ISLA VS ESTORGA

FACTS: Gilbert Isla obtained a loan in the amount of P100,000.00 from respondent, payable
anytime from six (6) months to one (1) year and subject to interest at the rate of ten percent
(10%) per month, payable on or before the end of each month. As security, a real estate
mortgage was constituted over a parcel of land.
However, Isla failed to comply with the demand, causing respondent Estorga to file a Petition for
Judicial Foreclosure against them.
RTC directed petitioners to pay respondent the amounts of P100,000.00 with twelve percent
(12%) interest per annum.
The CA affirmed with modification: (a) P100,000.00 representing the principal of the loan
obligation; (b) an amount equivalent to twelve percent (12%) of P100,000.00 computed per
year from date of demand until full payment, representing interest on the loan; (c) an
amount equivalent to six percent (6%) of the sums due in (a) and (b) per annum computed from
the finality of the CA Decision until full payment, representing legal interest;
ISSUE: Whether or not the CA correctly ruled in imposing an interest rate of 12% per annum
from the date of extrajudicial demand until full payment.

RATIO DECIDENDI: Yes. The.the law states that there are two (2) types of interest, namely,
monetary interest and compensatory interest. Monetary interest is the compensation fixed by
the parties for the use or forbearance of money.
On the other hand, compensatory interest is that imposed by law or by the courts as a penalty
or indemnity for damages.
Accordingly, the right to recover interest arises only either by virtue of a contract or as damages
for delay or failure to pay the principal loan on which the interest is demanded (compensatory
interest). In this case, petitioners and respondent entered into a loan obligation and clearly
stipulated for the payment of monetary interest.
However, the stipulated interest of ten percent (10%) per month was found to be
unconscionable, and thus, the courts struck down the same and pegged a new monetary
interest of twelve percent (12%) per annum, which was the prevailing legal rate of interest for
loans and forbearances of money at the time the loan was contracted.
In addition, not only the principal amount but also the monetary interest due to respondent as
discussed above shall itself earn compensatory interest at the legal rate, pursuant to Article
2212 of the Civil Code, which states that "[i]nterest due shall earn legal interest from the time it
is judicially demanded, although the obligation may be silent upon this point."
BERNAL VS, VILLAFLOR
FACTS:
Petitioner demanded from the respondents the payment of P3,241,800.00, representing
sums allegedly left unpaid in relation to the construction of the Medical Arts Building in
Caranglaan District, Dagupan City for which the respondents obtained the expertise and
services of the petitioner sometime in 1995.

RTC rendered a decision:

1. Ordering the [respondents] to pay [petitioner] (Php2,848,000.00) plus interest

thereon at the legal rate until the amount is fully paid;

Dissatisfied, the respondents appealed and CA rendered modified the RTC's Decision by
further reducing the total award.

1. [respondents] to pay [petitioner] the amount of P1,710,271.21, plus legal

interest x x x at the rate of six percent (6%) per annum,;

2. the CA also changed the rate and reckoning date of the interest on the award, as
it declared that the principal amount of P1,710,271.21 shall earn interest at the
rate of 6% per annum from date of finality of the judgment until full satisfaction.

Feeling aggrieved, petitioner filed the instant petition for review. It argues that
the interest should be computed at the rate of 6% per annum from the time of
either the last extrajudicial demand or judicial demand , plus 12% per annum
interest from the date of judgment until full payment.

ISSUE: Whether the petitioner is entitled to the increase of interest rate

The Court's Ruling

The Court partially grants the petition.

In Eastern Shipping Lines, Inc. vs. Court of Appeals,6 the Court made the following
pronouncement, which was intended to be the guidelines in the proper determination of
awards of interest:

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.

In this case, the award of interest is discretionary on the part of the court. The
petitioner's original demand does not equate to a loan or forbearance of money but
pertains to the cost of construction and services, the amount of which has not yet been
determined with certainty even up to the time of the complaint's filing with the RTC.
Petitioner's insistence on an increase in the interest rate from such time to 12%
per annum is wrong; because in 2013 the legal rate of interest on loans and
forbearance of money was reduced from 12% to 6% per annum.

SPS. ABELLA V. SPS. ABELLA,

Facts: petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and
damages against respondents Spouses Romeo and Annie Abella.
In their Complaint, petitioners alleged that respondents obtained a loan from them in the
amount of P500,000.00. The loan was evidenced by an acknowledgment receipt dated March
22, 1999 and was payable within one (1) year. Petitioners added that respondents were able to
pay a total of P200,000.00— P100,000.00 paid on two separate occasions—leaving an unpaid
balance of P300,000.00.
In their Answer moved to dismiss the allegations and said that the amount involved did not
pertain to a loan, but was part of the capital for a joint venture involving the lending of money.
The RTC in favor of the petitioners
The Court of Appeals said that no particular interest rate was specified in theor
acknowledgement. When time respondents were making interest payments of 2.5% per month.
The CA said that these were invalid for not being properly stipulated by the parties.
ISSUE: Whether or not interest accrued on respondents’ loan from petitioners. If so, at what
rate?
RULING: Yes, interest accrued on respondents’ loan. Article 1956 of the Civil Code spells out
the basic rule that "no interest shall be due unless it has been expressly stipulated in writing."
The controversy, however, stems from the acknowledgment receipt’s failure to state the exact
rate of interest. Jurisprudence is clear about the applicable interest rate if a written instrument
fails to specify a rate.
The court said that "In a loan or forbearance of money, according to the Civil Code, the interest
due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per
annum."

LARA’S GIFTS AND DECORS, INC. V. MIDTOWN INDUSTRIAL SALES, INC

FACTS: Lara’s Gifts & Decors, Inc. is engaged in the business of manufacturing, selling, and exporting
handicraft products while Midtown Industrial Sales, Inc. is engaged in the business of selling industrial
and construction materials, and Lara’s Gifts & Decors is one of its customers.

From January 2007 to December 2007, Lara’s Gifts & Decors purchased from Midtown various industrial
and construction materials totaling to P1,263,104.22. The purchases were on a 60-day credit term, with
the condition that 24% interest per annum would be charged on all accounts overdue, as stated in the
sales invoices.
Lara’s paid for its purchases by issuing several Chinabank postdated checks but such checks bounced.
After Midtown’s repeated demands, Lara’s replaced the bounced checks with new postdated Export and
Industry Bank checks but such checks were also dishonored.

Midtown sent a demand letter which was received by petitioner on Jan. 22, 2008, informing Lara’s of the
bounced checks and demanding the latter to settle its accounts. Lara’s failed to pay prompting Midtown
to file on Feb. 5, 2008 a complaint for sum of money. In its answer, Lara’s admitted the purchases but
claims that the checks it issued for payment were not for value because not all of the materials were
received in good order and condition.

Thus, when Lara’s used the raw materials, the finished product allegedly did not pass the standards
required by its buyers from the US which made such orders cancelled.

The trial court held that Lara’s Gifts & Decors failed to prove that the deliveries made by Midtown did
not comply with the required specifications. The trial court also held that the stipulated 24% interest per
annum on overdue accounts is not unconscionable. The Court of Appeals affirmed such decision.

ISSUES: 1. Whether or not the interest rate fixed at 24% per annum is void.

1. Yes. The Court held that Lara’s Gifts & Decors, which has been doing business since 1990 and
has been purchasing various materials from Midtown since 2004, cannot claim to have been
misled into agreeing to the 24% interest rate which was expressly stated in the sales invoices.
The Court has already ruled in several cases that an interest rate of 24% per annum agreed upon
by the parties is valid and binding, and not excessive and unconscionable.

ra’s Gifts & Decors, Inc. is

engaged in the business of
manufacturing, selling,
and exporting handicraft
products while Midtown
Industrial Sales, Inc. is
engaged
in the business of
selling industrial and
construction
material
ra’s Gifts & Decors, Inc. is
engaged in the business of
manufacturing, selling,
and exporting handicraft
products while Midtown
Industrial Sales, Inc. is
engaged
in the business of
selling industrial and
construction
material
MEDEL V. CA, 359 PHIL. 820

Facts
Servando and Leticia obtained a loan from Veronica, who was engaged in the
money lending business.

Servando and Leticia with the latter’s husband, Dr. Rafael Medel, consolidated
all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00. The executed a promissory note

On maturity of the loan, the borrowers failed to pay the indebtedness.

Defendants Leticia and Rafael Medel alleged that the loan was the transaction of
Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a
parcel of real estate situated in San Juan, Batangas; that the interest rate is
excessive at 5.5% per month with additional service charge of 2% per annum,
and penalty charge of 1% per month; that the stipulation for attorney’s fees of
25% of the amount due is unconscionable, illegal and excessive, and that
substantial payments made were applied to interest, penalties and other charges.

Issue:
Whether or not, the interest rate of 5.5% is usurious.

Ruling
REPORT THIS AD

No. The Court agree with petitioners that the stipulated rate of interest at 5.5%
per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. However, we can not consider the rate “usurious” because this Court
has consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by
the Usury Law and that the Usury Law is now “legally inexistent”.

SVENDSEN V. PEOPLE