Credit Transactions - Atty.
Barot (AY 18-19 Sem 1)
LOAN
1. Garcia v Thio, 518 SCRA 433 (2007)
Facts:
1. Respondent Thio received two crossed-checks from petitioner Garcia in the amount of
$100,000 and P500,000 payable to the order of a certain Marilou Santiago.
2. Garcia received from Thio every month on March, April, July, August, September,
October and November.
3. According to Garcia, Thio failed to pay the principal amounts of the loans amounting to
$100,000 and P500,000 when they fell due. Therefore, Garcia filed a complaint for
sum of money against Thio seeking to collect the sum of $100k with interest at 3%
and P500k with interest at 4%.
a. For both loans, no promissory note was executed since both Garcia and
Thio were close friends.
b. Thio paid the stipulated monthly interest for both loans but on their maturity
dates, Thio failed to pay the principal amounts despite demands.
4. Thio denied the she contracted the two loans:
a. It was Marilou Santiago to whom Garcia lent the money
b. That she was merely asked by Garcia to give the crossed checks to
Santiago
5. RTC ruled in favor of Garcia. It found that Thio borrowed from Garcia the amounts of
the loan.
6. CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties
a. The checks received by Thio being crossed, amy not be encashed but only
deposited in the bank by the payee thereof, that is, by Marilou Santiago
herself
b. The receipt of the crossed check by Thio is not the issuance and delivery to
the payee in contemplation of law.
Issue: WoN there was a contract of loan between the parties
Held: YES
1. A loan is a real contract, not consensual, and as such is perfected only upon the
delivery of the object of the contract.
2. Upon delivery of the object of the contract of loan (in this case the money received by
the debtor when the checks were encashed) the debtor acquires ownership of such
money or loan proceeds and is bound to pay the creditor an equal amount.
3. Delivery is the act by which the res or substance thereof is placed within the actual or
constructive possession or control of another. Although respondent did not physcially
receive the proceeds of the checks, there isntruments were placed in her control and
possession under an arrangement whereby she actually re-lent to Santiago.
4. Several factors to support the conclusion:
a. Thio admitted that petitioner did not personally know Santiago - it was highly
improbable that Garcia would grant two loans to a complete stranger without
requiring as much as a promissory note
b. Leticia, a friend of both, testified that Thio's plan was for Garcia to lend her
money at a monthly interest rate after which Thio would lend the same to
Santiago at a higher rate.
c. It is improbable to believe that Thio would put herself in a position where
she would be compelled to pay interest from her own funds, for loans she
allegedly did not contract.
d. Thio never presented Santiago as a witness to corroborate her story.
Capila, Jimenez, Molina, Ong, Pernes, Ramos, Tagacay, Temporal
2. Saura Import and Export Co., Inc. v DBP, 44 SCRA 445 (1972)
Facts :
1. Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan of P500,000.00 for the construction of a factory building (for the
manufacture of jute sacks), to pay the balance of the purchase price of the jute mill machinery
and equipment; and for additional working capital.
2. Parenthetically, the jute mill machinery had already been purchased by Saura on the strength
of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in
July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a
trust receipt in favor of Prudential Bank.
3. RFC passed Resolution No. 145 approving the loan to be secured by a first mortgage on the
factory building to be constructed, the land site thereof, and the machinery and equipment to be
installed.
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo
and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject
to availability of funds, and as the construction of the factory buildings progresses, to be certified
to by an appraiser of this Corporation;"
6. Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to
RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China
Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription
with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put
up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the
latter's shares in Saura, Inc.
7. In view of such request RFC approved Resolution No. 736, designating of the members of its
Board of Governors, "to reexamine all the aspects of this approved loan ... with special reference
as to the advisability of financing this particular project based on present conditions obtaining in
the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
8. Thereafter, Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as
co-signer for the loan, and asked that the necessary documents be prepared in accordance with
the terms and conditions specified in Resolution No. 145. In connection with the reexamination
of the project to be financed with the loan applied for, as stated in Resolution No. 736, the
parties named their respective committees of engineers and technical men to meet with each
other and undertake the necessary studies, although in appointing its own committee Saura, Inc.
made the observation that the same "should not be taken as an acquiescence on (its) part to
novate, or accept new conditions to, the agreement already) entered into," referring to its
acceptance of the terms and conditions mentioned in Resolution No. 145.
9. The loan documents were executed: the promissory note, with F.R. Halling, representing
China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which
was duly registered on the following April 17.
10. It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of
Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it
was decided to reduce the loan from P500,000.00 to P300,000.00.

11. Another hitch developed. F.R. Halling, who had signed the promissory note for China
Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan
and therefore considered the same as cancelled as far as it was concerned and requested RFC
that the registration of the mortgage be withdrawn.
12. In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC
13. Saura, Inc. took exception to the cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases
to us the P500,000.00 originally approved by you.".
14. Thus, RFC restored the loan to the original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation,"
andit was explained that the certification by the Department of Agriculture and Natural
Resources was required "as the intention of the original approval (of the loan) is to develop the
manufacture of sacks on the basis of locally available raw materials."
15. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture
of bags from local raw materials.
16. This fact, according to DBP, is what moved RFC to approve the loan application in the first
place, and to require, in its Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local raw materials to provide
adequately for the requirements of the factory.
17. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955:
(1) stating that according to a special study made by the Bureau of Forestry "​kenaf will not be
available in sufficient quantity this year or probably even next year;" (2) requesting "assurances
(from RFC) that my company and associates will be able to bring in sufficient jute materials as
may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan
18. Saura, after awhile, requested RFC to cancel the mortgage to make way for the registration
of a mortgage contract, executed over the same property in favor of the Prudential Bank and
Trust Co., under which contract Saura, Inc. had to pay its obligation on the trust receipt
heretofore mentioned.
19. 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc.,
Saura commenced the present suit for damages, alleging failure of RFC (as predecessor of the
defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying contractual commitments it
had entered into, in connection with its jute mill project.
Trial Court : In favor of Saura. Stating that there was a perfected contract between the parties
and that the defendant was guilty of breach thereof.
Issue : WON there was a perfected contract? YES
Held :
1. Article 1934 provides: ​An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until delivery of the object of the contract.
2. There was undoubtedly offer and acceptance in the case. The application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. The defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
3. When an application for a loan of money was approved by resolution of the respondent
corporation and the responding mortgage was executed and registered, there arises a perfected
consensual contract.
4. However, it should be noted that RFC imposed two conditions (availability of raw materials
and increased production) when it restored the loan to the original amount of P500,000.00.
5. Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing
so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled.The action thus taken by both parties was in the nature of mutual desistance which
is a mode of extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.
6. WHEREFORE, the judgment appealed from is reversed and the complaint was dismissed
3. BPI Investment Corp v CA, ALS Management and Development Corp., 377 SCRA 117
(2002)
Ayala Investment Dev't Corp - ​ ​predecessor of BPI Investment Corp
LOAN: A contract of loan is a Real Contract
FACTS:
1. Frank Roa obtained a loan for the construction of his house in Muntinlupa from Ayala
Investment Dev't Corp @ an interest rate of 16.25%/annum. The said house and lot
was later on mortgaged to AIDC.
2. 1980 - Roa sold the house and lot to ALS Mgmt & Dev't Corp and Litonjua for P850K.
They had paid P350k to Roa and assumed the P500K balance of the Roas to AIDC.
3. 1982 - However, AIDC is no longer willing to extend the old interest rate to ALS so, it
proposed that ALS can be granted P500K loan to be applied in Roa's debt and
secured by the same property with an interest of 20%/annum and 1% service
charge/annum payable within 10 years in monthly amortizations. (P9996.58) ​Note:
ALS and Litonjua have executed a mortgage deed containing the above stipulations.
4. After the full payment of the loan of Roa by ALS and Litonjua, BPIIC gave P7146.87 to
them purporting to be what was left of their loan.
5. 1984 - BPIIC instituted foreclosure proceedings against ALS and Litonjua on the
ground that they failed to pay mortgage indebtedness from May 1981 to June 1984
amounting to P475585.31.
6. 1985 - ALS and Litonjua filed a civil case against BPIIC alleging that they were not in
arrear in their payment but in fact made overpayment. They maintained that they
should not be made to pay amortization before the actual release of the P500K loan in
1982. Also, they have only received P464351.77 out of the P500k hence by way of
legal compensation, the remaining balance of P35K+ should have been applied in
their initial monthly amortization.
TC: ruled in favor of ALS and Litonjua. Compensable damages (P300K moral damages, P50K
exemplary damages & P50K for Atty fees and litigation expenses)were also awarded to ALS and
Litonjua when BPI caused their publication in a newspaper of general circulation as defaulting
debtors. Foreclosure suit was also dismissed.
Appeal to the CA: decision of the RTC affirmed in toto. Reasoning that simple loan is only
perfected only upon the delivery of the object of the contract.
MR of BPIIC was denied hence, this petition for Certiorari
ISSUE: ​WoN a contract of loan is a consensual contract.
HELD: NO
A loan contract is not a consensual contract but a real contract. It is perfected only upon
the delivery of the object of the contracts. ​BPIIC misapplied ​Bonnevie vs CA​. The contract in
Bonnevie ​declared by the Court as a perfected consensual contract falls under the first clause of
A1934 of CC. It is an accepted promise to deliver something by way of simple loan.
Hence, the loan contract of BPIIC and ALS & Litonjua was perfected only on Sept 1982 , the
date of second release of the loan. Following the intention of the parties, ALS is only obliged to
pay on Oct 1982, a month after the perfection of the contract.
The payment of amortization should accrue from the time BPIIC released the loan amount to
ALS and Litonjua because it was only at that time (the delivery of the amount -- the object of the
contract) that the loan contract was perfected.
A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own obligation and if he fails, then
default sets in.
Fallo: WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, are 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 attorneys 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.
4. POLO S. PANTALEON v AMERICAN EXPRESS INTERNATIONAL, INC., 629 SCRA 276
(2010) (LOAN)
FACTS:
American Express International (AMEX): ​A foreign corporation engaged in the business of
providing credit services through the operation of a charge card system.
Pantaleon:​ An AMEX card holder since 1980.
On October 1991, Pantaleon was on a Europe Tour with his family where he purchased
diamond pieces in Coster Diamond House.
● The tour group planned to leave at ​9:30 am to have enough time for their scheduled
tour in Amsterdam.
● Pantaleon used his AMEX card to purchase the diamond pieces amounting to
$13,826.
○ The purchase was made at around ​9:15 am​, however, at around ​9:40 am​,
there was still no approval from AMEX.
■ AMEX apparently asked for Pantaleon’s bank references, to
which Pantaleon complied.
○ At ​10:05 am​, there was still no approval from AMEX.
○ Since there had already been much delay, Pantaleon wanted to cancel the
sale. However, Coster decided to release the diamond pieces even without
AMEX’s approval.
○ It was only at ​10:38 am​ when AMEX finally approved of the purchase.
■ 9:20 am - Transmitted to AMEX Amsterdam
■ 9:33 am - Transmitted to AMEX Manila
■ 10:38 am - Approved by AMEX MANILA
● The other tourists were irritated at Pantaleon since the tour was cancelled because of
the delay.
After the Europe Trip, Pantaleon’s family went to America where they once again
experienced delay from AMEX in purchasing Golf Equipment and purchasing children’s
shoes.
Upon returning to Manila, Pantaleon sent a letter to AMEX demanding apology
● It was for the humiliation and inconvenience his family received.
● AMEX responded by explaining that the delay was caused by ​deviation in
Pantaleon’s purchase pattern​.
Unsatisfied with the explanation, Pantaleon filed an action for damages against AMEX
with the RTC of Makati where AMEX was found guilty
● RTC found AMEX guilty of delay and ordered for the payment of P985,233.01.
On Appeal, the CA reversed the awards.
● The Court of Appeals ruled that though the delay was in the nature of ​mora accipiendi
(default in the side of the creditor), there was no breach in the contract.
○ There was no bad faith, malic, or gross negligence.
○ AMEX exercised diligent efforts to effect the approval of the purchases
Upon review of the Supreme Court, the decision of the RTC was reinstated
● AMEX was guilty of ​mora solviendi (​ default on the side of the debtor).
○ AMEX, as debtor, had an obligation as the credit provider to act on
Pantaleons purchase requests, whether to approve or disapprove them,
with timely dispatch.
○ In Pantaleons case, it took AMEX 78 minutes to approve the Amsterdam
purchase.
■ This delay was found to be unwarranted,
Hence, this motion for reconsideration by AMEX.
● AMEX argues that it was not guilty of culpable delay.
○ AMEX admits that it normally takes seconds to approve charge purchases.
However, Pantaleon experienced delay in Amsterdam because his
transaction was not a normal one.
■ The amount for the transaction was of a great amount.
■ The purchase amount would normally take 10 years of
Pantaleon’s transaction before reaching such amounts.
■ This was merely to secure that there was no third-party
fraudulently using his credit card and to protect itself from the risk
that Pantaleon might not be able to pay for his purchase.
ISSUE: WoN the awarded damage is warranted. - NO
HELD: WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and
GRANT the present motion for reconsideration. The Court of Appeals Decision dated
August 18, 2006 is hereby AFFIRMED.
History of Credit Card
● A credit card is defined as any card, plate, coupon book, or other credit device existing
for the purpose of obtaining money, goods, property, labor or services or anything of
value on credit.
● In the Philippines, the now defunct Pacific Bank was responsible for bringing the first
credit card into the country in the 1970s.[12] 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.
Nature of Credit Card Transactions
● The bank credit card system involves a tripartite relationship between the issuer bank,
the cardholder, and merchants participating in the system.
○ This agreement provides that the bank will pay for cardholders account the
amount of merchandise or services purchased through the use of the credit
card and will also make cash loans available to the cardholder.
● Every Credit Card Transaction involves three contracts​:
○ The ​sales contract between the credit card holder and the merchant or the
business establishment which accepted the credit card;
○ The loan agreement between the credit card issuer and the credit card
holder; and lastly,
○ The ​promise to pay between the credit card issuer and the merchant or
business establishment.
When does the Credit Card Issuer - Card Holder relationship begin?
● City Stores Co. v. Henderson: The issuance of a credit card is but an offer to extend a
line of open account credit. It is unilateral and supported by no consideration. The
offer may be withdrawn at any time, without prior notice, for any reason or, indeed, for
no reason at all, and its withdrawal breaches no duty for there is no duty to continue it
and violates no rights.
● Gray v. American Express Company: he card membership agreement itself as a
binding contract between the credit card issuer and the card holder. Note that a card
membership contract is a contract of adhesion.
○ This is what our jurisdiction adheres to.
Use of credit card a mere offer to enter into loan agreements
● When cardholders use their credit cards to pay for their purchases, they merely offer
to enter into loan agreements with the credit card company. Only after the latter
approves the purchase requests that the parties enter into binding loan contracts.
● Note: Credit Card Issuer - Holder relationship is different from Debtor - Creditor
relationship.
● Paragraph 10 of the card membership agreement clearly states that AMEX reserves
the right to deny authorization for any requested Charge. By so providing, AMEX
made its position clear that it has no obligation to approve any and all charge requests
made by its card holders.
AMEX not guilty of culpable delay
● Since AMEX has no obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation.
● Plus, there is no provision in this agreement that obligates AMEX to act on all
cardholder purchase requests within a specifically defined period of time.
● Also, ​BSP Circular 398 requires that before issuing credit cards, banks and/or their
subsidiary credit card companies must exercise proper diligence by ascertaining that
applicants possess good credit standing and are financially capable of fulfilling their
credit commitments.
○ Hence, AMEX has a right to review a cardholder’s credit card history.
Pantaleon’s action was the proximate cause of his injury
● He knew that the group needed to leave the store by 9:30 am yet he still attempted to
push thru with the transaction until 10:05 am.
5. Spouses Ong & Spouses Chuan v. BPI Family Savings Bank
(GR No. 208638, Jan. 24, 2018)
Facts​:
1. Sps. Ong and Sps. Chuan are engaged in the business of printing under "MELBROS
PRINTING CENTER. Sps. applied for the credit facilities offered by Bank of Southeast
Asia (BSA) in view of business expansion plans.
2. They executed a REM over their property in Paco, Manila, in favor of BSA as security
for a P15M term loan and P5M credit line (total of P20M).
a. With regard to the term loan, only P10,444,271.49 was released by BSA
(the amount needed by the Sps. to pay out their loan with Ayala Life, the
balance was credited to their account with BSA).
b. With regard to the credit line, only P3M was released. BSA promised to
release the remaining P2M conditioned upon the payment of the P3M
initially released to Sps.
3. Sps. acceded to the condition and paid the P3M in full. However, BSA still refused to
release the P2M. Sps. then refused to pay the amortizations due on their term loan.
4. Later on, BPI merged with BSA, thus, acquired all the latter's rights and assumed its
obligations. BPI filed a petition for extrajudicial foreclosure of the REM for Sps.’ default
in the payment of their term loan.
5. To enjoin the foreclosure, Sps. instituted an action for damages with TRO and WPI
against BPI.
6. TC ruled in favor of Sps. In appeal to CA, ​BPI posited that Sps. are liable on the
principal balance of the mortgage loan agreement. CA in favor of BPI.
7. Sps. contend ​that CA erred in ruling that there was no perfected contract between the
parties with respect to the omnibus credit line and that being so, no delay could be
attributed to BPI, the successor-in-interest of BSA.
Issue​: Whether there was already an existing and binding contract between the Sps. and BSA
with regard to the omnibus credit line? - YES.
Held​: Petition Granted. The e​ xtrajudicial foreclosure of REM is void. BPI is ordered to pay
Spouses P2,772,000.00 as actual or compensatory damages …
1. As a rule, a contract is perfected upon the meeting of the minds of the two parties. It is
perfected by mere consent, that is, from the moment that there is a meeting of the
offer and acceptance upon the thing and the cause that constitute the contract.
2. Under Article 1934 of the Civil Code, a loan contract is perfected only upon the
delivery of the object of the contract. Here, there is no doubt that when BSA approved
and released the P3M out of the original P5M credit facility, the contract was
perfected.
3. The conclusion reached by CA that only the term loan of P15M was proved to have
materialized into an actual contract while the P5M omnibus line credit remained
non-existent is ludicrous.
a. Records reveal that the credit facility was a credit line of P20M consisting of
a term loan in the sum of P15M and a revolving omnibus line of P3M to be
used in Sps.’ printing business.
b. BSA’s approval and subsequent release of the amounts, albeit delayed,
perfected the contract between the parties.
4. Loan is a reciprocal obligation, as it arises from the same cause where one party is
the creditor and the other the debtor. The obligation of one party in a reciprocal
 obligation is dependent upon the obligation of the other, and the performance should
ideally be simultaneous. In a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.
5. In this case, BSA did not only incur delay in releasing the pre-agreed credit line of
P5M but likewise violated the terms of its agreement with Sps. when it ​deliberately
failed to release the P2M after Sps. complied with their terms and paid the first P3M in
full.
a. The default attributed to Sps. when they stopped paying their amortizations
on the term loan cannot be sustained by this Court because long before
they sent a Letter to BSA informing the latter of their refusal to continue
paying amortizations, BSA had already reneged on its obligation to release
the amount previously agreed upon, i.e., the P5M covered by the credit line.
6. Sps. entered into a credit agreement with BSA to buy machineries and equipment for
their printing business. The direct consequences of the acts of BSA are: the
machinery and equipment that were essential to Sps.’ business and requisite for its
operations had to be procured so late in time and had crippled the printing of school
supplies, hence, Sps. were constrained to cancel purchase orders of their clients to
their damage.
7. BSA claims that the release of the amount covered by the credit line was subject to
the "availability of funds" thus only a part of the proceeds of the entire omnibus line
was released.
a. Assuming that the funds at the time were insufficient to cover the entire
P5M, BSA should have at least informed Sps. in advance.
b. The omnibus line was approved and became effective on Jan. 1997 yet
BSA did not allow Sps. to draw from the line until Nov. 1997.
c. BSA downgraded Sps.’ drawdown to only P3M despite the clear wordings of
their credit agreement whereby Sps. were allowed to draw any portion or all
of the omnibus line not to exceed P5M.
d. The almost 10 months delay in releasing the amount applied for by Sps.
negates good faith on the part of BSA.
8. Pursuant to such merger and consolidation, BPI's right to foreclose the mortgage on
Sps.’ property depends on the status of the contract and the corresponding obligations
of the parties originally involved, that is, the agreement between its predecessor BSA
and Sps.
9. Since BSA incurred delay in performance of its obligations and subsequently
cancelled the omnibus line without Sps.’ consent, successor BPI cannot foreclose the
loan because BSA violated the terms of the contract even prior to Sps.’ justified
refusal to continue paying amortizations.
10. Since the credit facility that BSA extended to Sps. was a credit line total of P20M, its
refusal to release the balance on the omnibus line prevented full performance of its
obligation to Sps.
a. There being no release of the full loan amount, no default could be
attributed to Sps. In other words, foreclosure was premature.
COMMODATUM
6. Producers Bank of the Philippines v CA, 397 SCRA 651 (2003)
FACTS:
1. Franklin Vives was asked by his neighbor and friend Angeles Sanchez to her
friend and townmate, Arturo Doronilla, in incorporating his business, the Sterela
Marketing and Services.
· Sanchez asked Vives to deposit in a bank a certain amount of money in
the bank account of Sterela for purposes of its incorporation. She
assured private respondent that he could withdraw his money from
said account within a month's time. Private respondent asked Sanchez
to bring Doronilla to their house so that they could discuss Sanchez's
request.
2. All the parties met and thereafter relying on the assurance and representation of
Sanchez and Doronilla, Vives issued a check in the amount 200K in favor of
Strela. Vives’ wife accompanied Doronilla nad Sanchez in opening a savings
account in the name of Strela in the Makati branch of Producers Bank of the
Phillipines.
3. Subsequently, Vives learned that Sterela was no longer holding office in the
address given to him. Alarmed, he and his wife went to the Bank to verify. They
were referred to the bank manager Rufo Atienza who informed them that part of
the money in their savings account was withdrawn by Doronilla who also opened
a current account and authorized the bank to debit the savings account to cover
overdrawing in the current account.
- Doronilla in opening the current account obtained a loan of 175K from
the Bank and to cover paymenet he issued 3 postdated check, all of
which were dishonored.
4. Vives tried to get in touch with Doronilla through Sanchez. Vives received a letter
from Doronilla, assuring him that his money was intact and would be returned to
him. Doronilla then issued a postdated check for 212K in favor of Vives, however
the check was dishonored.
5. Vives, instituted an action for recovery of sum of money in the RTC of Pasig and
also filed criminal actions. Ther RTC ruled in favor of Vives which the CA
affirmed.
ISSUE:
WON the CA erred when it ruled that the transaction was a commodatum and not a mutuum?
HELD:
> No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect
examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and
return it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing. Article 1936 of the
Civil Code provides:
Consumable 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.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods returned
at the end of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such determination.
As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of Sterela
specifically for the purpose of making it appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days. Private
respondent merely "accommodated" Doronilla by lending his money without consideration, as a
favor to his good friend Sanchez. It was however clear to the parties to the transaction that the
money would not be removed from Sterela's savings account and would be returned to private
respondent after thirty (30) days.
7. Pajuyo v CA, 430 SCRA 492, ​June 3, 2004
FACTS:
1. Cojito T. Pajuyo paid 400 pesos to a certain Pedro Perez for the rights over a 250-sq.m lot in
Barrio Payatas Q.C.
2. Pajuyo constructed a house made of light materials over the said lot and his family lived
there from 1979 to 1985
3. Pajuyo and Eddie Guevarra entered into a contract (​Kasunduan)​ allowing Guevarra to live
in the house for free provided that Guevarra would maintain the cleanliness and orderliness
of the house, and he must vacate on the land as per demand of Pajuyo.
4. Pajuyo informed Guevara of his need of the house and demanded that Guevara vacate the
house, he refused
5. Pajuyo filed an ejectment case against Guevara before the MeTC of Q.C
6. Guevarra in his ​Answer c​ laimed that Pajuyo had no valid title or right of possession over
the lot where the house stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 signed by Corazon C. Aquino. Hence according to Guevarra they
were both squatters.
7. MeTC: rendered decision in favor of Pajuyo ordering Guevarra to vacate the premises
8. Guevarra filed an appeal to the RTC
9. RTC: Affirmed MeTC
10. Guevarra filed with the SC a “ Motion for Extension of time to file appeal by ​certiorari”
based on Rule 42, instead of filing an ordinary appeal before the CA
11. Guevarra filed his petition for review with the SC
12. 1​st Division SC: Referred the Motex to the CA which has concurrent jurisdiction over the
case.
13. 13​th Division CA: Motex Granted with a condition that it was timely filed, it also ordered
Pajuyo to comment on Guevarras petition for review.
14. CA: Reversed the decision of MeTC and RTC
a. Guevarra and Pajuyo are both squatters, hence by ​in pari delicto ​rule
they should be left where they are.
b. The ​Kasunduan between them created a legal tie akin to that of a
landlord and tenant relationship
c. The ​Kasunduan i​ s not a contract of lease but a contract of
commodatum
d. Guevarra has better right over the said land because under
Proclamation 137 those who are actual occupant or caretake of the lot
shall have first priority as beneficiary of the Housing project.
ISSUE/S: WHETHER OR NOT THE CA ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICITION
HELD:
IN RELATION TO PROPERTY
- SC does not agree with the CA that both parties are ​in pari delicto hence they must be left
where they are.
- Ownership or the right to possess arising from ownership is not an issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or right to
legal possession except to prove the nature of the possession when necessary to resolve
the issue of physical possession.
- The only question that the courts must resolve in ejectment proceedings is – who is
entitled to the physical possession of the premises, that is, to the possession ​defacto ​and
not to the possession ​de jure.
IN RELATION TO OBLIGATIONS & CONTRACTS
- The ​in pari delicto ​rule doesn’t apply to Ejectment cases
- The application of the principle to a case of ejectment between squatters is fraught with
danger. To shut out reliefs to squatters on the ground of ​pari delicto would openly invite
mayhem and lawlessness as it will leave the squatters not to seek judicial relief but relief
from themselves.
IN RELATION TO CREDIT TRANSACTIONS
- CA is wrong that the ​Kasunduan ​is one of ​commodatum
- Guevarra expressly admitted the existence and due execution of the ​Kasunduan.
- The ​Kasunduan e ​ xpressly articulated Pajuyo’s forbearance as he did not require Guevara
to pay any rent but only to maintain the house and lot in good condition.
- Guevarra expressly vowed in the ​Kasunduan ​that he would vacate the property on
demand.
- In a contract of ​commodatum, o ​ ne of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.
- ​Essential features of ​commodatum:
o It is gratuitous
o The use of the thing is for a certain period only
- 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.
IN RELATION TO CIVIL PROCEDURE
- Decisions of the RTC in the exercise of their appellate jurisdiction are appealable to the CA
by petition for review in cases involving questions of facts or mixed questions of fact and
law. Decisions of the RTC involving pure questions of law are appealable directly to this
Court by petition for review.
- The CA has the power to grant an extension of time to file a petition for review.
- SC ruled that prohibition against granting an extension of time applies only in cases where
ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an
ordinary appeal, requires preparation and research to present a persuasive position.
Hence, the CA may allow extension of time to file a petition for review.
8. Republic v Bagtas, 6 SCRA 262 (1962)
FACTS:
● Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi (P1,176.46), a Bhagnari (P1,320.56) and a
Sahiniwal (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
○ He wrote to the Director of Animal Industry that he would pay the value of
the 3 bulls
○ He reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General.
● 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 -
He was not able to do
 ● 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
● Jose V. Bagtas 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
○ Granted an ex-parte motion for the appointment of a special sheriff to serve
the writ outside Manila
○ Jose died
○ Felicidad M. Bagtas, the surviving spouse of Jose and administratrix of his
estate was notified
● Felicidad filed a motion that the 2 bulls where returned by his son on June 26, 1952
evidenced by receipt 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:​ WON Jose is liable for the death of the 3​rd​ bull? YES.
FALLO: ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
HELD:
· A contract of ​commodatum​ is essentially gratuitous.
o If the breeding fee be considered a compensation, then the contract
would be a lease of the bull.
o 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.
o And even if the contract be commodatum, still the appellant is liable,
because article 1942 of the Civil Code provides that a bailee in a
contract of ​commodatum
. . . is liable for loss of the things, even if it should be
through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exempting the bailee
from responsibility in case of a fortuitous event;
· The loan of one bull was renewed for another period of one year to end on 8 May 1950. But
the appellant kept and used the bull until November 1953 when during a Huk raid it was
killed by stray bullets.
· Furthermore, when lent and delivered to the deceased husband of the appellant the bulls
had each an appraised book value. It was not stipulated that in case of loss of the bull due
to fortuitous event the late husband of the appellant would be exempt from liability.
· Special proceedings for the administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), 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.
9. Quintos and Ansaldo vs. Beck, 69 Phil 108 (1939)
Facts:
1. Defendant Beck was a tenant of Plaintiff Quintos occupying the latter's house.
○ Upon the novation of the contract of lease between Quintos and Beck, the
former gratuitously granted to the latter the use of the furnitures subject to
the condition that Beck would return them to Quintos upon the latter's
demand.
2. Quintos sold the property to Lopez notifying Beck and giving Beck 60 days to vacate
the premises. Quintos required Beck to return all the furniture transferred to him for his
use.
3. Beck wrote a letter to Quintos informing her that he could not give up ​three gas
heaters ​and ​four electric lamps because he would use them until the 15th of the month
when the lease is due to expire.
4. Quintos refused to get the furniture in view of the fact that Beck had declined to make
delivers of all of them.
5. CFI ordered Beck to return to Quintos the 3 gas heaters nad 4 electric lamps in the
possession of the sheriff at Quintos expense.
6. Beck deposited with the Sheriff all the furniture belonging to Quintos and they are now
on deposit in the warehouse in the custody of the sheriff.
7. Quintos contend that the CFI incorrectly applied the law:
○ In holding that they violated the contract by not calling for all the furniture
○ In holding that they should get all the furniture from the sheriff at their
expenses
Issue:​ WoN the contract entered into between Quintos and Beck is one of commodatum
Held: YES
1. The contract entered into between Quintos and Beck is one of commodatum, because
Quintos gratuitously granted the use of the furniture to Beck reserving for herself the
ownership. By this contract, the Beck bound himself to return the furniture to Quintos
upon the latter's demand.
2. THe obligation voluntarily assumed by Beck to return the furniture upon Quintos'
demand means that he should return all of them to Quintos - however Back did not
comply with this obligation when he merely placed them at the disposal of Quintos'.
Retaining for his benefit the three gas heaters and the four electric lamps.
3. The court cannot legally compel Quintos to bear the expenses occassioned by the
deposit of the furniture at Beck's behest. THe latter, as bailee, was not entitled to
place the furniture on deposit; nor was Quintos under a duty to accept the offer to
return the furniture, because the Beck wanted to retain the gas heaters and electric
lamps.