthly installment. Under Article 1109 of the NCC
and Sec. 5 of the Usury Law, parties may still stipulate that the
interest be compounded, however, in the absence of an
expressed provision, no interest can be collected upon interest
until the debt s judicially claimed.
MODIFIED.
EASTERN SHIPPING LINES VS. CA (GR NO. 97412) JULY 12, 1994

When shall the payment of legal interest on an award for loss

or damage to be computed? From the time the complaint is
filed or from the date the decision appealed from is rendered;?
What is the applicable rate of interest? Twelve percent (12%)
or six percent (6%)?

Ruling:

Ruling:

Facts:

Consignee suffered P19,032.95 worth of losses. Mercantile

Insurance Company covered and subsequently went after
Eastern Shipping Lines .
Upon reaching the Court of Appeals, the decision rendered
favored Mercantile Insurance and the amount of P19,032.95,
with legal interest of 12% per annum from October 1, 1982, the
date of filing, until fully paid, was ordered.

On December 4, 1921, Eastern Shipping Lines transported two

fiber drums of riboflavin from Japan to Manila. The shipment
was insure by Mercantile Insurance Company for
P36,382,466.38.
When the shipment arrived in Manila, its custody was given to
the arrastre, Metro Port Services, with which received the
same with one of the fiber drums in a damaged condition.
When the shipment was win the custody of the broker, Allied
Brokerage, one of the fiber drums was opened without a seal,
a cello bag partly torn and the unrecovable spillages amount to
15kgs.

Atty.Jose and Soledad Tomimbang are siblings. Soledad

entered into a loan with Atty. Jose to finance the renovation of
the apartment donated to her by their parents. One of the
conditions of the loan is Soledad to start paying the loan upon
the completion of the renovation.
A disagreement occurred between the siblings and a new
agreement was entered into wherein Soledad was to start
making monthly payments despite one more unit of the
apartment has yet to be renovated.
Soledad then paid for June to October of 1997 which were
monthly payments of P18,700.00, or a total of P93,500.00.
On October of 1997, another disagreement took place.
Soledad left the apartment and stopped paying her dues to her
brother.
On February 2, 1998, Atty. Jose filed a complaint at RTC for
Soledad to pay him the net amount of P3,989,802.25 plus
interest of 12% per annum from date of default.
RTC rendered decision in favor of Atty. Jose. Soledad
appealed to CA and was denied. Upon motion for
reconsideration, she suffered the same fate.
Soledad contends that the loan is not yet due and demandable
because the suspensive condition the completion of the
renovation of the apartment units - has not yet been fulfilled.
Atty. Jose, however, asserts that they entered into a new
agreement whereby she was to start making monthly
payments on her loan, which she did from June to October of
1997. They had a novation of agreement and thus, her
obligation was due and demandable.

Issues:
1.
2.

Whether Soledads obligation is due and demandable

Whether interest should be imposed on Soledads
indebtedness and, if so, at what rate

Ruling:
Yes, Soledads obligation is due and demandable. The
Supreme Court held that the evidence showed the siblings
agreement that despite only seven out of eight units of the
apartment were renovated, Soledad needs to start paying
monthly payments, which she actually did. Both of them
mutually dispensed with the condition that petitioner shall only
begin paying after the completion of all renovations. There
was, in effect, a modificatory or partial novation as according to
Art. 1291 of the Civil Code. Also, her partial performance of her
obligation (payment of June-October) is unmistakable proof
that the original agreement had been novated by the deletion
of the condition that payments shall be made only after
completion of renovations.
2. 12%. The Supreme Court cited the prior case of Eastern
Shipping Lines v CA. 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. Thus, since this case
involves a loan and there is no stipulation in writing as to
interest due, the rate of interest shall be 12% per annum
computed from the date of extrajudicial demand.
UPSUMCO vs CA (G.R. No. 126890) March 9, 2010

funds from UPSUMCOSs accounts transferred to its own

account "to the extent of UPSUMCOs remaining obligation,
less the amount condoned in the Deed of Assignment and the
450,000,000.00 proceeds of the foreclosure.

1.

Facts:

Issues:
1.

2.

In 1974, UPSUMCO obtained a takeoff loan from PNB for the

construction of Sugar Milling Plant, and then it was thrice
restructured for its restructuring loan. These loans were
secured by real estate mortgage on 2 parcels of land where
the mill stood and chattel mortgages on some of its
machineries and equipments. Also, UCSUMCO agreed to
open and maintain deposit in PNB for the latter to apply to
formers unpaid obligations
From 1984-87, petitioner obtained loans to finance the
operation of the Mill, these were secured by pledges by former
assigning PNB to sell the sugar produce and apply it to satisfy
debts arising from operational loans.
PNB transferred and assigned to APT the rights, titles, interest
to the mortgaged assets of UPSUMCO on Feb. 27, 1987 in
compliance with PD 50
UPSUMCO and APT then agreed to an uncontested or friendly
foreclosure in exchange for the formers waiving of its right of
redemption. PNB and APT then instituted an extrajudicial
foreclosure on the properties securing the takeoff loan; APT
purchased the assets for P450M on Aug. 27, 1987
UPSUMCO executed the Deed of Assignment assigned to APT
on Sept. 3, 1987 (7 days after the purchase), in exchange for
APT condoning any deficiency amount on takeoff loan.
UPSUMCO contends that despite the deed of assignment,
respondent illegally appropriated funds belonging to petitioner
by 1) withdrawal from its account from Aug. 27, 1987 until Feb.
12, 1990; 2) application of the proceeds from the sale of sugar
by petitioner; 3) by deducting from its account payments on
operational loans; .
RTC rendered judgment in favor of the petitioner.
CA reversed and set aside the RTC Decision and ruled that
only the "takeoff" loans and not the operational loans were
condoned by the Deed of Assignment

2.

Legal compensation takes place by operation of law when all

the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of
some requisites. The only requisites of conventional
compensation are (1) that each of the parties can dispose of
the credit he seeks to compensate, and (2) that they agree to
the mutual extinguishment of their credits.
DENIED WITH FINALITY for lack of merit.
MACALINAO VS BPI (G.R. NO. 175490) SEPTEMBER 17, 2009
Facts:

The amount of One Hundred

Twenty Six Thousand Seven
Hundred Six Pesos and Seventy
Centavos (126,706.70) plus interest
and penalty charges of 3% per month
from January 5, 2004 until fully paid;
2.
P10,000.00 as and by way of
attorneys fees; and
3.
Cost of Suit.
Issues:
1. Whether 2% per month interest and penalty or 24% per annum
should be upheld
2. Whether 3% per month interest and penalty are
unconscionable, iniquitous, and excessive
Ruling:
1.

B) YES. Deed of Assignment condoned only the take-off loans,

and not the operational loans.
Operational loan is not indicated on the operative part of the
deed of assignment.
The CA acknowledged that only the take-off loans were
condoned, and thus ruled that APT was entitled to have the

Yes, the court upholds the 2%/month interest

(1) The amount of one hundred twelve thousand three

A) Whether APT has still the right to the deposit of UCSUMCO

after Aug. 27, 1987 friendly agreemen and B) that the APTs
condonation does not include the Operational Loan
Whether the withdrawals of UPSUMCOs deposits are valid on
the ground of conventional compensation

A) YES. After 27 August 1987, there were at least two causes

for the application of payments from UPSUMCOs PNB
accounts. The first was for the repayment of the operational
loans, which were never condoned. The second was for the
repayment of the take-off loans which APT could obtain until 3
September 1987, the day the condonation took effect.

Petitioner was an approved cardholder of BPI mastercard.

She used the card in purchase of goods and later on defaulted
in paying said purchases.
The total amount payable inclusive of the 3% per month
interest and 3% per month pernalty is 141,518.34.
Petitioner failed to settle her obligations despite the demand
letter sent by BPI, latter then filed a complaint for sum of
money against petitioner and her husband.
MeTC declared unconscionable and clearly excessive the rate
imposed by BPI on its complaint, thus the 9.25% per month or
111%per annum of interest and penalty combined are reduced
to 2% per month or 24% per annum.
RTC affimed in toto
CA affirmed yet modified MeTC decision and increased 2% to
3% per month or 36% per annum based on the Terms and
Conditions Governing the Issuance and Use of BPI Credit
Card
1.

hundred nine pesos and fifty-two centavos (PhP

112,309.52) plus interest and penalty charges of 2% per month
from January 5, 2004 until fully paid;

Ruling:
1.

YES. There is, concededly, no mutual creditor-debtor relation

between APT and UPSUMCO. However, we recognize the
concept of conventional compensation, defined as occurring
when the parties agree to compensate their mutual
obligations even if some requisite is lacking, such as that
provided in Article 1282. It is intended to eliminate or
overcome obstacles which prevent ipso jure extinguishment of
their obligations.

2.

(2) PhP 10,000 as and by way of attorneys fees; and

(3) Cost of suit
Yes, the court finds 3%/month interest are unconscionable,
iniquitous, and excessive

We need not unsettle the principle we had affirmed in a plethora of

cases that stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the
law. (Chua vs Timan)
Art. 1229. The judge shall equitably
reduce the penalty when the principal obligation has
been partly or irregularly complied with by the
debtor. Even if there has been no performance, the

penalty may also be reduced by the courts if it is

iniquitous or unconscionable.

Petition PARTLY GRANTED and MODIFIED