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CREDIT TRANSACTION

I. LOAN (Arts 1933-1964) the venture, Rosales readily agreed. Under their agreement, Rosales would
give the money needed to buy the cigarettes while Liwanag and Tabligan
would act as her agents, with a corresponding 40% commission to her if the
a) Gen Provisions (Arts. 1933-1934) goods are sold; otherwise the money would be returned to Rosales.
Consequently, Rosales gave several cash advances to Liwanag and Tabligan
amounting to P633,650.00.
TITLE XI
LOAN During the first two months, Liwanag and Tabligan made periodic visits to
Rosales to report on the progress of the transactions. The visits, however,
General Provisions suddenly stopped, and all efforts by Rosales to obtain information regarding
their business proved futile.
Article 1933. By the contract of loan, one of the parties delivers to
Alarmed by this development and believing that the amounts she advanced
another, either something not consumable so that the latter may use the
were being misappropriated, Rosales filed a case of estafa against Liwanag.
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 The Trial Court rendered Liwanag guilty as charged, which was affirmed with
that the same amount of the same kind and quality shall be paid, in which modification by the CA.
case the contract is simply called a loan or mutuum.
Issue:
Commodatum is essentially gratuitous.
WON the transaction entered by Liwanag and Rosales can be considered as
Simple loan may be gratuitous or with a stipulation to pay interest. a simple loan only?

Held:
In commodatum the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower. (1740a) No. In a contract of loan once the money is received by the debtor,
ownership over the same is transferred. Being the owner, the borrower
Article 1934. An accepted promise to deliver something by way of can dispose of it for whatever purpose he may deem proper. The receipt
commodatum or simple loan is binding upon parties, but the made by Liwanag indicates that the money delivered to Liwanag was for a
commodatum or simple loan itself shall not be perfected until the delivery specific purpose, that is, for the purchase of cigarettes, and in the event the
of the object of the contract. (n) cigarettes cannot be sold, the money must be returned to Rosales.

It is evident that Liwanag could not dispose of the money as she pleased
because it was only delivered to her for a single purpose, namely, for the
1. LIWANAG VS CA, 281 SCRA 225 (1997) #1 purchase of cigarettes, and if this was not possible then to return the money
CAMASO to Rosales. Since in this case there was no transfer of ownership of the money
delivered,
Facts:
2. HERRERA VS PETROPHIL CORP, GR No.
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to
the house of complainant Isidora Rosales (Rosales) and asked her to join them 48349, 29 Dec. 1986 #2 ANTIOJO
in the business of buying and selling cigarettes. Convinced of the feasibility of
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There is no usury in this case because no money was given by the


defendant-appellee to the plaintiff-appellant, nor did it allow him to use its
A loan must be in form of money or something circulating
money already in his possession. There was neither loan nor forbearance but
as money. It must be payable absolutely and in all events a mere discount which the plaintiff-appellant allowed the defendant-appellee
to deduct from the total payments because they were being made in advance
FACTS: for eight years. The discount was in effect a reduction of the rentals which the
lessor had the right to determine, and any reduction thereof, by any amount,
On December 5, 1969, Herrera and ESSO Standard, (later substituted would not contravene the Usury Law.
by Petrophil Corp.,) entered into a lease agreement, whereby the former
leased to the latter a portion of his property for a period of 20 yrs. subject to The difference between a discount and a loan or forbearance is that
the condition that monthly rentals should be paid and there should be an the former does not have to be repaid. The loan or forbearance is subject to
advance payment of rentals for the first eight years of the contract, to which repayment and is therefore governed by the laws on usury.
ESSO paid on December 31, 1969. However, ESSO deducted the amount of
101, 010.73 as interest or discount for the eight years advance rental. To constitute usury, "there must be loan or forbearance; the loan must
be of money or something circulating as money; it must be repayable
On August 20, 1970, ESSO informed Herrera that there had been a absolutely and in all events; and something must be exacted for the use of the
mistake in the computation of the interest and paid an additional sum of money in excess of and in addition to interest allowed by law."
2,182.70; thus, it was reduced to 98, 828.03.
It has been held that the elements of usury are (1) a loan, express or
As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, implied; (2) an understanding between the parties that the money lent shall or
claiming that this had been illegally deducted to him in violation of the Usury may be returned; that for such loan a greater rate or interest that is allowed by
Law. law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt
intent to take more than the legal rate for the use of money loaned. Unless
ESSO argued that amount deducted was not usurious interest but these four things concur in every transaction, it is safe to affirm that no case of
rather a discount given to it for paying the rentals in advance. Judgment on the usury can be declared.
pleadings was rendered in favor of ESSO. Thus, the matter was elevated to
the SC for only questions of law were involve.

ISSUE: Whether the contract between the parties is one of loan or lease? 3. KIM VS PEOPLE, GR No. 84719, 25 Jan. 1991
#3 CASTRO S
RULING:

Contract between the parties is one of lease and not of loan. It is Cash advance when not liquidated is considered as loan
clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is
there any showing that the parties intended a loan rather than a lease. The FACTS:
provision for the payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or forbearance of money as Petitioner Kim Yong Chan (Kim) was employed as a researcher in
to constitute an indebtedness on the part of the lessor. On the contrary, the Aquaculture Department of the Southeast Asian Fisheries Development
defendant-appellee was discharging its obligation in advance by paying the Center (SEAFDEC) with head office in Tigbauan, Iloilo. His work, being the
eight years rental, and it was for this advance payment that it was getting a head in his unit, requires him to travel to various selected provinces in the
rebate or discount. country. On June 15 1982, Kim was issued Travel Order 2222 which covered
his travels to different places in Luzon from June 16 to July 21. He received

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P6,438 cash advance under such TO. Within the same period, he was issued
another travel order, TO 2268, requiring him to travel from head office to Roxas Credit Cards; Words and Phrases; A credit card is defined as any
City from June 30 to July 4. He received P495 cash advance. card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or
He presented both travel orders for liquidation. When the Travel
Expense Reports were audited, it was discovered that there was an overlap of anything of value on credit; It traces its roots to the charge card first
4 days (June 30-July 3) in the two travel orders for which Kim collected per introduced by the Diners Club in New York City in 1950; In the
diems twice. The total amount charged and collected by Kim when he did not Philippines, the now defunct Pacific Bank was responsible for bringing
actually and physically travel is P1,230. Kim claimed that he made make-up the first credit card into the country in the 1970s.A credit card is
trips he failed to undertake under TO 2222 because he was recalled to the defined as any card, plate, coupon book, or other credit device
head office. existing for the purpose of obtaining money, goods, property, labor or
services or anything of value on credit. It traces its roots to the
` 2 complaints for Estafa were filed against him. One was dismissed for charge card first introduced by the Diners Club in New York City in
failure to prosecute. The other one convicted him. The RTC affirmed the 1950. American Express followed suit by introducing its own charge
decision of MTC. CA dismissed Kims appeal for being filed out of time.
card to the American market in 1958. In the Philippines, the now
ISSUE: Whether Kim is criminally liable for the crime of Estafa
defunct Pacific Bank was responsible for bringing the first credit card
HELD: No. into the country in the 1970s. However, it was only in the early 2000s
that credit card use gained wide acceptance in the country, as
For him to be convicted, it must be proven that he had the obligation evidenced by the surge in the number of credit card holders then.
to deliver or return the same money, good or personal property that he had Same; Every credit card transaction involves three contracts the
received. The Court ruled that Kim has no obligation to return the same money sales contract, the loan agreement, and the promise to pay.Simply
(cash advance) he received. put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or
Under EO no.10, Cash advances are to be liquidated within 30 days the business establishment which accepted the credit card; (b) the
after projected return of the employee, otherwise there will be a corresponding
loan agreement between the credit card issuer and the credit card
salary deduction. Liquidation means settling of indebtedness. An employee
who liquidates cash advance is in fact paying back his debt in the form of a holder; and lastly, (c) the promise to pay between the credit card
loan of money advanced to him by his employer, as per diems and allowances. issuer and the merchant or business establishment. Pantaleon vs.
Similarly, as stated in the assailed decision of the lower court, "if the amount American Express International, Inc., 629 SCRA 276, G.R. No.
of the cash advance he received is less than the amount he spent for actual 174269<br/> August 25, 2010
travel . . . he has the right to demand reimbursement from his employer the
amount he spent coming from his personal funds. In other words, the money Credit Cards; Words and Phrases; A credit card is defined as any
advanced by either party is actually a loan to the other. card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or
Under Art.1953, it is provided that the person who receives a loan anything of value on credit; It traces its roots to the charge card first
acquires the ownership thereof. Applying the foregoing in the present case,
introduced by the Diners Club in New York City in 1950; In the
ownership of the money was transferred to Kim. Hence, he was under no
legal obligation to return the same cash or money. Philippines, the now defunct Pacific Bank was responsible for bringing
the first credit card into the country in the 1970s.A credit card is
CREDIT CARD defined as any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or
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services or anything of value on credit. It traces its roots to the 1. Yes. The popular notion that credit card purchases are approved within
charge card first introduced by the Diners Club in New York City in seconds, there really is no strict, legally determinative point of demarcation
1950. American Express followed suit by introducing its own charge on how long must it take for a credit card company to approve or disapprove a
card to the American market in 1958. In the Philippines, the now customers purchase, much less one specifically contracted upon by the
parties. One hour appears to be patently unreasonable length of time to
defunct Pacific Bank was responsible for bringing the first credit card
approve or disapprove a credit card purchase.
into the country in the 1970s. However, it was only in the early 2000s
that credit card use gained wide acceptance in the country, as
evidenced by the surge in the number of credit card holders then. The culpable failure of AmEx herein is not the failure to timely approve
Same; Every credit card transaction involves three contracts the petitioners purchase, but the more elemental failure to timely act on the same,
sales contract, the loan agreement, and the promise to pay.Simply whether favorably or unfavorably. Even assuming that AmExs credit
put, every credit card transaction involves three contracts, namely: (a) authorizers did not have sufficient basis on hand to make a judgment, we see
the sales contract between the credit card holder and the merchant or no reason why it could not have promptly informed Pantaleon the reason for
the business establishment which accepted the credit card; (b) the the delay, and duly advised him that resolving the same could take some time.
loan agreement between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between the credit card
2. Yes. The reason why Pantaleon is entitled to damages is not simply because
issuer and the merchant or business establishment. AmEx incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code
Pantaleon vs American Express International Inc for which moral damages are remunerative. The somewhat unusual attending
circumstances to the purchase at Coster that there was a deadline for the
G.R. No. 174269, May 8 2009 [Credit Transaction] completion of that purchase by petitioner before any delay would redound to
the injury of his several traveling companions gave rise to the moral shock,
FACTS: mental anguish, serious anxiety, wounded feelings and social humiliation
sustained by Pantaleon, as concluded by the RTC.
After the Amsterdam incident that happened involving the delay of American
Express Card to approve his credit card purchases worth US$13,826.00 at the *Discounting:
Coster store, Pantaleon commenced a complaint for moral and exemplary
damages before the RTC against American Express. He said that he and his It is a mode of loaning with the agreement that interest is
family experienced inconvenience and humiliation due to the delays in credit deducted in advance
authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached b) Commodatum (Arts. 1935-1952)
its obligations to Pantaleon, as the purchase at Coster deviated from
Pantaleon's established charge purchase pattern.
b.1) Nature of Commodatum (Arts. 1935-1940)
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to
Pantaleon. Nature of Commodatum
2. Whether or not AmEx is liable for damages.

RULING:

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Article 1935. The bailee in commodatum acquires the use of the thing private respondents became bailors in commodatum, and
loaned but not its fruits; if any compensation is to be paid by him who petitioner, the bailee
acquires the use, the contract ceases to be a commodatum. (1941a)
Facts:
Article 1936. Consumable goods may be the subject of commodatum if
the purpose of the contract is not the consumption of the object, as when Background: Catholic Vicar filed an application for registration of title
it is merely for exhibition. (n) over Lots 1, 2, 3, and 4 which were situated in La Trinidad, Benguet. The said
lots were the sites of the Catholic Church building, convents, high school
Article 1937. Movable or immovable property may be the object of building, school gymnasium, and other structures. The Heirs of Juan Valdez
commodatum. (n) and Egmidio Octaviano opposed the registration of lots 2 and 3 respectively.
After trial the land registration court ruled in favor of Vicar but the CA reversed
Article 1938. The bailor in commodatum need not be the owner of the the lower courts decision and dismissed Vicars application over lots 2 and 3.
thing loaned. (n) The Supreme Court sustained the ruling of the CA. Thereafter, the Heirs of
Octaviano filed with the CFI a Motion for Execution praying that they be placed
in possession of Lot 3 but the lower court denied the motion on the ground that
Article 1939. Commodatum is purely personal in character. the CAs prior decision did not grant the Heirs any affirmative relief. The Heirs
Consequently: appealed the denial of their motion but the case was also dismissed by the CA.

(1) The death of either the bailor or the bailee extinguishes the It was at that stage that the instant cases were filed. The Heirs of
contract; Octaviano filed a case for recovery of possession of Lot 3 and the Heirs of
Valdez likewise filed the same case over Lot 2. At the trial, the Heirs of
(2) The bailee can neither lend nor lease the object of the Octaviano presented Fructuoso Valdez. The latter testified on the ownership
contract to a third person. However, the members of the bailee's of the land by their predecessors-in-interest, Egmidio Octaviano. On the other
household may make use of the thing loaned, unless there is a hand, Vicar presented the Register of Deeds of Benguet, Atty. Nicanor Sison,
stipulation to the contrary, or unless the nature of the thing forbids who testified that the land is not covered by any title in the name of Egmidio
Octaviano. Vicar claims that they have been in possession of the questioned
such use. (n)
lots for 75 years continuously and peacefully and has constructed permanent
structures thereon. Both sets of Heirs now argue that Vicar is barred from
Article 1940. A stipulation that the bailee may make use of the fruits of setting up the defense of ownership and/or long and continuous possession of
the thing loaned is valid. (n) the two lots in question since this is barred by prior judgment of the CA (the
one stated in the Background case) under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already
4. CATHOLIC VICAR APOSTOLIC OF THE MT. been determined by the CA and affirmed by the Supreme Court. After yet
another unfavorable decision, Vicar filed a petition for review before the SC.
PROV. VS CA, 165 SCRA 515 (1988) #4
CASTRO J Issue: WON Vicar can claim ownership over the land in question?

Ruling: NO. Petitioner questions the ruling of respondent Court of Appeals


When petitoner borrowed the house of private respondents when it clearly held that it was in agreement with the findings of the trial court
predecessors, and the petitioner was allowed its free use, that the Decision of the Court of Appeals (the one in the background facts) on
the question of ownership of Lots 2 and 3, declared that the said Court of
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Appeals did not positively declare private respondents as owners of the land, (3) If the thing loaned has been delivered with appraisal of its
neither was it declared that they were not owners of the land, but it held that value, unless there is a stipulation exempting the bailee from
the predecessors of private respondents were possessors of Lots 2 and 3, with responsibility in case of a fortuitous event;
claim of ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it repudiated the (4) If he lends or leases the thing to a third person, who is not a
trust by declaring the properties in its name for taxation purposes. When
member of his household;
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive
prescription requires possession for ten years, but always with just title (which (5) If, being able to save either the thing borrowed or his own
the petitioner does not have). Extraordinary acquisitive prescription requires thing, he chose to save the latter. (1744a and 1745)
30 years (petitioner is in possession for only 11 years). Private respondents
were able to prove that their predecessors' house was borrowed by petitioner Article 1943. The bailee does not answer for the deterioration of the
Vicar after the church and the convent were destroyed. They never asked for thing loaned due only to the use thereof and without his fault. (1746)
the return of the house, but when they allowed its free use, they (the Heirs)
became bailors in commodatum and the petitioner the bailee. The bailees' Article 1944. The bailee cannot retain the thing loaned on the ground
failure to return the subject matter of commodatum to the bailor did not mean that the bailor owes him something, even though it may be by reason of
adverse possession on the part of the borrower. The bailee held in trust the
expenses. However, the bailee has a right of retention for damages
property subject matter of commodatum. The adverse claim of petitioner came
mentioned in article 1951. (1747a)
only in 1951 when it declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title. Article 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a)

5. Obligations of the bailee (Arts. 1941 1945) #5 DEIMRY


b.3) OBLIGATIONS OF THE BAILOR (Arts. 1946-1952)
Obligations of the Bailee Dinglasan

Article 1941. The bailee is obliged to pay for the ordinary expenses for
the use and preservation of the thing loaned. (1743a) SECTION 3
Obligations of the Bailor
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event: ARTICLE 1946. The bailor cannot demand the return of the thing loaned
till after the expiration of the period stipulated, or after the
(1) If he devotes the thing to any purpose different from that for accomplishment of the use for which the commodatum has been
which it has been loaned; constituted. However, if in the meantime, he should have urgent need of
the thing, he may demand its return or temporary use.
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been In case of temporary use by the bailor, the contract of commodatum is
constituted; suspended while the thing is in the possession of the bailor. (1749a)

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Article 1947. The bailor may demand the thing at will, and the 1. The primary obligation of the bailor is to allow the bailee the use of
contractual relation is called a precarium, in the following cases: the thing loaned for the duration of the period stipulated or until the
accomplishment of the purpose for which the commodatum was constituted
(1) If neither the duration of the contract nor the use to which the a. However, the lender may demand its return or temporary use if he
thing loaned should be devoted, has been stipulated; or has the urgent need of the thing or if the borrower commits an act
of ingratitude
(2) If the use of the thing is merely tolerated by the owner.
2. PRECARIUM:
(1750a)
1. If neither the duration of the contract nor the use to which the thing
Article 1948. The bailor may demand the immediate return of the thing if loaned should be devoted has been stipulated; or
the bailee commits any act of ingratitude specified in article 765. (n) 2. If the use of the thing is merely tolerated by the owner

Article 1949. The bailor shall refund the extraordinary expenses during a kind of commodatum where the bailor may demand the thing at will. In this
the contract for the preservation of the thing loaned, provided the bailee kind of commodatum, the lender may demand at will the return of thing
brings the same to the knowledge of the bailor before incurring them, under the following circumstances:
except when they are so urgent that the reply to the notification cannot be a. If neither the duration of the contract nor the use to which the thing
awaited without danger. loaned should be devoted, has been stipulated; or
b. If the use of the thing is merely tolerated by the owner.
c. the law recognizes the urgency as well as it is gratuitous.
If the extraordinary expenses arise on the occasion of the actual use of d. Take note that in precarium, there is no stipulated period or the use is
the thing by the bailee, even though he acted without fault, they shall be merely tolerated
borne equally by both the bailor and the bailee, unless there is a 3. He may demand the immediate return of the thing if the bailee
stipulation to the contrary. (1751a) commits any act of ingratitude
a. If the bailee should commit some offenses against the person, honor or
Article 1950. If, for the purpose of making use of the thing, the bailee the property of the bailor, or
incurs expenses other than those referred to in articles 1941 and 1949, of his wife, and children under his parental authority
he is not entitled to reimbursement. (n) b. If the bailee imputes to the bailor any criminal offense or any act
involving moral turpitude, even
Article 1951. The bailor who, knowing the flaws of the thing loaned, does though he should prove it, unless the crime or act has been committed
not advise the bailee of the same, shall be liable to the latter for the against himself, his wife and
children under his authority
damages which he may suffer by reason thereof. (1752)
c. If the bailee unduly refuses the bailor support when the bailee is legally
or morally bound to give support
Article 1952. The bailor cannot exempt himself from the payment of 4. He has the obligation to refund extraordinary expenses for the preservation
expenses or damages by abandoning the thing to the bailee. (n) of the thing loanedit is him who profits from the said expenses anyway.
a. As a rule, notice is required because it is possible that the bailor may
not want to incur the
extraordinary expenses at all
b. An exception of course is where there is urgency that the reply to the
notification cannot be awaited without danger

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c. you have to determine if its ordinary or extraordinary change in value. In case it is impossible to deliver the same kind, its
d. why would you advance for the extraordinary expenses when value at the time of the perfection of the loan shall be paid. (1754a)
you can return the
thing and make the lender pay for the expenses? Article 1956. No interest shall be due unless it has been expressly
5. Regarding, extraordinary expenses arising from the actual use of the thing, stipulated in writing. (1755a)
the division of liability between the bailor and bailee is 50-50. This is the default
rule but the parties may stipulate for a different apportionment.
6. For expenses other than ordinary expenses and expenses for the Article 1957. Contracts and stipulations, under any cloak or device
preservation and use of the thing, the bailor is not liable for the same. whatever, intended to circumvent the laws against usury shall be void.
7. He is liable to the bailee for damages in case he has knowledge of The borrower may recover in accordance with the laws on usury. (n)
flaws of the thing loaned, and he didn't advise the bailee of the same
a. There is flaw or defect in the thing loaned Article 1958. In the determination of the interest, if it is payable in kind,
b. The flaw or defect is hidden its value shall be appraised at the current price of the products or goods
c. The bailor is aware thereof at the time and place of payment. (n)
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of the said flaw or defect Article 1959. Without prejudice to the provisions of article 2212, interest
8. He cannot excuse himself from liability for any expense or damages by
due and unpaid shall not earn interest. However, the contracting parties
abandoning the thing to the bailee
may by stipulation capitalize the interest due and unpaid, which as added
principal, shall earn new interest. (n)
C. Simple Loan or Mutuum ( Arts. 1953-1961)
Article 1960. If the borrower pays interest when there has been no
stipulation therefor, the provisions of this Code concerning solutio
CHAPTER 2 indebiti, or natural obligations, shall be applied, as the case may be. (n)
Simple Loan or Mutuum
Article 1961. Usurious contracts shall be governed by the Usury Law and
Article 1953. A person who receives a loan of money or any other other special laws, so far as they are not inconsistent with this Code. (n)
fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality. (1753a)

Article 1954. A contract whereby one person transfers the ownership of


7. LAO VS CA, 275 SCRA 237 (1997)
non-fungible things to another with the obligation on the part of the latter GALICINAO
to give things of the same kind, quantity, and quality shall be considered
a barter. (n) Necessitous men are nit, truly speaking, free men; but to
answer a present emergency, will submit to terms that the
Article 1955. The obligation of a person who borrows money shall be crafty may impose upon them.
governed by the provisions of articles 1249 and 1250 of this Code. Where the borrowers urgent need for money places the
latter at a disadvantage vis-a-vis the mender who can thus
If what was loaned is a fungible thing other than money, the debtor owes dictate the terms of their contract, the Court, in case of an
another thing of the same kind, quantity and quality, even if it should ambiguity, deems the contact to be the one which involves

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the lesser transmission of rights and interest over the that they mortgaged their townhouse units registered under the name of N.
property in controversy Domingo Realty Corporation, the family corporation put up by their parents, to
Private Respondent Better Homes Realty & Housing Corporation. Since the
Facts: borrower's urgent need for money places the latter at a disadvantage vis-a-vis
the lender who can thus dictate the terms of their contract, the Court, in case
Private respondent Better Homes Realty and Housing Corp. filed a of an ambiguity, deems the contract to be one which involves the lesser
complaint for unlawful detainer with the Metc on the ground that petitioner Lao transmission of rights and interest over the property in controversy.
occupied its property without rent, but on its pure liberality with the
understanding that he would vacate the property upon demand. However, 2. No. There was no sale of the disputed property. Hence, it still belongs
despite demand to vacate, Lao refused to vacate the premises. to petitioner's family corporation, N. Domingo Realty & Development
Corporation. Private respondent, being a mere mortgagee, has no right to eject
Lao claimed that he is the true owner of the property; that the private petitioner.
respondent purchased the same from N. Domingo Realty and Development
Corporation, but the agreement was actually a loan secured by mortgage; and
that plaintiff's cause of action is for accion publiciana, outside the jurisdiction 8. CLARAVALL VS CA, 190 SCRA 439 (1990)
of an inferior court.
MOGELLO
MeTC ruled in favor of private respondent, but RTC reversed its
decision, saying that the real transaction over the subject property was not a A contract of loan with mortgage made to appear in
sale but a loan secured by a mortgage thereon. On appeal, the CA reversed paper as an absolute sale with a companion an
the decision of the RTC.
option to buy is null and void even if no usury is
Issue: involved
1. Whether or not Better Homes Realty and Housing Corp had acquired
ownership over the property in question. FACTS: Appellant Loreto Claravall and Victoria H. Claravall obtained
loans from the Development Bank of the Philippines (DBP) in the amount of
2. Whether or not petitioner should be ejected from the premises in P52,000.00 for the construction of a commercial building on their property
question situated in the Municipality of Ilagan, Isabela. To secure the loan, a mortgage
was executed upon said property in favor of the DBP. Claravall was unable to
Held pay the amortization over said loan and the DBP threatened to foreclose the
mortgage.
1. No. the agreement between the private respondent and N. Domingo
Realty & Housing Corporation is one of equitable mortgage. First, possession However, Claravall was able to pay DBP by executing a deed of sale
of the property in the controversy remained with Petitioner Manuel Lao who over the property in question with a 5-year option to repurchase the same with
was the beneficial owner of the property, before, during and after the alleged a certain Juan Ang-angan.
sale. It is settled that a "pacto de retro sale should be treated as a mortgage
where the (property) sold never left the possession of the vendors." Second, Claravall exercised the said right to repurchase the property from Ang-
the option given to Manuel Lao to purchase the property in controversy had angan by obtaining a loan from spouses Francisco and Carolina Ramirez in
been extended twice through documents executed by the President and the amount of P75,000.00. A deed of sale dated December 29, 1965 was
Chairman of the Board of Better Homes Realty & Housing Corporation. Third, executed over the same property by the Claravalls in favor of Ramirez.
unquestionably, Manuel Lao and his brother were in such "dire need of money"

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Another instrument was entered into by Claravall and Ramirez which ART. 1604. The provisions of Article 1602 shall also apply to a contract
granted Claravall an option to repurchase the property in question within a purporting to be an absolute sale.
period of two (2) years from December 29, 1965 but not earlier nor later than
the month of December, 1967, for the sum of P10,000.00 payable at the time Under Article 1604 a contract purporting to be an absolute sale shall
of repurchase. be presumed to be an equitable mortgage, should any of the conditions in
Article 1602 be present. Otherwise stated, the presence of only one
At the expiration of the 2-year period, appellant Claravall failed to circumstance defined in Article 1602 is sufficient for a contract of sale with right
redeem the property in question and because of this they brought suit against to repurchase to be presumed an equitable mortgage.
Francisco and Carolina Ramirez to compel the latter to sell the property in
question back to them (Claravall).

The lower court rendered judgment in favor of defendants, the


Ramirez spouses, (private respondents herein) which was affirmed in toto by
respondent court.

ISSUE: WON the contract of loan with mortgage made to appear in paper as 9. JAVIER VS DE GUZMAN, 192 SCRA 434 (1990)
absolute sale is null and void.
PALILEO
HELD: Yes. A contract of loan with mortgage made to appear in paper as an
absolute sale with a companion option to buy is null and void even if no usury The Usury Law is legally inexistent pursuant to CB Circular
is involved.
No. 905, and the interest now legally chargeable depends
Under Article 1604 a contract purporting to be an absolute sale shall upon the agreement of the lender and borrower.
be presumed to be an equitable mortgage, should any of the conditions in
Article 1602 be present. Otherwise stated, the presence of only one FACTS:
circumstance defined in Article 1602 is sufficient for a contract of sale with right
to repurchase to be presumed an equitable mortgage. On 7 December 1987, Efren Javier, and his mother, Lolita Javier,
borrowed P200,000.00 from Respondent Judge with interest orally agreed
ART. 1602. The contract shall be presumed to be an equitable mortgage, in upon at ten per cent (10%) monthly, They tendered to the latter UCPB Check
any of the following cases: No. BNE 012872, dated 7 January 1988, in the amount of P220,000.00. The
drawer of the check was actually Donato Belen, a brother-in-law of Efren, as
(1) When the price of a sale with right to repurchase is unusually inadequate; the Javiers had no personal checking account. The following day, Respondent
(2) When the vendor remains in possession as lessee or otherwise; required them to sign a Memorandum of Agreement, which they did. Two of
(3) When upon or after the expiration of the right to repurchase another the conditions imposed were interest at the rate of twenty per cent (20%) per
instrument extending the period of redemption or granting a new period is month, compounded monthly, and should they fail to pay the loan and its
executed; interest upon maturity on 7 January 1988 and the check is deposited and
(4) When the purchaser retains for himself a part of the purchase price; dishonored, an appropriate charge for violation of Batas Pambansa Blg. 22
(5) When the vendor binds himself to pay the taxes on the thing sold; may be filed at Respondent's option. When the Javiers defaulted on due date
(6) In any other case where it may be fairly inferred that the real intention of because of business reverses, partial payments in the total amount of
the parties is that the transaction shall secure the payment of a debt or the P177,000.00 were made to Respondent between 6 January 1988 and 16 June
performance of any other obligation.

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1988. Meanwhile, the check, which was deposited by Respondent on 14 April unconscionable by imposing a penalty of twenty per cent (20%) interest per
1988, was dishonored by the drawee bank. month compounded monthly. Respondent was equivocal as to the repayments
that were made to him by the Javiers. In his Verified Complaint before the Trial
On 8 September 1988, Respondent instituted suit for a "Sum of Money Court, he averred failure to repay. However, in the computation attached to his
and Damages with Prayer for the Issuance of a Writ of Preliminary Attachment" Motion for Judgment on the Pleadings, he made mention of "alleged payments
in the Regional Trial Court of Makati, Metro Manila, against the spouses Pedro being accepted by (him) at face value" and included them in the determination
and Lolita Javier, and their son, Efren, for the recovery of the "sum of of the balance due.
P220,000.00 with 20% interest/penalty a month compounded monthly from
January 7, 1988 until fully paid," computed at P622,871.67. Judgment on the Respondent also brought suit to collect the staggering sum of
pleadings was rendered on 3 February 1989 ordering the Javiers to pay P622,871.67 despite payments by the debtors of approximately P177,000.00
Respondent Judge the "sum of P608,871.67 with 20% interest/penalty a of the original P200,000.00 loan. Although not illegal under the terms of the
month compounded monthly beginning September 8, 1988 until fully paid" and Memorandum of Agreement, as in fact, the Trial Court had ruled in
the "sum equal to 10% of the amounts due and recoverable as reimbursement Respondent's favor, it does not necessarily follow that it was moral and fair.
of attorney's fees and litigation expenses". In the meantime, an Order granting Respondent is not a hard-boiled and callous businessman. He is a Judge.
execution pending appeal was issued by the Trial Court on 14 April 1989. The
Javiers appealed to the Court of Appeals where the case still pends. Still later, Finding Respondent Judge, Salvador P. de Guzman, Jr. guilty on
Respondent filed in Manila two (2) criminal complaints, the first, for violation of three (3) counts, of irresponsible, improper and dishonorable conduct in
B.P. Blg. 22 against Efren, who, however, was acquitted, and the second, for disregard of the Code of Judicial Ethics, he is severely censured, with a stern
Estafa against Complainants and Lolita Javier, which complaint was warning that a repetition of the said acts or similar acts in the future shall
dismissed. receive graver sanctions.

On 21 March 1989, Respondent further filed an administrative charge


against Complainant father, Pedro, with the Bureau of Internal Revenue where 10. ALMEDA VS CA, 256 SCRA 292
the latter was employed. Earlier, an administrative charge against Pedro had
also been filed with the Civil Service Commission on 3 March 1989 accusing PAVICO
Pedro in both instances, of having committed estafa against him and his wife,
of dishonesty and of conduct unbecoming of a government official. Feeling
harassed, Complainants filed this administrative charge against Respondent While the Usury ceiling interest rates was lifted by CB
Judge on four counts of "dishonorable conduct, Circular No. 905, nothing in the said circular could possibly read
as granting carte blanche authority to lenders to raise interest
ISSUE: WON the respondent judge can be held liable for the usurious interest. rates to levels which would either enslave their borrowers or lead
to hemorrhaging of their assets.
HELD: Where the escalation clause of the credit agreement in the
instant case required the same be made within the limits
No. As to the usurious rate of interest, while that issue was considered
by Justice de la Fuente as irrelevant since the Usury Law is now legally allowed by laws it is obviously referred to specifically to
inexistent pursuant to Central Bank Circular No. 905 and the interest now legislative enactments not administrative circulars.
legally chargeable depends upon the agreement of lender and borrower (Liam
Law v. Olympic Sawmill Co., G.R. No. L-30771, May 28, 1984, 129 SCRA Facts:
439), she found that the interest charged on the loan was exorbitant. While he
had every right to protect his investment, and while the contract of loan entered In 1981, PNB granted herein petitioner several loan/credit
into between him and the Javiers was legal per se, Respondent rendered it accommodations totaling P18.0 Million pesos payable in a period of six years
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at an interest rate of 21% per annum. To secure the loan, the spouses Almeda provisions of existing law. Consequently, while the Usury Law ceiling on
executed a Real Estate Mortgage Contract covering a 3,500 square meter interest rates was lifted by C.B. Circular 905, nothing in the said circular could
parcel of land, together with the building erected thereon (the Marvin Plaza) possibly be read as granting respondent bank carte blanche authority to raise
located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying interest rates to levels which would either enslave its borrowers or lead to a
the terms and conditions of the loan was executed between the parties. hemorrhaging of their assets. Borrowing represents a transfusion of capital
from lending institutions to industries and businesses in order to stimulate
The agreement contains growth. This would not, obviously, be the effect of PNB's unilateral and
xxx xxx xxx lopsided policy regarding the interest rates of petitioners' borrowings in the
instant case.
The Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may adopt in
the future; provided, that the interest rate on this/these accommodations shall Loan is a Real Contract
be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
11. GARCIA VS THIO, 518 SCRA 433 (2007)
date of the increase or decrease of the maximum interest rate. RIEGO
Between 1981 and 1984, petitioners made several partial payments A loan is a real contract, not consensual, and as asuch is
on the loan totaling. P7,735,004.66, 2 a substantial portion of which was perfected upon delivery of the object of the contract.
applied to accrued interest. Said interest rate thereupon increased from an
initial 21% to a high of 68% between March of 1984 to September, 1986. FACTS:
Before the loan matures, petitioner filed a complaint in the lower court for
declaratory relief and with prayer for a writ of preliminary injunction and Two crossed check payable to certain Mariou Santiago were given to
temporary restraining order. The lower court issued the writ of preliminary the respondent by the petitioner the first check covers one-hundred thousand
injunction which was appealed in the CA which rendered the assailed US dollar and the second check covers five-hundred thousand pesos.
Decision. Hence this petition.
Petitioner alleged that on February 24, 1995, respondent borrowed
Issue: Whether or not PNB could unilaterally raise interest rates on the loan, from her the amount of US$100,000 with interest thereon at the rate of 3% per
pursuant to the credit agreement's escalation clause, and in relation to Central month, which loan would mature on October 26, 1995. The amount of this loan
Bank Circular No. 905. was covered by the first check. On June 29, 1995, respondent again borrowed
the amount of P500,000 at an agreed monthly interest of 4%, the maturity date
Ruling: No, PNB cannot. of which was on November 5, 1995. The amount of this loan was covered by
the second check. For both loans, no promissory note was executed since
Moreover, respondent bank's reliance on C.B. Circular No. 905, Series petitioner and respondent were close friends at the time. Respondent paid the
of 1982 did not authorize the bank, or any lending institution for that matter, to stipulated monthly interest for both loans but on their maturity dates, she failed
progressively increase interest rates on borrowings to an extent which would to pay the principal amounts despite repeated demands.
have made it virtually impossible for debtors to comply with their own
obligations. True, escalation clauses in credit agreements are perfectly valid Respondent denied that she contracted the two loans with petitioner
and do not contravene public policy. Such clauses, however, (as are and countered that it was Marilou Santiago to whom petitioner lent the money.
stipulations in other contracts) are nonetheless still subject to laws and She claimed she was merely asked by petitioner to give the crossed checks to
provisions governing agreements between parties, which agreements while Santiago. She issued the checks not as payment of interest but to
they may be the law between the contracting parties implicitly incorporate
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accommodate petitioners request that respondent use her own checks instead were quite big. Respondent, on the other hand, already had transactions with
of Santiagos. Santiago at that time.

The lower court decided in favor of the petitioner stating that there is 2. Second, Leticia Ruiz, a friend of both petitioner and respondent (and
a contract of load between the two but the appellate court reversed the whose name appeared in both parties list of witnesses) testified that
decision finding that there is nothing in the record that shows that respondent respondents plan was for petitioner to lend her money at a monthly interest
received money from petitioner. rate of 3%, after which respondent would lend the same amount to Santiago
at a higher rate of 5% and realize a profit of 2%.33 This explained why
ISSUE: Whether or not there is a contract of loan between the petitioner and respondent instructed petitioner to make the checks payable to Santiago.
the respondent. Respondent has not shown any reason why Ruiz testimony should not be
believed.
HELD:
3. Third, for the US$100,000 loan, respondent admitted issuing her own
Yes, there is a contract of loan between the petitioner and the checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight
respondent. A loan is a real contract, not consensual, and as such is perfected months to cover the monthly interest. For the P500,000 loan, she also issued
only upon the delivery of the object of the contract. This is evident in Art. 1934 her own checks in the amount of P20,000 each for four months.34 According
of the Civil Code which provides: to respondent, she merely accommodated petitioners request for her to issue
her own checks to cover the interest payments since petitioner was not
An accepted promise to deliver something by way of personally acquainted with Santiago.35 She claimed, however, that Santiago
commodatum or simple loan is binding upon the parties, but the would replace the checks with cash.36 Her explanation is simply incredible. It
commodatum or simple loan itself shall not be perfected until the is difficult to believe that respondent would put herself in a position where she
delivery of the object of the contract. would be compelled to pay interest, from her own funds, for loans she allegedly
did not contract. We declared in one case that:
Upon delivery of the object of the contract of loan (in this
case the money received by the debtor when the checks were In the assessment of the testimonies of witnesses, this Court is
encashed) the debtor acquires ownership of such money or loan guided by the rule that for evidence to be believed, it must not
proceeds and is bound to pay the creditor an equal amount. only proceed from the mouth of a credible witness, but must be
credible in itself such as the common experience of mankind can
In the case at bar, it is undisputed that the checks were delivered to approve as probable under the circumstances. We have no test
respondent. The decision of the Court of Appeals was reversed and set-aside. of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant
NOTE: The held is supposedly short, but for further clarification, I included the to these belongs to the miraculous, and is outside of juridical
reasons why did the Court believe that there is contract between the cognizance.
respondent and petitioner.
4. Fourth, in the petition for insolvency sworn to and filed by Santiago, it
This is supported by the following reasons: was respondent, not petitioner, who was listed as one of her (Santiagos)
creditors.
1. First, respondent admitted that petitioner did not personally know
Santiago. It was highly improbable that petitioner would grant two loans to a 5. Last, respondent inexplicably never presented Santiago as a witness
complete stranger without requiring as much as promissory notes or any to corroborate her story. The presumption is that "evidence willfully
written acknowledgment of the debt considering that the amounts involved suppressed would be adverse if produced." Respondent was not able to
overturn this presumption.
Page 13 of 50
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(5) When the title of the obligation has been lost. (1176a)
Payment of Loan

11.A) Cinco vs. C.A., G.R. No. 151903


Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from
A loan is paid by the delivery of the sum of money due respondent Maasin Traders Lending Corporation (MTLC). The loan was
(Art. 1233 of the Civil Code). evidenced by the promissory note, and secured by a real
estate mortgage over the spouses Cincos land and 4-storey building.To pay
the loan in favor of MTLC, the spouses Cinco applied for a loan with the
Article 1233. A debt shall not be understood to have been paid Philippine National Bank(PNB), and offered the same properties they
unless the thing or service in which the obligation consists has been previously mortgage to MTLC. The PNB approved the loadapplication for 1.3
completely delivered or rendered, as the case may be. (1157). Million; the release was, however, conditioned on the cancellation of the
mortgage infavor of MTLC. Manuel went to Ester Servacio (Ester), MTLCs
If the creditor unjustly refuses to accept the tender of President to inform her that there was money with PNB forPayment of his loan.
payment, the loan wil still be considered paid if the debtor makes Manuel executed a Special Power of Attorney (SPA) authorizing Ester to
a consignation or deposits the thing due or place it at the diaposal collect theproceeds of the loan. Ester went to the PNB to inquire, the second
of judicial authorities for the creditor to collect. There must time around, about the proceeds. Thebank officer confirmed the existence of
therefore be tender of payment and consignation (Art. 1256, Civil such loan, but they required Ester to first sign a deed ofrelease/cancellation of
Code) the mortgage before they could release the proceeds of the loan to her.
Outraged,Ester refused the deed and did not collect the 1.3 Million.Ester
instituted foreclosure proceeding. To prevent the foreclosure, the spouses
Tender of Payment and Consignation Cinco filed an action forspecific performance, damages, and preliminary
injunction.Issue: Whether the loan due the MTLC had been extinguished by
Article 1256. If the creditor to whom tender of payment has been made the act of the spouses Cinco amountedto payment.Held: No, While Esters
refuses without just cause to accept it, the debtor shall be released from refusal was unjustified and unreasonable, we cannot agree with Manuels
responsibility by the consignation of the thing or sum due. positionthat this refusal had the effect of payment that extinguished his
obligation to MTLC. Article 1256 is clearand unequivocal on this point when it
Consignation alone shall produce the same effect in the following cases: provides that ARTICLE 1256. If the creditor to whom tender of payment has
been made refuses without justcause to accept it, the debtor shall be released
from responsibility by the consignation of thething or sum due.In short, a
(1) When the creditor is absent or unknown, or does not appear
refusal without just cause is not equivalent to payment; to have the effect of
at the place of payment;
payment and theconsequent extinguishment of the obligation to pay, the law
requires the companion acts of tender ofpayment and consignation.Tender of
(2) When he is incapacitated to receive the payment at the time it payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,
is due;
is the definitiveact of offering the creditor what is due him or her, together with
(3) When, without just cause, he refuses to give a receipt; the demand that the creditor accept thesame. When a creditor refuses the
debtors tender of payment, the law allows the consignation of thething or the
(4) When two or more persons claim the same right to collect; sum due. Tender and consignation have the effect of payment, as by
consignation, the thingdue is deposited and placed at the disposal of the
judicial authorities for the creditor to collect.Nonetheless, the SPA stood as an
Page 14 of 50
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authority to collect the proceeds of the already-approved PNB loanthat, upon Section 1. All monetary obligations shall be settled in the Philippine currency
receipt by Ester, would have constituted as payment of the MTLC loan. The which is legal tender in the Philippines. However, the parties may agree that
Court agrees withManuel that Esters refusal of the payment was without the obligation or transaction shall be settled in any other currency at the time
basis.Under these circumstances, we hold that while no completed tender of of payment.
payment and consignation tookplace sufficient to constitute payment, the Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as
spouses Go Cinco duly established that they have legitimatelysecured a amended entitled "An Act to Assume the Uniform Value of Philippine Coin and
means of paying off their loan with MTLC; they were only prevented from doing Currency," is hereby repealed.
so by theunjust refusal of Ester to accept the proceeds of the PNB loan through Sec. 3. This Act shall take effect fifteen (15) days after its publication in the
her refusal to execute the releaseof the mortgage on the properties mortgaged Official Gazette or in two (2) national newspapers of general circulation. The
to MTLC. We also find that under the circumstances, thespouses Go Cinco Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an
have undertaken, at the very least, the equivalent of a tender of payment that intensive information campaign on the effect of this Act.
cannotbut have legal effect. Since payment was available and was unjustifiably Approved: June 11, 1996
refused, justice and equitydemand that the spouses Go Cinco be freed from
the obligation to pay interest on the outstanding

13. CF SHARP & CO. VS NORTHWEST AIRLINES, GR


In determining actual damages, the Court cannot rely on speculation, NO. 133498, 18 APRIL 2002 - CAMASO
conjecture or guesswork as to the amount. Actual and compensatory
damages are those recoverable because of pecuniary loss in business, Facts:
trade, property, profession, job or occupation and the same must be
sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated, no On May 9, 1974, respondent, through its Japan Branch, entered into an
damages will be given. [Emphasis supplied.] International Passenger Sales Agency Agreement with petitioner, authorizing
the latter to sell its air transport tickets. Petitioner failed to remit the proceeds
12. RA 8183 (11 July 1996 TITO of the ticket sales, for which reason, respondent filed a collection suit against
petitioner before the Tokyo District Court which rendered judgment on January
Republic Act No. 8183 June 11, 1996 29, 1981, ordering petitioner to pay respondent the amount of "83,158,195 Yen
and damages for the delay at the rate of 6% per annum from August 28, 1980
Repealing RA 529 up to and until payment is completed." Unable to execute the decision in
Japan, respondent filed a case to enforce said foreign judgment with the
All money obligations shall be settled in the Phil. Regional Trial Court (RTC) of Manila, Branch 54. However, the case was
dismissed on the ground of failure of the Japanese Court to acquire jurisdiction
Currency which is legal tender of the Phil. However, the over the person of the petitioner. Respondent appealed to the Court of
parties may agree that the obligation or transaction shall be Appeals, which affirmed the decision of the RTC.
settled in any other currency at the time of the payment
Thereafter, the RTC issued a writ of execution for foreign courts decision. The
"AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN AND petitioner filed for certiorari, asserting it has already made partial payments.
CURRENCY." The CA lowered the amount to be paid and included in its decision that the
amount may be paid in local currency at rate prevailing at time of payment.
Be it enacted by the Senate and House of Representatives of the Philippines The Supreme Court partly affirmed the decision. The RTC issued a writ of
in Congress assembled:: execution of decision ruling that Sharp is to pay Northwest the sum of
83,158,195 yen at the exchange rate prevailing on the date of the foreign

Page 15 of 50
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judgment plus 6% per annum until fully paid, 6% damages and 6% interest. 14. PREMIER DEVELOPMENT BANK VS
On appeal, the Court of Appeals reduced the interest and it ruled that the basis
of the conversion of Petitioners liability in its peso equivalent should be the FLORES, 574 SCRA 66, 16 DEC 2008 -
prevailing rate at the time of payment and not the rate on the date of the foreign ANTIOJO
judgment

Issue: FACTS:

WON the conversion of CF Sharps liability in its peso equivalent basing on the The undisputed facts show that on or about October 1994, Panacor Marketing
prevailing rate at the time of the establishment of the obligation is correct? Corporation (Panacor for brevity), a newly-formed corporation, acquired an
exclusive distributorship of products manufactured by Colgate Palmolive
Held: Philippines, Inc. (Colgate for short). To meet the capital requirements of the
exclusive distributorship, which required an initial inventory level of P7.5
No. Petitioners contention that it is Article 1250 of the Civil Code that should million, Panacor applied for a loan of P4.1 million with Premiere Development
be applied is untenable. The rule that the value of the currency at the time of Bank. After an extensive study of Panacors creditworthiness, Premiere Bank
the establishment of the obligation shall be the basis of payment finds rejected the loan application and suggested that its affiliate company, Arizona
application only when there is an official pronouncement or declaration of the Transport Corporation (Arizona for short), should instead apply for the loan on
existence of an extraordinary inflation or deflation. condition that the proceeds thereof shall be made available to Panacor.
Eventually, Panacor was granted a P4.1 million credit line as evidenced by a
The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing Credit Line Agreement. As suggested, Arizona, which was an existing loan
the prohibition on the stipulation of currency other than Philippine client, applied for and was granted a loan of P6.1 million, P3.4 million of which
currency, such that obligations or transactions may now be paid in the would be used to pay-off its existing loan accounts and the remaining P2.7
currency agreed upon by the parties. Just like R.A. No. 529, however, the million as credit line of Panacor. As security for the P6.1 million loan, Arizona,
new law does not provide for the applicable rate of exchange for the represented by its Chief Executive Officer Pedro Panaligan and spouses
conversion of foreign currency-incurred obligations in their peso Pedro and Marietta Panaligan in their personal capacities, executed a Real
equivalent. It follows, therefore, that the jurisprudence established in Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per
R.A. No. 529 regarding the rate of conversion remains applicable. Thus, Entry No. 49507 dated October 2, 1995.
in Asia World Recruitment, Inc. v. National Labor Relations
Commission,13 the Court, applying R.A. No. 8183, sustained the ruling Since the P2.7 million released by Premiere Bank fell short of the P4.1 million
of the NLRC that obligations in foreign currency may be discharged in credit line which was previously approved, Panacor negotiated for a take-out
Philippine currency based on the prevailing rate at the time of payment. loan with IBA-Finance Corporation (hereinafter referred to as IBA-Finance) in
The wisdom on which the jurisprudence interpreting R.A. No. 529 is the sum of P10 million, P7.5 million of which will be released outright in order
based equally holds true with R.A. No. 8183. Verily, it is just and fair to to take-out the loan from Premiere Bank and the balance of P2.5 million (to
preserve the real value of the foreign exchange- incurred obligation to complete the needed capital ofP4.1 million with Colgate) to be released after
the date of its payment. the cancellation by Premiere of the collateral mortgage on the property
covered by TCT No. T-3475. Pursuant to the said take-out agreement, IBA-
Petition is denied. Finance was authorized to pay Premiere Bank the prior existing loan
obligations of Arizona in an amount not to exceed P6 million.
Claim and Debt
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano,
officer-in-charge of Premiere Banks San Juan Branch, informing her of the

Page 16 of 50
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approved loan in favor of Panacor and Arizona, and requesting for the release Premiere Bank appealed to the Court of Appeals contending that the trial court
of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of erred in finding, inter alia, that it had maliciously downgraded the credit-line of
conformity thereto and sent the original copy to Premiere Banks legal office. Panacor from P4.1 million to P2.7 million.
xxx
In the meantime, a compromise agreement was entered into between IBA-
On October 12, 1995, Premiere Bank sent a letter-reply to [IBA]-Finance, Finance and Premiere Bank whereby the latter agreed to return without
informing the latter of its refusal to turn over the requested documents on the interest the amount of P6,235,754.79 which IBA-Finance earlier remitted to
ground that Arizona had existing unpaid loan obligations and that it was the Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the
banks policy to require full payment of all outstanding loan obligations prior to compromise agreement was approved.
the release of mortgage documents. Thereafter, Premiere Bank issued to IBA-
Finance a Final Statement of Account showing Arizonas total loan On June 18, 2003, a decision was rendered by the Court of Appeals which
indebtedness. On October 19, 1995, Panacor and Arizona executed in favor affirmed with modification the decision of the trial court, the dispositive portion
of IBA-Finance a promissory note in the amount of P7.5 million. Thereafter, of which reads:7 x x x
IBA-Finance paid to Premiere Bank the amount of P6,235,754.79,
representing the full outstanding loan account of Arizona. Despite such
payment, Premiere Bank still refused to release the requested mortgage
documents specifically, the owners duplicate copy of TCT No. T-3475. ISSUE: Whether PDB has a claim or a debt to the other corporations?

On November 2, 1995, Panacor requested IBA-Finance for the immediate RULING:


approval and release of the remaining P2.5 million loan to meet the required
monthly purchases from Colgate. IBA-Finance explained however, that the A distinction must be made between a debt and a mere claim. A
processing of the P2.5 million loan application was conditioned, among others, debt is an amount actually ascertained. It is a claim which has been
on the submission of the owners duplicate copy of TCT No. 3475 and the formally passed upon by the courts or quasi-judicial bodies to which it
cancellation by Premiere Bank of Arizonas mortgage. Occasioned by can in law be submitted and has been declared to be a debt. A claim, on
Premiere Banks adamant refusal to release the mortgage cancellation the other hand, is a debt in embryo. It is mere evidence of a debt and
document, Panacor failed to generate the required capital to meet its must pass thru the process prescribed by law before it develops into
distribution and sales targets. On December 7, 1995, Colgate informed what is properly called a debt. Absent, however, any such categorical
Panacor of its decision to terminate their distribution agreement. admission by an obligor or final adjudication, no legal compensation or
off-set can take place. Unless admitted by a debtor himself, the
On March 13, 1996, Panacor and Arizona filed a complaint for specific conclusion that he is in truth indebted to another cannot be definitely
performance and damages against Premiere Bank before the Regional Trial and finally pronounced, no matter how convinced he may be from the
Court of Pasig City, docketed as Civil Case No. 65577. examination of the pertinent records of the validity of that conclusion the
indebtedness must be one that is admitted by the alleged debtor or
On June 11, 1996, IBA-Finance filed a complaint-in-intervention praying that pronounced by final judgment of a competent court. At best, what
judgment be rendered ordering Premiere Bank to pay damages in its favor. Premiere Development Bank has against respondent corporations is just
a claim, not a debt. At worst, it is a speculative claim.
On May 26, 1998, the trial court rendered a decision in favor of Panacor and
IBA-Finance, the decretal portion of which reads: x x x Default on Demand

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when the period is the controlling motive or the principal inducement for
the creation of the obligation; and where demand would be useless.
15. Maybank Philippines Inc. (formerly PNB-
Republic Bank) vs. Tarrosa - CASTRO S In the present case, both the CA and the RTC reckoned the accrual of
Maybank's cause of action to foreclose the real estate mortgage over the
FACTS: subject property from the maturity of the second loan on May 11, 1984. The
CA reckoned the accrual after construing the par.5 of the REM.
Sps. Tarrosa obtained from petitioner-bank Maybank a loan in the
amount of P91,000 secured by a Real Estate Mortgage (parcel of land in San In no way did the mentioned paragraph affect the general parameters
Carlos City, Negros Occidental). After paying the said loan, Sps. Tarrosa of default, particularly the need of prior demand under Article 1169 of the Civil
obtained a second loan in the amount of P60,000 payable on March 11, 1984. Code, considering that it did not expressly declare: (a) that demand shall not
The spouses failed to pay upon maturity. The spouses received their final be necessary in order that the mortgagor may be in default; or (b) that default
demand letter sometime in April 1998. They offered to pay a lesser amount, shall commence upon mere failure to pay on the maturity date of the loan.
which Maybank refused. Thereafter, Maybank commenced extrajudicial Hence, the CA erred in construing the above provision as one through which
foreclosure. The subject property was eventually sold to Philmay Property Inc. the parties had dispensed with demand as a condition sine qua non for the
after a public auction sale proceeding. accrual of Maybank's right to foreclose the real estate mortgage over the
subject property, and thereby, mistakenly reckoned such right from the
The spouses filed a complaint for declaration of nullity and invalidity of maturity date of the loan on March 11, 1984.
the foreclosure and of the public auction sale proceedings. They averred,
among others, that Maybanks right to foreclosure had prescribed or is barred On Interest Rates
by laches. The RTC ruled that Maybanks right to foreclosure, reckoned from
the time the mortgage indebtedness became due and demandable on March 16. Pan Pacific Service Contractors Inc., vs.
11, 1984, had already prescribed. It ruled in favor of the spouses. The CA
affirmed the RTC ruling that the prescriptive period should be reckoned from Equitable PCI Bank CASTRO
March 11, 1984.
No interest shall be due unless it has been expressly
ISSUE: Whether CA erred in finding that Maybanks right to foreclose over the
subject property was barred by prescription.
stipulated in writing.

HELD: No. Facts:

An action to enforce a right arising from a mortgage should be Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in
enforced within 10 years from the time the right of action accrues when the contracting mechanical works on air conditioning system. They entered into a
mortgagor defaults in payment of his obligation to the mortgagee. Mere contract with the respondent for P20M. Pan Pacific and respondent also
delinquency in payment does not necessarily mean delay in legal concept. agreed on nine change orders for P2,622,610.30. They also agreed that Pan
Pacific shall be entitled to a price adjustment in case of increase in labor costs
In order that the debtor may be in default, it is necessary that: (a) and prices of materials. Pursuant to the contract, Pan Pacific commenced the
the obligation be demandable and already liquidated; (b) the debtor mechanical works in the project site, the PCIB Tower II extension building. The
delays performance; and (c) the creditor requires the performance project was completed and accepted by the respondent in 1992. However, in
judicially or extrajudicially, unless demand is not necessary - i.e., when 1990 labor costs and prices of materials escalated. So in 1991, in accordance
there is an express stipulation to that effect; where the law so provides; with the escalation clause, Pan Pacific claimed a price adjustment of P5.1M.
In response, the respondent bank appointed TCGI Engineers to assess if the
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said claim was correct. The latter recommended to respondent that the price confined to the interpretation of the contract which the parties have made for
adjustment should be pegged at P3.7M only. Pan Pacific contended that with themselves without regard to its wisdom or folly as the court cannot supply
this recommendation, respondent was already estopped from disclaiming material stipulations or read into the contract words which it does not contain.
liability of at least P3.7M in accordance with the escalation clause. Due to the It is only when the contract is vague and ambiguous that courts are permitted
extraordinary increases in the costs of labor and materials, Pan Pacifics to resort to construction of its terms and determine the intention of the parties.
operational capital was becoming inadequate. However, respondent withheld The written agreement entered into between petitioners and respondent
the payment of the price adjustment under the escalation clause despite Pan provides for an interest at the current bank lending rate in case of delay in
Pacifics repeated demands. To add insult, the respondent bank instead payment and the promissory note charged an interest of 18%. To prove
offered a loan to the petitioner to enable them to have something to work with. petitioners entitlement to the 18% bank lending rate of interest, petitioners
Out of desperation, and the promise that the price adjustments would be presented the promissory note prepared by respondent bank itself. This
released soon, the petitioner accepted the loan and they were required to issue promissory note, although declared void by the lower courts because it did not
a promissory note. Not a single centavo was received by the petitioner, all of express the real intention of the parties, is substantial proof that the bank
the amount of the loan was given to the employees for their salary. Petitioners lending rate at the time of default was 18% per annum. Absent any evidence
repeated demands were just ignored. Meanwhile, the loan matured and the of fraud, undue influence or any vice of consent exercised by petitioners
respondent is now the one demanding payment with interest. Petitioner against the respondent, the interest rate agreed upon is binding on them.
refused to pay the loan contending that it would not have accepted the loan if
only the respondent released the money that was rightfully theirs. They also 17.A) CARLOS LIM, et. al. v. DEVELOPMENT BANK
contend that the promissory note they issued did not contain their true
intentions. They maintained that the loan should be considered as an OF THE PHILIPPINES, G.R. No. 177050, July 1, 2013
advanced payment for the balance of the respondent and hence, the
promissory is void for lack of consideration. The petitioner filed a complaint The payment of interest and penalty in loans is allowed
and judgment was rendered in their favor. As a result the respondent was
ordered to pay the unpaid balance with 12% per annum interest. The
only if the parties agreed to it and reduced their agreement
petitioners partially appealed the decision with respect to the interest. in writing
Petitioners claimed that the interest rate applicable should be the 18% bank
lending rate because that is what they have agreed upon in the contract. Civil law; Notice of extrajudicial foreclosure. [U]nless the parties stipulate,
personal notice to the mortgagor in extrajudicial foreclosure proceedings is
Issue: WON erred in fixing in fixing the interest rate at 12% instead of the not necessary because Section 3 of Act 3135 only requires the posting of the
18% bank lending rate. notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.
Ruling:
In this case, the parties stipulated in paragraph 11 of the Mortgage that:
YES. It is settled that the agreement or the contract between the
parties is the formal expression of the parties rights, duties, and obligations. It
All correspondence relative to this mortgage, including demand letters,
is the best evidence of the intention of the parties. Thus, when the terms of an
summons, subpoenas, or notification of any judicial or extra-judicial action
agreement have been reduced to writing, it is considered as containing all the
shall be sent to the Mortgagor at xxx or at the address that may hereafter be
terms agreed upon and there can be, between the parties and their successors
given in writing by the Mortgagor or the Mortgagee;
in interest, no evidence of such terms other than the contents of the written
agreement. When the terms of a contract are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of its stipulations However, no notice of the extrajudicial foreclosure was sent by DBP to
governs. In these cases, courts have no authority to alter a contract by petitioners about the foreclosure sale scheduled on July 11, 1994. The letters
construction or to make a new contract for the parties. The Courts duty is dated January 28, 1994 and March 11, 1994 advising petitioners to
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immediately pay their obligation to avoid the impending foreclosure of their


mortgaged properties are not the notices required in paragraph 11 of the On defense, Caroline denied having owed Pua as well as issuing the
Mortgage. The failure of DBP to comply with their contractual agreement with checks. The husband, Benito contends that he and Caroline had been
petitioners, i.e., to send notice, is a breach sufficient to invalidate the separated and did not know anything about the loan.
foreclosure sale.
After trial, the RTC issued its Decision dated January 31, 2006 in favor
of petitioner. In holding thus, the RTC stated that the possession by petitioner
of the checks signed by Caroline, under the Negotiable Instruments Law,
17. Pua vs. Lo Bun Tioing- DINGLASAN raises the presumption that they were issued and delivered for a valuable
consideration. On the other hand, the court a quo discounted the testimony for
Article 1956 (Article 1956. No interest shall be due unless it has the defense completely denying respondents loan obligation to Pua.
been expressly stipulated in writing. (1755a)). Which refers to the The trial court, however, refused to order respondents to pay petitioner
monetary interest specifically mandates that no interest the amount of PhP 8,500,000 considering that the agreement to pay interest
shall be due unless it has been expressly stipulated. on the loan was not expressly stipulated in writing by the parties. The RTC,
instead, ordered respondents to pay the principal amount of the loan as
FACTS: represented by the 17 checks plus legal interest from the date of demand. As
rectified,36 the dispositive portion of RTCs Decision reads:
Ting Ting Pua extended a loan to respondent spouses Benito Lo Bun
Tiong and Caroline Siok Chung Teng , vouched by her sister, Lilian in 1988, Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are
with a total amount of P 1,795,000 covered by 176 check with an oral hereby ordered jointly and solidarily:
agreement that the same shall incur 2% compounding interest every month..
The checksissued by the spouses were subsequently dishonored by the 1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from
drawee bank upon presentment. On demand, the spouses pleaded for more September 30, 1998, until fully paid;
time because of their financial difficulties. Pua obliged and simply reminded 2. To pay plaintiff attorneys fees of P200,000.00; and
the respondents of their indebtedness from time to time. 3. To pay the costs of the suit.

Several years later, in 1996, when their financial situation turned On motion for reconsideration, the appellate court set aside the RTC
better, respondents called the petitioner for the computation of their loan Decision holding that Asiatrust Bank Check No. BND057550 was an
obligation. Hence, petitioner handed them a computation dated Oct 2, 1996 incomplete delivered instrument and that petitioner has failed to prove the
which showed that at the agreed 2% compounding interest per month, the existence of respondents indebtedness to her. Hence, the CA added,
amount payable to the petitioner rose to P13,218,544,20. The respondents petitioner does not have a cause of action against respondents.
asked Pua to reduce the amount to P 8,250,000.00. Wanted to get paid ,
petitioner agreed to the lowered amount. ISSUE: WON the 12% compounding interest on the loan may be collected by
Respondents then delivcered to Pua a check bearing the reduced the plaintiff.
amount. In turn, respondents demanded for the return of the 17 previously
dishonored checks. Pua however, said that she will do so only after the HELD: NO, respondents cannot be obliged to pay the interest of the loan on
encashment of their payment. the ground that the supposed agreement to pay such interest was not reduced
to writing. Article 1956 of the Civil Code, which refers to monetary interest,
Like the 17 checks. the check payment was dishonored, Hence, Pua specifically mandates that no interest shall be due unless it has been expressly
filed a complaint to collect the money owed by respondents. stipulated inwriting.68 Thus, the collection of interest in loans or forbearance
of money is allowed only when these two conditions concur: (1) there was an
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express stipulation for the payment of interest; (2) the agreement for the Sec. 1. The rate of interest, including commissions, premiums, fees and other
payment of the interest was reduced in writing.69 Absent any of these two charges, on a loan or forbearance of any money, goods, or credits, regardless
conditions, the money debtor cannot be made liable for interest. Thus, of maturity and whether secured or unsecured, that may be charged or
petitioner is entitled only to the principal amount of the loan plus the allowable collected by any person, whether natural or juridical, shall not be subject
legal interest from the time of the demand,70 at the rate of 6% per annum. to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
The BSP may prescribe rates 4. R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46
Section 109 of RA No. 265 covered only loans extended by banks, whereas and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
under section 1_A of the Usury Law, as amended, the Bangko Sentral other law, special charters, rule or regulation issued pursuant to said Republic
Monetary Board (BSP-MB) may prescribe the maximum rate or rates of Act No. 265, as amended, or parts thereof, which may be inconsistent with the
interest for loans or renewals thereof or the forbearance of any money, provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
goods or credits, including those for loans of low priority such as consumer likewise repealed.
loans, as well as such loans made by pawnshops, finance companies and Note: R.A. 7653 the law that created BSP to replace CB Note: this law did
similar credit institutions not retain the same provision as that of Section 109 in RA 265.

Advocates for Truth in Lending Inc. vs. Bangko Sentral PETITIONERS ARGUMENTS
Monetary Board #18 DINGLASAN no available resource material To justify their skipping the hierarchy of courts petitioners contend
for the digest the transcendental importance of their Petition:
a) CB-MB statutory or constitutional authority to prescribe the maximum
Facts rates of interest for all kinds of credit transactions and forbearance of money,
"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock goods or credit beyond the limits prescribed in the Usury Law;
corporation organized to engage in pro bono concerns and activities relating b) If so, whether the CB-MB exceeded its authority when it issued CB
to money lending issues. It was incorporated on July 9, 2010,and a month Circular No. 905, which removed all interest ceilings and thus suspended Act
later, it filed this petition, joined by its founder and president, Eduardo B. No. 2655 as regards usurious interest rates;
Olaguer, suing as a taxpayer and a citizen. c) Whether under R.A. No. 7653, the new BSP-MB may continue to
enforce CB Circular No. 905.
HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST RATES Petitioners contend that under Section 1-a of Act No. 2655, as
1. R.A. No. 265, which created the Central Bank on June 15, 1948, amended by P.D. No. 1684, the CB-MB was authorized only to prescribe or
empowered the CB-MB toset the maximum interest rates which banks may set the maximum rates of interest for a loan or renewal thereof or for the
charge for all types of loans and other credit operations. forbearance of any money, goods or credits, and to change such rates
2. The Usury Law was amended by P.D.1684, giving the CB-MB authority whenever warranted by prevailing economic and social conditions, the
to prescribe different maximum rates of interest which may be imposed for changes to be effected gradually and on scheduled dates; that nothing in P.D.
a loan or renewal thereof or the forbearance of any money, goods or No. 1684 authorized the CB-MB to lift or suspend the limits of interest on
credits, provided that the changes are effected gradually and announced in all credit transactions, when it issued CB Circular No. 905. They further insist
advance. Section 1-a of Act No. 2655 now reads: that under Section 109 of R.A. No. 265, the authority of the CB-MB was
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued clearly only to fix the banks maximum rates of interest, but always within
CB Circular No. 905, Series of 1982, effective on January 1, 1983. It removed the limits prescribed by the Usury Law.
the ceilings on interest rates on loans or forbearance of any money, goods CB Circular No. 905, which was promulgated without the benefit of any
or credits: prior public hearing, is void because it violated NCC 5 which provides that
"Acts executed against the provisions of mandatory or prohibitory laws shall
be void, except when the law itself authorizes their validity."
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weeks after the issuance of CB Circular No. 905, the benchmark 91- was enacted despite the non-reenactment in the BSP Law of a provision in the
day Treasury bills shot up to 40% PA, as a result. The banks followed suit and CB Law which the petitioners purports to be the basis of Circular 905. Magulo
re-priced their loans to rates which were even higher than those of the "Jobo" ba? Hahaha. Basta the present set up is: The power of the BSP Monetary
bills. Board to determine interest rates emanates from the Usury Law [which was
CB Circular No. 905 is also unconstitutional in light of the Bill of Rights, further specified by Circular 905].
which commands that "no person shall be deprived of life, liberty or property Granting that the CB had power to "suspend" the Usury Law, the new BSP-
without due process of law, nor shall any person be denied the equal protection MB did not retain this power of its predecessor, in view of Section 135 of R.A.
of the laws." No. 7653, which expressly repealed R.A. No. 265. The petitioners point out
R.A. No. 7653 did not re-enact a provision similar to Section 109 of RA that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A.
265, and therefore, in view of the repealing clause in Section 135 of R.A. No. No. 265.
7653, the BSP-MB has been stripped of the power either to prescribe the A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
maximum rates of interest which banks may charge for different kinds of extended by banks, whereas under Section 1-a of the Usury Law, as
loans and credit transactions, or to suspend Act No. 2655 and continue amended, the BSP-MB may prescribe the maximum rate or rates of interest
enforcing for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as
CB Circular No. 905. well as such loans made by pawnshops, finance companies and similar credit
Ruling institutions. It even authorizes the BSP-MB to prescribe different maximum
CB-MB merely suspended the effectivity of the Usury Law when it issued CB rate or rates for different types of borrowings, including deposits and deposit
Circular No. 905. substitutes, or loans of financial intermediaries.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No.
Law but simply suspended its effectivity; that a Circular cannot repeal a low; 265, now R.A. No. 7653, merely supplemented it as it concerns loans by
that by virtue of CB the Usury Law has been rendered ineffective; that the banks and other financial institutions. Had R.A. No. 7653 been intended to
Usury has been legally non-existent in our jurisdiction and interest can now be repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
charged as lender and borrow may agree upon. terms.
Circular upheld the parties freedom of contract to agree freely on the rate of Moreover, the rule is settled that repeals by implication are not favored,
interest citing Art. 1306 under which the contracting parties may establish such because laws are presumed to be passed with deliberation and full
stipulations, clauses terms and conditions as they may deem convenient knowledge of all laws existing pertaining to the subject.An implied repeal
provided they are not contrary to law, morals, good customs, public order or is predicated upon the condition that a substantial conflict or repugnancy is
public policy. found between the new and prior laws. Thus, in the absence of an express
repeal, a subsequent law cannot be construed as repealing a prior law unless
BSP-MB has authority to enforce CB Circular No. 905. an irreconcilable inconsistency and repugnancy exists in the terms of the new
RA 265 covered only banks while Section 1-a of the Usury Law, empowers the and old laws. We find no such conflict between the provisions of Act 2655 and
Monetary Board, BSP for that matter, to prescribe the maximum rate or rates R.A. No. 7653.
of interest for all loans or renewals thereof or the forbearance of any money, #generalia specialibus non derogant
good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the later The lifting of the ceilings for interest rates does not authorize stipulations
merely supplemented the former as it provided regulation for loans by banks charging excessive, unconscionable, and iniquitous interest.
and other financial institutions. RA 7653 was not unequivocally repealed by In Castro v. Tan, the Court held that the imposition of unconscionable interest
RA 765. is immoral and unjust. It is tantamount to a repugnant spoliation and an
CB Circular 905 is essentially based on Section 1-a of the Usury Law and the iniquitous deprivation of property repulsive to the common sense of man.
Usury Law being broader in scope than the law that created the Central Bank They are struck down for being contrary to morals, if not against the law,
was not deemed repealed when the law replacing CB with the Bangko Sentral therefore deemed inexistent and void ab initio. However this nullity does not
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affect the lenders right to recover the principal of the loan nor affect the other (5) for legislators, there must be a claim that the official action complained of
terms thereof. infringes upon their prerogatives as legislators.
In CREBA v. ERC, guidelines as determinants on whether a matter is of
PROCEDURAL MATTERS transcendental importance, namely:
The Petition is procedurally infirm. 1. the character of the funds or other assets involved in the case;
The CB-MB was created to perform executive functions with respect to the 2. the presence of a clear case of disregard of a constitutional or statutory
establishment, operation or liquidation of banking and credit institutions. It prohibition by the public respondent agency or instrumentality of the
does not perform judicial or quasi-judicial functions. Certainly, the issuance of government; and
CB Circular No. 905 was done in the exercise of an executive function. 3. the lack of any other party with a more direct and specific interest in the
Certiorari will not lie in the instant case. questions being raised.

Petitioners have no locus standi to file the Petition Legal Interest: BSP Circular No. 799 effective July
Locus standi is defined as "a right of appearance in a court of justice on a given 2013
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil
The rate of interest for loan or forbearance of any money,
Procedure provides that "every action must be prosecuted or defended in the
name of the real party in interest," who is "the party who stands to be benefited goods or credits and the rate allowed in judgements, in the
or injured by the judgment in the suit or the party entitled to the avails of the absence of an express contract as to such rate of interest: shall
suit." Succinctly put, a partys standing is based on his own right to the relief be 6% per annum.
sought.
Even in public interest cases such as this petition, the Court has generally
adopted the "direct injury" test that the person who impugns the validity of a 19. Andal vs. PNB - GALICINAO
statute must have "a personal and substantial interest in the case such
that he has sustained, or will sustain direct injury as a result." while Pursuant to circular 799, series of 2013, issued by the office if the
petitioners assert a public right it is nonetheless required of them to make out Governor of the Bnagko Sentral ng Pilipinas on 21 June 2013, and in
a sufficient interest in the vindication of the public order and the securing of accordance with the ruling of the SC in the recent case of Dario Nacar
relief. v. Gallery Frames, 703 scra 439 (2013), effective July 1, 2013, the rate
Petitioners also do not claim that public funds were being misused in the for the loan or forbearance of the money, goods or credits and the rate
enforcement of CB Circular No. 905 which would have made the action a public allowed in judgments in the absence of an express contract as to such
one, "and justify relaxation of the requirement that an action must be interest, shall be fix 6% per annum.
prosecuted in the name of the real party-in-interest."
Facts:
The Petition raises no issues of transcendental importance.
In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the Petitioners-spouses obtained a loan from, for which they executed
requirements before taxpayers, voters, concerned citizens, and legislators can (12) promissory notes undertaking to pay the bank the principal loan with
be accorded a standing to sue, viz: varying interest rates per interest period. It was agreed upon by the parties that
(1) the cases involve constitutional issues; the rate of interest may be increased or decreased for the subsequent interest
(2) for taxpayers, there must be a claim of illegal disbursement of public funds periods, with prior notice to petitioners-spouses. To secure payment for the
or that the tax measure is unconstitutional; loan, petitioners-spouses executed in favor of the bank a real estate mortgage
(3) for voters, there must be a showing of obvious interest in the validity of the using as collateral 5 parcels of land including all improvements therein.
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are
of transcendental importance which must be settled early; and
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When the bank advised petitioners-spouses to pay their loan


obligation, the latter complied to avoid foreclosure of the properties subject of
the real estate mortgage. However, despite payment PNB proceeded to FACTS: On March 18, 1996, spouses Johnson and Evangeline Sy
foreclose the real estate mortgage so petitioners-spouses filed a case with the secured a loan from Land Bank Legazpi City in the amount of PhP 16 million.
RTC The loan was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be
Petitioners-spouses alleged that the exorbitant rate of interest short-term and would mature on February 28, 1997, while the balance of PhP
unilaterally determined and imposed by PNB prevented them from paying their 10 million would be payable in seven (7) years. The Notice of Loan Approval
obligation. They also alleged that they signed the promissory notes in blank, dated February 22, 1996 contained an acceleration clause wherein any default
relying on the representation of PNB that they were merely proforma bank in payment of amortizations or other charges would accelerate the maturity of
requirements. PNB contended that the penalty charges imposed on the loan the loan.1
was expressly stipulated under the credit agreements and in the promissory
notes. Subsequently, however, the Spouses Sy found they could no longer
pay their loan. On December 9, 1996, they sold three (3) of their mortgaged
RTC rendered judgment in favor of petitioners-spouses. The CA parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother,
affirmed the decision, but it also denied petitioners-spouses contention that under a Deed of Sale with Assumption of Mortgage.
no interest is due on their principal loan obligation from the time of foreclosure
until finality of the judgment annulling the foreclosure sale. That as soon as our obligation has been duly settled, the bank is
authorized to release the mortgage in favor of the vendees and for this purpose
Issue: Whether no interest is due on the petitioners-spouses loan obligation VENDEES can register this instrument with the Register of Deeds for the
issuance of the titles already in their names.
Held:
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to
No. That the rate of interest was subsequently declared illegal and inform it about the sale and assumption of mortgage.3 Atty. Edna Hingco, the
unconscionable does not entitle petitioners-spouses to stop payment of Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo
interest.1wphi1 It should be emphasized that only the rate of interest was de Lumen that there was nothing wrong with the agreement with the Spouses
declared void. The stipulation requiring petitioners-spouses to pay interest on Sy but provided them with requirements for the assumption of mortgage. They
their loan remains valid and binding. They are, therefore, liable to pay interest were also told that Alfredo should pay part of the principal which was computed
from the time they defaulted in payment until their loan is fully paid. at PhP 750,000 and to update due or accrued interests on the promissory
Forbearance of Money notes so that Atty. Hingco could easily approve the assumption of mortgage.
Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave
it to Atty. Hingco. A receipt was issued for his payment. He also submitted the
20. Land Bank of the Philippines vs. Ong other documents required by Land Bank, such as financial statements for 1994
and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the
MOGELLO Spouses Sy would be transferred in his name but this never materialized. No
notice of transfer was sent to him.
Forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring Alfredo later found out that his application for assumption of mortgage
was not approved by Land Bank. The bank learned from its credit investigation
borrower or debtor to repay the loan or debt when due anf for
report that the Ongs had a real estate mortgage in the amount of PhP
which 12% per annum is imposed as interest in the absence of a 18,300,000 with another bank that was past due. Alfredo claimed that this was
stipulated.
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fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the Forbearance is defined as a contractual obligation of lender or creditor to refrain
Spouses Sy after several months. Alfredo only learned of the foreclosure when during a given period of time, from requiring the borrower or debtor to repay a loan or
he saw the subject mortgage properties included in a Notice of Foreclosure of debt then due and payable. This definition describes a loan where a debtor is given
Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other a period within which to pay a loan or debt. In such case, forbearance of money,
counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was goods or credits will have no distinct definition from a loan. We believe however,
told that the PhP 750,000 he paid would be returned to him. that the phrase forbearance of money, goods or credits is meant to have a
separate meaning from a loan, otherwise there would have been no need to add that
ISSUE: WON Alfredos conditional payment constitutes forbearance of phrase as a loan is already sufficiently defined in the Civil Code.
money.
Forbearance of money, goods or credits should therefore refer to arrangements
HELD: No. Forbearance of money refers to the contractual obligation of the other than loan agreements, where a person acquiesces to the temporary use of his
lender or creditor to desist for a fixed period from requiring the borrower or money, goods or credits pending happening of certain events or fulfillment of certain
debtor to repay the loan or debt then due and for which 12% per annum is conditions.
imposed as interest in the absence of a stipulated rate.
In this case, the respondent-spouses parted with their money even before the
In the instant case, Alfredos conditional payment to Land Bank does conditions were fulfilled. They have therefore allowed or granted forbearance to the
not constitute forbearance of money, since there was no agreement or seller (petitioner) to use their money pending fulfillment of the conditions. They were
obligation for Alfredo to pay Land Bank the amount of PhP 750,000, and the deprived of the use of their money for the period pending fulfillment of the conditions
obligation of Land Bank to return what Alfredo has conditionally paid is still in and when those conditions were breached, they are entitled not only to the return of
dispute and has not yet been determined. Thus, it cannot be said that Land the principal amount paid, but also to compensation for the use of their money. And
Banks alleged obligation has become a forbearance of money. the compensation for the use of their money, absent any stipulation, should be the
same rate of legal interest applicable to a loan since the use or deprivation of funds is
similar to a loan.
21. Estores vs. Supangan - PALILEO (No Case)
5. Reduction of Unconscionable Interest Rates
ESTORES V. SPOUSES SUPANGAN, (2012)
(Compensatory, Penalty or Indemnity Interest) 22. Phil. Export and Foreign Loan Guarantee
*Forbearance of money
ISSUE: Whether it is proper to impose interest for an obligation that does not Corp. vs. Amalgamated Management and
involve a loan or forbearance of money in the absence of stipulation of the parties. Devt. Corp - PAVICO
HELD:
YES. Interest may be imposed even in the absence of stipulation in the contract. In contracts, the law empowers the courts to reduce
Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion interest rates and penalty charges that are iniquitos,
of the court, be allowed upon damages awarded for breach of contract. In this unconscionable and exorbitant
case, there is no question that petitioner is legally obligated to return the P3.5 million
because of her failure to fulfill the obligation under the Conditional Deed of Sale,
despite demand. Petitioner enjoyed the use of the money from the time it was given Facts:
to her until now. Thus, she is already in default of her obligation from the date of
demand. The petitioner, is a government-owned and controlled-corporation
created by virtue of Presidential Decree No. 1080, as amended by Republic
Act No. 8497. Its primary purpose is to guarantee the foreign loans, in whole
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or in part, granted to any domestic entity, enterprise, or corporation, majority


of the capital of which is owned by Filipino citizens. In contracts, the law empowers the courts to reduce interest rates and
penalty charges that are iniquitous, unconscionable and exorbitant.[33]
Respondent Amalgamated Management and Development Whether an interest rate or penalty charge is reasonable or excessive is
Corporation (AMDC), a domestic corporation, had as its main business the addressed to the sound discretion of the courts. In determining what is
hauling of different commodities within the Middle East countries. Its co- iniquitous and unconscionable, courts must consider the circumstances of the
respondents Felimon R. Cuevas (Cuevas) and Jose A. Saddul, Jr. (Saddul) case.
were, respectively, its President and Vice-President.

AMDC obtained from the National Commercial Bank of Saudi Arabia 23. Albos vs. Embisan RIEGO
(NCBSA) a loan amounting to SR3.3 million (equivalent to P9,000,000.00). As
the security for the guaranty, Amalgamated Motors Philippines Incorporated
(AMPI), a sister company of AMDC, acted as an accommodation mortgagor, As case law instructs, the imposition of
and executed in favor of the petitioner a real estate mortgage over two parcels unconscionable rate of interest on money debt, even
of land located in Dasmarias. AMDC also executed in favor of the petitioner a if knowingly and voluntarily assumed, is immoral and
deed of undertaking dated April 21, 1982,[6] with Cuevas and Saddul as its co-
obligors. In the deed of undertaking, AMDC, Cuevas, and Saddul jointly and unjust.
severally bound themselves to pay to the petitioner, as obligee, whatever
damages or liabilities that the petitioner would incur by reason of the guaranty. FACTS:

AMDC defaulted on the obligation. Upon demand, the petitioner paid On October 17, 1984, petitioners entered into an agreement,
the obligation to NCBSA. By subrogation and pursuant to the Deed of denominated as "Loan with Real Estate Mortgage," with respondent spouses
Undertaking, the petitioner then demanded that AMDC, Cuevas and Saddul Nestor and Iluminada Embisan (spouses Embisan) in the amount of
should pay the obligation, but its demand was not complied with. Hence, it P84,000.00 payable within 90 days with a monthly interest rate of 5%. To
extra-judicially foreclosed the real estate mortgage. secure the indebtedness, petitioners mortgaged to the spouses Embisan a
parcel of land in Project 3, Quezon City, measuring around 207.6 square
Petitioner sued AMDC, Cuevas and Saddul on the premise that the meters and registered under their name, as evidenced by Transfer Certificate
procees were insufficient to cover balance. Title No. 257697. Payments are made but there are times that the petitioners
fails to pay which led to the the request of extension of the loan obligation
RTC, ruled in favor of Petitioner, however, Cuevas and Saddul were which are also granted. Along with the grant of extensions, a stipulation was
absolved and the lower court fixed the interest rate from 16% to 6% per made which would make the 5% interest compounded. Unfortunately, such
annum(accruing interest until deficiency claim is fully paid) change in the contract was not deduced to writing. The subject parcel land was
extra-judicially foreclose and was auctioned. The herein respondents became
On appeal, the CA affirmed in toto the decision. the highest bidder. The petitioners are forced to sign an agreement that would
make them lease to the parcel of land which was now owned by the
Issue: Whether the CA erred in declaring that AMDC was liable to pay respondents. The petitioners filed a suit to declare the extra-judicial foreclosure
interest and penalty charge at the rate of only 6% per annum instead of 16% void on the ground that they already paid the principal amount. The lower court
per annum dismissed the case as well as the Court of Appeals. Thus, this petition.

Ruling: No, the CA did not err. ISSUE: Whether or not the stipulation compounding the interest charged
should specifically be indicated in a written agreement.
We do not subscribe to the petitioners submission.
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HELD: On October 17, 1984, petitioners entered into an agreement,denominated as


Yes, the stipulation compounding the interest charged should Loan with Real Estate Mortgage,2 with respondent spouses Nestor and
specifically be indicated in a written agreement. In accordance with Article IluminadaEmbisan (spouses Embisan) i payable within 90 days with a monthly
1956 No interest shall be due unless it has been expressly stipulated in interest rate of 5%. To secure the indebtedness, petitioners mortgaged to the
writing. spouses Embisan a parcel of land in Project 3, Quezon City, measuring around
207.6 square meters and registered under their name, as evidenced by
As mandated by the foregoing provision, payment of monetary interest Transfer Certificate Title No. 257697.3chanrobleslaw
shall be due only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for such payment was reduced in writing. Thus, For failure to settle their account upon maturity, petitioner Aida Albos
the Court has held that collection of interest without any stipulation thereof in requested and was given an extension of eleven (11) months, when the said
writing is prohibited by law. deadline came , petitioners failed to pay his obligation, on agreement of the
parties, another extension on the second time and obligations remained
In the case at bar, it is undisputed that the parties have agreed for the unpaid. Thus, when the petitioners requested a third extension, as will later be
loan to earn 5% monthly interest, the stipulation to that effect put in writing. alleged by the respondent spouses, an additional eight (8) months was granted
When the petitioners defaulted, the period for payment was extended, carrying on the condition that the monthly 5% interest from then on, i.e. June 1986
over the terms of the original loan agreement, including the 5% simple interest. onwards, will be compounded. This stipulation, however, was not reduced in
However, by the third extension of the loan, respondent spouses decided to writing.
alter the agreement by changing the manner of earning interest rate,
compounding it beginning June 1986.
Issue:
Given the circumstances, the Court rule that the first requirement Whether or not the stipulation compounding the interest charged should
that there be an express stipulation for the payment of interestis not specifically be indicated in a written agreement.
sufficiently complied with, for purposes of imposing compounded interest on
the loan. The requirement does not only entail reducing in writing the interest Held:
rate to be earned but also the manner of earning the same, if it is to be YES. Article 1956 of the New Civil Code, which refers to monetary interest,
compounded. provides:
No interest shall be due unless it has been expressly stipulated in
Also, imposing 5% monthly interest, whether compounded or simple, writing.
is unconscionable. As mandated by the foregoing provision, payment of monetary interest
shall be due only if: (1) there was an express stipulation for the payment of
Thus, the stipulation in the Loan with Real Estate Mortgage imposing interest; and (2) the agreement for such payment was reduced in writing.
an interest of 5% monthly is declared void and in view of the nullity of the In the case at bar, it is undisputed that the parties have agreed for the loan to
interest imposed on the loan which affected the total arrearages upon which earn 5% monthly interest, the stipulation to that effect put in writing. When the
foreclosure was based, the foreclosure of mortgage, Certificate of Sale, petitioners defaulted, the period for payment was extended, carrying over the
Affidavit of Consolidation, Deed of Final Sale, and Contract of Lease are terms of the original loan agreement, including the 5% simple interest.
declared void. However, by the third extension of the loan, respondent spouses decided to
alter the agreement by changing the manner of earning interest rate,
Albos vs. Embisan #24 TITO compounding it beginning June 1986. This is apparent from the Statement of
Account prepared by the spouses Embisan themselves.

Facts:
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Article 1956 of the New Civil Code, which refers to monetary interest, provides:
Article 1956. No interest shall be due unless it has been expressly stipulated 26. Bank of the Phil. Islands vs. Intermediate Appellate
in writing. As mandated by the foregoing provision, payment of monetary Court, 164 SCRA 630, No. L-66826, August 19, 1988
interest shall be due only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for such payment was reduced in
writing. Thus, the collection of interest without any stipulation thereof in writing
is prohibited by law.
The document which embodies the contract states that the
US$ 3,000 was received by the bank fior safekeeping. The
II. DEPOSIT ( Arts 1962-2009) subsequent acts of the parties also shiw that the inteant of the
parties was really for the bank to safely keep the dollars and to return
a) Deposit in General & its Different Kinds (Arts 1962-1967) of the money on May 10,1976 or over months later. The above
arrangeents, is that defined under Art. 1962, Civil Code
CHAPTER 1
Deposit in General and its Different Kinds Article 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it and of
Article 1962. A deposit is constituted from the moment a person receives returning the same. If the safekeeping of the thing delivered is not the
a thing belonging to another, with the obligation of safely keeping it and of principal purpose of the contract, there is no deposit but some other
returning the same. If the safekeeping of the thing delivered is not the contract. (1758a
principal purpose of the contract, there is no deposit but some other
contract. (1758a)

Article 1963. An agreement to constitute a deposit is binding, but the Facts:


deposit itself is not perfected until the delivery of the thing. (n) A contract of depositum was entered into by Garcia, on behalf of COMTRUST
(BPI), wherein he received US $3,000 (foreign exchange) from Zshornack for
Article 1964. A deposit may be constituted judicially or extrajudicially. safekeeping. Later on or over five months later, Zshornack demanded the
(1759) return of the money but the bank refused alleging that the amount was sold
and transferred to her current account.
Arguments: COMTRUST (BPI): The parties entered into a contract of
Article 1965. A deposit is a gratuitous contract, except when there is an depositum which banks do not enter into. Thus, Garcia exceeded his powers
agreement to the contrary, or unless the depositary is engaged in the when he entered into the contract on behalf of the bank, hence, the bank
business of storing goods. (1760a) cannot be liable under the contract.

Article 1966. Only movable things may be the object of a deposit. (1761) Issue:
WON the contract entered into is a contract of depositum.
Article 1967. An extrajudicial deposit is either voluntary or necessary.
(1762) Held:
Yes. The situation is one contemplated in Art. 1962 of the NCC:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning

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the same. If the safekeeping of the thing delivered is not the principal purpose condition that the interest of 17% per annum is paid in
of the contract, there is no deposit but some other contract. advance. This agreement between the parties was reached
Note: But because the subject of the contract here is a foreign exchange, it is through their communications in writing. Subsequently, BPI FB paid FMIC
covered by Central Bank Circular No. 20 which requires that, All receipts of 17% interest or P14,667,687.01 upon clearance of the latters check deposit
foreign exchange by any resident person, firm, company or corporation shall However, on August 29, 1989, on the basis of an Authority to Debit signed by
be sold to authorized agents of the Central Bank by the recipients within one Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80
business day following the receipt of such foreign exchange. Since the million from FMICs current account to the savings account of Tevesteco
document and the subsequent acts of the parties show that they intended the Arrastre Stevedoring, Inc. FMIC denied having authorized the transfer of
bank to safekeep the foreign exchange, and return it later to Zshornack, who its funds to Tevesteco, claiming that the signatures of Ong and David were
alleged in his complaint that he is a Philippine resident, the parties did not falsified. Thereupon, to recover immediately its deposit, FMIC, on September
intend to sell the US dollars to the Central Bank within one business day from 12, 1989, issued BPI FB check no. 129077 forP86,057,646.72 payable to itself
receipt. Otherwise, the contract of depositum would never have been entered and drawn on its deposit with BPI FB SFDM branch. But upon presentation for
into at all. In other words, the transaction between Zshornack and the bank payment on September 13, 1989, BPI FB dishonored the check as it was
was void having been executed against the provisions of a mandatory law (CB "drawn against insufficient funds. Consequently, FMIC filed A COMPLAINT
Circ No. 20). Being in pari delicto, the law cannot afford either of them remedy. against BPI FB. FMIC FILED an Information for estafa against Ong, de Asis,
Sebastian and four others. However, the Information was dismissed on the
basis of a demurrer to evidence filed by the accused.
ISSUE:
27. BPI FAMILY SAVINGS BANK, INC vs. FIRST 1. WHETHER THE TRANSACTION BETWEEN FMIC AND BPI FB A TIME
DEPOSIT or a DEMAND DEPOSIT?
METRO INVESTMENT CORPORATION HELD:
The SC held that the parties did not intend the deposit to be treated as a
Ordinarily, a time deposit ids defined as one the payment demand deposit but rather as an interest-earning time deposit
of which cannot legally be required within such specified number not withdrawable anytime.
of days In Contrast, demand deposits are all those liabilities of When respondent FMIC invested its money with petitioner BPI FB, they
BSP and other banks which are denominated in Phil. Currency and intended theP100 million as a time deposit, to earn 17% per annum interest
and to remain intact until its maturity date one year thereafter. Ordinarily, a
are subject to payment in legal tender upon demand by the
time deposit is defined as "one the payment of which cannot legally be
presentation of ( depositors) checks required within such a specified number of days. In contrast, demand
deposits are "all those liabilities of the Bangko Sentral and of other
G.R. No. 132390 May 21, 2004 429 SCRA 30 banks which are denominated in Philippine currency and are subject to
FACTS: payment in legal tender upon demand by the presentation of
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, (depositors) checks.
opened current account and deposited METROBANK check no. 898679 While it may be true that barely one month and seven days from the date of
of P100 million with BPI Family Bank (BPI FB) . Ong made the deposit upon deposit, respondent FMIC demanded the withdrawal of P86,057,646.72
request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, through the issuance of a check payable to itself, the same was made as a
then Branch Manager of BPI FB San Francisco del Monte Branch. Sebastians result of the fraudulent and unauthorized transfer by petitioner BPI FB of its
aim was to increase the deposit level in hisBranch.BPI FB, through Sebastian, P80 million deposit to Tevestecos savings account. Certainly, such was a
guaranteed the payment of P14,667,687.01 representing 17% per annum normal reaction of respondent as a depositor to petitioners failure in its
interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB fiduciary duty to treat its account with the highest degree of care. Under this
that it will maintain its deposit of P100 million for a period of one year on circumstance, the withdrawal of deposit by respondent FMIC before the one-

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year maturity date did not change the nature of its time deposit to one Article 1970. If a person having capacity to contract accepts a deposit
of demand deposit. made by one who is incapacitated, the former shall be subject to all the
The SC have held that if a corporation knowingly permits its officer, or any obligations of a depositary, and may be compelled to return the thing by
other agent, to perform acts within the scope of an apparent authority, holding the guardian, or administrator, of the person who made the deposit, or by
him out to the public as possessing power to do those acts, the corporation the latter himself if he should acquire capacity. (1764)
will, as against any person who has dealt in good faith with the corporation
through such agent, be estopped from denying such authority. Petitioner
Article 1971. If the deposit has been made by a capacitated person with
maintains that respondent should have first inquired whether the deposit
of P100 Million and the fixing of the interest rate were pursuant to its
another who is not, the depositor shall only have an action to recover the
(petitioners)internal procedures. Petitioners stance is a futile attempt to evade thing deposited while it is still in the possession of the depositary, or to
an obligation clearly established by the intent of the parties. What transpires in compel the latter to pay him the amount by which he may have enriched
the corporate boardroom is entirely an internal matter. Hence, petitioner may or benefited himself with the thing or its price. However, if a third person
not impute negligence on the part of respondents representative in failing who acquired the thing acted in bad faith, the depositor may bring an action
to find out the scope of authority of petitioners Branch Manager. against him for its recovery. (1765a)
Indeed, the public has the right to rely on the trustworthiness of bank
managers and their acts. Obviously, confidence in the banking system, which Voluntary deposit defined.
necessarily includes reliance on bank managers, is vital in the economic life of
our society. A voluntary deposit is one wherein the delivery is made
Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year. Thus, by the will of the depositor.
petitioner is estopped from denying that it authorized its Branch Manager to
enter into an agreement with respondents Executive Vice President Ordinarily, there are only two persons involved.
concerning the deposit with the corresponding 17% interest per annum . Sometimes, however, the depositary may be a third
person. (Art. 1968, par. 2.)
b. Voluntary Deposit (Arts 1968-1994)
Voluntary and necessary deposits distinguished.
b.1 General Provisions
The chief difference between a voluntary deposit and
SECTION 1 a necessary deposit is that in the former, the depositor
General Provisions has complete freedom in choosing the depositary,
whereas in the latter, there is lack of free choice in the
Article 1968. A voluntary deposit is that wherein the delivery is made by depositor. (see 11 Manresa 674.)
the will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited with Depositor need not be owner of thing.
a third person, who shall deliver it in a proper case to the one to whom it
belongs. (1763) Generally, the depositor must be the owner of the thing
deposited. But it may belong to a person other than the
Article 1969. A contract of deposit may be entered into orally or in writing. depositor.
(n)

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110 may have been entered into provided all the essential
requisites for their validity are present. (Art. 1356.)
Arts. 1969-1970 DEPOSIT 111 Voluntary Thus, except for the delivery of the thing, there are no
Deposit/General Provisions formalities required for the existence of the contract.

Thus, a carrier, commission agent, a lessee, etc. may


deposit goods temporarily in his possession
considering that the contract does not involve the Art. 1970. If a person having capacity to contract accepts a
transfer of ownership. deposit made by one who is incapacitated, the former shall be
subject to all the obligations of a depositary, and may be
As a matter of fact, the depositary cannot dispute the compelled to return the thing by the guardian, or administrator, of
title of the depositor to the thing deposited. (Art. 1984, the person who made the deposit, or by the latter himself if he
par. 1.) The depositary is in estoppel. (see Art. 1436.) should acquire capacity.
Where there are several depositors. Where depositary capacitated and depositor
incapacitated.
Two or more persons each claiming to be entitled to a
thing may deposit the same with a third person. In such If the depositary is capacitated, he is subject to all the
case, the third person assumes the obligation to obliga- tions of a depositary whether or not the
deliver to the one to whom it belongs. depositor is capacitated. In the latter case, the
depositary must return the property to the
The action to compel the depositors to settle their
legalrepresentativeoftheincapacitated
conflicting claims among themselves would be in the
ortothedepositorhim- self if he should acquire capacity.
nature of an interpleader. (Sec. 1, Rule 62, Rules of
(see Art. 1986.)
Court.1) Here, one of the depositors is not the owner.
Under the law, persons who are capable cannot
allege the incapacity of those with whom they
contract. (Art. 1397.)
Art. 1969. A contract of deposit may be entered into orally or in
writing.

Form of contract of deposit. Art. 1971. If the deposit has been made by a capacitated person
with another who is not, the depositor shall only have an action to
The above article follows the general rule that recover the thing deposited while it is still in the possession of the
contracts shall be obligatory in whatever form they depositary, or to compel the latter to pay him the amount by which
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he may have enriched or benefited himself with the thing or its Article 1972. The depositary is obliged to keep the thing safely and to
price. However, if a third person who acquired the thing acted in return it, when required, to the depositor, or to his heirs and successors, or
bad faith, the depositor may bring an action against him for its to the person who may have been designated in the contract. His
responsibility, with regard to the safekeeping and the loss of the thing, shall
recovery. be governed by the provisions of Title I of this Book.

Where depositary incapacitated and depositor If the deposit is gratuitous, this fact shall be taken into account in
capacitated. determining the degree of care that the depositary must observe. (1766a)

The incapacitated depositary (like a minor or an insane Article 1973. Unless there is a stipulation to the contrary, the depositary
person) does not incur the obligation of a depositary. cannot deposit the thing with a third person. If deposit with a third person
However, he is liable (1) to return the thing deposited is allowed, the depositary is liable for the loss if he deposited the thing with
while still in his possession and (2) to pay the depositor a person who is manifestly careless or unfit. The depositary is responsible
the amount by which he may have benefited himself for the negligence of his employees. (n)
with the thing or its price subject to the right of any third
Article 1974. The depositary may change the way of the deposit if under
person who acquired the thing in good faith.
the circumstances he may reasonably presume that the depositor would
consent to the change if he knew of the facts of the situation. However,
EXAMPLE: before the depositary may make such change, he shall notify the depositor
thereof and wait for his decision, unless delay would cause danger. (n)
A deposited a watch with B, a minor who sold it to C.
Article 1975. The depositary holding certificates, bonds, securities or
If C acted in bad faith, A may recover the watch from instruments which earn interest shall be bound to collect the latter when it
him. But if C acted in good faith, As only recourse is becomes due, and to take such steps as may be necessary in order that
against B to compel him to return the price received for the securities may preserve their value and the rights corresponding to
the watch or the amount by which he may have them according to law.
benefited himself.
The above provision shall not apply to contracts for the rent of safety
deposit boxes. (n)
b.2 Obligations of Depositor
Article 1976. Unless there is a stipulation to the contrary, the depositary
It has been held that when there is no fix period for the may commingle grain or other articles of the same kind and quality, in
return, withdrawal can be made at any time without necessity which case the various depositors shall own or have a proportionate
of judicial order (Aboitiz vs Oquinena, 39 phil 926) interest in the mass. (n)

Obligations of the Depositary Article 1977. The depositary cannot make use of the thing deposited
without the express permission of the depositor.

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Otherwise, he shall be liable for damages. should there be no proof to the contrary. However, the courts may pass
upon the credibility of the depositor with respect to the value claimed by
However, when the preservation of the thing deposited requires its use, it him.
must be used but only for that purpose. (1767a)
When the seal or lock is broken, with or without the depositary's fault, he
Article 1978. When the depositary has permission to use the thing shall keep the secret of the deposit. (1769a)
deposited, the contract loses the concept of a deposit and becomes a loan
or commodatum, except where safekeeping is still the principal purpose of Article 1982. When it becomes necessary to open a locked box or
the contract. receptacle, the depositary is presumed authorized to do so, if the key has
been delivered to him; or when the instructions of the depositor as regards
The permission shall not be presumed, and its existence must be proved. the deposit cannot be executed without opening the box or receptacle. (n)
(1768a)
Article 1983. The thing deposited shall be returned with all its products,
Article 1979. The depositary is liable for the loss of the thing through a accessories and accessions.
fortuitous event:
Should the deposit consist of money, the provisions relative to agents in
(1) If it is so stipulated; article 1896 shall be applied to the depositary. (1770)

(2) If he uses the thing without the depositor's permission; Article 1984. The depositary cannot demand that the depositor prove his
ownership of the thing deposited.
(3) If he delays its return;
Nevertheless, should he discover that the thing has been stolen and who
(4) If he allows others to use it, even though he himself may have its true owner is, he must advise the latter of the deposit.
been authorized to use the same. (n)
If the owner, in spite of such information, does not claim it within the period
Article 1980. Fixed, savings, and current deposits of money in banks and of one month, the depositary shall be relieved of all responsibility by
similar institutions shall be governed by the provisions concerning simple returning the thing deposited to the depositor.
loan. (n)
If the depositary has reasonable grounds to believe that the thing has not
Article 1981. When the thing deposited is delivered closed and sealed, the been lawfully acquired by the depositor, the former may return the same.
depositary must return it in the same condition, and he shall be liable for (1771a)
damages should the seal or lock be broken through his fault.
Article 1985. When there are two or more depositors, if they are not
Fault on the part of the depositary is presumed, unless there is proof to the solidary, and the thing admits of division, each one cannot demand more
contrary. than his share.

As regards the value of the thing deposited, the statement of the depositor When there is solidarity or the thing does not admit of division, the
shall be accepted, when the forcible opening is imputable to the depositary, provisions of articles 1212 and 1214 shall govern. However, if there is a
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stipulation that the thing should be returned to one of the depositors, the Article 1991. The depositor's heir who in good faith may have sold the
depositary shall return it only to the person designated. (1772a) thing which he did not know was deposited, shall only be bound to return
the price he may have received or to assign his right of action against the
Article 1986. If the depositor should lose his capacity to contract after buyer in case the price has not been paid him. (1778)
having made the deposit, the thing cannot be returned except to the
persons who may have the administration of his property and rights. (1773) b.3 Obligations of the Depositor (Arts. 1992-1995)

Article 1987. If at the time the deposit was made a place was designated Obligations of the Depositor
for the return of the thing, the depositary must take the thing deposited to
such place; but the expenses for transportation shall be borne by the Article 1992. If the deposit is gratuitous, the depositor is obliged to
depositor. reimburse the depositary for the expenses he may have incurred for the
preservation of the thing deposited. (1779a)
If no place has been designated for the return, it shall be made where the
thing deposited may be, even if it should not be the same place where the Article 1993. The depositor shall reimburse the depositary for any loss
deposit was made, provided that there was no malice on the part of the arising from the character of the thing deposited, unless at the time of the
depositary. (1774) constitution of the deposit the former was not aware of, or was not
expected to know the dangerous character of the thing, or unless he
Article 1988. The thing deposited must be returned to the depositor upon notified the depositary of the same, or the latter was aware of it without
demand, even though a specified period or time for such return may have advice from the depositor. (n)
been fixed.
Article 1994. The depositary may retain the thing in pledge until the full
This provision shall not apply when the thing is judicially attached while in payment of what may be due him by reason of the deposit. (1780)
the depositary's possession, or should he have been notified of the
opposition of a third person to the return or the removal of the thing Article 1995. A deposit its extinguished:
deposited. In these cases, the depositary must immediately inform the
depositor of the attachment or opposition. (1775)
(1) Upon the loss or destruction of the thing deposited;
Article 1989. Unless the deposit is for a valuable consideration, the
(2) In case of a gratuitous deposit, upon the death of either the
depositary who may have justifiable reasons for not keeping the thing
depositor or the depositary. (n)
deposited may, even before the time designated, return it to the depositor;
and if the latter should refuse to receive it, the depositary may secure its
consignation from the court. (1776a)
29. CA-Agro Industrial Development Corp. vs. CA
Article 1990. If the depositary by force majeure or government order loses Castro A.
the thing and receives money or another thing in its place, he shall deliver *safety deposit box a contract for the rent of safety
the sum or other thing to the depositor. (1777a)
deposit box an ordinary contract of lease but special king of
deposit

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Facts: 1. No. SC ruled that it is a special kind of deposit because: the


Petitioner (through its President) purchased 2 parcels of land full and absolute possession and control of the safety deposit box
from spouses Pugao for P350K with a downpayment of P75 K. was not given to the joint renters the Petitioner and the Pugaos.
Per agreement, the land titles will be transferred upon full The guard key of the box remained with the Respondent Bank;
payment and will be placed in a safety deposit box of any bank. without this key, neither of the renters could open the box and
Moreover, the same could be withdrawn only upon the joint vice versa. In this case, the said key had a duplicate which was
signatures of a representative of the Petitioner and the Pugaos made so that both renters could have access to the box.
upon full payment of the purchase price. Thereafter, Petitioner Moreover, the renting out of the deposit box is not independent
and spouses placed the titles in the safety deposit box of from, but related to or in conjunction with, the principal function of
Respondent Security Bank and signed a lease contract which a contract of deposit the receiving in custody of funds, documents
substantially states that the Bank will not assume liability for the and other valuable objects for safekeeping.
contents of the deposit box. Subsequently, 2 renter's keys were 2. NO. SC opined that it is void. Generally, the Civil Code provides
given to the renters; one to the Petitioner and the other to the that the depositary (Respondent Bank) would be liable if, in
Pugaos. A guard key remained in the possession of the performing its obligation, it is found guilty of fraud, negligence,
Respondent Bank. The safety deposit box can only be opened delay or contravention of the tenor of the agreement. In the
using these 2 keys simultaneously. Afterwards, a certain Mrs. absence of any stipulation, the diligence of a good father of a
Ramos offered to buy from the Petitioner the 2 lots that would family is to be observed. Hence, any stipulation exempting the
yield a profit of P285K. Mrs. Ramos demanded the execution of depositary from any liability arising from the loss of the thing
a deed of sale which necessarily entailed the production of the deposited on account of fraud, negligence or delay would be void
certificates of title. Thus, Petitioner with the spouses went to for being contrary to law and public policy (which is present in the
Respondent Bank to retrieve the titles. However, when opened in disputed contract Said provisions are inconsistent with the
the presence of the Bank's representative, the safety deposit box Respondent Bank's responsibility as a depositary under Section
yielded no such certificates. Because of the delay in the 72(a) of the General Banking Act.
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to 3. NO. SC ruled that: no competent proof was presented to show
purchase the lots; as a consequence, the Petitioner allegedly that Respondent Bank was aware of the private agreement
failed to realize the expected profit of P285K. Hence, Petitioner between the Petitioner and the Pugaos that the Land titles were
filed a complaint for damages against Respondent Bank. The withdrawable from the safety deposit box only upon both parties'
Lower court ruled in favor of Respondent Bank. joint signatures, and that no evidence was submitted to reveal
Issues: that the loss of the certificates of title was due to the fraud or
1. Whether or not the disputed contract is an ordinary contract of negligence of the Respondent Bank.
lease?
2. Whether or not the provisions of the cited contract are valid?
3. Whether or not Respondent Bank is liable for damages?
Ruling: TRIPLE-V vs. FILIPINO MERCHANTS???

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FACTS: When De Asis entrusted the car in question to petitioners


A certain Mary Jo-anne De Asis is an employee of Crispa valet attendant while eating at petitioner's Kamayan Restaurant,
Textile Inc. A car was issued to her by the latter. She went to the former expected the car's safe return at the end of her meal.
Kamayan Restaurant in Quezon City. De Asis availed of the valet Thus, petitioner was constituted as a depositary of the same car.
parking service of petitioner and entrusted her car key to Petitioner cannot evade liability by arguing that neither a contract
petitioner's valet counter. A corresponding parking ticket was of deposit nor that of insurance, guaranty or surety for the loss of
issued as receipt for the car. The car was then parked by the car was constituted when De Asis availed of its free valet
petitioner's valet attendant, a certain Madridano, at the parking service.
designated parking area. Few minutes later, Madridano noticed As to petitioners argument that the stub given to the
that the car was not in its parking slot and its key no longer in the employee is an explicit waiver of any right to claim indemnity
box where valet attendants usually keep the keys of cars for the loss of the car
entrusted to them. The car was never recovered. The parking claim stub embodying the terms and
Crispa filed a claim against its insurer, herein respondent conditions of the parking, including that of relieving petitioner from
Filipino Merchants Insurance Company, Inc. (FMICI). Having any loss or damage to the car, is essentially a contract of
indemnified Crispa in the amount of P669.500 for the loss of the adhesion, drafted and prepared as it is by the petitioner
subject vehicle, FMICI, as subrogee to Crispa's rights, filed with alone with no participation whatsoever on the part of the
the RTC at Makati City an action for damages against petitioner. customers, like De Asis, who merely adheres to the printed
The trial court ruled in favor of the respondent. Its decision stipulations therein appearing. While contracts of adhesion are
was affirmed on appeal. not void in themselves, yet this Court will not hesitate to rule out
The petitioner argues that it was not a depositary of the blind adherence thereto if they prove to be one-sided under the
subject car and that it exercised due diligence and prudence in attendant facts and circumstances.
the safe keeping of the vehicle, in handling the car-napping
incident and in the supervision of its employees. It further argued
that there was no valid subrogation of rights between Crispa and *Bank Deposits
respondent FMICI.
ISSUE: Whether petitioner is a depositary of the subject Case 1.
vehicle
HELD: YES. It is a depositary of the subject vehicle.
31. People v Ong, 204 scra 942
In a contract of deposit, a person receives an object
belonging to another with the obligation of safely keeping it and
returning the same. A deposit may be constituted even without All kinds of deposits whether fixed or current are to be
treated as loans and are to be covered by the law on loans*
any consideration. It is not necessary that the depositary receives
a fee before it becomes obligated to keep the item entrusted for Facts:
safekeeping and to return it later to the depositor. Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust
Company (HSBTC) opened a savingsaccount with HSBTC with an initial
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deposit of P22.14 in cash and P10,000.00 in check.Ong was allowed to other past transactions. If ever, he, indeed acted fr audulently, he could not
withdraw from his savings account with the Bank the sum of P5,000.00, have done so without the active cooperation of the Banks employees. Since
without his check undergoingthe usual and reglementary clearance. The Talabis andVillaran were declared innocent of the crimes charged against
withdrawal slip was signed and approved by Lino Morfe, then the them, the same should be said for the Ong.
BranchManager, and accused Lucila Talabis, the Branch
Cashier.Subsequently, Ong deposited eleven checks in his savings account Thus, Ong cannot be held criminally liable against the Bank. He can only be
with the Bank and against which he made withdrawalsagainst its amount. held civilly liable as the Bank incurred damages
Again, the withdrawal of the amount by Ong was made before said checks
were cleared and the Bank had collected their amounts and with the approval Case 2
of Talabis.However, when the Bank presented the eleven checks issued,
deposited and against which Ong made withdrawals againstits amounts, to
32. Guingona vs City Fiscal, 128 scra 577
their respective drawee banks for payment, they were all dishonored for lack
or insufficiency of funds.Because of this, the Bank filed a criminal action for While have obligation to return the amount deposited,
Estafa against Ong, and the Banks officer in charge Villaran they have no obligation to return or deliver the same money
andTalabis.Talabis testified that the approval of the withdrawals of Ong against deposited in the same denomination as was deposited.
his uncleared checks was in accordance with theinstruction of their then bank
manager and that it is a kind of accommodation given to Ong and also
Thus, Estafa will not prosper
a common practice of the Bank.RTC ruled Ong as guilty for the crime of estafa
but acquitted Villarin and Talabis as their guilt were not proven Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. The City
beyondreasonable doubt. CA affirmed RTCs decisions.Issue: Fiscal of Manila, Hon. Jose Flaminiano, Asst. City Fiscal Felizardo Lota
1. and
What is the nature of bank deposits?
2. Facts:
WON Ong is guilty of Estafa. No.Ruling: From March 1979 to March 1981, Clement David made several investments
1. with the National Savings and Loan Association. On March 21, 1981, the bank
The Supreme Court held that bank deposits are in the nature of irregular was placed under receivership by the Bangko Sentral. Upon Davids request,
deposits.Bank deposits are really loans because they earn interest. Whether petitioners Guingona and Martin issued a joint promissory note, absorbing the
fixed, savings, or current, all bank Adepositsare to be treated as loans and are obligations of the bank. On July 17, 1981, they divided the indebtedness. David
to be covered by the law on loans. filed a complaint for estafa and violation of Central Bank Circular No. 364 and
2. related regulations regarding foreign exchange transactions before the Office
The elements of this kind of estafa are the following: (1) postdating or issuance of the City Fiscal of Manila. Petitioners filed the herein petition for prohibition
of a check in payment of anobligation contracted at the time the check was and injunction with a prayer for immediate issuance of restraining order and/or
issued; (2) lack or insufficiency of funds to cover the check; and(3) damage to writ of preliminary injunction to enjoin the public respondents to proceed with
the payee thereof.In this case, the fact was established that Ong either issued the preliminary investigation on the ground that the petitioners obligation is
or indorsed the subject checks. However, it must beremembered that the civil in nature.
reason for the conviction of an accused of the crime of estafa is his guilty Issue:
knowledge of thefact that he had no funds in the bank when he negotiated the (1) Whether the contract between NSLA and David is a contract of depositor a
spurious check.In the present case, however, the prosecution failed to prove contract of loan, which answer determines whether the City Fiscal has the
that Ong had knowledge with respect to the checkshe indorsed.Moreover, it jurisdiction to file a case for estafa
has also been proven that it was the Bank which granted him a drawn against (2) Whether there was a violation of Central Bank Circular No. 364
uncollected deposit(DAUD) privilege without need of any pretensions on his Held:
part. The privilege this privilege was not only for thesubject checks, but for
Page 37 of 50
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(1) When private respondent David invested his money on nine. and savings its operations. It is safe to assume that the U.S. dollars were converted first
deposits with the aforesaid bank, the contract that was perfected was a into Philippine pesos before they were accepted and deposited in Nation
contract of simple loan or mutuum and not a contract of deposit. Hence, the Savings and Loan Association, because the bank is presumed to have
relationship between the private respondent and the Nation Savings and Loan followed the ordinary course of the business which is to accept deposits in
Association is that of creditor and debtor; consequently, the ownership of the Philippine currency only, and that the transaction was regular and fair, in the
amount deposited was transmitted to the Bank upon the perfection of the absence of a clear and convincing evidence to the contrary.
contract and it can make use of the amount deposited for its banking In conclusion, considering that the liability of the petitioners is purely civil in
operations, such as to pay interests on deposits and to pay withdrawals. While nature and that there is no clear showing that they engaged in foreign
the Bank has the obligation to return theamount deposited, it has, however, no exchange transactions, We hold that the public respondents acted without
obligation to return or deliver the same money that was deposited. And, the jurisdiction when they investigated the charges against the petitioners.
failure of the Bank to return the amount deposited will not constitute estafa Consequently, public respondents should be restrained from further
through misappropriation punishable under Article 315, par. l(b) of the Revised proceeding with the criminal case for to allow the case to continue, even if the
Penal Code, but it will only give rise to civil liability over which the public petitioners could have appealed to the Ministry of Justice, would work great
respondents have no jurisdiction. injustice to petitioners and would render meaningless the proper administration
But even granting that the failure of the bank to pay the time and savings of justice.
deposits of private respondent David would constitute a violation of paragraph
1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners Guingona and # 33 Tan, Tiong, Tick vs. American Hypothecary Co.,
Martin assumed the obligation of the bank to private respondent David, thereby G.R. No. L-43682 March 31, 1938 - DINGLASAN
resulting in the novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust relation between
the bank and private respondent David into an ordinary debtor-creditor relation
Money deposited in banks, whether fixed, savings
between the petitioners and private respondent. Consequently, the failure of and current, are really loans to a bank because the bank
the bank or petitioners Guingona and Martin to pay the deposits of private can use the same for its ordinary transactions and for
respondent would not constitute a breach of trust but would merely be a failure banking business in which it is engaged.
to pay the obligation as a debtor. Moreover, while it is true that novation does
not extinguish criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal information in court.
DOCTRINES:
In the case at bar, there is no dispute that petitioners Guingona and Martin 1. The bank can make use as its own the money deposited.
executed a promissory note on June 17, 1981 assuming the obligation of the 2. Current account and savings deposts are not preferred
bank to private respondent David; while the criminal complaint for estafa was credits in case of insolvency and liquidation.
filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear 3. The bank can offset the deposit of the client who has a debt
that novation occurred long before the filing of the criminal complaint with the
Office of the City Fiscal. Consequently, as aforestated, any incipient criminal
with the bank.
liability would be avoided but there will still be a civil liability on the part of 4. Deposits should not earn interest from the time the bank
petitioners Guingona and Martin to pay the assumed obligation. cease to do business. IMPERIAL, J.:
(2) Petitioner Guingona merely accommodated the request of the Nation
Savings and loan Association in order to clear the bank draft through his dollar Facts:
account because the bank did not have a dollar account. Immediately after the
bank draft was cleared, petitioner Guingona authorized Nation Savings and
Loan Association to withdraw the same in order to be utilized by the bank for In the proceedings for the liquidation of the Mercantile Bank of
Page 38 of 50
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China, the appellant presented a written claim alleging: that


when this bank ceased to operate on September 19, 1931, his 1.The SC ruled that, these deposits are essentially merchantile
current account in said bank showed a balance of P9,657.50 in contracts and should, therefore, be governed by the provisions
his favor; that on the same date his savings account in the said of the Code of Commerce. In accordance with article 309, the
bank also showed a balance in his favor of P20,000 plus interest so-called current account and savings deposits have lost the
then due amounting to P194.78; that on the other hand, he character of deposits properly so-called, and are converted into
owed the bank in the amount of P13,262.58, the amount of the simple commercial loans, because the bank disposed of the
trust receipts which he signed because of his withdrawal from funds deposited by the claimant for its ordinary transactions and
the bank of certain merchandise consigned to him without for the banking business in which it was engaged. That the bank
paying the drafts drawn upon him by the remittors thereof; that had the authority of the claimant to make use of the money
the credits thus described should be set off against each other deposited on current and savings account is deducible from the
according to law, and on such set off being made it appeared fact that the bank has been paying interest on both deposits,
that he was still the creditor of the bank in the sum of and the claimant himself asks that he be allowed interest up to
P16,589.70. And he asked that the court order the Bank the time when the bank ceased its operations. Moreover,
Commissioner to pay him the aforesaid balance and that the according to section 125 of the Corporation Law and 9 of Act
same be declared as preferred credit. The claim was referred to No. 3154, said bank is authorized to make use of the current
the commissioner appointed by the court, who at the same time account, savings, and fixed deposits provided it retains in its
acted as referee, and this officer recommended that the balance treasury a certain percentage of the amounts of said deposits.
claimed be paid without interest and as an ordinary credit. The
court approved the recommendation and entered judgment in 2.It appears that even after the enactment of the Insolvency Law
the accordance therewith. The claimant took an appeal. there was no law in this jurisdiction governing the order or
preference of credits in case of insolvency and liquidation of a
ISSUES: bank. But the Philippine Legislature subsequently enacted Act
No. 3519, amended various sections of the Revised
1. Whether or not the current account and savings deposits are Administrative Code, which took effect on February 20, 1929,
preferred credits in cases involving insolvency and liquidation of and section 1641 of this latter Code. as amended by said Act
the bank. provides:

2. Whether or not the deposits could be offset with the debt of SEC. 1641. Distribution of assets. In the case of the
the depositor with the bank. liquidation of a bank or banking institution, after payment of the
costs of the proceeding, including reasonable expenses,
3. Whether or not the deposits should earn interest from the commissions and fees of the Bank Commissioner, to be allowed
time the bank ceased to operate. by the court, the Bank Commissioner shall pay the debts of the
institution, under of the court in the order of their legal priority.
RULING:
Page 39 of 50
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From this section 1641 we deduce that the intention of the by Act No. 3519, provides that the Bank Commissioner shall
Philippine Legislature, in providing that the Bank Commissioner reduce the assets of the bank into cash and this cannot be done
shall pay the debts of the company by virtue of an order of the without first liquidating individually the accounts of the debtors of
court in the order of their priority, was to enforce the provisions said bank, and in making this individual liquidation the debtors
of section 48, 49 and 50 of the Insolvency Law in the sense that are entitled to set off, by way of compensation, their claims
they are made applicable to cases of insolvency or bankruptcy against the bank.
and liquidation of banks. No other deduction can be made from
the phrase in the order of their legal priority employed by the 4. Upon this point a distinction must be made between the
law, for there being no law establishing any priority in the order interest which the deposits should earn from their existence until
of payment of credits, the legislature could not reasonably refer the bank ceased to operate, and that which they may earn from
to any legislation upon the subject, unless the interpretation the time the banks operations were stopped until the date of
above stated is accepted. payment of the deposits. As to the first class, it should be paid
Examining now the claims of the appellant, it appears that none because such interest has been earned in the ordinary course of
of them falls under any of the cases specified by section 48, 49 the banks business and before the latter has been declared in a
and 50 of the Insolvency Law; wherefore, we conclude that the state or liquidation. Moreover, the bank being authorized by law
appellants claims, consisting of his current and savings to make us of the deposits, with the limitation stated, to invest
account, are not preferred credits. the same in its business and other operations, it may be
presumed that it bound itself to pay interest to the depositors as
3. It may be stated as a general rule that when a depositor is in fact it paid interest prior to the date of the said claims.
indebted to a bank, and the debts are mutual that is, between
the same parties and in the same right the bank may apply As to the interest which may be charged from the date the bank
the deposit, or such portion thereof as may be necessary, to the ceased to do business because it was declared in a state of
payment of the debt due it by the depositor, provided there is no liquidation, SC held that the said interest should not be paid.
express agreement to the contrary and the deposit is not Under articles 1101 and 1108 of the Civil Code, interest is
specially applicable to some other particular purposes. (7 Am. allowed by way of indemnity for damages suffered, in the cases
Jur., par. 629, p.455; United States vs. Butterworth-Judson wherein the obligation consists in the payment of money. In view
Corp., 267 U.S., 387; National Bank vs. Morgan, 207 Ala.., 65; of this, SC held that in the absence of any express law or any
Bank of Guntersville vs. Crayter, 199 Ala., 699; Tatum vs. applicable provision of the Code of Commerce, it is not proper to
Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co. pay this last kind of interest to the appellant upon his deposits in
vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 the bank, for this would be anomalous and unjustified in a
Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; liquidation or insolvency of a bank. This rule should be strictly
Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat Bank vs. observed in the instant case because it is understood that the
Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.) assets should be prorated among all the creditors as they are
The situation referred to by the appellees is inevitable because insufficient to pay all the obligations of the bank.
section 1639 of the Revised Administrative Code, as amended
Page 40 of 50
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In view of all the foregoing considerations, SC affirmed the part Yes. It is beyond doubt that tellers, Cashiers, Bookkeepers
of the appealed decision for the reasons stated herein, and it is and other employees of a Bank who come into possession
ordered that the net claim of the appellant, amounting to of the monies deposited therein enjoy the confidence
P13,611.21, is an ordinary and not a preferred credit, and that reposed in them by their employer. Banks, on the other hand,
he is entitled to charge interest on said amount up to September where monies are deposited, are considered the owners
19, 1931. thereof. This is very clear not only from the express
provisions of the law, but from established jurisprudence.
34. People vs Puig, 563 scra 564 (2008) The relationship between banks and depositors has been
Facts held to be that of creditor and debtor.
The petitioners filed before the RTC of Iloilo 112 cases of Yes. The Bank acquires ownership of the money deposited
Qualified Theft against respondents Teresita Puig (Puig) by its clients (Art 1953).
and Romeo Porras (Porras) who were the Cashier Art. 1953. A person who receives a loan of money or any
and Bookkeeper, respectively, of private complainant Rural other fungible thing acquires the ownership thereof, and is
Bank of Pototan, Inc for taking various amounts of money with bound to pay to the creditor an equal amount of the same
grave abuse of confidence, and without the knowledge and kind and quality.
consent of the bank, to the damage and prejudice of the bank. Art. 1980. Fixed, savings, and current deposits of money in
The RTC dismissed the cases and refused to issue a warrant of banks and similar institutions shall be governed by the
arrest against Puig and Porras on the ground of lack of probable provisions concerning simple loan. (n)
cause because the complaint failed to state the facts constituting
the qualifying circumstance of grave abuse of confidence and c. Necessary Deposit (Arts- 1996-2004)
the element of taking without the consent of the owner, since the
Article 1996. A deposit is necessary:
owner of the money is not the Bank, but the depositors
therein. Motion for Reconsideration was filed but it was also
(1) When it is made in compliance with a legal obligation;
denied.
(2) When it takes place on the occasion of any calamity, such as
Issue fire, storm, flood, pillage, shipwreck, or other similar events.
1. Whether the relationship between banks and depositors is (1781a)
that of creditor and debtor.
2. Whether the bank acquires ownership of the money Article 1997. The deposit referred to in No. 1 of the preceding article shall
be governed by the provisions of the law establishing it, and in case of its
deposited by its clients. deficiency, by the rules on voluntary deposit.

The deposit mentioned in No. 2 of the preceding article shall be regulated


Held by the provisions concerning voluntary deposit and by article 2168. (1782)

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Article 1998. The deposit of effects made by travellers in hotels or inns d. Sequestration of Judicial Deposit (Arts 2005-2009)
shall also be regarded as necessary. The keepers of hotels or inns shall
be responsible for them as depositaries, provided that notice was given to Sequestration or Judicial Deposit
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-keepers
Article 2005. A judicial deposit or sequestration takes place when an
or their substitutes advised relative to the care and vigilance of their effects.
attachment or seizure of property in litigation is ordered. (1785)
(1783)
Article 2006. Movable as well as immovable property may be the object of
Article 1999. The hotel-keeper is liable for the vehicles, animals and
sequestration. (1786)
articles which have been introduced or placed in the annexes of the hotel.
(n)
Article 2007. The depositary of property or objects sequestrated cannot
be relieved of his responsibility until the controversy which gave rise
Article 2000. The responsibility referred to in the two preceding articles
thereto has come to an end, unless the court so orders. (1787a)
shall include the loss of, or injury to the personal property of the guests
caused by the servants or employees of the keepers of hotels or inns as
well as strangers; but not that which may proceed from any force majeure. Article 2008. The depositary of property sequestrated is bound to comply,
The fact that travellers are constrained to rely on the vigilance of the keeper with respect to the same, with all the obligations of a good father of a family.
of the hotels or inns shall be considered in determining the degree of care (1788)
required of him. (1784a)
Article 2009. As to matters not provided for in this Code, judicial
Article 2001. The act of a thief or robber, who has entered the hotel is not sequestration shall be governed by the Rules of Court. (1789a)
deemed force majeure, unless it is done with the use of arms or through
an irresistible force. (n) GARNISHMENT

Article 2002. The hotel-keeper is not liable for compensation if the loss is 1. Nature
due to the acts of the guest, his family, servants or visitors, or if the loss
arises from the character of the things brought into the hotel. (n)
36. NPC vs PCIB
Article 2003. The hotel-keeper cannot free himself from responsibility by 598 scra 326
posting notices to the effect that he is not liable for the articles brought by
the guest. Any stipulation between the hotel-keeper and the guest whereby Facts:
the responsibility of the former as set forth in articles 1998 to 2001 is The complaint for a sum of money filed by the Philippine
suppressed or diminished shall be void. (n)
Commercial International Bank (PCIB) against B.R. Sebastian
and Associates, Inc. (Sebastian). The court rendered decision in
Article 2004. The hotel-keeper has a right to retain the things brought into
the hotel by the guest, as a security for credits on account of lodging, and
favor of PCIB and ordered to pay the PCIB inclusive of marginal
supplies usually furnished to hotel guests. (n) deposits, interest, commission and other bank charges plus
interests and other bank.
The CA affirmed the decision of CFI.
Page 42 of 50
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On July 20, 1976, CFI issued an alias writ of execution that credits, etc. to the proper officer issuing the writ and the law
became the basis for the issuance on of a Notice of Garnishment exempts from liability the person having in his possession
by the Sheriff, attaching and levying on all the good(s), effects, or under his control any credits or other personal property
moneys in the possession and control of NPC. The amount to be belonging to the defendant.
satisfied is Sebastians liability in Civil Case
The garnishee is obliged to pay all interests and bank
The NPC argue that it cannot be made to pay interests and bank charges that have accumulated on the amount garnished or,
charges since there is nothing in the dispositive portions that on such amount which has not been paid, from the date of
requires NPC to do so; the NPC bases its argument on the its receipt of the notice of garnishment until it has made
principle that only the dispositive portion of the decision becomes payment.
the subject of execution.
All that is necessary for the trial court to lawfully bind the person
Issue: of the garnishee or any person who has in his possession credits
Whether NPC is to pay interest and bank charges on the belonging to the judgment debtor is service upon him of the writ
garnished amount, where said interest and bank charges are over of garnishment.
and beyond the amount specified in the notice of garnishment
2. Garnishment is proper only in money judgments
Held:
YES. NPC is required to pay the interest and other bank charges. 37. NHMFC vs. ABAYARI et al., 602 scra 242
The legal basis of garnishment is found in Section 9(c), Rule 39
of the Rules of Court, which states: Garnishment is proper only when the judgment to be
(c) Garnishment of debts and credits. The officer may levy on enforced is one for the payment of a sum of money it
debts due the judgment obligor and other credits, including bank cannot be employed to implement a special judgment such
deposits, financial interests, royalties, commissions and other as that rendered in a special civil action for mandamus
personal property not capable of manual delivery in the
possession or control of third parties. Levy shall be made by Facts: Petitioner, the National Home Mortgage Finance
serving notice upon the person owing such debts or having in his Corporation (NHMFC), is a government-owned and controlled
possession or control such credits to which the judgment obligor corporation created under the authority of Presidential Decree
is entitled. The garnishment shall cover only such amount as will No. 1267 for the primary purpose of developing and providing a
satisfy the judgment and all lawful fees. secondary market for home mortgages granted by public and/or
private home-financing institutions. In its employ were
Garnishment has been defined as a specie of attachment for respondents, mostly rank-and-file employees, who all profess as
reaching credits belonging to the judgment debtor and having been hired after June 30, 1989.
owing to him from a stranger to the litigation. Under this rule,
the garnishee [the third person] is obliged to deliver the
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On July 1, 1989, Republic Act No. 6758, otherwise known as The sheriff to tender to respondents the amount of their collective
Compensation and Position Classification Act of 1989, was claim equivalent to P4,806,530.00 to be satisfied out of
enacted and was subsequently approved on August 21, petitioners goods and chattels and if the same be not sufficient,
1989. Section 12 thereof directed that all allowances out of its existing real property. On appeal by petitioner, the CA
namely representation and transportation allowance, clothing dismissed the appeal.
and laundry allowance, subsistence allowance, hazard pay and Hence, this recourse.
other allowances as may be determined by the budget
department enjoyed by covered employees should be deemed Issue: (Credit only) Whether or Not the garnishment order was
included in the standardized salary rates prescribed therein, and proper.
that the other additional compensation being received by
incumbents only as of July 1, 1989 not integrated into the Ruling; No, the garnishment was not proper.
standardized salary rates should continue to be authorized.
Respondents filed a petition for mandamus with the RTC of Petitioner asserts that the garnishment of its funds was not
Makati City, Branch 138[11] to compel petitioner to pay them meal, in order as there was no existing appropriation therefor.
rice, medical, dental, optical and childrens allowances, as well as
longevity pay, which allegedly were already being enjoyed by Garnishment is proper only when the judgment to be
other NHMFC employees as early as July 1, 1989. In its April 27, enforced is one for payment of a sum of money. It cannot be
2001 Decision, the trial court ruled favorably and ordered employed to implement a special judgment such as that
petitioner to pay respondents the allowances prayed for, rendered in a special civil action formandamus.
retroactive to the respective dates of appointment.
CA affirmed. Instead of an appeal the Parties entered into a On this score, not only did the trial court exceed the scope of its
compromise agreement in which petitioner bound itself to comply judgment when it awarded the benefits claimed by respondents. It
with the decision rendered in the case, except that the payment also committed a blatant error when it issued the February 16,
of the allowances adjudicated in favor of respondents would be 2004 Order directing the garnishment of petitioners funds with the
made in four installments instead. Land Bank of the Philippines equivalent to P4,806,530.00, even
Conflict arose when the DBM sent a letterto NHMFC though the said amount was not specified in the decision it sought
disallowing the payment of certain allowances, including those to implement.
awarded by the trial court to respondents. DBM then curtailed the
award to respondent pursuant to DBM letter. Be that as it may, assuming for the sake of argument that
execution by garnishment could proceed in this case against the
This eventuality compelled respondents to file for the funds of petitioner, it must bear stress that the latter is a
second time a motion for a writ of execution of the trial court government-owned or controlled corporation with a charter of its
decision. The trial court found merit in respondents motion; own. Its juridical personality is separate and distinct from the
hence, it directed the execution of the judgment, the trial court government and it can sue and be sued in its name. As such,
issued a Writ of Execution/Garnishment with a directive to the while indeed it cannot evade the effects of the execution of an
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adverse judgment and may not ordinarily place its funds beyond In case the MORTGAGOR executes subsequent promissory
an order of garnishment issued in ordinary cases, it is imperative note or notes either as a renewal of the former note, as an
in order for execution to ensure that a claim for the payment of extension thereof, or as a new loan, or is given any other kind of
the judgment award be first filed with the Commission on Audit accommodations such as overdrafts, letters of credit,
(COA). acceptances and bills of exchange, releases of import shipments
on Trust Receipts, etc., this mortgage shall also stand as security
Being a special judgment, the decision may not be for the payment of the said promissory note or notes and/or
executed in the same way as a judgment for money handed accommodations without the necessity of executing a new
down in an ordinary civil case governed by Section 9, Rule contract and this mortgage shall have the same force and effect
39 of the Rules Court which sanctions garnishment of debts as if the said promissory note or notes and/or accommodations
and credits to satisfy a monetary award. were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind and
III GUARANTY & SURETY (Arts. 2047 2084) nature, whether such obligations have been contracted before,
Contracts of security are either personal or real. In during or after the constitution of this mortgage
contracts of personal security, such as guaranty or The Loan of P3M was paid. Petitioner Obtained another loan of
suretyship, the faithful performance of the obligation by the P2.7M and was also paid.
principal debtor is secured by the personal commitment of 10 and 11 January 1984, the bank again obtained loan of P1M in
another ( the guarantor or surety) 4 promissory notes of 250K each. But Due to financial
constraints, the loan was not settled at maturity.
39. Acme Shoe, Rubber & Plastic Corp vs. CA, Bank applied for extrajudicial foreclosure of chattel mortgage.
Producers Bank of the Phil. Acme filed action for injunction however RTCultimately dismissed
Facts: complaint and ordered foreclosure saying Acme was bound by
Petitioner Chua Pac, the president and general manager of co- stipulations.
petitioner corporation, executed, a chattel mortgage in favor of CA dismissed appeal and affirmed RTC.
private respondent Producers Bank of the Philippines. The Issue:
mortgage stood by way of security for petitioner's corporate loan Whether or not a clause in the chattel mortgage that purports to
of three million pesos (P3,000,000.00) A pertinent portion of the likewise extend its coverage to obligations yet to be contracted or
instrument states that: incurred?
"(c) If the MORTGAGOR, his heirs, executors or administrators Held:
shall well and truly perform the full obligation or obligations No.
above-stated according to the terms thereof, then this mortgage Contracts of security are either personal or real. In contracts of
shall be null and void. x x x. personal security, such as a guaranty or a suretyship, the
faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor or
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surety). In contracts of real security, such as a pledge, a Nature and Extent of Guaranty
mortgage or an antichresis, that fulfillment is secured by
an encumbrance of property - in pledge, the placing of movable Article 2047. By guaranty a person, called the guarantor, binds himself to
property in the possession of the creditor; in chattel mortgage, by the creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.
the execution of the corresponding deed substantially in the form
prescribed by law; in real estate mortgage, by the execution of a If a person binds himself solidarily with the principal debtor, the provisions
public instrument encumbering the real property covered thereby; of Section 4, Chapter 3, Title I of this Book shall be observed. In such case
and in antichresis, by a written instrument granting to the creditor the contract is called a suretyship. (1822a)
the right to receive the fruits of an immovable property with the
obligation to apply such fruits to the payment of interest, if owing, Article 2048. A guaranty is gratuitous, unless there is a stipulation to the
and thereafter to the principal of his credit - upon the essential contrary. (n)
condition that if the principal obligation becomes due and the
debtor defaults, then the property encumbered can be alienated Article 2049. A married woman may guarantee an obligation without the
for the payment of the obligation,[7] but that should the obligation husband's consent, but shall not thereby bind the conjugal partnership,
except in cases provided by law. (n)
be duly paid, then the contract is automatically extinguished
proceeding from the accessory character[8] of the agreement. As
Article 2050. If a guaranty is entered into without the knowledge or
the law so puts it, once the obligation is complied with, then consent, or against the will of the principal debtor, the provisions of articles
the contract of security becomes, ipso facto, null and void. 1236 and 1237 shall apply. (n)
A Chattel Mortgage, however, can only cover obligations existing
at the time the mortgage is constituted. Although Article 2051. A guaranty may be conventional, legal or judicial, gratuitous,
a promise expressed in a chattel mortgage to include debts that or by onerous title.
are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come It may also be constituted, not only in favor of the principal debtor, but also
into existence or arise until after a chattel mortgage agreement in favor of the other guarantor, with the latter's consent, or without his
covering the newly contracted debt is executed either by knowledge, or even over his objection. (1823)
concluding a fresh chattel mortgage or by amending the old
Article 2052. A guaranty cannot exist without a valid obligation.
contract conformably with the form prescribed by the Chattel
Mortgage Law. Nevertheless, a guaranty may be constituted to guarantee the
Since the 1978 chattel mortgage had ceased to exist performance of a voidable or an unenforceable contract. It may also
coincidentally with the full payment of the P3,000,000.00 guarantee a natural obligation. (1824a)
loan,] there no longer was any chattel mortgage that could cover
the new loans that were concluded thereafter. Article 2053. A guaranty may also be given as security for future debts,
the amount of which is not yet known; there can be no claim against the
a. Nature and Extent of Guaranty (Arts. 2047-2057) guarantor until the debt is liquidated. A conditional obligation may also be
secured. (1825a)
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Article 2054. A guarantor may bind himself for less, but not for more than Facts:
the principal debtor, both as regards the amount and the onerous nature Engr. Ingersol L. Santia (Santia) loaned the amount of
of the conditions. P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC),
through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The
Should he have bound himself for more, his obligations shall be reduced
to the limits of that of the debtor. (1826)
loan was evidenced by a promissory note. Allegedly as a
guaranty for the payment of the note, Aglibot issued and delivered
Article 2055. A guaranty is not presumed; it must be express and cannot to Santia eleven (11) post-dated personal checks drawn from her
extend to more than what is stipulated therein. own account maintained at Metrobank. Upon presentment of the
checks for payment, they were dishonored by the bank for having
If it be simple or indefinite, it shall compromise not only the principal been drawn against insufficient funds or closed account. Santia
obligation, but also all its accessories, including the judicial costs, provided thus demanded payment from PLCC and Aglibot of the face value
with respect to the latter, that the guarantor shall only be liable for those of the checks, but neither of them heeded his demand.
costs incurred after he has been judicially required to pay. (1827a) Consequently, eleven (11) Informations for violation of B.P. 22
were filed before the MTCC.
Article 2056. One who is obliged to furnish a guarantor shall present a
person who possesses integrity, capacity to bind himself, and sufficient
property to answer for the obligation which he guarantees. The guarantor MTCC acquitted Aglibot. On appeal, the RTC rendered a decision
shall be subject to the jurisdiction of the court of the place where this absolving Aglibot and dismissing the civil aspect of the case on
obligation is to be complied with. (1828a) the ground of failure to fulfill a condition precedent of exhausting
all means to collect from the principal debtor.
Article 2057. If the guarantor should be convicted in first instance of a
crime involving dishonesty or should become insolvent, the creditor may On appeal, the Court of Appeals ruled that the RTC erred when it
demand another who has all the qualifications required in the preceding dismissed the civil aspect of the case. Hence, the CA ruled that
article. The case is excepted where the creditor has required and stipulated
Aglibot is personally liable for the loan.
that a specified person should be the guarantor. (1829a)

Thus, Aglibot filed before the SC arguing that she was merely a
40. Aglibot vs. Santia guarantor of the obligation and therefore, entitled to the benefit of
excussion under Article of the 2058 of the Civil Code. She further
A guaranty agreement is a promise to answer for the debt
or default of another, the law clearly requires that it, or some note
posited that she is not personally liable on the checks since she
or memorandum thereof, be in writing. Otherwise, it would be merely contracted the loan in behalf of PLCC.
unenforceable unless ratified, although it does not have to appear ISSUE:
in a public document.
Article 2055 of the Civil Code provides that a guaranty is I. Whether or not Aglibot is entitled to the benefit of
not presumed, but must be express, and cannot extend to more excussion?
than what is stipulated therein.

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RULING: No. Aglibot cannot invoke the benefit of provides that a guaranty is not presumed, but must be
excussion. express, and cannot extend to more than what is stipulated
It is settled that the liability of the guarantor is only subsidiary, therein. This is the obvious rationale why a contract of
and all the properties of the principal debtor, the PLCC in this guarantee is unenforceable unless made in writing or
case, must first be exhausted before the guarantor may be held evidenced by some writing.
answerable for the debt. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against
41. Prudential Guarantee and Assurance Inc. vs.
the principal debtor and the latter is unable to pay, for obviously
the exhaustion of the principals property the benefit of which the Anscor Land, Inc -TITO
guarantor claims cannot even begin to take place before 630 SCRA 368, G.R. No. 177240 September 8, 2010
judgment has been obtained. This rule is contained in Article
2062 of the Civil Code, which provides that the action brought Facts:
by the creditor must be filed against the principal debtor alone,
On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered
except in some instances mentioned in Article 2059 when the
action may be brought against both the guarantor and the into a Construction Contract for the construction of an 8-unit
principal debtor. townhouse (project). Under the contract, KRDC was to build and
complete the project within 275 continuous calendar days from
The Court must, however, reject Aglibots claim as a mere the date of receipt of a notice to proceed for the consideration
guarantor of the indebtedness of PLCC to Santia for want of of P18,800,000.00.
proof, in view of Article 1403(2) of the Civil Code, embodying As part of its undertaking, KRDC submitted a surety bond
the Statute of Frauds. Under the above provision, concerning a
amounting to P4,500,000.00 to secure the reimbursement of the
guaranty agreement, which is a promise to answer for the debt
or default of another, the law clearly requires that it, or some down payment paid by ALI in case of failure to finish the project
note or memorandum thereof, be in writing. Otherwise, it would and a performance bond amounting to P4,700,000.00 to
be unenforceable unless ratified, although under Article 1358 of guarantee the supply of labor, materials, tools, equipment, and
the Civil Code, a contract of guaranty does not have to appear necessary supervision to complete the project. The said bonds
in a public document. Contracts are generally obligatory in were issued in favor of ALI by herein petitioner PGAI.
whatever form they may have been entered into, provided all the
KRDC then received a notice to proceed on November 24,
essential requisites for their validity are present, and the Statute
of Frauds simply provides the method by which the contracts 1999. On October 16, 2000 or 325 days after KRDC received the
enumerated in Article 1403(2) may be proved, but it does not notice to proceed, and 50 days beyond the contract date of
declare them invalid just because they are not reduced to completion, ALI sent PGAI a letter notifying the latter that the
writing. Thus, the form required under the Statute is for contract with KRDC was terminated due to very serious
convenience or evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also
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delays. The letter also informed PGAI that ALI may be making Held:
claims against the said bonds. A guarantee or a surety contract under Article 2047 of
KRDC, through a letter on October 20, 2000, asked ALI to the Civil Code of the Philippines is an accessory contract
reconsider its decision to terminate the contract and requested because it is dependent for its existence upon the principal
that it be allowed to continue with the project. On October 27, obligation guaranteed by it; As regards the first requirement,
2000, ALI replied with regrets that it stands by its earlier decision the Performance Bond issued by the petitioner was meant to
to terminate the construction contract. guarantee the supply of labor, materials, tools, equipment, and
Through a letter dated November 29, 2001, or exactly one necessary supervision to complete the project. A guarantee or a
(1) year after the expiration date in the performance bond, ALI surety contract under Article 2047 of the Civil Code of the
reiterated its claim against the performance bond issued by PGAI Philippines is an accessory contract because it is dependent for
amounting to P3,852,800.84. PGAI however did not respond to its existence upon the principal obligation guaranteed by it. In
the letter. fact, the primary and only reason behind the acquisition of the
On February 7, 2002, ALI commenced arbitration performance bond by KRDC was to guarantee to ALI that the
proceedings against KRDC and PGAI in the CIAC. PGAI construction project would proceed in accordance with the
answered with cross-claim contending that it was not a party to contract terms and conditions. In effect, the performance bond
the construction contract and that the claim of ALI against the becomes liable for the completion of the construction project in
bonds was filed beyond the expiration period. the event KRDC fails in its contractual undertaking.
On September 2, 2002, the CIAC rendered judgment In practice, a performance bond is usually a condition or a
awarding a total of P7,552,632.74 to ALI and a total necessary component of construction contracts. Because of the
of P1,292,487.81 to KRDC. CIAC also allowed the offsetting of performance bond, the construction contract between ALI and
the awards to both parties which resulted to a net amount due to KRDC is guaranteed to be performed even if KRDC fails in its
ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC obligation. In practice, a performance bond is usually a condition
found PGAI liable for the reimbursement of the unliquidated or a necessary component of construction contracts. In the case
portion of the down payment as a solidary liability under the at bar, the performance bond was so connected with the
surety bond in the amount of P1,771,264.06. construction contract that the former was agreed by the parties to
be a condition for the latter to push through and at the same time,
Issue: Whether the performance bond become liable for the the former is reliant on the latter for its existence as an accessory
completion of the construction project in the event KRDC fails in contract.
its contractual undertaking.
s

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