COMMON PROVISIONS UNDER LOAN:

SAURA IMPORT & EXPORT CO INC V. DEVELOPMENT BANK OF THE

PHILIPPINES, 44 SCRA 445 (1972)
EN BANC; J. MAKALINTAL
FACTS: In July 1953, plaintiff Saura Imports applied with Rehabilitation Finance Corp
(RFC), now DBP, for an industrial loan of P500,000, to be used for the construction of a
factory building (manufacture of jute sacks) and payment of the jute mill machinery and
equipment
1. RFC passed a resolution approving the loan application for P500,000 to be
secured by a first mortgage on the factory building to be constructed and the
machinery and equipment to be installed. The resolution also provided that the
proceeds of the loan shall be used exclusively for construction of the factory and
the purchase of the machinery and equipment
2. Saura requested a modification of the terms of the loan, i.e. that in lieu of having
China Engineers Ltd sign as co-maker on the promissory notes issued by Saura,
Saura will put a bond for P123,500. RFC will re-examine all aspects of the loan
3. Saura notified RFC that China Engineers again agreed to sign as co-maker for
the loan
4. In April 1954, the loan documents were executed and the promissory note was
signed by FR Halling as representative of China Engineers, and the
corresponding deed of mortgage
5. Despite the formal execution of the loan agreement, RFC reduced the loan from
P500,000 to P300,000.
6. Subsequently, China Engineers informed RFC that it no longer wished to avail of
the loan and that the loan shall be considered as cancelled.
7. Saura, on the other hand, had written RFC requesting that the loan of P500K be
granted. However, RFC notified Saura that China Engineers had already
informed them that they are cancelling the loan
8. On Sauras assurance that China Engineers will co-sign the loan upon the
approval of the loan, RFC passed a resolution restoring the loan to the original
amount of P500K on the following conditions: that the Department of Agriculture
(DA) shall certify that the materials needed by Saura are available in the
immediate vicinity; and there is an prospect of increased production to sufficient
for the requirements of the Sauras factory.
9. Petitioner Saura later informed RFC that the local materials are not sufficient for
the operation of the factory and instead, requested that it be allowed to import
jute materials. RFC reiterated its conditions and as a result, the negotiations
were deadlocked.
10. Instead of pursuing the loan, Saura requested that the loan be cancelled.
NOTE: Saura mortgaged its property to Prudential Bank in August 1954, under
which it had until December of the same year to pay its obligation. Saura failed to
comply with its obligation so Prudential Bank sued Saura

11. 9 years later, Saura filed the present suit for damages against RFC, alleging that
it failed to comply with its obligation in releasing the amount of the loan after it
had been approved
12. The trial court held in favor of Saura, citing that there was a perfected contract
between RFC and Saura and that the former was guilty of breach thereof
ISSUES:
1. WON there was a perfected contract in this case
2. WON Saura is entitled to damages
HELD:
FIRST ISSUE: Yes, there is a perfected consensual contract as provided in Art
1934 NCC: An accepted promise to deliver something, by way of Commodatum
or simple loan is binding upon the parties, but the commodatum or simple loan
itself shall not be perfected until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura for a
loan of P500k was approved by RFC and the corresponding mortgage was executed
and registered. However, this alone does not resolve the claim that RFC did not comply
with its obligation.
SECOND ISSUE: No. RFC entertained the loan application on the assumption that the
factory to be constructed will utilize locally grown raw materials. This imposition was by
no means a deviation from the terms of the contract, but a step in its implementation;
the condition did not contradict RFCs resolution approving the loan.
The action taken by both parties (Sauras request to cancel the mortgage) was in
the nature of a mutual desistance (mutuo disenso), which is a mode of
extinguishing obligations. It is derived from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause
its extinguishment.
CAB: Saura did not protest any alleged breach of contract by RFC when it insisted on
using locally sourced raw materials. Its request for cancellation did not carry any
reservation of whatever rights it believed to have against RFC for the latters noncompliance. It was only after 9 years that Saura initiated the action for damag es. All
these circumstances demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance and that on the initiate of the petitioner itself.

BONNEVIE V. COURT OF APPEALS, 125 SCRA 122 (1983)

2ND DIVISION; J. GUERRERO
FACTS: Spouses Lozano obtained a loan from private respondent Philippine Bank of
Commerce (PBCOM) for the amount of P75,000, which was secured by a mortgage
executed by the spouses.
1. Spouses Lozano executed a Deed of Sale with Assumption of Mortgage in favor
of plaintiff Honesto Bonnevie for the amount of P100,000 (P20K payable to
spouses Lozano and the balance is payable to respondent Bank)
NOTE: When Lozano sold the property to Bonnevie, the loan amount was not yet
released
2. From April 1967 to July 1968, Honesto made payments to PBCOM amounting to
a total of P18,944.22
3. In May 1968, Honesto assigned all his rights under the Deed of Sale to his
brother Raoul (intervenor)
4. PBCOM subsequently applied for the foreclosure of the subject property and a
notice of sale was published in the Luzon Weekly Courier. Respondent bank
purchased on the property during the auction sale
5. Honesto tried to redeem the property but the same failed.
6. As such, Honesto filed an action to annul the Deed of Mortgage as well as the
extrajudicial foreclosure. He alleged that:
a. The Deed of Mortgage lacks consideration
b. The mortgage was executed by one who was not the owner of the mortgaged
property
c. The property was foreclosed without complying with the requirements of a
valid foreclosure
7. The bank denied Honestos allegations and averred that:
a. The bank did not consent to the (no written consent) sale of the mortgage
property to plaintiff Bonnevie as well as the assumption of the loan
b. It was only informed of the alleged sale to Bonnevie after it had foreclosed the
Lozano mortgage
c. The law on contracts requires that the banks consent, being a party to the
agreement, before Lozano can be released from his bilateral agreement and
before Bonnevie may substitute for Lozano
d. The mortgage did not lack consideration because the execution and
registration of the securing mortgage, signing of the promissory note and
disbursement of loan proceeds are mere implementation of the basic
consensual contract of loan
8. The trial court held in favor of the bank and dismissed the complaint. CA affirmed
the same
ISSUE: WON the mortgage was valid and assuming it is, is the subsequent foreclosure
on the property valid?
HELD: Yes. From the provisions of the Deed of Mortgage itself, it is clear that the deed
was executed for and on condition of the loan granted to the spouses Lozano. The fact

that Lozano did not collect from the respondent bank on the date it was executed is
immaterial. A contract to loan being a consensual contract, the herein contract of
loan was perfected at the same time the contract of mortgage was executed. The
promissory note is only an evidence of indebtedness and does not indicate lack of
consideration.
Petitioners argument that the mortgage was void for being executed by one who is not
owner of the property is likewise untenable. Petitioners failed to consider the provisions
of the Deed of Mortgage which prohibits the sale, disposition or mortgage of the
property without the written consent of the mortgagee and in spite of said provision if the
mortgaged property is sold, the vendee shall assume the mortgage in the terms and
conditions under which it was constituted. These were expressly stipulated in the Deed
of Sale with Assumption of Mortgage.
In the case at bar, petitioners did not secure the consent of the bank to the sale
with assumption of mortgage. Since the sale/assignment was not registered, the
title remained in the name of the spouses Lozano insofar as the respondent bank
was concerned.
The bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagors title, the doctrine of innocent
purchaser for value being applicable to an innocent mortgagee for value.
Moreover, a mortgage follows the property whoever the possessor may be and
subjects the fulfillment of the obligation for whose security it was constituted. It
can also be said that petitioners voluntarily assumed the mortgage when they
entered into the Deed of Sale with Assumption of Mortgage. As such, they are
stopped from impugning its validity.
ON THE FORECLOSURE
1. Respondent bank, not being a party to the Deed of Sale, can validly claim that it
was not aware of the same and as such, it may not be obliged to notify
petitioners.
2. Honesto was not entitled to any notice since he had assigned all his rights and
interests over the property in favor of Raoul and that PBCOM was also not
informed of the same
3. Raoul is not entitled to notice for the same reason
4. Act no 3135 does not require personal notice on the mortgagor. The requirement
is that the notice shall be published once a week for at least 3 consecutive weeks
a in newspaper of general circulation in the city/municipality
NOTE: To be a news paper of general circulation, it is enough that it is published for the
dissemination of local news and general information; that it has a bona fide subscription
list of paying subscribers, and that it is published at regular intervals.
Petitioners had no right to redeem the property since they were not validly substituted
as debtors since the consent of PBCOM was not secured to the sale with assumption of

mortgage. Even assuming arguendo, petitioners failed to exercise the right of

redemption within the period granted by law. In the case at bar, the sale was registered
on September 2, 1968 and the one year redemption expired on September 3, 1969.
Honesto only offered to redeem the property on September 29, 1969 and during that
time Honesto had already transferred his rights to Raoul.

ROSE PACKING CO V. COURT OF APPEALS, 167 SCRA 309 (1988)

2ND DIVISION; J. PARAS
FACTS: In December 1962, respondent bank PCIB approved petitioners request to
reactivate its overdraft line of P50,000, discounting line of P100,000 and letter of credittrust receipt line of P550,000, as well as loan of P300,000 on fully secured real estate
and chattel mortgage
1. In November 1965, National Investment and Devt Corp (NIDC), the subsidiary of
PNB, approved petitioners loan for P2.6 million. Pursuant to such, NIDC
released the amount of P100,000. Petitioner subsequently purchased 5 parcels
of land in Pasig
2. In January 1966, NIDC released another P100,000 to petitioner Rose Packing,
the total amount was applied to the payment of preferred stock which NIDC
subscribed in Rose Packing to partially implement its investment scheme.
However, NIDC refused to make further releases on the loan amount
3. In August and October 1966, respondent PCIB approved the petitioners
additional accommodations consisting of: P710,000 loan for the payment of the
Pasig properties; P500,000 loan for operating capital; P200,000 loan to be paid
directly to petitioners creditorsall amounting to P1,597,000 secured by real
estate and chattel mortgages. However, of the total amount, PCIB only released
P300,000 of the P710,000 approved loan and P300,000 for operating capital
4. In June 1967, DBP approved petitioners loan application for P1.84 million and
guarantee of $652,6882 for the purchase of canning equipment. Upon notice of
the approval of the loan, petitioner informed PCIB of the availability of P800,000
to partially payoff its account and requested the release of the titles to the Pasig
lots for delivery to DBP.
5. However, PCIB advised refused, stating that all obligations should be liquidated
before the release of the titles. As such, petitioner purchased a parcel of land at
Valenzuela with the P800,000 DBP loan
6. Subsequently, PCIB filed a complaint against Rose Packing and its president for
the collection of petitioners indebtedness. PCIB gave notice that it would cause
the real estate mortgage to be foreclosed at an auction sale
7. Consequently, petitioner filed a complaint to enjoin PCIB and the sheriff from
proceeding with the foreclosure sale and asked the court to fix a new period of
payment of petitioners obligation to PCIB
8. The lower court denied the application of preliminary injunction and dissolved its
restraining order.
9. The properties were sold at a public auction with PCIB as the purchaser.
ISSUE: WON private respondents have the right to the extrajudicial foreclosure sale of
petitioners mortgaged properties before trial on the merits
HELD: No. the foreclosure sale was premature as there were matters that needed the
resolved.
A. WON the petitioner corporation was already in default.

The loan of petitioner corporation from PCIB were supposed to become due only at the
time that it receives from NIDC and PDCP the proceeds of the approved financing
scheme but this did not happen. NIDC refused to release the balance of the loan after it
had made two release amounting to P200,000. The efficacy or obligatory force of a
conditional obligation is subordinated to the happening of a future and uncertain
event so that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed.
Moreover, there was no demand on the part of PCIB prior to filing the present complaint
for the collection of petitioners indebtedness. For an obligation to become due, there
must generally be a demand. Default generally begins from the moment the
creditor demands the performance of the obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise. This issue had not
been properly determined by the lower court.
B. Reciprocal Obligations
The loan agreements between Rose Packing and PCI are reciprocal obligations,
i.e. the obligation or promise of each party is the consideration for that of the
other. A contract of loan is not a unilateral contract as PCIB thinks it is. The promise of
petitioner to pay is the consideration for the obligation of PCIB to furnish the loan
PCIBs designation of its own choice of people holding key positions in petitioner
corporation tied the hands of petitioners board of directors to make decisions for the
interest of the corporation, in fact, undermined the corporations financial stability.
During the 18 months of Ledesmas management, Rose Packing produced only
P200,000 worth of canned goods which is only equivalent to its normal production in 3
weeks.
C. Elements of a contract: Consideration
It is apparent that it is respondent bank practically managing petitioner
corporation through its representatives occupying key positions therein. Thus, if
ever petitioner corporation was in financial straits, it was because of the
mismanagement of the PCIB through its representatives in petitioner corporation.
In a similar case, it was held that where the lending institution took over the
management of the borrowing corporation and led the corporation to bankruptcy
through mismanagement or misappropriation of the funds, it is as if the loan was never
delivered to it. Thus, there was failure on the part of PCIB to deliver the consideration
for which the mortgage and assignment of deed were executed.
D. Foreclosure of the Pasig properties
As a consequence, the real estate mortgage of petitioner cannot be entirely foreclosed
to satisfy its total debt to PCIB. The rule of indivisibility of a real estate mortgage under
Art 2089 provides:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may
be divided among the successors in interest of the debtor or of the
creditor.
Therefore the debtor's heir who has paid a part of the debt cannot ask for
the proportionate extinguishment of the pledge or mortgage as the debt is
not completely satisfied.
Neither can the creditor's heir who received his share of the debt return
the pledge or cancel the mortgage, to the prejudice of the other heirs who
have not been paid.
From these provisions is excepted the case in which, there being several
things given in mortgage or pledge, each one of them guarantees only a
determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the
pledge or mortgage as the portion of the debt for which each thing is
specially answerable is satisfied.
This rule, however, is not applicable to the instant case as it presupposes several
heirs of the debtor or creditor which does not obtain in this case. Furthermore,
granting that there was consolidation of the entire loan, the rule of indivisibility of
mortgage cannot apply where there was failure on the part of respondent bank for
the mismanagement of the affairs of petitioner corporation and where said bank
is in default in complying with its obligation to release the amount of P710,000. In
fact, the real estate mortgage becomes unenforceable. And as already stated, the exact
amount of petitioners total debt is still unknown.

BPI INVESTMENT CORP V. COURT OF APPEALS, 377 SCRA 117 (2002)

2ND DIVISION; J. QUISUMBING
FACTS: Frank Roa obtained a loan at an interest rate of 16.25% from Ayala Investment
and Devt Corp (now BPI Investment Corp) for the construction of his house. To secure
the loan, Roa executed a Deed of Mortgage over the house and lot in favor of BPIIC.
1. Sometime in 1980, Roa sold his house and lot to private respondents ALS
Management and Antonio Litonjua for P850,000. Private respondents paid
P350,000 and assumed the P500,000 balance of Roas indebtedness with BPIIC.
2. However, BPIIC was not willing to extend the old interest rate to private
respondents. Instead, it proposed to grant a new loan to be applied at Roas debt
and secured by the same property at the rate of 20% per annum and service fee
of 1% per annum on the outstanding principal balance payable within 10 years
and penalty interest rate of 21% per annum per day from the date the
amortization became due and demandable
3. Consequently, in March 1981, private respondents executed a mortgage deed
stipulating that the amortization shall start on May 1, 1981
4. On August 13, 1982, ALS and Litonjua updated Roas loan by paying BPIIC the
sum of P190,601.35; this reduced the loan to P457,204.90
5. On September 13, 1982, BPIIC released the balance of the loan after full
payment of Roas loan
6. In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness
from May 1, 1981 to June 30, 1984
7. Subsequently, ALS and Litonjua filed an action against BPIIC alleging that:
a. They were not in arrears in their payment but in fact made an overpayment in
June 1984
b. They should not be made to pay amortization before the actual release of the
P500,000 loan in August and September 1982
c. Out of the P500,000 loan, only the total amount of P464,351.71 was released
to private respondents. Applying the effects of legal compensation, the
balance of P35,648.23 should be applied to the initial monthly amortization of
the loan
8. The trial court ruled in favor ALS and Litonjua and held that the amount of loan
was only P464,351.77
9. On appeal, CA affirmed the same. CA cited that a simple loan is perfected only
upon the delivery of the object of the contract. In the present case, the loan
contact was only perfected on September 13, 1982 when BPIIC released the
balance of the loan. Thus the payment of the monthly amortization should
commence only a month after the said date, despite the express agreement of
the parties that payment shall commence on May 1, 1981. Evidence also showed
that private respondents had an overpayment as of June 1984; as such there is
no cause for extrajudicial foreclosure
10. On the other hand, BPIIC averred that:
a. A contact of loan is consensual and a loan contract is perfected at the time
the contract of mortgage is executed following the ruling in Bonnevie v. CA

b. The loan was actually released on March 31, 1871 when BPIIC issued a
cancellation of the mortgage of Roas loan
9. Private respondents maintained that following Art 1934 NCC, a simple loan is
perfected upon the delivery of the object of the contract, hence a real contract.
The ruling in Bonnevie should be construed to mean that while the contract to
extend the loan was perfected on March 1981, the loan itself was only perfected
upon the delivery of the full loan on September 13, 1982.
a. Even if the loan contract was perfected on March 31, 1981, their payment did
not start a month thereafter, so no default took place.
b. Private respondents contended that a perfected loan agreement imposes
reciprocal obligations. In reciprocal obligations, neither party incurs a delay if
the other does not comply or is not ready to comply with his obligation.
Applying this, private respondents did not incur delay since it was only on
September 13 that BPIIC fully complied with its obligation under the loan
contract
ISSUE: WON a contract of loan is a consensual contact in the light of the rule laid down
in Bonnevie v. CA
HELD: No, a loan contract is not a consensual contract but a real contract. It is
perfected only but the delivery of the object of the contract. Petitioner misapplied
the ruling in Bonnevie. The contract in Bonnevie falls under the first clause of Art 1934,
it is an accepted promise to deliver something by way of simple loan.
As held in the case of Saura Import v. DBP, a perfected consensual contract can give
rise to an action for damages. However, said contract does not constitute the real
contract of loan which requires the delivery of the object of the contract for its perfection,
and which gives rise to obligations only on the part of the borrower.
CAB: The loan contract between BPIIC and ALS and Litonjua, was only perfected on
September 13, 1982, the date the full loan was released. As such, the obligation of the
private respondents to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
Moreover, a contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for that of the other. Here,
the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS
and Litonjua will pay the monthly amortization beginning May 1, 1981. It is a basic
principle in reciprocal obligations that neither party incurs in delay, if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. Only when a party has performed his part of the contract can he
demand that the other party also fulfill his obligation. As such, BPIIC can only demand
payment after September 13, 1982 and the starting date for foreclosure is October 13,
1982.
ON MORAL DAMAGES

Following the ruling in SSS, BPIIC cannot be declared to have acted in bad faith as
such, the award of moral and exemplary damages is improper.
However, BPIIC was negligent in merely relying on the entries found in the Deed of
Mortgage, without checking and adjusting its records on the amount actually released to
respondents. Such negligence resulted in damage to private respondents, for which an
award of nominal damages is proper.

PANTALEON V. AMERICAN EXPRESS INTL, 629 SCRA 276 (2009)

2ND DIVISION; J. TINGA
FACTS: Spouses Pantaleon and their children joined an escorted tour of Western
Europe. While visiting Amsterdam, Mrs. Pantaleon wanted to purchase a 2.5 karat
diamond at Coster Diamond House. Said jewelry amounted to $13,826
1. Pantaleon used his American Express credit card to pay for his purchase. 10
minutes later, his Amex Card had not yet been approved. Worried that he was
already inconveniencing the tour group, Pantaleon asked the store clerk to
cancel the transaction. The store manager asked Pantaleon to wait a few more
minutes but after 15 minutes, the manager informed Pantaleon that respondent
bank demanded bank references to which Pantaleon acceded.
2. 45 Minutes after first presenting his card and 30 minutes after the group was
supposed to leave the store, Coster decided to release the items without
respondents approval of the purchase
3. It appears that the approval code was transmitted to Amex Amsterdam 78
minutes after the purchases were electronically transmitted by the jewelry store
to respondents Amsterdam office
4. The delay occurred two more times while plaintiff was in the US purchasing golf
equipment and childrens shoes
5. Upon returning in Manila, Pantaleon sent a letter to respondent bank demanding
an apology for the delay in providing credit authorization for the purchases he
made. Amex explained that Pantaleons purchase of $13,826 was out of the
usual charge pattern established.
6. As such, Pantaleon filed an action for damages. The trial court held in favor of
Pantaleon. The trial court ruled that respondent failed to exercise diligent efforts
to effect the approval of the purchases
7. On appeal, CA reversed the trial court decision citing that respondent bank did
not breach its obligations to petitioner
8. Petitioner argues that respondents failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of the respondent in the
performance of its obligation. CA erred in applying the principle of mora
accipiendi, which relates to delay on the part of the obligee in accepting the
performance of the obligation by the obligor.
NOTE:
1. Mora solvendi delay on the part of the debtor to fulfill his obligation by reason of
a cause imputable to him
Requisites:
a. Obligation is demandable and liquidated
b. Debtor delays performance
c. Creditor judicially or extra-judicially requires the debtors performance
Effects:
a. Debtor is guilty of breach
b. Debtor is liable for interest in case of obligations to pay money or damages in
other obligations

c. Debtor is liable even for a fortuitous event when the obligation is to deliver a
determinate thing
2. Mora accipiendi delay on the part of the creditor without justifiable reason to
accept the performance of the obligation
Requisites:
a. An offer of performance by the debtor who has the required capacity
b. The offer must be to comply with the prestation as it should be performed;
and
c. The creditor refuses the performance without just cause
ISSUE: WON respondent bank committed a breach of its obligations to Pantaleon as
cardholder
HELD: Yes.
Usually the relationship between a credit card provider and its cardholders is
understood to be that of creditor-debtor, with the card company as creditor extending
loans and credit to the cardholder, who as debtor is obliged to repay the creditor.
However, it is more sensible to regard the card company as debtor/obligor insofar as the
obligation to the customer as creditor/obligee to act promptly on its purchases on credit.
If there was delay on the part of the card company in its normal role as creditor to the
cardholder, such delay would not have been in the acceptance of the performance of
the debtors obligation (i.e., repayment of the debt), but it would delay in the
extension of credit. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on
credit, has already been constituted. Here, the establishment of the debt itself had
not yet been perfected, as it remained pending the approval of the respondent
card company.
CAB: A total time lapse of 1 hour and 18 minutes occurred and even then, the approval
was conditional as it directed the store to ask for positive identification of cardholder.
One hour appears to be awfully long, patently unreasonable length of time to approve or
disapprove a credit card purchase.
Thus, the failure of the respondent is not the failure to timely approve the petitioners
purchase, but the failure to timely act on the same, whether favorably or unfavorably.
MORAL DAMAGES
Moral damages are due in cases of breach of contract where the defendant acted
fraudulently or in bad faith. The respondent bank acted in bad faith when it failed to
timely act on the authorization of the purchase. This amounts to a wanton and
deliberate refusal to comply with is contractual obligations, or at least abuse of its rights,
under the contract.

It should be emphasized that the reason why petitioner is entitled to damages is not
simply because respondent incurred delay, but because the delay, for which culpability
lies under Art 1170, led to particular injuries under Art 2217 for which moral damages
are remunerative.
What is involved here is a loan of transaction. On the sale was perfected. But the
contract of loan was not perfected because there was no delivery of money to the credit
card holder.

COMMODATUM
REPUBLIC V. BAGTAS, 6 SCRA 262 (1962)
EN BANC; J. PADILLA
FACTS: In May 1948, Jose Bagtas borrowed from the Republic, through the Bureau of
Animal Industry, 3 bulls for a period of 1 year from May 1948 to May 1949 for breeding
purposes subject to a breeding fee of 10% of the book value of the bulls. The three bulls
were valued as:
a. Sindhi P1,176.46
b. Bhagnari P1,320.56
c. Sahiniwal P744.46 (died during a Huk raid)
1. Upon the expiration of the contract, Bagtas asked for a renewal of another 1
year. However, the Secretary of Agriculture approved the renewal thereof of only
1 bull and requested the return of the other 2.
2. As such, Bagtas notified the Director of the Animal Industry of his intention to
purchase the bulls subject to depreciation. The Director, however, advised him
that the value of the 3 bulls could not be reduced and they either be returned or
pay the book value not later than October 1950.
3. Bagtas failed to pay the book value or to return the bulls. As such, the Republic
filed an action against Bagtas for the return of the 3 bulls loaned to him or the
payment of their book value amounting to P3,241.45 and unpaid breeding fee,
both with interests and cost.
4. Bagtas averred that he could not return the bulls nor pay their value because of
the bad peace and order situation in Cagayan Valley, and pending the appeal he
filed before the Secretary of Agriculture to deduct depreciation costs from the
book value of the bulls
5. The trial court held in favor of the Republic and ordered Bagtas to pay the total
value of the 3 bulls plus breeding fees with interests on both sums at the legal
rate from the filing of the complaint
6. As the surviving spouse of Bagtas, Felicidad filed a motion alleging that the two
bulls were returned to the Bureau of Animal Industry sometime in November
1958 and the third bull, died from a gunshot wound during a Huk raid
7. Respondent alleged that she could not be held liable for the two bulls as they had
already been returned. Respondent alleged that the contract was a commodatum
and as such, the Republic retained ownership or title to the bull should it suffer
loss due to force majeure
ISSUE: WON the respondent is liable for the loss of the bull even if due to a fortuitous
event
HELD: Yes.
A contract of commodatum is essentially gratuitous. If the breeding is considered a
compensation, then the contract would be a lease of the bull. Under Art 1671 NCC,

the lessee would be subject to the responsibilities of a possessor in bad faith because
she had continued possession of the bull after the expiry of the contract.
Even if the contract is a commodatum, the respondent is still liable under Art 1942 which
provides that a bailee in a contract of commodatum:
1. Is liable for the loss of things, even if it should be through a fortuitous event
2. If he keeps it longer than the period stipulated
3. If the thing loaned has been delivered with the appraisal of its value, unless there
is a stipulation exempting the bailee from responsibility in case of the fortuitous
event
CAB: The original period of the loan was from May 1948 to May 1949. The loan of one
bull was renewed for another one year to end on May 1950. But Bagtas kept and used
the bull until November 1953 when it was killed during a Huk raid. Furthermore, when it
was delivered and loaned to Bagtas, the bulls each had an appraised value and there
was no stipulation in the loan agreement that respondent is exempt from liability in case
of the loss of the bull due to fortuitous event.
Since Bagtas had already returned two bulls, the estate of the decedent is only liable for
the sum of P859.63, the value of the bull which has not been returned.

REPUBLIC V. COURT OF APPEALS AND HEIRS OF DOMINGO BALOY, 146 SCRA

15 (1986)
2ND DIVISION; J. PARAS
FACTS: This case originated from the decision of CFI Zambales, denying the
application for registration of private respondents Baloy.
1. On appeal, CA reversed the CFI decision and approved the registration
2. Republic, through the Bureau of Lands, filed a motion for reconsideration alleging
that the applicants possessory information title can no longer be invoked and
that they were not able to prove a registerable title over the land
3. Applicants claim is anchored on their possessory information title coupled with
their continuous, adverse and public possession of the subject property. It
appears, however, that the possessory information title shows the said title had
been acquired by applicants predecessor, Domingo Baloy, under the provisions
of the Spanish Mortgage Law.
4. The director of lands, on the other hand, averred that the subject property had
become public land through the operation of Act 627 of the Philippine
Commission. (NOTE: In 1902, the area was declared within the US Naval
reservation). Under Act 627, a period was fixed within which persons affected
thereby could file their application (6 months from July 8, 1905) otherwise said
lands or interest will be conclusively adjudged to be public lands and all claims
on the par of private individuals will be forever barred. Since Domingo Baloy
failed to file his claim within the prescribe period, the land had become
irrevocably public and could not be subject of a valid registration for private
ownership.
5. In arriving at its decision, CA noted that there was no formal order or decision of
the court of Land Registration declaring the subject property to be public land,
and as such there can be no judicial declaration to that effect. So during the
interim the title of applicants was suspended.
ISSUE: WON the occupancy of the US Navy over the subject property is in the concept
of an owner, hence, such possession can be acquired by prescription
HELD: No. The occupancy of the US Navy was not in the concept of owner. It
partakes of the character of a commodatum. It cannot therefore militate against
the title of Domingo Baloy and his successors in interest. Ones ownership of a
thing may be lost by prescription by reason of anothers possession if such
possession is under the claim of ownership, not where the possession is only
intended to be transient, as in the case of the US Navys occupation of the land
concerned, in which case the owner is not divested of his title, although it cannot
be exercised in the meantime.
JUDICIAL DECLARATION OF FORFEITURE REUQUIRES NOTICE AND HEARING
Under Act 627, private land could be deemed to have become public land only by virtue
of judicial declaration after due notice and hearing. It runs contrary therefore to the
contention of the petitioner that failure to present claims made the land ipso facto public

without any need of judicial pronouncement. Act 627 by its terms is not self-executory
and requires the implementation by the Court of Land Registration. Since its effect is
forfeiture, Act 627 must be strictly construed so as to safeguard private respondents
rights.
Since there is no order rendered by the Land Registration Court, it necessarily follows
that it never become public land through the operation of Act 627. To assume otherwise
is to deprive private respondents of their property without due process of law.
COURT JUDGMENTS CANNOT BE PRESUMED
Court judgments are not to be presumed. If it could be contended that such a judgment
may be presumed, it could equally be contended that Domingo Baloy presumably
seasonably filed a claim, in accordance with the presumption that a person takes
ordinary care of his concerns.

CATHOLIC VICAR APOSTOLIC V. COURT OF APPEALS, 165 SCRA 515 (1988)

1ST DIVISION; J. GANCAYCO
FACTS: Plaintiff Catholic Vicar of the Mountain Province (Vicar) filed with CFI Baguio,
an application for registration of several parcels (Lots 1-4) of land in La Trinidad,
Benguet. Said lots are the sites of the Catholic Church building, convents, high school
building and other structures.
1. Upon learning of the application, the heirs of Juan Valdez and heirs of Egmidio
Octaviano filed their opposition on Lots 2 and 3, respectively, asserting
ownership and title thereto.
2. The land registration court held in favor of the Vicar and confirmed the
registration of the said properties. Both heirs of Valdez and Octaviano appealed
to CA
3. CA modified the decision of the land registration court and found that:
a. Lots 2 and 3 were possessed by private respondents under claim of
ownership in good faith from 1906 to 1951
b. Petitioner had been possession of the same lots as bailee in commodatum up
to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962
c. Petitioner had just been possession as owner for 11 years, hence there is no
possibility of acquisitive prescription which requires 10 years possession with
just title and 30 years of possession without
d. The principle of res judicata is a bar to the reopening of these questions of
fact
ISSUE: WON petitioner Vicars failure to return the subject property to private
respondents constitutes an adverse possession which would entitle the Vicar to have
just title over the subject properties
HELD: No.
Petitioner was in possession as borrower in commodatum up to 1951, when it
repudiated the trust by the declaring the properties in its name for taxation
purposes. When Vicar applied for registration of Lots 2 and 3 in 1962, it had been
in possession in concept of owner only for 11 years. Ordinary acquisitive
prescription requires possession for ten years but always with just title.
Extraordinary prescription requires 30 years.
As found by CA, petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years of ordinary acquisitive prescription because of the
absence of just title. CA gave no credence to the evidenced adduced by petitioner
since there was absolutely no documentary evidence to support its claim that it
purchased the lots from Valdez and Octaviano.

On the other hand, private respondents were able to prove that their predecessors
house was borrowed by petitioner Vicar after the church and convent were
destroyed. They never asked for the return of the house, but when they allowed
its free use, they became bailors in commodatum and the petitioner the bailee.
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 trust
the property subject matter of commodatum. The adverse claim of petitioner
came only in 1951 when it declared the lots for taxation purposes. The action of
petitioner by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.
RES JUDICATA
CA did not err in ruling that said findings are res judicata between the parties. They can
no longer be altered by presentation of evidence because those issues were resolved
with finality a long time ago. To ignore the principle of res judicata would be to open the
door to endless litigations by continuous determination of issues without end.

PRODUCERS BANK OF THE PHILIPPINES V. COURT OF APPEALS, 397 SCRA 651

(2003)
2ND DIVISION; J. CALLEJO SR.
FACTS: Sometime in 1979, private respondent Vives was asked by his friend Angeles
Sanchez to help Arturo Doronilla in incorporating his business, Sterela Marketing and
Services (Sterela). Sanchez asked Vives to deposit in a bank a certain amount of
money in the name of Sterela for purposes of its incorporation. She assured private
respondent that he could withdraw his money from said account within one month
1. Relying on the assurances and representation of Sanchez and Doronilla, private
respondent issued a check for P200,000 in favor of Sterela.
2. Subsequently, Sanchez, Mrs. Vives and Dumagpi (Doronillas secretary) opened
an account with petitioner Producers Bank under the name of Sterela. The
passbook was thereafter issued to Mrs. Vives
3. Later private respondent learned that Sterela was no longer holding office in the
address given to him. As such, he verified with the petitioner bank if their money
was still intact. Private respondent was informed that only P90,000 remained
therein, after being withdrawn by Doronilla. Atienza, the assistant manager, also
informed Vives that she could not withdraw amount because it had to answer for
the postdated checks issued by Doronilla
4. It appears that Doronilla opened a current account for Sterela and authorized the
bank to debit the savings account for the amounts necessary to cover overdrawn
checks. Doronilla also obtained a loan for P175,000 and to cover payments
thereof, he issued 3 postdated checks, all of which were dishonored.
5. In August 1979, Doronilla issued a postdated check for P212,0000 in favor of
Vives but the same was dishonored by the bank. Upon demand, Doronilla issued
another check for the same amount but the check was against dishonored for
insufficiency of funds
6. As such, private respondent filed an action for recovery of sum of money against
Doronilla, Sanchez, Dumagpi and petitioner. He also filed criminal actions against
Doronilla, Sanchez and Dumagpi
7. The trial court ruled in favor of Vives and held Doronilla, Dumagpi and Producers
Bank solidarily liable for the P200,000 and moral damages. CA affirmed the
same
8. Petitioner contends that the transaction between Doronilla and Vives is a simple
loan since all the requirements of a mutuum are present:
a. What was delivered to Doronilla was consumable thing (money)
b. The transaction was onerous as Doronilla was obliged to pay interest
As such, petitioner argues that it cannot be held liable for the return of Vives
money because it is not privy to the transaction between the latter and Doronilla
9. On the other hand, private respondent contends that the transaction between him
and Doronilla is not a mutuum but an accommodation, since he did not actually
part with the ownership of his P200,000 and in fact asked his wife to deposit said
amount in the account of Sterela so that a certification can be issued to the effect
that Sterela had sufficient funds for its incorporation but at the same time, he
retained some degree of control over his money through his wife who was made

a signatory to the savings account and in whose possession the account

passbook was given.
ISSUE: WON the transaction between defendant Doronilla and private respondent
Vives was one of simple loan (mutuum)
HELD: No.
CA did not err when it ruled that the transaction was a commodatum and not a mutuum
as provided under Art 1933 NCC. Art 1933 seems to imply that if the subject of the
contract is a consumable thing, such as money, the contract would be a mutuum.
However, there are instances where a commodatum may have for its object a
consumable thing. Art 1936 provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the subject, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed on, the loan is a commodatum and not a
mutuum.
The rule is that the intention of the parties shall be accorded primordial consideration in
determining the actual character of a contract. In case of doubt, the contemporaneous
and subsequent acts of the parties shall be considered in such determination.
CAB: Vives agreed to deposit his money in the savings account of Sterela specifically
for the purpose of making it appear that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within 30 days.
Private respondent merely accommodated Doronilla by lending his money without
consideration, as a favor to Sanchez. It was however clear that the money would not be
removed from Sterelas savings account and would be returned to private respondent
within 30 days.
Doronillas attempt to return the amount of P212,000 does not convert the transaction
from a commodatum to a mutuum because such was not the intent of the parties and
because the additional P12,000 corresponds to the fruits of the lending of the P200,000.
Art 1935 expressly states that the bailee in a commodatum acquires the use of the
thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit the
interest accruing to the latters money deposited within petitioner.
PRODUCERS BANK SOLIDARY LIABILITY
Petitioner bank cannot argue that it is not solidarily liable for the return of Vives money
because it was not privy to the transaction.

Under Art 2180 NCC, employers shall be held primarily and solidarily liable for damages
caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee
relationship exists, and that the employee was acting within the scope of his assigned
task when the act complained of was committed.
CAB: There is no dispute that Atienza was an employee of petitioner. Petitioner also did
not deny that Atienza was acting within the scope of his authority was assistant branch
manager when he assisted Doronilla in withdrawing the funds from Sterelas savings
account and in transfer the funds to Sterelas current. His acts of helping Doronilla were
obviously done in furtherance of petitioners interests, even though in the process,
Atienza violated some petitioners rules.

PAJUYO V. COURT OF APPEALS, 430 SCRA 492 (2004)

1ST DIVISION; J. CARPIO
FACTS: Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a
parcel of land in Payatas, Quezon City. Pajuyo then constructed a shanty where he
lived from 1979 to December 1985
1. In December 1985, Pajuyo and private respondent Guevarra executed an
agreement allowing Guevarra to live in the house for free on the condition that he
would maintain the property in good condition and that he would voluntarily
vacate the premises on demand
2. In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. However, he refused.
3. As such, Pajuyo filed an ejectment case against Guevarra. In his answer,
Guevarra claimed that Pajuyo had no valid title or right of possession as the
property is within the land set aside for socialized housing under Proclamation no
137.
4. MTC held in favor of Pajuyo, citing that the subject of the agreement is the the
house and not the lot. Pajuyo is the owner of the house and he allowed Guevarra
to use the house on tolerance. Thus, his refusal to vacate the premises on
Pajuyos demand made Guevarras continued possession of the house illegal
5. On appeal, RTC affirmed the MTC decision. RTC upheld the agreement, which
established a landlord-tenant relationship between Pajuyo and Guevarra. Under
the terms of the agreement, Guevarra is bound to return possession of the house
on demand. Moreover, in an ejectment case, the only issue for resolution is
material or physical possession and not ownership
6. Guevarra filed an appeal before CA. CA reversed the RTC decision. According to
CA, the agreement is not a lease contract but a commodatum because the
agreement was not for a price certain. Since Pajuyo only resurface in 1994 to
claim the property, Guevarra who was in physical possession of the property, had
first priority as beneficiary under the Code of Policies Beneficiary Selection and
Disposition of Home lots of NHA
7.
ISSUE: WON the agreement is in the nature of a commodatum
HELD: No. The agreement in the instant case is not one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for certain time and return it. An
essential feature of commodatum is that it is gratuitous and that the use of a thing
belonging to another is for a certain period. Thus the bailor cannot demand the return of
the thing loaned until after the expiration of the period stipulated, or after the
accomplishment of the use for which the commodatum is constituted. If the bailor
should have an urgent need of the thing, he may demand its return for temporary use. If
the use of the thing is merely tolerated by the bailor, he can demand the return of the

thing at will, in which case the contract is considered a precarium (a kind of

commodatum).
The agreement reveals that the accommodation accorded by Pajuyo to Guevarra was
not essentially gratuitous. It obligated Guevarra to maintain the property in good
condition. The imposition of this obligation makes the instant agreement different from
commodatum. Case law on ejectment has treated relationship based on tolerance as
akin to landlord-tenant relationship where the withdrawal of the permission would result
in the termination of the lease.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee has the duty to return the property to Pajuyo, the
bailor. The obligation to deliver or return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum.
ABSENCE OF TITLE OVER THE DISPUTED PROPERTY DOES NOT DIVEST THE
COURTS OF JURISDICTION TO RESOLVE THE ISSUE OF POSSESSION
It is well-settled that the defendants claim of ownership of the disputed property will not
divest the inferior court of its jurisdiction over the ejectment case. the court may pass on
such issue to determine only the issue of possession, especially if the ownership is
inseparably linked with possession. The adjudication on the issue of ownership is only
provisional and will not bar an action between the same parties involving title to the
land.
Ownership or the right to possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or
right to legal possession except to prove the nature of the possession when necessary
to resolve the issue of physical possession. The same is true when the defendant
asserts the absence of title over the property.
Regardless of the actual condition of the title to the property, the party in peacable quiet
possession shall not be thrown out by a strong hand, violence or terror. Neither is the
unlawful withholding of property allowed. Thus, a party who can prove prior possession
can recover such possession against the owner himself.
PARI DELICTO IS NOT APPLICABLE TO EJECTMENT CASES
The application of pari delicto is not absolute, as there are exceptions to its application.
One of these is that where the application of the pari delicto rule would violate wellestablished public policy.
In Drilon v. Guevarra, the SC held that the purpose of an action of forcible entry and
detainer is that regardless of the actual condition of the title to the property, the party in
peacable quiet possession shall not be turned out a strong hand, violence or terror.
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters would openly invite mayhem and lawlessness.

POSSESSION IS THE ONLY ISSUE FOR RESOLUTON IN AN EJECTMENT CASE

CA erred in holding that Guevarra had preferential right as beneficiary under
Proclamation no 137.
1. Guevarra did not present evidence to prove that the contested lot is part of a
relocation site under Proclamation 137
2. There is no proof that Guevarra actually availed of the benefits of Proclamation
137
3. Even assuming it was covered under Proc 137, the courts could still assume
jurisdiction and resolve the issue of possession
PAJUYO IS ENTITLED TO PHYSICAL POSSESSION
The facts clearly make out a case for unlawful detainer. Unlawful detainer involves the
withholding of a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate
on demand, failing which, an action for unlawful detainer will lie.

SIMPLE LOAN OR MUTUUM

CHEE KIONG YAM V. MALIK, 94 SCRA 30 (1979)
2ND DIVISION; J. ABAD SANTOS
FACTS: Petitioners Chee Kiong Yam filed a petition for certiorari, prohibition and
mandamus with preliminary injunction alleging that respondent judge without or in
excess of jurisdiction.
1. Petitioners alleged that the facts in the complaint did not constitute the crime of
estafa and even if they did, they were not within the jurisdiction of the respondent
judge
2. It appears that Amin filed three criminal complaints against Chee Kiong Yam for
estafa through misappropriation of funds. But the complaint states that said
petitioners received the amount from Amin as a loan
3. Amin also filed an action of sum of money against petitioners in September 1975,
alleging that the P50,000 was a simple business loan with interest and was
originally demandable within six months
ISSUE: WON facts alleged in the three criminal complaints constitute estafa through
misappropriation
HELD: No. Under Art 315 RPC, esfafa through misappropriation is committed by any of
the following:
a. With unfaithfulness or abuse of confidence
b. By misappropriating or converting, to the prejudice of another, money, goods or
any other personal property received by the offender in trust or on commission,
or for administration, or under any obligation involving the duty to make delivery
of or to return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money, goods or
other property
To be convicted, it must be shown that the person has the obligation to deliver or return
the same money, goods or personal property that he received. Petitioners had no such
obligation to return the same money, i.e. bills and coins, which they received from
private respondents. This is because as clearly stated in the complaints, the sums of
money that petitioners received were loans.
NATURE OF SIMPLE LOAN
The nature of simple loan is defined in Art 1933 and 1953 NCC:
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing upon the condition

that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while
in simple loam ownership passes to the borrower.

Art. 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.
In a simple loan or mutuum, as contrasted to commodatum, the borrower acquires
ownership of the money, goods or personal property borrowed. Being the owner, the
borrower can dispose of the thing borrowed and his act will not be considered
misappropriation thereof.
As held in US v. Ibanez, the debtor cannot be held liable for the crime of estafa under
said article, by merely refusing to pay or by denying the indebtedness.
It appears that respondent judge failed to appreciate the distinction between mutuum
and commodatum, when he performed the questioned acts. He mistook the transaction
between petitioners and private respondents to be commodatum wherein the borrower
does not acquire ownership over the thing borrowed and has the duty to return the
same thing to the lender.
JURISDICTION OF THE COURT
Under Sec 87 of the Judiciary Act, the Municipal court has jurisdiction over criminal
cases where the penalty provided by law does not exceed prision correccional or
imprisonment for more than 6 years of a fine not exceeding P6,000 or both.
CAB: the amounts allegedly misappropriated by petitioners ranged from P20,000 to
P50,000. The penalty for misappropriation of such magnitude exceeds prision
correccional or 6 years of imprisonment. As such, even if we are to assume that the
complaints constitute the crime of estafa, the Municipal court had no jurisdiction to try
them on the merits.

EQUITABLE PCI BANK V. NG SHEUNG NGOR, 541 SCRA 223 (2007)

FACTS: Respondent Ng Sheung Ngor, Ken Appliance Division, Inc and Benjamin E.
Go filed an action for annulment and/or reformation of documents and contracts against
petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan
Lionel Apas.
1. Respondents claimed that Equitable induced them to avail of its peso and dollar
credit facilities by offering low interest rates so they accepted the proposal and
signed the banks printed promissory notes on various dates beginning 1996. But
they were unaware that the documents contain identical escalation clause
granting Equitable authority to increase interest rates without their consent
2. Equitable asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes, also they continuously availed of
and benefited from Equitables credit facilities for five years.
3. The trial court upheld the validity of the promissory notes however it invalidated
the escalation clause for it violated the principle of mutuality of contracts. It also
took judicial notice of the steep depreciation of the peso during the intervening
period and declared the existence of extraordinary deflation
4. RTC ordered the use of the 1996 dollar exchange rate in computing respondents
dollar denominated loans and awarded moral and exemplary damages.
5. Equitable filed an MR, while respondents prayed for the issuance of a writ of
execution.
6. RTC issued an omnibus order denying MR and ordered the issuance of the
motion of a writ of execution in favor of respondents.
7. Three real properties of Equitable were levied upon and were sold in a public
auction. Respondents were the highest bidder and certificates of sale were
issued.
8. Equitable filed a petition for certiorari with an application for an injunction in the
CA to enjoin the implementation and execution of the omnibus order. CA granted
Equitables application for injunction was granted.
9. Despite the injunction, Equitables properties previously levied were sold in a
public auction to respondent. Equitable moved to annul the auction sale. CA
dismissed the petition for certiorari, hence this petition.
ISSUE: What is the relationship between the bank and its depositor?
HELD: The relationship between the bank and its depositor is that of creditor and
debtor. For this reason, a bank has the right to set off the deposit in its hands for the

payment of a depositors indebtedness. Respondent indeed defaulted on their

obligation. For this reason, Equitable had the option to exercise its legal right to set-off
or compensation. However, the RTC mistakenly (or, as it now appears, deliberately)
concluded that Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was that,
whatever damage respondents sustained was purely the consequence of their failure to
pay their loans. There was therefore absolutely no basis for the award of moral
damages to them.
ALMEDA V. BATHALA MARKETING, 542 SCRA 470 (2008)
3RD DIVISION; J. NACHURA
FACTS: Sometime in May 1997, respondent Bathala Marketing, as lessee, renewed its
lease contract with Ponciano Almeda, as lessor (petitioners husband). Under the
contract, Ponciano agreed to lease a portion of the Almeda compound consisting of
7,348.25 sqm for a monthly rental of P1,107,348.69 for a term of years unless
terminated. The contract also provides that:
a. The rental rate is based on the present rate of assessment on the property. In
case the assessment is increase or any new tax or charge is imposed by
authorized, the lesee shall pay the additional rental or charge. If the
assessment or tax should be reduced, the lessee shall be entitled to reduction
in the stipulated rental (condition 6)
b. In case of an extraordinary inflation or devaluation of Philippine peso, the
value of the peso at the time of the establishment of the obligation shall be
the basis of payment (condition 7)
1. During the effectivity of the contract, Ponciano died. Thereafter, petitioners
advised respondent that the former shall be charged VAT on its monthly rentals.
Respondent argued that VAT may not be imposed on the rental since the VAT
law is not a new tax imposed, but is already in effect prior to the execution of the
lease contract
2. Petitioner subsequently informed respondents that the monthly rental shall be
increased by 73% pursuant to condition 7 and Art 1250 NCC. Respondent
opposed the demand, contending that there was no extraordinary inflation to
warrant the application of the Art 1250
3. Respondent refused to pay the VAT and adjusted rentals but continued to pay the
stipulated amount based on the contract
4. As such, respondent filed an action for declaratory relief to determine the correct
interpretation of the lease contract
5. Petitioners, in turn, filed an ejectment suit with damages for failure of the
respondent to vacate the premises after demand has been made.
6. Petitioners later moved for the dismissal of the declaratory relief for being an
improper remedy since the respondent was already in breach of the obligation
7. The trial court held in favor of respondent and ruled that respondent was liable
liable to pay VAT and rental adjustment. The trial court cited that the imposition of
VAT is not proper since it was not a new tax that would call for the application of
the clause in the contract. Moreover, there was no extraordinary inflation or
devaluation. However the trial court ordered the restitution of the amounts paid

despite the rule that in an action for declaratory relief, other than a declaration of
rights and obligations, affirmative reliefs are not awarded to parties
8. CA affirmed the same but deleted the return of the balance of the rental deposits
and of amounts representing the VAT and rental adjustment
ISSUE: WON the amount of rentals due respondents should be adjusted by reason of
extraordinary inflation or devaluation
HELD: No.
When the parties speak of devaluation as stipulated in the lease contract, they really did
not intend to depart from Art 1250. Thus, the clause should be read in harmony with Art
1250.
Art 1250 reads: In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of the payment, unless there is an agreement to the
contrary.
Inflation has been defined as the sharp increase of money, or credit or both,
without a corresponding increase in business transaction. There is inflation when
there is an increase in the volume of money and credit relative to available goods,
resulting in a substantial and continuing rise in the general price level. The SC
explained extraordinary inflation as: There is extraordinary inflation when there exists a
decrease or increase in the purchasing power of the Peso which is unusual or
beyond the common fluctuation in the value of said currency, and such increase
or decrease could have been reasonably foreseen or manifestly beyond the
contemplation of the parties at the time of the obligation.
Based on the facts presented, there is no extraordinary inflation or devaluation that
would justify the application of Art 1250. Absent an official pronouncement or
declaration by competent authorities of the existence of extraordinary inflation
during a given period, the effects of extraordinary inflation are not to be applied
NATURE OF DECLARATORY RELIEF
Declaratory relief is defined as an action by any person interested in a deed, will,
contract or nay other instrument, to determine any question of construction or validity
arising from the instrument, and for a declaration of his rights and duties thereunder.
The only issue to be resolved in such a petition is the question of construction or validity
of the provisions of an instrument
REQUISITES OF DECLARATORY RELIEF
1. The subject matter of the controversy must be a deed, will, or other written
instrument
2. The terms of the documents or instruments and the validity thereof are doubtful
and require judicial construction

3. There must have been no breach of the documents

4. There must be an actual justiciable controversy and that the issue is ripe for
determination
5. Adequate relief is not available through other means or forms of action or
proceeding
CAB: Respondent religiously fulfilled its obligation even during pendency of the suit.
There is no showing breach on the part of respondent
APPLICATION OF PANGANIBAN V. PILIPINAS SHELL
In Panganiban, the unlawful detainer case had already been resolved by the trial court
before the dismissal of the declaratory relief case and it was the petitioner in that case
who insisted that the declaratory relief be preferred over the unlawful detainer. This is
not the case her because here, the trial court had not yet resolved the ejectment case
during the pendency of the declaratory relief petition.
PAYMENT OF VAT
Notwithstanding the mandatory payment of VAT by the lessor, the actual shifting of said
tax burden upon the lessee is optional on the party of the lessor based on the use of the
word may in the provision.
CAB: Ponciano did not charge the respondent-lessee the 10% VAT nor provided for its
additional imposition when they renewed the lease contract in May 1997. He also did
not collect 10% VAT from the rentals due after the execution of the contract. This shows
that the lessor did not intend to avail of the option granted by the law to shift the VAT to
the lessee. Petitioners are now stopped from shifting the burden of paying the VAT to
respondents.
More importantly, the condition in the lease contract states that respondent can only be
held liable for NEW TAXES imposed after the effectivity of the contract of lease. Since
RA 7716 took effect in 1994, the VAT cannot be considered a new tax to fall within the
coverage of the sixth stipulation.

PEOPLE V. PUIG, 535 SCRA 564 (2008)

FACTS: In November 2005, the Iloilo Prosecutors office filed before RTC Dumangas 12
cases of Qualified Theft against respondents Teresita Puig and Romeo Porras who
were the cashier and bookkeeper, respectively, of private complainant Rural Bank of
Pototan
1. The informations filed against respondents alleged that respondents, with grave
abuse of confidence, as cashier and bookkeeper of Rural Bank of Pototan,
without the knowledge and/or consent of the management of the bank and with
intent to gain, did then and there willfully, unlawfully and feloniously take, steal,
and carry way the sum of P15,000
2. The trial court did not find the existence of probable cause, citing that:
a. The element of taking without the consent of the owners was missing on
the ground that the depositor-clients and not the bank, which filed the
instant cases, are the owners of the money allegedly taken by the
respondents and hence, are the real parties-in-interest
b. The informations were bereft of the phrase alleging dependence,
guardianship or vigilance between respondents and the offended party that
would have created a high degree of confidence between them which the
respondents could have abused
3. The trial court further noted that allowing the cases to push through would violate
the respondents constituted right of respondents to be informed of the nature
and cause of the accusation against them. As such, RTC dismissed the cases
and refused to issue a warrant of arrest against Puig and Porras. (MR denied)
4. Petitioner filed a petition for review on certiorari under Rule 45 raising the issue:
WON the 112 informations for qualified theft sufficiently alleged the element of
taking without the consent of the owner, and the qualifying circumstance of grave
abuse of confidence
5. Petitioner argued that under Art 1980 NCC fixed savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions
concerning simple loans. Corollary thereto, Art 1953 provides that a person who
receives a loan of money or any other fungible thing acquires ownership thereof,
and is bound to pay the creditor an equal amount of the same kind and quality.
Thus, it argues that the depositors who place their money with the bank are
considered creditors of the bank. The bank acquires ownership of the money
deposited by its clients, taking the money taken by respondents as belonging to
the bank

6. Petitioner also contends that the informations sufficiently alleged all the elements
of qualified theft, citing that a perusal of the informations will show that they
specifically allege that the respondents were the cashier and bookkeeper of the
bank, and that they took various amounts of money with grave abuse of
confidence and without the knowledge and consent of the bank
7. On the other hand, respondents contend that the instant petition is the wrong
mode of appeal because a finding of a probable cause for the issuance of a
warrant of arrest presupposes an evaluation of facts and circumstances.
Moreover, it is the DOJ Secretary who should file the petition for review
considering that the incident was endorsed by the DOJ
ISSUE: WON the bank is the real-party-interest to file the complaint for qualified theft
against Puig and Porras
HELD: Yes.
It is beyond doubt that tellers, cashiers, bookkeepers and other employees of a bank
who come into possession of the monies deposited therein enjoy the confidence
reposed in them by their employer. Banks, on the other hand, where the monies are
deposited, are considered the owners thereof. This is clearly not only from the
express provisions of law but from established jurisprudence. The relationship
between banks and depositors has been held to be that of a creditor and debtor
as provided in Art 1953 and Art 1980.
In a long line of cases involving qualified theft, the SC has firmly established the nature
of possession by the bank of the money deposits therein, and the duties being
performed by its employees who have custody of the money or who have come into
possession of it. The SC has consistently considered the allegations in the information
that such employees acted with grave abuse of confidence, to the damage and
prejudice of the bank, without particularly referring to it as owner of the money deposits
as sufficient to make out a case of qualified theft.
In Roque v. People, the SC held: since the teller occupies a position of confidence, and
the bank places money in the tellers possession due to the confidence reposed on the
teller, the felony of qualified theft would be committed.
Similarly, in the case of People v. Sison, the SC held: (appellant) could not committed
the crime had he not been holding the position of Luneta Branch Operation Officer
which gave him not only sole access to the bank vault. The management of the bank
reposed its trust and confidence in the appellant as its branch operation officer, and it
was this trust and confidence which he exploited to enrich himself to the damage and
prejudice of the bank.
In People v. Locson, the SC held: When the defendant, with grave abuse of confidence,
removed the money and appropriated it to his own use without the consent of the bank,
there was taking as contemplated in the crime of qualified theft.

In all cases, it is clear that the crime was committed with grave abuse of confidence and
without knowledge or consent of the bank, without necessarily stating the phrase, of a
relation by reason of dependence, guardianship, or vigilance, between respondents and
the offended party that has created a high degree of confidence between them, which
respondents abused, and without using the word owner in lieu of the bank were
considered to have satisfied the test of sufficiency of allegations.
In fine, the bank acquires ownership of the money deposited by its clients; and the
employees of the bank, who are entrusted with the possession of money of the bank
due to the confidence reposed in them, occupy positions of confidence. The
informations, therefore, sufficiently allege all essential elements constituting qualified
theft.
ELEMENTS OF THEFT
As defined in Art 308 RPC, there is theft when the following elements concur:
(1) Intent to gain
(2) Unlawful taking
(3) Personal property belonging to another
(4) Absence of violence or intimidation against persons or force upon things
ELEMENTS OF QUALIFIED THEFT
(1) Taking of personal property
(2) That said property belongs to another
(3) That said taking be done with intent to gain
(4) That it be done without the owners consent
(5) That it be accomplished without the use of violence or intimidation against
persons, nor force upon things
(6) That it be done with grave abuse of confidence
SUFFICIENCY OF INFORMATION
Sec 6, Rule 110 ROC provides that the information must state the acts or omissions
complained of as constitutive of the offense. Sec 9 also provides that the circumstances
must stated in ordinary and concise language and not necessarily in the language used
in the statute but in terms sufficient to enable a person of common understanding to
know what offense as being charged, as well as its qualifying and aggravating
circumstances.
DOJ AS PRINCIPAL PARTY
As held in Mobilia Products v. Hajime Umezawa: In a criminal case in which the
offended party is the State, the interest of the private complainant or the offended party
is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by
the trial court or if there is an acquittal, a reconsideration of the order of dismissal or
acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect
thereof is concerned and may be made only by the public prosecutor; or in the case of
an appeal, by the State only through OSG.

RULE 45 AS MODE OF APPEAL

It Is well settled that in appeals by certiorari under Rule 45 ROC, only errors of law may
be raised. Petitioner certainly raised a question of law.
ISSUANCE OF WARRANT OF ARREST
Pursuant to Sec 6, Rule 112 ROC, the judge shall issue a warrant of arrest only upon a
finding of probable cause after personally evaluating the resolution of the prosecutor
and its supporting evidence. In Soliven v. Makasiar, the SC explained that the probable
cause for the issuance of a warrant of arrest is the existence of such facts and
circumstances that would lead a reasonably discreet and prudent man to believe that an
offense has been committed by the person sought to be arrested. The records
reasonably indicate that the respondents may have, indeed, committed the offense
charged.

INTEREST
TAN V. VALDEHUEZA, 66 SCRA 61 (1975)
EN BANC; J. CASTRO
FACTS: In May 1955, a parcel of land was the subject matter of a public auction sale in
which plaintiff Tan was the highest bidder. Due to the failure of respondent Valdehueza
to redeem the said property, the provincial sheriff executed a Deed of Absolute Sale in
favor of Tan
1. Subsequently, Valdehueza executed two documents of Deed of Pacto de Recto
Sale in favor of plaintiff, over 2 portions of a parcel of land for the amount of
P1,500
2. However, from the execution of the pacto de recto sale, Valdehueza remained in
possession of the land
3. As such, plaintiff Tan filed an action against Valdehueza for the declaration of
ownership and recovery of possession of the parcel of land (one bought at
auction); and consolidation of ownership of two portions of another parcel
(unregistered) of land (subject of pacto de recto)
4. The trial court held in favor of plaintiff and ordered defendant to pay P1,200 with
legal interest of 6% as of August 1966 within 90 days (first action) and; P300 with
legal interest of 6% as guaranty of the said amount of payment (second action)
ISSUE: WON the unregistered deed of pacto de recto is a simple loan
HELD: No. The trial court treated the registered deed of pacto de retro as an equitable
mortgage but considered the unregistered deed of pacto de retro "as a mere case of
simple loan, secured by the property thus sold under pacto de retro," on the ground that
no suit lies to foreclose an unregistered mortgage. It would appear that the trial judge
had not updated himself on law and jurisprudence; he cited, in support of his ruling, Art
1875 of the old Civil Code and decisions of this Court circa 1910 and 1912.

Under Art 1875 of the Civil Code of 1889, registration was a necessary requisite for the
validity of a mortgage even as between the parties, but under Art2125 of the new Civil
Code (in effect since August 30,1950), this is no longer so.

If the instrument is not recorded, the mortgage is nonetheless binding

between the parties. (Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes having
been paid by them, the contracts which purported to be pacto de retro transactions are
presumed to be equitable mortgages, whether registered or not, there being no third
parties involved.
INTEREST
The imposition of legal interest on the amounts subject of the equitable mortgages,
P1,200 and P300, respectively, is without legal basis, for, "No interest shall be due
unless it has been expressly stipulated in writing." (Art 1956 NCC) Furthermore, the
plaintiff did not pray for such interest; her thesis was a consolidation of ownership,
which was properly rejected, the contracts being equitable mortgages.

INTEGRATED REALTY CORP V. PHIIPPINE NATIONAL BANK, 198 SCRA 390

(1989)
2ND DIVISION; J. REGALADO
FACTS: In January 1967, petitioner Raul Santos made a deposit with Overseas Bank of
Manila (OBM) in the amount of P500,000 and was issued a Certificate of Time deposit.
The following month, Santos against made a deposit with OBM in the amount of
P200,000
1. Integrated Realty Corp, through its president Raul Santos, applied for a loan and
credit line in the amount of P700,000 with respondent bank PNB To secure the
loan, Santos executed a Deed of Assignment of the two time deposits. OMB
gave conformity to the assignment through a letter
2. However, when the time deposit became due, OMB did not pay PNB. PNB
demanded payment from IRC and Santos; both argued that the obligation (loan)
of IRC was deemed paid with the irrevocable assignment of the time deposit.
3. PNB filed a collection suit against IRC and Santos for the payment of the loan
with interests. It impleaded OBM as defendant to compel it to redeem and pay to
it Santos time deposit certificate with interests
4. In their answer, IRC and Santos alleged that PNB has no cause of action since
their obligation is already extinguished upon the irrevocable assignment of the
time deposit certificates, and that they are not answerable for the insolvency of
OBM. IRC filed a counterclaim for damages against PNB and a cross-claim
against OBM alleging that OBM acted fraudulently in refusing to pay the time
deposit certificates thus exposing them to suit
5. OBM denied knowledge of the time deposit certificates because the alleged time
deposit of Santos does not appear in their books. OBM later amended its answer
acknowledging the receipt of the time deposit it issued to Santos and admitted its
failure to pay the same. However, it alleged that its operations have been
suspended by the Central Bank in August 1968 by reason of insolvency and that
the time deposits ceased to earn interest from that time

6. The trial court ruled in favor of PNB holding IRC and Santos solidarily liable for
the payment of the loan with interests at the rate of 9% per annum from the
maturity dates of the two promissory notes on January 11 and February 6, 1968.
The court also ordered OBM to pay IRC and Santos whatever amounts the latter
will pay to PNB with interest from date of payment
7. On appeal, CA affirmed the trial court decision but deleted the judgment ordering
OBM to pay IRC and Santos whatever amount they will pay to PNB
ISSUES: WON OBM should be held liable for interests on the deposit of IRC and
Santos from the time in ceased operations until it resumed business
HELD: No.
It should be deemed read into every contract of deposit with a bank that the obligation
to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the Central Bank. This is because what enables a bank to pay
stipulated interest on money deposited with it is that its ability to generate funds.
A distinction must be made between the interest which the deposits should earn from
their existence until the bank ceased to operate, and that which they may earn from the
time the banks operations were stopped until the date of payment of the deposits. As to
the first, it should be paid because such interest has been earned in the ordinary course
of the banks businesses and before the latter has been declared in a state of
liquidation. Moreover, the bank being authorized by law to make use of the deposits
within the limitation stated, to invest the same in its business and other operations, it
may be presumed that it bound itself to pay interest to the depositors as in fact it paid
interest prior to the dates of the claims. As to the interest which may be charged from
the date the bank ceased to do business because it was declared in a state of
liquidation, said interests should not be paid. It is utterly unfair to award private
respondent his prayer for payment of interest on his deposit during the period that the
bank was not allowed by the Central Bank to operate.
INTEREST PAID AS DAMAGES
While it is true that under Art 1956 no interest shall be due unless it has been expressly
stipulated in writing, this applies only to interest for the use of money. It does not
comprehend interest paid as damages. This is true with respect to the stipulated
interest, but the obligations consisting as they did in the payment of money under Art
1108 he has the right to recover damages resulting from the default of OBM and the
measure of such damages is interest at the legal rate of 6% per annum on the amounts
due and unpaid at the expiration of the periods respectively provided in the contracts.
The applicable rule is that legal interest, in the nature of damages for non-compliance
with an obligation to pay a sum of money, is recoverable from the date judicial or
extrajudicial demand is made. In the case at bar, the demand was made by PNB after
the maturity of the time deposit. The measure of such damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon in the

certificate of deposit which is 6.5%. such interest due or accrued shall further earn legal
interest from the time of judicial demand.
OBM IS NOT LIABLE TO REIMBURSE IRC AND SANTOS
It must be noted that their liability to pay the various interests of 9% on the principal
obligation, 1.5% additional interest and 1% penalty interest is an offshoot of their failure
to pay under the terms of the two promissory executed in favor of PNB. OBM was not a
party to the promissory notes. There is no privity of contract between OBM and PNB
which will justify the imposition of said interests upon OBM.
TRANSACTION BETWEEN PNB AND IRC IS A PLEDGE
The facts and circumstances leading to the execution of the deed of assignment yield
the conclusion that it is in fact a pledge. The deed of assignment has satisfied the
requirements of a contract of pledge:
1. It is constituted to secure the fulfillment of a principal obligation
2. The pledgor is the absolute owner of the thing pledged
3. The persons constituting the pledge have the free disposal of their property and
in the absence thereof, they may be legally authorized for the purpose
The further requirement that the thing pledged be placed in the possession of the
creditor, or of a third person by common agreement, was complied with by the execution
of deed of assignment to PNB.

STATE INVESTMENT HOUSE V. COURT OF APPEALS, 198 SCRA 390 (1993)

3rd DIVISION; J. FELICIANO
FACTS: Respondent spouses Rafael and Refugio Aquino pledged certain shares of
stock to petitioner State Investment House Inc. in order to secure a loan of P120,000.
1. Prior to the execution of pledge, respondent spouses together with the spouses
Jose and Marcelina Aquino, signed an agreement with petitioner State for the
latters purchase of receivables amounting to P375,000.
2. When the loan fell due, respondent spouses paid the same partly with their own
funds and partly from the proceeds of another loan which they obtained also from
petitioner State designated as Account no. IF-82-0904-AA.
3. This new loan was secured by the same pledge agreement executed in first loan.
4. When the new loan matured, State demanded payment. Respondent expressed
willingness to pay, requesting that upon payment, the shares of stock pledged be
released.
5. Petitioner denied the request on the ground that the loan which it had extended
to the spouses Jose and Marcelina Aquino had remained unpaid.
6. Atty. Salonga sent to respondent spouses a Notice of Notarial Sale stating that
upon request of State and by virtue of the pledge agreement, he would sell at
public auction the shares of stock pledge to State.
7. Respondent spouses filed a case before RTC, QC alleging that the intended
foreclosure sale was illegal because from the time the obligation under Account
NO. IF-82-0904-AA became due, they had been able and willing to pay the
same, but petitioner had insisted that respondents pay even the loan account of
sps. Jose and Marcelina Aquino which had not been secured by the pledge. It
was further alleged that their failure to pay their loan (Account No. IF-82-0904AA) was excused because the petitioner State itself prevented the satisfaction of
the obligation.
8. TC: Judge Fortun dismissed the complaint. Respondents filed MR praying for a
new decision ordering petitioner State to release the shares upon payment of
respondents loan without interest as the latter had not been in delay in the

9.
10.

11.

12.
13.

performance of their obligation. State countered that the pledge executed by

respondent spouses also covered the loan extended to Jose and Marcelina
Aquino, which too should be paid before the shares may be released.
Judge Fortun set aside his original decision and rendered a new judgment
ordering State to immediately release the pledge and to deliver to respondents
the share of stock upon payment of the loan.
CA affirmed the new decision of the TC, holding that the loan extended to Jose
and Marcelina Aquino, having been executed prior to the pledge was not covered
by the pledge which secured only loans executed subsequently. Thus, upon
payment of the loan, the shares of stock shall be released.
Upon remand of the records of the case to the TC for execution, there developed
disagreement over the amount which respondent spouses Aquino should pay to
secure the release of the shares of stock petitioner State contending that
respondents should also pay interest and respondents arguing they should not.
Respondent spouses then filed a motion with the TC to clarify the Fortun decision
praying that an order issue clarifying the phrase upon payment of plaintiffs
loan to mean upon payment ofo plaintiffs loan in the principal amount of
P110,000 alone, without interest, penalties and other charges.
The trial court through Judge Tirona ruled that petitioner State shall release
respondents shares of stock upon payment by respondents of the principal of
the loan, without interest, penalties and other charges.
Petitioner State appealed to the CA but was dismissed. The CA agreed with
Judge Tirona that no interest need be paid. MR filed by petitioner was
accordingly denied. Hence, this petition for review.

ISSUE: If respondent spouses Aquino were not in delay, what should they have
been held liable for in accordance with law?
HELD: To pay theprincipal and the regular or monetary interest.
Since respondents were held not to have been in delay, they were properly liable only
for:
a) The principal of the loan; and
b) Regular or monetary interest in the amount of 17% per annum.
They were not liable for penalty or compensatory interest, fixed by the promissory note
in Account No. IF-82-0904-AA at 2% per month or 24% per annum.
ART. 2209 of CC provides that the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum or money, is the
a) payment of penalty interest at the rate agreed upon; and
b) in the absence of a stipulation of a particular rate of penalty interest, then the
payment of additional interest at a rate equal to the regular monetary interest;
and
c) if no regular interest had been agreed upon then payment of legal interest or 6%
per annum

The fact that respondents were not in default did not mean that they were relieved
from the payment not only of penalty or compensatory interest at the rate f 24%
per annum but also of regular or monetary interest of 17% per annum.
The regular or monetary interest continued to accrue under the terms of the
relevant Promissory note until actual payment is effected. The payment of
regular interest constitutes the price or cost of the use of money and thus, until
the principal sum due is returned to the creditor, regular interest continues to
accrue since the debtor continues to use such principal amount.
Art. 1256 provides that where the creditor unjustly refuses to accept payment, the
debtor desirous of being released from his obligation must comply with 2 conditions:
a) tender payment; and
b) consignation of the sum due.
Tender of payment must be accompanied or followed by consignation in order that the
effects of payment may be produced. A written tender of payment without consignation
in court of the sum due, does not suspend the accruing of regular or monetary interest.
In the instant case, respondent, while they are properly regarded as having made a
written tender of payment to petitioner State, failed to consign in court the amount due
at the time of the maturity of their loan. It follows that their obligation to pay principal
loan, regular or monetary interest under the terms and conditions of the loan contract
was not extinguished by such tender of payment alone.
For the respondents to continue in possession of the principal of the loan and to
continue to use the same after maturity of the loan without payment of regular or
monetary interest, would constitute unjust enrichment on the part of the respondents at
the expense of petitioner State even though the spouses had not been guilty of delay.
Petition for review is granted. The decision of the CA and the RTC are reversed and set
aside. Ordering the petitioner to immediately release the pledge and to deliver to the
respondent spouses the shares fof stock upon full payment of the principal amount of
loan plus 17% per annum regular interest computed from the time of maturity of the
respondents loan and until full payment of such principal and interest to petitioner.

CASA FILIPINO DEVT CORP V. DEPUTY EXECUTIVE SECRETARY, G.R. NO 96494

(1992)
1st DIVISION; J. MEDIALDEA
FACTS: In June 1986, private respondent Jose Valenzuela filed a complaint against
petitioner Casa Filipina Devt Corp before the Office of Appeals, Adjudication and Legal
Affairs (OAALA) of the then Human Settlements Regulatory Commission (now HLURB)
for failure to execute and deliver the deed of sale and transfer of certificate title.
1. Valenzuela alleged that he entered into a contract to sell with petitioner on May 2,
1984 to purchase a parcel of land in Paranaque for the amount of P68,400 with
the following conditions:
a. Private respondent will pay P16,416 as down payment
b. The balance of P51,984 shall be paid in 12 equal monthly installments
of P4,915.16 with 24% interest per annum starting September 3, 1984
2. Valenzuela made his final payment on October 7, 1985 (as evidenced by OR no
6266) but despite full payment of the lot, petitioner refused to execute the
necessary deed of absolute sale and deliver the corresponding TCT
3. Private respondent also averred that he has offered to pay for or reimburse
petitioner for the transfer of the title but the latter refused to accept the same
4. In its defense, Casa Filipina contended that Valenzuelas action is premature
because of his failure to comply with other conditional requirements of their
contract, i.e. payment of transfer expenses
5. OAALA held in favor of Valenzuela. It held that under Sec 25 of PD 957
(Regulating the Sale of Subdivision Lots and Condominiums), the owner or
developer shall deliver the title of the lot or unit to the buyer upon full payment of
the lot or unit. No fee except those required for the registration of the deed of
sale in the RD shall be collected for the issuance of such title. As such, it ordered
Casa Filipina to reimburse to complaint total payments amounting to P76,180.82
plus 24% interest per annum from June 30, 1986 (date of filing the complaint)
until fully paid
6. Petitioner filed an appeal and raised the following:

a. Its original mortgagee bank Royal Savings bank was absorbed by

Comsavings Bak due to bankruptcy
b. Comsavings Bank is not amenable to petitioners earlier arrangement with
Royal Savings Bank on individual redemption of title, thus it demanded that
petitioners obligation be paid prior to release of any individual title
c. Petitioner cannot seasonably meet such demand due to the inability of the
past administration to put up a viable and progressive economic program
7. HLURB dismissed the petitioners appeal for lack of merit and affirmed the
decision of OAALA
8. Petitioner contends that:
a. the amount of 24% interest imposed by OAALA in case of refund is
high and without basis since HLURB Resolution R-421 (series of 1988)
states that the maximum interest to be awarded in case of refund is
12%;
b. Although the contract to sell provides for said rate of interest, it merely
applies on installment payments but not with respect to refund; and
c. since the contract between both parties is not a forbearance of money
or loan the doctrine in the case of Reformina v. Tomol is applicable, i.e.
except where the action involves forbearance of money or loan,
interest which courts may award is only up to 12%
ISSUE: WON the ruling in Reformina v. Tomol is applicable
HELD: No. The ruling in Reformina v. Tomol deals exclusively with cases where
damages in the form of interest is due but no specific rate has been previously set by
the parties. In such cases the legal interest of 12% per annum must be applied. In the
present case, however, the interest rate of 24% per annum was mutually agreed upon
by petitioner and private respondent in their contract to sellthis was the interest rate
imposed on the private respondent for the payment of the installments on the contract
price and there is no reason why the same interest rate should be equally applied to
petitioner who is guilty of violating the reciprocal obligation.
In Solid Homes Inc v. CA, the SC held that the proper rate of interest is 12% expressly
agreed upon in writing by the parties, as appearing in the invoices and sanctioned by Art
2209 is applicable.
It is, thus, evident that if a particular rate of interest has been expressly stipulated by the
parties, that interest, not the legal rate of interest, shall be applied.
PERIOD OF REDEMPTION IS 6 MONTHS FROM ISSUANCE OF TITLE
Sec 25 of PD 957 imposes an obligation on the part of the owner or developer, in the
event the mortgage over the lot or unit is outstanding at the time of the issuance of the
title to the buyer, to redeem the mortgage or the corresponding portion thereof within 6
months from such issuance. The argument that the issuance of the title is a prerequisite
to the running of the 6-month period of redemption is untenable. Otherwise, the owner
or developer can readily concoct various reasons to justify its failure to issue the title

and in the process, prolong the period within which to deliver the title to the buyer free
from any liens or encumbrances. Additionally, by not issuing or delivering the title to the
private respondent upon full payment thereof, Casa Filipina had already violated the
explicit mandate of the first sentence of Sec 25 of PD 957.
REMEDY AVAILABLE TO PRIVATE RESPONDENT
It is clear in the OAALA decision that rescission is being ordered only in the event that
specific performance is not feasible. Moreover, petitioner is already stopped from raising
this issue because when it filed an appeal to HLURB, it prayed that: (a) it be given
period/time to redeem the title; or the demand for issuance of title be suspended from
Comsavings Bank before any deed of absolute sale be executed so that the TCT can be
issued and/or refund be ordered.
It should be noted that OAALA found as a fact that private respondent was ready, willing
and able to pay for the expenses for the transfer of title as stipulated in the contract to
sell.

CASTELLO V. COURT OF APPEALS AND MILAGROS DELA ROSA, 224 SCRA 180
(1995)
3RD DIVISION; J. FELICIANO
FACTS: In October 1982, petitioners Castello, Banson and Depante entered into a
Contract of Conditional Sale with private respondent Dela Rosa over a parcel of land.
The agreed price was P269,408. Upon signing the contract, Dela Rosa paid petitioners
P106,000 leaving a balance of P163,408
1. the Deed of Conditional Sale stipulated that:
a. The balance (P163,408) shall be paid on or before December 31, 1982
without interest and penalty charges
b. Should the balance remain unpaid, the vendee (Dela Rosa) shall be
given a grace period of 6 months (up to June 30, 1983) to pay the
balance provided that the interest rate of 12% per annum shall be
charged and 1% penalty charge a month shall be imposed on the
remaining diminishing balance
2. Dela Rosa was unable to pay the remaining balance on or before June 30, 1983.
As such, petitioners filed an action for specific performance with damages
against private respondent
3. The RTC ordered the rescission of the Deed of Conditional sale
4. On appeal, petitioners question the trial courts decision in rescinding the deed of
conditional sale. They claimed that rescission of the contract was only an
alternative relief available under NCC, while they prayed for specific performance
with damages
5. CA set aside the trial court decision and ordered Dela Rosa to pay the balance of
the conditional sale with interest and in default thereof, rescission
6. Accordingly, a Sheriffs Notice to Pay Judgment was served on Dela Rosa
requiring her to pay petitioners P197,723.68 based on:
Principal
P 163,408
Plus interest 12% (per contract)
From Nov 21, 1986 to Sept 2, 1988
P 34,315.68

7. Petitioners filed an MR contending that the sum of P197,723.68 was erroneous

because the obligation of the private respondent was to pay (a) interest at the
rate of 12% per annum PLUS (b) 1% penalty charge per month, from default, i.e.
from January 1, 1983
8. The trial court denied the MR, citing that the CA, in its dispositive portion, did not
refer to the stipulaton in the Deed fo Conditional Sale but rather to the legal
interest rate which commenced from February 12, 1987, the date of entry of
judgment. Had it intended otherwise, the CA would have declared so
ISSUE: What is the correct interpretation of the phrase to pay interest set out in the
dispositive portion of the CA decision in the instant case
HELD: The established doctrine is that when the dispositive portion of a judgment,
which has become final and executory, contains a clerical error or an ambiguity arising
from an inadvertent omission, such error or ambiguity may be clarified by reference to
the body of the decision itself. It appears that the CA decision was ambiguous in the
sense that it was too cryptic. Examination of the body of the decision, however, sheds
no light on the reference intended by the ponente (J. Castro-Bartolome) in direct private
respondent to pay interest.
The SC interpreted the phrase to pay interest found in the dispositive of the CA
decision must, under applicable law, refer to the interest stipulated by the parties in the
Deed of Conditional Sale, which they had entered into on October 15, 1982. In the first
place, the phrase comes to the preceding phrase to comply with the obligation under
the conditional sale to pay the balance of P163,408. As strong inference thus arises that
the interest required to be paid is the interest stipulated as part of the obligation of
Dela Rosa under the conditional sale to pay the balance of the purchase price.
In the second place, there is no question that Dela Rosa failed to pay the balance of
P163,408 on or before December 31, 1982. Under Art 2209 NCC, the appropriate
measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum of money is the payment of penalty interest at the rate agreed
upon in the contract of the parties. In the absence of a stipulation of a particular rate
of penalty interest, payment of additional interest, at a rate equal to the regular
monetary interest, becomes due and payable. If no regular interest had been agreed
upon by the contracting parties, then the damages payable will consist of
payment of legal interest which is 6% or in the case of loans or forbearance of
money, 12% per annum. Applying Art 2209 to the instant case, the SC referred to
the Deed of Conditional Sale which specifically provided for interest at the rate
of 12% per annum and a 1% penalty charge a month to be imposed on the
remaining diminishing balance.
The contention of the private respondent that Art 2209 NCC is not applicable in this
case because the interest referred to therein is given as compensation for the use of
money, not for the incurring of delay as in the instant case, is untenable. Art 2209
governs transactions involving the payment of indemnity in the concept of damages

arising from delay in the discharge of obligations consisting of the payment of a sum of
money referred to in Art 2209 is not confined to a loan or forbearance of money. The SC
has, for instance, consistently applied Art 2209 in the determination of interest properly
payable where there was default in the payment of price or consideration under a
contract of sale, as in the case at bar.
The stipulation in the Deed of Conditional Sale requiring the payment of interest is not
unlawful. The validity of the contract of conditional sale itself has not been put to
question by private respondent and there is nothing in the record to suggest that the
same may be contrary to law, morals, good custom and public order or public policy.
Accordingly, the contractual stipulation must be regarded as binding and enforceable as
the law between the parties.
Therefore:
(1) During the period from January 1, 1983 up to June 30, 1983, private respondent
Dela Rosa was bound to pay interest at the rate of 12% per annum on the unpaid
balance of P163,408
(2) Starting July 1, 1983 and until full payment, Dela Rosa was bound to pay interest
at the rate of 12% per annum plus another 12% per annum (or 1% penalty
charge per month), or a total of 24% per annum to be computed on the remaining
diminishing balance.

EASTERN SHIPPING LINES V. COURT OF APPEALS, 234 SCRA 78 (1994)

EN BANC; J. VITUG
FACTS: This is an action against petitioner shipping company, arrastre operator, and
broker-forwarder for damages sustained by a shipment while in petitioners custody,
filed by the respondent who paid the consignee the value of such losses/damages.
1.

2 fiber drums of riboflavin were shipped from Yokohama Japan for delivery vessel SS
Eastern Comet owned by defendant Eastern Shipping company under bill of lading.
The shipment was insured under respondents Marine Insurance company.
2. Upon arrival of the shipment in Manila, it was discharged unto the custody of Metro Port
Service, Inc. (arrastre operator) The latter excluded one drum, said to be in bad order,
which damage was unknown to respondent.
3. Allied Brokerage Corp. (broker) received the shipment from Metro Port, one drum
opened and without seal (per request for Bad Order Survey)
4. Allied Brokerage Corp made deliveries of the shipment to the consignees warehouse.
The latter excluded one drum which contained spillages, while the rest of the contents
was fake.
5. Respondent contended that due to losses/damage sustained by said drum, the
consignee suffered losses totaling P19,000 due to the fault and negligence of petitioner.
Claims were presented against the petitioner but the latter refused to pay the same.
6. As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,000 under the marine insurance policy, so that it became subrogated to all the
rights of action of said consignee against the petitioner herein.
7. Eastern shipping alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses incurred after
the shipment was turned over to the latter, is no longer its liability.
8. Metro port contended that although subject shipment was discharged unto its custody,
portion of the same was already in bad order
9. Allied brokerage alleged that plaintiff has no cause of action against it, not having
negligent or at fault for the shipment was already in damage and bad order when
received by it, it still exercised extra ordinary care and diligence in the handling/delivery
of the cargo to consignee in the same condition shipment was received by it.
10. Issue found by the trial court are:

11.

12.

13.
14.

a) WON the shipment sustained losses/damages;

b) WON these losses/damages were sustained while in the custody of
defendants
c) WON Eastern shipping, Metro Port and Allied Brokerage should be held
liable for the losses/damages
The trial court held that as to the first issue, that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as shown
in Bill of Lading and commercial invoices which do not indicate any damages drum that
was shipped but when the shipment was delivered to Metro Port it excepted to one
drum in bad order.
As to the second issue, losses/damage were sustained while in respective custody and
possession of Eastern shipping , Metro Port and Allied Brokerage. Under the Marine
Cargo Survey Report, it stated that when the shipment was landed on vessel to dock in
South Harbor, it was observed that one fiber drum was in damaged condition. That
when Allied Brokerage withdrew the shipment from Metro Port custody, one drum was
found opened without seal. Net unrecovered spillage was 15kgs. That when the drum
reached the consignee, one drum was found with fake contents. It is obvious that the
damages occurred before the shipment reached the consignee while under the
successive custodies of Eastern, Metro Port and Allied Brokerage.
The trial court ordered that Eastern Shipping, Metro Port and Allied Brokerage pay
respondent, jointly and severally the amount of P19,000, with the present legal interest
of 12% per annum from the date of the filing of the complaint until fully paid.
Eastern Shipping etc. appealed but the CA affirmed the judgment of the court a quo.
Hence this petition.
ISSUES:
1. WON the Eastern Shipping etc. are jointly and severally liable for the claim of
respondent
2. WON the grant of interest on the claim of respondent should commence from the
date of the filing of the complaint at the rate of 12% per annum instead of from
the date of the decision of the trial court and only at the rate of 6% per annum,
respondent claim being indisputably unliquidated
HELD:
FIRST ISSUE: Yes. A factual finding of both the court a quo and the appellate court is
that there is sufficient evidence that the shipment sustained damage while in the
successive possession of petitioner.
SECOND ISSUE: The SC cited several cases classified into two groups according to
the similarity of the issues involved and the corresponding rulings rendered by the court.
The first group consists:
1. Reformina vs. Tomol
2. Philippine Rabbit Bus Lines vs. Cruz
3. Florendo vs. Ruiz

4. National Power Corp vs. Angas

The second group consists:
1. Malayan Insurance vs. Manila Port Service
2. Nakpil and Sons vs. CA
3. American Express International vs. IAC
In the first group, the basic issue focuses on the application of either the 6% or 12%
interest per annum. It is easily discernible in these cases that there has been a
consistent holding that the Central Bank Circular imposing the 12% interest per annum
applies only to loans or forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the CC governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations
in general. Also a common time frame in the computation of the 6% interest per annum
has been applied, i.e., from the time the complaint is filed until the adjudged amount is
fully paid.
The second group did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, depending on WON the amount involved is a loan or forbearance,
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however,
the first group which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the second group
varied on the commencement of the running of the legal interest.
I. when an obligation, regardless of its source , i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the CC govern in determining the
measure of recoverable damages.
II.

with regard particularly to an award of interest in the concept of actual and

compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Art. 1169 of the CC.
2.
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall be begin to

run from the time the claim is made judicially or extrajudicially but when such
certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only form the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2,above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
Petition granted. Appealed decision is affirmed with modification that the legal interest
to be paid is 6% on the amount due computed from the decision of the court a quo. 12%
interest, in lieu of 6% shall be imposed on such amount upon finality of this decision
until the payment thereof.