1. NACAR v.

GALLERY FRAMES

2. BUENAVENTURA VS. METROBANK

FACTS:
In 1997, Buenaventura executed 2 Promissory Notes , each in the amount of PI,500,000.00 and payable to
Metrobank with interest and CESF of 17.53% and 14.23%. Both PNs provide for penalty of 18% per annum on the unpaid
principal from date of default until full payment of the obligation. Despite demands, there remained unpaid. The balance
remained, as computed by Metrobank, totaled to P3,553,444.45 inclusive of interest at the rate of 34.991% on one PN and
27.901% on the other. Consequently, Metrobank filed suit before the RTC of Makati. RTC ruled in favor of Metrobank. On
appeal, the CA affirmed RTC’s decision with modification.
Petitioner claims that the promissory notes she executed were contracts of adhesion because her only
participation in their execution was affixing her signature, and that the terms of the promissory notes should consequently
be strictly construed against the respondent as the party responsible for their preparation.
ISSUE:
(1) Whether or not the petitioner is correct in her contention.
(2) Whether or not the increase in the interest on the remaining balance, as computed unilaterally by Metrobank,
is valid.
(3) Whether or not the penalty charge of 18% is valid.

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HELD:
(1) NO. What the petitioner advocates is for the Court to now read into the promissory notes terms and conditions
that would contradict their clear and unambiguous terms in the guise of such promissory notes being contracts of adhesion.
This cannot be permitted, for, even assuming that the promissory notes were contracts of adhesion, such circumstance
alone did not necessarily entitle her to bar their literal enforcement against her if their terms were unequivocal. It is
preposterous on her part to disparage the promissory notes for being contracts of adhesion, for she thereby seems to
forget that the validity and enforceability of contracts of adhesion were the same as those of other valid contracts.
Contracts of adhesion are not invalid per se and they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely, if he adheres, he gives his consent.
Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no exception.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its interpretation still aligns with
the literal meaning of its terms and conditions absent any ambiguity, or with the intention of the parties. The terms and
conditions of the promissory notes involved herein, being clear and beyond doubt, should then be enforced accordingly.
(2) NO. The Court held that the respondent had no legal basis for imposing rates far higher than those agreed upon
and stipulated in the promissory notes. It did not suitably justify the imposition of the increased rates of 34.991% and
27.901%, as borne out by the statements of past due interest and penalty charges as of July 15, 1998, although it certainly
was its burden to show the legal and factual support for the imposition. We need not remind that the burden of proof is the
duty of any party to present evidence to establish its claim or defense by the amount of evidence required by law, which in
civil cases is preponderance of evidence. Consequently, the Court is impelled to strike down the imposition.
(3) YES. This Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the
monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and
as such the two are different and distinct from each other and may be demanded separately. Quoting Equitable Banking
Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about payment of an additional interest rate
partakes of the nature of a penalty clause which is sanctioned by law, more particularly under Article 2229 of the New Civil
Code which provides that:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and the absence of stipulation,
the legal interest, which is six per cent per annum.
Thus, the 17.532% and 14.239% annual interest rates shall also respectively earn a penalty charge of 18% per
annum reckoned on the unpaid principals computed from the date of default (August 3, 1998) until fully paid. This is in line
with the express agreement between the parties to impose such penalty charge.

3. JOVEN DE CORTES VS VENTURANZA

FACTS:
Plaintiff Corteses filed an action for foreclosure of real estate against defendants Venturanzas and Oledans where
it was alleged that the former were the original owners of 33 parcels of land in Bulacan. Said lands were sold to the
defendants for the total sum of P716,573.90 payable in 3 years with interest of 6% per annum and further agreed to secure
the payment of the said balance of P576,573.90 with a first mortgage upon the said 33 parcels of land. Plaintiff also alleged
that despite repeated demands, defendants failed and refused to pay.
Defendants are indebted to plaintiffs on the mortgage executed by them contained in the document denominated
as 'Deed of Sale with Purchase Money Mortgage' to the tune of P576,573.90 with interest at 6% per annum. Defendants
failed to pay their obligation within the stipulated date. However, defendants Venturanzas explained their failure as being
due to their inability to collect the payment of the sale of their own property located in Camarines Sur and Cagayan de Oro.

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 Defendants claim that there had been a novation of the contract between them and plaintiffs on account of the
transfer made by defendants Oledans of their interest in the property in favor of their co-defendants Venturanzas, with the
knowledge and consent of the plaintiffs.
The trial court ruled in favor of the plaintiffs. Hence, this appeal.
ISSUE:
(1) Whether, upon the filing by plaintiffs of their complaint against the defendants on December 12, 1962, the
obligation of the defendants had not yet become due and demandable and, hence, the complaint was filed prematurely.
(2) Whether or not the plaintiff is entitled to interest other than the interest stipulated in their contract.
HELD:
(1) NO. There is no dispute that plaintiffs filed their complaint on December 12, 1962; that under the term of the
contract, the defendants were given until January 1, 1962 within which to pay their obligation; and that January 1, 1962 had
passed without the defendants having paid to the plaintiffs the sum of P576,573.90 and the corresponding interest thereon
notwithstanding repeated demands for payment made upon and duly received by them. Therefore, when plaintiffs filed the
complaint on December 12, 1962, the effects of default as against the defendants had already arisen. Besides, no less than
the defendants Venturanzas themselves admitted in their brief that they were delayed in the payment of the balance of
their obligation to the plaintiffs.
(2) YES. With respect, however, to the interest due to the plaintiffs on the indebtedness of the defendants, The
Court reminded of the mandate of Article 2212 of the New Civil Code, which provides:
Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this
point.
Per stipulation, plaintiffs are entitled to collect from defendants interest at the rate of six per centum (6%) per annum on
the remaining balance of P576,573.90 from January 1, 1959. Hence, for the period from January 1, 1959 to December 12,
1962, the date of the filing of the complaint, plaintiffs are entitled to collect from the defendants, by way of interest at six
percent per annum, the sum of P136,482.13. Applying the aforequoted legal provision, this amount of P136,482.13 should
be added to the principal of P576,573.90, making a total of P713,056.03, which shall earn legal interest stipulated at six
percent per annum from December 13, 1962 until fully paid. Such interest is not due to stipulation; rather it is due to the
mandate of the law hereinbefore quoted.

4. LIGUTAN VS CA
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from Security
Bank and Trust Co. The obligation matured and the bank granted an extension. Despite several demands from the Bank,
petitioners failed to settle the debt which then amounted to P114,416.10. The Bank sent a final demand letter however
petitioners still defaulted on their obligation. The Bank then filed a complaint for recovery of the due amount. Petitioners
instead of presenting their evidence had the schedule reset for two consecutive occasions. On the third hearing date, the
trial court resolved to consider the case submitted for decision.
Two years later petitioners filed a motion for reconsideration which was denied by the trial court. Petitioners then
interposed an appeal with the Court of Appeals, the appellate court affirmed the judgement of the trial court except the 2%
service charge which was deleted pursuant to Central Bank Circular No. 763. The two parties filed their motions for
reconsiderations and the Court of Appeals resolved the two motions: that the payment of interest and penalty commence
on the date when the obligation became due and a penalty of 3% per month would suffice. The petitioners filed an omnibus
motion for reconsideration which was then denied by the Court of Appeals.
ISSUE:
Whether or not the 15.189% interest and the penalty of 3% per month (36% per annum) is exorbitant, iniquitous,
and unconscionable.

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HELD: NO.
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its
resolution will depend on such factors as, but not confined to, the type, extent and purpose of the penalty, the nature of
the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the
parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court.
The Court of Appeals, exercising its good judgement has reduced the penalty interest from 5% a month to 3% a
month. Given the circumstances and the repeated acts of breach by petitioners of their contractual obligation, the Court
sees no cogent ground to modify the ruling of the appellate court.
The stipulated interest of 15.189% per annum, does not appear as being excessive. The essence or rationale for the
payment of interest, quite often referred to as cost of money, is not exactly the same as that as a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct
concepts which may separately be demanded. The interest prescribed in loan financing arrangements is a fundamental part
of the banking business and the core of a banks existence.

5. SPS. DELOS SANTOS VS. METROBANK

FACTS:
From 1996 to 1998, the petitioners took out several loans totaling P12,000,000.00 from Metrobank, the proceeds
of which they would use in constructing a hotel on their 305-square-meter parcel of land located in Davao City. They
executed various promissory notes covering the loans, and constituted a mortgage over their parcel of land to secure the
performance of their obligation. The stipulated interest rates were 15.75% per annum for the long term loans (maturing on
December 9, 2006) and 22.204% per annum for a short term loan of P4,400,000.00 (maturing on March 12, 1999). The
interest rates were fixed for the first year, subject to escalation or de-escalation in certain events without advance notice to
them. The loan agreements further stipulated that the entire amount of the loans would become due and demandable
upon default in the payment of any installment, interest or other charges. The spouses defaulted and so Metrobank filed
suit.

ISSUE:
Whether or not the escalation clause is valid.
HELD:
YES. The Court held that the escalation clauses like those affecting the petitioners were not void per se, and that
an increase in the interest rate pursuant to such clauses were not necessarily void. In Philippine National Bank v.
Rocamora, the Court has said:
Escalation clauses are valid and do not contravene public policy. These clauses are common in credit agreements
as means of maintaining fiscal stability and retaining the value of money on long-term contracts. To avoid any resulting one-
sided situation that escalation clauses may bring, we required in Banco Filipino the inclusion in the parties’ agreement of a
de-escalation clause that would authorize a reduction in the interest rates corresponding to downward changes made by
law or by the Monetary Board.
The validity of escalation clauses notwithstanding, we cautioned that these clauses do not give creditors the
unbridled right to adjust interest rates unilaterally. As we said in the same Banco Filipino case, any increase in the rate of
interest made pursuant to an escalation clause must be the result of an agreement between the parties. The minds of all
the parties must meet on the proposed modification as this modification affects an important aspect of the agreement.
There can be no contract in the true sense in the absence of the element of an agreement, i.e., the parties’ mutual consent.
Thus, any change must be mutually agreed upon, otherwise, the change carries no binding effect. A stipulation on the
validity or compliance with the contract that is left solely to the will of one of the parties is void; the stipulation goes against
the principle of mutuality of contract under Article 1308 of the Civil Code.

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6. BULOS, JR. VS. YASUMA
FACTS:
In 1988, Bulos, Atty. Tabalingos and Dr. Lim incurred a P2.5M loan from Yasuma, a Japanese national. The terms of
the loan provide that it is payable in 3 months at 4% interest rate; that in case of nonpayment, it shall continue at that rate
or 48% per annum; and in case of litigation, plus 20% of principal balance for attorney’s fees.
The 3 failed to pay upon maturity. Loan then was already P2.7M. Yasuma foreclosed the mortgaged properties and
the sale amounted to P1.6M leaving a balance of P1.06M. Interest accrued and other penalties ballooning the balance to
P2.4M.
The trial court ruled in Yasuma’s favor. On appeal, the CA affirmed the trail court’s decision. Hence, this petition.
ISSUE:
Whether or not the stipulation of the continuing 4% interest per month in case of nonpayment is unconscionable.
HELD:
YES. The Court held that such rate of interest is highly unconscionable and inordinate. In the case of Ruiz v. Court
of Appeals, the SC considered the 3% interest per month or 36% interest per annum as excessive and unconscionable.
Thereby, the Court, in the said case, equitably reduced the rate of interest to 1% interest per month or 12% interest per
annum. The Court also held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982,
effective on 1 January 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate,
still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Surely, it is more consonant with justice that the rate of interest in the present case, which is 4% per month or 48% per
annum, be reduced equitably. The Court found, that the reduction of the interest rate by the trial court, pegged at 21% per
annum, was not proper.
The agreed interest rate of 4% per month or 48% per annum is unconscionable and must be mitigated. Following
established jurisprudence, the legal interest rate of 12% should apply, computed from the date of judicial demand, that is, 7
April 1990. In Eastern Shipping Lines, Inc. v. Court of Appeals , the Court enunciated that “when the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit” is also appropriate herein, and a 12% interest per annum is imposed on
petitioner’s monetary liability to respondent from the date of the finality of this Decision until it is fully paid.

7. CHAN v. MACEDA
FACTS:
In 1976, Maceda obtained a P7.3 million loan from DBP for the construction of his New Gran Hotel Project in
Tacloban City. Thereafter, respondent entered into a building construction contract with Moreman Builders. Respondent
purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of
petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction of the hotel at the
stipulated time. Consequently, Maceda filed suit for rescission against Moreman which the trial court ruled in his favor.
While pending appeal in the CA, Maceda demanded from Chan the return of the construction materials and equipment but
the latter said that said materials had already been withdrawn by Moreman in 1977. Hence, Maceda filed with the RTC an
action for damages with an application for a writ of preliminary attachment against petitioners.
The RTC ruled in favor of Maceda. On appeal, the CA affirmed RTC’s decision. Hence, this appeal.
ISSUE:
Whether or not there was a contract of deposit.

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HELD:
NO. In an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the
performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor, or
to his heirs or successors, or to the person who may have been designated in the contract.
In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and
respondent. If at all, it was only between petitioners and Moreman. And granting arguendo that there was indeed a
contract of deposit between petitioners and Moreman, it is still incumbent upon respondent to prove its existence and that
it was executed in his favor. However, respondent miserably failed to do so. The only pieces of evidence respondent
presented to prove the contract of deposit were the delivery receipts. Significantly, they are unsigned and not duly received
or authenticated by either Moreman, petitioners or respondent or any of their authorized representatives. Hence, those
delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a
civil action against another for the enforcement or protection of a right, or the prevention or redress of a wrong, every
cause of action ex-contractu must be founded upon a contract, oral or written, express or implied.
Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners'
warehouse at the time he made a demand for their return.
Considering that respondent failed to prove (1) the existence of any contract of deposit between him and
petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in
petitioners' warehouse at the time of respondent's demand to return the same, the Court holds that petitioners have no
corresponding obligation or liability to respondent with respect to those construction materials.

8. TRIPLE-V vs. FILIPINO MERCHANTS

FACTS:
De Asis, an employee of Crispa Textile, dined at petitioner’s Kamayan restaurant. She used her employer’s car in
going to said restaurant. She availed the valet parking and entrusted her car key to petitioner's valet counter. A
corresponding parking ticket was issued as receipt for the car. Fe minutes later, the car disappeared and its key is missing in
the box where the valet attendants usually keep the car keys entrusted to them. Crispa filed a claim against its insurer, the
respondent, where the latter indemnified the former in the amount of P669,500. The respondent, as subrogee to Crispa's
rights, filed with the RTC an action for damages against petitioner Triple-V.
The trial court and CA rendered in favor of the respondent ruling that (a) petitioner was a depositary of the subject
vehicle; (b) petitioner was negligent in its duties as a depositary thereof and as an employer of the valet attendant; and (c)
there was a valid subrogation of rights between Crispa and respondent FMICI.
ISSUE:
Whether or not the CA is correct that there was a contract of deposit between petitioner and the insured.
HELD:
YES. When De Asis entrusted the car in question to petitioners valet attendant while eating at
petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her meal. Thus, petitioner was
constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit
nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet
parking service.
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 any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to
the depositor.
It is evident that De Asis deposited the car in question with the petitioner as part of the latter's enticement for
customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking

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space is an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their
vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject car to
petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at
petitioner's premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant.

9. THE ROMAN CATHOLIC BISHOP OF JARO vs. GREGORIO DE LA PEÑA

FACTS:
The plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that father
Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee the sum of
P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal account
P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la
Peña was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in
favor of the United States Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest
of Father De la Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities
that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes.
ISSUE:
Whether or not Father De la Peña is liable as a depositor.
HELD:
NO. By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an
obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. If he had been forcibly taken from his pocket or from his house by the
military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does
not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards.
The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by
Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the
bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not
responsible for its loss.

10. CA AGRO-INDUSTRIAL DEVELOPMENT CORP vs. CA & SECURITY BANK

FACTS:
In 1979, petitioner and spouses Pugao entered into an agreement where the former purchased 2 parcels of land
from the latter for a consideration of P350K. Among the terms and conditions of the agreement, the title of the lot shall be
transferred upon full payment of the price and the owner’s copies of the certificate of title shall be deposited in a safety
deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner
and the Pugaos upon full payment of the purchase price. The parties then rented a safety deposit box of respondent
Security Bank. Both signed a contract of lease embodying:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the
same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith.

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 After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the
petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. Petitioner claims
that the certificates of title were placed inside the said box.
Thereafter, certain Mrs. Ramos offered to buy the 2 lots but later withdrew because the subject certificate of titles
were nowhere to be found when the safety box was opened. Consequently, petitioner filed suit for damages against
Security Bank.
The trial court dismissed the complaint. On appeal, CA affirmed trial court’s decision holding that the juridical
relation between the bank and petitioner is a contract of lease. Petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box is actually a contract of deposit.
ISSUE:
Whether or not the contract respondent CA is correct in holding that the contractual relation between the parties
is a contract of lease.
HELD:
NO. The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the
joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this
key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access
to the box.
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit.
Section 72 of the General Banking Act 23pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents.

11. ANGEL JAVELLANA, vs. JOSE LIM, ET AL.

FACTS:
In 1897, the defendants (Jose Lim et al.) received from platiff Javellana the sum of 2,600.86, as a deposit without
interest, which shall be returned to the latter on January 20, 1898. When the obligation became due, defendants asked for
extension and promised to pay interest at a rate of 15% which Javellana acceded. However, the defendants still failed to
pay the full amount of their indebtedness. Consequently, Javellana filed suit before the CFI of Ilo-ilo. Said court ruled in her
favor holding that Javellana is entitled to recover the amount due plus the payment of 15% interest per annum.
ISSUE:
Whether or not the contractual relation of Javellana and the defendants is a contract of deposit.
HELD:
NO. It is a contract of mutuum.
Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express permission of the depositor.

8
 Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited, the contract loses the character of a
deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
It was established as a matter of fact that Jose Lim went to the office of the creditor asking for an extension of one
year, in view of the fact the money was scarce, and because neither himself nor the other defendant were able to return
the amount deposited, for which reason he agreed to pay interest at the rate of 15 per cent per annum, it was because he
did not have in his possession the amount deposited, he having made use of the same in his business and for his own profit;
and the creditor, by granting them the extension, evidently confirmed the express permission previously given to use and
dispose of the amount stated as having been deposited.
Hence, the Court inferred that there was no renewal of the contract deposited converted into a loan, because, as
has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit,
since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been
clearly shown.

12. GAVIERES vs. TAVERA

FACTS:
Don Manuel Gavieres, plaintiff, is the successor in interest of the deceased Doña Ignacia de Gorricho, the
depositor. On the other hand, Don Trinidad Tavera, defendant, is the universal heir of the deceased Felix Tavera, the
depositary.
On Januay 10, 1900, Gavieres interposed an appeal about the collection of the balance of P1,423.75 from Tavera,
which amount is the remaining balance of the original obligation amounting to P3,000. Said P3,000 is the amount of deposit
delivered by deceased Gorricho to Felix Tavera on October 31, 1859. In the document, Tavera received from Gorricho the
sum of P3,000 as a deposit payable on 2 months' notice in advance, with interest at 6% per annum.
Trinidad contended as a defense that the agreement was a contract of loan, not a deposit and as such the original
obligation was already extinguish due to prescription.
ISSUE:
Whether or not there is a contractual relation of a contract of deposit.
HELD:
NO. Although in the document in question a deposit is spoken of, nevertheless from an examination of the entire
document it clearly appears that the contract was a loan and that such was the intention of the parties. It is unnecessary to
recur to the canons of interpretation to arrive at this conclusion. The obligation of the depositary to pay interest at the rate
of 6 per cent to the depositor suffices to cause the obligation to be considered as a loan and makes it likewise evident that
it was the intention of the parties that the depositary should have the right to make use of the amount deposited, since it
was stimulated that the amount could be collected after notice of two months in advance. Such being the case, the contract
lost the character of a deposit and acquired that of a loan. (Art. 1768, Civil Code.)
All personal actions, such as those which arise from a contract of loan, cease to have legal effect after twenty years
according to the former law and after fifteen years according to the Civil Code now in force.

13. BARON vs. DAVID

FACTS:

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 David has been engaged in running a rice mill in Pampanga. Plaintiffs Barons are the aunt and uncle of David. In
1920, Silvestra Baron and Guillermo Baron placed a quantity of palay in the defendant's mill which amounted to 1,012
cavans and 1,865 cavans respectively. In January 17, 1921, a fired occurred in the mill of David which destroyed all the
palays therein. Both the plaintiffs claim that the palay which was delivered by them to the defendant was sold to the
defendant; while the defendant, on the other hand, claims that the palay was deposited subject to future withdrawal by the
depositors or subject to some future sale which was never effected. David therefore supposes himself to be relieved from
all responsibility by virtue of the fire. The trial judge dismissed the complaint.
ISSUE:
Whether or not the palay was a deposit.
HELD:
NO. It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with the
understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively
running during the entire season, and as palay was daily coming in from many customers and as rice was being constantly
shipped by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact
the defendant admits that the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant's
activities and the way in which the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs'
palay, which was put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921.
Furthermore, the proof shows that when the fire occurred there could not have been more than about 360 cavans of palay
in the mill, none of which by any reasonable probability could have been any part of the palay delivered by the plaintiffs.
Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the
fire, it result that he is bound to account for its value, and his liability was not extinguished by the occurence of the fire.
In the briefs before us it seems to have been assumed by the opposing attorneys that in order for the plaintiffs to recover, it
is necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that
if, on the contrary, the defendant should prove that the delivery was made in the character of deposit, the defendant
should be absolved. But the case does not depend precisely upon this explicit alternative; for even supposing that the palay
may have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless
if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use, he is of
course bound to account for its value. Under article 1768 of the Civil Code, when the depository has permission to make
use of the thing deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum; and of
course by appropriating the thing, the bailee becomes responsible for its value.

14. US vs. IGPAURA

FACTS:
The defendant Igpuara was charged with the crime of estafa. Defendant received P2,498 from Juana Montilla and
Eugenio Veraguth. The defendant drew up a document receiving said some of money and stated that such is payable on
demand. The money remained in the possession of defendant, with the purpose of taking care of it, at the disposal of
Veraguth.
The CFI of Ilo-Ilo sentenced the defendant to two years of presidio correccional and to pay Juana Montilla P2,498.
Defendant appealed arguing that what he received was a loan not a deposit.
ISSUE:
Whether or not the defendant can appropriate or use the thing deposited.
HELD:
NO. It is also erroneous to assert that sum of money set forth in said instrument is, according to it, in the
defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit
the use of the thing is not transmitted, but merely possession for its custody or safe-keeping.

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In order that the depositary may use or dispose of the things deposited, the depositor's consent is required, and then:
The rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to
commercial loans, commission, or contract which took the place of the deposit shall be observed. (Art. 309, Code of
Commerce.)
The defendant has shown no authorization whatsoever or the consent of the depositary for using or disposing of
the P2,498, which the certificate acknowledges, or any contract entered into with the depositor to convert the deposit into
a loan, commission, or other contract.

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