GARCIA vs.
THIO amortizations for a period of fifteen (15) years and carried an
(Obligation to Deliver)
 A loan is a real contract, not consensual, and as such is
perfected only upon the delivery of the object of the contract.
 Art. 1934. An accepted promise to deliver something by way
of commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perfected
until the delivery of the object of the contract.
 Upon delivery of the object of the contract of loan (in this
case the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal
amount.
 Delivery is the act by which the res or substance thereof is
placed within the actual or constructive possession or control
of another. Although respondent did not physically receive the
proceeds of the checks, these instruments were placed in her
control and possession under an arrangement whereby she
actually re-lent the amounts to Santiago.
BPI FAMILY BANK V. FRANCO
(Simple Loan)
 Article 1980 of the Civil Code: Fixed, savings, and current
deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.
 As there is a debtor-creditor relationship between a bank and
its depositor, BPI-FB ultimately acquired ownership of
Franco’s deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on
demand. Although BPI-FB owns the deposits in Franco’s
accounts, it cannot prevent him from demanding payment of
BPI-FB’s obligation by drawing checks against his current
account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his
current account, he had every right as creditor to expect that
those checks would be honored by BPI-FB as debtor.
PEOPLE V. PUIG AND PORRAS
(Simple Loan)
 Depositors who place their money with the bank are
considered creditors of the bank. The bank acquires ownership
of the money deposited by its clients, making the money taken
by respondents as belonging to the bank.
 The relationship between banks and depositors has been held
to be that of creditor and debtor. Articles 1953 and 1980 of the
New Civil Code, as appropriately pointed out by petitioner,
provide as follows:
 Article 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind
and quality.
 Article 1980. (supra)
 In summary, the Bank acquires ownership of the money
deposited by its clients; and the employees of the Bank, who
are entrusted with the possession of money of the Bank due to
the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all
the essential elements constituting the crime of Qualified Theft.
CONCEPCION V. COURT OF APPEALS, ET. AL.
(Conventional Interest)
 FACTS: Home Savings Bank and Trust Company granted to
the Concepcions a loan. The Concepcions, in turn, executed in
favor of the bank a promissory note and a REM over their
property. The loan was payable in equal quarterly
interest rate of sixteen percent (16%) per annum.
 Escalation Clause: The promissory note provided that the
Concepcions had authorized - "x x x the Bank to
correspondingly increase the interest rate presently stipulated
in this transaction without advance notice to me/us in the
event the Central Bank of the Philippines raises its rediscount
rate to member banks, and/or the interest rate on savings and
time deposit, and/or the interest rate on such loans and/or
advances."
 In accordance with the above provision, the bank unilaterally
increased the interest rate from 16% to 38%.
 General Rule (GR): The validity of escalation clauses in
contracts is upheld by the SC.
 Reason for validity: (a) to maintain fiscal stability and (b) to
retain the value of money in long term contracts.
 Principle of mutuality of contracts: ART. 1308. The contract
must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
 A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void.
 An escalation clause that gives a creditor an unbridled right
to unilaterallyand upwardly adjust the interest on private
respondentthe debtor’s loan would completely take away from
the debtor the right to assent to an important modification in
their agreement, and would negate the element of mutuality in
contracts.
 Basis of the increase of interest rates in this case: on account
of the revailing business and economic condition.
PD 1684 “Usury Law”: SEC. 7-a. Parties to an agreement
pertaining to a loan or forbearance of money, goods or credits
may stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of
interest is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only if there is
also a stipulation in the agreement that the rate of interest
agreed upon shall be reduced in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary
Board: xxx.'
RULING: Even if we were to consider that petitioners were
bound by their agreement allowing an increase in the interest
rate despite the lack of advance notice to them, the escalation
should still be subject, as so contractually stipulated, to a
corresponding increase by the Central Bank of its rediscount
rate to member banks, or of the interest rate on savings and
time deposit, or of the interest rate on such loans and
advances. There are no sufficient valid justifications aptly
shown for the unilateral increases by private respondent bank
of the interest rates on the loan.
FRIAS V. SAN DIEGO-SISON
(Conventional Interest )
*example of forbearance
 Parties: Petitioner Frias as the property owner
and Respondent Dra. Flora San Diego-Sison, entered into a
Memorandum of Agreementover the subject property.
 MOA: Petitioner received P3M from respondent with the
following agreement:
 That respondent has a period 6 months from the date of the
execution of this contract within which to notify petitioner of
her intention to purchase the land at the price ofP6.4M. Upon
notice to the petitioner of respondent’s intention to purchase
the same, the latter has a period of another 6 months within
which to pay the remaining balance of P3.4 million.
 In the event that on the sixth month the respondent would
decide NOT to purchase the property, the petitioner has a
period of another 6 months within which to pay the sum of P3
million pesos provided that the said amount shall earn
compounded bank interest for the last 6 months only. Under
this circumstance, the amount of P3 million given by the
respondent shall be treated as a loan.
 Respondent decided not to purchase the property and
demanded the return of her money with 36% interest.
 Petitioner and respondent 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% to 32% per annum. The CA reduced the
interest rate to 25% instead of the 32% awarded by the trial
court which petitioner no longer assailed.
Monetary Interest: 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, regular
interest continues to accrue since the debtor continues to use
such principal amount. It has been held that for a debtor to
continue in possession of the principal of the loan and to
continue to use 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.
SC: Affirmed the ruling of the CA as to the 25% interest rate.
Thus, the interest rate of 25% per annum awarded by the CA to
a P2 million loan is fair and reasonable.
SPOUSES JUICO V. CHINA BANKING CORP.
(Conventional Interest; Escalation Clause)
(Include Concurring Opinion)
 Bank: that the interest rate changes every month based on the
prevailing market rate and notified petitioners of the prevailing
rate by calling them thru a telephone monthly before their
account becomes past due. When asked if there was any
written authority from petitioners for respondent to increase
the interest rate unilaterally, respondent answered that
petitioners signed a promissory note indicating that they
agreed to pay interest at the prevailing rate.
 China Bank unilaterally increased the interest rates from 15%
to as high as 24.50%.
RULES on Escalation Clauses:
a) Escalation clauses are not void per se.
Escalation clauses refer to stipulations allowing an increase
in the interest rate agreed upon by the contracting parties. This
Court has long recognized that there is nothing inherently
wrong with escalation clauses which are valid stipulations in
commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts. Hence, such
stipulations are not void per se.
b) Escalation clauses violating the principle of mutuality of
contracts are void.
Nevertheless, an escalation clause "which grants the creditor
an unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to
assent to an important modification in the agreement" is void.
A stipulation of such nature violates the principle of mutuality
of contracts. Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of
increases in the rate of interest provided in loan contracts.
 Banco Filipino Savings & Mortgage Bank v. Navarro: While
escalation clauses in general are considered valid, we ruled that
Banco Filipino may not increase the interest on respondent
borrower’s loan, pursuant to Circular No. 494 issued by the
Monetary Board, because said circular is not a law although it
has the force and effect of law and the escalation clause has no
de-escalation clause.
 De-escalation Clause: provision for reduction of the
stipulated interest "in the event that the applicable maximum
rate of interest is reduced by law or by the Monetary Board."
It is now settled that an escalation clause is void where the
creditor unilaterally determines and imposes an increase in the
stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take
away from the debtors the right to assent to an important
modification in their agreement and would also negate the
element of mutuality in their contracts.34 While a ceiling on
interest rates under the Usury Law was already lifted under
Central Bank Circular No. 905, nothing therein "grants lenders
carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of
their assets."
Ecalation clause in this case: I/We hereby authorize the CHINA
BANKING CORPORATION to increase or decrease as the case
may be, the interest rate/service charge presently stipulated in
this note without any advance notice to me/us in the event a
law or Central Bank regulation is passed or promulgated by the
Central Bank of the Philippines or appropriate government
entities, increasing or decreasing such interest rate or service
charge.
RULING: At no time did petitioners protest the new rates
imposed on their loan even when their property was foreclosed
by respondent. This notwithstanding, we hold that the
escalation clause is still VOID because it grants respondent the
power to impose an increased rate of interest without a written
notice to petitioners and their written consent. Respondent’s
monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing
statement based on the new imposed interest with
corresponding computation of the total debt should have been
provided by the respondent to enable petitioners to make an
informed decision. An appropriate form must also be signed by
the petitioners to indicate their conformity to the new rates.
Compliance with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided impositions do
not have the force of law between the parties, because such
impositions are not based on the parties’ essential equality.
Effect: Modifications in the rate of interest for loans pursuant
to an escalation clause must be the result of an agreement
between the parties. Unless such important change in the
contract terms is mutually agreed upon, it has no binding
effect. In the absence of consent on the part of the petitioners
to the modifications in the interest rates, the adjusted rates
cannot bind them.
NOTE: The lender and the borrower should agree on the
imposed rate, and such imposed rate should be in writing.
Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but
based on reasonable and valid grounds.
Concurring Opinion:
Points to consider in drafting a valid escalation
clause: (DAP)
1) Firstly, as a matter of equity and consistent with P.O. No.
1684, the escalation clause must be paired with a de-
escalation clause.
 2) Secondly, so as not to violate the principle of mutuality, the
escalation must be pegged to theprevailing market rates,
and not merely make a generalized reference to "any increase
or decrease in the interest rate" in the event a law or a Central
Bank regulation is passed.
3) Thirdly, consistent with the nature of contracts, the proposed
modification must be the result of anagreement between
the parties.
EASTERN SHIPPING LINES, INC. V. CA (1994)
(Compensatory, Penalty or Indemnity Interest)
Rules on Interest:
 Interest upon an obligation which calls for the payment of
money, absent a stipulation, is thelegal rate. Such interest
normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the
starting point.
 But then upon the provisions of Article 2213 of the Civil Code,
interest "cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with
reasonable certainty. Here, interest should be counted from the
date of the decision (when the amount of damages are
ascertained).
 Art. 2209, CC. — If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in
the absence of stipulation, the legal interest which is six
percent per annum.
Rules of thumb (on the award of interests):
*NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799 (amending
Circular No. 905) effective July 1, 2013, and the case of NACAR V. GALLERY FRAMES
AND/OR BORDEY (2013). Therefore, there is no need to distinguish now the obligations
breached as the legal interest applicable is 6%.
1) When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
2) 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:
a) Obligation breached: consists in the payment of a sum of
money, i.e., a loan or forbearance of money
Interest Due:
i) that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.
ii) 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. (amended to 6%)
b) Obligation breached: not constituting a loan or forbearance of
money,
Interest due: 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.
o 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)
o 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.
c) 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. (amended to 6%)
LIGUTAN V. CA, (2002)
(Compensatory, Penalty or Indemnity Interest)
The essence or rationale for the payment of interest, quite often
referred to as cost of money, is not exactly the same as that of a
surcharge or a penalty. A penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect, the
two being distinct concepts which may separately be
demanded. What may justify a court in not allowing the
creditor to impose full surcharges and penalties, despite an
express stipulation therefor in a valid agreement, may not
equally justify the non-payment or reduction of
interest. Indeed, the interest prescribed in loan financing
arrangements is a fundamental part of the banking business
and the core of a bank's existence.
 Here, the stipulated interest of 15.189% on the forbearance of
money was upheld by the court as reasonable.
GSIS v. CA
(Compensatory, Penalty or Indemnity Interest)
 It has already been settled that the Usury Law applies only to
interest by way of compensation for the use or forbearance of
money. Interest by way of damages is governed by Article 2209
of the Civil Code of the Philippines which provides:
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,...
In the Bachrach case the Supreme Court ruled that the Civil
Code permits the agreement upon a penalty apart from the
interest. Should there be such an agreement, the penalty does
not include the interest, and as such the two are different and
distinct things which may be demanded separately. Reiterating
the same principle in the later case of Equitable Banking Corp.,
where this Court held that the stipulation about payment of
such additional rate partakes of the nature of a penalty clause,
which is sanctioned by law.
SIGA-AN V. VILLANUEVA, (2009)
(Compensatory, Penalty or Indemnity Interest)
Interests:
a) Monetary interest is a compensation fixed by the parties
for the use or forbearance of money.
b) Compensatory interest - imposed by law or by courts as
penalty or indemnity for damages.
The right to interest arises only by virtue of a contract or by
virtue of damages for delay or failure to pay the principal loan
on which interest is demanded.
Article 1956 of the Civil Code, which refers to monetary
interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing.
I. Hence, payment of monetary interest 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 monetary interest. Thus, we have held that
collection of interest without any stipulation therefor in writing
is prohibited by law.
 Monetary interest is due only when these requirements are
present.
II. However, there are instances in which an interest may be
imposed even in the absence of express stipulation, verbal or
written, regarding payment of interest. Article 2209 of the
Civil Code states that if the obligation consists in the payment
of a sum of money, and the debtor incurs delay, a legal interest
of 12% (now 6%) per annum may be imposed as indemnity for
damages if no stipulation on the payment of interest was
agreed upon. (Compensatory interest)
 This interest may be imposed only as a penalty or damages
for breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. This applies
only to compensatory interest and not to monetary interest.
Solutio Indebiti
Under Article 1960 of the Civil Code, if the borrower of loan
pays interest when there has been no stipulation therefor, the
provisions of the Civil Code concerning solutio indebiti shall be
applied.
Article 2154 provides that if something is received when there
is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. We have held that
the principle of solutio indebiti applies in case of erroneous
payment of undue interest.
HELD: It was duly established that respondent paid interest to
petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in writing to
that effect. There was no binding relation between petitioner
and respondent as regards the payment of interest. The
payment was clearly a mistake. Since petitioner received
something when there was no right to demand it, he has an
obligation to return it.
ESTORES V. SPOUSES SUPANGAN, (2012)
(Compensatory, Penalty or Indemnity Interest)
*Forbearance of money
ISSUE: Whether it is proper to impose interest for an obligation that
does not involve a loan or forbearance of money in the absence of
stipulation of the parties.
HELD:
YES. Interest may be imposed even in the absence of
stipulation in the contract.
Article 2210 of the Civil Code expressly provides that “[i]nterest
may, in the discretion of the court, be allowed upon damages awarded
for breach of contract.” In this case, there is no question that
petitioner is legally obligated to return the P3.5 million because of her
failure to fulfill the obligation under the Conditional Deed of Sale,I.
despite demand. Petitioner enjoyed the use of the money from the
time it was given to her until now. Thus, she is already in default of
her obligation from the date of demand.
Forbearance is defined as a “contractual obligation of lender orII.
creditor to refrain during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and
payable.” This definition describes a loan where a debtor is given a
period within which to pay a loan or debt. In such case, “forbearance
of money, goods or credits” will have no distinct definition from a 1.) When the obligation is breached, and it consists in the
loan. We believe however, that the phrase “forbearance of money,
goods or credits” is meant to have a separate meaning from a loan,
otherwise there would have been no need to add that phrase as a loan
is already sufficiently defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer
to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits
pending happening of certain events or fulfillment of certain
conditions.
In this case, the respondent-spouses parted with their money even
before the conditions were fulfilled. They have therefore allowed or
granted forbearance to the seller (petitioner) to use their money
pending fulfillment of the conditions. They were deprived of the use of
their money for the period pending fulfillment of the conditions and
when those conditions were breached, they are entitled not only to the
return of the principal amount paid, but also to compensation for the
use of their money. And the compensation for the use of their money,
absent any stipulation, should be the same rate of legal interest
applicable to a loan since the use or deprivation of funds is similar to a
loan.
NACAR V. GALLERY FRAMES AND/OR BORDEY,
(2013)
(Compensatory, Penalty or Indemnity Interest)
*Amending the Eastern Shipping Doctrine
*Important: because this case discusses the amendment of the
legal interest in loan and forbearance of money, credits or
goods from 12% to 6% effective July 1, 2013.
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796, approved the amendment of Section 2 of
Circular No. 905, Series of 1982 and, accordingly, issued
Circular No. 799, Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
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.
Thus, from the foregoing, in the absence of an express
stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any
money, goods or credits and the rate allowed in judgments
shall no longer be 12% per annum but will now be 6% per
annum effective July 1, 2013.
 It should be noted, nonetheless, that the new rate could only be
applied prospectively and not retroactively. Consequently, the
12% per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of 6% per annum shall be
the prevailing rate of interest when applicable.
To recapitulate and for future guidance, the guidelines laid
down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP-MB Circular No. 799, as
follows:
When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
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:
New guidelines in the award of interest:
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 6% 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
be6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
Application in this case: The interest of 12% per annum of the
total monetary awards, computed from May 27, 2002 to June
30, 2013 and 6% per annum from July 1, 2013 until their full
satisfaction, is awarded.
UCPB V. SAMUEL AND BELUSO
(Finance Charges, R.A. No. 3765, Sec. 4. Sec. 6)
*better read the full text
Validity of the interest rates
 The provision stating that the interest shall be at the “rate
indicative of DBD retail rate or as determined by the Branch
Head” is indeed dependent solely on the will of petitioner
UCPB. Clearly, a rate “as determined by the Branch Head”
gives the latter unfettered discretion on what the rate may
be. The Branch Head may choose any rate he or she
desires. As regards the rate “indicative of the DBD retail rate,”
the same cannot be considered as valid for being akin to a
“prevailing rate” or “prime rate” allowed by this Court
in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus
the prime rate of Security Bank and Trust Company. x x x.
 In this provision in Polotan, there is a fixed margin over the
reference rate: 3%. Thus, the parties can easily determine the
interest rate by applying simple arithmetic. On the other hand,
the provision in the case at bar does not specify any margin
above or below the DBD retail rate. UCPB can peg the interest
at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.
Liability for Violation of Truth in Lending Act
RA 3765, otherwise known as the “Truth in Lending Act.”
Section 6(a) of the Truth in Lending Act which mandates the
filing of an action to recover such penalty must be made under
the following circumstances:
Section 6. (a) Any creditor who in connection with
any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount of P100
or in an amount equal to twice the finance charge required by
such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed P2,000 on
any credit transaction. Action to recover such penalty
may be brought by such person within one year from
the date of the occurrence of the violation, in any
court of competent jurisdiction.
Rationale: to protect the public from hidden or undisclosed
charges on their loan obligations, requiring a full disclosure
thereof by the lender.
Section 4 of the Truth in Lending Act clearly provides that the
disclosure statement must be furnished prior to the
consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to
whom credit is extended, prior to the consummation of
the transaction, a clear statement in writing setting forth, to
the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:
1) the cash price or delivered price of the property or service to
be acquired;
2) the amounts, if any, to be credited as down payment and/or
trade-in;
3) the difference between the amounts set forth under clauses (1)
and (2)
4) the charges, individually itemized, which are paid or to be
paid by such person in connection with the transaction but
which are not incident to the extension of credit;
5) the total amount to be financed;
6) the finance charge expressed in terms of pesos and centavos;
and
7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
Rationale: to protect users of credit from a lack of awareness
of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges,
uncertainty of interest rates, deduction of interests from the
loaned amount, and the like. The law thereby seeks to protect
debtors by permitting them to fully appreciate the true cost of
their loan, to enable them to give full consent to the contract,
and to properly evaluate their options in arriving at business
decisions.
The promissory notes, the copies of which were presented to
the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate
provision therein does not sufficiently indicate with
particularity the interest rate to be applied to the loan covered
by said promissory notes.
ADVOCATES FOR TRUTH IN LENDING, INC. AND
OLAGUER V. BS-MB
(Usury)
Relevant Laws:
 Act No. 2655, or the Usury Law of 1916.
 R.A. No. 265 - created the Central Bank (CB) of the
Philippines on June 15, 1948, empowered the CB-MB to,
among others, set the maximum interest rates which banks
may charge for all types of loans and other credit operations,
within limits prescribed by the Usury Law.
 P.D. No. 1684 – Amended the Usury Law was amended on
March 17, 1980, giving the CB-MB authority to prescribe
different maximum rates of interest which may be imposed for
a loan or renewal thereof or the forbearance of any money,
goods or credits, provided that the changes are effected
gradually and announced in advance.
 CB Circular No. 905, Series of 1982 – issued by the CB-
MB, effective on January 1, 1983. Section 1 of the Circular,
under its General Provisions, removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits.
 RA 7653 – established BSP to replace CB. Repealed RA 265.
CB Circular No. 905 did not repeal nor in anyway amend the
Usury Law but simply suspended the latter’s effectivity. By
virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective and legally non-existent in our
jurisdiction. Interest can now be charged as lender and
borrower may agree upon.
Effect of PD 1684 and CB 905 suspending the
effectivity of the Usury Law
1) Lifted interest ceiling.
2) Upheld the parties’ freedom of contract to agree freely on the
rate of interest.
The BSP-MB has authority to enforce CB Circular No.
905
Under Section 1-a of the Usury Law, as amended, the BSP-MB
may prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any money,
goods or credits, including those for loans of low priority such
as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries.
The lifting of the ceilings for interest rates does not
authorize stipulations charging excessive,
unconscionable, and iniquitous interest
It is settled that nothing in CB Circular No. 905 grants lenders
a carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of
their assets. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down for
being (void) contrary to morals, if not against the law.
Nonetheless, the nullity of the stipulation of usurious interest
does not affect the lender’s right to recover the principal of a
loan, nor affect the other terms thereof. Thus, in a usurious
loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon
failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and a
legal interest of 12% (now 6%) per annum will be added in
place of the excessive interest formerly imposed.
BPI V. IAC AND ZSHORNACK
(Voluntary Deposit)
Zshornack delivered to the bank US $3,000 for safekeeping.
BPI argues that the contract embodied in the document is the
contract of depositum (as defined in Article 1962, New Civil
Code), which banks do not enter into. Zshornack demanded the
return of the money on May 10, 1976, or over five months later.
Article 1962, New Civil Code:
Art. 1962. A deposit is constituted from the moment
a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the
safekeeping of the thing delivered is not the principal purpose
of the contract, there is no deposit but some other contract.
Since the mere safekeeping of the greenbacks, without selling
them to the Central Bank within one business day from receipt,
is a transaction which is not authorized by CB Circular No. 20,
it must be considered as one which falls under the general class
of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law.
TRIPLE-V FOOD SERVICES, INC. V. FILIPINO
MERCHANTS INSURANCE Co., Inc.,
(Voluntary Deposit)
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. It is not necessary that the
depositary receives a fee before it becomes obligated to keep
the item entrusted for safekeeping and to return it later to the
depositor.
THE ROMAN CATHOLIC BISHOP OF JARO V. DE LA
PENA
(Obligation to Safekeep - Way of the Deposit)
By placing the money in the bank and mixing it with his
personal funds, respondent did not thereby assume an
obligation different from that under which he would have lain
if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. The fact that
he placed the trust fund in the bank in his personal account
does not add to his responsibility. Such deposit did not make
him a debtor who must respond at all hazards. There was no
law prohibiting him from depositing it as he did and there was
no law which changed his responsibility by reason of the
deposit.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. V. CA
AND SECURITY BANK
(Obligation to Safekeep - Way of the Deposit)
ISSEUE: Is the contractual relation between a commercial
bank and another party in a contract of rent of a safety deposit
box with respect to its contents placed by the latter one of
bailor and bailee or one of lessor and lessee? BAILOR-BAILEE
RELATIONSHIP.
In Tolentino vs. Gonzales, the Court held that the owner of the
property loses his control over the property leased during the
period of the contract — and Article 1975 of the Civil Code
which provides:
Art. 1975. The depositary holding certificates, bonds,
securities or instruments which earn interest shall be bound to
collect the latter when it becomes due, and to take such steps as
may be necessary in order that the securities may preserve
their value and the rights corresponding to them according to
law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes.
Prevailing rule in the United States:
Where a safe-deposit company leases a safe-deposit box or safe
and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of
bailee and bailor is created between the parties to the
transaction as to such securities or other valuables; the fact
that the safe-deposit company does not know, and that it is not
expected that it shall know, the character or description of the
property which is deposited in such safe-deposit box or safe
does not change that relation. That access to the contents of the
safe-deposit box can be had only by the use of a key retained by
 the lessee (whether it is the sole key or one to be used in
connection with one retained by the lessor) does not operate to
alter the foregoing rule. The argument that there is not, in such
a case, a delivery of exclusive possession and control to the
deposit company, and that therefore the situation is entirely
different from that of ordinary bailment, has been generally
rejected by the courts, usually on the ground that as possession
must be either in the depositor or in the company, it should
reasonably be considered as in the latter rather than in the
former, since the company is, by the nature of the contract,
given absolute control of access to the property, and the
depositor cannot gain access thereto without the consent and
active participation of the company.
HELD:
We agree with the petitioner's contention that the contract for
the rent of the safety deposit box is NOT an ordinary contract
of lease as defined in Article 1643 of the Civil Code. However,
We do not fully subscribe to its view that the same is a contract
of deposit that is to be strictly governed by the provisions in the
Civil Code on deposit. The contract in the case at bar is
a special kind of deposit.
 Not lease: It cannot be characterized as an ordinary contract
of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given
to the joint renters — the petitioner and the Pugaos. The guard
key of the box remained with the respondent Bank; without
this key, neither of the renters could open the box. On the other
hand, the respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had a
duplicate which was made so that both renters could have
access to the box.
 Not deposit under 1975: the first paragraph of such
provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such
documents are kept in a rented safety deposit box. It is clear
that the depositary cannot open the box without the renter
being present.
Prevailing view: Bailment
The prevailing rule is that the relation between a bank renting
out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee,
the bailment being for hire and mutual benefit. In our
jurisdiction, the prevailing rule in the US has been
adopted. Section 72 of the General Banking
Act pertinently provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects,
and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or as
agents. . . .
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this
principal function.
A contract of deposit may be entered into orally or in
writing. The depositary's responsibility for the safekeeping of
the objects deposited in the case at bar is governed by Title I,
Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty
of fraud, negligence, delay or contravention of the tenor of the
agreement. In the absence of any stipulation prescribing the
degree of diligence required, that of a good father of a family is
to be observed. Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay would be
void for being contrary to law and public policy.
It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact,
the safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank
keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly then, to the
extent above stated, the foregoing conditions in the contract in
question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not
in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order to
vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will
not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of
the contract may be construed as an attempt to do so, it will be
held ineffective for the purpose. Although it has been held that
the lessor of a safe-deposit box cannot limit its liability for loss
of the contents thereof through its own negligence, the view
has been taken that such a lessor may limits its liability to some
extent by agreement or stipulation.
Thus, we reach the same conclusion which the CA arrived at,
that is, that the petition should be dismissed, but on grounds
quite different from those relied upon by the CA. In the instant
case, the respondent Bank's exoneration cannot, contrary to
the holding of the CA, be based on or proceed from a
characterization of the impugned contract as a contract of
lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect
that the certificates of title were withdrawable from the safety
deposit box only upon both parties' joint signatures, and that
no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the
respondent Bank. This in turn flows from this Court's
determination that the contract involved was one of deposit.
Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of
them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key,
could open the said box, without the other renter being
present.
YHT REALTY CORPORATION V. CA
(Necessary Deposit - Hotel or Inns, Art. 1998 to 2004)
Issue: Whether a hotel may evade liability for the loss of items
left with it for safekeeping by its guests, by having these guests
execute written waivers holding the establishment or its
employees free from blame for such loss in light of Article
2003 of the Civil Code which voids such waivers. NO.
Art. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to
2001 is suppressed or diminished shall be void.
Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and
belongings. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in
so-called “undertakings” that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.
Rule: While the PNB is entitled to the stocks of sugar as the
endorsee of the quedans, delivery to it shall be effected only
upon payment of the storage fees.
Imperative is the right of the warehouseman to demand
payment of his lien at this juncture, because, in accordance
with Section 29 of the Warehouse Receipts Law, the
warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where
the warehouseman surrenders the possession of the goods
without requiring payment of his lien, because a
warehouseman’s lien is possessory in nature.

To hold hotelkeepers or innkeeper liable for the effects of their

guests, it is not necessary that they be actually delivered to the
innkeepers or their employees. It is enough that such effects
are within the hotel or inn. With greater reason should the
liability of the hotelkeeper be enforced when the missing items
are taken without the guest’s knowledge and consent from a
safety deposit box provided by the hotel itself.

Rule: The New Civil Code is explicit that the responsibility of

the hotel-keeper shall extend to loss of, or injury to, the
personal property of the guests even if caused by servants or
employees of the keepers of hotels or inns as well as by
strangers, except as it may proceed from any force majeure. It
is the loss through force majeure that may spare the hotel-
keeper from liability.

PNB V. SE, ET. AL.

(Warehouse Receipts - General Bonded Warehouses, Act No.
3893, as amended)

Act No. 2137, the Warehouse Receipts Law

Sec. 27. What claims are included in the warehouseman’s lien.
- Subject to the provisions of section thirty, a warehouseman
shall have lien on goods deposited or on the proceeds thereof in
his hands, for all lawful charges for storage and preservation of
the goods; also for all lawful claims for money advanced,
interest, insurance, transportation, labor, weighing coopering
and other charges and expenses in relation to such goods; also
for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goods where default
has been made in satisfying the warehouseman’s lien.

Sec. 31. Warehouseman need not deliver until lien is satisfied.

- A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him
until the lien is satisfied.

Petitioner is in estoppel in disclaiming liability for the payment

of storage fees due the private respondents as warehouseman
while claiming to be entitled to the sugar stocks covered by the
subject Warehouse Receipts on the basis of which it anchors its
claim for payment or delivery of the sugar stocks. The
unconditional presentment of the receipts by the petitioner for
payment against private respondents on the strength of the
provisions of the Warehouse Receipts Law (R.A. 2137) carried
with it the admission of the existence and validity of the terms,
conditions and stipulations written on the face of the
Warehouse Receipts, including the unqualified recognition of
the payment of warehouseman’s lien for storage fees and
preservation expenses. Petitioner may not now retrieve the
sugar stocks without paying the lien due private respondents as
warehouseman.