CreditTransactionsReviewer Complete

CREDIT TRANSACTIONS
INTRODUCTION SECURITY
Definition and Scope Definition and Kinds
Credit Transactions include all transactions involving the purchase or loans Security is something given, deposited, or serving as a means to ensure the
of goods, services, or money in the present with a promise to pay or deliver in ithe fulfillment or enforcement of an obligation or of protecting some interest in
future. property.
By the use of credit, more exhanges are possible, persons are able to enjoy KINDS:
a thing today but pay for it later, and through the banking system, actual money PERSONAL SECURITY - when an individual becomes a surety or a guarantor;
transfer is eliminated by cancellation of debts and credits. PROPERTY OR REAL SECURITY – as when mortgage, pledge, antichresis, charge
or lien or other device used to have property held, out of which the person to be
Credit transactions are really contracts of security. made secure can be compensated for loss.
Two types: BAILMENT

1. Secured transactions or contracts of real security – those supported Definition
by a collateral or an encumbrance or property; and
Comes from the French word “bailer” meaning “to deliver.”
2. Unsecured transactions or contract of personal security – those
the fulfillment of which by the principal debtor is secured or supported only by a It may be defined as the delivery of property of one person to another in
promise to pay or the personal commitment of another such as a guarantor or trust for a specific purpose, with a contract, express or implied, that the trust shall
surety. be faithfully executed and the property returned or duly accounted for when the
special purpose is accomplished or kept until the bailor claims it.
The encumbrance is effected as follows:
Creation
a. Pledge – placing the movable property in the possession of the creditor
1 DVOREF 2C Ab Initio
b. Chattel Mortgage – by the execution of the corresponding deed substantially In general, bailment may be said to be a contractual relation. To be legally
in the form prescribed by law. enforceable, it must contain all the elements of a valid contract.
c. Real Estate Mortgage – by the execution of a public instrument encumbering
the real property covered thereby It does not necessarily mean that an agreement is always necessary to
d. Antichresis – by a written instrument granting to the creditor the right to create bailment. It may be created by operation of law.
receive the fruits of an immovable property with the obligation to apply such fruits
to the payment of the interest and principal obligation. Parties
Bailment contracts, together with the other related subjects such as usury, 1. BAILOR (COMODATARIO) - the giver; the party who delivers the possession
the contracts of guaranty and suretyship, mortgage, antichresis, and concurrence or custody of the thing bailed; and
and preference of credits, all make-up the so called CREDIT TRANSACTIONS
2. BAILEE (COMODANTE) - the recipient; the party who receives the possession
or custody of the thing thus delivered.
Page
CREDIT TRANSACTIONS
Kinds of Contractual Bailments ART. 1933 By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
The classification is generally with reference to compensation under which and return it, in which case the contract is called a commodatum; or money or
bailments are divided into three heads, namely: other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a
Gratuitous Bailments loan or mutuum.
(1) Those for the sole benefit of the bailor; (gratuitous deposits and
mandatum) Commodatum is essentially gratuitous.
Mandatum is a bailment of goods without recompense where the
mandatory or person to whom the property is delivered undertakes to do some act Simple loan may be gratuitous or with a stipulation to pay interest.
with respect to the same; as simply to carry it, or keep it, or otherwise to do
something with respect to it gratuitously In commodatum the bailor retains the ownerships of the thing loaned, while
in simple loan, ownership passes to the borrower.
(2) Those for the sole benefit of the bailee; and (commodatum and gratuitous
simple loan or muutum) Characteristics of a Contract
Mutual-benefit Bailments The Contract of Loan is:

(3) Those for the benefit of both parties. (deposit for a compensation including
involuntary deposits and bailments for hire) 1. Real Contract because the delivery of the thing loaned is necessary for the
perfection of the contract; and
Kinds of Bailment for Hire
2. Unilateral Contract because once the subject matter has been delivered, it
Bailment for Hire (location et conductio) arises when goods are left with the creates obligations on the part of only one of the parties, i.e., the borrower.
bailee for some use or service by him and is always for some compensation.
Causes or Considerations in a contract of loan
1. Hire of thing (locatio rei). Where goods are delivered for the temporary use
of the hirer (i.e. LEASE) 1. as to the borrower, the acquisition of the thing; and
2. as to the lender, the right to demand its return or its equivalent.
2. Hire of service (locatio operis faciendi). Where goods are delivered for some
work or labor upon it by the bailee (i.e. contract for a piece of work) KINDS OF LOAN
3. Hire for carriage of goods (locatio operis mercium vehendarum). Where 1. Commodatum –where the bailor (lender) delivers to the bailee (borrower) a
the goods are delivered either to a common carrier or to a private person for the non-consumable thing so that the latter may use it for a certain time and return
purpose of being carried from place to place. the identical thing; and
4. Hire of custody (locatio custodiae). Where goods are delivered for storage 2. Simple Loan or Muutum – where the lender delivers to the borrower money
(Warehouse Receipts Law) or other consumable thing upon the condition that the latter shall pay the same
amount of the same kind and quality.
LOAN
*A thing is consumable when it is consumed when used in a manner
General Provisions appropriate to its purpose or nature, like rice, gasoline, money, fruit, firewood, etc.
Page
CREDIT TRANSACTIONS
Consumable things and Non-consumable things over the property rented during the
period of contract.
A thing is consumable when it cannot be used in a manner appropriate to Landlord-tenant relationship Obligations and Contract
its nature without being consumed (Art. 418, NCC) (e.g. food, firewood, gasoline). BARTER LOAN
On the other hand, a non-consumable thing is a movable thing which can be used Subject matter are non-fungible things Subject matter is money or other
in a manner appropriate to its nature without it being consumed (Art. 418, NCC) fungible things
(e.g. car, television, radio). Always onerous May be gratuitous or onerous
There is a mutual sale resulting in the In mutuum, there is transfer of
Fungible and Non-Fungible things transfer of ownership on both sides ownership, there is no sale
Fungible thing is one where the parties have agreed to allow the substitution The parties do not return the things In commodatum, the bailee returns the
of the thing given or delivered with an equivalent thing (3 Manresa 58). Non- subject of the exchange thing after the expiration of the period
fungible thing is one where the parties have the intention of having the same agreed upon
identical thing returned after the intended use. DEPOSIT LOAN
Safekeeping of the thing deposited. Lender grants the
NOTE: As to whether a thing is consumable or not, it depends upon the nature of Generally, the depositary cannot use borrower the use of the
the thing. the thing deposited thing learned
Depositor can demand Generally, borrower pays
As to whether it is fungible or not, it depends upon the intention of the parties. the return of the thing at the end of the period
Fungibles are usually determined by number, weight or measure.
deposited at any time
Compensation not Compensation of credits
Irreplaceability of Non-Fungible thing
applicable to things Applicable
deposited
GR: Non-fungible things are irreplaceable. They must be returned to the lender
Relationship is one of depositor and Relationship is one of
after the purpose of the loan had been accomplished.
depositary. lender and borrower; or
creditor and debtor
XPN: Non-fungible things may be replaced by agreement of the parties. In such
case, the contract is barter and not loan
LOANS vs CREDIT
Loan distinguished from Credit, Discount, Rent, Barter and Deposit
The credit of an individual means his ability to borrow money or things by
virtue of the confidence or trust reposed by a lender that he will pay what he may
CREDIT LOAN
promise within a specified period.
Ability to borrow money by virtue of the Delivery by one party and the receipt
confidence reposed by the lender unto by the other party of a given sum of
The loan means the delivery by one party(lender/creditor), and the receipt
him that he will pay what he has money, upon an agreement, expressed
by the other party (borrower/debtor) who become the owner, of a given sum of
promised or implied, to repay the sum loaned,
money or other consumable thing upon an agreement, express or implied, to repay
with or without interest
the same amount of the same kind and quality, with or without interest.
DISCOUNT LOAN
Interest is deducted in advance Interest is taken at the expiration of a Meaning of Credit as Opposed to Debt
credit
Always on double-name paper Generally on a single name paper The term “credit,” in its usual meaning, is a sum credited on the books of a
RENT LOAN company to a person who appears to be entitled to it. It presupposes a creditor-
The owner of property does not lose The things loaned becomes the
Page
the ownership; he loses his control property of the obligor
CREDIT TRANSACTIONS
debtor relationship, and may be said to imply ability, by reason of property or Thus:
estates, to make a promised payment. It is the correlative to debt or indebtedness,
and that which is due to any person as distinguished from that which he owes. 1. Application for loan approved by corporation - Where an application for a
loan of money was approved by resolution of the corporation (lender) and the
It is a debt considered from the creditor’s standpoint. corresponding mortgage was executed and registered, there arises a perfected
consensual contract of loan. While a perfect contract of loan can give rise to an
Loan distinguished from discounting of paper action for damages, said contract does not constitute the real contract of loan.
To discount a paper is a mode of loaning money, with these distinctions: 2. Mortgage executed by virtue of loan granted. — Where the mortgage deed
was executed for and on condition of the loan granted to the mortgagors, the fact
(1) In a discount, interest is deducted in advance while in a loan, interest is that the latter did not collect from the mortgagee bank the consideration of the
usually taken at the expiration of a credit; and mortgage on the date it was executed but six (6) days later when the mortgagors
and their co-maker signed the promissory note is immaterial. A contract of loan
(2) A discount is always on a double-name paper, while a loan is generally, being consensual, it was perfected at the same time that the contract of mortgage
on a single-name paper. was executed, the promissory note being only an evidence of an indebtedness and
did not indicate lack of consideration of the mortgage at the time of its execution.
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 3. Only partial amount released under a loan agreement secured by
shall not be perfected until the delivery of the object of the contract. mortgage. — Where a bank and a borrower undertook reciprocal obligations by
entering an P80,000.00 loan agreement on April 28, 1965 when the borrower
Delivery essential to perfection of loan executed a real estate mortgage, but the bank was able to release only P17,000.00,
the bank was held in default for P63,000.00 to the borrower.
The rule contained in the above article is a necessary consequence of the
fact that commodatum and mutuum are real contracts which require the delivery
of the subject matter thereof for their perfection. Commodatum vs Muutum (Simple Loan)
 Art. 1316. Real contracts, such as deposit, pledge and commodatum, are COMMODATUM MUUTUM (SIMPLE LOAN)
not perfected until the delivery of the object of the obligation. Ordinarily involves something not The subject matter is money or other
consumable (Art 1936) consumable thing;
 Delivery is necessary in view of the purpose of the contract which is to Ownership of the thing loaned is The ownership is transferred to the
transfer either the use or ownership of the thing loaned. retained by the lender (Art 1933) borrower
Essentially gratuitous May be gratuitous or onerous, that is,
Binding effect of accepted promise to lend with stipulation to pay interest;
The borrower must return the same The borrower need only pay the same
An accepted promise to make a future loan is a consensual contract, and thing loaned amount of the same kind and quality;
therefore, binding upon parties but it is only after delivery, with the real contract May involve in real or personal property Refers only to personal property
of loan arise. (Art 1937)
Loan for use or temporary possession Loan for consumption
 Art. 1315. Contracts are perfected by mere consent, and from that moment (Art 1935)
the parties are bound not only to the fulfi llment of what has been expressly The bailor may demand the return of The Lender may not demand its return
stipulated but also to all the consequences which, according to their nature, the thing loaned before the expiration before the lapse of the term agreed
may be in keeping with good faith, usage and law. of the term in case of urgent need (Art upon; and
Page
1946)
CREDIT TRANSACTIONS
The loss of subject matter is suffered The borrower suffers the loss even if XPN: Members of the bailee’s household may make use of the thing loaned
by the bailor since he is the owner (Art caused exclusively by a fortuitous because members of the bailee’s household are not considered as third persons.
1942; Art 1174) event and he is not, therefore,
discharge from his duty to pay. NOTE: Household members are those permanently living or residing within the
same residence including the household helpers.
KINDS OF COMMODATUM XPN to the XPN: Contrary stipulation; or Nature of the thing forbids such use.
1. Ordinary commodatum – bailor cannot just demand the return of the thing at 3. Right of retention
will, because there is a period agreed upon by the parties.
GR: The bailee cannot exercise the right of retention against the bailor
2. Precarium – one whereby the bailor may demand the thing loaned at will in the
following cases: XPN: However, he can exercise the right of retention on the account of damages
a. If the duration of the contract had not been stipulated; suffered by the bailee because of flaws that the bailor knew of but did not disclose
b. If the use to which the thing loaned should be devoted had not been stipulated; to the bailee
c. If the use of the thing is merely by tolerance of the owner
NOTE: The word “owner” in Art. 1947 (2) is not proper because the bailor need Use of fruits of the property by the bailee
not be the owner of the thing (Pineda, 2006; Art. 1938). The bailee in commodatum acquires only the use of the thing loaned but
not its fruits (Art. 1935, NCC).
Characteristics of a contract of commodatum
1. Real contract – delivery of the thing loaned is necessary for the perfection of the A stipulation that the bailee may make use of the fruits of the thing loaned
contract is valid. It is understood that the enjoyment of the fruits must only be incidental
2. Unilateral contract – once subject matter is delivered, it creates obligations on to the use of the thing. It should not be the main cause; otherwise, the contract is
the part of only one of the parties (the borrower) not a commodatum but a usufruct (Art. 1940, NCC).
3. Essentially gratuitous
4. Purpose is to transfer the temporary use of the thing loaned The stipulation that the bailee may make use of the fruits of the thing loaned
5. Principal contract will not impair the essence of commodatum because the actual cause or
6. Purely personal contract consideration therefore is still the liberality of the bailor or lender.
Consequence of purely personal character of commodatum Elements of commodatum

1. Death of a party 1. There must be a bailor and bailee;
2. the bailee acquires the use of the thing;
GR: Commodatum is purely personal in character hence death of either bailor or 3. it must be gratuitous
bailee extinguishes the contract (Art. 1939, NCC).
Parties to a commodatum
XPN: By stipulation, the commodatum is transmitted to the heirs of either or both
party. 1. Bailor/Comodatario/Commodans – The giver/lender - The party who delivers the
possession or custody of the thing bailed.
2. Lease of the thing subject of commodatum
2. Bailee/Comodante/Commodatarius – The recipient/borrower - The party who
GR: The bailee can neither lend nor lease the object of the contract to a third receives the possession or custody of the thing thus delivered.
person.
Page
CREDIT TRANSACTIONS
Liability when there are two or more bailees GR: The bailee must bring to the knowledge of the bailor such expenses before
When there are 2 or more bailees to whom a thing is loaned in the same incurring the same.
contract, they are liable solidarily (Art. 1945, NCC).
XPN: In case there is urgency and delay would cause imminent danger.
Their liability is solidary in order to protect the bailor’s rights over the thing
loaned. If the extraordinary expenses arise on the occasion of the actual use of the
thing loaned by the bailee, the expenses shall be borne by the bailor and bailee
Q: Following the principle of autonomy of contracts, may the parties to a equally, even though the bailee is without fault (Art. 1949, NCC).
contract of commodatum validly stipulate that the liability of the bailees
shall be joint? 3. To be liable for damages for known hidden defects.
A: No. Article 1245 expressly provides that in a contract of commodatum, when
there are two or more bailees to whom a thing is loaned in the same contract, they 4. Cannot exempt himself from payment of expenses or damages by abandonment
are liable solidarily. It constitutes as an exception to the general rule of “joint of the thing to bailee.
obligations” where there are two or more debtors, who concur in one and same
obligation under Articles 1207 and 1208. Solidarity is provided to safeguard Liability of the bailor for hidden defects
effectively the rights of the bailor over the thing loaned.
Requisites:
Subject matter of commodatum 1. There was a flaw or defect in the thing loaned;
GR: Under Art. 1933, the subject matter of commodatum must be non-consumable 2. The flaw or defect is hidden;
because the thing must be returned. 3. The bailor is aware thereof;
4. He does not advise the bailee of the same; and
XPN: Consumable goods may be the subject of commodatum if the purpose is not 5. The bailee suffers damages by reason of said flaw or defect.
to consume them such as when they were loaned merely for ad ostentationem or
exhibition purposes. After the affair, the same and identical goods shall be returned Cause of Action against bailor who did not disclose flaw or defect
to the lender or bailor (Art. 1936, NCC).
The cause of action against the bailor who did not disclose the flaw or defect
Object of commodatum is action for recovery of damages on the ground of quasi-delict because of
Both movable and immovable property may be the object of commodatum (Art. negligence or bad faith.
1937, NCC).
Effect if both parties know the defect
Consideration in a commodatum
1. As to the borrower – The acquisition of thing loaned The effect if both parties are aware of the flaws or defects is that the bailee
2. As to the lender – The right to demand the return of the same thing loaned is deemed to have assumed a risk. The bailor is not liable for the damages suffered
by the bailee by reason thereof.
Obligations of the bailor
Rights of the bailor
1. Allow the bailee the use of the thing loaned for the duration of the period
stipulated or until the accomplishment of the purpose. Return of the thing loaned
2. Refund the extraordinary expenses the bailee incurred for the preservation of GR: The return of the thing loaned may be demanded by the bailor only (1) after
the thing. the expiration of the period stipulated or (2) after the accomplishment of the use
for which it is constituted.
Page
CREDIT TRANSACTIONS
XPNs: Obligations of the Bailee
1. In case of urgent need by the bailor
2. In case of precarium As to the expenses Pay for the ordinary expenses for the
3. If the bailee commits an act of ingratitude specified in Article 765 to the bailor use and preservation of the thing
(Art. 1948, NCC), to wit: As to the lossof the thing in case of Liable for loss even through fortuitous
Fortuitous event event when:
a. If the bailee should commit some offenses against the person, honor or 1. When being able to save either of the
the property of the bailor, or his wife or children under his parental authority; thing borrowed or his own thing, he
b. If the bailee imputes to the bailor any criminial offense, or any act chose to save the latter
involving moral turpitude, even though he should prove it, unless the crime or the 2. He keeps it longer than the period
act has been committed against the bailee, his wife or children under his authority; stipulated, or after the accomplishment
or of its use (in default);
c. If the bailee unduly refuses the bailor support when the bailee is legally 3. The thing loaned has been delivered
or morally bound to give support to the bailor. with appraisal of its value
4. When he lends or leases it to third
NOTE: The rationale for the application of Art. 765 which refers to donations is the persons who are not members of his
fact that commodatum, like donation, is gratuitous in nature. household
5. There is deviation from the Purpose
Q: If the contract of commodatum is a precarium, will Art. 1942 (1) and As to the deterioration of the thing Not liable for the deterioration of the
(2) still apply? loaned thing loaned caused by the ordinary
wear and tear of the thing loaned (Art.
A: It depends. If there has been a demand on the part of the bailor before the 1943, NCC).
loss of the thing under the circumstances set forth under Art. 1942 (1) and (2) and
the bailee did not return the thing, then the latter is liable. However, if there has NOTE: When there are two or more
been no demand on the part of the bailor and the thing was lost, the bailor is bailees, their liability is solidary.
estopped and cannot hold the bailee liable for under a contract of precarium, the
use of the thing by the bailee depends on the pleasure of the bailor and no time is
Rights of a Bailee
fixed for such use. Hence, demand on the part of the bailor is needed for the return
of the thing. Without such, loss of the thing on the hands of the bailee will not
1. Use of the thing;
make him liable.
2. Make use of the fruits of the thing when such right is stipulated in the contract;
3. Not answerable for the deterioration of the thing loaned due to the use thereof
Bailor and ownership of the thing loaned
and without his fault; and
4. Right of retention for damages due to hidden defects or flaws of the thing of
The bailor in commodatum need not be the owner of the thing loaned. It is
which he was not advised by the bailor.
sufficient that he has possessory interest over subject matter (Art. 1938, NCC).
Q: Art. 1178 of the NCC provides that all rightsacquired by virtue of an
NOTE: A mere lessee or usufructuary may gratuitously give the use of the thing
obligation are transmissible. Is the right to use the thing by virtue of a
leased or in usufruct, provided there is no prohibition against such.
contract of commodatum transmissible?
A: No, it is not transmissible for 2 reasons:
Page
CREDIT TRANSACTIONS
a.) Art. 1178 provides that the transmissibility of said acquired rights are either A: No, the bailee cannot be held liable for the loss. Art. 1942 (2) contemplates
subject to the laws or to a contrary stipulation; and wrongful retention or a situation where the bailee is not entitled to retain the thing
loaned.
b.) Art. 1939 provides that a contract of commodatum is purely personal in
character. NOTE: Article 1942 (2) provides that the bailee is liable for the loss of the thing,
even if it should be through a fortuitous event if he keeps it longer than the period
To rule otherwise would be to run counter to the purely personal character stipulated, or after the accomplishment of the use for which the commodatum has
of the commodatum and to the proviso that transmissibility is subject to the law been constituted.
governing such obligations.
ART. 1935 The bailee in commodatum acquires the use of the thing loaned
COMMODATUM VS LEASE but not its fruits; if any compensation is to be paid by him who acquires
the use, the contract ceases to be a commodatum.
COMMODATUM LEASE
Real Contract Consensual ART. 1936 Consumable goods may be the subject of commodatum if the
Object is a nonconsumable and non Object may even be work or service purpose of the contract is not the consumption of the object, as when it is
fungible thing merely for exhibition.
Essentially gratuitous Onerous
If the bailor is not aware of the flaws, Provisions governing warranty are ART. 1937 Movable or immovable property may be the object of
he is not liable for the resulting danger made applicable commodatum.
caused by such.
ART. 1938 The bailor in commodatum need not be the owner of the thing
Conversion of commodatum to lease loaned.
The legal effect if the bailee pays for the use of the thing is that the contract
ceases to be commodatum; it becomes lease. ART. 1939 Commodatum is purely personal in character. Consequently:
Right of retention in Commodatum (1) The death of either the bailor or the bailee extinguishes the
contract;
GR: There is no right of retention in commodatum. The bailee cannot retain the
thing loaned on the ground that the bailor owes the bailee. (2) The bailee can neither lend nor lease the object of the contract
to a third person. However, the members of the bailee’s household may
XPN: The bailee has the right of retention for claims of damages which the bailee make use of the thing loaned, unless there is a stipulation to the contrary,
incurred or suffered by reason of the hidden defects or flaws of the thing loaned, or unless the nature of the thing forbids such use.
of which he was not informed or advised by the bailor.
ART. 1940 A stipulation that the bailee may make use of the fruits of the
The reason for the general rule that there is no right of retention is that thing loaned is valid.
“bailment implies a trust that as soon as the time has expired or the purpose
accomplished, the bailed property must be returned to the bailor.” Also, Art. 1287 ART. 1941 The bailee is obliged to pay for the ordinary expenses for the
provides that compensation shall not be proper when one of the debts arises from use and preservation of the thing loaned.
the obligations of a bailee in commodatum (Art. 1287, reworded)
ART. 1942 The bailee is liable for the loss of the thing, even if it should be
Q: Suppose during the said retention of the bailee by reason of hidden through a fortuitous event:
defects, the thing is lost due to a fortuitous event. Can the bailor hold the
Page
bailee liable for said loss based on Art.1942 (2)?
CREDIT TRANSACTIONS
(1) If he devotes the thing to any purpose different from that for (2) If the use of the thing is merely tolerated by the owner.
which it has been loaned;
ART. 1948. The bailor may demand the immediate return of the thing if
(2) If he keeps it longer than the period stipulated, or after the the bailee commits any acts of ingratitude specifi ed in Article 765.
accomplishment of the use for which the commodatum has been
constituted; ART. 1949. The bailor shall refund the extraordinary expenses during the
contract for the preservation of the thing loaned, provided the bailee
(3) If the thing loaned has been delivered with appraisal of its brings the same to the knowledge of the bailor before incurring them,
value, unless there is a stipulation exempting the bailee from except when they are so urgent that the reply to the notifi cation cannot
responsibility in case of a fortuitous event; be awaited without danger.
(4) If he lends or leases the thing to a third person, who is not a If the extraordinary expenses arise on the occasion of the actual
member of his household; use of the thing by the bailee, even though he acted without fault, they
shall be borne equally by both the bailor and the bailee, unless there is a
(5) If, being able to save either the thing borrowed or his own thing, stipulation to the contrary.
he chose to save the latter.
ART. 1950. If, for the purpose of making use of the thing, the bailee incurs
ART. 1943 The bailee does not answer for the deterioration of the thing expenses other than those referred to in Articles 1941 and 1949, he is not
loaned due only to the use thereof and without his fault. entitled to reimbursement.
ART. 1944. The bailee cannot retain the thing loaned on the ground that ART. 1951. The bailor, who, knowing the flaws of the thing loaned, does
the bailor owes him something, even though it may be by reason of not advise the bailee of the same, shall be liable to the latter for the
expenses. However, the bailee has a right of retention for damages damages which he may suffer by reason thereof.
mentioned in Article 1951.
ART. 1952. The bailor cannot exempt himself from the payment of
ART. 1945. When there are two or more bailees to whom a thing is loaned expenses or damages by abandoning the thing to the bailee.
in the same contract, they are liable solidarily.
EXPENSES
ART. 1946. The bailor cannot demand the return of the thing loaned till
after the expiration of the period stipulated, or after the accomplishment Rules on who shall pay Ordinary, Extraordinary expenses and other
of the use for which the commodatum has been constituted. However, if expenses
in the meantime, he should have urgent need of the thing, he may demand
its return or temporary use. 1. Ordinary Expenses – for both the use and preservation of the thing, it shall be
paid or shouldered by the bailee (Art. 1941, NCC)
In case of temporary use by the bailor, the contract of commodatum
is suspended while the thing is in the possession of the bailor. 2. Extraordinary Expenses
ART. 1947. The bailor may demand the thing at will, and the contractual a. Preservation – Bailor, provided the bailee brings the same to the
relation is called a precarium, in the following cases: knowledge of the bailor before incurring them, except when they are so urgent that
the reply to the notification cannot be awaited without danger (Art. 1949, NCC).
(1) If neither the duration of the contract nor the use to which the thing
loaned should be devoted, has been stipulated; or
Page
CREDIT TRANSACTIONS
b. Use Explain. (2005 Bar Question)
GR: Borne equally by the bailor and bailee A:

a) The contract between Pedro and Tito is one of commodatum. Of the P15, 000.00
XPN: Stipulation to the contrary (Art. 1949, NCC) spent, Pedro, the bailor, shall bear the expenses for the repair of the faulty brakes,
they being extraordinary expenses incurred due to the non-disclosure by the bailor
3. Other expenses – Bailee (Art. 1950, NCC) of the defect or fault; Tito, on the other hand, shall shoulder "that part of the
P15,000.00 spent for the tune-up”, said expense being ordinary for the use and
Q: What if the bailee is entitled to payment or reimbursement of expenses preservation of the van.
incurred or damages suffered and the bailor offers the thing loaned as
payment for said expenses or damages, would such offer be valid or not, b) The costs for the fuel and other materials are considered ordinary expenses,
in view of the prohibition under Art. 1952 which states that the bailor and consequently Tito, the bailee, shall shoulder them (Art. 1941, NCC).
cannot exempt himself from the payment of expenses or damages by
abandoning the thing to the bailee? c) No, Pedro cannot demand the return of the van until after the expiration of the
one-year period stipulated. However, if in the meantime he should have urgent
A: The offer is not valid. It may be considered as dation in payment. In this case, need of the van, he may demand its return or temporary use. d) Both Tito and
the abandonment done by the bailor was made in favor of the bailee for the Pedro shall bear equally the costs of the extraordinary expenses, having been
payment of the expenses incurred by the latter, hence, a violation of what the law incurred on the occasion of actual use of the van by Tito, the bailee, even though
has expressly prohibited under Article 1952. he acted without fault (Art. 1949(2)NCC).
Entitlement for reimbursement PRECARIUM that use of the thing has been granted subject to revocation by the
The bailee is not entitled to reimbursement for the expenses he incurred if, bailor at any time, whether or not the use for which the thing has been loaned has
for the purpose of making use and preservation of the thing, the bailee incurs been accomplished.
expenses other than those ordinary and extraordinary expenses.
SIMPLE LOAN OR MUTUUM
Q: Before he left for Riyadh to work as a mechanic, Pedro left his van with
Tito, with the understanding that the latter could use it for one year for MUTUUM
his personal or family use while Pedro works in Riyadh. He did not tell Tito
that the brakes of the van were faulty. Tito had the van tuned up and the It is a contract whereby one of the parties called the “lender” delivers to
brakes repaired. He spent a total amount of P15,000.00. After using the another called the “borrower”, money or other consumable thing subject to the
vehicle for two weeks, Tito discovered that it consumed too much fuel. To condition that the same amount of the same kind and quantity shall be paid.
make up for the expenses, he leased it to Annabelle. Two months later,
Pedro returned to the Philippines and asked Tito to return the van. Characteristics of a contract of mutuum
Unfortunately, while being driven by Tito, the van was accidentally 1. Borrower acquires ownership of the thing (Art 1953, NCC).
damaged by a cargo truck without his fault.
2. If the thing loaned is money, payment must be made in the currency which is
a. Who shall bear the P15,000.00 spent for the repair of the van? Explain. legal tender in the Philippines and in case of extraordinary deflation or inflation,
b. Who shall bear the costs for the van's fuel, oil and other materials while the basis of payment shall be the value of the currency at the time of the creation
it was with Tito? Explain. of the obligation (Art 1249 and 1250, NCC).
c. Does Pedro have the right to retrieve the van even before the lapse of
one year? Explain. 3. If fungible thing was loaned, the borrower is obliged to pay the lender another
d. Who shall bear the expenses for the accidental damage caused by the thing of the same kind, quality and quantity even if it should change in value.
Page
cargo truck, granting that the truck driver and truck owner are insolvent?
CREDIT TRANSACTIONS
Perfection of the Contract of Mutuum Q: Can estafa be committed by a person who refuses to pay his debt or
denies its existence?
Real contracts, such as deposit, pledge and commodatum, are not perfected
until the delivery of the object of the obligation (Art. 1316, NCC). While mutuum A: No, because the debtor in mutuum becomes the owner of the thing delivered
or simple loan is not mentioned, it has the same character as commodatum. Hence, to him. If he consumed or disposed of the thing, the act which is an act of ownership
mutuum is also a real contract which cannot be perfected until the delivery of the is not misappropriation. Hence, there is no basis for a criminal prosecution.
object.
An accepted promise to make a future loan is a consensual contract and Destruction of the thing loaned
therefore, binding upon the parties but it is only after delivery, will the real contract
of loan arise. Mere issuance of checks does not perfect the contract of The destruction of the thing loaned does not extinguish one’s obligation in
loan. It is only after the checks have been encashed that the contact may be a simple loan because his obligation is not to return the thing loaned but to pay a
deemed perfected. generic thing.
Consideration in a simple loan Commodatum v. Mutuum
1. As to the borrower – the acquisition of money or any other fungible thing BASIS COMMODATUM MUTUUM
Object Non-consumable Money or
2. As to the lender – the right to demand the return of the money or any other and Non- fungible consumable thing
fungible thing or its equivalent
Cause Gratuitous, otherwise it May or may not be
Object of mutuum is a lease gratuitous
Purpose Use or temporary Consumpton
Money or fungible and consumable things. possession of the thing
loaned but
Governing rules on payment of loan
GR: not its fruit because
If the object of loan is: the bailor remains the
owner
1. Money – Governed by Arts. 1249 and 1250, NCC
XPNs: use of the fruits is
GR: Payment shall be made in the currency stipulated. stipulated; enjoyment of
XPN: If not, that currency which is legal tender in the Philippines. the fruits is stipulated; or
enjoyment of the fruits is
In case of extraordinary inflation – value of the currency at the time of the creation incidental to its use
of the obligation. Loan of money can be payable in kind if there is an agreement Subject Matter Real or personal property Only personal property
between the parties
Generally non
2. Consumable or fungible thing – Debtor or borrower shall pay another thing of consumable things but
the same kind, quality and quantity even if it should change in value. If cannot be may cover consumables
done, the value of the thing at the time of its perfection (delivery) shall be the if the purpose of the
basis of the payment of the loan (Art 1955, NCC). contract is for exhibition.
Ownership of the thing Retained by the bailor Passes to the debtor
Page
CREDIT TRANSACTIONS
Thing to be returned Exact thing loaned Equal amount of the ART. 1955. The obligation of a person who borrows money shall be
same kind and quality governed by the provisions of Articles 1249 and 1250 of this Code.
Who bears risk of loss Bailor Debtor
When to return In case of urgent need Only after the expiration If what was loaned is a fungible thing other than money, the debtor
even before the of the term owes another thing of the same kind, quantity and quality, even if it should
expiration of term (the change in value. In case it is impossible to deliver the same kind, its value
contract is in the at the time of the perfection of the loan shall be paid.
meantime suspended)
Contract Contract of use Contract of consumption ART. 1956. No interest shall be due unless it has been expressly stipulated
in writing.
Mutuum vs Lease and Barter
ART. 1957. Contracts and stipulations, under any cloak or device
MUTUUM LEASE whatever, intended to circumvent the laws against usury shall be void.
Object is money or any consumable Object may be any thing, whether The borrower may recover in accordance with the laws on usury.
(fungible) thing movable or immovable, fungible or
non-fungible ART. 1958. In the determination of the interest, if it is payable in kind, its
There is transfer of ownership No transfer of ownership value shall be appraised at the current price of the products or goods at
Creditor-debtor relationship Lessor-lessee relationship the time and place of payment.
Unilateral Bilateral
ART. 1959. Without prejudice to the provisions of Article 2212, interest
due and unpaid shall not earn interest.
MUTUUM BARTER
However, the contracting parties may by stipulation capitalize the
Subject matter is money or other Subject matter are non-fungible things
interest due and unpaid, which as added principal, shall earn new interest.
fungible things
May be gratuitous or onerous Always onerous
While in mutuum, there is transfer of There is a mutual sale resulting in the
INTEREST AND THE SUSPENSION OF THE USURY LAW
ownership, there is no sale transfer of ownership on both sides
The money or consumable thing loaned The parties do not return the things ART. 1960. If the borrower pays interest when there has been no
is not returned but the same amount of subject of the exchange stipulation therefor, the provisions of this Code concerning solutio
the same kind and quantity shall be indebiti, or natural obligations, shall be applied, as the case may be.
paid.
ART. 1961. Usurious contracts shall be governed by the Usury Law and
ART. 1953. A person who receives a loan of money or any other fungible other special laws, so far as they are not inconsistent with this Code.
thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality. Interest
It is the compensation to be paid by the borrower for the use of the money
ART. 1954. A contract whereby one person transfers the ownership of non- lent to him by the lender.
fungible things to another with the obligation on the part of the latter to
give things of the same kind, quantity, and quality shall be considered a Classes of interest
barter.
1. Simple – Interest which is paid for the use of the money, at a certain rate
Page
stipulated in writing by the parties.
CREDIT TRANSACTIONS
2. Compound – Interest which is imposed upon accrued interest, that is, the A payment for unstipulated interest can be recovered if paid by mistake,
interest due and unpaid. the debtor may recover as in the case of solutio indebiti or undue payment.
However if payment is made voluntarily, no recovery can be made as in the case
3. Legal – That interest which the law directs to be paid in the absence of any of natural obligation (Art. 1960, NCC).
agreement as to the rate.
Q: Siga-an granted a loan to Villanueva in the amount of P540,000.00.
Rules on interest Such agreement was not reduced to writing. Siga-an demanded interest
which was paid by Villanueva in cash and checks. The total amount
GR: No interest shall be due unless it is stipulated in writing (Art. 1956, NCC). Villanueva paid accumulated to P1,200,000.00. Upon advice of her lawyer,
Villanueva demanded for the return of the excess amount of P660,000.00
XPN: In case of interest on damages or indemnity for damages, it need not be in which was ignored by Siga-an.
writing.
1. Is the payment of interest valid?
NOTE: Art. 1956 applies only to interest for the use of money and not to interest 2. Is solutio indebiti applicable? Explain. (2012 Bar Question)
imposed as items of damages.
A:
Basis of the right to interest 1. No. Payment of monetary interest is allowed only if:
a. There was an express stipulation for the payment of interest; and
The basis of the right to interest is it only arises by reason of the contract b. The agreement for the payment of interest was reduced in writing.
(stipulation in writing) for the use of money or by reason of delay or failure to pay
principal on which interest is demanded due to a breach of an obligation (Baretto The concurrence of the two conditions is required for the payment of
v. Santa Marina, No. 11908, Feb. 4, 1918). monetary interest. Thus, collection of interest without any stipulation therefor in
writing is prohibited by law.
If the obligation consists of the payment of a sum of money, and the debtor
incurs delay, the indemnity for damages shall be the payment of legal interest 2. Yes. The quasi-contract of solutio indebiti harks back to the ancient principle
(Philrock, Inc. v. Construction Industry Arbitration Commission, G.R. Nos. 132848- that no one shall enrich himself unjustly at the expense of another.The principle of
49, June 25, 2001) solutio indebiti applies where (1) a payment is made when there exists no binding
. relation between the payor, who has no duty to pay, and the person who received
Equitable Mortgage the payment; and (2) the payment is made through mistake, and not through
liberality or some other cause. We have held that the principle of solutio indebiti
Equitable mortgage is one which, although it lacks the proper formalities or applies in case of erroneous payment of undue interest (Siga-an v. Villanueva,
other requisites of a mortgage required by law, nevertheless reveals the intention G.R. No. 173227, Jan. 20, 2009).
of the parties to burden real property as a security for a debt, and contains nothing
impossible or contrary to law. Interest on unliquidated claims
Interest in Equitable mortgage GR: Interest may not be adjudged on unliquidated claims
There can be no interest to be collected in equitable mortgage because the XPN: Unless the same can be established with reasonable certainty (Atlantic Gulf
same is not stipulated in writing (Tan v. Valdehueza, G.R. No. L-38745, Aug. 6, and Pacific Company of Manila, Inc. v. CA, G.R. Nos. 114841-42, Aug. 23, 1995).
1975).
Recovery of unstipulated interest
Page
CREDIT TRANSACTIONS
Running of interest on unliquidated claims b. Damages arising from injury from person.
c. Loss of property which does not involve a loan.
If the interest is adjudged on unliquidated claim but the pleadings in court
did not spell out said amount with certitude, the legal interest thereon shall run 3. Interest accruing from unpaid interest (compound interest) – There must first
only from the promulgation of judgment of said court, it being at that stage that be a stipulation for payment of interest due and this shall earn interest from the
the quantification of damages may be deemed to have been reasonably ascertained time it is judicially demanded although the obligation may be silent upon this point.
(Ibid).
Forbearance
The actual base for computing legal interest shall be the amount as finally
adjudged by the Supreme Court (Ibid). Forbearance signifies the contractual obligation of the creditor to forbear
during a given period of time to require the debtor payment of an existing debt
Monetary Interest and Compensatory Interest then due and payable. Such forbearance of giving time for the payment of a debt
is, in substance, a loan (91 C.J.S. 598).
Monetary interest must be expressly stipulated in writing and it must be
lawful (Art. 1956, NCC). Compounding of interest
Governing rate of interest effective July 1, 2013 There must first be a stipulation of payment of interest and this interest
may earn interest only when it is judicially demanded, although the obligation is
The rate of interest for the loan or forbearance of any money, goods or silent upon this point (Art. 2212, NCC).
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 (BSP Circular No. Rule on compounding of interest
799, July 1, 2013).
GR: Accrued interest (interest due and unpaid) shall not earn interest.
Prospective application of BSP Circular No. 799
XPN: When:
It should be noted, nonetheless, that the new rate could only be applied 1. There is express stipulation made by the parties –that the interest due
prospectively and not retroactively. Consequently, the twelve percent (12%) per and unpaid shall be added to the principal obligation and the resulting total amount
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the shall earn interest (Art. 1959, NCC); or
new rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable (Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013). 2. Judicial demand has been made upon the borrower (Art. 2212, NCC)
NOTE: If the obligation consists in the payment of a sum of money and the debtor Governing rule on usurious transactions
incurs in delay, the debtor is liable for damages (Art. 2209, NCC).
CB Circular No. 905 has expressly removed the interest ceilings prescribed
Basis for the interest rate for compensatory interest by Usury Law, thus, the said law has become legally non-existent.
1. Central Bank Circular No. 799 – 6% per annum in cases of: NOTE: It did not repeal/amend the usury law but merely suspended its effectivity.
a. Loans
b. Forbearance of money, goods and credits
c. Judgment involving such loan or forbearance
2. Art. 2209, NCC – 6% per annum in cases of:
Page
a. Other sources (i.e. sale)
CREDIT TRANSACTIONS
Rationale behind the invalidity of unconscionable interest rate in a loan Bank of the Philippines had already suspended the Usury Law. Will the
despite the suspension of the Usury law action prosper or not? Why? (2001 Bar Question)
The Supreme Court said nothing in Circular 905 suspending Usury Law that A: The action will prosper. While it is true that the interest ceilings set by the
grants the lender the authority to raise interest rates to levels which will either Usury Law are no longer in force, it has been held that PD No. 1684 and CB Circular
enslave their borrowers or lead to a hemorraghing of their assets (Almeda v. CA, No. 905 merely allow contracting parties to stipulate freely on any adjustment in
G.R. No. 113412, Apr. 17, 1996). the interest rate on a loan or forbearance of money but do not authorize a unilateral
increase of the interest rate by one party without the other's consent (PNB v. CA,
Courts may simply reduce unreasonable interests G.R. No. 107569, Nov. 8, 1994).
In the case of Medel v. CA, G.R. No. 131622, Nov. 27, 1998, the court ruled To say otherwise will violate the principle of mutuality of contracts under
that while stipulated interest of 5.5% per month on a loan is usurious pursuant to Article 1308 of the Civil Code. To be valid, therefore, any change of interest must
CBC No. 905, the same must be equitably reduced for being iniquitous, be mutually agreed upon by the parties (Dizon v. Magsaysay, G.R. No. L-23399,
unconscionable and exorbitant. It is contrary to morals. It was reduced to 12% per May 31, 1974). In the present problem, the debtor not having given his consent to
annum in consonant with justice and fairplay. The Court had previously tagged a the increase in interest, the increase is void.
5% monthly interest rate agreed upon as “excessive, iniquitous, unconscionable
and exorbitant, contrary to morals, and the law.” We need not unsettle the principle CASES
we had affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable, and exorbitant (Arthur
F. Mechavez v. Marlyn M, Bermudez, G.R. No. 185368, Oct. 11, 2012).
People vs. Concepcion
(G.R. No. L-19190 November 29, 1922)
Floating interest
Floating interest is the interest stipulated by banks which is not fixed and FACTS: Venancio Concepcion, President of the Philippine National Bank and a
made to depend upon the prevailing market conditions, considering the fluctuating member of theBoard thereof, authorized an extension of credit in favor of "Puno y
economic conditions. Concepcion, S. en C.” to themanager of the Aparri branch of the Philippine National
Bank. "Puno y Concepcion, S. en C."was a co-partnership where Concepcion is a
partner. Subsequently, Concepcion was charged andfound guilty in the Court of
A stipulation for floating interest is not valid. A stipulation for a floating rate
of interest in a letter of credit in which there is no reference rate set either by it or First Instance of Cagayan with violation of section 35 of Act No.2747. Section 35
by the Central Bank, leaving the determination thereof to the sole will and control of Act No. 2747 provides that the National Bank shall not, directly or indirectly,
of the lender bank is invalid. While it may be acceptable for practical reasons given grant loans to any of the members of the board of directors of the bank nor to
the fluctuating economic conditions for banks to stipulate that interest rates on a agentsof the branch banks. Counsel for the defense argue that the documents of
loan not be fixed and instead be made dependent on prevailing market conditions, record do not provethat authority to make a loan was given, but only show the
there should be a reference rate upon which to peg such variable interest rates concession of a credit. They averredthat the granting of a credit to the co-
(Consolidated Bank and Trust Corp (Solid Bank v. CA, G.R. No. 114672, Apr. 19, partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the
2001). Philippine National Bank, is not a "loan" within the meaning of section 35 of Act
No. 2747.
Q: Samuel borrowed P300,000.00 housing loan from the bank at 18% per
annum interest. However, the promissory note contained a proviso that ISSUE: Whether or not the granting of a credit of P300,000 to the co-
the bank "reserves the right to increase interest within the limits allowed partnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
by law." By virtue of such proviso, over the objections of Samuel, the bank President of the Philippine National Bank, a"loan" within the meaning of
increased the interest rate periodically until it reached 48% per annum. section 35 of Act No. 2747.
Finally, Samuel filed an action questioning the right of the bank to increase
Page
the interest rate up to 48%. The bank raised the defense that the Central
CREDIT TRANSACTIONS
HELD: The Supreme Court ruled in the affirmative. The "credit" of an individual Petitioner filed a complaint in the Court of First Instance of Rizal to enjoin
means hisability to borrow money by virtue of the confidence or trust reposed by respondents PCIB and the sheriff from the proceeding with the foreclosure sale,
a lender that he will paywhat he may promise. A "loan" means the delivery by one and to ask the lower court to fix a new period for the payment of the obligations of
party and the receipt by the other party of a given sum of money, upon an petitioner to PCIB. The lower court issued an order denying the petition. The
agreement, express or implied, to repay the sum loaned,with or without interest. petitioner filed with respondent Court of Appeals a petition for certiorari with
The concession of a "credit" necessarily involves the granting of "loans"up to the application for restraining order and preliminary injunction. Hence, the petition is
limit of the amount fixed in the "credit," also denied.
Rose Packing Co. Inc. vs CA (167 SCRA 309) ISSUE: Whether or not private respondent have the right to the extra-
judicial foreclosure sale of petitioner’s mortgaged properties before trial
FACTS: This is a petition for review on certiorari of the decision of the Court of on the merits.
Appeals in CA-G.R. No. 431 98-12 promulgated on December 16, 1070.
HELD: (1)The decision of the Court of Appeals is REVERSED insofar as it sustained
On December 12, 1962 respondent bank Philippine Commercial and (a) the lower court’s denial of petitioner’s application for preliminary injunction and
Industrial Bank (PCIB) approved a letter request by petitioner for the reactivation (b) the validity of the foreclosure sale; (2) the lower court is ordered to proceed
of its overdraft line of P50,000.00, discounting line of P100,000.00 and a letter of with the trial on the merits of the main case together with a determination of
credit-trust receipt line of P550,000.00 as well as an application for loan of exactly how much are petitioner’s liabilities in favor of respondent bank PCIB so
P300,000.00 on fully secured real estate and chattel mortgage and on the further that proper measures may be taken for their eventual liquidation; (3) the
condition that respondent PCIB appoint its executive vice-president Roberto S. preliminary
Benedicto as its representative in petitioner’s board of directors.
Injunction issued by this Court on April 28, 1971 remains in force until the
On November 3, 1965 the National Investment and Development (NIDC), merits of the main case are resolved; and (4) the motion of respondent bank dated
approved a P2.6 million loan application of petitioner with certain conditions. The April 1, 1981, for leave to lease the real properties in custodia legis is denied.
NIDC released to petitioner the amount of P 100,000.00. Petitioner purchased five
(5) parcels of land in Pasig, Rizal making down payment thereon. The loans of petitioner corporation from respondent bank were supposed to
become due only at the time that if receives from the NIDC and PDCP the proceeds
August 3, 1966 and October 5,, 1966, respondent PCIB approved additional of the approved scheme. As it is, the conditions did not happen.
accommodations to petitioner consisting of P 710,000.00 loan for the payment of
the balance of the purchase price of those lots in Pasig. However, PCIB released For an obligation to become due there must generally a demand. Default
only P 300,000.00 of the P 710,000.00 on approved loan for the payment of the generally begins from the moment the creditor demands the performance of the
Pasig lands and some P 300, 000.00 for operating capital. obligation. Without such demand, judicial or extra-judicial, the effects of default
will not arise.
On June 29 1967, the Development Bank of the Philippines approved on
application by petitioner for a loan of P 1,840,000.00 and a guarantee for $
652,682.00 for the purchase of can making equipment. Petitioner advised BPI Investment Corp. vs. Court of Appeals, 377 SCRA 117
respondent PCIB of the availability of P 800,000.00 to partially pay off its account
and requested the release of the titles to the Pasig lots for delivery to the DBP. FACTS: Frank Roa obtained a loan from Ayala Investment and Development
Corporation (AIDC), for the construction of his house. Said house and lot were
On January 5, 1968 respondent PCIB filed a complaint against petitioner mortgaged to AIDC to secure the loan. Roa sold the properties to ALS and Litonjua,
and Rene Knecht, its president for the collection of petitioner’s indebtedness to the latter paid in cash and assumed the balance of Roa’s indebtedness wit AIDC.
respondent bank. The PCIB gave petitioner notice that it would cause the real AIDC was not willing to extend the old interest to private respondents and proposed
estate mortgage to be foreclosed at an auction sale. a grant of new loan of P500,000 with higher interest to be applied to Roa’s debt,
Page
secured by the same property. Private respondents executed a mortgage deed
CREDIT TRANSACTIONS
containing the stipulation. The loan contract was signed on 31 March 1981 and was 8. Trial court found Tolentino’s petition unmeritorious.
perfected on 13 September 1982, when the full loan was released to private 9. CA affirmed dismissal of Tolentino’s petition for specific performance, but it ruled
respondents. that the bank can neither foreclose the real estate mortgage nor collect the P17K
loan.
BPIIC, AIDC’s predecessor, released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roa’s loan. BPIIC ISSUES
filed for foreclosure proceedings on the ground that private respondents failed to 1. WON Tolentino’s action for specific performance can prosper
pay the mortgage indebtedness. Private respondents maintained that they should 2. WON Tolentino is liable to pay the P17K covered by the promissory
not be made to pay amortization before the actual release of the P500,000 loan. note
The suit was dismissed and affirmed by the CA. 3. If liable to pay P17K, WON Tolentino’s real estate mortgage can be
foreclosed
ISSUE: Whether or not a contract of loan is a consensual contract.
HELD
HELD: The Court held in the negative. A loan contract is not a consensual contract 1. NO. The loan agreement implied reciprocal obligations. When one party is willing
but a real contract. It is perfected only upon delivery of the object of the contract. and ready to perform, the other party not ready nor willing incurs in delay. When
A contract o loan involves a reciprocal obligation, wherein the obligation or promise Tolentino executed real estate mortgage, he signified willingness to pay. That time,
of each party is the consideration for that of the other; it is a basic principle in the bank’s obligation to furnish the P80K loan accrued. Now, the Central Bank
reciprocal obligations that neither party incurs in delay, if the other does not comply resolution made it impossible for the bank to furnish the P63K balance. Insolvency
or is not ready to comply is a proper manner with what is incumbent upon him of debtor is not an excuse for non-fulfillment of obligation but is a breach of
contract. The bank’s asking for advance interest for the loan is improper
Central Bank of the Philippines vs. CA (139 SCRA 46) considering that the total loan hasn’t been released. A person can’t be charged
interest for non-existing debt. The bank was in default and Tolentino may choose
FACTS bet specific performance or rescission w/ damages in either case. But considering
1. Island Savings Bank approved the loan application for P80K of Sulpicio Tolentino that the bank is now prohibited from doing business, specific performance cannot
who executed a real estate mortgage over his 100 hectare land. be granted. Rescission is the only remedy left, but the rescission should only be for
2. The loan called for a lump sum of P80K, repayable in semi-annual installments the P63K balance.
for 3 yrs, w/ 12% annual interest. It was required that Tolentino shall use the loan
solely as additional capital to develop his other property into a subdivision. 2. YES. The promissory note gave rise to this liability. His failure to pay made him
3. A mere P17K partial release of the loan was made by the bank and Tolentino party in default, hence, not entitled to rescission. This time, it is the bank which
and his wife signed a promissory note for the P17K at 12% annual interest payable has right to rescind the promissory note. Since both Tolentino and the bank are in
w/in 3 yrs. An advance interest was deducted from the partial release but this pre- default, both are liable for damages. Liability may be offset.
deducted interest was refunded to Tolentino after being informed that there was
no fund yet for the release of the P63K balance. 3. NO. Since the bank failed to furnish the balance, the real estate mortgage
4. The bank VP and Treasurer promised release of the balance. became unenforceable to such extent.
5. Monetary Board of Central Bank, after finding that bank was suffering liquidity
problems, prohibited the bank fr making new loans and investments. And after the Bonnevie vs. CA (125 SCRA 122)
bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank
fr doing business in the Philippines. FACTS:
6. Island Savings Bank in view of the non-payment of the P17K filed an application - Spouses Lozano execute a mortgage contract in favor of Philippine Bank of
for foreclosure of the real estate mortgage. Commerce for an amount of 75,000.
7. Tolentino filed petition for specific performance or rescission and damages w/ - Dec, 8 they executed a deed of sale with assumption f mortgage in favor of
preliminary injunction, alleging that since the bank failed to deliver P63K, he is Honesto Bonnevie in the amount of 100,000. 25K payable upon execution of
Page
entitled to specific performance and if not, to rescind the real estate mortgage. document. 75,000 payable to defendant-appellee (bank)
CREDIT TRANSACTIONS
- Although the mortgage was executed in Dec. 6, 1966, the amount of the loan They are, therefore, estopped from impugning its validity whether on the original
was only received on Dec. 12. loan or renewals thereof.
- April 28, 1967 – July 12, 1968 Bonnevie made several payments to the mortgage
- May 4, 1968 Honesto assigned all his rights to his brother Raoul Bonnevie. Collateral issues:
- June 1968 bank sought to foreclose the property extra judicially Publication : It was met and the newspaper was proven to be of general
- Bank was able to purchase the property through the public auction in the amount circulation in the locality of Rizal
of 84,387.00
- Petitioners sought to redeem the property but failed. As to personal notice: Bank was not a party to the deed of sale hence it did not
- Petitioners caused an adverse claim to be annotated on the title of the property. know of the transfer. Hence the bank had an excuse for not notifying them
- Petitioners contend that the mortgage is invalid for lack of cause or consideration. personally.
A mortgage being an accessory contract should have a valid principal contract.
As to right to redeem: No right to redeem because they were not substituted as
ISSUE: debtors because they did not secure the consent of the bank. Their rights were
1. Whether or not the real estate mortgage executed by the spouses never recorded and hence, respondent Bank is charged with the obligation to
Lozano in favor of respondent bank was validly and legally executed. recognize the right of redemption only of the Lozano spouses. Even assuming they
had the right to redeem, the one year period had already lapsed.
HELD: YES. The mortgage executed is perfectly valid. From the recitals of the
mortgage deed itself, it is clearly seen that the mortgage deed was executed for Pajuyo vs. CA (430 SCRA 492)
and on condition of the loan granted to the Lozano spouses. The fact that the latter
did not collect from the respondent Bank the consideration of the mortgage on the Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should
date it was executed is immaterial. A contract of loan being a consensual contract, return the same upon demand and with the condition that Guevara should be
the herein contract of loan was perfected at the same time the contract of mortgage responsible of the maintenance of the property. Upon demand Guevara refused to
was executed. The promissory note executed on December 12, 1966 is only an return the property to Pajuyo. The petitioner then filed an ejectment case against
evidence of indebtedness and does not indicate lack of consideration of the Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA,
mortgage at the time of its execution. the appellate court reversed the judgment of the lower court on the ground that
both parties are illegal settlers on the property thus have no legal right so that the
Regarding the argument that the subsequent renewal were void because Court should leave the present situation with respect to possession of the property
the property were already sold to Bonnevie, the Supreme Court held that This as it is, and ruling further that the contractual relationship of Pajuyo and
argument failed to consider the provision 2 of the contract of mortgage which Guevara was that of a commodatum.
prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee, as well as the additional Issue: Is the contractual relationship of Pajuyo and Guevara that of a
proviso that if in spite of said stipulation, the mortgaged property is sold, the commodatum?
vendee shall assume the mortgage in the terms and conditions under which it is
constituted. Held: No. The Court of Appeals’ theory that the Kasunduan is one of commodatum
is devoid of merit. In a contract of commodatum, one of the parties delivers to
These provisions are expressly made part and parcel of the Deed of Sale another something not consumable so that the latter may use the same for a
with Assumption of Mortgage. Petitioners admit that they did not secure the certain time and return it. An essential feature of commodatum is that it is
consent of the bank coupled with the fact that the sale/assignment was not gratuitous. Another feature of commodatum is that the use of the thing belonging
registered so that the title remained in the name of the Lozano spouses, insofar as to another is for a certain period. Thus, the bailor cannot demand the return of the
respondent Bank was concerned, the Lozano spouses could rightfully and validly thing loaned until after expiration of the period stipulated, or after accomplishment
mortgage the property. Also it can be said that petitioners voluntarily assumed the of the use for which the commodatum is constituted. If the bailor should have
mortgage when they entered into the Deed of Sale with Assumption of Mortgage. urgent need of the thing, he may demand its return for temporary use. If the use
Page
of the thing is merely tolerated by the bailor, he can demand the return of the thing
CREDIT TRANSACTIONS
at will, in which case the contractual relation is called a precarium. Under the Civil (3)WON Producer’s Bank is solidarily liable to Vives, considering that
Code, precarium is a kind of commodatum. The Kasunduan reveals that the it was not privy to the transaction between Vives and Doronilla. YES.
accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous.
While the Kasunduan did not require Guevarra to pay rent, it obligated him to Held/Ratio:
maintain the property in good condition. The imposition of this obligation makes (1) The transaction is a commodatum.
the Kasunduan a contract different from a commodatum. The effects of the  CC 1933 (the provision distinguishing between the two kinds of loans) seem
Kasunduan are also different from that of a commodatum. Case law on ejectment to imply that if the subject of the contract is a consummable thing, such as
has treated relationship based on tolerance as one that is akin to a landlord-tenant money, the contract would be a mutuum. However, there are instances
relationship where the withdrawal of permission would result in the termination of when a commodatum may have for its object a consummable thing. Such
the lease. The tenant’s withholding of the property would then be unlawful. can be found in CC 1936 which states that “consummable goods may be
the subject of commodatum if the purpose of the contract is not the
Producers Bank of the Philippines vs. CA (397 SCRA 651) consumption of the object, as when it is merely for exhibition”. In this case,
the intention of the parties was merely for exhibition. Vives agreed to
Facts: deposit his money in Strela’s account specifically for purpose of making it
 Vives (will be the creditor in this case) was asked by his friend Sanchez to appear that Streal had sufficient capitalization for incorporation, with the
help the latter’s friend, Doronilla (will be the debtor in this case) in promise that the amount should be returned withing 30 days.
incorporating Doronilla’s business “Strela”. This “help” basically involved
Vives depositing a certain amount of money in Strela’s bank account for (2) CC 1935 states that “the bailee in commodatum acquires the use of the thing
purposes of incorporation (rationale: Doronilla had to show that he had loaned but not its fruits”. In this case, the additional P 12,000 corresponds to
sufficient funds for incorporation). This amount shall later be returned to the fruits of the lending of the P 200,000.
Vives.
 Relying on the assurances and representations of Sanchez and Doronilla, (3) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on
Vives issued a check of P200,00 in favor of Strela and deposited the same the account of Strela despite the rule written in the passbook that neither a
into Strela’s newly-opened bank account (the passbook was given to the deposit, nor a withdrawal will be permitted except upon the production of the
wife of Vives and the passbook had an instruction that no passbook (recall in this case that the passbook was in the possession of the
withdrawals/deposits will be allowed unless the passbook is presented). wife of Vives all along). Hence, this only proves to show that Atienza allowed
 Later on, Vives learned that Strela was no longer holding office in the the withdrawals because he was party to Doronilla’s scheme of defrauding
address previously given to him. He later found out that the funds had Vives. By virtue of CC 2180, PNB, as employer, is held primarily and solidarily
already been withdrawn leaving only a balance of P90,000. The Vives liable for damages caused by their employees acting within the scope of their
spouses tried to withdraw the amount, but it was unable to since the assigned tasks. Atienza’s acts, in helpong Doronilla, a customer of the bank,
balance had to answer for certain postdated checks issued by Doronilla. were obviously done in furtherance of the business of the bank, even though
 Doronilla made various tenders of check in favor of Vives in order to pay in the process, Atienza violated some rules.
his debt. All of which were dishonored.
 Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez,
Dumagpi and Producer’s Bank. Quintos and Ansaldo vs. Beck (69 Phil. 108)
 TC & CA: ruled in favor of Vives.
FACTS: Quintos and Beck entered into a contract of lease, whereby the latter
Issue/s: occupied the former’s house. On Jan 14 1936, the contract of lease was novated,
(1)WON the transaction is a commodatum or a mutuum. wherein the Quintos gratuitously granted the Beck the use of furniture, subject to
COMMODATUM. the condition that Beck should return the furnitures to Quintos upon demand.
(2) WON the fact that there is an additional P 12,000 (allegedly Thereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was notified
representing interest) in the amount to be returned to Vives of the conveyance and given him 60 days to vacate the premises. In addition,
Page
converts the transaction from commodatum to mutuum. NO. Quintos required Beck to return all the furniture. Beck refused to return 3 gas
CREDIT TRANSACTIONS
heaters and 4 electric lamps since he would use them until the lease was due to On 14 January 1983, petitioner presented both travel orders for liquidation,
expire. Quintos refused to get the furniture since Beck had declined to return all of submitting Travel Expense Reports to the Accounting Section. When the Travel
them. Beck deposited all the furnitures belonging to Quintos to the sheriff. Expense Reports were audited, it was discovered that there was an overlap of four
(4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner
ISSUE: WON Beck complied with his obligation of returning the collected per diems twice. In sum, the total amount in the form of per diems and
furnitures to Quintos when he deposited the furnitures to the sheriff allowances charged and collected by petitioner under Travel Order No. 2222, when
he did not actually and physically travel as represented by his liquidation papers,
HELD: The contract entered between the parties is one of commodatum, because was P1,230.00.
under it the plaintiff gratuitously granted the use of the furniture to the defendant,
reserving for herself the ownership thereof; by this contract, the defendant bound Petitioner was required to comment on the internal auditor's report regarding the
himself to return the furniture to the plaintiff, upon the latter’s demand. The alleged anomalous claim for per diems. In his reply, petitioner denied the alleged
obligation voluntarily assumed by the defendant to return the furniture upon the anomaly, claiming that he made make-up trips to compensate for the trips he failed
plaintiff’s demand, means that he should return all of them to the plaintiff at the to undertake under T.O. 2222 because he was recalled to the head office and given
latter’s residence or house. The defendant did not comply with this obligation when another assignment.
he merely placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four electric lamps. In September 1983, two (2) complaints for Estafa were filed against the petitioner
before the Municipal Circuit Trial Court at Guimbal, Iloilo.
As the defendant had voluntarily undertaken to return all the furniture to
the plaintiff, upon the latter’s demand, the Court couldnot legally compel her to ISSUE:
bear the expenses occasioned by the deposit of the furniture at the defendant’s Whether or not petitioner can be held criminally liable on the ground of
best. The latter, as bailee, was not entitled to place the furniture on deposit; nor failure to liquidate her traveling expenses. NO.
was the plaintiff under a duty to accept the offer to return the furniture, because
the defendant wanted to retain the three gas heaters and the four electric lamps. RULING: It is undisputed that petitioner received a cash advance from private
respondent SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise
Yong Chan Kim vs. People of the Philippines (193 SCRA 344) admitted that within the period covered by T.O. 2222, petitioner was recalled to
the head station in Iloilo and given another assignment which was covered by T.O.
FACTS: Petitioner Yong Chan Kim was employed as a Researcher at the 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out
Aquaculture Department of the Southeast Asian Fisheries Development Center of the cash advance which he received under T.O. 2222. For the alleged failure of
(SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the petitioner to return the amount of P1,230.00, he was charged with the crime of
Economics Unit of the Research Division, he conducted prawn surveys which Estafa under Article 315, par. 1(b) of the Revised Penal Code.
required him to travel to various selected provinces in the country where there are
potentials for prawn culture. In order that a person can be convicted under the above-quoted provision,
it must be proven that he had the obligation to deliver or return the same money,
On 15 June 1982, petitioner was issued Travel Order No. 2222 which good or personal property that he had received. Was petitioner under obligation to
covered his travels to different places in Luzon from 16 June to 21 July 1982, a return the same money (cash advance) which he had received? We believe not.
period of thirty five (35) days. Under this travel order, he received P6,438.00 as
cash advance to defray his travel expenses. Liquidation simply means the settling of indebtedness. An employee, such
as herein petitioner, who liquidates a cash advance is in fact paying back his debt
Within the same period, petitioner was issued another travel order, T.O. in the form of a loan of money advanced to him by his employer, as per diems and
2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas allowances.
City from 30 June to 4 July 1982, a period of five (5) days. For this travel order,
petitioner received a cash advance of P495.00. Similarly, as stated in the assailed decision of the lower court, "if the amount
Page
of the cash advance he received is less than the amount he spent for actual travel
CREDIT TRANSACTIONS
. . . he has the right to demand reimbursement from his employer the amount he Consolidated Bank and Trust Corporation vs Court of Appeals
spent coming from his personal funds. (356 SCRA 671)
In other words, the money advanced by either party is actually a loan to
FACTS: L.C. Diaz and Company (LC Diaz), an accounting firm, has a savings
the other. Hence, petitioner was under no legal obligation to return the same cash account with Consolidated Bank and Trust Corporation (now called Solidbank
or money, i.e., the bills or coins, which he received from the private respondent. Corporation).
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. On August 14, 1991, the firm’s messenger, a certain Ismael Calapre,
deposited an amount with the bank but due to a long line and the fact that he still
Art. 1933. By the contract of loan, one of the parties delivers to another, either needs to deposit a certain amount in another bank, the messenger left the firm’s
something not consumable so that the latter may use the same for a certain time passbook with a teller of Solidbank. But when the messenger returned, the
and return it, in which case the contract is called a commodatum; or money or passbook is already missing. Apparently, the teller returned the passbook to
other consumable thing, upon the condition that the same amount of the same someone else.
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum. On August 15, 1991, LC Diaz made a formal request ordering Solidbank not
to honor any transaction concerning their account with them until the firm is able
Commodatum is essentially gratuitous. to acquire a new passbook. It appears however that in the afternoon of August 14,
1991, the amount of P300,000.00 was already withdrawn from the firm’s account.
Simple loan may be gratuitous or with a stipulation to pay interest. LC Diaz demanded Solidbank to refund the said amount which the bank refused.
LC Diaz then sued Solidbank.
In co\mmodatum the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower. In its defense, Solidbank contends that under their banking rules, they are
authorized to honor withdrawals if presented with the passbook; that when the
Art. 1953.— A person who receives a loan of money or any other fungible thing P300k was withdrawn, the passbook was presented. Further, the withdrawer
acquires the ownership thereof, and is bound to pay to the creditor an equal presented a withdrawal slip which bore the signatures of the representatives of LC
amount of the same kind and quality.
Diaz.
The ruling of the trial judge that ownership of the cash advanced to the The RTC ruled in favor of Solidbank. It found LC Diaz to be negligent in
petitioner by private respondent was not transferred to the latter is erroneous. handling its passbook. The loss of the P300k was not the result of Solidbank’s
Ownership of the money was transferred to the petitioner. negligence.
Since ownership of the money (cash advance) was transferred to petitioner, On appeal, the Court of Appeals reversed the decision of the RTC. The CA
no fiduciary relationship was created. Absent this fiduciary relationship between used the rules on quasi-delict (Article 2176 of the Civil Code).
petitioner and private respondent, which is an essential element of the crime of
estafa by misappropriation or conversion, petitioner could not have committed
estafa. ISSUE: Whether or not the relations between Solidbank and LC Diaz, the
depositor, is governed by quasi-delict in determining the liability of
Additionally, it has been the policy of private respondent that all cash Solidbank.
advances not liquidated are to be deducted correspondingly from the salary of the
employee concerned. The evidence shows that the corresponding salary deduction HELD: No. Solidbank is liable for the loss of the P300k but it’s liability is grounded
was made in the case of petitioner vis-a-vis the cash advance in question. on culpa contractual.
Page
CREDIT TRANSACTIONS
The contract between the bank and its depositor is governed by the Colinares vs. Court of Appeals (339 SCRA 609)
provisions of the Civil Code on simple loan (Article 1980, Civil Code). There is a
debtor-creditor relationship between the bank and its depositor. The bank is the FACTS: In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted
debtor and the depositor is the creditor. The depositor lends the bank money and by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's convent at
the bank agrees to pay the depositor on demand. The savings deposit agreement Camaman-an, Cagayan de Oro City. On 30 October 1979, petitioners obtained
between the bank and the depositor is the contract that determines the rights and various construction materials from CM Builders Centre for the said project. The
obligations of the parties. following day, petitioners applied for a commercial letter of credit with the
Philippine Banking Corporation (PBC), Cagayan de Oro City Branch in favor of CM
Under their contract, it is the duty of LC Diaz to secure its passbook. Builders Centre. PBC approved the letter of credit to cover the full invoice value of
However, this duty is also applicable to Solidbank when it gains possession of said the goods. Petitioners signed the pro-forma trust receipt as security. The said loan
passbook which it did when the messenger left it to the bank’s possession through was due on 29 January 1980. However, petitioners failed to pay the whole amount
the bank’s teller. The act of the teller returning the passbook to someone else other on its due date. Several demand letters were sent to them. Petitioners proposed
than Calapre, the firm’s authorized messenger, is a clear breach of contract. Such that the terms of payment of the loan shall be modified. Pending approval of the
negligence binds the bank under the principle of respondeat superior or command said proposal, petitioners paid some amounts. Concurrently with the separate
responsibility. demand for attorney's fees by PBC's legal counsel, PBC continued to demand
payment of the balance. On 14 January 1983, petitioners were charged with
No contract of trust between bank and depositor violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the
Revised Penal Code.
The Supreme Court emphasized that the contractual relation between the
bank and the depositor is that of a simple loan. This is despite the wording of During trial, petitioners insisted that the transaction was that of an ordinary
Section 2 of Republic Act 8791 (The General Banking Law of 2000) which states loan. Subsequently, the trial court convicted the petitioners for the offense
that the State recognizes the “fiduciary nature of banking that requires high charged.
standards of integrity and performance.” That “the bank is under obligation to treat
the accounts of its depositors with meticulous care, always having in mind the On appeal, the Court of Appeals affirmed the conviction of petitioners and
fiduciary nature of their relationship.” increased the penalty imposed.
This fiduciary relationship means that the bank’s obligation to observe “high ISSUE: WON the true nature of the contract was an ordinary loan or a trust
standards of integrity and performance” is deemed written into every deposit receipt agreement.
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father RULING: The transaction was an ordinary loan.
of a family. Petitioners received the merchandise from CM Builders Centre on 30
October 1979. On that day, ownership over the merchandise was already
However, the fiduciary nature of a bank-depositor relationship does not transferred to Petitioners who were to use the materials for their construction
convert the contract between the bank and its depositors from a simple loan to a project. It was only a day later, 31 October 1979, that they went to the bank to
trust agreement, whether express or implied. Failure by the bank to pay the apply for a loan to pay for the merchandise.
depositor is failure to pay a simple loan, and not a breach of trust.
This situation belies what normally obtains in a pure trust receipt transaction
In short, the General Banking Act simply imposes on the bank a higher where goods are owned by the bank and only released to the importer in trust
standard of integrity and performance in complying with its obligations under the subsequent to the grant of the loan. The bank acquires a "security interest" in the
contract of simple loan, beyond those required of non-bank debtors under a similar goods as holder of a security title for the advances it had made to the entrustee.
contract of simple loan. The General Banking Law in no way modified Article 1980
of the Civil Code. The ownership of the merchandise continues to be vested in the person who
Page
had advanced payment until he has been paid in full, or if the merchandise has
CREDIT TRANSACTIONS
already been sold, the proceeds of the sale should be turned over to him by the 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks
importer or by his representative or successor-in-interest. To secure that the bank and similar institutions shall be governed by the provisions concerning simple
shall be paid, it takes full title to the goods at the very beginning and continues to loans."
hold that title as his indispensable security until the goods are sold and the vendee
is called upon to pay for them; hence, the importer has never owned the goods Corollary thereto, Article 1953 of the same Code provides that "a person
and is not able to deliver possession. In a certain manner, trust receipts partake who receives a loan of money or any other fungible thing acquires the ownership
of the nature of a conditional sale where the importer becomes absolute owner of thereof, and is bound to pay to the creditor an equal amount of the same kind and
the imported merchandise as soon as he has paid its price. quality." Thus, it posits that the depositors who place their money with the bank
are considered creditors of the bank. The bank acquires ownership of the money
People vs. Puig (563 SCRA 564) deposited by its clients, making the money taken by respondents as belonging to
the bank.
Summary:
Depositors who place their money with the bank are considered creditors of Issue: Whether or not the Bank acquired ownership of the money
the bank. The bank acquires ownership of the money deposited by its clients, deposited in it to be able to hold the respondents liable for qualified theft
making the money taken by respondents as belonging to the bank. which requires that there must be taking of the money without the consent
of the owners.
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 Held: The petition is meritorious. Banks where monies are deposited, are
pointed out by petitioner, provide as follows: considered the owners thereof. This is very clear not only from the express
provisions of the law, but from established jurisprudence. The relationship between
Article 1953. A person who receives a loan of money or any other fungible banks and depositors has been held to be that of creditor and debtor. Articles 1953
thing acquires the ownership thereof, and is bound to pay to the creditor an equal and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide
amount of the same kind and quality. as follows:
Article 1980. (supra)  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
In summary, the Bank acquires ownership of the money deposited by its amount of the same kind and quality.
clients; and the employees of the Bank, who are entrusted with the possession of  Article 1980. Fixed, savings, and current deposits of money in banks and similar
money of the Bank due to the confidence reposed in them, occupy positions of institutions shall be governed by the provisions concerning loan.
confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft. In a long line of cases involving Qualified Theft, the Court has firmly
established the nature of possession by the Bank of the money deposits therein,
and the duties being performed by its employees who have custody of the money
Facts: On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before or have come into possession of it. The Court has consistently considered the
RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita allegations in the Information that such employees acted with grave abuse of
Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, confidence, to the damage and prejudice of the Bank, without particularly referring
respectively, of private complainant Rural Bank of Pototan, Inc. It was alleged in to it as owner of the money deposits, as sufficient to make out a case of Qualified
the information that Teresita Puig and Romeo Porras took away P15,000 without Theft. In summary, the Bank acquires ownership of the money deposited by its
the consent of the owner Bank to the prejudice and damage of the bank. The RTC clients; and the employees of the Bank, who are entrusted with the possession of
dismissed the case for insufficiency of the information ruling that the real parties money of the Bank due to the confidence reposed in them, occupy positions of
in interest are the depositors-clients and not the bank because the bank does not confidence. The informations, therefore, sufficiently allege all the essential
acquire ownership of the money deposited in it. Hence petitioner Rural Bank went elements constituting the crime of Qualified Theft.
Page
directly to the court via petition for certiorari. Petitioner explains that under Article
CREDIT TRANSACTIONS
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby 15, 1990 that Franco was impleaded in the Makati case. Immediately, upon receipt
GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC
dismissing Criminal cases No. 05-3054 to 05-3165 are REVERSED and SET granted on May 16, 1990.
ASIDE.
With respect to Francos savings account, it appears that Franco agreed to
BPI Family Bank vs. Franco (538 SCRA 184) an arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings
account was temporarily transferred to Domingo Quiaoits savings account, subject
FACTS: On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) to its immediate return upon issuance of a certificate of deposit which Quiaoit
opened a savings and current account with BPI-FB. needed in connection with his visa application at the Taiwan Embassy. As part of
the arrangement, Sebastian retained custody of Quiaoits savings account passbook
On August 25, 1989, First Metro Investment Corporation (FMIC) also to ensure that no withdrawal would be effected therefrom, and to preserve Francos
opened a time deposit account with the same branch of BPI-FB with a deposit of deposits.
P100M, to mature one year thence.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB
On August 31, 1989, Franco opened three accounts, namely, a current, deducted the amount of P63,189.00 from the remaining balance of the time deposit
savings, and time deposit, with BPI-FB. The total amount of P2M used to open account representing advance interest paid to him.
these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of Francos introduction of Eladio Teves, The total amount of P2M Consequently, in light of BPI-FBs refusal to heed Francos demands to
used to open these accounts is traceable to a check issued by Tevesteco allegedly unfreeze his accounts and release his deposits therein, the latter filed on June 4,
in consideration of Francos introduction of Eladio Teves, who was looking for a 1990 with the Manila RTC the subject suit.
conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian,
who was then BPI-FB SFDMs Branch Manager. The funding for the P2M check was ISSUE: WON Franco had a better right to the deposits in the subject
part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account accounts which are part of the proceeds of a forged Authority to Debit.
and credited to Tevestecos current account pursuant to an Authority to Debit
purportedly signed by FMICs officers. HELD: YES. There is no doubt that BPI-FB owns the deposited monies in the
accounts of Franco, but not as a legal consequence of its unauthorized transfer of
It appears, however, that the signatures of FMICs officers on the Authority FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit
to Debit were forged. On September 4, 1989, Antonio Ong, upon being shown the of money in banks is governed by the Civil Code provisions on simple loan or
Authority to Debit, personally declared his signature therein to be a forgery. mutuum. As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Francos deposits, but such
Tevetesco already effected several withdrawals from its current account ownership is coupled with a corresponding obligation to pay him an equal amount
amounting to P37,455,410.54 including the P2M paid to respondent Franco. on demand. Although BPI-FB owns the deposits in Francos accounts, it cannot
prevent him from demanding payment of BPI-FBs obligation by drawing checks
On September 8, 1989, BPI-FB, instructed Jesus Arangorin to debit Francos against his current account, or asking for the release of the funds in his savings
savings and current accounts for the amounts remaining therein. However, Francos account. Thus, when Franco issued checks drawn against his current account, he
time deposit account could not be debited due to the capacity limitations of BPI- had every right as creditor to expect that those checks would be honored by BPI-
FBs computer. Two checks drawn by Franco against his BPI-FB current account FB as debtor.
were dishonored upon presentment for payment, and stamped with a notation
account under garnishment. Notably, the dishonored checks were issued by Franco More importantly, BPI-FB does not have a unilateral right to freeze the
and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts of Franco based on its mere suspicion that the funds therein were
accounts were under garnishment. In fact, at the time the Notice of Garnishment proceeds of the multi-million peso scam Franco was allegedly involved in. To grant
dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded BPI-FB, or any bank for that matter, the right to take whatever action it pleases
Page
in the Makati case where the writ of attachment was issued. It was only on May
CREDIT TRANSACTIONS
on deposits which it supposes are derived from shady transactions, would open the remedy as impoverished individuals. The heirs of the victim in the traffic accident
floodgates of public distrust in the banking industry. chose not to appeal in the hope that the transportation company will pay the
damages awarded by the lower court but unfortunately said company still appealed
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty to the Court of Appeals, which step was obviously dilatory and oppressive of the
bound to know the signatures of its customers. Having failed to detect the forgery rights of the said claimants: that the case had been pending in court for about 30
in the Authority to Debit and in the process inadvertently facilitate the FMIC- years from the date of the accident in 1958 so that as an exception to the general
Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the rule aforestated, the said heirs who did not appeal the judgment, should be
other payees of checks issued by Tevesteco, or prevent withdrawals from their afforded equitable relief by the courts as it must be vigilant for their protection.
respective accounts without the appropriate court writ or a favorable final The claim for legal interest and increase in the indemnity should be entertained in
judgment. spite of the failure of the claimants to appeal the judgment.
De Lima vs. Laguna Tayabas Co. (160 SCRA 70) 2. Yes. Civil indemnity for the death of Petra de la Cruz was properly awarded
caused by the breach of contract by a common carrier. If the transportation
FACTS: On June 3, 1958, an accident between a Laguna Tayabas Co. (LTB) bus company had only accepted the judgment of the trial court and paid its just awards
and Seven-up Bottlers Co. delivery truck resulted to the death of an LTB passenger instead of appealing the same to the Court of Appeals, no further delay would have
named Petra dela Cruz. Two other LTB passengers namely Eladia de Lima and been occasioned on the simple issue of interest and indemnity. To mitigate the
Nemesio Flores also incurred physical injuries. De Lima, Flores and the Potenciano impact of such a great delay in this case the Court finds ample justification in the
Requijo, heir of dela Cruz, filed suits to the bus company. aforesaid award for interest and indemnity. In accordance with prevailing
jurisprudence the indemnity of P3,000.00 should be increased to P30,000.00 and
On December 29, 1971, petitioners filed a motion with CA for an immediate not P12,000.00 as prayed for by petitioner.
decision of the case with a prayer for the granting of legal interest from the date
of the decision of the court. By January 31, 1972, the decision was given. Phil. Airlines vs. Court of Appeals (275 SCRA 621)
Petitioners moved for a reconsideration of this decision seeking its modification so
that the legal interest awarded by the Appellate, Court will start to run from the FACTS: On October 23, 1988, Leovegildo Pantejo, then City Fiscal of Surigao City,
date of the decision of the trial court on December 27, 1963 instead of January 31, boarded a PAL plane in Manila and disembarked in Cebu City where he was
1972, the date of the decision of the Court of Appeals. Petitioner Requijo sought supposed to take his connecting flight to Surigao City. However, due to typhoon
an increase in the civil indemnity of P3,000.00 to P 12,000.00. Osang, the connecting flight to Surigao City was cancelled. PAL initially gave out
cash assistance of P100 and, the next day, P200 for their expected stay of two
The appellate court turned down the motion for reconsideration of the days in Cebu. Pantejo requested instead that he be accommodated in a hotel at
plaintiffs indicating that an appeal should have been filed for the awarding of the the expense of PAL as he did not have cash with him at that time but PAL refused.
legal interest. Fortunately, Pantejo was accommodated by Andoni Dumlao and he shared a room
with the latter at Sky View Hotel with the promise to pay his share of the expenses
ISSUE: upon reaching Surigao. When the flight for Surigao was resumed, Pantejo was
informed that the hotel expenses of his co-passengers were reimbursed by PAL. At
1. WON the granting legal interest on damages to start from the date of this point, Pantejo informed the Manager for Departure Services of PAL at Mactan
the trial court’s decision. Airport that he was going to sue the airline for discriminating against him. The
2. WON CA erred in not increasing the indemnity for the death of Petra manager offered to pay Pantejo P300 which the latter declined. Pantejo filed a suit
de La Cruz from P3,000 to P12,000.00. for damages against PAL in the Regional Trial Court of Surigao City. Said court
rendered judgment in favor of Pantejo, ordering PAL to pay Pantejo P300 for actual
HELD: damages, P150,000 as moral damages, P100,000 as exemplary damages, P15,000
as attorney's fees, and 6% interest from the time of the filing of the complaint until
1. Yes. The court granted the petition noting that the plaintiffs were unable to make said amounts shall have been fully paid, plus costs of suit. On appeal, CA affirmed
Page
an appeal in the lower court due to the fact that the petitioners are seeking judicial
CREDIT TRANSACTIONS
the decision, but with the exclusion of the award of attorney's fees and litigation entitled the passenger to the award of moral damages. Under the peculiar
expenses. Hence, this petition. circumstances of this case, the awards for actual, moral and exemplary damages
granted in the judgment of CA were just and equitable.
ISSUE:
1. Whether or not PAL was liable for damages. 2. YES. The Court agreed with the contention that the interest of 6%
2. Whether or not the interest of 6% imposed should be computed imposed by respondent court should be computed from the date of rendition of
from the date of rendition of judgment and not from the filing judgment and not from the filing of the complaint. The rule has been laid down
of the complaint. in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al. 14 that:
HELD: When an obligation, not constituting a loan or forbearance of money, is

1. YES. A contract to transport passengers is quite different in kind and breached, an interest on the amount of damages awarded may be imposed at the
degree from any other contractual relation because of the relation which an air discretion of the court at the rate of 6% per annum. No interest, however, shall be
carrier sustains with the public. Its business is mainly with the travelling public. It adjudged on unliquidated claims or damages except when or until the demand can
invites people to avail of the comforts and advantages it offers. The contract of air be established with reasonable certainty. Accordingly, where the demand is
carriage, therefore, generates a relation attended with a public duty. Neglect or established with reasonable certainty, the interest shall begin to run from the time
malfeasance of the carrier's employees naturally could give ground for an action the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
for damages. 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
In this case, there was bad faith on the part of PAL. Contrary to the claim (at which time the quantification of damages may be deemed to have been
of PAL that cash assistance was given instead because of non-availability of rooms reasonably ascertained). The actual base for the computation of legal interest shall,
in hotels, the evidence showed that Sky View Hotel, where respondent Pantejo was in any case, be on the amount finally adjudged.
billeted, had plenty of rooms available. Pantejo only came to know about the This is because at the time of the filing of the complaint, the amount of
reimbursements when other passengers informed him that they were able to obtain damages to which plaintiff may be entitled remains unliquidated and not known,
the refund for their own hotel expenses. PAL offered to pay P300.00 to Pantejo until it is definitely ascertained, assessed and determined by the court, and only
only after the latter had confronted the manager of PAL about the discrimination after the presentation of proof thereon.
committed against Pantejo, which the manager realized was an actionable wrong.
The hotel accommodation was not a mere amenity or privilege. It was a company Ching vs. Nicdao (522 SCRA 316)
policy whenever a flight is cancelled as testified by several witnesses. And even if
it was a mere privilege, PAL was still liable for damages for its blatant refusal to Facts:
accord the so-called amenities equally to all its stranded passengers. No compelling  Nicdao was charged eleven (11) counts of violation of Batas Pambansa
or justifying reason was advanced for such discriminatory and prejudicial conduct. Bilang (BP) 22.
It was not also true that Pantejo was not listening to the announcements. In fact,  MTC found her of guilty of said offenses. RTC affirmed.
Pantejo immediately proceeded to the office of PAL and requested for hotel  Nicdao filed an appeal to the Court of Appeals. CA reversed the decision and
accommodations. He was not only refused accommodations, but he was not even acquitted accused.
informed that he may later on be reimbursed for his hotel expenses. The refund of  Ching is now appealing the civil aspect of the case to the Supreme Court.
hotel expenses was surreptitiously and discriminatorily made by PAL as only
handful of passengers knew about it. Pantejo was exposed to humiliation and Ching vigorously argues that notwithstanding respondent Nicdao’s acquittal by
embarrassment especially because of his government position and social the CA, the Supreme Court has the jurisdiction and authority to resolve and rule
prominence. The discriminatory act of PAL against Pantejo made PAL liable for on her civil liability. He anchors his contention on Rule 111, Sec 1B: The criminal
moral damages under Article 21 in relation to Article 2219 (10) of the Civil Code. action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily
As held in Alitalia Airways vs. CA, such inattention to and lack of care by petitioner include the corresponding civil action, and no reservation to file such civil action
airline for the interest of its passengers who were entitled to its utmost separately shall be allowed or recognized. Moreover, under the above-quoted
Page
consideration, particularly as to their convenience, amounted to bad faith which provision, the criminal action for violation of BP 22 necessarily includes the
CREDIT TRANSACTIONS
corresponding civil action, which is the recovery of the amount of the dishonored not criminal but only civil in nature; and
check representing the civil obligation of the drawer to the payee. 3. where the civil liability is not derived from or based on the criminal act
of which the accused is acquitted.
Nicdao’s defense: Sec 2 of Rule 111 — Except in the cases provided for in
Section 3 hereof, after the criminal action has been commenced, the civil action 2. NO. A painstaking review of the case leads to the conclusion that
which has been reserved cannot be instituted until final judgment in the criminal respondent Nicdao’s acquittal likewise carried with it the extinction of the action to
action. Accdg to her, CA’s decision is equivalent to a finding that the facts upon enforce her civil liability. There is simply no basis to hold respondent Nicdao civilly
which her civil liability may arise do not exist. The instant petition, which seeks to liable to petitioner Ching.
enforce her civil liability based on the eleven (11) checks, is thus allegedly already
barred by the final and executory decision acquitting her. CA’s acquittal of respondent Nicdao is not merely based on reasonable
doubt. Rather, it is based on the finding that she did not commit the act penalized
under BP 22. In particular, the CA found that the P20,000,000.00 check was a
Issue: stolen check which was never issued nor delivered by respondent Nicdao to
1. WON Ching may appeal the civil aspect of the case within the petitioner Ching.
reglementary period?
2. WON Nicdao civilly liable? CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the
CA explicitly stated that she had already fully paid her obligations. The finding
relative to the P20,000,000.00 check that it was a stolen check necessarily
Held: absolved respondent Nicdao of any civil liability thereon as well.
1. YES. Ching is entitled to appeal the civil aspect of the case within the Under the circumstances which have just been discussed lengthily, such acquittal
reglementary period. carried with it the extinction of her civil liability as well.
“Every person criminally liable for a felony is also civilly liable. Extinction of the Phil. Phosphate Fertilizer Corp. vs. Kamalig Resources, Inc.
penal action does not carry with it extinction of the civil, unless the extinction (540 SCRA 139)
proceeds from a declaration in a final judgment that the fact from which the civil
might arise did not exist.
FACTS: This is a case for collection of sum of money representing overwithdrawals
by respondent Kamalig Resources, Inc. (Kamalig) of fertilizer stocks of various
Petitioner Ching correctly argued that he, as the offended party, may appeal grades from the Iloilo and Manila warehouses of petitioner Philippine Phosphate
the civil aspect of the case notwithstanding respondent Nicdao’s acquittal by the Fertilizer Corporation (Philphos).
CA. The civil action was impliedly instituted with the criminal action since he did
not reserve his right to institute it separately nor did he institute the civil action Kamalig purchased fertilizer products from Philphos for eventual sale to its
prior to the criminal action. customers. The agreement governing the business transaction consisted of
advance payment to Philphos for Kamaligs purchases of fertilizer products, followed
If the accused is acquitted on reasonable doubt but the court renders judgment by Philphoss issuance of a Sales Official Receipt and an Authority to Withdraw,
on the civil aspect of the criminal case, the prosecution cannot appeal from the indicating the kind of fertilizer product purchased and the location of the warehouse
judgment of acquittal as it would place the accused in double jeopardy. However, where the merchandise would be picked up. Kamalig would subsequently resell the
the aggrieved party, the offended party or the accused or both may appeal from fertilizer products and issue to its customers the corresponding Delivery Orders
the judgment on the civil aspect of the case within the period therefor. signed only by its authorized officers. The customers would then present the
Delivery Orders to the proper Philphos warehouse for the release of the fertilizer
GENERAL RULE: products.
Civil liability is not extinguished by acquittal:
1. where the acquittal is based on reasonable doubt;
Page
2. where the court expressly declares that the liability of the accused is
CREDIT TRANSACTIONS
On 30 September 1985, Kamalig purchased from and made advance (2) Whether there was basis for the imposition of the award of attorney’s
payments for fertilizer products of various grades to Philphos in the total sum fees.
of P4,548,152.53 , embodied in Sales Official Receipt No. 03539, covering the
following commercial invoices: (a) Commercial Invoice (CI) No. 04891 for fertilizer HELD:
products to be withdrawn from the warehouse in Poro Point; (b) CI No. 04892 for (1) YES. Under Article 1956 of the Civil Code, no interest shall be due unless it has
fertilizer products to be withdrawn from the Manila supply point; (c) CI No. 04893 been expressly stipulated in writing. Philphos presented only its demand
for such products to be withdrawn from the Iloilo warehouse; and (d) CI No. 04894 letters insisting on payment of the value of the overwithdrawals and imposition of
for the products to be withdrawn from the Davao supply point. 34% interest per annum if payment is not made in due time. Said unilateral
impositions of interest do not suffice as proof of agreement on the alleged 34% per
In a subsequent letter dated 14 October 1985, Kamalig requested another annum interest.
adjustment, this time a conversion of its stocks in Davao to be delivered and
picked up in Manila. (2) Philphos claims attorney’s fees under Article 2208 of the Civil Code which
provides that attorney’s fees may be granted where “the defendant acted in gross
All these requests were approved by Philphos. and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim.” Suffice it to say the evidence does not bear out any gross and
evident bad faith on the part of Kamalig.
In the letter dated 21 July 1986, Philphos informed Kamalig of its
overwithdrawal of various fertilizer stocks in the supply depots As to the Court of Appeals’ award of attorney’s fees to Kamalig, it appears
in Manila and Iloilo. This consisted of 291.45 metric tons (MT) of fertilizer grade that the award was granted under the auspices of Art. 2208, par. (4) which
21-0-0 from the Manila supply point and 50 MT each of fertilizer grades 14-14-14, provides that attorney’s fees may be recovered “in case of a clearly unfounded civil
16-20-0, and 21-0-0 from the Iloilo supply station. According to Philphos, the cost action or proceeding against the plaintiff”—or in this case, against then defendant
of these overwithdrawals by Kamalig amounted to P1,016,994.21. But since Kamalig—since the appellate court reasoned that Kamalig was compelled to hire
Philphos also had an obligation to Kamalig in the amount of P470,348.91 the services of a lawyer to defend itself. In this case, overwithdrawals of fertilizer
representing the Capital Recovery Component, partial compensation took place by products in Iloilo had been proven, showing that indeed there was cause for filing
operation of law thereby reducing Kamaligs obligation to P546,645.30. Thus, of a complaint against Kamalig. Kamalig is thus not entitled to attorney’s fees. The
Philphos demanded that this sum be settled on or before 31 July 1986, otherwise general rule is that attorney’s fees cannot be recovered as part of damages because
Kamalig would be charged 34% interest per annum. Kamalig, however, denied that no premium should be placed on the right to litigate. In short, the grant of
it had exceeded its withdrawals of fertilizer and thus contended that it should not attorney’s fees as part of damages is the exception rather than the rule, and
be made liable for any amount. counsel’s fees are not awarded every time a party prevails in a suit.
On 20 August 1987, Philphos filed the case for collection of a sum of money
against Kamalig before the RTC of Makati City. During pre-trial, the parties agreed De la Paz vs. L&J Development Company (734 SCRA 364)
to confine the issue to whether or not Kamalig overwithdrew 150 MT or 3,000 bags
of various grades of fertilizer products amounting to P441,738.50 from Philphoss FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money worth
warehouse in Iloilo and 291.45 MT or 5,829 bags of fertilizer grade 21-0-0 Php 350,000 to L & J Development Corporation, a property developer represented
amounting to P575,255.71 from Philphoss warehouse in Manila. Hence, this by Atty. Esteban Salonga as its president and general manager.
petition.
The loan was executed without any security and no maturity date. It was
ISSUE: however agreed between the parties that the loan will have a 6% monthly interest
(1) WON Philphos is liable to Kamalig for the sum of P645,190.29, (amounting to Php 21,000). So far, L&J paid a total of Php 576,000 already –
considering that based on Philphoss evidence, it is Kamalig who is including interest charges from December 2000 to August 2003.
indebted to Philphos for the sum of P538,486.74
Page
CREDIT TRANSACTIONS
L&J later failed to make payments due to financial difficulties in the and inordinate.” The Supreme Court affirmed CA’s ruling, but as to Rolando’s
business. Rolando then filed a collection case with the MTC and alleged as of obligation to pay the excess Php 226,000, the interest rate was reduced from 12%
January 2005, L&J still owes him Php 772,000 inclusive of monthly interests. to 6% per annum.
L&J (represented by Atty. Salonga) did not deny that they did incurred a Nacar vs. Gallery Frames and/or Felipe Bordey, Jr.
debt from Rolando, and admitted that they failed to pay due to a fortuitous event (703 SCRA 439)
(financial difficulties). They also contended that the 6% monthly interest is
unconscionable and that their total payment of Php 576,000 should be applied to (Compensatory, Penalty or Indemnity Interest)
the principal loan which only amounts to Php 350,000. *Amending the Eastern Shipping Doctrine
*Important: because this case discusses the amendment of the legal interest in
Rolando also contends that Atty. Salonga tricked him to execute the said loan and forbearance of money, credits or goods from 12% to 6% effective July 1,
loan plus interest without reducing the agreement in writing. He also said that the 2013.
6% interest rate was at the suggestion and insistence of L&J.
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
The MTC rendered judgment in favor of Rolando and upheld the 6% interest 796, approved the amendment of Section 2 of Circular No. 905, Series of 1982
rate as valid since L&J complied to it as evidenced by the payment they made from and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013,
December 2000 to August 2003. L&J is now estopped to impugn said interest rate. the pertinent portion of which reads: Section 1. The rate of interest for the loan or
The MTC also reduced the legal interest rate to 12% per annum on the remaining forbearance of any money, goods or credits and the rate allowed in judgments, in
loan for reasons of equity. They did not grant the prayer of moral damages to the absence of an express contract as to such rate of interest, shall be six percent
Rolando since there was no bad faith on the part of L&J. (6%) per annum.
L&J appealed the decision to the RTC – contending once again that the 6% Thus, from the foregoing, in the absence of an express stipulation as to the
interest rate is unconscionable, and that their previous payment which totaled Php rate of interest that would govern the parties, the rate of legal interest for loans or
576,000 should be used to set off the principal loan of Php 350,000. RTC however forbearance of any money, goods or credits and the rate allowed in judgments shall
affirmed the decision of the MTC. L&J appealed to the CA. no longer be 12% per annum but will now be 6% per annum effective July 1, 2013.
Ø It should be noted, nonetheless, that the new rate could only be applied
CA ruled in favor of L&J, noting that the agreed 6% interest rate was not prospectively and not retroactively. Consequently, the 12% per annum legal
reduced in a written agreement and hence, it should not be considered due. CA interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of
ruled that the loan was already paid, and that Rolando should return the excess 6% per annum shall be the prevailing rate of interest when applicable.
Php 226,000 with interest of 12% per annum. The case has now reached the
Supreme Court. 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.
ISSUE: Whether or not the unwritten 6% interest agreement should be 799, as follows:
honored. I. 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
HELD: No. The Supreme Court held that, as provided under the Civil Code, an for damages. The provisions under Title XVIII on "Damages" of the Civil Code
agreement regarding loan interests should be stipulated in writing. Even if the 6% govern in determining the measure of recoverable damages.
monthly rate was done in writing, it will still be void for being unconscionable and II. With regard particularly to an award of interest in the concept of actual
contrary to morals and public policy – for at this time, an interest rate of 3% and and compensatory damages, the rate of interest, as well as the accrual thereof, is
higher is considered excessive and exorbitant. imposed, as follows:
Furthermore, the lack of maturity date puts the total interest to a whooping
Page
New guidelines in the award of interest:
72% per annum which the Supreme Court considered to be “definitely outrageous
CREDIT TRANSACTIONS
1.) When the obligation is breached, and it consists in the payment of a sum An Alias Writ of Execution was issued by virtue of which respondent Sheriff
of money, i.e., a loan or forbearance of money, the interest due should be that Pena conducted a political nod.
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 Sheriff Peña informed the petitioner that the total amount of the judgment
stipulation, the rate of interest shall be 6% per annum to be computed from is P270,940.52. The amount included a computation of simple interest.
default, i.e., from judicial or extrajudicial demand under and subject to the Afable, however, claimed that the judgment award should be 3,027,238.50,
provisions of Article 1169 of the Civil Code. because the amount due ought to be based on compounded interest. Although the
auctioned properties were sold to the petitioner, Sheriff Peña did not issue the
2.) When an obligation, not constituting a loan or forbearance of money, is Certificate of Sale because there was an excess in the bid price in the amount of
breached, an interest on the amount of damages awarded may be imposed at the P2,941,524.47, which the petitioner failed to pay despite notice. David filed a
discretion of the court at the rate of 6% per annum. No interest, however, shall be Motion praying that respondent Judge Cruz issue an order directing respondent
adjudged on unliquidated claims or damages, except when or until the demand can Sheriff Peña to prepare and execute a certificate of sale in his favor. His reason is
be established with reasonable certainty. Accordingly, where the demand is that compound interest, which is allowed by Article 2212 of the Civil Code, should
established with reasonable certainty, the interest shall begin to run from the time apply in this case.
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 David claim that in computing the interest due of the P66,500.00, interest
interest shall begin to run only from the date the judgment of the court is made should be computed at 6% on the principal sum of P66,500.00 pursuant to Article
(at which time the quantification of damages may be deemed to have been 2209 and then “interest on the legal interest” should also be computed in
reasonably ascertained). The actual base for the computation of legal interest shall, accordance with the language of Article 2212 of the Civil Code.
in any case, be on the amount finally adjudged.
ISSUE: WON the amount of due to subject to a simple hearing with simple
3.) When the judgment of the court awarding a sum of money becomes interest or compounded interest
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until HELD: In cases where no interest stipulated, no compounded interest could be
its satisfaction, this interim period being deemed to be by then an equivalent to a further earned.
forbearance of credit.
The Court ruled that Article 2212 contemplates the presence of stipulated
Application in this case: The interest of 12% per annum of the total or conventional interest which has accrued when demand was judicially made. In
monetary awards, computed from May 27, 2002 to June 30, 2013 and 6% per cases where no interest had been stipulated by the parties, as in the case of
annum from July 1, 2013 until their full satisfaction, is awarded. Philippine American Accident Insurance, no accrued conventional interest could
further earn interest upon judicial demand.
David vs. Court of Appeals (310 SCRA 710)
In this case, no interest was stipulated by the parties. In the promissory
note denominated “Compromise Agreement”' signed by the Afable, Jr. which was
FACTS: A writ of attachment over the real property owned by Valentin Afable, Jr. duly accepted by the David no interest was mentioned. 'That being the case, the
RTC ordered Afable to pay David 66,500 plus interest from July 24, 1974, until fully interest should only be subject to a simple interest.
paid. RTC amended its decision and ruled that legal rate of interest should be
computed from 4 1986, instead of June 24 1974. Ligutan vs. Court of Appeals (376 SCRA 560)
Afable appealed to the CA and then to the SC. In both instances, the DOCTRINE: A penalty clause, expressly recognized by law, is an accessory
decision of the lower court was affirmed. undertaking to assume greater liability on the part of an obligor in case of breach
Page
of an obligation. It functions to strengthen the coercive force of the obligation and
CREDIT TRANSACTIONS
to provide, in effect, for what could be the liquidated damages resulting from such due. Default generally begins from the moment the creditor demands the
a breach. The obligor would then be bound to pay the stipulated indemnity without performance of the obligation. However, demand is not necessary to render the
the necessity of proof on the existence and on the measure of damages caused by obligor in default when the obligation or the law so provides. In the case at bar,
the breach. Although a court may not at liberty ignore the freedom of the parties defendants-appellants executed a promissory note where they undertook to pay
to agree on such terms and conditions as they see fit that contravene neither law the obligation on its maturity date 'without necessity of demand.' They also agreed
nor morals, good customs, public order or public policy, a stipulated penalty, to pay the interest in case of non-payment from the date of default.
nevertheless, may be equitably reduced by the courts if it is iniquitous or
unconscionable or if the principal obligation has been partly or irregularly complied Aggrieved by the decision and resolutions of the Court of Appeals,
with. petitioners elevated their case to this Court on 9 July 1999 via a petition for review
on certiorari under Rule 45 of the Rules of Court, submitting thusly - "I. The
FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the respondent Court of Appeals seriously erred in not holding that the 15.189%
amount of P120,000.00 from respondent Security Bank and Trust Company on on interest and the penalty of three (3%) percent per month or thirty-six (36%)
11 May 1981. The loan was evidenced by a promissory note with interest of percent per annum imposed by private respondent bank on petitioners’ loan
15.189% per annum, a penalty of 5% every month on the outstanding principal obligation are still manifestly exorbitant, iniquitous and unconscionable.
and interest in case of default. The obligation matured on 8 September 1981; the
bank, however, granted an extension but only up until 29 December 1981. Respondent bank, which did not take an appeal, would, however, have it
that the penalty sought to be deleted by petitioners was even insufficient to fully
Despite several demands from the Security Bank, petitioners failed to settle cover and compensate for the cost of money brought about by the radical
the debt which, as of 20 May 1982, amounted to P114,416.10. On 30 September devaluation and decrease in the purchasing power of the peso, particularly vis-a-
1982, the bank sent a final demand letter to petitioners informing them that they vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank
had five days within which to make full payment. would stress that only the amount of P5,584.00 had been remitted out of the entire
loan of P120,000.
Since petitioners still defaulted on their obligation, the bank filed on 3
November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint ISSUE: Whether or not the 15.189% interest and the penalty of 3% per
for recovery of the due amount. RTC ruled in favor of the plaintiff and against the month (36% per annum) is exorbitant, iniquitous, and unconscionable.
defendants, ordering the latter to pay, jointly and severally, to the plaintiff.
Petitioners interposed an appeal with the Court of Appeals, assailing the imposition RULING:
of the 2% service charge, the 5% per month penalty charge and 10% attorney's Petition is DENIED.
fees.
HELD:
In its decision of 7 March 1996, the appellate court affirmed the judgment The question of whether a penalty is reasonable or iniquitous can be partly
of the trial court except on the matter of the 2% service charge which was deleted subjective and partly objective. Its resolution will depend on such factors as, but
pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of not confined to, the type, extent and purpose of the penalty, the nature of the
the appellate court, both parties filed their respective motions for reconsideration. obligation, the mode of breach and its consequences, the supervening realities, the
Petitioners prayed for the reduction of the 5% stipulated penalty for being standing and relationship of the parties, and the like, the application of which, by
unconscionable. The bank, on the other hand, asked that the payment of interest and large, is addressed to the sound discretion of the court.
and penalty be commenced not from the date of filing of complaint but from the
time of default as so stipulated in the contract of the parties. The Court of Appeals, exercising its good judgement has reduced the
penalty interest from 5% a month to 3% a month. Given the circumstances and
On 28 October 1998, the Court of Appeals resolved the two motions thusly: the repeated acts of breach by petitioners of their contractual obligation, the Court
"We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00 sees no cogent ground to modify the ruling of the appellate court.
with interest thereon must commence not on the date of filing of the complaint as
Page
we have previously held in our decision but on the date when the obligation became
CREDIT TRANSACTIONS
The stipulated interest of 15.189% per annum, does not appear as being ISSUE: May the bank, on its own, modify the interest rate in a loan
excessive. The essence or rationale for the payment of interest, quite often referred agreement without violating the mutuality of contracts?
to as cost of money, is not exactly the same as that as a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an agreement HELD: No. Any modification in the contract, such as the interest rates, must be made with
to that effect, the two being distinct concepts which may separately be demanded. the consent of the contracting parties. The minds of all the parties must meet as to the
The interest prescribed in loan financing arrangements is a fundamental part of the proposed modification, especially when it affects an important aspect of the agreement. In
banking business and the core of a banks existence. the case of loan agreements, the rate of interest is a principal condition, if not the most
important component. Loan and credit arrangements may be made enticing by, or
Silos vs. Philippine National Bank "sweetened" with, offers of low initial interest rates, but actually accompanied by provisions
(G.R. 181045, July 2, 2014) written in fine print that allow lenders to later on increase or decrease interest rates
unilaterally, without the consent of the borrower, and depending on complex and subjective
FACTS: In loan agreements, it cannot be denied that the rate of interest is a
factors. Because they have been lured into these contracts by initially low interest rates,
principal condition, if not the most important component. Thus, any modification
thereof must be mutually agreed upon; otherwise, it has no binding effect.
borrowers get caught and stuck in the web of subsequent steep rates and penalties,
surcharges and the like. Being ordinary individuals or entities, they naturally dread legal
Spouses Eduardo and Lydia Silos secured a revolving credit line with complications and cannot afford court litigation; they succumb to whatever charges the
Philippine National Bank (PNB)through a real estate mortgage as a security. After lenders impose. At the very least, borrowers should be charged rightly; but then again this is
two years, their credit line increased. Spouses Silos then signed a Credit not possible in a one-sided credit system where the temptation to abuse is strong and the
Agreement, which was also amended two years later, and several Promissory Notes willingness to rectify is made weak by the eternal desire for profit.
(PN) as regards their Credit Agreements with PNB.
The said loan was initially subjected to a 19.5% interest rate per annum. In
Solidbank Corporation vs. Permanent Homes, Incorporated
the Credit Agreements, Spouses Silos bound themselves to the power of PNB to (625 SCRA 275)
modify the interest rate depending on whatever policy that PNB may adopt in the
future, without the need of notice upon them. Thus, the said interest rates played FACTS: The records disclose that PERMANENT HOMES is a real estate development
from 16% to as high as 32% per annum. company, and to finance its housing project known as the “Buena Vida Townhome”
located within Merville Subdivision, Parañaque City, it applied and was
Spouses Silos acceded to the policy by pre-signing a total of twenty-six (26) subsequently granted by SOLIDBANK with an “Omnibus Line” credit facility in the
PNs leaving the individual applicable interest rates at hand blank since it would be total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as
subject to modification by PNB. Spouses Silos regularly renewed and made good time loan for a term of up to three hundred sixty (360) days, with interest thereon
on their PNs, religiously paid the interests without objection or fail. However, during at prevailing market rates, and subject to monthly repricing. The remaining ONE
the 1997 Asian Financial Crisis, Spouses Silos faltered when the interest rates MILLION was available for domestic bills purchase.
soared. Spouses Silos ’ 26th PN became past due, and despite repeated demands
by PNB, they failed to make good on the note . Thus, PNB foreclosed and auctioned To secure the aforesaid loan, PERMANENT HOMES initially mortgaged
the involved security for the mortgage. Spouses Silos instituted an action to annul three(3) townhouse units within the Buena Vida project in Parañaque. At the time,
the foreclosure sale on the ground that the succeeding interest rates used in their however, the instant complaint was filed against SOLIDBANK, a total of thirty six
loan agreements was left to the sole will of PNB, the same fixed by the latter (36) townhouse units were mortgaged with said bank. Of the 60 million available
without their prior consent and thus, void. The Regional Trial Court (RTC) ruled to PERMANENT HOMES, it availed of a total of 41.5 million pesos covered by
that such stipulation authorizing both the increase and decrease of interest rates three(3) promissory notes. There was a standing agreement by the parties that
as may be applicable is valid. The Court of Appeals (CA) affirmed the RTC decision. any increase or decrease in interest rates shall be subject to the mutual agreement
of the parties.
Page
CREDIT TRANSACTIONS
For the three loan availments that PERMANENT HOMES obtained, the herein card within the period indicated in the statement of account and any remaining
respondent argued that SOLIDBANK unilaterally and arbitrarily accelerated the unpaid balance to earn 3% interest per annum plus prime rate of Security Bank &
interest rates without any declared basis of such increases, of which PERMANENT Trust Company. Notably, in the application form submitted by petitioner, Ofricano
HOMES had not agreed to, or at the very least, been informed of. Canlas obligated himself to pay jointly and severally with petitioner the latters
obligation to private respondent.
On July 5, 2002, the trial court promulgated its Decision in favor of
Solidbank. Permanent then filed an appeal before the appellate court which was Upon acceptance of his application, petitioner was issued Diners Club card
granted, in which reversed and set aside the assailed decision dated July 5, 2002. No. 3651-212766-3005. As of May 8, 1987, petitioner incurred credit charges plus
Hence, the present petition. appropriate interest and service charges in the aggregate amount of P33,819.84
ISSUES: which had become due and demandable.
(1) WON the Honorable Court of Appeals was correct in ruling that the
increases in the interest rates on Permanent’s loans are void for having Demands for payment made against petitioner proved futile. Hence, private
been unilaterally imposed without basis. respondent filed a Complaint for Collection of Sum of Money against petitioner
before the lower court.
(2) WON the Honorable Court of Appeals was correct in ordering the
parties to enter into an express agreement regarding the applicable The lower court rendered judgment ordering defendants to pay jointly and
interest rates on Permanent’s loan availments subsequent to the initial severally plaintiff:
thirty-day (30) period.
a) The amount of P33,819.84 and interest of 3% per annum plus prime rate
RULING: (1) Yes. Although interest rates are no longer subject to a ceiling, the of SBTC and service charges of 2% per month starting May 9, 1987 until the entire
lender still does not have an unbridled license to impose increased interest rates. obligation is fully paid;
The lender and the borrower should agree on the imposed rate, and such imposed b) An amount equivalent to 25% of any and all amounts due and payable
rate should be in writing of which was not provided by petitioner. as attorneys fees, plus costs of suit.
(2) Yes. In order that obligations arising from contracts may have the force of law With respect to the cross-claim of defendant Ofricano Canlas, defendant
between the parties, there must be mutuality between the parties based on their Rodelo G. Polotan, Sr. is ordered to indemnify and/or reimburse the former for
essential quality. A contract containing a condition which makes its fulfillment whatever he may be ordered to pay plaintiff.
dependent exclusively upon the uncontrolled will of one of the contracting parties
is void. There was no showing that either Solidbank or Permanent coerced each The Court of Appeals affirmed the ruling of the lower court.
other to enter into the loan agreements. The terms of the Omnibus Line Agreement
and the promissory notes were mutually and freely agreed upon by the parties. ISSUE: WON RESPONDENT COURT OF APPEALS COMMITTED AN ERROR OF
LAW IN RULING AS VALID AND LEGAL THE FOLLOWING PROVISION ON
Polotan vs. Court of Appeals (296 SCRA 247) INTEREST IN THE DINERS CARD CONTRACT
FACTS: Private respondent Security Diners International Corporation (Diners RULING:

Club), a credit card company, extends credit accomodations to its cardholders for This Court finds petitioner’s contentions without merit.
the purchase of goods and other services from member establishments. Said goods
and services are reimbursed later on by cardholders upon proper billing. The core issue is basically one of fact. This case stemmed from a simple
complaint for collection of sum of money. The lower court and the Court of Appeals
Petitioner Rodelo G. Polotan, Sr. applied for membership and credit found that petitioner indeed owed Diners Club the amount being demanded.
accomodations with Diners Club in October 1985. The application form contained
terms and conditions governing the use and availment of the Diners Club card,
Page
among which is for the cardholder to pay all charges made through the use of said
CREDIT TRANSACTIONS
In the instant case, a review of the decisions of the lower court, as well as In this case, petitioner, in effect, claims that the subject contract is one-
the Court of Appeals, shows that the conclusions have been logically arrived at and sided in that the contract allows for the escalation of interests, but does not provide
substantially supported by the evidence presented by the parties. for a downward adjustment of the same in violation of Central Bank Circular 905.
The Petitioner’s claim that since the contract he signed with Diners Club was The claim is without basis. First, by signing the contract, petitioner and
a contract of adhesion, the obscure provision on interest should be resolved in his private respondent agreed upon the rate as stipulated in the subject contract. Such
favor. is now allowed by C.B. Circular 905. Second, petitioner failed to cite any particular
provision of said Circular which was allegedly violated by the subject contract.
A contract of adhesion is one in which one of the contracting parties imposes
a ready-made form of contract which the other party may accept or reject, but Be that as it may, there is nothing inherently wrong with escalation clauses.
cannot modify. One party prepares the stipulation in the contract, while the other Escalation clauses are valid stipulations in commercial contracts to maintain fiscal
party merely affixes his signature or his adhesion thereto, giving no room for stability and to retain the value of money in long term contracts.
negotiation and depriving the latter of the opportunity to bargain on equal footing.
Admittedly, the contract containing standard stipulations imposed upon those who Petitioner further argues that the interest rate was unilaterally imposed and
seek to avail of its credit services was prepared by Diners Club. There is no way a based on the standards and rate formulated solely by Diners Club.
prospective credit card holder can object to any onerous provision as it is offered
on a take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity in its The contractual provision in question states that if there occurs any change
provisions must be construed against private respondent. in the prevailing market rates, the new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation without need of serving
Indeed, the terms prime rate, prevailing market rate, 2% penalty charge, notice to the Cardhoder other than the required posting on the monthly statement
service fee, and guiding rate are technical terms which are beyond the ken of an served to the Cardholder. This could not be considered an escalation clause for the
ordinary layman. To be sure, petitioner hardly falls into the category of an ordinary reason that it neither states an increase nor a decrease in interest rate. Said clause
layman as by his own admission he is a lawyer by profession, a reputable simply states that the interest rate should be based on the prevailing market rate.
businessman and a noted leader of a number of socio-civic organizations. With Interpreting it differently, while said clause does not expressly stipulate a reduction
such impressive credentials, this Court is hard-put to fathom someone of his calibre in interest rate, it nevertheless provides a leeway for the interest rate to be reduced
entering into a contract with eyes blindfolded. in case the prevailing market rates dictate its reduction.
Nevertheless, these types of contracts have been declared as binding as Admittedly, the second paragraph of the questioned proviso which provides
ordinary contracts, the reason being that the party who adheres to the contract is that the Cardholder hereby authorizes Security Diners to correspondingly increase
free to reject it entirely. the rate of such interest in the event of changes in prevailing market rates x x x is
an escalation clause. However, it cannot be said to be dependent solely on the will
The binding effect of any agreement between parties to a contract is of private respondent as it is also dependent on the prevailing market rates.
premised on two settled principles: (1) that any obligation arising from a contract
has the force of law between the parties; and (2) that there must be mutuality Escalation clauses are not basically wrong or legally objectionable as long
between the parties based on their essential equality. Any contract which appears as they are not solely potestative but based on reasonable and valid
to be heavily weighed in favor of one of the parties so as to lead to an grounds. Obviously, the fluctuation in the market rates is beyond the control of
unconscionable result is void. Any stipulation regarding the validity or compliance private respondent.
of the contract which is left solely to the will of one of the parties, is likewise,
invalid. It is important to stress that the Court is not precluded from ruling out Briones vs. Cammayo (41 SCRA 404)
blind adherence to their terms if the attendant facts and circumstances show that
they should be ignored for being obviously too one-sided. FACTS: Aurelio G. Briones filed an action in the Municipal Court of Manila against
Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover
Page
CREDIT TRANSACTIONS
from them, jointly and severally, the amount of P1,500.00, plus damages, Castro Fernando, and Conception, JJ., dissenting
attorney's fees and costs of suit.
In a contract which is tainted with usury, that is, with a stipulation (whether
Defendants executed the real estate mortgage as security for the loan of written or unwritten) to pay usurious interest, the prestation to pay such interest
P1,200.00 given to Primitivo P. Cammayo upon the usurious agreement that is an integral part of the cause of the contract. It is also the controlling cause, for
defendant pays to the plaintiff, out of the alleged loan of P1,500.00 (which includes a usurer lends his money not just to have it returned but indeed, to acquire in
as interest the sum of P300.00) for one year. coordinate gain.
Article l957, which declares the contract itself – not
Although the mortgage contract was executed for securing the payment of merely the stipulation to pay usurious interest -- void,
P1,500.00 for a period of one year, without interest, the truth and the real fact is necessarily regards the prestation to pay usurious interest
that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of as an integral part of the cause, making it illegal.
P1,200.00 and withheld the sum of P300.00 which was intended as advance
interest for one year. First Metro Investment Corp. vs. Este Del Sol Mountain
On account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid
Reserve, Inc. (369 SCRA 99)
to the plaintiff during the period from October 1955 to July 1956 the total sum of
P330.00 which plaintiff, illegally and unlawfully refused to acknowledge as part FACTS: Petitioner FMIC granted respondent a loan of Seven Million Three Hundred
payment of the account but as in interest of the said loan for an extension of Eighty Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
another term of one year. construction of a sports complex at Montalban, Rizal. Respondent also executed,
as provided for by the Loan Agreement, an Underwriting Agreement with
ISSUE: Can Briones recover the amount of P1,500.00? underwriting fee, annual supervision fee and consultancy fee with Consultancy
Agreement for four (4) years, coinciding with the term of the loan. The said fees
RULING: Loan is valid but usurious interest is void. Creditor has the right to were deducted from the first release of loan. Respondent failed to meet the
schedule of repayment. Petitioner instituted an instant collection suit. The trial
recover his capital by judicial action. To discourage stipulations on usurious
court rendered its decision in favor of petitioner. The Court of Appeals reversed the
interest, said stipulations are treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. decision of the trial court in favor of herein respondents after its factual findings
and conclusion.
It should not, however, be interpreted to mean forfeiture even of the
ISSUE: Whether or not the Underwriting and Consultancy Agreements
principal, for this would unjustly enrich the borrower at the expense of the lender.
Furthermore, penal sanctions are available against a usurious lender, as a further were mere subterfuges to camouflage the usurious interest charged by
deterrence to usury. the petitioner.
In simple loan with stipulation of usurious interest, the prestation of the
HELD: YES. In the instant case, several facts and circumstances taken altogether
debtor to pay the principal debt, which is the cause of the contract (Article 1350,
Civil Code), is not illegal. The illegality lies only as to the prestation to pay the show that the Underwriting and Consultancy Agreements were simply cloaks or
stipulated interest; hence, being separable, the latter only should be deemed void, devices to cover an illegal scheme employed by petitioner FMIC to conceal and
since it is the only one that is illegal. collect excessively usurious interest. “Art. 1957. Contracts and stipulations, under
any cloak or device whatever, intended to circumvent the laws against usury shall
be void. The stipulated penalties, liquidated damages and attorney’s fees,
Barrredo, J., concurring
The Usury law is clear that he may recover only all interests, including of excessive, iniquitous and unconscionable and revolting to the conscience as they
course, the legal part thereof, with legal interests from the date of judicial demand, hardly allow the borrower any chance of survival in case of default. Hence, the
without maintaining that he can also recover the principal he has already paid to instant petition was denied and the assailed decision of the appellate court is
affirmed.
the lender.
Page
CREDIT TRANSACTIONS
Tan vs. Court of Appeals (367 SCRA 571) iii. 3 times the petitioner offered to settle his loan
obligation with CCP.
FACTS: iv. TAN may not avoid his liability to pay his
1. Petition for review. obligation under the promissory note which he must comply with in good faith.
2. TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM CCP. v. TAN is estopped from denying his liability or
1. Executed a promissory note in amount of P3,411,421.32; payable in loan obligation to the private respondent.
5 installments. 5. TAN APPEALED TO CA, asked for the reduction of the penalties and charges
2. TAN failed to pay any installment on the said restructured loa. on his loan obligation.
3. In a letter, TAN requested and proposed to respondent CCP a mode 1. Judgment appealed from is hereby AFFIRMED.
of paying the restructured loan 1. No alleged partial or irregular performance.
i. 20% of the principal amount of the loan upon 2. However, the appellate court modified the decision of the trial court by deleting
the respondent giving its conformity to his proposal exemplary damages because not proportionate to actual damage caused by the
ii. Balance on the principal obligation payable 36 non-performance of the contract
monthly installments until fully paid.
4. TAN requested for a moratorium on his loan obligation until the
following year allegedly due to a substantial deduction in the volume ISSUES: WON there are contractual and legal bases for the imposition of
of his business and on account of the peso devaluation. the penalty, interest on the penalty and attorney’s fees.
i. No favorable response was made to said
letters.
ii. CCP demanded full payment, within ten (10) HELD: CA DECISION AFFIRMED with MODIFICATION in that the penalty charge
days from receipt of said letter P6,088,735.03. of two percent (2%) per month on the total amount due, compounded monthly,
3. CCP FILED COMPLAINT collection of a sum of money is hereby reduced to a straight twelve percent (12%) per annum starting from
1. TAN interposed the defense that he accommodated a friend who August 28, 1986. With costs against the petitioner.
asked for help to obtain a loan from CCP.
i. Claimed that cannot find the friend. 1. WON there are contractual and legal bases for the imposition of the penalty,
2. TAN filed a Manifestation wherein he proposed to settle his interest on the penalty and attorney’s fees. –YES. WITH LEGAL BASES.
indebtedness to CCP by down payment of P140,000.00 and to issue1 1. ART 1226: In obligations with a penal clause, the penalty shall
2 checks every beginning of the year to cover installment payments substitute the indemnity for damages and the payment of interests
for one year, and every year thereafter until the balance is fully in case of non-compliance, if there is no stipulation to the
paid. contrary. Nevertheless, damages shall be paid if the obligor refuses
i. CCP did not agree to the petitioner’s to pay the penalty or is guilty of fraud in the fulfillment of the
proposals and so the trial of the case ensued. obligation.
4. TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67, representing i. The penalty may be enforced only when it is
defendant’s outstanding account as of August 28, 1986, with the demandable in accordance with the provisions of this Code.
corresponding stipulated interest and charges thereof, until fully paid, plus 2. CASE AT BAR: promissory note expressed the imposition of both
attorney’s fees in an amount equivalent to 25% of said outstanding account, interest and penalties in case of default on the part of the petitioner
plus P50,000.00, as exemplary damages, plus costs. in the payment of the subject restructured loan.
1. REASONS: 3. PENALTY IN MANY FORMS:
i. Reason of loan for accommodation of friend i. If the parties stipulate penalty apart
was not credible. monetary interest, two are different and distinct from each other and may be
ii. Assuming, arguendo, that the TAN did not demanded separately.
personally benefit from loan, he should have filed a 3 rd-party complaint against ii. If stipulation about payment of an additional
Page
Wilson Lucmen interest rate partakes of the nature of a penalty clause which is sanctioned by law:
CREDIT TRANSACTIONS
1. ART 2209: If the obligation consists in the payment of a sum of money, and 4. The petitioner also imputes error on the part of the appellate court for not
the debtor incurs in delay, the indemnity for damages, there being no stipulation declaring the suspension of the running of the interest during period when
to the contrary, shall be the payment of the interest agreed upon, and in the the CCP allegedly failed to assist the petitioner in applying for relief from
absence of stipulation, the legal interest, which is six per cent per annum. liability
4. CASE AT BAR: Penalty charge of 2% per month began to accrue from 1. Alleges that his obligation to pay the interest and surcharge should
the time of default by the petitioner. have been suspended because the obligation to pay such interest
i. No doubt petitioner is liable for both the and surcharge has become conditional
stipulated monetary interest and the stipulated penalty charge. i. Dependent on a future and uncertain event
1. PENALTY CHARGE = penalty or compensatory interest. which consists of whether the petitioner’s request for condonation of interest and
surcharge would be recommended by the Commission on Audit.
2. WON interest may accrue on the penalty or compensatory interest without 1. Since the condition has not happened due to the private respondent’s reneging
violating ART 1959. on its promise, his liability to pay the interest and surcharge on the loan has not
1. Penalty clauses can be in the form of penalty or compensatory arisen.
interest. 2. COURT ANSWER:
i. Thus, the compounding of the penalty or i. Running of the interest and surcharge was not
compensatory interest is sanctioned by and allowed pursuant to the above-quoted suspended.
provision of Article 1959 of the New Civil Code considering that: ii. CCP correctly asserted that it was the primary
1. There is an express stipulation in the promissory note (Exhibit “A”) permitting responsibility of petitioner to inform the Commission on Audit of his application for
the compounding of interest. condonation of interest and surcharge.
a. 5th paragraph of the said promissory note provides that: “Any interest which
may be due if not paid shall be added to the total amount when due and shall
become part thereof, the whole amount to bear interest at the maximum rate Liam Law vs. Olympic Sawmill Co. (129 SCRA 439)
allowed by law.”.
2. Therefore, any penalty interest not paid, when due, shall earn the legal Facts:
interest of twelve percent (12%) per annum, in the absence of express stipulation
on the specific rate of interest, as in the case at bar. On or about September 7, 1957, the petitioner loaned P10,000.00, without
2. ART 2212: “Interest due shall earn legal interest from the time it is interest, to the respondent. The loan became ultimately due on January 31, 1960
judicially demanded, although the obligation may be silent upon this but was not paid. The petitioner asked for a 3-month extension, or up to April 30,
point.” 1960. On March 17, 1960, the parties executed another loan document for the
3. CASE AT BAR: interest began to run on the penalty interest upon the payment of P10, 000.00 extended up to April 30, 1960 but the obligation was
filing of the complaint in court by CCP. increased by P6,000.00 to answer for the attorney’s fees, legal interest, and other
i. Hence, the courts did not err in ruling that the cost incident thereto. The petitioner again failed to pay their obligation by April
petitioner is bound to pay the interest on the total amount of the principal, the 30, 1960. On September 23, 1957, the respondent instituted a collection
monetary interest and the penalty interest. case. The petitioner admitted the P10, 000.00 principal obligation but claimed
that the additional P6, 000.00 constituted usurious interest.
3. WON TAN can file reduction of penalty due to made partial payments. –YES.
BUT NOT 10% REDUCTION AS SUGGESTED BY PETITIONER.
1. REDUCED TO 2% REDUCTION: Issue:
i. PARTIAL PAYMENTS showed his good faith
despite difficulty in complying with his loan obligation due to his financial Whether or not the additional P6, 000.00 constituted usurious interest.
problems.
1. However, we are not unmindful of the respondent’s long overdue deprivation
Page
of the use of its money collectible. Held:
CREDIT TRANSACTIONS
Issues:
No. Usury has been legally non-existent. Interest can now be charged as lender (1) Whether or not the interest imposed by ACFLC was unconscionable and
and borrower may agree upon. In the present case, the petitioner had not proven excessive;
that the P6, 000.00 additional obligation was illegal. (2) Whether or not the provision in the real estate mortgage on the
mortgagor’s waiver of right of redemption should be voided for being
Asian Cathay Finance and Leasing Corporation vs. Gravador against public policy; and
(623 SCRA 517) (3) Whether or not the action for annulment of mortgage was a collateral
attack on ACFLC’s certificate of title.
Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma Held: (1) It is true that parties to a loan agreement have a wide latitude to stipulate
de Vera and Emma Concepcion Dumigpi as his co-makers. The loan was payable on any interest rate in view of Central Bank Circular No. 905, series of 1982, which
in 60 monthly installments of P24,000.00 each and secured by a real estate suspended the Usury Law ceiling on interest rate effective 1 January 1983.
However, interest rates, whenever unconscionable, may be equitably reduced or
mortgage executed by Cesario over his property. Respondents paid the first
installment for November 1999 but failed to pay the subsequent installments. In even invalidated. In a span of 3 months (from the payment of the initial installment
February 2000, ACFLC demanded payment of P1,871,480.00 from respondents. for November 1999 up to ACFLC’s demand on 1 February 2000), respondents’
Respondents asked for more time to pay but ACFLC denied their request. principal obligation of P800,000.00 ballooned by more than P1,000,000.00
Respondents filed a case for annulment of the real estate mortgage and promissory
note before the Regional Trial Court (RTC). Respondents averred that the mortgage ACFLC failed to show any computation on how much interest was imposed
did not make reference to the promissory note and contained a provision on the and on the penalties charged. Thus, the amount claimed by ACFLC was
waiver of the mortgagor’s right of redemption, which is contrary to law and public unconscionable. Stipulations authorizing the imposition of iniquitous or
unconscionable interest are contrary to morals, if not against the law. Under Article
policy. Respondents added that the promissory note did not specify the maturity
1409 of the Civil Code, these contracts are inexistent and void from the beginning.
date of the loan, the interest rate, and the mode of payment, and illegally imposed
liquidated damages. ACFLC filed a petition for extrajudicial foreclosure of mortgage They cannot be ratified nor the right to set up their illegality as a defense be
with the office of the Deputy Sheriff. The RTC dismissed respondents’ complaint for waived.
annulment of mortgage for lack of cause of action, holding that respondents were
The nullity of the stipulation on the usurious interest does not, however,
well-educated individuals who could not feign naiveté in the execution of the loan
documents. The RTC further held that the alleged defects in the promissory note affect the lender’s right to recover the principal of the loan. Nor would it affect the
and in the deed of real estate mortgage were too insubstantial to warrant the terms of the real estate mortgage. The right to foreclose the mortgage remains
nullification of the mortgage. It added that a promissory note was not one of the with the creditors, and said right can be exercised upon the failure of the debtors
to pay the debt due. The debt due is to be considered without the stipulation of the
essential elements of a mortgage, thus, reference to a promissory note was neither
indispensable nor imperative for the validity of the mortgage. Respondents excessive interest. A legal interest of 12% per annum will be added in place of the
appealed to the Court of Appeals (CA) which reversed the RTC. The CA held that excessive interest formerly imposed. The nullification by the CA of the interest rate
the amount of P1,871,480.00 demanded by ACFLC from respondents was and the penalty charge and the consequent imposition of an interest rate of 12%
and penalty charge of 1% per month cannot, therefore, be considered a reversible
unconscionable and excessive. The CA fixed the interest rate at 12% per annum
error.
and reduced the penalty charge to 1% per month. The CA also invalidated the
waiver of respondents’ right of redemption for reasons of public policy. When the
CA denied ACFLC’s motion for reconsideration, ACFLC brought the case to the The Court cited Spouses Castro vs. Tan, et al. (G.R. No. 168940; 24
Supreme Court, insisting on the validity of the real estate mortgage and promissory November 2009), where it held that: “The imposition of an unconscionable rate of
interest on a money debt, even if knowingly and voluntarily assumed, is immoral
note. ACFLC argued that right of redemption was a privilege which respondents
could waive as they did in this case. It further argued that respondents’ action for and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation
annulment of mortgage was a collateral attack on its certificate of title. of property, repulsive to the common sense of man. It has no support in law, in
principles of justice, or in the human conscience nor is there any reason whatsoever
Page
CREDIT TRANSACTIONS
which may justify such imposition as righteous and as one that may be sustained ISSUE: Whether or not the contention of plaintiff is tenable?
within the sphere of public or private morals.”
RULING: The contract was denominated as LEASE CONTRACT. Nowhere in the
(2) Settled is the rule that for a waiver to be valid and effective, it must, in the first contract showing that the parties intended a loan rather than a lease. There was
place, be couched in clear and unequivocal terms which will leave no doubt as to no usury because there was no money given by the defendant to the plaintiff for
the intention of a party to give up a right or benefit which legally pertains to him. the latter to use. It was only a discount for paying the 8 years advance. The
The intention to waive a right or an advantage must be shown clearly and difference between a discount and loan or forbearance is that the former does not
convincingly. ACFLC failed to convince the Court that respondents waived their have to be paid. The latter is subject to repayment and therefor governed by usury
right of redemption voluntarily. The Court agreed with the CA’s explanation in law. It should be of money or something circulating; it must be repayable in all
invalidating the waiver: The supposed waiver was in fine print and in the form and events; and it is in excess allowed by law.
language prepared by ACFLC, partaking of the nature of a contract of adhesion.
Doubts in the interpretation of stipulations in contracts of adhesion should be Herrera vs Petrophil Corporation (146 SCRA 385)
resolved against the party that prepared them.
FACTS: Francisco Herrera and ESSO Standard Eastern. Inc., (later substituted by
This principle especially holds true with regard to waivers, which are not Petrophil Corporation) entered into a "Lease Agreement" whereby Herrera leased
presumed, but which must be clearly and convincingly shown. ACFLC failed to show to the latter a portion of his property for a period of twenty (20) years.
the efficacy of this waiver. Moreover, to say that the mortgagor’s right of
redemption may be waived through a fine print in a mortgage contract is, in the The “Lease Agreement” contained a stipulation to the interest which state
last analysis, tantamount to placing at the mortgagee’s absolute disposal the that the Lessor is paid 8 years advance rental based on P2, 930.70 per month
property foreclosed. It would render practically nugatory this right that is provided discounted at 12% interest per annum or a total net amount of P130, 288.47 before
by law for the mortgagor for reasons of public policy. A contract of adhesion may registration of lease.
be struck down as void and unenforceable for being subversive to public policy,
when the weaker party is completely deprived of the opportunity to bargain on Petrophil paid to Herrera advance rentals for the first eight years,
equal footing. subtracting there from the amount of P101,010.73, the amount it computed as
constituting the interest or discount for the first eight years, in the total sum
(3) The case for annulment of mortgage was filed long before the consolidation of P180,288.47, however explaining that there has been mistake in computation in
ACFLC’s title over the property. In fact, when respondents filed said case at the the additional sum of P2,182.70, Petrophil paid to the appellant the amount of only
first instance, the title to the property was still in Cesario’s name. It was pending P98,828.03.
with the RTC when ACFLC filed a petition for foreclosure of mortgage and even
when a writ of possession was issued. Clearly, ACFLC’s title was subject to the final Herrera sued Petrophil for the sum of P98,828.03, with interest, claiming
outcome of the case for annulment of mortgage. this had been illegally deducted from him in violation of the Usury Law. Petrophil
argued that the amount deducted was not usurious interest but a given to it for
Herrera vs. Petrophil Corporation (146 SCRA 385) paying the rentals in advance for eight years. The Trial Court rendered Judgment
in favor of Petrophil.
FACTS: Plaintiff and defendant entered into an contract of lease whereby the
former agreed to leased portion of his property for a period of 20 years. One of the ISSUE: Whether or not the interest was excessive and violative of the
stipulation provides that, the lessor is paid 8 years advance based on the agreed Usury Law?
rental amount at 12% per annum. In short there was a discount. Pursuant to the
contract, the defendant paid 8 years in advance subtracting therefrom the HELD: Herrera argued that the interest collected by defendant out of the rentals
discounted amount. The plaintiff sued the defendant claiming that the interest was for the first eight years was excessive and beyond that allowable by law, because
in violation of the usury law. the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly
rental; and considering that the interest should be computed excluding the first
Page
year rental because at the time the amount of P281, 199.20 was paid it was already
CREDIT TRANSACTIONS
due under the lease contract hence no interest should be collected from the rental R.A. No. 265, which created the Central Bank (CB) of the Philippines,
for the first year, the amount of P29,536.42 only as the total interest should have empowered the CB-MB to, among others, set the maximum interest rates which
been deducted by defendant from the sum of P281,299.20. banks may charge for all types of loans and other credit operations, within limits
prescribed by the Usury Law.
The elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of
(3) that for such loan a greater rate or interest that is allowed by law shall be paid, 1982. Section 1 of the Circular, under its General Provisions, removed the ceilings
or agreed to be paid, as the case may be; and (4) a corrupt intent to take more on interest rates on loans or forbearance of any money, goods or credits.
than the legal rate for the use of money loaned. Unless these four things concur in
every transaction, it is safe to affirm that no case of usury can be declared. On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB.
The contract between the parties is one of lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing ISSUE/S:
that the parties intended a loan rather than a lease. The provision for the payment 1. Whether the CB-MB exceeded its authority when it issued CB Circular
of rentals in advance cannot be construed as a repayment of a loan because there No. 905, which removed all interest ceilings and thus suspended Act No.
was no grant or forbearance of money as to constitute indebtedness on the part of 2655 as regards usurious interest rates. NO
the lessor.
There is no usury in this case because no money was given by the 2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce
defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money CB Circular No. 905. YES
already in his possession. There was neither loan nor forbearance but a mere
discount which the plaintiff-appellant allowed the defendant-appellee to deduct RULING:
from the total payments because they were being made in advance for eight years. 1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
The discount was in effect a reduction of the rentals which the lessor had the right Circular No. 905. The power of the CB to effectively suspend the Usury Law
to determine, and any reduction thereof, by any amount, would not contravene the pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As
Usury Law. the Court explained in the landmark case of Medel v. CA, citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
To constitute usury, "there must be loan or forbearance; the loan suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for]
must be of money or something circulating as money; it must be repayable only a law can repeal another law;" that "by virtue of CB Circular No. 905, the
absolutely and in all events; and something must be exacted for the use of the Usury Law has been rendered ineffective;" and "Usury has been legally non-
money in excess of and in addition to interest allowed by law." existent in our jurisdiction. Interest can now be charged as lender and borrower
may agree upon."
Advocates for Truth in Lending, Inc. vs.
Bangko Sentral Monetary Board (288 SCRA 530) By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
freedom of contract to agree freely on the rate of interest. It cited Article 1306 of
the New Civil Code, under which the contracting parties may establish such
FACTS: Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer
claim that they are raising issues of transcendental importance to the public and stipulations, clauses, terms and conditions as they may deem convenient, provided
so they filed Petition for Certiorari under Rule 65 ROC seeking to declare that the they are not contrary to law, morals, good customs, public order, or public policy.
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank
2. The BSP-MB has authority to enforce CB Circular No. 905.
Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue
enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982, which Section 1 of CB Circular No. 905 provides that, "The rate of interest, including
"suspended" the Usury Law of 1916 (Act No. 2655). commissions, premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether secured or
Page
unsecured, that may be charged or collected by any person, whether natural or
CREDIT TRANSACTIONS
juridical, shall not be subject to any ceiling prescribed under or pursuant to the due or accrued interests on the promissory notes so that Atty. Hingco could easily
Usury Law, as amended." It does not purport to suspend the Usury Law only as it approve the assumption of mortgage. Alfredo later found out that his application
applies to banks, but to all lenders. for assumption of mortgage was not approved by Land Bank. On December 12,
1997, Alfredo initiated an action for recovery of sum of money with damages
Petitioners contend that, granting that the CB had power to "suspend" the against Land Bank, as Alfredos payment was not returned by Land Bank. Alfredo
Usury Law, the new BSP-MB did not retain this power of its predecessor, in view of maintained that Land Banks foreclosure without informing him of the denial of his
Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The assumption of the mortgage was done in bad faith.
petitioners point out that R.A. No. 7653 did not reenact a provision similar to
Section 109 of R.A. No. 265. The RTC held that the contract approving the assumption of mortgage was
not perfected as a result of the credit investigation conducted on Alfredo. It ruled
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans that under the principle of equity and justice, the bank should return the amount
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the Alfredo had paid with interest at 12% per annum computed from the filing of the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or complaint. Moreover, according to the appellate court, the payment of PhP 750,000
renewals thereof or the forbearance of any money, goods or credits, including those was for the approval of his assumption of mortgage and not for payment of arrears
for loans of low priority such as consumer loans, as well as such loans made by incurred by the Sy spouses. Although Land Bank was not bound by the Deed
pawnshops, finance companies and similar credit institutions. It even authorizes between Alfredo and the Spouses Sy, the appellate court found that Alfredo and
the BSP-MB to prescribe different maximum rate or rates for different types of Land Banks active preparations for Alfredos assumption of mortgage essentially
borrowings, including deposits and deposit substitutes, or loans of financial novated the agreement.
intermediaries. Act No. 2655, an earlier law, is much broader in scope, whereas
R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by ISSUE:
banks and other financial institutions. Had R.A. No. 7653 been intended to repeal Whether the Trial Court erred in holding that Art. 1236 of the Civil Code
Section 1-a of Act No. 2655, it would have so stated in unequivocal terms. does not apply and in finding that there is no novation.
Further, the lifting of the ceilings for interest rates does not authorize RULING:
stipulations charging excessive, unconscionable, and iniquitous interest. It is Land Bank contends that Art. 1236 of the Civil Code backs their claim that
settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority Alfredo should have sought recourse against the Spouses Sy instead of Land
to raise interest rates to levels which will either enslave their borrowers or lead to Bank. Art. 1236 provides:
a hemorrhaging of their assets. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down for being contrary to The creditor is not bound to accept payment or performance by a third
morals, if not against the law. person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Land Bank of the Phils. vs. Ong (636 SCRA 266) Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
FACTS: Spouses Johnson and Evangeline Sy secured a loan from Land Bank can recover only insofar as the payment has been beneficial to the debtor.
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3)
residential lots, five (5) cargo trucks, and a warehouse. Subsequently, however, Land Bank was not bound to accept Alfredos payment, since as far as the
the Spouses Sy found they could no longer pay their loan. They sold three (3) of former was concerned, he did not have an interest in the payment of the loan of
their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, under a the Spouses Sy. However, in the context of the second part of said paragraph,
Deed of Sale with Assumption of Mortgage. Atty. Edna Hingco, the Legazpi City Alfredo was not making payment to fulfill the obligation of the Spouses Sy.Alfredo
Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that made a conditional payment so that the properties subject of the Deed of Sale with
there was nothing wrong with the agreement. They were also told that Alfredo Assumption of Mortgage would be titled in his name.
Page
should pay part of the principal which was computed at PhP 750,000 and to update
CREDIT TRANSACTIONS
Alfredo, as a third person, did not, therefore, have an interest in the ISSUE: Is a loan obligation that is secured by a real estate mortgage with
fulfillment of the obligation of the Spouses Sy, since his interest hinged on Land an interest of 72% p.a. or 6% a month unconscionable?
Banks approval of his application, which was denied. And as Alfredo was not paying
for another, he cannot demand from the debtors, the Spouses Sy, what he has
paid. HELD: Yes, although the C.B. Circular No 905 lifted the ceiling on interest rates
there is nothing in the said circular that grants lenders carte blanche authority to
Land Bank also faults the CA for finding that novation applies to the instant raise interest rates to levels which will either enslave their borrowers or lead to
case. We do not agree, then, with the CA in holding that there was a novation in hemorrhaging of their assets. In the case of Medel vs. C.A., the Supreme Court
the contract between the parties. Not all the elements of novation were present: has held that 5.5% per month was reduced for being iniquitous, unconscionable
(1) a previous valid obligation; (2) an agreement of all parties concerned to a new and exorbitant hence it is contrary to morals (contra bonos mores). In this case
contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid the Solangons’ are in a worse situation than the Medel case (6% per month interest
new obligation. Novation must be expressly consented to. rate) the said interest rate should be reduced equitably.
The SC rule that Land Bank is still liable for the return of the PhP 750,000 WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject
based on the principle of unjust enrichment. By accepting Alfredo’s payment and to the MODIFICATION that the interest rate of 72% per annum is ordered reduced
keeping silent on the status of Alfredo’s application, Land Bank misled Alfredo to to 12 % per annum.
believe that he had for all intents and purposes stepped into the shoes of the
Spouses Sy.
Private Development Corporation of the Philippines vs IAC
Spouses Solangon vs Salazar (GR No. 125944, June 29, (213 SCRA 282)
2001)
FACTS:
FACTS: On 1986, 1987, and 1990 the Solangons’ executed 3 real estate mortgages On May 21, 1974, Davao Timber Corporation, DATICOR for brevity, and the
in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor Private Development Corporation (PDCP) entered into a loan agreement. It was
of the Salazar to secure payment of a loan of P60, 000.00 payable within a period stipulated in the loan agreement, that the foreign currency loan was to be paid
of four (4) months, with interest thereon at the rate of 6% per month, to secure with an interest rate of eleven and three fourths (11-3/4%) per cent per annum
payment of a loan of P136, 512.00, payable within a period of one (1) year, with on the disbursed amount of the foreign currency; and the peso loan at the rate of
interest thereon at the legal rate, and to secure payment of a loan in the amount twelve (12%) per cent per annum on the disbursed amount of the peso loan
of P230, 000.00 payable within a period of four (4) months, with interest thereon outstanding, commencing on the several dates on which disbursements of the
at the legal rate. proceeds of the loans were made.
This action was initiated by the Solangons to prevent the foreclosure of A total of P3,000,000.00 was already paid by Del Rosario to PDCP and which
the mortgaged property. They alleged that they obtained only one loan from the the latter applied to interests, service fees and penalty charges, such that according
defendant-appellee, and that was for the amount of P60, 000.00, the payment of to PDCP, DATICOR still has an outstanding balance on the principal loan of
which was secured by the first of the above-mentioned mortgages. The subsequent P10,887,856.99 as of May 15, 1983.
mortgages were merely continuations of the first one, which is null and void
because it provided for unconscionable rate of interest. They have already paid the DATICOR filed a case in the Court of First Instance of Davao Oriental seeking
defendant-appellee P78, 000.00 and tendered P47, 000.00 more, but the latter has a writ of injunction to prevent PDCP from foreclosing its properties in Davao, and
initiated foreclosure proceedings for their alleged failure to pay the loan P230, likewise praying for the annulment of the loan contract as it is in violation of the
000.00 plus interest. Usury Law and damages.
Page
CREDIT TRANSACTIONS
The then Intermediate Appellate Court set aside the decision appealed
declared the stipulations of interest in the loan agreement between DATICOR and
PDCP void and of no effect, as if the loan agreement is without stipulation as to
payment of interest."
ISSUE:
Whether or not stipulations on usurious interest should be interpreted to
mean forfeiture even of the principal.
RULING:
NO. As held in Angel Jose Warehousing Co., Inc. v. Chelda Enterprises, et al: "In
simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is
not illegal. The illegality lies only as to the prestation to pay the stipulated interest:
hence, being separable, the latter only should be deemed void, since it is only one
that is illegal.." . . "The foregoing interpretation is reached with the philosophy of
usury legislation in mind; to discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan becomes one without
stipulation as to the payment of interest. It should not, however, be interpreted to
mean forfeiture even of the principal, for this would unjustly enrich the borrower
at the expense of the lender. Furthermore, penal sanctions are available against a
usurious lender, as a further deterrence to usury. "The principal debt remaining
without stipulation for payment of interest can thus be recovered by judicial
action."
Page

CreditTransactionsReviewer Complete

Uploaded by

Copyright:

Available Formats

CreditTransactionsReviewer Complete

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CreditTransactionsReviewer Complete

Uploaded by

Copyright:

Available Formats

CREDIT TRANSACTIONS

Definition and Scope Definition and Kinds

Two types: BAILMENT

Mutual-benefit Bailments The Contract of Loan is:

Consequence of purely personal character of commodatum Elements of commodatum

A: No, it is not transmissible for 2 reasons:

GR: Borne equally by the bailor and bailee A:

Consideration in a simple loan Commodatum v. Mutuum

Recovery of unstipulated interest

2. Art. 2209, NCC – 6% per annum in cases of:

HELD: When an obligation, not constituting a loan or forbearance of money, is

FACTS: Private respondent Security Diners International Corporation (Diners RULING:

You might also like