ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC extant at the time of constitution and during

at the time of constitution and during the life of the chattel mortgage sought to
vs.HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and be foreclosed.
REGIONAL SHERIFF OF CALOOCAN CITY
Olivia Navoa and Ernesto Navoa vs. C.A., Teresita Domdoma and Eduardo
FACTS: Domdoma
Petitioner Chua Pac, the president and general manager of co-petitioner Acme GR No 59255 20December1995
executed a chattel mortgage in favor of private respondent Producers Bank as a
security for a loan of P3,000,000. A provision in the chattel mortgage agreement was Facts: On December 1977 Teresita Domdoma and Eduardo Domdoma filed a case
to this effect: with the RTC for collection of various sums of money based on loans given by them
to Olivia Navoa. They cased was dismissed on the ground that there was no cause of
"In case the MORTGAGOR executes subsequent promissory note or notes either as a action and that the Domdoma’s do not have no capacity to sue. They appealed to the
renewal of the former note, as an extension thereof, or as a new loan, or is given any C.A. and was granted a favourable decision.
other kind of accommodations such as overdrafts, letters of credit, acceptances and There were 6 instances in which the Domdoma’s gave Olivia Navoa a loan. The first
bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage instance is when Teresita gave Olivia a diamond ring valued at 15,000.00 which was
shall also stand as security for the payment of the said promissory note or notes and/or secured by a PCIB check under the condition that if the ring was not returned within
accommodations without the necessity of executing a new contract and this mortgage 15 days from August 15, 1977 the ring is considered sold. Teresita attempted to deposit
shall have the same force and effect as if the said promissory note or notes and/or the check on November 1977 but the check was not honoured for lack of funds. After
accommodations were existing on the date thereof. This mortgage shall also stand as this instance, there were other loans of various amounts that were extended by Teresita
security for said obligations and any and all other obligations of the MORTGAGOR to Olivia, loans which were secured by PCIB checks, which were all dated to 1 month
to the MORTGAGEE of whatever kind and nature, whether such obligations have after the loan. All these checks were not honoured under the same reason as the first
been contracted before, during or after the constitution of this mortgage." loan.
Issue:
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional Was the decision of the RTC to dismiss the case due to having no cause of action
loan totalling P2,700,000.00 which was also duly paid. valid?
- NO, A cause of action is the fact or combination of facts which affords a party a right
Another loan was again extended (P1,000,000.00) covered by four promissory notes to judicial interference in his behalf.
for P250,000.00 each, but went unsettled prompting the bank to apply for an - For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15
extrajudicial foreclosure with the Sheriff. days after August 15, 1977, and even then, Olivia Navoa failed to pay the price for the
ring when the payment was due (check issued was not honoured. Thus it is confirmed
ISSUE: that Teresita’s right under the agreement was violated.
Would it be valid and effective to have a clause in a chattel mortgage that purports to - As for the other loans extended by Teresita to Olivia, they were all secured by PCIB
likewise extend its coverage to obligations yet to be contracted or incurred? checks. It can be inferred that since the checks were all dated to 1 month after the loan,
it follows that the loans are then payable 1 month after they were contracted, and also
HELD: these checks were dishonoured by the bank for lack of funds.
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure - Olivia and Ernesto Navoa failed to make good the checks that were issued as payment
after-incurred obligations so long as these future debts are accurately described, a for their obligations. Art 1169 of the Civil Code is explicit: those obliged to deliver or
chattel mortgage, however, can only cover obligations existing at the time the to do something incur in delay from the time the obligee judicially or extra-judicially
mortgage is constituted. Although a promise expressed in a chattel mortgage to include demands from them the fulfilment of the obligations, the continuing refusal of Olivia
debts that are yet to be contracted can be a binding commitment that can be compelled and Ernesto Navoa to comply with the demand of payment shows the existence of a
upon, the security itself, however, does not come into existence or arise until after a cause of action.
chattel mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably with Held:
the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower The petition is DENIED and the decision of the C.A. remanding the case to the RTC
to execute the agreement so as to cover the after-incurred obligation can constitute an for trial on the merits is affirmed.
act of default on the part of the borrower of the financing agreement whereon the
promise is written but, of course, the remedy of foreclosure can only cover the debts Obligations and Contracts terms:
Security- A means of ensuring the enforcement of an obligation or of protecting some REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
interest in property. It may be personal or property security. vs.
Cause of Action- is the fact or combination of facts which affords a party a right to PHILIPPINE NATIONAL BANK, ET AL., defendants,
judicial interference in his behalf. The requisites for a cause of action are: (a) a right THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appellee.
in favour of the plaintiff by whatever means and under whatever law it arises or
created, (b) an obligation on the part of the defendant to respect and not to violate such The Republic of the Philippines filed on September 25, 1957 before the Court of First
right; and, (c) an act or omission on the part of the defendant constituting a violation Instance of Manila a complaint for escheat of certain unclaimed bank deposits balances
of the plaintiff’s right or breach of the obligation of the defendant to the plaintiff. under the provisions of Act No. 3936 against several banks, among them the First
National City Bank of New York. It is alleged that pursuant to Section 2 of said Act
People vs. Concepcion 44 PHIL 126 November 29,1922 defendant banks forwarded to the Treasurer of the Philippines a statement under oath
Facts: Petitioner filed against the defendant before the RTC a violation of Sec. (Sec. of their respective managing officials of all the credits and deposits held by them in
35,Act. No. 2747). By telegrams and a letter of confirmation to the manager of the favor of persons known to be dead or who have not made further deposits or
branch of Philippine National Bank, defendant Venancio Concepcion, President and withdrawals during the period of 10 years or more. Wherefore, it is prayed that said
member of board of directors of PNB, authorized an extension of credit in favor of credits and deposits be escheated to the Republic of the Philippines by ordering
partnership of “Puno y Concepcion,S. en C”, of which the wife of defendant is a defendant banks to deposit them to its credit with the Treasurer of the Philippines.
partner, in the amount of 300,000.The special authorization was essential in view
of prior memorandum order of defendant limiting the discretional to grant
In its answer the First National City Bank of New York claims that, while it admits
loans and discount negotiable documents to 5,000. Pursuant to authorization
that various savings deposits, pre-war inactive accounts, and sundry accounts
of by defendant, credit aggregating 300,000 was granted to the partnership,
contained in its report submitted to the Treasurer of the Philippines pursuant to Act
the only security required consisting of 6 demand notes. The notes, together No. 3936, totalling more than P100,000.00, which remained dormant for 10 years or
with interest, were taken up and paid about two months later. Under the more, are subject to escheat however, it has inadvertently included in said report
law, (Sec. 35,Act. No. 2747),the PNB “shall not directly grant loans to any
certain items amounting to P18,589.89 which, properly speaking, are not credits or
members of the board of directors of the bank nor to agents of the branch banks.”
deposits within the contemplation of Act No. 3936. Hence, it prayed that said items be
Issues: (1) Was the granting of a credit of 300,000 to partnership of “Puno y
not included in the claim of plaintiff.
Concepcion S. en C”, a loan within the meaning of Section 35 or only a concession of
credit? (2) Were the demand notes signed by the firm a loan or a discount?
Held: ( 1 ) The granting of a credit to Puno y Concepcion S. en C is a After hearing the court a quo rendered judgment holding that cashier's is or manager's
concession of credit. The concession of a “credit” necessarily involves the checks and demand drafts as those which defendant wants excluded from the
granting of loans up to the limit of the amount fixed in the credit. According to the complaint come within the purview of Act No. 3936, but not the telegraphic transfer
Court, credit of an individual means his ability to borrow money by virtue of payment which orders are of different category. Consequently, the complaint was
the confidence or trust reposed by lender that he will pay what he may promise. While dismissed with regard to the latter. But, after a motion to reconsider was filed by
a “loan ” means the delivery by one party and the receipt by the other party of a given defendant, the court a quo changed its view and held that even said demand drafts do
sum of money, upon an agreement, express or implied, to repay the sum loaned, with not come within the purview of said Act and so amended its decision accordingly.
or without interest. (2) The demand notes signed by the firm ”Puno y Conecpcion, S Plaintiff has appealed.lawphil.net
en. C” is a loan. To discount a paper is a mode of loaning money, with these
distinctions: a) In a discount , interest is deducted in advance, while in a loan , Section 1, Act No. 3936, provides:
interest is taken at the expiration of a credit; b) A discoun t is always on double-name
paper; a loan is generally on single name paper; The conclusion is inevitable that the Section 1. "Unclaimed balances" within the meaning of this Act shall include
demand notes signed by the firm were mere evidences of indebtedness, because credits or deposits of money, bullion, security or other evidence of
interest was not deducted when the notes fell due; and they were single-name and not indebtedness of any kind, and interest thereon with banks, as hereinafter
double-name paper. Hence, a loan to a partnership of which the wife of a director of a defined, in favor of any person unheard from for a period of ten years or more.
bank is a member is an indirect loan which falls within the prohibition of Section 35 Such unclaimed balances, together with the increase and proceeds thereof,
of Act No. 2747.The prohibition against indirect loans is a recognition of the familiar shall be deposited with the Insular Treasure to the credit of the Government
maxim that no man may serve two masters, that were personal interest clashes with of the Philippine Islands to be as the Philippine Legislature may direct.
fidelity to duty the latter almost always suffer.
It would appear that the term "unclaimed balances" that are subject to escheat include last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make
credits or deposits money, or other evidence of indebtedness of any kind with banks, such presentment will discharge the drawer from liability or to the extent of the loss
in favor of any person unheard from for a period of 10 years or more. And as correctly caused by the delay (Section 186, Ibid.)
stated by the trial court, the term "credit" in its usual meaning is a sum credited on the
books of a company to a person who appears to be entitled to it. It presupposes a Since it is admitted that the demand drafts herein involved have not been presented
creditor-debtor relationship, and may be said to imply ability, by reason of property or either for acceptance or for payment, the inevitable consequence is that the appellee
estates, to make a promised payment ( In re Ford, 14 F. 2d 848, 849). It is the bank never had any chance of accepting or rejecting them. Verily, appellee bank never
correlative to debt or indebtedness, and that which is due to any person, a distinguished became a debtor of the payee concerned and as such the aforesaid drafts cannot be
from that which he owes (Mountain Motor Co. vs. Solof, 124 S.E., 824, 825; Eric vs. considered as credits subject to escheat within the meaning of the law.
Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S. 303, 309; Prudential
Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes vs. Treat, 7 Mass.
But a demand draft is very different from a cashier's or manager's cheek, contrary to
271, 274). The same is true with the term "deposits" in banks where the relationship
appellant's pretense, for it has been held that the latter is a primary obligation of the
created between the depositor and the bank is that of creditor and debtor (Article 1980,
bank which issues it and constitutes its written promise to pay upon demand. Thus, a
Civil Code; Gullas vs. National Bank, 62 Phil. 915; Gopoco Grocery, et al. vs. Pacific cashier's check has been clearly characterized in In Re Bank of the United States, 277
Coast Biscuit Co., et al., 65 Phil. 443). N.Y.S. 96. 100, as follows:

The questions that now arise are: Do demand draft and telegraphic orders come within
A cashier's check issued by a bank, however, is not an ordinary draft. The
the meaning of the term "credits" or "deposits" employed in the law? Can their import
latter is a bill of exchange payable demand. It is an order upon a third party
be considered as a sum credited on the books of the bank to a person who appears to purporting to drawn upon a deposit of funds. Drinkall v. Movious State Bank,
be entitled to it? Do they create a creditor-debtor relationship between drawee and the 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler
payee?
County State Bank (Tex. Com. App.) 277 S.W. 625, 42 A.L.R. 1347. A
cashier's check is of a very different character. It is the primary obligation of
The answers to these questions require a digression the legal meaning of said banking the bank which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776)
terminologies. and constitutes its written promise to pay upon demand (Steinmetz v. Schultz,
59 S.D. 603, 241 N.W. 734)....lawphil.net
To begin with, we may say that a demand draft is a bill of exchange payable on demand
(Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City Trust Company, 102 N.Y.S. 50; The following definitions cited by appellant also confirm this view:
Bank of Republic vs. Republic State Bank, 42 S.W. 2d, 27). Considered as a bill of
exchange, a draft is said to be, like the former, an open letter of request from, and an A cashier's check is a check of the bank's cashier on his or another bank. It is
order by, one person on another to pay a sum of money therein mentioned to a third
in effect a bill of exchange drawn by a bank on itself and accepted in advance
person, on demand or at a future time therein specified (13 Words and Phrases, 371).
by the act of issuance (10 C.J.S. 409).
As a matter of fact, the term "draft" is often used, and is the common term, for all bills
of exchange. And the words "draft" and "bill of exchange" are used indiscriminately
(Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs. Rosenback, 39 N.Y. A cashier's check issued on request of a depositor is the substantial equivalent
98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275). of a certified check and the deposit represented by the check passes to the
credit of the checkholder, who is thereafter a depositor to that amount
(Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala. 552).
On the other hand, a bill of exchange within the meaning of our Negotiable Instruments
Law (Act No. 2031) does not operate as an assignment of funds in the hands of the
drawee who is not liable on the instrument until he accepts it. This is the clear import A cashier's check, being merely a bill of exchange drawn by a bank on itself,
of Section 127. It says: "A bill of exchange of itself does not operate as an assignment and accepted in advance by the act of issuance, is not subject to countermand
of the funds in the hands of the drawee available for the payment thereon and the by the payee after indorsement, and has the same legal effects as a certificate
drawee is not liable on the bill unless and until he accepts the same." In other words, deposit or a certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).
in order that a drawee may be liable on the draft and then become obligated to the
payee it is necessary that he first accepts the same. In fact, our law requires that with A demand draft is not therefore of the same category as a cashier's check which should
regard to drafts or bills of exchange there is need that they be presented either for come within the purview of the law.
acceptance or for payment within a reasonable time after their issuance or after their
The case, however, is different with regard to telegraphic payment order. It is said that Herrera appealed to the SC, insisting that such interest is violative of the Usury Law;
as the transaction is for the establishment of a telegraphic or cable transfer the and that he had neither agreed to nor accepted Petrophil’s computation of the total
agreement to remit creates a contractual obligation a has been termed a purchase and amount to be deducted for the eight years advance rentals.
sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer upon making ISSUE: Whether or not the contract is a loan or lease.
payment completes the transaction insofar as he is concerned, though insofar as the RULING: Lease. As its title plainly indicates, the contract between the parties is one
remitting bank is concerned the contract is executory until the credit is established of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT.
(Ibid.) We agree with the following comment the Solicitor General: "This is so because The provision for the payment of rentals in advance cannot be taken as a repayment of
the drawer bank was already paid the value of the telegraphic transfer payment order. a loan because there was no grant of money as to constitute an indebtedness on the
In the particular cases under consideration it appears in the books of the defendant part of the lessor. On the contrary, Petrophil was clearing its obligation by paying the
bank that the amounts represented by the telegraphic payment orders appear in the 8 years rentals, and it was for this advance payment that it was getting a discount.
names of the respective payees. If the latter choose to demand payment of their There is no usury in this case because no money was given by Petrophil to Herrera.
telegraphic transfers at the time the same was (were) received by the defendant bank, There was neither loan but a mere discount which Herrera allowed Petrophil to deduct.
there could be no question that this bank would have to pay them. Now, the question The discount was in effect a reduction of the rentals which the lessor had the right to
is, if the payees decide to have their money remain for sometime in the defendant bank, determine, and any reduction thereof, by any amount, would not contravene the Usury
can the latter maintain that the ownership of said telegraphic payment orders is now Law.
with the drawer bank? The latter was already paid the value of the telegraphic payment The difference between a discount and a loan or forbearance is that the former does
orders otherwise it would not have transmitted the same to the defendant bank. Hence, not have to be repaid. The loan or forbearance is subject to repayment and is therefore
it is absurd to say that the drawer banks are still the owners of said telegraphic payment governed by the laws on usury.
orders." To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
WHEREFORE, the decision of the trial court is hereby modified in the sense that the something must be exacted for the use of the money in excess of and in addition to
items specifically referred to and listed under paragraph 3 of appellee bank's answer interest allowed by law."
representing telegraphic transfer payment orders should be escheated in favor of the The elements of usury are (1) a loan, express or implied; (2) an understanding between
Republic of the Philippines. No costs. the parties that the money lent shall or may be returned; that for such loan a greater
rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case
may be; and (4) a corrupt intent to take more 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
Herrera vs Petrophil
case of usury can be declared.
Facts: On December 5, 1969, Herrera and Petrophil Corp. entered into a "Lease
Agreement" where Herrera leased to Petrophil a portion of his property, subject inter
alia to the following conditions: Saura Import vs DBP
3. The LESSEE shall pay the LESSOR a rental of a total of P2,930.20 per month on
2,093 sqm more or less, and that the Lessor should be paid 8 years advance rental FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion
based on P2,930.70 per month discounted at 12% interest per annum before
into DBP, for an industrial loan to be used for construction of factory building, for
registration of lease.
payment of the balance of the purchase price of the jute machinery and equipment and
On Dec. 31, 1969, Petrophil paid the advance rentals for the first 8 years, subtracting
the amount of P101,010.73, the amount it computed as constituting the interest or as additional working capital. In Resolution No.145, the loan application was approved
discount for the first 8 years, in the total sum P180,288.47. to be secured first by mortgage on the factory buildings, the land site, and machinery
and equipment to be installed.
On Aug. 20, 1970, Petrophil explained that there had been a mistake in computation,
and thereby reducing the amount to only P98,828.03.
The mortgage was registered and documents for the promissory note were executed.
On Oct. 14, 1974, Herrera sued Petrophil for the sum of P98,828.03, claiming this had
The cancellation of the mortgage was requested to make way for the registration of a
been illegally deducted from him in violation of the Usury Law. Petrophil argued that
the amount deducted was not usurious interest but was given for paying the rentals in mortgage contract over the same property in favor of Prudential Bank and Trust Co.,
the latter having issued Saura letter of credit for the release of the jute machinery. As
advance for 8 years. Judgment favoured Petrophil.
security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura
to pay said obligation, Prudential sued Saura.
 spouses, so that in the absence of a principal obligation, there is want of consideration
After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to in the accessory contract, which consequently impairs its validity and fatally affects
comply with tits obligations to release the loan proceeds, thereby prevented it from its very existence.
paying the obligation to Prudential Bank.
Issue: Was there a perfected contract of loan?
The trial court ruled in favor of Saura, ruling that there was a perfected contract
between the parties ad that the RFC was guilty of breach thereof. Held: Yes. From the recitals of the mortgage deed itself, it is clearly seen that the
mortgage deed was executed for and on condition of the loan granted to the Lozano
ISSUE spouses. The fact that the latter did not collect from the respondent Bank the
Whether or not there was a perfected contract between the parties. consideration of the mortgage on the date it was executed is immaterial. A contract of
loan being a consensual contract, the herein contract of loan was perfected at the same
HELD time the contract of mortgage was executed. The promissory note executed on
·Article 1934 provides: An accepted promise to deliver something by way of December 12, 1966 is only an evidence of indebtedness and does not indicate lack of
commodatum or simple loan is binding upon the parties, but the commodatum or consideration of the mortgage at the time of its execution.
simple loan itself shall not be perfected until delivery of the object of the contract.
· There was undoubtedly offer and acceptance in the case. The application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the Central Bank v Court of Appeals G.R. No. L-45710 October 3, 1985
corresponding mortgage was executed and registered. The defendant failed to fulfill Facts: Island Savings Bank, upon favorable recommendation of its legal department,
its obligation and the plaintiff is therefore entitled to recover damages. approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
· When an application for a loan of money was approved by resolution of the security for the loan, executed on the same day a real estate mortgage over his 100-
respondent corporation and the responding mortgage was executed and registered, hectare land located in Cubo, Las Nieves, Agusan. The loan called for a lump sum of
there arises a perfected consensual contract. P80,000, repayable in semi-annual installments for 3 yrs, with 12% annual interest.
· However, it should be noted that RFC imposed two conditions (availability of raw After the agreement, a mere P17K partial release of the loan was made by the bank
materials and increased production) when it restored the loan to the original amount and Tolentino and his wife signed a promissory note for the P17,000 at 12% annual
of P500,000.00. interest payable w/in 3 yrs. An advance interest was deducted fr the partial release but
· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead this prededucted interest was refunded to Tolentino after being informed that there was
of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked no fund yet for the release of the P63K balance.
that the mortgage be cancelled.The action thus taken by both parties was in the
nature of mutual desistance which is a mode of extinguishing obligations. It is a
Monetary Board of Central Bank, after finding that bank was suffering liquidity
concept that derives from the principle that since mutual agreement can create a
problems, prohibited the bank fr making new loans and investments. And after the
contract, mutual disagreement by the parties can cause its extinguishment.
bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank
Bonnevie v. CA from doing business in the Philippines. Island Savings Bank in view of the non-
GR No. L-49101 October 24, 1983 payment of the P17K filed an application for foreclosure of the real estate mortgage.
Tolentino filed petition for specific performance or rescission and damages with
preliminary injunction, alleging that since the bank failed to deliver P63K, he is
Facts: Spouses Lozano mortgaged their property to secure the payment of a loan
entitled to specific performance and if not, to rescind the real estate mortgage.
amounting to 75K with private respondent Philippine Bank of Communication
(PBCom). The deed of mortgage was executed on 12-6-66, but the loan proceeeds
were received only on 12-12-66. Two days after the execution of the deed of mortgage, Issues: 1) Whether or not Tolentino’s can collect from the bank for damages
the spouses sold the property to the petitioner Bonnevie for and in consideration of
100k—25K of which payable to the spouses and 75K as payment to PBCom.
Afterwhich, Bonnevie defaulted payments to PBCom prompting the latter to auction 2) Whether or not the mortgagor is liable to pay the amount covered by the
the property after Bonnivie failed to settle despite subsequent demands, in order to promissory note
recover the amount loaned. The latter now assails the validity of the mortgage between
Lozano and Pbcom arguing that on the day the deed was executed there was yet no 3) Whether or not the real estate mortgage can be foreclosed
principal obligation to secure as the loan of P75,000.00 was not received by the Lozano
Held: Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00
loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such
extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering
1) Whether or not Tolentino’s can collect from the bank for damages 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
The loan agreement implied reciprocal obligations. When one party is willing and hectares is more than sufficient to secure a P17,000.00 debt.
ready to perform, the other party not ready nor willing incurs in delay. When Tolentino
executed real estate mortgage, he signified willingness to pay. That time, the bank’s
Republic v. Bagtas
obligation to furnish the P80K loan accrued. Now, the Central Bank resolution made
it impossible for the bank to furnish the P63K balance. The prohibition on the bank to
make new loans is irrelevant bec it did not prohibit the bank fr releasing the balance
Facts: Bagtas borrowed three bulls from the Bureau of Animal Industry for one year
of loans previously contracted. Insolvency of debtor is not an excuse for non-
for breeding purposes subject to payment of breeding fee of 10% of book value of the
fulfillment of obligation but is a breach of contract.
bull. Upon expiration, Bagtas asked for renewal. The renewal was granted only to one
bull. Bagtas offered to buy the bulls at its book value less depreciation but the Bureau
The bank’s asking for advance interest for the loan is improper considering that the refused. The Bureau said that Bagtas should either return or buy it at book value.
total loan hasn’t been released. A person can’t be charged interest for nonexisting debt. Bagtas proved that he already returned two of the bulls, and the other bull died during
The alleged discovery by the bank of overvaluation of the loan collateral is not an a Huk raid, hence, obligation already extinguished. He claims that the contract is a
issue. The bank officials should have been more responsible and the bank bears risk in commodatum hence, loss through fortuitous event should be borne by the owner.
case the collateral turned out to be overvalued. Furthermore, this was not raised in the
pleadings so this issue can’t be raised. The bank was in default and Tolentino may
choose bet specific performance or rescission w/ damages in either case. But Issue: WON Bagtas is liable for the death of the bull.
considering that the bank is now prohibited fr doing business, specific performance
cannot be granted. Rescission is the only remedy left, but the rescission shld only be
for the P63K balance. Held: Yes. Commodatum is essentially gratuitous. However, in this case, there is a
10% charge. If this is considered compensation, then the case at bar is a lease. Lessee
is liable as possessor in bad faith because the period already lapsed.Even if this is a
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory
note commodatum, Bagtas is still liable because the fortuitous event happened when he
held the bull and the period stipulated already expired and he is liable because the thing
loaned was delivered with appraisal of value and there was no contrary stipulation
The promissory note gave rise to Sulpicio M. Tolentino’s reciprocal obligation to pay regarding his liability in case there is a fortuitous event.
the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations
under the promissory note made him a party in default, hence not entitled to rescission
(Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it Mina vs Pascual
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, Facts: Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla
he would be entitled to ask for rescission of the entire loan because he cannot possibly acquired during his lifetime, on March 12, 1874, a lot.
be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish
a part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay
his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs,
Alejandro Mina, et al., were recognized without discussion as his heirs.
3) Whether or not the real estate mortgage can be foreclosed
Andres Fontanilla, the former owner of the warehouse, also having died, the children
of Ruperta Pascual were recognized, though it is not said how, and consequently are
entitled to the said building, or rather, as Ruperta Pascual herself stated, to only six- able to pay a total of P200,000.00—P100,000.00 paid on two separate occasions—
sevenths of one-half of it, the other half belonging, as it appears, to the plaintiffs leaving an unpaid balance of P300,000.00.
themselves, and the remaining one-seventh of the first one-half to the children of one
of the plaintiffs, Elena de Villanueva. On March 22, 1999, respondents executed an acknowledgment receipt to petitioners,
which states:
Ruperta Pascual, as the guardian of her minor children, the herein defendants,
petitioned the Curt of First Instance of Ilocos Norte for authorization to sell "the six- This is to acknowledge receipt of the Amount of Five Hundred Thousand
sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its lot. (P500,000.00) Pesos from Mrs. Alma R. Abella, payable within one (1) year from date
The warehouse, together with the lot on which it stands, was sold to Cu Joco, the other hereof with interest.
defendant in this case Annie C. Abella (sgd.) Romeo M. Abella (sgd.
Issue: WoN there exist a contract of commodatum
Held: although both litigating parties may have agreed in their idea of the In their Answer, respondents alleged that the amount involved did not pertain to a loan
commodatum, on account of its not being, as indeed it is not, a question of fact but of they obtained from petitioners but was part of the capital for a joint venture involving
law the lending of money.
Contracts are not to be interpreted in conformity with the name that the parties thereto
agree to give them, but must be construed, duly considering their constitutive elements, Specifically, respondents claimed that they were approached by petitioners, who
as they are defined and denominated by law. proposed that if respondents were to "undertake the management of whatever money
By the contract of loan, one of the parties delivers to the other, either anything not [petitioners] would give them, [petitioners] would get 2.5% a month with a 2.5%
perishable, in order that the latter may use it during the certain period and return it to service fee to [respondents]." The 2.5% that each party would be receiving represented
the former, in which case it is called commodatum their sharing of the 5% interest that the joint venture was supposedly going to charge
It is, therefore, an essential feature of the commodatum that the use of the thing against its debtors. Respondents further alleged that the one year averred by petitioners
belonging to another shall BE for a certain period. Francisco Fontanilla did not fix was not a deadline for payment but the term within which they were to return the
any definite period or time during which Andres Fontanilla could have the use of the money placed by petitioners should the joint venture prove to be not lucrative.
lot whereon the latter was to erect a stone warehouse of considerable value, and so it Moreover, they claimed that the entire amount of P500,000.00 was disposed of in
is that for the past thirty years of the lot has been used by both Andres and his accordance with their agreed terms and conditions and that petitioners terminated the
successors in interest. joint venture, prompting them to collect from the joint venture's borrowers. They were,
It would seem that the Supreme Court failed to consider the possibility of a contract however, able to collect only to the extent of P200,000.00; hence, the P300,000.00
of precardium between Francisco and Andres. Precardium is a kind of commodatum balance remained unpaid.
wherein the bailor may demand the object at will if the contract does not stipulate a
period or use to which the thing is devoted. Trial Court ruled in favor of petitioners. Ordering respondents to pay the petitioner the
sum of P300,000 with interest of 30% per annum.
Abella v. Abella (GR 195166) The CA ruled that while respondents had indeed entered into a simple loan with
In a loan or forbearance of money, according to the Civil Code, the interest due should petitioners, respondents were no longer liable to pay the outstanding amount of
be that stipulated in writing, and in the absence thereof, the rate shall be 12% per P300,000.00. CA noted that while the acknowledgement receipt showed that interest
annum. was to be charged, no particular interest rate was specified. Thus, at the time
Recently, however, the Bangko Sentral ng Pilipinas amending Section 2 of Circular respondents were making interest payments of 2.5% per month, these interest
No. 905, Series of 1982: payments were invalid for not being properly stipulated by the parties. Since
Section 1. The rate of interest for the loan or forbearance of any money, goods or petitioners' charging of interest was invalid, the Court of Appeals reasoned that all
credits and the rate allowed in judgments, in the absence of an express contract as to payments respondents made by way of interest should be deemed payments for the
such rate of interest, shall be six percent (6%) per annum. principal amount of P500,000.00.aThe Court of Appeals further noted that respondents
This Circular shall take effect on 1 July 2013. made a total payment of P648,500.00, which, as against the principal amount of
P500,000.00, entailed an overpayment of P148,500.00. Applying the principle
FACTS: Petitioners alleged that respondents obtained a loan from them in the amount of solutio indebiti, the Court of Appeals concluded that petitioners were liable to
of P500,000.00. The loan was evidenced by an acknowledgment receipt dated March reimburse respondents for the overpaid amount of P148,500.
22, 1999 and was payable within one (1) year. Petitioners added that respondents were
ISSUE 1. WON the party entered into a simple loan or mutuum as agreement?
 2. Whether interest accrued on respondents' loan from petitioners, If so, at P3,379.17, which respondents have overpaid
what rate?
Catholic Vicar vs CA
RULING:
1. As noted by the CA and RTC, respondents entered into a simple loan or mutuum,
rather than a joint venture, with petitioners. Facts: Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed
an application for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites
Art. 1933. By the contract of loan, one of the parties delivers to another, either of the Catholic Church building, convents, high school building, school gymnasium,
something not consumable so that the latter may use the same for a certain time and school dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and the Heirs
return it, in which case the contract is called a commodatum; or money or other of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
consumable thing, upon the condition that the same amount of the same kind and respectively, asserting ownership and title thereto since their predecessors’ house was
quality shall be paid, in which case the contract is simply called a loan or mutuum. borrowed by petitioner Vicar after the church and the convent were destroyed.. After
trial on the merits, the land registration court promulgated its Decision confirming the
Commodatum is essentially gratuitous. registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of the land registration court to the
Simple loan may be gratuitous or with a stipulation to pay interest. then Court of Appeals, The Court of Appeals reversed the decision. Thereupon, the
VICAR filed with the Supreme Court a petition for review on certiorari of the decision
In commodatum the bailor retains the ownership of the thing loaned, while in simple of the Court of Appeals dismissing his application for registration of Lots 2 and 3.
loan, ownership passes to the borrower.

Art. 1953. A person who receives a loan of money or any other fungible thing acquires Issue: Whether or not the failure to return the subject matter of commodatum
the ownership thereof, and is bound to pay to the creditor an equal amount of the same constitutes an adverse possession on the part of the owner
kind and quality. Decision: No. The bailees’ failure to return the subject matter of commodatum to the
bailor did not mean adverse possession on the part of the borrower. The bailee held in
2. 12% per annum. In a loan or forbearance of money, according to the Civil Code, the trust the property subject matter of commodatum.
interest due should be that stipulated in writing, and in the absence thereof, the Petitioner repudiated the trust by declaring the properties in its name for taxation
rate shall be 12% per annum. purposes.

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board, approved the QUINTOS VS BECK 69 PHIL 108
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of Facts: Quintos and Beck entered into a contract of lease, whereby the latter occupied
1982:LawlibraryofCRAlaw the former’s house. On Jan 14, 1936, the contract of lease was novated, wherein the
ChanRoblesVirtualawlibrary QUintos gratuitously granted to Beck the use of the furniture, subject to the condition
Section 1. The rate of interest for the loan or forbearance of any money, goods or that Beck should return the furnitures to Quintos upon demand. Thereafter, Quintos
credits and the rate allowed in judgments, in the absence of an express contract as to sold the property to Maria and Rosario Lopez. Beck was notified of the conveyance
such rate of interest, shall be six percent (6%) per annum. and given him 60 days to vacate the premises. IN addition, Quintos required Beck to
This Circular shall take effect on 1 July 2013. return all the furniture. Beck refused to return 3 gas heaters and 4 electric lamps since
he would use them until the lease was due to expire. Quintos refused to get the furniture
Applying this, the loan obtained by respondents from petitioners is the conventional since Beck had declined to return all of them. Beck deposited all the furniture
interest at the rate of 12% per annum, the legal rate at the time the parties executed belonging to QUintos to the sheriff.
their agreement. Proceeding from these premises, we find that respondents made an
overpayment in the amount of P3,379.17.
ISSUE: WON Beck complied with his obligation of returning the furnitures to
Quintos when it deposited the furnitures to the sheriff.
Petitioners Spouses Salvador and Alma Abella are DIRECTED to jointly and
severally reimburse respondents Spouses Romeo and Annie Abella the amount of
RULING: The contract entered into between the parties is one of commadatum,
because 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 through a middleman or dealer in the open market. In a money
bound himself to return the furniture to the plaintiff, upon the latters demand (clause market transaction, the investor is the lender who loans his money to a
7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). borrower through a middleman or dealer.
The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the latter's In the case at bar, the transaction is in the nature of a loan. Petitioner
residence or house. The defendant did not comply with this obligation when he merely accepted the check but when he tried to encash it, it was dishonored. The
placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters holder has an immediate recourse against the drawer, and consequently could
and the four eletric lamps. immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money may be
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, paid in money, which is the legal tender or, by the use of a check. A check is not legal
upon the latter's demand, the Court could not legally compel her to bear the expenses tender, and therefore cannot constitute valid tender of
occasioned by the deposit of the furniture at the defendant's behest. The latter, as payment.
bailee, was nt entitled to place the furniture on deposit; nor 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. TOLENTINO(plaintiff-apellant) v GONZALES SY CHIAM (defendant-
appellee)
CEBU INTERNATIONAL V. CA G.R. No. 26085 August 12, 1927

FACTS:
FACTS:Petitioner is a quasi-
1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio purchased
banking institution involved in money market transactions. Alegre
Luzon Rice Mills, Inc., parcel of land in Tarlac for P25,000.00 to be paid in
invested with petitioner P500,000. Petitioner issued then a promissory note,
three installments.
which would mature approximately after a month. The note covered for Alegre’s
a. First installment is P2,000 due on or before May 2, 1921
placement plus interest. On the maturity of the note, petitioner issued a check
b. Second installment is P8,000 due on or before May 31, 1921
payable to Alegre, covering the whole amount due. It was drawn from
c. Third installment of P15,000 at 12% interest due on or before Nov
petitioner’s current account in BPI. When
30, 1922
the wife of Alegre tried to deposit the check, the bank dishonored the
One of the conditions of the contract of purchase was that if Tolentino and
check. Petitioner was notified of this matter and Alegre demanded the
Manio failed to pay the balance of any of the installments on the date agreed
immediate payment in cash. In turn, petitioner promised to replace the
upon, the property bought would revert to the original owner.
check on the impossible premise that the first issued be returned to them. This
The first and second installments were paid but the balance was paid on Dec
prompted Alegre to file a complaint against petitioner and petitioner in
1, 1922
turn, filed a case against BPI for allegedly unlawfully deducting from its
2. On Nov 7, 1922, a representative of vendor of said property wrote Manio ,
account counterfeit checks. The trial court decided in favor of Alegre.
notifying her that if the balance of said indebtedness was not paid, they would
recover the property with damages for non compliance with the condition of
the contract of purchase.
ISSUE: 3. Tolentino and Manio borrowed money from Benito Gonzales Sy Chiam to
Whether or not the Negotiable Instruments satisfy their indebtedness to the vendor.
Law is applicable to the money market transaction held 4. Gonzales agreed to loan the P17,500 upon condition that they execute and
between petitioner and Alegre? deliver to him a pacto de retro of the property.
5. The contract includes a contract of lease on the property whereby the lessees
as vendors apparently bind themselves to pay rent at the rate of P375 per
HELD: month and whereby "Default in the payment of the rent agreed for two
Considering the nature of the money market transaction, Article 1249 of the CC consecutive months will terminate this lease and will forfeit our right of
is the applicable provision should be applied. A money market has repurchase, as though the term had expired naturally"
been defined to be a market dealing in standardized short-term credit 6. Upon maturation of loan, Tolentino defaulted payment and Gonzales
instruments where lenders and borrowers don’t deal directly with each other but demanded recovery of land.
Tolentino’s argument: that the pacto de retro sale is a mortgage and not an absolute Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act fixing
sale and that the rental price paid during the period of the existence of the right to rates of interest upon 'loans' and declaring the effect of receiving or taking usurious
repurchase, or the sum of P375 per month, based upon the value of the property, rates."
amounted to usury.
Usury, generally speaking, may be defined as contracting for or receiving something
ISSUE: WoN the contract in question is a mortgage in excess of the amount allowed by law for the loan or forbearance of money—the
taking of more interest for the use of money than the law allows.
HELD: No.
It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any
RATIO: The contract is a pacto de retro and not a mortgage. There is not a word, a
money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a
phrase, a sentence or a paragraph in the entire record, which justifies this court in
rate of interest on "loans." A contract of "loan," is very different contract from that of
holding that the said contract of pacto de retro is a mortgage and not a sale with
"rent". A "loan," as that term is used in the statute, signifies the giving of a sum of
the right to repurchase.
money, goods or credits to another, with a promise to repay, but not a promise to return
the same thing. To "loan," in general parlance, is to deliver to another for temporary
The purpose of the contract is expressed clearly that there can certainly be no doubt as use, on condition that the thing or its equivalent be returned; or to deliver for temporary
to the purpose of the Tolentino to sell the property in question, reserving the right only use on condition that an equivalent in kind shall be returned with a compensation for
to repurchase the same: its use. The word "loan," however, as used in the statute, has a technical meaning. It
never means the return of the same thing. It means the return of an equivalent only,
Second. That is a condition of this sale that if in the course of five but never the same thing loaned. A "loan" has been properly defined as an advance
(5) years from the 1st of December, 1922, we return to Don Benito payment of money, goods or credits upon a contract or stipulation to repay, not to
Gonzales Sy Chiam the above-mentioned price of seventeen return, the thing loaned at some future day in accordance with the terms of the contract.
thousand five hundred (P17,500), Mr. Benito Gonzales Sy Chiam is Under the contract of "loan," as used in said statute, the moment the contract is
forced to return the farm; but if it passes the above mentioned term completed the money, goods or chattels given cease to be the property of the former
of five (5) years without exercising to the right of redemption that owner and becomes the property of the obligor to be used according to his own will,
we have saved ourselves, then this sale will be absolute and unless the contract itself expressly provides for a special or specific use of the same.
irrevocable. At all events, the money, goods or chattels, the moment the contract is executed, cease
to be the property of the former owner and becomes the absolute property of the
From the foregoing, we are driven to the following conclusions: First, that the contract obligor.
of pacto de retro is an absolute sale of the property with the right to repurchase and
not a mortgage; and, second, that by virtue of the said contract the vendor became the A contract of "loan" differs materially from a contract of "rent." In a contract of "rent"
tenant of the purchaser, under the conditions mentioned in paragraph 3 of said contact. the owner of the property does not lose his ownership. He simply loses his control over
When the vendor of property under a pacto de retro rents the property and agrees to the property rented during the period of the contract. In a contract of "loan" the thing
pay a rental value for the property during the period of his right to repurchase, he loaned becomes the property of the obligor. In a contract of "rent" the thing still
thereby becomes a "tenant" and in all respects stands in the same relation with the remains the property of the lessor. He simply loses control of the same in a limited
purchaser as a tenant under any other contract of lease. way during the period of the contract of "rent" or lease. In a contract of "rent" the
relation between the contractors is that of landlord and tenant. In a contract of "loan"
In the present case the property in question was sold. It was an absolute sale with the of money, goods, chattels or credits, the relation between the parties is that of obligor
right only to repurchase. During the period of redemption the purchaser was the and obligee. "Rent" may be defined as the compensation either in money, provisions,
absolute owner of the property. During the period of redemption the vendor was not chattels, or labor, received by the owner of the soil from the occupant thereof. It is
the owner of the property. During the period of redemption the vendor was a tenant of defined as the return or compensation for the possession of some corporeal inheritance,
the purchaser. During the period of redemption the relation which existed between the and is a profit issuing out of lands or tenements, in return for their use. It is that, which
vendor and the vendee was that of landlord and tenant. That relation can only be is to paid for the use of land, whether in money, labor or other thing agreed upon. A
terminated by a repurchase of the property by the vendor in accordance with the terms contract of "rent" is a contract by which one of the parties delivers to the other some
of the said contract. The contract was one of rent. The contract was not a loan, as that nonconsumable thing, in order that the latter may use it during a certain period and
word is used in Act No. 2655. return it to the former; whereas a contract of "loan", as that word is used in the statute,
signifies the delivery of money or other consumable things upon condition of returning
an equivalent amount of the same kind or quantity, in which cases it is called merely day later, 31 October 1979, that they went to the bank to apply for a loan to pay for
a "loan." In the case of a contract of "rent," under the civil law, it is called a the merchandise. This situation belies what normally obtains in a pure trust receipt
"commodatum." transaction where goods are owned by the bank and only released to the importer in
trust subsequent to the grant of the loan.
Colinares v CA
The bank acquires a “security interest” in the goods as holder of a security title for the
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted advances it had made to the entrustee. The ownership of the merchandise continues to
for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to be vested in the person who had advanced payment until he has been paid in full, or if
renovate the latter’s convent at Camaman-an, Cagayan de Oro City. Colinares applied the merchandise has already been sold, the proceeds of the sale should be turned over
for a commercial letter of credit with the Philippine Banking Corporation, Cagayan to him by the importer or by his representative or successor in interest. To secure that
de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the bank shall be paid, it takes full title to the goods at the very beginning and continues
the letter of credit for P22,389.80 to cover the full invoice value of the goods. to hold that title as his indispensable security until the goods are sold and the vendee
Petitioners signed a pro-forma trust receipt as security. is called upon to pay for them; hence, the importer has never owned the goods and is
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the not able to deliver possession. In a certain manner, trust receipts partake of the nature
loan. After the initial payment, the spouses defaulted. PBC wrote to Petitioners of a conditional sale where the importer becomes absolute owner of the imported
demanding that the amount be paid within seven days from notice. Instead of merchandise as soon as he has paid its price. There are two possible situations in a
complying with PBC’s demand, Veloso confessed that they lost P19,195.83 in the trust receipt transaction. The first is covered by the provision which refers to money
Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to received under the obligation involving the duty to deliver it (entregarla) to the owner
settle the account. Colinares proposed that the terms of payment of the loan be of the merchandise sold. The second is covered by the provision which refers to
modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending merchandise received under the obligation to “return” it (devolvera) to the owner.
approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981. Concurrently the trust receipt to the entruster or to return said goods if they were not disposed of in
with the separate demand for attorney’s fees by PBC’s legal counsel, PBC continued accordance with the terms of the trust receipt shall be punishable as estafa under
to demand payment of the balance. On 14 January 1983, Petitioners were charged Article 315 (1) of the Revised Penal Code, without need of proving intent to defraud.
with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of
the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per Republic of the Philippines v. Jose Grijaldo
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner G.R. No. L-20240; December 31, 1965
Colinares signed the documents without reading the fine print, only learning of the Facts:
trust receipt implication much later. When he brought this to the attention of PBC, Mr. Jose Grijaldo obtained five loans from the branch of the Bank of Taiwan. The
Tuiza assured him that the trust receipt was a mere formality. The Trust Receipts Law loans were evidenced by five promissory notes executed by the appellant in favor of
does not seek to enforce payment of the loan, rather it punishes the dishonesty and the Bank of Taiwan. To secure the payment of the loans, Grijaldo executed a chattel
abuse of confidence in the handling of money or goods to the prejudice of another mortgage on the standing crops on his land. The assets in the Philippines of the Bank
regardless of whether the latter is the owner. Here, it is crystal clear that on the part of of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the
Petitioners there was neither dishonesty nor abuse of confidence in the handling of Philippine Property Act of 1946 of the United States, these assets including the loans
money to the prejudice of PBC. Petitioners continually endeavored to meet their in question, were subsequently transferred to the Republic of the Philippines by the
obligations, as shown by several receipts issued by PBC acknowledging payment of Government of the United States under Transfer Agreement of 20 July 1954. Republic
the loan. of the Philippines, represented by the Chairman of the Board of Liquidators, made a
written extrajudicial demand upon the appellant for the payment of account in
question. Republic filed a complaint in the Justice of the Peace of Court of Hinigaran,
Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Negros Occidental, to collect from the appellant the unpaid account in question. The
Trust Receipt court a quo rendered a decision ordering Grijaldo to pay the Republic of the Philippines
the sum of P2,377.23 as of 31 December 1959 plus interest at the rate of 6% per annum
Held: Colinares received the merchandise from CM Builders Centre on 30 October compounded quarterly. Grijaldo contends that Republic of the Philippines has no cause
1979. On that day, ownership over the merchandise was already transferred to of action against him since the contract of loan was instituted with the Bank of Taiwan.
Petitioners who were to use the materials for their construction project. It was only a
Issues: Whether or not the obligation of Grijaldo was extinguished. - Co failed to return the unsold pairs after 9 days and actually began making
partial payments on account of the purchase price agreed upon.
Held: NO. The obligation of the appellant under the five promissory notes was not - Co then contended that there was merely a consignment of the goods and he
to deliver a determinate thing namely, the crops to be harvested from his land, or the wanted to return the unsold shoes. Royal refused contending that it was an
value of the crops that would be harvested from his land. Rather, his obligation was outright sale.
to pay a generic thing — the amount of money representing the total sum of the
five loans, with interest. The transaction between the appellant and the Bank of ISSUE: WoN the sale was an outright sale / WoN Co is bound by the interest stipulated
Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a in the invoice.
contract of (simple) loan, one of the parties delivers to another ... money or other SC: YES! / NO!
consumable thing upon the condition that the same amount of the same kind and - OUTRIGHT SALE
quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under o Co accepted the invoice of the ballet shoes and he even noted down
the five promissory notes evidencing the loans in questions is to pay the value thereof; in his own handwriting the partial payments that he made.
that is, to deliver a sum of money — a clear case of an obligation to deliver, a generic o If the sale has been on consignment, a stipulation as to the period of
thing. Article 1263 of the Civil Code provides: “In an obligation to deliver a generic time for the return of the unsold shoes should have been made,
thing, the loss or destruction of anything of the same kind does not extinguish the however, this was not done
obligation.” The chattel mortgage on the crops growing on appellant's land simply - NOT BOUND BY THE INTEREST
stood as a security for the fulfillment of appellant's obligation covered by the five o He did not sign the invoice slip the stipulated interest was 20%,
promissory notes, and the loss of the crops did not extinguish his obligation to pay, hence, not binding
because the account could still be paid from other sources aside from the mortgaged o However, he is bound by the legal interest of 6%
crops. - Hence, Co was ordered to pay the balance of the purchase price for the ballet
shoes + legal interest
In his second point of contention, the appellant maintains that the action of -
the appellee had prescribed. The appellant points out that the loans became due on
GEORGIA OSMEÑA-JALANDONI, Petitioner
June 1, 1944; and when the complaint was filed on January 17,1961 a period of more
vs
than 16 years had already elapsed — far beyond the period of ten years when an action
CARMEN A. ENCOMIENDA, Respondent
based on a written contract should be brought to court. This contention of the appellant
has no merit. Firstly, it should be considered that the complaint in the present case was
Encomienda narrated that she met petitioner Georgia Osmeña-Jalandoni in Cebu on
brought by the Republic of the Philippines not as a nominal party but in the exercise
October 24, 1995, when the former was purchasing a condominium unit and the latter
of its sovereign functions, to protect the interests of the State over a public property.
was the real estate broker. Thereafter, Encomienda and Jalandoni became close
Under paragraph 4 of Article 1108 of the Civil Code prescription, both acquisitive and
friends. On March 2, 1997, Jalandoni called Encomienda to ask if she could borrow
extinctive, does not run against the State. This Court has held that the statute of
money for the search and rescue operation of her children in Manila, who were
limitations does not run against the right of action of the Government of the
allegedly taken by their father, Luis Jalandoni. Encomienda then went to Jalandoni's
Philippines. Secondly, the running of the period of prescription of the action to
house and handed ₱l00,000.00 in a sealed envelope to the latter's security guard. While
collect the loan from the appellant was interrupted by the moratorium laws. The
in Manila, Jalandoni again borrowed money.4
loan in question, as evidenced by the five promissory notes, were incurred in the year
1943, or during the period of Japanese occupation of the Philippines.
On April 1, 1997, Jalandoni borrowed ₱l Million from Encomienda and promised that
she would pay the same when her money in the bank matured. Thereafter, Encomienda
SONCUYA V. AZARRAGA went to Manila to attend the hearing of Jalandoni's habeas corpus case before the CA
where ₱100,000.00 more was requested. On May 26, 1997, now crying, Jalandoni
ROYAL SHIRT FACTORY, INC. v CO asked if Encomienda could lend her an additional ₱900,000.00. Encomienda still
acceded, albeit already feeling annoyed. All in all, Encomienda spent around
FACTS: ₱3,245,836.02 and $6,638.20 for Jalandoni. When Jalandoni came back to Cebu on
- The parties entered into a contract wherein it is stipulated that 350 pairs of July 14, 1997, she never informed Encomienda. Encomienda then later gave Jalandoni
ballet shoes will be sold by Co and that Co had 9 days from delivery of the six (6) weeks to settle her debts. Despite several demands, no payment was made.
shoes to make his choice of 2 alternatives: a) consider the sale for the shoes Jalandoni insisted that the amounts given were not in the form of loans. When they
closed at a flat rate, or b) return the remaining unsold ones to Royal. had to appear before the Barangay for conciliation, no settlement was reached. But a
member of the Lupong Tagapamayapa of Barangay Kasambagan, Laureano Rogero, Jalandoni filed a motion for reconsideration, but the same was denied. 7 Hence, the
attested that J alandoni admitted having borrowed money from Encomienda and that instant petition.
she was willing to return it. Jalandoni said she would talk to her lawyer first, but she
never came back. Hence, Encomienda filed a complaint. She impleaded Luis as a The sole issue in this case is whether or not Encomienda is entitled to be reimbursed
necessary party, being Georgia's husband. For her defense, Jalandoni claimed that for the amounts she defrayed for Jalandoni.
there was never a discussion or even just an allusion about a loan. She confirmed that
Encomienda would indeed deposit money in her bank account and pay her bills in
Jalandoni insists that she never borrowed any amount of money from Encomienda.
Cebu. But when asked, Encomienda would tell her that she just wanted to extend some During the entire time that Encomienda was sending hermoney and paying her bills,
help and that it was not a loan. When Jalandoni returned to Cebu, Encomienda wanted there was not one reference to a loan. In other words, Jalandoni would have the Court
to fetch her at the airport but the former refused. This allegedly made Encomienda
believe that Encomienda volunteeredto spend about ₱3,245,836.02 and $6,638.20 of
upset, causing her to eventually demand payment for the amounts originally intended
her hard-earned money in a span of eight (8) months for her and her family simply out
to be gratuitous. On January 9, 2006, the RTC of Cebu City dismissed Encomienda's
of pure generosity and the kindness of her heart, without expecting anything in return.
complaint, the dispositive portion of which states: WHEREFORE, in view of the
Suchpresupposition is incredible, highly unusual, and contrary to common experience,
foregoing, this case is hereby dismissed. unless the benefactor is a billionaire philanthropist who usuallyspends his days
distributing his fortune to the needy. It is a notable fact that Jalandoni was married to
SO ORDERED.5 one of the richest hacienderos of Iloilo and belongto the privileged and affluent
Osmeña family, being the daughter of the late Senator Sergio Osmeña, Jr. Clearly then,
Therefore, Encomienda brought the case to the CA. On March 29, 2012, the appellate Jalandoni is not one to be aconvincing object of anyone's charitable acts, especially
court granted the appeal and reversed the RTC Decision, to wit: not from someone like Encomienda who has not been endowed with such wealth and
powerful pedigree.
WHEREFORE, the defendant-appellant's appeal is GRANTED. The decision
of the trial court dated January 9, 2006 is hereby REVERSED and SET The appellate court aptly pointed out that when Encomienda gave a Barbie doll to
ASIDE and in its stead render judgment against defendant-appellee Georgia Jalandoni's daughter, she was quick to send a letter acknowledging receipt and
Osmefia-Jalandoni ordering the latter to pay plaintiff-appellant Carmen A. thanking Encomienda for the simple gift. However, not once did Jalandoni ever send
Encomienda the following: a simple note or letter, let alone a card, expressing her gratitude towards Encomienda
for the countless instances she received various amounts of money supposedly given
1. The sum of Three Million Two Hundred Forty-Five Thousand Eight to her as gifts.
Hundred Thirty-Six (₱3,245,836.02) Pesos and 02/100 and Six Thousand Six
Hundred Thirty-Eight (US$6,638.20) US Dollars and 20/100; Jalandoni also contends that the amounts she received from Encomienda were mostly
provided and paid without her prior knowledge and thus she could not have consented
2. Legal interest of Twelve (12%) Percent from August 14, 1997 the date of to any loan agreement. She relies on the trial court's finding that Encomienda's claims
extrajudicial demand. were not supported by any documentary evidence. It must be stressed, however, that
the trial court merely found that no documentary evidence was offered showing
3. Attorney's fees and expenses of litigation in the amount of One Hundred Jalandoni's authorization or undertaking to pay the expenses. But the second paragraph
of Article 1236 of the Civil Code provides:
Thousand (₱l 00,000.00) Pesos.

Whoever pays for another may demand from the debtor what he has paid,
Let a copy of this Decision be served upon defendants-appellees through their
respective counsels. The Division Clerk of Court is directed to furnish a copy except that if he paid without the knowledge or against the will of the
of this Decision to plaintiff-appellant who, to date, has yet to submit the name debtor, he can recover only insofar as the payment has been beneficial to
of her new counsel following the death of appellant's original counsel the debtor.8
ofrecord, Atty. Richard W. Sison.
Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments.
SO ORDERED.6 Thus, even if she asseverates that Encomienda's payment of her household bills was
without her knowledge or against her will, she cannot deny the fact that the same still
inured to her benefit and Encomienda must therefore be consequently reimbursed for
it. Also, when Jalandoni learned about the payments, she did nothing to express her The principle of unjust enrichment finds application in this case. Unjust enrichment
objection to or repudiation of the same, within a reasonable time. Even when she exists when a person unfairly retains a benefit to the loss of another, or when a person
claimed that she was prepared with her own money, 9 she still accepted the financial retains money or property of another against the fundamental principles of justice,
assistance and actually made use of it. While she asserts to have been upset because of equity, and good conscience. There is unjust enrichment under Article 22 of the Civil
Encomienda's supposedly intrusive actions, she failed to protest and, in fact, repeatedly Code when (1) a person is unjustly benefited, and (2) such benefit is derived at the
accepted money from her and further allowed her to pay her driver, security guard, expense of or with damages to another. The principle of unjust enrichment essentially
househelp, and bills for her cellular phone, cable television, pager, gasoline, food, and contemplates payment when there is no duty to pay, and the person who receives the
other utilities. She cannot, therefore, deny the benefits she reaped from said acts now payment has no right to receive it.12 The CA is then correct when it ruled that allowing
that the time for restitution has come. The debtor who knows that another has paid his Jalandoni to keep the amounts received from Encomienda will certainly cause an
obligation for him and who does not repudiate it at any time, must corollarily pay the unjust enrichment on Jalandoni' s part and to Encomienda's damage and prejudice.
amount advanced by such third person.10
WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition
The RTC likewise harped on the fact that if Encomienda really intended the amounts for lack of merit and AFFIRMS the Decision of the Court of Appeals, Cebu City dated
to be a loan, nonnal human behavior would have prompted at least a handwritten March 29, 2012 and its Resolution dated December 19, 2012 in CA-G.R. CV No.
acknowledgment or a promissory note the moment she parted with her money for the 01339, with MODIFICATION as to the interest which must be twelve percent
purpose of granting a loan. This would be particularly true if the loan obtained was (12%) per annum of the amount awarded from the time of demand on August 14, 1997
part of a business dealing and not one extended to a close friend who suddenly needed to June 30, 2013, and six percent (6%)13 per annum from July 1, 2013 until its full
monetary aid. In fact, in case of loans between friends and relatives, the absence of satisfaction.
acknowledgment receipts or promissory notes is more natural and real. In a similar
case,11 the Court upheld the CA' s pronouncement that the existence of a contract of SPOUSES RAMON SY AND ANITA NG, RICHARD SY, JOSIE ONG,
loan cannot be denied merely because it was not reduced in writing. Surely, there can WILLIAM SY AND JACKELINE DE LUCIA, Petitioners, v. WESTMONT
be a verbal loan. Contracts are binding between the parties, whether oral or written. BANK (NOW UNITED OVERSEAS BANK PHILIPPINES) AND PHILIPPINE
The law is explicit that contracts shall be obligatory in whatever form they may have DEPOSIT INSURANCE CORPORATION, AS ASSIGNEE OF UNITED
been entered into, provided all the essential requisites for their validity are present. A OVERSEAS BANK PHILIPPINES, Respondents.
simple loan or mutuum exists when a person receives a loan of money or any other
fungible thing and acquires its ownership. He is bound to pay to the creditor the equal The present case stemmed from a Complaint for Sum of Money, 5 dated August 30,
amount of the same kind and quality. Jalandoni posits that the more logical reason 1999, filed by respondent Westmont Bank (Westmont), now United Overseas Bank
behind the disbursements would be what Encomiendacandidly told the trial court, that Philippines (UOBP), against petitioners Spouses Ramon Sy and Anita Ng, Richard Sy,
her acts were plainly an "unselfish display of Christian help" and done out of "genuine Josie Ong, William Sy, and Jackeline de Lucia (petitioners) before the RTC.
concern for Georgia's children." However, the "display of Christian help" is not
inconsistent with theexistence of a loan. Encomienda immediately offered a helping Westmont alleged that on October 21, 1997, petitioners, doing business under the trade
hand when a friend asked for it. But this does not mean that she had already waived name of Moondrops General Merchandising (Moondrops), obtained a loan in the
herright to collect in the future. Indeed, when Encomienda felt that Jalandoni was amount of P2,429,500.00, evidenced by Promissory Note No. GP-52806 (PN
beginning to avoid her, that was when she realized that she had to protect her right to 5280), payable on November 20, 1997. Barely a month after, or on November 25,
demand payment. The fact that Encomienda kept the receipts even for the smallest 1997, petitioners obtained another loan from Westmont Bank in the amount of
amounts she had advanced, repeatedly sent demand letters, and immediately filed the P4,000,000.00, evidenced by Promissory Note No. GP-52857 (PN 5285), payable on
instant case when Jalandoni stubbornly refused to heed her demands sufficiently December 26, 1997. Disclosure Statements on the Loan/Credit Transactions 8 were
disproves the latter’s belief that all the sums of money she received were merely given signed by the parties. Earlier, a Continuing Suretyship Agreement, 9 dated February 4,
out of charity. 1997, was executed between Westmont and petitioners for the purpose of securing any
future indebtedness of Moondrops.
Truly, Jalandoni herself admitted that she received the aforementioned amounts from
Encomienda and is merely using her lack of authorization over the payments as her Westmont averred that petitioners defaulted in the payment of their loan obligations.
defence. In fact, Lupong Tagapamayapa member Rogero, a disinterested third party, It sent a Demand Letter,10 dated August 27, 1999, to petitioners, but it was unheeded.
confirmed this, saying that during the barangay conciliation, Jalandoni indeed Hence, Westmont filed the subject complaint.
admitted having borrowed money from Encomienda and that she would return it.
Jalandoni, however, reneged on said promise. In their Answer,11 petitioners countered that in August 1997, Ramon Sy and Richard
Sy applied for a loan with Westmont Bank, through its bank manager William Chu Jackeline De Lucia, and to pay plaintiff the following amounts, as
Lao (Lao). According to them, Lao required them to sign blank forms of promissory follows:cralawlawlibrary
notes and disclosure statements and promised that he would notify them immediately
regarding the status of their loan application. 1. P20,573,948.66, representing the outstanding amounts due on the
aforementioned loan accounts as of February 15, 2001;
In September 1997, Lao informed Ramon Sy and Richard Sy that their application was 2. Interests and penalty charges due thereon as stipulated under the
disapproved. He, however, offered to help them secure a loan through Amado respective promissory notes from and after February 15, 2001, until
Chua (Chua), who would lend them the amounts of P2,500,000.00 and P4,000,000.00, fully paid;
both payable within three (3) months. Ramon Sy and Richard Sy accepted Lao's offer 3. 20% of the total outstanding sum, as and by way of attorney's fees;
and received the amounts of P2,429,500.00 and P3,994,000.00, respectively, as loans and
from Chua. Petitioners claimed that they paid Chua the total amount of their loans. 4. Costs of suit.

Petitioners insisted that their loan applications from Westmont were denied and it was
Chua who lent them the money. Thus, they contended that Westmont could not SO ORDERED.16
demand the payment of the said loans. chanrobleslaw
Petitioners moved for reconsideration, arguing that it had sufficiently denied the
In the pre-trial conference, the parties agreed on one issue - whether or not the
genuineness and due execution of the promissory notes in their answer.
defendants obtained loans from Westmont in the total amount of
P6,429,500.00.12 During trial, Westmont presented, among others, its employee
In its Order, dated February 6, 2008, the RTC repeated that petitioners were deemed
Consolacion Esplana, who testified that the proceeds of the loan were credited to the to have admitted the genuineness and due execution of the actionable documents. It,
account of Moondrops per its loan manifold.13 Westmont, however, never offered such however, modified the dispositive portion of its decision as
loan manifold in evidence.14
follow:chanRoblesvirtualLawlibrary
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
On the other hand, petitioners presented a Cashier's Check,15 dated October 21, 1997,
favor of plaintiff WESTMONT BANK (now United Overseas Bank) and against
in the amount of P2,429,500.00, purchased from Chua, to prove that the said loan was defendants Spouses Ramon Sy and Anita Ng, Richard Sy, Josie Ong, William Sy and
obtained from Chua, and not from Westmont. The cashier's check for the subsequent Jackeline De Lucia, and to pay plaintiff the following amounts, as
loan of P4,000,000.00 could not have been obtained from Westmont.
follows:cralawlawlibrary
The RTC Ruling
1. On Promissory Note No. PN-GP 5280:
In its decision, dated November 9, 2007, the RTC ruled in favor of Westmont. It held
that Westmont's cause of action was based on PN 5280 and PN 5285, the promissory
notes executed by petitioners. The RTC opined that petitioners admitted the a) The sum of Two Million Four Hundred Twenty Nine Thousand Five
genuineness and due execution of the said actionable documents because they failed Hundred Pesos (P2,429,500.00), representing the principal amount of the
to make a specific denial in the answer. It added that it should be presumed that the promissory note;
two (2) loan transactions were fair and regular; that the ordinary course of business
was followed; and that they were issued for a sufficient consideration. b) The sum of Seven Hundred Twenty Eight Thousand Eight Hundred Fifty
Pesos (P728,850.00), representing interest due on the promissory note
The RTC underscored that Ramon Sy never took any steps to have the promissory payable on November 20,1997;
notes cancelled and annulled, which led to the conclusion that their obligations to
Westmont were valid and binding. The fallo of the decision c) The above amounts shall collectively earn interest at the rate of thirty-six
reads:chanRoblesvirtualLawlibrary (36) percent per annum by way of liquidated damages, reckoned from
November 20,1997, until fully paid.
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
favor of plaintiff WESTMONT BANK (now United Overseas Bank) and against
defendants Spouses Ramon Sy and Anita Ng, Richard Sy, Josie Ong, William Sy and
 2. On Promissory Note No. PN-GP 5285: ISSUES

I.
a) The sum of Four Million Pesos (P4,000,000.00), representing the principal
amount of the promissory note;
THE HONORABLE COURT OF APPEALS ERRONEOUSLY RULED, AS A
b) The sum of One Million One Hundred Sixty Thousand Pesos MATTER OF LAW, THAT PETITIONERS SPS. RAMON SY AND ANITA
(P1,160,000.00), representing interest due on the promissory note payable NG, RICHARD SY, JOSIE ONG, WILLIAM SY AND JACKELINE DE LUCIA
on December 26,1997; FAILED TO SPECIFICALLY DENY THE ACTIONABLE DOCUMENTS
UNDER OATH AND THUS, PETITIONERS DEEMED TO HAVE ADMITTED
THEIR GENUINENESS AND DUE EXECUTION.chanroblesvirtuallawlibrary
c) The above amounts shall collectively earn interest at the rate of thirty-six
(36) percent per annum by way of liquidated damages, reckoned from II.
December 26,1997, until fully paid.

THE HONORABLE COURT OF APPEALS FAILED TO RULE THAT THE

Aggrieved, petitioners elevated an appeal before the CA. Petitioners argue that: they specifically denied the allegations of Westmont under oath
in their answer filed before the RTC; although they signed blank forms of promissory
The CA Ruling notes, disclosure statements and continuing suretyship agreements, they were
informed that their loan application were denied; these should be considered as
In its assailed August 4, 2011 decision, the CA affirmed the ruling of the RTC. It wrote sufficient compliance with Section 8 of Rule 8; Westmont Bank failed to prove the
that petitioners failed to specifically deny the genuineness and due execution of the existing loan obligations; and the original copy of the promissory notes were never
promissory notes in their answer before the trial court. Accordingly, the CA ruled that presented in court.
under Section 8, Rule 8 of the Rules of Court (Section 8 of Rule 8), the genuineness
and due execution of the promissory notes were deemed admitted by petitioners. It In a Resolution,20 dated July 4, 2012, the Court initially denied the petition for failure
added that the admission of the said actionable documents created a prima facie case to show any reversible error in the challenged decision and resolution of the CA. In a
in favor of Westmont which dispensed with the necessity of presenting evidence that Resolution,21 dated June 15, 2015, however, the Court granted petitioners' motion for
petitioners actually received the loan proceeds. The CA disposed the case in this reconsideration, reinstated the petition and required the respondents to file their
wise:chanRoblesvirtualLawlibrary comment.
WHEREFORE, the instant appeal is DENIED. The assailed Decision dated November
9, 2007 as amended by the assailed Order dated February 6, 2008 of the Regional Trial In its Entry of Appearance with Compliance/Manifestation,22 dated October 19, 2015,
Court of Manila, Branch 12, is hereby AFFIRMED. UOBP, formerly Westmont, informed the Court that all their interests in the present
litigated case were already transferred to the Philippine Deposit Insurance
SO ORDERED.18 Corporation (PDIC).
chanrobleslaw
Petitioners filed a motion for reconsideration, but it was denied by the CA in its In its Comment,23 dated September 23, 2015, the PDIC stated that the CA correctly
assailed decision, dated March 19, 2012. ruled that petitioners failed to specifically deny the actionable documents in their
answer and were deemed to have admitted the genuieness and due execution thereof
Hence, this petition, raising the following Citing Permanent Savings and Loan Bank v. Velarde,24 the PDIC underscored that the
specific denial meant that the defendant must declare under oath that he did not sign
the document or that it was otherwise false or fabricated.
 the respondents therein. Despite such failure, the Court held that Section 8, Rule 8,
In their Reply,25 dated November 2, 2015, petitioners insisted that they made a was sufficiently complied with because they had already stated under oath in their
categorical specific denial in their answer and never admitted the genuineness and due complaint that they never sold, transferred, or disposed of their shares in the
execution of the promissory notes, disclosure statements and continuing surety inheritance to others. Thus, respondents therein were placed on adequate notice that
agreements; the promissory notes presented by Westmont were mere photocopies; and they would be called upon during trial to prove the genuineness or due execution of
Westmont failed to establish that they received the proceeds of any the disputed deeds of sale. Notably, the Court exercised liberality in applying the rules
loan.chanroblesvirtuallawlibrary of procedure so that substantial justice may be served.

The Court's Ruling Similarly, in Titan Construction Corporation v. David, Sr.,30 the Court relaxed the
rules of procedure regarding Section 8 of Rule 8. In that case, the respondent failed to
file a responsive pleading under oath to specifically deny the special power of attorney,
The Court finds the petition meritorious. the actionable document therein, which was attached to the answer of the petitioner
therein. Notwithstanding such deficiency, the Court ruled that there was substantial
Whenever an action or defense is based upon a written instrument or document, the compliance because the respondent therein consistently denied the genuineness and
substance of such instrument or document shall be set forth in the pleading, and the due execution of the actionable document in his complaint and during trial.
original or a copy thereof shall be attached to the pleading as an exhibit, which shall
be deemed to be a part of the pleading, or said copy may with like effect be set forth In fine, although Section 8 of Rule 8 provides for a precise method in denying the
in the pleading.26 The said instrument or document is called an actionable document genuineness and due execution of an actionable document and the dire consequences
and Section 8 of Rule 8 provides the proper method for the adverse party to deny its of its non-compliance, it must not be applied with absolute rigidity. What should guide
genuineness and due execution, to wit:chanRoblesvirtualLawlibrary judicial action is the principle that a party-litigant is to be given the fullest opportunity
Sec. 8. How to contest such documents. — When an action or defense is founded upon to establish the merits of his complaint or defense rather than for him to lose life,
a written instrument, copied in or attached to the corresponding pleading as provided liberty, honor, or property on technicalities.
in the preceding Section, the genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath, specifically denies them, In the present case, the actionable documents attached to the complaint of Westmont
and sets forth what he claims to be the facts; but the requirement of an oath does were PN 5280 and PN 5285. The CA opined that petitioners failed to specifically deny
not apply when the adverse party does not appear to be a party to the instrument or the genuineness and due execution of the said instruments because nowhere in their
when compliance with an order for an inspection of the original instrument is refused. answer did they "specifically deny" the genuineness and due execution of the said
[Emphasis supplied] documents.
chanrobleslaw
Accordingly, to deny the genuineness and due execution of an actionable document: After a judicious study of the records, the Court finds that petitioners sufficiently
(1) there must be a specific denial in the responsive pleading of the adverse party; (2) complied with Section 8 of Rule 8 and grants the petition.
the said pleading must be under oath; and (3) the adverse party must set forth what he
claims to be the facts. Failure to comply with the prescribed procedure results in the Petitioners specifically
admission of the genuineness and due execution of the actionable document. denied the genuineness
and due execution of the
In Toribio v. Bidin,27 the Court expounded that the purpose of specifically denying an promissory notes
actionable document "appears to have been to relieve a party of the trouble and
expense of proving in the first instance an alleged fact, the existence or non-existence The complaint of Westmont alleged, among others, that:chanRoblesvirtualLawlibrary
of which is necessarily within the knowledge of the adverse party, and of the necessity 3. On or about October 21, 1997, defendants Richard Sy and Ramon Sy, under the
(to his opponent's case) of establishing which such adverse party is notified by his trade name and style of "Moondrops General Merchandising," obtained a loan from
opponent's pleading."28 In other words, the reason for the rule is to enable the adverse the plaintiff in the principal amount of Two Million Four Hundred Twenty-Nine
party to know beforehand whether he will have to meet the issue of genuineness or Thousand Five Hundred Pesos (P2, 429, 500.00), Philippine Currency, in evidence of
due execution of the document during trial.29 which said defendants executed in plaintiffs favor Promissory Note No. GP- 5280,
xxx.
In that said case, the petitioners therein failed to file a responsive pleading to
specifically deny a deed of sale, the actionable document, attached in the answer of 4. Again, on or about November 25, 1997, defendants Richard Sy and Ramon Sy,
under the trade name and style of "Moondrops General Merchandising," applied for plaintiffs promissory notes, Disclosure Statements and Continuing Suretyship
and were granted another loan by the plaintiff in the principal amount of Four Million Agreement.
Pesos (P4, 000, 000.00), Philippine Currency, in evidence of which said defendants
executed in plaintiffs favor Promissory Note No. GP- 5285, xxx. 9. Sometime in September, 1997, Manager William Chu Lao informed herein
defendants that the application of Moondrops for an additional working capital was
6. The defendants Anita Ng, Josie Ong, William Sy and Jackeline De Lucia, for disapproved by Westmont Bank but that, however, he offered to lend the defendants,
purposes of securing the payment of said loans, collectively executed a Continuing through Mr. Amado Chua, the initial amount of P2,500,000.00 payable in three (3)
Suretyship Agreement, xxx, whereby they jointly and severally bound themselves to months, and then another P4,000,000.00 likewise payable in three (3) months, against
plaintiff for the payment of the obligations of defendants Richard Sy and Ramon customers' checks.
Sy/Moondrops General Merchandising thereto.
10. Since Moondrops desperately needed the additional working capital, defendants
7. The defendants defaulted in the payment of the aforementioned loan obligations agreed to and accepted the offer of Manager William Chu Lao, thus Mr. Amado Chua
when the same fell due and, despite demands, continue to fail and/or refuse to pay the loaned to defendants the amounts of P2,500,000.00 and P4,000, 000.00.
same, to the prejudice of the plaintiff, xx.
11. Pursuant to the agreement between Mr. Amado Chua and the defendants, the latter
8. As of November 9, 1999, the defendants' outstanding obligation to the plaintiff on delivered to the former customers' checks in the total amount of P6,500,000.00.
both loans amounted to Fifteen Million Six Hundred Thirty-Nine Thousand Five
Hundred Eighty Nine and 25/100 Pesos, xxx.31 12. Defendants have fully paid Mr. Amado Chua the loan obligations in the amounts
chanrobleslaw of P2,500, 000.00 and P4,000,000.00, including the interests thereon. 32
On the other hand, petitioners alleged in the answer, under chanrobleslaw
oath:chanRoblesvirtualLawlibrary The answer above readily shows that petitioners did not spell out the words
2. Paragraphs 3, 4, 5, 6, 7 and 8 are specifically denied, the truth of the matter being "specifically deny the genuineness and due execution of the promissory notes."
those alleged in the Special and Affirmative Defenses hereunder. Nevertheless, when the answer is read as whole, it can be deduced that petitioners
specifically denied the paragraphs of the complaint regarding the promissory notes.
3. Paragraph 9 is specifically denied for want of knowledge or information sufficient More importantly, petitioners were able to set forth what they claim to be the facts,
to form a belief as to the truth or falsity thereof. Besides, the plaintiff has no one to which is a crucial element under Section 8 of Rule 8. In particular, they alleged that
blame except itself and its personnel for maliciously filing the instant complaint for although Ramon Sy and Richard Sy signed blank forms of promissory notes and
collection knowing fully well that the alleged loan obligations were not consummated; disclosure statements, they were later informed that their loans were not approved.
and by way of - Such disapproval led them to seek loans elsewhere, through Lao and Chua, but
definitely not with the bank anymore.
SPECIAL AND AFFIRMATIVE DEFENSES
Verily, petitioners asserted throughout the entire proceedings that the loans they
applied from Westmont were disapproved, and that they never received the loan
4. The complaint does not state a cause of action. proceeds from the bank. Stated differently, they insisted that the promissory notes and
disclosure statement attached to the complaint were false and different from the
5. While the limited partnership Moondrops General Merchandising Co., Ltd. documents they had signed. These significant and consistent denials by petitioners
(Moondrops for brevity) appears in the alleged loan documents to be the borrower and, sufficiently informed Westmont beforehand that it would have to meet the issue of
therefore, the real party in interest, it is not impleaded as a party, xxx. genuineness or due execution of the actionable documents during trial.

6. The alleged loan obligations were never consummated for want of consideration. Accordingly, petitioners substantially complied with Section 8 of Rule 8. Although
their answer did not indicate the exact words contained in the said provision, the
7. Sometime in August, 1997, Moondrops desperately needed additional working questionable loans and the non-delivery of its proceeds compel the Court to relax the
capital, thus it applied for a loan of P6,500, 000.00 with the plaintiff Westmont Bank rules of procedure in the present case. Law and jurisprudence grant to courts the
through the Manager of Grace Park Branch William Chu Lao. prerogative to relax compliance with procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to put an end to litigation
8. Manager William Chu Lao required herein defendants to sign blank forms of speedily and the parties' right to an opportunity to be heard.[33]
 Westmont could have easily presented a receipt, a ledger, a loan release manifold, or
Westmont failed to prove a statement of loan release to indubitably prove that the proceeds were actually
that it delivered the released and received by petitioners. During trial, Westmont committed to the RTC
proceeds of the loan to that it would submit as evidence a loan manifold indicating the names of petitioners as
petitioners recipients of the loans,41 but these purported documents were never presented,
identified or offered.42
A simple loan or mutuum is a contract where one of the parties delivers to another,
either money or other consumable thing, upon the condition that the same amount of As Westmont failed to prove that it had delivered the loan proceeds to respondents,
the same kind and quality shall be paid.34A simple loan is a real contract and it shall then there is no perfected contract of loan.
not be perfected until the delivery of the object of the contract. 35 Necessarily, the
delivery of the proceeds of the loan by the lender to the borrower is indispensable to WHEREFORE, the petition is GRANTED. The August 4, 2011 Decision and the
perfect the contract of loan. Once the proceeds have been delivered, the unilateral March 19, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 90425 are
characteristic of the contract arises and the borrower is bound to pay the lender an hereby REVERSED and SET ASIDE. The Complaint, dated August 30, 1999,
amount equal to that received.36 docketed as Civil Case No. 99-95945 filed before the Regional Trial Court, Branch
12, City of Manila, is DISMISSED.
Here, there were purported contracts of loan entered between Westmont and
petitioners for the amounts of P2,429,500.00 and P4,000,000.00, respectively. The
promissory notes evidencing such loans were denied by petitioners, thus, the
genuineness and due execution of such documents were not admitted. Petitioners
averred that they never received such loans because their applications were
disapproved by the bank and they had to acquire loans from other persons. They
presented a cashier's check, in the amount of P2,429,500.00, obtained from Chua,
which showed that the latter personally provided the loan, and not the bank. As the
proceeds of the loan were not delivered by the bank, petitioners stressed that there was
no perfected contract of loan. In addition, they doubt the reliability of the promissory
notes as their original copies were not presented before the RTC.

Due to the doubtful circumstances surrounding the loan transactions, Westmont cannot
rely on the disputable presumptions that private transactions have been fair and regular
and that the ordinary course of business has been followed. The afore-stated
presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may
be contradicted and overcome by other evidence.37

At any rate, granting that they did execute the promissory note and other actionable
documents, still it was incumbent on Westmont, as plaintiff, to establish that the
proceeds of the loans were delivered to petitioners, resulting into a perfected contract
of loan.38 Notably, these documents also did not state that the loan proceeds had been
delivered to petitioners, and that they had acknowledged its receipt.

In civil cases, the burden of proof rests upon the plaintiff who is required to establish
his case by a preponderance of evidence.39 As aptly stated by the RTC, the primordial
issue that must be resolved is whether petitioners obtained loans from Westmont in the
total amount of P6,429,500.00.40

The Court finds that Westmont miserably failed to establish that it released and
delivered the proceeds of the loans in the total amount of P6,429,500.00 to petitioners.