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BPI Investment Corporation vs. Court of Appeals and ALS Mgt. & Dev. Corp. G.R. No.

133632 | Feb. 15, 2002

Facts: Frank Roa obtained a loan with an interest rate of 16 % per annum from Ayala Investment and Development Corporation, predecessor of BPIIC. To secure the loan, Roa's house and lot were mortgaged. Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa's P500,000 debt with Ayala Investment. Ayala Investment, however, was unwilling to grant ALS and Litonjua the same interest rate so they granted a new loan to be applied to Roa's debt, secured by the same property at a different interest rate of 20% per annum. The amortization for this loan was to begin on May 1, 1981. In Aug. 1982, BPIIC applied the loan of ALS and Litonjua to the balance of Roas debt, P457,204.90. However it was only on Sept. 13, 1982 that BPIIC released P7,146.87, the balance of the loan after applying the proceeds to the full payment of Roas loan.

In June 1984, BPIIC instituted the foreclosure of mortgage alleging that ALS and Litonjua failed to pay their debt from May 1, 1981 up to June 30, 1984.

On Feb. 28, 1985, ALS and Litonjua filed a civil case against BPIIC alleging that they were not in arrears in their payment, but they in fact made an overpayment as of June 30, 1984. They contend that they should not be made to pay amortization before the actual release of the P500,000 loan in Aug. and Sept. 1982. And that out of the P500,000 loan, only the total amount of P464,351.77 was released to them, thus, the balance of P35,648.23 should be applied to the initial monthly amortization for the loan.

The trial court rendered a judgment in favor of ALS and Litonjua holding that the amount of loan granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77 and that suffered compensable damages when BPI caused their publication in a newspaper of general circulation as defaulting debtors. This was affirmed by the CA which also ruled that a simple loan is perfected upon the delivery of the object of the contract, thus, the loan contract in this case was perfected only on Sept. 13, 1982.

BPIIC claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed.

Issue: WON a contract of loan is a consensual contract? NO.

Held: A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. Although a perfected consensual contract can give rise to an action for damages, it does not constitute a real contract which requires delivery for perfection. A perfected real contract gives rise only to obligations on the part of the borrower. In this case, the loan contract was only perfected on Sept. 13, 1982, which was the second release of the loan. 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. In reciprocal obligations 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. It is 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 the latter fails, default sets in.

Thus, BPIIC could only demand payment of amortization after Sept. 13, 1982 for it was only then that it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is Oct. 13, 1982 and not May 1, 1981.

Celestina Naguiat v. Court of Appeals, et al., G.R. No. 118375, 3 October 2003

FACTS: Queao applied with Naguiat for a loan in the amount of P200,000.00, which Naguiat granted. Naguiat indorsed to Queao Associated Bank Check No. 090990 for the amount of P95,000.00, which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the amount of P95,000.00. The proceeds of these checks were to constitute the loan granted by Naguiat to Queao. To secure the loan, Queao executed a Deed of Real Estate Mortgage. On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for the amount of P200,000.00, with interest at 12% per annum. Queao also issued a check for the amount of P200,000.00 and payable to the order of Naguiat. Upon presentment on its maturity date, the P200,000 check was dishonored for insufficiency of funds. Queao requested Security Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds. Queao received a letter from Naguiats lawyer, demanding settlement of the loan. Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. Naguiat applied for the extrajudicial foreclosure of the mortgage. Three days before the scheduled sale, Queao filed the case before the Pasay City RTC, seeking the annulment of the mortgage deed. ISSUE: Whether or not the issuance of the checks did not result in the perfection of the contract of loan? HELD: NO. Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed.20 It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code 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 the delivery of the object of the contract." A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract. In this case, the objects of the contract are the loan proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos account.

Cosme vs People

Facts: Accused Miguel Cosme received in trust from complainant Paul P.A. Bunda the sum of P1,600,000.00, under the express obligation on the part of the said accused to settle and clear the accrued real estate taxes of the land which complainant sought to purchase.

Accused, however, did not use the money for the payment of the accrued real estate taxes on the property in question, but instead misappropriated it for his own use and benefit.

The trial court rendered a decision convicting Miguel Cosme of the crime of Estafa ordering to pay the complainant actual damages in the total amount of P1,800,000.00 with interest thereon at the legal rate from date of filing of this action until fully paid. However, the CA modified the decision which held accused to be civilly liable for P1,600,000 with legal interest. Accused appealed before the Supreme Court.

Issue: W/N the judgment of the lower courts on the accused civil liability is correct.

Held: No. The Supreme Court affirmed the decision of the lower courts and modified the penalty of accused and his civil liability.

The guidelines laid down in Eastern Shipping lines, Inc. v. Court of Appeals are applicable to the present case, to wit: I. When an obligation, regardless of its source, i.e., law contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Tile XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Applying the aforesaid guidelines above the Court held that Miguel Cosme is held civilly liable to return to private complainant Paul P.A. Bunda the amount of P1,600,000.00 with legal interest at 6% per annum from the date of filing of the action

until finality of the judgment. After the judgment becomes final and executory, the amount due shall further earn interest at 12% per year until the obligation is fully satisfied.

G.R. No. L-4150 February 10, 1910 FELIX DE LOS SANTOS vs. AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased Facts: Jimenea borrowed and obtained from de los Santos ten first-class carabaos to be used at the animal-power mill of his hacienda under the sole condition that they should be returned to the latter as soon as the work at the mill was terminated. Four of these died of rinderpest. Jimenea, however, did not return the remaining carabaos, notwithstanding the fact that de los Santos claimed their return after the work at the mill was finished. Jimenea died and Jarra, the defendant herein was appointed by the Court as the administratrix of his estate. De los Santos demanded return of the six carabaos, but Jarra rejected his claim. Now, de los Santos prayed that judgment be entered against the administratrix of the estate of Jimenea, ordering her to return the first-class carabaos loaned to the late Jimenea, or their present value, and to pay the costs.

Issue: Whether or not Jarra as the administratrix is under the obligation to indemnify de los Santos paying him the value of the carabaos. Held: Yes. There is no doubt that Jarra is under obligation to indemnify the owner of the carabaos by paying him their value as these were not returned upon demand. Article 1101 of the Civil Code reads: Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subjected to indemnify for the losses and damages caused thereby. The obligation of the bailee or of his successors to return either the thing loaned or its value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with precision the legal doctrine touching commodatum as follows: Although it is true that in a contract of commodatum the bailor retains the ownership of the thing loaned, and at the expiration of the period, or after the use for which it was loaned has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him damages if through the fault of the bailee the thing should have been lost or injured, it is clear that where public securities are involved, the trial court, in deferring to the claim of the bailor that the amount loaned be returned him by the bailee in bonds of the same class as those which constituted the contract, thereby properly applies law 9 of title 11 of partida 5. Also, the Civil Code, in dealing with loans in general, from which generic denomination the specific one of commodatum is derived, establishes prescriptions in relation to the last-mentioned contract by the following articles: ART. 1740. By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use it during a certain period and return it to the former, in which case it is called commodatum, or money or any other perishable thing, under the condition to return an equal amount of the same kind and quality, in which case it is merely called a loan. Commodatum is essentially gratuitous. A simple loan may be gratuitous, or made under a stipulation to pay interest. ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee acquires the use thereof, but not its fruits; if any compensation is involved, to be paid by the person requiring the use, the agreement ceases to be a commodatum. ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of both contracting parties, unless the loan has been in consideration for the person of the bailee, in which case his heirs shall not have the right to continue using the thing loaned.

I.

Intention of parties is important in determining whether or not a contract is commodatum or mutuum

Producers Bank of the Philippines (First International Bank) vs. Court of Appeals, et al., G.R. No. 115324. February 19, 2003

FACTS: In 1979, respondent Vives was invited Angeles Sanchez to help one Doronilla, in incorporating his business, Sterela Marketing and Services. Sanchez asked private respondent 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 months time. Respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs request. On 9th of May of the same year, respondent, issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela after. Respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives. Consequently respondent learned that Sterela was no longer holding office in the address previously given to him. He and his wife went to the Bank to check if their money was still compact. Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein. Respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of respondent. However the check was dishonored. Doronilla requested private respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again dishonored. After written demand upon Doronilla for the return of the money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was again dishonored for insufficiency of funds. Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. Judgment was rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally. ISSUE: Whether or not the transaction was one of mutuum or commodatum. RULING: Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account. Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation, since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given. 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 Sterelas savings account and would be returned to private respondent after thirty (30) days. Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner.

II.

Difference between loan and discounting of paper

Francisco Herrera vs. Petrophil Corporation December 29, 1986 FACTS: Plaintiff and defendant entered into an contract of lease whereby the former agreed to leased portion of his property for a period of 20 years. One of the stipulation provides that, the lessor is paid 8 years advance based on the agreed rental amount at 12% per annum. In short there was a discount. Pursuant to the contract, the defendant paid 8 years in advance subtracting therefrom the discounted amount. The plaintiff sued the defendant claiming that the interest was in violation of the usury law. ISSUE: Whether or not the contention of plaintiff is tenable? RULING: The contract was denominated as LEASE CONTRACT. Nowhere in the contract showing that the parties intended a loan rather than a lease. There was no usury because there was no money given by the defendant to the plaintiff for the latter to use. It was only a discount for paying the 8 years advance. The difference between a discount and loan or forbearance is that the former does not have to be paid. The latter is subject to repayment and therefor governed by usury law. It should be of money or something circulating; it must be repayable in all events; and it is in excess allowed by law.

III.

Difference between loan and irregular deposit

ROGERS vs. SMITH, BELL & CO. G.R No. L-4347; March 9, 1908

FACTS: Respondents executed document No. 1418, which is the subject of this case. The said document was delivered to the petitioner. The document contained the following details: No. 1418. $12,000. The sum of pesos twelve thousand has been deposited with us, received from Jose Rogers, which sum we will pay on the last day of the six months after the presentation of this document, to the order of Mr. Jose Rogers. Manila, February 17, 1876. SMITH, BELL & CO.

The said sum of twelve thousand pesos shall bear interest at the rate of eight per centum (8%) per annum from this date, February 17, 1876. SMITH, BELL & CO. When this document was delivered 12,000 pesos in silver were worth more than 12,000 pesos in gold. The plaintiff delivered it to the defendants in consideration of the execution of the document 12,000 in gold. The defendants remitted the interest to him every three months at the rate of 8 % per annum until January 30, 1888, when they notified him that thereafter the interest would be 6 per cent. The plaintiff accepted this reduction and the interest at that rate were remitted to him by the defendants until the February 10, 1904. The plaintiff received this payments in silver without any protest whatever until the 10th day of February, 1904. Subsequently, in a letter, he called the attention of the defendants about the new American law in force in the Philippines regarding the gold standard had been introduced and that by reason thereof he was entitled to receive his interest in gold, and in view of the fact that when he delivered the money to the defendants in 1876 he delivered it in gold coin.

The plaintiff claimed that, having paid to the defendants 12,000 pesos in gold coin, he is now entitled to receive from them the value of 12,000 pesos in gold coin; that is to say, 24,000 pesos in silver. The trial court held that he was entitled to recover only 12,000 pesos, and the defendants having deposited that amount the trial court rendered judgment in favor of the respondents. Then, the petitioner appealed the trial courts judgment.

ISSUE: Whether or not the document is evidence of an ordinary loan or an irregular deposit?

HELD: It is an ordinary loan.

Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states that there are three points of difference between a loan and an irregular deposit. The first difference which he points out consists in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit. It is very apparent that is was not for the sole benefit of Rogers. It like any other loan of money was for the benefit of both parties. The benefit which Smith, Bell & Co. received was the use of the money; the benefit which Rogers received was the interest of his money. In the letter which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the reduction of the interest, they said: "We call your attention to this matter in order that you may if you think best employ your money in some other place."

Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, in an irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound by the provisions of the contract and cannot seek restitution until the time for payment, as provided in the contract, has arisen. It is apparent from the terms of this document that the plaintiff could not demand his money at any time. He was bound to give notice of his desire for its return and then to wait for six months before he could insist upon payment.

The second difference which exists, according to Manresa, between an irregular deposit and a loan lies in the fact that in an irregular deposit the depositor has a preference over other creditors in the distribution of the debtor's property. It is apparent, therefore, that this document does not state those requisites which are essential to an irregular deposit.

It seems clear from these citations that the document in question is evidence of an ordinary loan and created between the plaintiff and defendants the relation of debtor and creditor. The two judgments of the supreme court of Spain cited by the appellant in his brief have no bearing upon the question. In that of the 9th of July, 1889, it appeared that the Bank of Havana returned to the plaintiff the same kind of money which it had received from him. The other judgment, of the 7th of February, 1891, simply held that a servant who had left her money with her master and had taken a written obligation from him to pay the same was not, in the distribution of his property, entitled to preference over other creditors on the ground that her debt was for personal labor.

Compania Agricola de Ultramar v. Nepomuceno 55 Phil. 283, November 14, 1930 FACTS: On March 17, 1927, the registered partnerships, Mariano Velasco & Co., Mariano Velasco, Sons, & Co., and Mariano Velasco & Co., Inc., were declared insolvent by the Court of First Instance of Manila. On the 16th day of April, 1927, the Compania Agricola de Ultramar filed a claim against one of the insolvents Mariano Velasco & Co., claiming the sum of P10,000, with the agreed interest thereon at the rate of 6 per cent per annum from April 5, 1918, until its full payment was a deposit with said Mariano Velasco & Co. and asked the court to declare it a preferred claim. The assignee of the insolvency answered the claim by interposing a general denial. On September 23, 1929, the court rendered a decision declaring that the alleged deposit was a preferred claim for the sum mentioned, with interest at 6 per cent per annum from April 5, 1918, until paid. From this decision the assignee appealed. The evidence presented by the claimant Compania Agricola de Ultramar consisted of a receipt in writing, and the testimony of Jose Velasco who was manager of Mariano Velasco & Co. at the time the note was executed. The receipt reads as follows: MANILA, P. I., April 5, 1918. Received from the "Compania Agricola de Ultramar" the sum of ten thousand Philippine pesos as a deposit at the interest of six per cent annually, for the term of three months from date. In witness thereof, I sign the present. MARIANO VELASCO & CO. By (Sgd.) JOSE VELASCO Manager. P10,000.00. In his testimony, Jose Velasco stated that his signature on the receipt was authentic and that he received the said sum of P10,000 from the appellee and deposited it with the bank in the current account of Mariano Velasco & Co. ISSUE: Whether or not the contract between Mariano Velasco & Co., Inc and Compania Agricola de Ultramar was a contract of deposit. RULING: The Supreme Court ruled that the CFI erred in finding that the claim of the appellee should be considered a deposit. Article 1767 of the Civil Code provides that "The depository cannot make use of the thing deposited without the express permission of the depositor." "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 not be presumed, and its existence must be proven. It was sufficiently shown that the ten thousand pesos delivered by the appellee to Mariano Velasco & Co. cannot de regarded as a technical deposit. But the appellee argues that it is at least an "irregular deposit." This argument is, we think, sufficiently answered in the case of Rogers vs. Smith, Bell & Co. (10 Phil., 319). There this court said: . . . Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states that there are three points of difference between a loan and an irregular deposit. The first difference which he points out consists in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in a loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit. It is very apparent that it was not for the sole benefit of Rogers. It, like any other loan of money, was for the benefit of both parties. The benefit which Smith, Bell & Co. received was the use of the money; the benefit which Rogers received was the interest on his money. In the letter in which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the reduction of the interest, they said: "We call your attention to this matter in order that you may if you think best employ your money in some other place." Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, that in an irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound by the provisions of the contract and cannot seek restitution until the time for payment, as provided in the contract, has arisen. It is apparent from the terms of this documents that the plaintiff could not demand his money at any time. He was bound to give notice of his desire for its return and then to wait for six months before he could insist upon payment. In the present case the transaction in question was clearly not for the sole benefit of the Compania Agricola de Ultramar; it was evidently for the benefit of both parties. Neither could the alleged depositor demand payment until the expiration of the term of three months.

10

IV.

Bank deposits are in the nature or irregular deposits

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, G.R. No. L-60033 April 4, 1984

FACTS:

Clemente David invested with the Nation Savings and Loan Association, Inc. (NSLA) from March 20, 1979 to march 1981the following: o Nine deposits with a sum total of P1,145,546.20; o Joint Savings account with his sister, Denise Kuhne, P13,531.94; o Time deposit, US$10,000.00; o US$15,000.00 under a receipt and guarantee of payment; o US$50,000.00 under a receipt dated June 8, 1980 (jointly with Denise Kuhne.) However, On March 21, 1981, NSLA was placed under receivership by the Central Bank. Hence, David filed claims for his investments and those of his sister. On July 22, 1981, David received a report from the Central Bank that only P305,821.92 of those investments were entered in the records of NSLA. Thereafter, David demanded for the remaining balances of his investments but Guingona Jr., who was then NSLA President, paid only P200,000.00. On December 23,1981, private respondent David filed an action charging the directors and officers of NSLA with estafa for misappropriating the balance of the investments, at the same time violating Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions; The NSLA officers, Martin and Santos, filed a joint counter-affidavit in which they stated the following: Due to insufficiency of bank funds, Davids investments were treated as special- accounts with interest above the legal rate, and was recorded in separate confidential documents only a portion of which were to be reported because David did not want the Australian government to tax his total earnings (nor) to know his total investments; that all transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of Santos; David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because NSLA did not have one; that a draft of US$30,000.00 was placed in the name of one Paz Roces because of a pending transaction with her; Moreover, the Philippine Deposit Insurance Corporation had already reimbursed David within the legal limits;

After NSLA was placed under receivership, Martin executed a promissory note in David's favor and caused the transfer to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of P510,000.00; And that the liabilities of NSLA to David were civil in nature. On the other hand, Guingona, Jr., filed a counter-affidavit alleging that he had resigned as NSLA president in March 1978, or prior to those transactions, but assumed thereafter a portion of the liabilities of NSLA as per Davids insistence by binding himself to pay David the sums of P668.307.01 and US$37,500.00 in stated installments through Promissory Note dated June 17, 1981 secured with mortgages over two (2) parcels of land in which it was provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of the obligation to David. Guingona, Jr. further alleged that he paid P200,000.00 and tendered another P300,000.00 which David refused to accept. Hence, a Civil Case was filed by Guingona to effect the release of the mortgage over one (1) of the two parcels of land conveyed to David under second mortgages. At the inception of the preliminary investigation, The NSLO officers moved to dismiss the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was itself novated, but was denied. But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account allegedly showed that the transactions between David and NSLA were simple loans. (b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were not record.

ISSUE: Whether or not the transactions between David and NSLA were simple loans which are civil in nature, and not estafa. RULING: There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public respondents have no jurisdiction over the charge of estafa. It must be pointed out that when private respondent David invested his money with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that: Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan.

11

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that: Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the deposit. Hence, the relationship between the private respondent and the NSLA is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction.

But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor.

Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court. In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation.

Petitioners herein were likewise charged with violation of Section 3 of CB Circular No. 364 and other related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by respondent David for deposit were all converted into Philippine currency before acceptance and deposit into Nation Savings and Loan Association.

In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should be restrained from further proceeding with the criminal case for to allow the case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper administration of justice.

12

EASTERN SHIPPING LINES, INC., petitioner, vs.CAAND MERCANTILE INSURANCE COMPANY, INC., respondents. December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET"owned by defendant Eastern Shipping Lines. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants. ISSUE:a) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (b) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The legal interest to be paid is (6%) on the amount due computed from the decision dated 03 February 1988. A 12% interest, in lieu of (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. Eastern Shipping Lines being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this case. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. By way of clarification and reconciliation, the following are rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages"of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.In the absence of stipulation, the rate of interest shall be 12% per annumto be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annumfrom such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

13

Ramos vs Central Bank of the Phil. G R No. L-29352

Facts:

Petitioners are the majority and controlling stockholders of the Overseas Bank of Manila (OBM). The OBM was opened for business on January 6, 1964 with authorized capital of 30 million, 10 million subscribed and 8 million thereof paid, but had been suspended by respondent from clearing with the Central Bank and from lending operations for various violations of the banking laws and implementing regulations. Petitioners charged that the OBM became financially distressed because of this suspension and deprivation by the CB of all the usual credit facilities and accommodations accorded to the other banks. Resolution No.1290 was issued to grant the authority to the OBM Board of Directors to suspend operation thereof. Before the issuance of the said resolution, OBM made an advances and loans during its closure from Aug 2 1968 to Jan 8 1981.

Issue: W/N the OBM is liable to the CB on the loans and advances made during its closure.

Ruling:

No. Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its Resolution at bar that the Tapia ruling as reaffirmed by the aforecited cases is fully applicable to the non-payment of interest, during the period of the bank's forcible closure, on loans and advances made by respondent Central Bank. Respondent Central Bank itself when it was then managing the Overseas Bank of Manila (now Commercial Bank of Manila) under a holding trust agreement, held the same position in Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein it argued in its brief that "(I)n a suit against the receiver of a national bank for money loaned to the Bank while it was a going concern, it was error to permit plaintiff to recover interest on the loan after the bank's suspension" (citing Zollman Banks and Banking). In Pablo R. Roman et al vs. Central Bank (CA-G.R. No. 49144-R, October 18, 1973, per then Court of Appeals Justice Hermogenes Concepcion, Jr.), the appellate court by final judgment affirmed the trial court's judgment ordering appellant Central Bank to condone all interests on Central Bank loans to the Republic Bank, as well as penalties imposed on it which would be tantamount "to force the Republic Bank to liquidate as an insolvent." It should be further noted that the respondent Central Bank when called upon to deal with commercial banks and extend to them emergency loans and advances, deals with them not as an ordinary creditor engaged in business, but as the ultimate monetary authority of government charged with the supervision and preservation of the banking system.

14

GOPOCO GROCERY (GOPOCO), ET AL. vs. PACIFIC COAST BISCUIT CO., ET AL. 31, 1938

G.R. Nos. L-43697 and L-442200 March

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Facts:

Mercantile Bank of China was declared in liquidation as it could not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers. Gopoco Grocery, Et Al alleged that they deposited sum of money in the bank under liquidation on current account.

To resolve these claims, Fulgencio Borromeo was appointed as commissioner and referee to receive the evidence which the interested parties may desire to present. Borromeo resolved the claims by recommending that the same be considered as an ordinary credit only, and not as a preferred credit as Gopoco Grocery, Et Al wanted, because they were at the same time debtors of the bank.

Gopoco Grocery, Et Al contends that they are preferred credits because they are deposits in contemplation of law, and as such should be returned with the corresponding interest thereon.

Issue:Whether or not deposits on current account in the bank now under liquidation be considered preferred credits or should they be considered ordinary credits only?

Ruling: Deposits on current account in the bank now under liquidation are considered ordinary credits only.

Gopoco Grocery, Et Al themselves admit that the bank owes them interest which should have been paid to them before it was declared in a state of liquidation. This fact undoubtedly destroys the character which they nullifies their contention that the same be considered as irregular deposits, because the payment of interest only takes place in the case of loans.

The so-called current account and savings deposits have lost their character of deposits and are convertible into simple commercial loans because, in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes, but precisely because of the authority deemed to have been granted to it by Gopoco Grocery, Et Al to enable them to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by Corporation Law and Banking Law.

Wherefore, deposits on current account of Gopoco Grocery, Et Al in the bank under liquidation, with the right on their part to collect interest, have not created and could not create a juridical relation between them except that of creditors and debtor, they being the creditors and the bank the debtor.

15

Karen Mae M. Maliones Credit Transactions

Pogi Boys Squad (Project No. 1)

HERRERA VS. PETROPHIL CORPORATION No. L-48349, December 29, 1968 146 SCRA 385

Facts:

Francisco Herrera and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease Agreement" whereby Herrera leased to the latter a portion of his property for a period of twenty (20) years.

The Lease Agreement contained a stipulation to the interest which state that the Lessor is paid 8 years advance rental based on P2, 930.70 per month discounted at 12% interest per annum or a total net amount of P130, 288.47 before registration of lease.

Petrophil paid to Herrera advance rentals for the first eight years, subtracting there from the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47, however explaining that there has been mistake in computation in the additional sum of P2,182.70, Petrophil paid to the appellant the amount of only P98,828.03.

Herrera sued Petrophil for the sum of P98,828.03, with interest, claiming this had been illegally deducted from him in violation of the Usury Law. Petrophil argued that the amount deducted was not usurious interest but a given to it for paying the rentals in advance for eight years. The Trial Court rendered Judgment in favor of Petrophil.

Issue:

Whether or not the interest was excessive and violative of the Usury Law?

Ruling:

Herrera argued that the interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest should be computed excluding the first year rental because at the time the amount of P281, 199.20 was paid it was already due under the lease contract hence no interest should be collected from the rental for the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20. The elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; (3) that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared. The contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute indebtedness on the part of the lessor.

16

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount which the plaintiffappellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law. To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law."

17

LOANERS Project No. 1 (Alderite, Alfaras, Padawag, Perez, and Villanueva) (Obligation to pay even security is lost) G.R. No. L-20240 December 31, 1965

REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellee, vs. JOSE GRIJALDO, Defendant-Appellant. FACTS:

In the year 1943, appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. This was evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd. All notes are without due dates, because the loans were due one year after they were incurred.

However, to secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws

On September 29, 1954 the Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. But Jose Grijaldo failed to pay.

The five loans in question, were computed under the Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of December 31, 1959 was P2,377.23.chanro

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. Appellee appealed to the Court of First Instance of Negros Occidental and the court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs.

Appellant appealed directly to the Supreme Court. During the pendency of the appeal, the appellant Jose Grijaldo died. The legal heirs of Jose Grijaldo appeared and were substituted as appellants.

Issue: Whether or not the lost of the crops growing at appellants land as security for the fulfillment of appellants obligation extinguishes his obligation to pay.

HELD: The appellant maintains, in support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action, his obligation to pay the loans was thereby extinguished.

18

This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing - the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money - a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops. (In loan, there is no estafa by conversion) G.R. No. 84719 August 10, 1989 YONG CHAN KIM, Petitioner, vs. PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and COURT OF APPEALS (13th Division), SOUTHEAST ASIAN FISHERIES DEVELOPMENT CENTER AQUACULTURE DEPARTMENT (SEAFDEC), Respondents. FACTS: Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn surveys which required him to travel to various selected provinces in the country where there are potentials for prawn culture. On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses. Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received a cash advance of P495.00. On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total amount in the form of per diems and allowances charged and collected by petitioner under Travel Order No. 2222, when he did not actually and physically travel as represented by his liquidation papers, was P1,230.00. Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to compensate for the trips he failed to undertake under T.O. 2222 because he was recalled to the head office and given another assignment. In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo. ISSUE: Whether or not petitioner can be held criminally liable on the ground of failure to liquidate her traveling expenses. NO. RULING: It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another assignment which was covered by T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code. In order that a person can be convicted under the above-quoted provision, it must be proven that he had the obligation to deliver or return the same money, good or personal property that he had received. Was petitioner under obligation to return the same money (cash advance) which he had received? We believe not. Liquidation simply means the settling of indebtedness. An employee, such as herein petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan of money advanced to him by his employer, as per diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received is less than the amount he spent for actual travel . . . he has the right to demand reimbursement from his employer the amount he spent coming from his personal funds. In other words, the money advanced by either party is actually a loan to the other. Hence, petitioner was under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from the private respondent.

19

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred to the latter is erroneous. Ownership of the money was transferred to the petitioner. Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship was created. Absent this fiduciary relationship between petitioner and private respondent, which is an essential element of the crime of estafa by misappropriation or conversion, petitioner could not have committed estafa. Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted correspondingly from the salary of the employee concerned. The evidence shows that the corresponding salary deduction was made in the case of petitioner vis-a-vis the cash advance in question. (Failure of bank to return the amount deposited, not a case of estafa) G.R. No. L-60033 April 4, 1984 TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, Petitioners, vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, Respondents.chanrobles virtual law library Facts: A complaint for Estafa was filed on the December 23, 1981 with the Office of the City Fiscal of Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and Loan Association. The complaint shows that from March 20, 1979 to March, 1981, private respondent David, together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29742, or a total of P1,159,078.14. It appears further that private respondent David, together with his sister, made investments in the aforesaid bank in the amount of US$75,000.00. When the aforesaid bank was placed under receivership on March 21, 1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00. The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20. Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent. The aforesaid promissory notes were executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and Loan Association. ISSUE: Whether or not the failure of the bank to return the amount deposited will constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code. HELD: NO. It must be pointed out that when private respondent David invested his money on time and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that: Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan. In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], the court said: It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are considered simple loans and, as such, are not preferred credit. The Court also declared in the case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that: Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans

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(Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the deposit (Emphasis supplied). Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction. The Court had already laid down the rule that: In order that a person can be convicted under the above-quoted provision, it must be proven that he has the obligation to deliver or return the some money, goods or personal property that he received Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly as stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code. "Art. 1933. - By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time- and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall he 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. library "In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to the borrower. "Art. 1953. - A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum the borrower acquires ownership of the money, goods or personal property borrowed being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979].) (Currency for payment of loan) G.R. No. L-1927 May 31, 1949

CRISTOBAL RONO, Petitioner, vs. JOSE L. GOMEZ, ET AL., Respondents. Facts:

Cristobal Roo loaned the sum of four thousand pesos (P4,000) in Japanese fiat money from Jose Gomez. Roo agreed to pay his debt one year after date in the currency prevailing. It was also agreed that the loan shall not earn any interest. Furthermore, the Promissory Note signed by Rono contained this provision:

In consideration of this generous loan, I renounce any right that may come to me by reason of any postwar arrangement, of privilege that may come to me by legislation wherein this sum may be devalued. I renounce flatly and absolutely any condition, term right or privilege which in any way will prejudice the right engendered by this agreement wherein Atty. Jose L. Gomez will receive by right his money in the amount of P4,000. I affirm the legal tender, currency or any medium of exchange, or money in this sum of P4,000 will be paid by me to Jose L. Gomez one year after this date, October 5, 1944.

After the liberation, Roo was sued for payment. He claimed that his liability should not exceed the equivalent of 4,000 pesos mickey mouse money and could not be 4,000 pesos Philippine currency because the contract would be void as contrary to law, public order, and good morals.

After the corresponding hearing, the court ordered the defendant Roo to pay four thousand pesos in Philippine currency with legal interest from the presentation of the complaint plus costs.

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Issue:

Whether or not the contract is contrary to usury law for having interest greatly in excess of the lawful rates.

Held: No, the contract is not contrary to the Usury Law. Roo asserts this contract is contrary to the Usury law, because on the basis of calculations by Government experts he only received the equivalent of one hundred Philippine pesos and now he is required to disgorge four thousand pesos or interest greatly in excess of the lawful rates. But he is not paying interest. Precisely the contract says that the money received "will not earn any interest." Furthermore, he received four thousand pesos; and he is required to pay four thousand pesos exactly. The increased intrinsic value and purchasing power of the current money is consequence of an event (change of currency) which at the time of the contract neither party knew would certainly happen within the period of one year. They both elected to subject their rights and obligations to that contingency. If within one year another kind of currency became legal tender, Gomez would probably get more for his money. If the same Japanese currency continued, he would get less, the value of Japanese money being then on the downgrade.

The eventual gain of Gomez within this transaction is not interest within the meaning of the Usury Law. Interest is some additional money to be paid in any event, which is not the case herein, because Gomez might have gotten less if the Japanese occupation had extended to the end of 1945 or if the liberation forces had chosen to permit the circulation of the Japanese notes.

Moreover, Roo argues, the deal was immoral because taking advantage of his superior knowledge of war developments Gomez imposed on him this onerous obligation.

In the first place, the Court of Appeals found that he voluntary agreed to sign and signed the document without having been misled as to its contents and "in so far as knowledge of war events was concerned" both parties were on "equal footing".

In the second place although on October 5, 1944 it was possible to surmise the impending American invasion, the date of victory or liberation was anybody's guess. In the third place there was the possibility that upon-re-occupation the Philippine Government would not invalidate the Japanese currency, which after all had been forced upon the people in exchange for valuable goods and property. The odds were about even when Roo and Gomez played their bargaining game. There was no neither overreaching, nor unfair advantage. Again Roo alleges it is immoral and against public order for a man to obtain four thousand pesos in return for an investment of forty pesos (his estimate of the value of the Japanese money he borrowed). According to his line of reasoning it would be immoral for the homeowner to recover ten thousand pesos (P10,000,) when his house is burned, because he invested only about one hundred pesos for the insurance policy. And when the holder of a sweepstakes ticket who paid only four pesos luckily obtains the first prize of one hundred thousand pesos or over, the whole business is immoral or against public order. In this connection we should explain that this decision does not cover situations where borrowers of Japanese fiat currency promised to repay "the same amount" or promised to return the same number of pesos "in Philippines currency" or "in the currency prevailing after the war." There may be room for argument when those litigations come up for adjudication. All we say here and now is that the contract in question is legal and obligatory.

(Cashiers check is not legal tender) G.R. No. 100290 June 4, 1993 NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, Petitioners, vs. THE HONORABLE COURT OF APPEALS and EDEN TAN, Respondents.chanrobles virtual law library Facts: Case 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses (Norberto Jr. and Carmen). A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial Court (RTC) of Kalookan City in the amount of P442,750.00 in another case, had been garnished by him.

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On 10 March 1988, the RTC, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case 54863 in favor of Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of P300,000.00. On appeal, the Court of Appeals modified the decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of the RTC of Pasig, Metro Manila, were levied upon. On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the following form: (1) Cashier's Check worth P262,750.00, and (2)Cash in the amount of P135,733.70 (Totalling P398,483.70).

Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of the RTC of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, the spouses filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other than the defendant. A motion for reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not payment in legal tender as required by Republic Act 529. The motion for reconsideration was denied on 27 May 1991. The spouses filed the petition for review. Issue: Whether payment by means of check (even by cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act 529, and the Central Bank Act. Held: Article 1249 of the Civil Code which provides that "The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance." Section 1 of Republic Act 529, as amended, on the other hand, provides that "Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy, null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts." Also, Section 63 of Republic Act 265, amended (Central Bank Act) which provides that "Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account." Further, in the recent cases of Philippine Airlines, Inc. vs. Court of Appeals (GR 49188, 30 January 1990, 181 SCRA 557) and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court (GR 72110, 16 November 1990, 191 SCRA 411), the Court held that "A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor."

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The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager's, cashier's or personal check. In the more recent case of Fortunado vs. Court of Appeals (GR78556, 25 April 1991, 196 SCRA 269), the Court stressed that, "We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor."

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G.R. No. 100290 June 4, 1993 NORBERTO TIBAJIA, JR. and CARMEN vs. THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents. Facts: A suit for collection of sum of money was ruled in favor of Eden Tan and against the spouses Norberto Jr. and Carmen Tibajia. After the decision was made final, Tan filed a motion for execution and levied upon the garnished funds which were deposited by the spouses with the cashier of the Regional Trial Court of Pasig. The spouses, however, delivered to the deputy sheriff the total money judgment in the form of Cashiers Check (P262,750) and Cash (P135,733.7). Tan refused the payment and insisted upon the garnished funds to satisfy the judgment obligation. The spouses filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. The motion was denied. Issue: Whether the spouses have satisfied the judgment obligation after the delivery of the cashiers check and cash to the deputy sheriff. Held: A check whether a managers check or ordinary check, is not legal tender, and offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Under the following provisions of law, it is clear that the petition must fail. Article 1249 of the Civil Code which provides: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.; b. Section 1 of Republic Act No. 529, as amended, which provides: Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts. c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides: Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. TIBAJIA, petitioners,

G.R. No. L-47878

July 24, 1942

GIL JARDENIL, Plaintiff-Appellant, vs. HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), Defendant-Appellee.

Facts: The defendant-appellee mortgaged a property in favor of the plaintiff-appellant to secure the payment of the promissory note issued by the former. In the contract, the parties agreed upon that defendant-appellee would pay interest only up to the date of maturity, or until March 31, 1934. In addition, the mortgage deed provided an act of granting to the mortgagor an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period. The defendant-appellee failed to pay his whole obligation at the date of maturity. The plaintiff-appellant herein asserted that since defendant-appellee failed to pay at maturity, the latter should also pay the interest up to the date of payment of the whole indebtedness is made. However, the defendant-appellee objected to the assertion of the plaintiff-appellant claiming that as per agreed upon, he is only bound to pay the stipulated interest up to the date of maturity. Nothing in their contract which stated that he will still be bound to pay the interest up to the date of payment is effected.

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Hence, the plaintiff-appellant filed the instant case.

Issue: Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected?

Held: No. The contract clearly showed that the parties agreed that defendant-appellee would pay interest only up to the date of maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." Nothing in the mortgage deed showed that the parties agreed of any interest which the mortgagor should pay during the additional period. This fact indicates that the true intention of the parties was that no interest should be paid during the period of grace. Hence, plaintiff is entitled only to the stipulated interest of 12% on the loan of P2, 400 from November 8, 1932 to March 31, 1934.

G.R. No. L-38745 August 6, 1975 LUCIA TAN, plaintiff-appellee, vs. ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.

Facts:

That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed two documents of DEED OF PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of two portions of a parcel of land which is described in the second cause of action with the total amount of ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine Currency, copies of said documents are marked as 'Annex D' and Annex E', respectively and made as integral parts of this stipulation of facts.

That from the execution of the Deed of Sale with right to repurchase mentioned in the second cause of action, defendants Arador Valdehueza and Rediculo Valdehueza remained in the possession of the land; that land taxes to the said land were paid by the same said defendants.

The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August 5, 1955) was not registered in the Registry of Deeds, while the Deed of Pacto de Retro referred to as "Annex E" (dated March 15, 1955) was registered.

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The regional trial court rendered the following decisions: 1.) Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and severally to pay to the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with legal interest of 6% as of August 15, 1966 and 2.) as regards the land covered by deed of pacto de retro annex 'D', the herein defendants Arador Valdehueza and Rediculo Valdehueza are hereby ordered to pay the plaintiff the amount of P300 with legal interest of 6% from August 15, 1966.

Issue: Whether or not interest may be collected in an equitable mortgage.

Held: No

The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest shall be due unless it has been expressly stipulated in writing." (Article 1956, new Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a consolidation of ownership, which was properly rejected, the contracts being equitable mortgages.

With the definitive resolution of the rights of the parties as discussed above, we find it needless to pass upon the plaintiffs petition for receivership. Should the circumstances so warrant, she may address the said petition to the court a quo.

EVELYN J. SANGRADOR, joined by her husband RODRIGO SANGRADOR, vs. SPOUSES FRANCISCO VALDERRAMA and TERESITA M. VALDERRAMA, respondents. TOPIC: HIDDEN INTEREST IS NO INTEREST AT ALL FACTS:

SR.,

petitioners,

The defendants-spouses Francisco and Teresita Valderrama obtained a P500, 000 loan from Manuel Asencio payable on or before April 12, 1984, and secured by a real estate mortgage on their house and 3 lots. Foreseeing that they would not be able to pay the loan and redeem their property upon maturity of the loan, through the help of a loan broker, they were able to obtain on April 6, 1984 a P1, 000,000 loan from the plaintiff Teresita Sangrador, on the security of the same property which they redeemed from Asencio. The loan is evidenced by the following promissory note dated April 6, 1 984 providing for the payment of P1, 400,000 to the creditor eight months after date'. FOR VALUE RECEIVED, we jointly and severally promise to pay EVELYN J. SANGRADOR, or order, at her address at No. 2 Locsin Street, Molo, Iloilo City, Philippines, the sum of ONE MILLION FOUR HUNDRED THOUSAND PESOS (P1, 400,000.00) Philippine Currency, EIGHT (8) MONTHS after date without need of demand. The spouses Valderrama alleged that the actual amount received by them is only P1, 000,000.00.

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A check was issued by Sangador to Asencio amounting to P625, 000 to redeem the spouses property from Asencio. This was evidenced by a receipt. The balance of the P307, 601.40 was delivered by Sangador to the spouses which was also evidenced by a receipt. When the spouses failed to pay the P 1,400,000 loan stated in the promissory note despite demands a complaint for judicial foreclosure of the real estate mortgage was filed against them. Sangrador alleged that aside from the amounts of the check (P625, 000 and P307, 601.40); she also delivered a P400, 000 cash to the spouses for which no receipt was issued. ISSUE: Whether or not the loan obtained by private respondents from petitioners was in the amount of P1, 400,000.00 or P1, 000,000.00 only. RULING: The amount loaned was only P1, 000,000.00. The documentary evidence preponderantly proves that the loan was only P1, 000,000, not P1, 400,000. The checks and receipts and the broker's computations show clearly that the loan was only P1, 000,000. The circumstance that the alleged payment of P400, 000 in cash to the debtors is not evidenced by a receipt is conclusive proof that it was not a part of the loan. The loan was only P1 million. Obviously, the P400, 000 that was added to the principal represents a hidden interest charge for the promissory note contains no express provision fixing the rate of interest on the loan. In short, we agree with the finding of the Court of Appeals that the disputed amount of P400, 000.00 was a hidden interest that the petitioners had required the respondents to pay at the maturity of the loan, but said amount of P400, 000.00 was not received by or delivered to the respondents. This conclusion is strengthened by the fact that the promissory note and the deed of real estate mortgage, strangely enough, do not contain any express stipulation on interest, or rate of interest, when the loan involved therein is in the substantial amount of allegedly P1, 400,000.00. Petitioners may conceivably argue that, granting that the disputed amount of P400, 000.00 is interest on the loan of P1, 000,000.00, yet, in line with this Court's decision in Liam Law vs. Oriental Sawmill Co., et al., 11 there is no longer any ceiling on interest or interest rates on loans. This may be so in a situation where the parties openly and expressly agree on a specific rate of interest to accrue on the loan but, as the Court of Appeals in its decision under review correctly pointed out, in the case at bar, no interest rate is expressly stipulated in the promissory note and deed of real estate mortgage. Circular No. 905 of the Central Bank dated 10 December 1982 provides: Section 1. The rate of interest, including commissions, premiums, fees and other charges on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury law, as amended. Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent (1 2%) per annum. (Emphasis supplied) The rate of interest for loans or forbearance of money, in the absence of express contract as to such rate of interest, shall continue therefore to be twelve per cent (12%) per annum. 12 Accordingly, the loan of P1, 000,000.00 in the instant case should earn a twelve per cent (12%) interest per annum computed from 6 April 1984 when the loan was obtained by the respondents from the petitioners until paid.

G.R. No. L-60705 June 28, 1989 INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS, respondents. FACTS: Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in the amount of P 500,000.00. and was issued a Certificate of Time Deposit No. 2308. Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant OBM in the amount of P 200,000.00 OBM and was issued certificate of Time Deposit No. 2367. Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. Santos, applied for a loan and/or credit line in the amount of P 700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a Deed of Assignment of the two time deposits in favor of plaintiff. Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967. On the same date, defendant IRC thru its President Raul L. Santos, also executed a Deed of Conformity to Loan Conditions . The defendant OBM after the due dates of the time deposit certificates, did not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul L. Santos and from defendant OBM. Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates. On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest as well as attomey's fees. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos' time deposit certificates with interest, plus exemplary and corrective damages, attorney's fees, and cost. ISSUE: WON the liability of IRC and Santos with PNB should be considered to have been paid by virtue of the deed of assignment made by the former in favor of PNB.

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HELD: in the case at bar it would not have been necessary on the part of IRC and Santos to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos was really intended as an absolute conveyance. There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. For all intents and purposes, the deed of assignment in this case is actually a pledge. Facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 11 The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement 12 was complied with by the execution of the deed of assignment in favor of PNB. It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in the present case. Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in the present case. Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. 2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for the first time in this petition. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution, but not the veracity or validity thereof. 3. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business, the answer is in the negative. Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of the payment of the interest here in question, stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation of the bank's operation, not different, factually speaking, in its effects, from legal liquidation the factual cessation having been ordered by the Central Bank. It appears that as early as April, 1967, the financial situation of OBM had already caused mounting concern in the Central Bank. 14 On December 5, 1967, new directors and officers drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) were elected and installed and they took over the management and control of the Overseas Bank. 15 However, it was only on July 31, 1968 when OBM was excluded from clearing with the CB under Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB OBM's operations were suspended. 16 These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in the decision rendered in the herein cited case of Ramos. Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. 17 When respondent Santos invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum, 18 not a contract of deposit. While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. 19 OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extra-judicial demand is made, 20 Which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. 21 The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates of deposit 22 Which is six and onehalf percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand. 23 We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they may be adjudged to pay PNB. It must be noted that their liability to pay the various interests of nine percent (9%) on the principal obligation, one and one-half percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM was never a party to Id promissory notes. There is, therefore, no privity of

29

contract between OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case. In fact, as noted by respondent court, when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed reimbursement, IRC and Santos did not dispute that objection of OBM Besides, IRC and Santos are not without fault. They likewise acted in bad faith when they refuse to comply with their obligations under the promissory notes, thus incurring liability for all damages reasonably attributable to the non-payment of said obligations.

30

Pajuyo vs. CA & Guevarra Facts: Pajuyo and Guevarra executed a Kasunduan. Pajuyo, as owner of a house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand. After some time, Pajuyo informed Guevarra of his need of the house, however, Guevarra refused to vacate the house. Hence, Pajuyo filed an ejectment case against Guevarra in the MTC. The MTC ruled in favor of Pajuyo and ordered Guevarra to vacate the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal. The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. However, the Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain. Issue: Whether or not the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the MTC. Ruling: No. 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. 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. These contracts certainly involve the obligation to deliver or return the thing received.

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LUCHIE G. SASING Group Name: Fame and Fist (Project No.1)

QUINTOS vs. BECK

G.R. No. L-46240

November 3, 1939

Facts: Beck is a tenant of Quintos. Quintos granted Beck the use of the furniture found in the leased house, among these were 3 gas heaters and 4 electric lamps. Quintos sold the pieces of furniture to Lopez and thereafter notified Beck of the conveyance. Beck informed Quintos that the latter can get the furniture at the ground floor of the house. However, at a later date, Beck told Quintos that he will not return the furniture until after the expiration of lease contract. When the lease contract expired, Beck deposited the furniture to Sheriffs warehouse.

Issue:

Whether or not Beck complied with his obligation to return the furniture upon Quintos demand? No.

Held:

The contract entered into between the parties is one of commodatum. Under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof and by this contract, the defendant bound himself to return the furniture to the plaintiff, upon the latters demand.

The obligation voluntarily assumed by Beck to return the furniture upon the plaintiffs demand means that he should return ALL of them to plaintiff AT THE BAILORSS RESIDENCE OR HOUSE. However, Beck did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the 3 gas heaters and 4 electric lamps.

Thus, in this case, the Court ordered Beck to return and deliver to Quintos all the furniture the latter gratuitously granted for the use of the former and to also pay for the cost of the delivery.

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G.R. No. L-46145 November 26, 1986 REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner, vs. CA, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY, ET AL., respondents.

FACTS: Respondents, Baloy,et al., applied for land registration. Their claim is anchored on their possessory information title coupled with their continuous, adverse and public possession over the land in question.

The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the Philippine Commission which declared the area within the U.S. Naval Reservation. Under Act 627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their application, (that is within 6 months from July 8, 1905) otherwise "the said lands or interest therein will be conclusively adjudged to be public lands and all claims on the part of private individuals for such lands or interests therein not so presented will be forever barred." Petitioner argues that since Domingo Baloy failed to file his claim within the prescribed period, the land had become irrevocably public and could not be the subject of a valid registration for private ownership.

The applicants interposed an appeal to the Court of Appeals. The appellate court rendered a decision reversing the decision appealed from and approved the application for registration. Oppositors (petitioners herein) filed their Motion for Reconsideration alleging among other things that applicants' possessory information title can no longer be invoked and that they were not able to prove a registerable title over the land. Said Motion for Reconsideration was denied, hence this petition for review on certiorari.

ISSUE: Whether or not the occupancy of the U.S. Navy divested respondents Baloy of a registrable title over the land.

RULING:

NO.

The finding of respondent court that during the interim of 57 years from November 26, 1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were merely suspended and not lost by prescription, is supported by Exhibit "U," a communication or letter No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of the Philippines with regard to the status of the land in question. Said letter recognizes the fact that Domingo Baloy and/or his heirs have been in continuous possession of said land since 1894 as attested by an "Informacion Possessoria" Title, which was granted by the Spanish Government. Hence, the disputed property is private land and this possession was interrupted only by the occupation of the land by the U.S. Navy in 1945 for recreational purposes. The U.S. Navy eventually abandoned the premises. The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so since the abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and this place is remote from the land in question.

Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-interest. One's ownership of a thing may be lost by prescription by reason of another's possession if such possession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

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REPUBLIC OF THE PHILIPPINES vs BAGTAS G.R. No. L-17474 October 25, 1962

Facts:

Jose V. Bagtas borrowed from the Bureau of Animal Industry three bulls for breeding purposes subject to a breeding fee of 10% of the book value of the bulls. The borrower asked for its renewal upon the expiration of the contract. However, Secretary of Agriculture and Natural Resources approved the renewal of only one bull and requested for the return of the other two.

Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. The Secretary of Agriculture and Natural Resources advised him that his request for the deduction of the book value of the bulls cannot be granted. Bagtas can either pay the bull in accordance with their book value or return then. However, Bagtas failed to neither pay the bulls nor return them.

Thus, the republic of the Philippines commenced asking Bagtas to return the bulls or pay for their book value and the breeding fee.

Bagtas replied that due to the bad peace and order situation in Cagayan Valley, he could not return the animals nor pray for their value. When Jose Bagtas died, he was succeeded by his surviving spounse, Felicidad. She filed a motion saying that the two bulls were already returned and the third one died due a gunshot wound during a Huk raid.

Bagtas contends that the unreturned bull was accidentally killed during a raid by the Huk in and as such the death was due to force majeure. Thus, she is relieved from the duty of returning the bull or paying its value to the appellee. Bagtas contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure.

Issue:

1) Whether or not the contract entered into by Republic and Bagtas is commodatum. NO. 2) Whether or not Bagtas is liable for the loss of the bull. Yes.

Ruling:

1) A contract of commodatum is essentially gratuitous. The loan entered into by the parties was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. If the breeding fee be considered compensation, then the contract would be a lease of the bull. The contract cannot be considered as a commodatum since that contract is essentially gratuitous.

2) 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, 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;

From the fact of the case, Bagtas only has the right to have the bull in his possession until May 8, 1950. However, Bagtas kept and used the bull until November of 1953 when the bull was killed during a Huk raid. Thus, Bagtas is not relieved from liability even if the bull was killed due to a fortuitous event. It was also 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.

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Money Market Transactions Partakes of Nature of Loan

G.R. No. 84096 January 26, 1995

RAUL H. SESBRENO, petitioner, vs. HONORABLE COURT OF APPEALS and HERMILO RODIS, SR., respondents.

Facts: Hermilo Rodis, Sr., together with Douglas Sandiego and Ricardo Silverio, Sr., was charged with estafa. It was alleged that they received from Atty. Raul H. Sesbreno the sum of P300,000.00 as money market placement for 32 days at 20% interest with said corporation or a maturity date of March 13, 1981, with the obligation on their part to immediately account for and turn over to said Atty. Raul H. Sesbreno the aforesaid sum of money including the 20% interest upon maturity, or the total sum of P305,333.33 in which they failed to do so.

Rodis moved to quash the information on the ground that the Securities and Exchange Commission not the regular courts, had jurisdiction over the offense charged and that the facts stated herein did not constitute an offense. The trial court denied the motion of Rodis. The CA affirmed the decision of the trial court. A petition for certiorari was filed with the Supreme Court but the petition was denied.

Hence, trial ensued in the criminal case. However, after the prosecution had rested its case Rosis filed a motion to dismiss on demurrer to evidence based on the core proposition that there was no criminal offense of estafa from the non-payment of a money market placement. The motion alleged that Sesbreno had also filed a similar complaint against Elizabeth de Villa involving the same money market placement before the City Fiscal of Cebu; but, upon review of the complaint, then Minister of Justice Estelito Mendoza directed the dismissal of the complaint on the ground that a money market placement partook of the nature of a loan and therefore no criminal liability for estafa could arise from non-payment thereof.

The trial court denied the motion to dismiss of Rodis. So he then filed a petition for certiorari and prohibition before the Intermediate Appellate Court. The appellate court rendered a decision upholding private respondent's contention that a money market placement is in the nature of a loan which entails the transfer of ownership of the money so invested and therefore the liability for its return is civil in nature. Hence, Sesbreno interposed the instant petition in the Supreme Court.

Issue: WON the money market transaction between Sesbreno and Rosis partook of the nature of a loan in which no criminal liability may arise therefrom.

Held: Yes, the money market transaction partook of the nature of a loan. The nature of a money market transaction is explained by the Court in Perez v. Court of Appeals as follows:

. . . .What is involved here in a money market transaction. As defined by Lawrence Smith, "the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtedness of any person or entity . . . which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse." The fundamental function of the money market device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal considerations. The market mechanism is intended "to provide quick mobility of money and securities."

The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it would be expeditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor.

35

The Court of Appeals noted that Rodis was not obliged under the money market transaction to return the same money he had received from petitioner. In fact, Sesbreno admitted on the witness stand that he had "invested" his money; that "he was not concerned about the same money because what is important is the same amount will be returned to me plus its earnings, because naturally when you give the money with the same serial numbers and you entrust it for investment purposes, when it is invested and there are returns, the same money with the same serial numbers will not be returned to you;" and that private respondent would be "held liable to me in case of their failure to account" for the investment.

In money market placement, the investor is a lender who loans his money to a borrower through a middleman or dealer. Hence, Rodis cannot be charge criminally for estafa. The petition is DENIED and the Decision of the Court of Appeals is AFFIRMED in toto..

36

G.R. No. 80294-95 September 21, 1988 CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE VS CA GANCAYCO, J.:

FACTS: Petitioner Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private respondents( Octaviano and Valdez) as owners of the land, neither was it declared that they were not owners of the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.

ISSUE: WON CA ERRED IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BORROWER IN COMMODATUM, A GRATUITOUS LOAN FOR USE.

HELD: No. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

Hence, there is no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a long time ago. Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision may no longer be altered.

37

THE CONSOLIDATED BANK (SOLIDBANK) vs. COURT OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG G.R. No. 91494 July 14, 1995 Justice Quiason

FACTS OF THE CASE:

Defendant George and George Trade Inc., through defendant George King Tim Pua, obtained a loan of P300,000.00 from the plaintiff, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 13.23% per annum.

On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, applied for, and was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and is payable on May 21, 1979.

On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, once more secured a loan for P150,000.00, for which defendant George King Tim Pua executed a promissory note on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and is payable on September 17, 1979.

The three promissory notes covering loans in the corporate account of defendant George and George Trade Inc. provides also that in case of default of payment, the defendants agree to pay interest at an increased rate of 14% per annum on the amount due, compounded monthly, until fully paid, as well as an additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to expenses and costs of suit, such amount to bear interest at the rate of 1% per month until paid.

Under the two promissory notes the defendants further bound themselves to pay a penalty at the rate of 3% per annum on the amount due until fully paid. According to petitioner bank, after it had deducted from the insurance proceeds the entirety of respondent George King Tim Pua's personal account, there remained of the insurance proceeds the amount of P383,302.42. It then proceeded to apply said amount to the unpaid loans of respondent George and George Trade, Inc. which amounted to P671,772.22 as of September 7, 1979, thus leaving a balance of P288,469.80 of the loans.

Hence, Petitioner instituted an action against private respondents for the recovery of the unpaid balances on the three promissory notes ISSUE OF THE CASE:

Whether or not compounded interest are proper. Whether or not the handling charge imposed by the bank are legal

RULING OF THE SUPREME COURT:

No. Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8, 1979 until said amount is fully paid.

RATIONALE:

All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on the part of respondent George King Tim Pua to pay on maturity. In which case, he further undertook to pay an additional sum equivalent to 10% of the total amount due but in no case less than P200.00 as attorney's fees. The maturity dates of the loans were extended up to either December 1 or December 5, 1977 and all interests were paid up to March 5, 1978.

38

The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to pay on due date, compounded monthly, until fully paid. An additional amount equivalent to 10% of the total amount but not less than P200.00 was to be imposed in case of failure to pay on due date as attorney's fees. The second and third loans bore an interest rate of 14% per annum and carried a penalty of 3% per annum on the amount due in case of failure to pay on the date of maturity. An additional sum equivalent to 10% of the total amount due, but not less than P200.00, was to be imposed as and for attorney's fees. Interests were paid on the loans up to their date of maturity.

The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as amended. The charging of compounded interest has been held as proper as long as the payment thereof has been agreed upon by the parties. In Mambulao Lumber Company v. Philippine National Bank, 22 SCRA 359 (1968), SC ruled that the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest. In the instant case, private respondents agreed to the payment of 14% interest per annum, compounded monthly, should they fail to pay the principal loan on the date of maturity.

As to handling charges, banks are authorized under Central Bank Circular No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2% per annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. Petitioner bank cannot, therefore, charge private respondents such handling charges.

The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is iniquitous or unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The payment of penalty was provided for under the terms and conditions of the promissory notes for Loans B and C of George and George Trade, Inc. The penalty actually imposed, being only 3% per annum of the unpaid balance of the principal of said Loan B, is considered reasonable and proper.

39

SPOUSES MARIANO and GILDA FLORENDO v. CA and LAND BANK OF THE PHILIPPINES G.R. No. 101771, Dec. 17, 1996 Justice Panganiban

May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the voluntary resignation of the borrower?

FACTS OF THE CASE:

Petitioner Gilda Florendo was an employee of Respondent Bank from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from respondent bank's Provident Fund on July 20, 1983. On March 19, 1985, respondent bank increased the interest rate on petitioner's loan from 9% per annum to 17%, the said increase to take effect on March 19, 1985. The increased in the interest rate was based on the details embodied in Landbank's ManCom Resolution No. 85-08 and in a PF (Provident Fund) Memorandum Circular (No. 85-08, Series of 1985)

The trial court ruled in favor of respondent bank, and held that the bank was vested with authority to increase the interest rate (and the corresponding monthly amortizations) pursuant to said escalation provisions in the housing loan agreement and the mortgage contract. Petitioners appealed, arguing that the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses.

ISSUE OF THE CASE:

Did the respondent bank have a valid and legal basis to impose an increased interest rate on the petitioners' housing loan?

RULING OF THE SUPREME COURT: Supreme Court note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it does not make any reference to increases or decreases in the interest rate on loans. However, paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision, and therefore, the parties were and are bound by the said stipulation that "(t)he rate of interest charged on the obligation secured by this mortgage shall be subject, during the life of this contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee (respondent bank) may prescribe for its debtors." Contrary to petitioners' allegation, there is no vagueness in the aforequoted proviso. In Banco Filipino v. Navarro (152 SCRA 346,353 [1987]), Supreme Court ruled that in general, there is nothing inherently wrong with escalation clauses. In IBAA v. Spouses Salazar (159 SCRA 133, 137 [1988]), the Court reiterated the rule that escalation clauses are valid in commercial contracts. On the other hand, it will not be amiss also to point out that the unilateral determination and imposition of increased interest rates by LBP violates the principle of mutuality of contracts (Art. 1308, NCC). As the court held in PNB, in order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.

40

LAND BANK OF THE PHILIPPINES VS. YOLANDA G. DAVID G.R. NO. 176344, August 22, 2008 Justice Carpio Morales

FACTS OF THE CASE:

Respondent Yolanda G. David, doing business under the trade name David Poultry Farm with obtained a P1,100,000 loan from petitioner, Land Bank of the Philippines (Land Bank), to bear interest based on the prevailing lenders rates/special financing rate and penalty charge of 12% per annum in case of default in the settlement thereof. To secure the payment of the loan, respondent mortgaged a parcel of land.

However, due to serious business reverses suffered by respondent, she and petitioner executed a Restructuring Agreement. Respondent defaulted in the payment of monthly amortizations of the loan; hence, the entire balance of the loan became due and demandable which, as of March 31, 1997, stood at P971,324.89. Despite demand, respondent failed to settle her obligation, prompting petitioner to initiate foreclosure proceedings.

On appeal, the Court of Appeals, noting that the loan extended to respondent was part of the social assistance program to improve the plight of farmers, found the interest rate of 17% per annum and the penalty charge of 12% per annum exorbitant and thus reduced them to 12% per annum and 5% per annum, respectively. And it nullified the sale at public auction of the mortgaged property.

ISSUE OF THE CASE:

Whether or not the interest rate of 17% per annum, as provided in the restructuring agreement, as well as the penalty charges of 12% per annum can be considered as exorbitant and unconscionable.

RULING OF THE SUPREME COURT:

Yes.

Jurisprudence empowers courts to equitably reduce interest rates. And the law empowers them to reduce penalty charges. Thus, Article 1229 of the Civil Code provides:

The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no partial performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Whether an interest rate or penalty charge is reasonable or iniquitous is addressed to the sound discretion of the courts. In determining what is iniquitous and unconscionable, courts must consider the circumstances of each case, for what may be just in one case may be iniquitous and unconscionable in another. Thus, while this Court sustained the validity of a 21% per annum interest in Spouses Bautista v. Pilar Development Corporation, it reduced an 18% per annum interest rate to 12% per annum in Trade & Investment Development Corporation of the Phils. v. Roblett.

Section 24 of R.A. No. 8435 (The Agriculture and Fisheries Modernization Act of 1997) provides that [t]he Land Bank of the Philippines shall, in accordance with its original mandate, focus primarily on plans and programs in relation to the financing of agrarian reform and the delivery of credit services to the agriculture and fisheries sectors, especially to small farmers and fisherfolk. In the case at bar, the purpose of the loan was to finance the construction of two broiler houses and a feeds warehouse. The observation by the Court of Appeals that the loan extended to respondent was part of the social assistance program to improve the plight of farmers is thus well-taken.

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Given the business losses that respondent suffered, coupled with the fact that she had made partial payments on both the original loan and the restructured loan, the reduction by the appellate court of the interest rate and penalty charge is justified. While, as petitioner argues, the nullity of the interest rate and penalty charge does not affect its right to recover the principal amount of the loan, the public auction of the mortgaged property is nevertheless void, the amount indicated as mortgage indebtedness having included excessive, iniquitous, and exorbitant interest rate and penalty charge. The nullity of the stipulation on the usurious interest does not affect the lender's right to recover the principal of the loan. Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered without the stipulation of the excessive interest. WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED.

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G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner, vs. ALEX A. JAUCIAN, respondent. THE FACTS 1. A case of collection of money was filed by Alex Jaucian against Restituta Imperial alleging that six loans were obtained by the latter evidenced by six promissory notes which were became overdue and unpaid despite the formers repeated oral and written demands for payment. It appeared that the six promissory notes executed were made with a face value bigger than the amount released to defendant because said face value already included the interest from date of note to date of maturity. It showed that the interest rate of the loans made was 16% per month. The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the defendant would exchange it with cash. Although, admittedly, defendant made several payments, the same were not enough and she always defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued interest, penalties and attorneys fees, [was] P2,807,784.20. The Petitioner now contended that the interest rate of 16% per month was exorbitant and should be reduced to 1% per month or 12 percent per annum. The RTC rendered a decision favoring the respondent by holding that to equitably reduce the interest rate of 16%, a 1.167 percent per month or 14 percent per annum must be held. This ruling was affirmed by the Court of Appeals.

2. 3. 4. 5.

6.
7. 8. 9. ISSUE

WON the lower court erred in their ruling favoring the respondent. NO. RULING 1. The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blancheauthority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets." In Medel v. CA, the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per annum, unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is considered "contrary to morals, if not against the law. [Such] stipulation is void." Since the stipulation on the interest rate is void, it is as if there were no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand. We find no justification to reverse or modify the rate imposed by the two lower courts.

2.

3.

4. 5.

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SPOUSES DANILO SOLANGON and URSULA SOLANGON vs. JOSE AVELINO SALAZAR G.R. No. 125944, June 29, 2001 Justice Sandoval-Gutierrez

This case is with regard to Art 1170 of the NCC (Stipulated interest held unconscionable).

FACTS OF THE CASE: On 1986, 1987, and 1990 the Solangons executed 3 real estate mortgages in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the Salazar to secure payment of a loan of P60, 000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month, to secure payment of a loan of P136, 512.00, payable within a period of one (1) year, with interest thereon at the legal rate, and to secure payment of a loan in the amount of P230, 000.00 payable within a period of four (4) months, with interest thereon at the legal rate. This action was initiated by the Solangons to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan from the defendant-appellee, and that was for the amount of P60, 000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. They have already paid the defendant-appellee P78, 000.00 and tendered P47, 000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230, 000.00 plus interest.

ISSUE OF THE CASE:

Is a loan obligation that is secured by a real estate mortgage with an interest of 72% p.a. or 6% a month unconscionable?

RULING OF THE SUPREME COURT:

Yes, although the C.B. Circular No 905 lifted the ceiling on interest rates there is nothing in the said circular that grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to hemorrhaging of their assets. In the case of Medel vs. C.A., the Supreme Court has held that 5.5% per month was reduced for being iniquitous, unconscionable and exorbitant hence it is contrary to morals (contra bonos mores). In this case the Solangons are in a worse situation than the Medel case (6% per month interest rate) the said interest rate should be reduced equitably.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per annum.

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ILEANA DR. MACALINAO vs. BANK OF THE PHILIPPINE ISLANDS G.R. No. 175490 September 17, 2009

FACTS of the CASE

Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of respondent Bank of the Philippine Islands (BPI).3 Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI, demanding payment of the amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34). Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month. For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month. The RTC affirmed in toto the decision of the MeTC. The CA affirmed with modification the Decision of the RTC. It held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public.

ISSUE

Whether or not the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous as the same translates to 36% per annum or thrice the legal rate of interest. HELD

Yes. The interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan: The stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.

ISSUE

Whether or not the additional penalty charge of 3% per month should be upheld.

HELD

No. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

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In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

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Salvador CHUA and Violeta CHUA vs. Rodrigo TIMAN, Ma. Lynn TIMAN and Lydia TIMAN August 13, 2008

FACTS of the CASE 1. 2. 3. 4. 5. 6. Petitioners Salvador and Violeta Chua granted respondents Rodrigo, Ma. Lynn and Lydia Timan several loans evidenced by promissory notes with interest of 7% per month which was later on reduced to 5% per month. Respondents issued five postdated checks to secure the said loans. Respondents likewise paid the loans initially at 7% interest rate per month until September 1999 and then at 5% interest rate per month from October to December 1999. Respondent offered to pay the principal amount of the loans through PNB managers check worth P764,000 but same was refused by petitioners alleging that the principal amount of the loans totaled P864,000. Subsequently, respondents deposited and consigned P864,000 with the Clerk of Court of the RTC of Quezon City under protest that the interest rate imposed by petitioners was excessive. Petitioners denied the allegations averring that the stipulated interest of 7% and 5% per month cannot be considered unconscionable because these rates are not usurious by virtue of Central Bank (CB) circular No. 905-82 which had expressly removed the interest ceilings prescribed by the Usury Law and that the respondents were in pari delicto since they agreed in the said stipulated interest rates. The RTC favored the respondents likewise, same was affirmed by the Court of Appeals.

7. ISSUE

Whether or not the said interest rates are unconscionable and exorbitant. YES!

RULING 1. 2. 3. 4. The stipulated rates of 7% and 5% per month imposed on respondents loan must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While CB Circular No. 905-82 effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to level which would either enslave their borrowers or lead to a hemorrhaging of their assets.

The averment of in pari delicto by the petitioners against respondents cannot be held by this Court since such allegation was made for the first time on appeal.

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