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CREDIT TRANSACTIONS

LOAN

BPI Investment Corp V. CA (2002)


G.R. No. 133632 February 15, 2002

Facts:
 Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment and Development Corporation
(AIDC), the predecessor of BPI Investment Corp. (BPIIC), for the construction of a house on his lot in New Alabang
Village, Muntinlupa.
 He mortgaged the house and lot to AIDC as security for the loan.
 1980: Roa sold the house and lot to ALS Management & Development Corp. and Antonio Litonjua for P850K who paid
P350K in cash and assumed the P500K indebtness of ROA with AIDC.
o AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested rate of 20%/annum and
service fee of 1%/annum on the outstanding balance payable within 10 years through equal
monthly amortization of P9,996.58 and penalty interest of 21%/annum/day from the date
the amortization becomes due and payable.
 March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation with the provision that the
monthly amortization will commence on May 1, 1981
 August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K principal loan to P457,204.90.
 September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be what was left of their loan after
full payment of Roa’s loan
 June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the ground that they failed to pay the
mortgage indebtedness which from May 1, 1981 to June 30, 1984 amounting to P475,585.31
 August 13, 1984: Notice of sheriff's sale was published
 February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging that they are not in arrears and
instead they made an overpayment as of June 30, 1984 since the P500K loan was only released September 13, 1982
which marked the start of the amortization and since only P464,351.77 was released applying legal compensation the
balance of P35,648.23 should be applied to the monthly amortizations
 RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to ALS and Litonjua was only in the
principal sum of P464,351.77 and awarding moral damages, exemplary damages and attorneys fees for the publication
 CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the contract which is on
September 13, 1982

ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second release of the loan?

HELD:
 YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in
favor of private respondents is DELETED, but the award to them of attorney’s fees in the amount of P50,000 is
UPHELD. Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal damages. Costs against
petitioner.
 obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract
 contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration
for that of the other. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him. Consequently, petitioner
could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract.
 BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released and the date when it was released. Such
negligence resulted in damage for which an award of nominal damages should be given
 SSS where we awarded attorney’s fees because private respondents were compelled to litigate, we sustain the award
of P50,000 in favor of private respondents as attorney’s fees

Pantaleon vs American Express Bank (2010)

Facts:
AMEX is a corporation engaged in providing credit services through the operation of a charge card system. Pantaleon was a
cardholder since 1980.

Pantaleon, his wife, daughter and son went on a guided European tour and subsequently arrived in Amsterdam. While in
Coster Diamond House, his wife wanted to purchase some diamond pieces, amounting to $13, 826. Pantaleon presented his
credit card which was swiped. He was then asked to sign the charge slip which was electronically transferred to AMEX’s
Amsterdam office. However, Coster was not able to receive approval from AMEX for the purchase so Pantaleon asked the clerk
to cancel the sale. The store manager convinced Pantaleon to wait for a few minutes and subsequently told Pantaleon that
AMEX was asking for bank references and Pantaleon responded by giving names of his Phil. depository banks. Still, it was not
approved. But Coster decided to release the items even without AMEX’s approval since the tour couldn’t go on without them.

In all, it took AMEX a total of 78 minutes to approve Pantaleon’s purchase and to transmit the approval to the jewelry store.

This was followed by two similar incidents when the family then had another trip to the US. They also experienced
inconvenience using the AMEX credit card in purchasing golf equipment and children’s shoes.

When they got to Manila, Pantaleon sent a letter to AMEX, demanding an apology for the humiliation and inconvenience. AMEX
responded that the delay in Amsterdam was due to the amount involved, saying that the purchase deviated from his
established charge purchase pattern. Dissatisfied, Pantaleon filed an action for damages in RTC.

The testimony of AMEX’s credit authorizer Edgardo Jaurique, the approval time for credit card charges would be three to four
seconds under regular circumstances. Here, it took AMEX 78 minutes to approve the Amsterdam purchase. SC attributed the
unwarranted delay to Jaurique, who had to go over Pantaleon’s past credit history, his payment record and his credit and bank
references before he approved the purchase.
In 2009, the SC reversed the ruling in CA; and said that AMEX was guilty of mora solvendi or debtor’s default. AMEX as debtor
had an obligation as the credit provider to act on Pantaleon’s purchase requests, whether to approve or disapprove them, with
"timely dispatch."

Hence, this motion for reconsideration.

Issue: WON AMEX is liable for breach of its contractual obligations and is liable for damages.

Ruling:
No, AMEX is not liable for breach of contractual obligation with Pantaleon and is not liable for damages.
The Court had the occasion to present the nature of credit card transactions which involves three (3) contracts. (a) the sales
contract between the credit card holder and the merchant; (b) the loan agreement between the credit card issuer and holder;
and (c) the promise to pay between the credit card issuer and the merchant.

Philippine jurisdiction generally adheres to the Gray ruling, recognizing the relationship between the credit card issuer and
holder as a contractual one that is governed by the terms and conditions found in the card membership agreement. A card
membership agreement is a contract of adhesion.
With regard to AMEX’s obligations, Pantaleon assumes that since his credit card has no pre-set spending limit, AMEX has to
approve all charge requests. However, the Court said that there is first a need to distinguish a relationship between credit card
issuer-holder to a creditor-debtor relationship. In an issuer-holder relationship, it relates merely to an agreement providing for
credit facility to the holder. On the other hand, in a creditor-debtor relationship, it involves the actual credit on loan agreement
involving three contracts.

When cardholders use their cards to pay, they merely offer to enter into loan agreements with the company. It is only after the
approval do the parties enter into binding loan contracts, in keeping with NCC 1319.This is supported in the reservation found
in the card membership agreement which clearly states that AMEX "reserves the right to deny authorization for any requested
Charge."

Thus, since AMEX has no obligation to approve purchase requests, Pantaleon can’t claim that AMEX defaulted. In this case,
there is no demandable obligation. Before the credit card issuer accepts this offer, no obligation relating to the loan agreement
exists between them. A demand presupposes the existence of an obligation between the parties. Moreover, AMEX is not bound
or obligated to act on its cardholders’ purchase requests within any specific period of time.

Since there is no legal injury or breach of any contractual obligation on the part of AMEX, it is not liable to pay damages to
Pantaleon.

COMMODATUM

B. Object of Commodatum

Producers Bank of the Philippines vs CA (2003)

Doctrine:

Facts:
 Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s friend, Doronilla (will be the
debtor in this case) in incorporating Doronilla’s business “Strela”. This “help” basically involved Vives depositing a certain
amount of money in Strela’s bank account for purposes of incorporation (rationale: Doronilla had to show that he had
sufficient funds for incorporation). This amount shall later be returned to Vives.
 Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check of P200,00 in favor of Strela
and deposited the same into Strela’s newly-opened bank account (the passbook was given to the wife of Vives and the
passbook had an instruction that no withdrawals/deposits will be allowed unless the passbook is presented).
 Later on, Vives learned that Strela was no longer holding office in the address previously given to him. He later found out
that the funds had already been withdrawn leaving only a balance of P90,000. The Vives spouses tried to withdraw the
amount, but it was unable to since the balance had to answer for certain postdated checks issued by Doronilla.
 Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which were dishonored.
 Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and Producer’s Bank.
 TC & CA: ruled in favor of Vives.

Issue/s:
(1) WON the transaction is a commodatum or a mutuum. COMMODATUM.
(2) WON the fact that there is an additional P 12,000 (allegedly representing interest) in the amount to be returned to
Vives converts the transaction from commodatum to mutuum. NO.
(3) WON Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the transaction between Vives
and Doronilla. YES.

Held/Ratio:
(1) The transaction is a commodatum.
 CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the subject of the contract is a
consummable thing, such as money, the contract would be a mutuum. However, there are instances when a commodatum
may have for its object a consummable thing. Such can be found in CC 1936 which states that “consummable goods may
be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for
exhibition”. In this case, the intention of the parties was merely for exhibition. Vives agreed to deposit his money in
Strela’s account specifically for purpose of making it appear that Streal had sufficient capitalization for incorporation,
with the promise that the amount should be returned withing 30 days.
(2) CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not its fruits”. In this case, the
additional P 12,000 corresponds to the fruits of the lending of the P 200,000.
(3) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of Strela despite the rule written
in the passbook that neither a deposit, nor a withdrawal will be permitted except upon the production of the passbook
(recall in this case that the passbook was in the possession of the wife of Vives all along). Hence, this only proves to show
that Atienza allowed the withdrawals because he was party to Doronilla’s scheme of defrauding Vives. By virtue of CC
2180, PNB, as employer, is held primarily and solidarily liable for damages caused by their employees acting within the
scope of their assigned tasks. Atienza’s acts, in helpong Doronilla, a customer of the bank, were obviously done in
furtherance of the business of the bank, even though in the process, Atienza violated some rules.

PRECARIUM

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
G.R. No. 146364 June 3, 2004

FACTS:

Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a lot, where Pajuyo subsequently built a house. In 1985,
Pajuyo and private respondent Guevarra executed a Kasunduan wherein Pajuyo allowed Guevarra to live in the house for free,
on the condition that Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would
vacate the premises upon Pajuyo’s demand.

In 1994, Pajuyo informed Guevarra of his need of the house and demanded that the latter vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra before the MTC.

Guevarra claimed that Pajuyo had no valid title over the lot since it is within the area set aside for socialized housing. MTC
rendered its decision in favor of Pajuyo, which was affirmed by RTC. (MTC and RTC basically ruled that the Kasunduan created
a legal tie akin to that of a landlord and tenant relationship).

CA reversed the RTC decision, stating that the ejectment case is without legal basis since both Pajuyo and Guevarra illegally
occupied the said lot. CA further stated that both parties are in pari delicto; thus, the court will leave them where they are. CA
ruled that the Kasunduan is not a lease contract, but a commodatum because the agreement is not for a price certain.

ISSUE: W/N the contractual relationship between Pajuyo and Guevarra was that of a commodatum NO

HELD:

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may
use the same for a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot
demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for
which the commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for
temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which
case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum.

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition
of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to
a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease. The tenant’s
withholding of the property would then be unlawful.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have
the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received
attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.70 These contracts
certainly involve the obligation to deliver or return the thing received.

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Guevarra should know
that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn
the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession
of the contested property. The Kasunduan is the undeniable evidence of Guevarra’s recognition of Pajuyo’s better right of
physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as
there would still be an implied promise to vacate.

Obligations of the Bailee

Republic V. Bagtas (1962)


G.R. No. L-17474 October 25, 1962

FACTS:

 May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry
three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period
of 1 year for breeding purposes subject to a breeding fee of 10% of the book value of the bulls
 May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one bull was approved while
the others are to be returned
 March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value of the 3 bulls
 October 17, 1950: he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General.
 October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to be returned or their book
value without deductions should be paid not later than October 31, 1950 which he was not able to do
 December 20, 1950: An action at the CFI was commenced against Jose praying that he be ordered to return the 3 bulls
or to pay their book value of P3,241.45 and the unpaid breeding fee of P199.62, both with interests, and costs
 July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and
order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines, he could not return the animals nor
pay their value and prayed for the dismissal of the complaint.
 RTC: granted the action
 December 1958: granted an ex-parte motion for the appointment of a special sheriff to serve the writ outside Manila
 December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October 23, 1951 and administratrix
of his estate, was notified
 January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26, 1952 evidenced by recipt and
the 3rd bull died from gunshot wound inflicted during a Huk raid and prayed that the writ of execution be quashed and
that a writ of preliminary injunction be issued.

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the loss due to force majeure due
to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs
 If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull it should suffer its
loss due to force majeure. A contract of commodatum is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be
subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry
of the contract. And even if the contract be commodatum, still the appellant is liable if he keeps it longer than the period
stipulated
 the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned
because it was killed while in the custody of the administratrix of his estate
 Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been
instituted in the CFI, the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of
execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the
court.

Obligations of Bailor

QUINTOS VS BECK 69 PHIL 108

Facts:

Quintos and Beck entered into a contract of lease, whereby the latter occupied the former’s house. On Jan 14, 1936, the
contract of lease was novated, wherein the QUintos gratuitously granted to Beck the use of the furniture, subject to the
condition that Beck should return the furnitures to Quintos upon demand. Thereafter, Quintos sold the property to Maria and
Rosario Lopez. Beck was notified of the conveyance and given him 60 days to vacate the premises. IN addition, Quintos
required Beck to return all the furniture. Beck refused to return 3 gas heaters and 4 electric lamps since he would use them
until the lease was due to expire. Quintos refused to get the furniture since Beck had declined to return all of them. Beck
deposited all the furniture belonging to QUintos to the sheriff.

ISSUE:

WON Beck complied with his obligation of returning the furnitures to Quintos when it deposited the furnitures to the sheriff.

RULING:

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the
use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself
to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1,
and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas
heaters and the four eletric lamps.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court
could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was nt entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return
the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

MUTUUM/ SIMPLE LOAN

Consolidated Bank and Trust Corporation v. CA,


G.R. No. 114286, April 19, 2001

FACTS:

Respondents Continental Cement Corporation (Corporation) and Gregory T. Lim obtained, from petitioner
Consolidated Bank and Trust Corporation, Letter of Credit No. DOM-23277 in the amount of P 1,068,150.00. The letter of
credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter
delivered directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the
amount of P 1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof ,
petitioner filed a complaint for sum of money with application for preliminary attachment. In answer to the complaint,
respondents averred that the transaction between them was a simple loan and not a trust receipt transaction, and that
the amount claimed by petitioner did not take into account payments already made by them. Respondent Lim also denied any
personal liability in the subject transactions.

The trial court dismissed the Complaint. Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorney's fees in favor of respondents and, instead, ordering respondent Corporation to pay
petitioner P37,469.22 as and for attorney's fees and litigation expenses.

ISSUE: WON the transaction was a trust receipt transaction?

RULING: NO.

The Supreme Court held that petitioner failed to convince them that the transaction is really a trust receipt transaction
instead of merely a simple loan, as found by the lower court and the CA.

As held in Colinares v. Court of Appeals, which appears to be foursquare with the facts obtaining in the case at bar,
inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into,
the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust
receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what normally
obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to
the importer in trust after the loan is granted.

Here, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred
long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent
Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982.13 Further, the oil was used up by
respondent Corporation in its normal operations by August, 1982.14 On the other hand, the subject trust receipt was only
executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.

As explained in Colinares, the Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner. The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but
to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and
is prone to misinterpretation.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner.
Neither has it been shown that it has evaded payment of its obligations, as shown by the various receipts issued by
petitioner acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal
amount of only P681,075.93 negates any badge of dishonesty , abuse of confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a trust receipt violation.

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing business under the
name and style of FNCB Finance, Petitioners, v MODESTA R. SABENIANO
G.R. No. 156132

Facts:

This is a case involving Citibank, N.A., a banking corporation duly registered under US Laws and is licensed to do commercial
banking and trust functions in the Philippines and Investor's Finance Corporation (aka FNCB Finance), and affiliate company of
Citibank, mainly handling money market placements (MMPs are short term debt instruments that give the owner an
unconditional right to receive a stated, fixed sum of money on a specified date).
Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Unfortunately, the business relations among
the parties subsequently went awry. Subsequently, Sabeniano filed a complaint with the RTC against petitioners as she claims
to have substantial deposits and money market placements with the petitioners and other investment companies, the proceeds
of which were supposedly deposited automatically and directly to her account with Citibank. Sabeniano alleged that Citibank
et al refused to return her deposits and the proceeds of her money market placements despite her repeated demands, thus, the
civil case for "Accounting, Sum of Money and Damages.”

In their reply, Citibank et al admitted that Sabeniano had deposits and money market placements with them, including dollar
accounts in other Citibank branches. However, they also alleged that respondent later obtained several loans from Citibank,
executed through Promissory Notes and secured by a pledge on her dollar accounts, and a deed of assignment against her
MMPS with FNCB Finance. When Sabeniano defaulted, Citibank exercised its right to off-set or compensate respondent's
outstanding loans with her deposits and money market placements, pursuant to securities she executed. Citibank supposedly
informed Sabeniano of the foregoing compensation through letters, thus, Citibank et al were surprised when six years later,
Sabeniano and her counsel made repeated requests for the withdrawal of respondent's deposits and MMPs with Citibank,
including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. Thus,
petitioners prayed for the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and
attorney's fees.

The case was eventually decided after 10 years with the Judge declaring the offsetting done as illegal and the return of the
amount with legal interest, while Sabeniano was ordered to pay her loans to Citibank. The ruling was then appealed. The CA
modified the decision but only to the extent of Sabeniano’s loans which it ruled that Citibank failed to establish the
indebtedness and is also without legal and factual basis. The case was thus appealed to the SC.

Issue: Whether or not there was a valid off setting/compensation of loan vis a vis the
a.)Deposits and
b.) MMPs.
Held:

General Requirement of Compensation:


Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

1. Yes. As already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At the same
time, respondent was the creditor of petitioner Citibank, as far as her deposit account was concerned, since bank deposits,
whether fixed, savings, or current, should be considered as simple loan or mutuum by the depositor to the banking
institution.122 Both debts consist in sums of money. By June 1979, all of respondent's PNs in the second set had matured and
became demandable, while respondent's savings account was demandable anytime. Neither was there any retention or
controversy over the PNs and the deposit account commenced by a third person and communicated in due time to the debtor
concerned. Compensation takes place by operation of law.

2. Yes, but technically speaking Citibank did not effect a legal compensation or off-set under Article 1278 of the Civil Code, but
rather, it partly extinguished respondent's obligations through the application of the security given by the respondent for her
loans.

Respondent's money market placements were with petitioner FNCB Finance, and after several roll-overs, they were ultimately
covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of the said PNs were
issued, amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to these money market placements,
respondent was the creditor and petitioner FNCB Finance the debtor (thereby implying that money market placement
is a simple loan or mutuum); while, as to the outstanding loans, petitioner Citibank was the creditor and respondent
the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, would not apply since the first
requirement for a valid compensation, that each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's money market placements with
petitioner FNCB Finance by virtue of the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank was only
acting upon the authority granted to it under the foregoing Deeds when it finally used the proceeds of PNs No. 20138 and
20139, paid by petitioner FNCB Finance, to partly pay for respondent's outstanding loans. Strictly speaking, it did not effect a
legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations
through the application of the security given by the respondent for her loans. Although the pertinent documents were entitled
Deeds of Assignment, they were, in reality, more of a pledge by respondent to petitioner Citibank of her credit due from
petitioner FNCB Finance by virtue of her money market placements with the latter. According to Article 2118 of the Civil Code

ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the
pledgor.

Consolidated Bank and Trust Corporation vs Court of Appeals and L.C. Diaz and Company, CPA’s
FACTS:
L.C. Diaz and Company (LC Diaz), an accounting firm, has a savings account with Consolidated Bank and Trust Corporation
(now called Solidbank Corporation).
On August 14, 1991, the firm’s messenger, a certain Ismael Calapre, deposited an amount with the bank but due to a long line
and the fact that he still needs to deposit a certain amount in another bank, the messenger left the firm’s passbook with a teller
of Solidbank. But when the messenger returned, the passbook is already missing. Apparently, the teller returned the passbook
to someone else.
On August 15, 1991, LC Diaz made a formal request ordering Solidbank not to honor any transaction concerning their account
with them until the firm is able to acquire a new passbook. It appears however that in the afternoon of August 14, 1991, the
amount of P300,000.00 was already withdrawn from the firm’s account.
LC Diaz demanded Solidbank to refund the said amount which the bank refused. LC Diaz then sued Solidbank.
In its defense, Solidbank contends that under their banking rules, they are authorized to honor withdrawals if presented with
the passbook; that when the P300k was withdrawn, the passbook was presented. Further, the withdrawer presented a
withdrawal slip which bore the signatures of the representatives of LC Diaz.
The RTC ruled in favor of Solidbank. It found LC Diaz to be negligent in handling its passbook. The loss of the P300k was not
the result of Solidbank’s negligence.
On appeal, the Court of Appeals reversed the decision of the RTC. The CA used the rules on quasi-delict (Article 2176 of the
Civil Code).
ISSUE:
Whether or not the relations between Solidbank and LC Diaz, the depositor, is governed by quasi-delict in determining the
liability of Solidbank.
HELD:
No. Solidbank is liable for the loss of the P300k but it’s liability is grounded on culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan (Article 1980,
Civil Code). There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the
parties.
Under their contract, it is the duty of LC Diaz to secure its passbook. However, this duty is also applicable to Solidbank when it
gains possession of said passbook which it did when the messenger left it to the bank’s possession through the bank’s teller.
The act of the teller returning the passbook to someone else other than Calapre, the firm’s authorized messenger, is a clear
breach of contract. Such negligence binds the bank under the principle of respondeat superior or command responsibility.
No contract of trust between bank and depositor
The Supreme Court emphasized that the contractual relation between the bank and the depositor is that of a simple loan. This
is despite the wording of Section 2 of Republic Act 8791 (The General Banking Law of 2000) which states that the State
recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.” That “the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.”
This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a good father of a family.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust.
In short, the General Banking Act simply imposes on the bank a higher standard of integrity and performance in complying
with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of
simple loan. The General Banking Law in no way modified Article 1980 of the Civil Code.

ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the
pledgor.