I.

Loans

Credit Transactions Case Digest: Republic v. Bagtas (1962)

FACTS:

May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding
purposes subject to a breeding fee of 10% of the book value of the bulls
May 7, 1949: Jose requested for a renewal for another year for the three bulls but only
one bull was approved while the others are to be returned

March 25, 1950: He wrote to the Director of Animal Industry that he would pay the
value of the 3 bulls

October 17, 1950: he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General.

October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are
to be returned or their book value without deductions should be paid not later than
October 31, 1950 which he was not able to do

December 20, 1950: An action at the CFI was commenced against Jose praying that he
be ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid
breeding fee of P199.62, both with interests, and costs

July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered
that because of the bad peace and order situation in Cagayan Valley, particularly in
the barrio of Baggao, and of the pending appeal he had taken to the Secretary of
Agriculture and Natural Resources and the President of the Philippines, he could not
return the animals nor pay their value and prayed for the dismissal of the complaint.

RTC: granted the action

December 1958: granted an ex-parte motion for the appointment of a special sheriff to
serve the writ outside Manila

December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on
October 23, 1951 and administratrix of his estate, was notified

January 7, 1959: Felicidad M. Bagtas,file a motion that the 2 bulls where returned by
his son on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot wound
inflicted during a Huk raid and prayed that the writ of execution be quashed and that a
writ of preliminary injunction be issued.

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

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

Carolyn M. Garcia -vs- Rica Marie S. Thio GR No. 154878, 16 March 2007

FACTS
Respondent Thio received from petitioner Garcia two crossed checks which amount to
US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago.
According to petitioner, respondent failed to pay the principal amounts of the loans when they
fell due and so she filed a complaint for sum of money and damages with the RTC.
Respondent denied that she contracted the two loans and countered that it was Marilou
Satiago to whom petitioner lent the money. She claimed she was merely asked y petitioner to
give the checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment
of interest but to accommodate petitioners request that respondent use her own checks
instead of Santiagos.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract
of loan between the parties.

ISSUE
1. Whether or not there was a contract of loan between petitioner and respondent.
2. Who borrowed money from petitioner, the respondent or Marilou Santiago?

HELD
1. The Court held in the affirmative. A loan is a real contract, not consensual, and as such I
perfected only upon the delivery of the object of the contract. Upon delivery of the
contract of loan (in this case the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or loan proceeds and is bound to
pay the creditor an equal amount. It is undisputed that the checks were delivered to
respondent.

2. However, the checks were crossed and payable not to the order of the respondent but to
the order of a certain Marilou Santiago. Delivery is the act by which the res or substance is
thereof placed within the actual or constructive possession or control of another. Although
respondent did not physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby she actually re-lent
the amount to Santiago.

Petition granted; judgment and resolution reversed and set aside.

Republic vs CA 146 SCRA 15

FACTS: The Heirs of Domingo Baloy, (private respondents), applied for a registration of title for
their land. Their claim is based on their possessory information title acquired by Domingo
Baloy through the Spanish Mortgage Law, coupled with their continuous, adverse and public
possession of the land in question. The Director of Lands opposed the registration alleging
that such land became public land through the operation of Act 627 of the Philippine
Commission. On Nov 26, 1902, pursuant to the executive order of the President of U.S., the
area was declared within the US Naval Reservation. The CFI denied respondents' application
for registration. CA, reversed the decision. Petitioners herein filed their Motion for
Reconsideration, said MR was denied, hence this petition for review on certiorari.

ISSUE: Whether or not private respondents' rights by virtue of their possessory information
title was lost by prescription.

RULING: No. A communication which contains an official statement of the position of the
Republic of the Philippines with regard to the status of the land in question 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. 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. The occupancy of the U.S. Navy was not in the concept of owner. It holds of the
character of a commodatum. It cannot affect the title of Domingo Baloy. 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 temporary, 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.

MARGARITA QUINTOS and ANGEL A. ANSALDO vs. BECK

FACTS: BECK was a tenant of the Quintos and as such occupied the latter's house on M. H. del
Pilar street, No. 1175. On January 14,

1936, upon the novation of the contract of lease between them, the former gratuitously
granted to the latter the use of the furniture subject to the condition that the BECK would
return them to the Quintos upon the latter's demand. Quintos sold the property to Maria Lopez
and Rosario Lopez and on September 14, 1936, these three notified BECK of the conveyance,
giving him sixty days to vacate the premises under one of the clauses of the contract of lease.
There after Quintos required BECK to return all the furniture transferred to him for them in the
house where they were found.

On November 5, 1936, BECK, through another person, wrote to Quintos reiterating that she
may call for the furniture in the ground floor of the house. On the 7th of the same month, he
wrote another letter to Quintos informing her that he could not give up the three gas heaters
and the four electric lamps because he would use them until the 15th of the same month
when the lease in due to expire. Quintos refused to get the furniture in view of the fact that
BECK had declined to make delivery of all of them. On November 15th, before vacating the
house, the BECK deposited with the Sheriff all the furniture belonging to Quintos and they are
now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the
said sheriff.

ISSUE 1: WON BECK complied with his obligation to return the furniture upon the Quintos
demand. NO.

HELD 1: The contract entered into between the parties is one of commadatum, because under
it Quintos gratuitously granted the use of the furniture to BECK, reserving for herself the
ownership thereof; by this contract he bound himself to return the furniture to Quintos, upon
the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741
of the Civil Code). The obligation voluntarily assumed by BECK to return the furniture upon
demand, means that he should return all of them to Quintos at the latter's residence or house.
BECK did not comply with this obligation when he merely placed them at the disposal of the
Quintos, retaining for his benefit the three gas heaters and the four eletric lamps. The
provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it came to the legal conclusion that the
Quintos failed to comply with her obligation to get the furniture when they were offered to her.

ISSUE 2: WON Quintos is bound to bear the deposit fees. NO.

HELD 2: As BECK had voluntarily undertaken to return all the furniture to the Quintos, upon
the latter's demand, the Court could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the BECK's behest. The latter, as bailee, was not entitled to
place the furniture on deposit; nor was Quintos under a duty to accept the offer to return the
furniture, because he wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that Quintos is entitled to the payment
thereof by BECK in case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, BECK has neither agreed to nor admitted the
correctness of the said value. Should he fail to deliver some of the furniture, the value thereof
should be later determined by the trial Court through evidence which the parties may desire
to present.

ISSUE 3: WON Quintos is entitled to the costs of litigation. YES.

HELD 3: The costs in both instances should be borne by BECK because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). He was the one who breached
the contract of commodatum, and without any reason he refused to return and deliver all the
furniture upon demand. In these circumstances, it is just and equitable that he pay the legal
expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

POLICY: Commodatum is a contract where the bailor delivers to the bailee a non-consumable
thing so that the latter may use it for a certain time and return the identical thing.

FELIX DE LOS SANTOS VS AGUSTINA JARRA (1910 CASE)

FACTS: Felix de los Santos brought suit against Agusitina Jarra (the administratrix of the estate
of Magdaleno Jimenea, he alleges that Jimenea borrowed and obtained from the plaintiff 10
first class carabos, to be used at the animal power mill of Jimeneas hacienda, without
recompense or remuneration for the use of it and under the sole condition that they should be
returned to the owner as soon as the work at the mill was terminated. Jimenea however, did
not return the carabaos even though de los Santos claimed their return after the work at the
mill was finished.

Jimenea died in 1904 (before the suit) and Jarra was appointed by the CFI as administratrix of
his estate.

De los Santos presented his claim to the commissioners of the estate of Jimenea for return of
the carabaos. (for the carabaos to be exluded from the estate of Jimenea). The commissioners
rejected his claim, and thus a lawsuit ensued.

Jarra answered and said that it was true that the late Jimenea asked the plaintiff to loan him
ten carabaos, but that he only obtained THREE (3) second-class carabaos, which were
afterwards sold by the Delos Santos to Jimenea. (Basically Jarra denied all the allegations in
the complaint)

The case came up for trial and the court rendered judgment against Jarra and ordering her to
return to de los Santos 6 second-class and third class carabaos. The value of which was 120
each so 720 pesos. Jarra moved for a new trial on the ground that the findings of fact were
openly and manifestly contrary to the weight of the evidence.

The record however, discloses that it has been fully proven from the testimonies of a number
of witnesses that Santos, sent in charge of various persons, the 10 carabaos requested by
Jimenea (it was revealed that Jimenea is the father in law of de los Santos). Also, de los Santos
produced 2 letters proving that Jimenea received them in the presence of said persons
(brother of Jimenea) who saw the animals arrive at the hacienda. FOUR of the carabaos died
of rinderpest and thus the judgment appealed from only deals with 6 carabaos.
THE ALLEGED PURCHASE of 3 carabaos by Jimenea from his son-in-law Santos is not
evidenced by any trustworthy evidence. Therefore, it is not true.

From the foregoing, it may be logically inferred that the carabaos loaned or given on
commodatum to the deceased Jimenea were ten in number, that 6 survived and that these
carabaos have not been returned to the owner delos Santos, and lastly, that the 6 carabaos
were not the property of the deceased nor any of his descendants, it is the duty of the
administratrix to return them or indemnify the owner for the value.

ISSUE: W/N the contracts is one of a commodatum.

HELD: YES. The carabaos were given on commodatum as these were delivered to be used by
defendant. Upon failure of defendant to return the cattle upon demand, he is under the
obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos were not
the property of the deceased or of any of his descendants, it is the duty of the administratrix
of the estate to either return them or indemnify the owner thereof of their value.

It was not part of Jimeneas estate. Therefore Agustina Jarra should exclude it or indemnify De
los Santos for the reasons above set forth, by which the errors assigned to the judgment
appealed from have been refuted, and considering that the same is in accordance with the
law and the merits of the case, it is our opinion that it should be affirmed and we do hereby
affirm it with the costs against appellant.

RATIO: The ratio differentiates a loan from a commodatum. Art 1740. (Old civil code) By the
contract of loan, one of the parties delivers to the other, either anything not perishable (in the
new civil code its consumable), 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 bailor retains 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 made in consideration for the person of the
bailee, in which case his heirs shall not have the right to continue using the thing loaned.

The carabaos delivered to be used were not returned by Jiminea upon demand. There is no
doubt that Jarra is under the obligation to indemnify delos Santos.

Article 101. Those who in fulfilling their obligations are guilty of fraud, negligence or delay.

The obligation of the bailee or of his successors to return either the thing loaned or its value is
sustained by the tribunal of Spain, which said in its decision - (Mentioned jurisprudence): legal
doctrine touching commodatum as follows:

Although it is true that in a contract of commodatum the bailor retains the ownership of thing
loaned 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.
EMILIA MANZANO vs. MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO
PEREZ,FLORENCIO PEREZ, NESTOR PEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ

Commodatum (The Bailor)

Facts: Petitioner Emilia Manzano alleged that she is the owner of a residential house and lot
situated at General Luna St. Laguna. In 1979, Nieves Manzano, sister of the petitioner
borrowed the aforementioned property as collateral for a projected loan. Pursuant to their
understanding, the petitioner executed two deeds of conveyance for the sale of the residential
lot and the house erected, both for a consideration of P1.00 plus other valuables allegedly
received by her from Nieves Manzano. Nieves Manzano, together with her husband,
respondent Miguel Perez, Sr. obtained a loan fromthe Rural Bank of Infanta, Inc. in the sum of
P30,000.00. To secure payment of their indebtedness, they executed a Real Estate Mortgage
over the subject property in favor of the bank. Nieves Manzano died on 18 December 1979
leaving her husband and children as heirs. These heirs refused to return the subject property
to the petitioner even after the payment of their loan with the Rural Bank. The petitioner
sought the annulment of the deeds of sale and execution of a deed of transfer or
reconveyance of the subject property in her favor, and award of damages. The Court of
Appeals ruled that it was not convinced by petitioner's claim that there was a supposed oral
agreement of commodatum over the disputed house and lot. Hence, this petition.

Contention of petitioner: The petitioner alleged that properties in question after they have
been transferred to Nieves Manzano, were mortgaged in favor of the Rural Bank of Infanta,
Inc to secure payment of the loan. The documents covering said properties which were given
to the bank as collateral of said loan, upon payment and release to the private respondents,
were returned to petitioner by Florencio Perez. These are a clear recognition by respondents
that petitioner is the owner of the properties in question
Contention of respondents: the respondents countered that they are the owners of the
property in question being the legal heirs of Nieves Manzano who purchased the same from
the petitioner for value and in good faith, as shown by the deeds of sale which contain the
true agreements between the parties therein that except for the petitioner's bare allegations,
she failed to show any proof that the transaction she entered into with her sister was a loan
and not a sale.

Resolution: The court ruled that petitioner has presented no convincing proof of her
continued ownership of the subject property. In addition to her own oral testimony, she
submitted proof of payment of real property taxes, but such payment was made only after her
Complaint had already been lodged before the trial court. Neither can the court give weight to
her allegation that respondent's possession of the subject property was merely by virtue of
her tolerance. Oral testimony cannot, as a rule, prevail over a written agreement of the
parties. In order to contradict the facts contained in a notarial document, such

as the two Kasulatan ng Bilihang Tuluyan in this case, as well as the presumption of
regularity in the execution thereof, there must be clear and convincing evidence that is more
than merely preponderant. Here petitioner has failed to come up with even a preponderance
of evidence to prove her claim.

Courts are not blessed with the ability to read what goes on in the minds of people. That is
why parties to a case are given all the opportunity to present evidence to help the courts
decide on who are telling the truth and who are lying, who are entitled to their claim and who
are not. The Supreme Court cannot depart from these guidelines and decide on the basis of
compassion alone because, aside from being contrary to the rule of law and our judicial
system, this course of action would ultimately lead to anarchy.

We reiterate, the evidence offered by petitioner to prove her claim is sadly

lacking. Jurisprudence on the subject matter, when applied thereto, points to the existence of
a sale, not a commodatum over the subject house and lot.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

PAJUYO VS. CA GR No. 146364

FACTS: In June 1979, petitioner Pajuyo paid P400 to a certain Perez for the rights over a 250-
square meter lot in Quezon City. Pajuyo then constructed a house on the lot and he and his
family lived in the house from 1979 to 1985.

On 8 December 1985, Pajuyo and private respondent Guevarra executed a Kasunduan or

agreement. Pajuyo, as owner of the 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.

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

Guevarra claimed that Pajuyo had no valid title or right of possession over the lot because the
lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up
or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the
lot (both were squatters).

MTC rendered its decision in favor of Pajuyo. Pajuyo 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. RTC affirmed the MTC decision in toto.

CA reversed the MTC and RTC rulings and declared that Pajuyo and Guevarra illegally occupied
the contested lot which the government owned. CA also declared that Pajuyo and Guevarra
are in pari delicto or in equal fault. Moreover, the Kasunduan is not a lease contract but a
commodatum because the agreement is not for a price certain.

ISSUE: Whether or not the contractual relationship between Pajuyo and Guevarra was that of
a commodatum.

HELD: No. In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.

Essential features of commodatum:

it is gratuitous.
the use of the thing belonging to another is for a certain period

Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is
constituted.

If the bailor should have urgent need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the
thing at will, in which case the contractual relation is called a precarium, which is a kind of
commodatum.

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes the
Kasunduan a contract different from a commodatum.

The effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease.
The tenants withholding of the property would then be unlawful.

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

Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan
after he had benefited from it. The Kasunduan binds Guevarra.

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

PRODUCERS BANK VS. CA

FACTS: Sometime in 1979, private respondent Vives was asked by his neighbor and friend
Sanchez to help her friend, Col. Doronilla, in incorporating his business (Sterela). Sanchez
asked Vives to deposit in a bank a certain amount of money in the bank account of Sterela for
purposes of its incorporation. She assured Vives that he could withdraw his money from said
account within a months time.

Vives, Sanchez, Doronilla and a certain Dumagpi, Doronillas private secretary, met and
discussed the matter. Relying on the assurances and representations of Sanchez and
Doronilla, Vives issued a check in the amount of P200k in favor of Sterela which was
subsequently deposited under Sterela's account.

Subsequently, Vives learned that Sterela was no longer holding office in the address
previously given to him. He went to the Bank to verify if their money was still intact. Atienza,
the assistant manager, informed them that part of the money had been withdrawn by
Doronilla, and that only P90k remained therein. He likewise told them that they could not
withdraw the remaining amount because it had to answer for some postdated checks issued
by Doronilla.

Sterela, through Doronilla, obtained a loan of P175k from the Bank. To cover payment,
Doronilla issued 3 postdated checks, all of which were dishonored.

Vives received a letter from Doronilla assuring him that his money was intact and would be
returned to him. Doronilla issued a postdated check for P212k in favor of Vives. However,
upon presentment to the drawee bank, the check was dishonored. Doronilla requested Vives
to present the same check on a later date but it was again dishonored.

Vives referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another check but was again dishonored for
insufficiency of funds.

Vives instituted an action for recovery of sum of money in the RTC against Doronilla, Sanchez,
Dumagpi and Producers Bank. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC.

RTC rendered a decision in favor of Vives. CA affirmed the decision of the RTC in Toto.

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 P212k, or P12k more than what Vives deposited in Sterelas bank
account.

ISSUE: Whether or not the transaction between Doronilla and Vives was one of simple loan or
mutuum.

HELD: No, it 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. The evidence shows that Vives agreed to
deposit his money in the savings account of Sterela 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 30 days.

Vives merely accommodated Doronilla by lending his money without consideration, as a favor
to 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 Vives after 30 days.

Doronillas attempts to return the amount did not convert the transaction from a commodatum
into a mutuum because such was not the intent of the parties and because the additional
P12k corresponds to the fruits of the lending of the P200k.

Article 1935 of the Civil Code expressly states that the bailee in commodatum acquires the
use of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit the
interest.

Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between
Doronilla and Vives.

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks.

Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioners interests. It was established that the transfer of funds from Sterelas
savings account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the cause of
private respondents loss.

Under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is
solidarily liable with Doronilla and Dumagpi for the return of the P200k since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterela's savings account.
Saura Import &Export Co., Inc v. DBP G.R. No. L-24968 April 27, 1972

Facts: Saura Inc. applied to the Rehabilitation Finance Corp (before its conversion to DBP) for
a loan of 500k secured by a first mortgage of the factory building to finance for the
construction of a jute mill factory and purchase of factory implements. RFC accepted and
approved the loan application subject to some conditions which Saura admitted it could not
comply with. Without having received the amount being loaned, and sensing that it could not
at anyway obtain the full amount of loan, Saura Inc. then asked for cancellation of the
mortgage which RFC also approved. Nine years after the cancellation of the mortgage, Saura
sued RFC for damages for its non-fulfillment of obligations arguing that there was indeed a
perfected consensual contract between them.

Issue: Was there a perfected consensual contract? Was there a real contract of loan which
would warrant recovery of damages arising out of breach of such contract?

Held: On the first issue, yes, there was indeed a perfected consensual contract, as recognized
in Article 1934 of the Civil Code. There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was executed and registered. But this fact alone
falls short of resolving the second issue and the basic claim that the defendant failed to fulfill
its obligation and the plaintiff is therefore entitled to recover damages. The action thus taken
by both partiesSaura's request for cancellation and RFC's subsequent approval of such
cancellationwas in the nature of mutual desistance what Manresa terms "mutuo
disenso" which is a mode of extinguishing obligations. It is a concept derived from the
principle that since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment. In view of such extinguishment, said perfected
consensual contract to deliver did not constitute a real contract of loan.

BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS and ALS

MANAGEMENT & DEVELOPMENT CORPORATION

FACTS: Frank Roa obtained a loan at an interest rate of 16.25% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the
construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to
private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and
assumed the P500,000 balance of Roas indebtedness with AIDC.

AIDC, however, was not willing to extend the old interest rate to ALS and proposed to grant
them a new loan of P500,000 to be applied to Roas debt and secured by the same property,
at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization.

Consequently, on March 1981, ALS executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on
May 1, 1981.

On August 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of
P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was
liquidated when BPIIC applied thereto the proceeds of ALSs loan of P500,000.

On September 13, 1982, BPIIC released to ALS P7,146.87, purporting to be what was left of
their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against ALS on the ground that they
failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted
to P475,585.31.

ALS and Litonjua filed a civil case against BPIIC. They alleged, among others, that they were
not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the actual release of the
P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the
total amount of P464,351.77 was released to ALS.

RTC favored ALS and Litonjua. CA affirmed in toto.

CA reasoned that a simple loan is perfected only upon the delivery of the object of the
contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on
September 13, 1982, the date when BPIIC released the purported balance of the P500,000
loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the
monthly amortization should commence only a month after the said date, as can be inferred
from the stipulations in the contract. This, despite the express agreement of the parties that
payment shall commence on May 1, 1981. From October 1982 to June 1984, the total
amortization due was only P194,960.43. Evidence showed that ALS had an overpayment.
Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage.

BPIIC contends among others that CA erred in ruling that because a simple loan is perfected
upon the delivery of the object of the contract, the loan contract in this case was perfected
only on September 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 conformably
with SCs ruling in Bonnevie v. CA, 125 SCRA 122.

ISSUE: WON a contract of loan is a consensual contract. NO, A CONTRACT OF LOAN IS A REAL
CONTRACT.

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. BPIIC misapplied Bonnevie. The contract in
Bonnevie declared by this Court as a perfected consensual contract falls under the first clause
of Article 1934, CC. It is an accepted promise to deliver something by way of simple loan. A
perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the
delivery of the object of the contract for its perfection and which gives rise to obligations only
on the part of the borrower.

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on
the other, was perfected only on September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the commencement of the monthly
amortization, as found by the CA, ALSs obligation to pay commenced only on October 13,
1982, a month after the perfection of the contract. A contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for that of the
other.

As averred by ALS, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization commencing on May
1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. 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.
Consequently, petitioner could only demand for the payment of the monthly amortization
after September 13, 1982 for it was only then when it complied with its obligation under the
loan contract. Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982
and not May 1, 1981.

Other points raised by BPIIC in connection with this issue, such as the date of actual release of
the loan and whether ALS were the cause of the delay in the release of the loan, are factual.

CA decision was affirmed but with modification as to the award of damages.

NAGUIAT V. CA412 SCRA 591

Facts:

Queano applied with Naguiat for a loan in the amount of 200,000, which Naguiat granted.
Naguiat endorsed to Queano a check for the amount 95,000. She also issued her own check
to the order of Queano. The proceeds of the said checks were to constitute the loan granted
by Naguiat to Queano. To secure the loan, Queano executed a Deed of Real Estate Mortgage
in favor of Naguiat. The Deed was notarized, and Queano issued to Naguiat a promissory note
for the amount of 200,000 with interest 12% per annum. Queano also issued a check
postdated for the amount of 200,000 and payable to the order of Naguiat. Upon presentment
on the maturity date, the check was dishonored for insufficiency of funds. Queano requested
the 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.
Queano received a letter from Naguiat's lawyer, demanding settlement of the loan. Queno
told Naguiat that she did not receive the proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiat's agent. Naguiat applied for the
extrajudicial foreclosure of the mortgage, the Sheriff then scheduled the foreclosure sale.

Issue/s:

1.Does the NOTARIZED mortgage deed enjoys the presumption of truthfulness.

2. Was there an agency relationship between Naguiat and Ruebenfeldt?

Held: 1. The CA is correct in ruling that the presumption of truthfulness of the recitals in the
public document was defeated by the clear and convincing evidence in this case that pointed
to the absence of consideration.

2. The CA recognized the existence of an 'agency by estoppel' citing Art.1873 of the NCC.
Apparently, it is considered as a consequence of the interaction between Naguiat and
Reubenfeldt, Queano got the impression that the latter was the agent of the former, but
Naguiat did nothing to correct the wrong impression In that situation the rule is clear.

We find no compelling reason to disturb the ruling of the lower courts. That being the case, it
follows that the mortgage which is supposed to secure the loan is null and void.
Cebu Financial vs CA and Alegre GR No. 123031, 12 October 1999 316 SCRA 488

FACTS Vicente Alegre invested with Cebu International Finance Corporation (CIFC) P500,000 in
cash. CIFC issued promissory note which covered private respondents placement. CIFC issued
BPI Check No. 513397 (the Check) in favor of private respondent as proceeds of his matured
investment. Mrs. Alegre deposited the Check with RCBC but BPI dishonoured it, annotating
therein that the Check is subject of an investigation. BPI took possession of the Check
pending investigation of several counterfeit checks drawn against CIFCs checking account.
Private respondent demanded from CIFC that he be paid in cash but the latter refused. Private
respondent Alegre filed a case for recovery of a sum of money against CIFC.

CIFC asserts that since BPI accepted the instrument, the bank became primarily liable for the
payment of the Check. When BPI offset the value of the Check against the losses from the
forged cheks allegedly committed by private respondent, the Check was deemed paid.

ISSUE Whether or not petitioner CIFC is discharged from the liability of paying the value of the
Check.

HELD The Court held in the negative. In a money market transaction, the investor is a lender
who loans his money to a borrower through a middleman or dealer. A check is not legal
tender, and therefore cannot constitute valid tender of payment. Since a negotiable
instrument is only substitute for money and not money, the delivery of such an instrument
does not by itself, operate as payment.

Mere delivery of checks does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by commercial document is
actually realized. (Article 1249)

Petition denied.

TOLENTINO v GONZALES SY CHIAM G.R. No. 26085 August 12, 1927

FACTS:
1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio purchased Luzon Rice
Mills, Inc., parcel of land in Tarlac for P25,000.00 to be paid in three installments.
a. First installment is P2,000 due on or before May 2, 1921
b. Second installment is P8,000 due on or before May 31, 1921
c. Third installment of P15,000 at 12% interest due on or before Nov 30, 1922
 One of the conditions of the contract of purchase was that if Tolentino and Manio
failed to pay the balance of any of the installments on the date agreed upon, the
property bought would revert to the original owner.
The first and second installments were paid but the balance was paid on Dec 1, 1922
2. On Nov 7, 1922, a representative of vendor of said property wrote Manio , notifying her
that if the balance of said indebtedness was not paid, they would recover the property
with damages for non compliance with the condition of the contract of purchase.
3. Tolentino and Manio borrowed money from Benito Gonzales Sy Chiam to satisfy their
indebtedness to the vendor.
4. Gonzales agreed to loan the P17,500 upon condition that they execute and deliver to
him a pacto de retro of the property.
5. The contract includes a contract of lease on the property whereby the lessees as
vendors apparently bind themselves to pay rent at the rate of P375 per month and
whereby "Default in the payment of the rent agreed for two consecutive months will
terminate this lease and will forfeit our right of repurchase, as though the term had
expired naturally"
6. Upon maturation of loan, Tolentino defaulted payment and Gonzales demanded
recovery of land.
Tolentinos argument: that the pacto de retro sale is a mortgage and not an absolute sale and
that the rental price paid during the period of the existence of the right to repurchase, or
the sum of P375 per month, based upon the value of the property, amounted to usury.

ISSUE: WoN the contract in question is a mortgage

HELD: No.

RATIO: The contract is a pacto de retro and not a mortgage. There is not a word, a phrase, a
sentence or a paragraph in the entire record, which justifies this court in holding that the
said contract of pacto de retro is a mortgage and not a sale with the right to repurchase.

The purpose of the contract is expressed clearly that there can certainly be no doubt as to the
purpose of the Tolentino to sell the property in question, reserving the right only to repurchase
the same:

Second. That is a condition of this sale that if in the course of five (5) years from
the 1st of December, 1922, we return to Don Benito Gonzales Sy Chiam the
above-mentioned price of seventeen thousand five hundred (P17,500), Mr. Benito
Gonzales Sy Chiam is forced to return the farm; but if it passes the above
mentioned term of five (5) years without exercising to the right of redemption
that we have saved ourselves, then this sale will be absolute and irrevocable.

From the foregoing, we are driven to the following conclusions: First, that the contract of pacto
de retro is an absolute sale of the property with the right to repurchase and not a mortgage;
and, second, that by virtue of the said contract the vendor became the tenant of the
purchaser, under the conditions mentioned in paragraph 3 of said contact. When the vendor
of property under a pacto de retro rents the property and agrees to pay a rental value for the
property during the period of his right to repurchase, he thereby becomes a "tenant" and in all
respects stands in the same relation with the purchaser as a tenant under any other contract
of lease.

In the present case the property in question was sold. It was an absolute sale with the right
only to repurchase. During the period of redemption the purchaser was the absolute owner of
the property. During the period of redemption the vendor was not the owner of the property.
During the period of redemption the vendor was a tenant of the purchaser. During the period
of redemption the relation which existed between the vendor and the vendee was that of
landlord and tenant. That relation can only be terminated by a repurchase of the property by
the vendor in accordance with the terms of the said contract. The contract was one of rent.
The contract was not a loan, as that word is used in Act No. 2655.
Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act fixing rates of
interest upon 'loans' and declaring the effect of receiving or taking usurious rates."

Usury, generally speaking, may be defined as contracting for or receiving something in excess
of the amount allowed by law for the loan or forbearance of moneythe taking of more
interest for the use of money than the law allows.

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any
money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of
interest on "loans." A contract of "loan," is very different contract from that of "rent". A "loan,"
as that term is used in the statute, signifies the giving of a sum of money, goods or credits to
another, with a promise to repay, but not a promise to return the same thing. To "loan," in
general parlance, is to deliver to another for temporary use, on condition that the thing or its
equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind
shall be returned with a compensation for its use. The word "loan," however, as used in the
statute, has a technical meaning. It never means the return of the same thing. It means the
return of an equivalent only, but never the same thing loaned. A "loan" has been properly
defined as an advance payment of money, goods or credits upon a contract or stipulation to
repay, not to return, the thing loaned at some future day in accordance with the terms of the
contract. Under the contract of "loan," as used in said statute, the moment the contract is
completed the money, goods or chattels given cease to be the property of the former owner
and becomes the property of the obligor to be used according to his own will, unless the
contract itself expressly provides for a special or specific use of the same. At all events, the
money, goods or chattels, the moment the contract is executed, cease to be the property of
the former owner and becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the
owner of the property does not lose his ownership. He simply loses his control over the
property rented during the period of the contract. In a contract of "loan" the thing loaned
becomes the property of the obligor. In a contract of "rent" the thing still remains the property
of the lessor. He simply loses control of the same in a limited way during the period of the
contract of "rent" or lease. In a contract of "rent" the relation between the contractors is that
of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation
between the parties is that of obligor and obligee. "Rent" may be defined as the
compensation either in money, provisions, chattels, or labor, received by the owner of the soil
from the occupant thereof. It is defined as the return or compensation for the possession of
some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for
their use. It is that, which is to paid for the use of land, whether in money, labor or other thing
agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the
other some nonconsumable thing, in order that the latter may use it during a certain period
and return it to the former; whereas a contract of "loan", as that word is used in the statute,
signifies the delivery of money or other consumable things upon condition of returning an
equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In
the case of a contract of "rent," under the civil law, it is called a "commodatum."

G.R. No. 173654-765 PEOPLE OF THE PHILIPPINES, Petitioners, vs. TERESITA PUIG
and ROMEO PORRAS,Respondent.

FACTS: The petitioners filed before the RTC of Iloilo 112 cases of Qualified Theft against
respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc for taking various
amounts of money with grave abuse of confidence, and without the knowledge and consent of
the bank, to the damage and prejudice of the bank. The RTC dismissed the cases and refused
to issue a warrant of arrest against Puig and Porras on the ground of lack of probable cause
because the complaint failed to state the facts constituting the qualifying circumstance
of grave abuse of confidence and the element of taking without the consent of the
owner, since the owner of the money is not the Bank, but the depositors therein. MR was filed
but it was also denied.

ISSUE: WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY
ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE
QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

RULING: Yes. Qualified Theft, as defined and punished under Article 310 of the Revised Penal
Code, is committed as follows, viz:

ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher
by two degrees than those respectively specified in the next preceding article, if committed
by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor
vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a
plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire,
earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil
disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of
anothers property without violence or intimidation against persons or force upon things. The
elements of the crime under this Article are:

1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation against persons, nor
of force upon things;
6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter
alia, that the information must state the acts or omissions complained of as constitutive of the
offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of
Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the
offense and the qualifying and aggravating circumstances must be stated in ordinary and
concise language and not necessarily in the language used in the statute but in terms
sufficient to enable a person of common understanding to know what offense is being charged
as well as its qualifying and aggravating circumstances and for the court to pronounce
judgment.

It is evident that the Information need not use the exact language of the statute in alleging
the acts or omissions complained of as constituting the offense. The test is whether it enables
a person of common understanding to know the charge against him, and the court to render
judgment properly.[5]

The portion of the Information relevant to this discussion reads:

 [A]bove-named [respondents], conspiring, confederating, and helping one another, with
grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan,
Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x
x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who
come into possession of the monies deposited therein enjoy the confidence reposed in them
by their employer. Banks, on the other hand, where monies are deposited, are considered the
owners thereof. This is very clear not only from the express provisions of the law, but from
established jurisprudence. The relationship between banks and depositors has been held to
be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately
pointed out by petitioner, provide as follows:

Article 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.

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

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with
grave abuse of confidence, to the damage and prejudice of the Bank, without particularly
referring to it as owner of the money deposits, as sufficient to make out a case of Qualified
Theft

Where the Informations merely alleged the positions of the respondents; that the crime was
committed with grave abuse of confidence, with intent to gain and without the knowledge and
consent of the Bank, without necessarily stating the phrase being assiduously insisted upon
by respondents, of a relation by reason of dependence, guardianship or vigilance, between
the respondents and the offended party that has created a high degree of confidence
between them, which respondents abused, [12] and without employing the word owner in lieu of
the Bank were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in
this case, there is even no reason to quibble on the allegation in the Informations that they
acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of
confidence by accused herein is even more precise, as this is exactly the requirement of the
law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to
the confidence reposed in them, occupy positions of confidence. The Informations, therefore,
sufficiently allege all the essential elements constituting the crime of Qualified Theft.

Pantaleon vs American Express G.R. No. 174269, May 8 2009 [Credit Transaction]

FACTS: After the Amsterdam incident that happened involving the delay of American Express
Card to approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon
commenced a complaint for moral and exemplary damages before the RTC against American
Express. He said that he and his family experienced inconvenience and humiliation due to the
delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached its obligations
to Pantaleon, as the purchase at Coster deviated from Pantaleon's established charge
purchase pattern.

ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.

RULING:

1. Yes. The popular notion that credit card purchases are approved within seconds, there
really is no strict, legally determinative point of demarcation on how long must it take for a
credit card company to approve or disapprove a customers purchase, much less one
specifically contracted upon by the parties. One hour appears to be patently unreasonable
length of time to approve or disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioners purchase,
but the more elemental failure to timely act on the same, whether favorably or unfavorably.
Even assuming that AmExs credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why it could not have promptly informed Pantaleon the reason
for the delay, and duly advised him that resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred
delay, but because the delay, for which culpability lies under Article 1170, led to the particular
injuries under Article 2217 of the Civil Code for which moral damages are remunerative. The
somewhat unusual attending circumstances to the purchase at Coster that there was a
deadline for the completion of that purchase by petitioner before any delay would redound to
the injury of his several traveling companions gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by Pantaleon, as
concluded by the RTC.

II. Interest and the Usury Law

JARDENIL V. SOLAS G.R. No. L-47878 24 July 1942

Article 1956: No interest shall be due unless it has been expressly stipulated in writing.

FACTS:
The case is an action for foreclosure of mortgage. Paragraph 4 of the mortgage deed between
the parties states that Solas agrees to pay Jardenil on or before 31 March 1934 the amount of
P 2,400 with the interests of the sum at the rate of 12% per year starting from the date of
execution until its maturity date on 31 March 1934. The mortgage also includes an extension
note 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.

ISSUE:
Whether or not defendant-appellee (Solas) is bound to pay the stipulated
interest continuously up to the date of payment, regardless whether the actual date of
payment is beyond the stipulated maturity date

HELD/RATIO:
No. The Court ruled that Solas clearly agreed to 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, the Court cannot in law, indulge in
any presumption as to such interest; otherwise, the Court would be imposing upon the debtor
an obligation that the parties have not chosen to agree upon. Article 1755 of the (old) Civil
Code provides that "interest shall be due only when it has been expressly stipulated." There is
nothing in the mortgage deed to show that the terms stipulated go against the intention of
the parties. Neither has either of the parties shown that, by mutual mistake, the deed
of mortgage fails to express their agreement since the plaintiff, Jardenil, did not adduce
evidence
to establish such mistake. Since the parties included an extension note of one year within
which
to make payment without mentioning that additional interests should be paid during
that extended period, it can be deduced that parties intended that no interest should be paid
during the period of grace.
The contract is clear and unmistakable and the terms employed therein have not been shown
to belie or otherwise fail to express the true intention of the parties and that the deed has not
been assailed on the ground of mutual mistake which would require its reformation, same
should be given its full force and effect.

Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of
P2,400 from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial
demands have been made on the expiration of the year of grace, he shall be entitled to legal
interest upon the principal and the accrued interest from April 1, 1935, until full payment.

CU-UNJIENG V. MABALACAT

Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, Mabalacat mortgaged its
property.
Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu Unjieng filed a case
against Mabalacat for foreclosure of property and payment of attorney's fees. It also claims
interest over interest. Mabalacat insisted that the agreement for the extension of the time of
payment had the effect of abrogating the stipulation of the original contract with respect to
the acceleration of the maturity of the debt by non-compliance with the terms of the
mortgage. The issue related on this case is the interest over interest.

Issue: WoN Cu-Unjieng is entitled to interest over interest.

Ruling: It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of
the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded;
and rests for the computation of compound interest can certainly be made monthly, as well as
quarterly, semiannually, or annually. But in the absence of express stipulation for the
accumulation of compound interest, no interest can be collected upon interest until the debt is
judicially claimed, and then the rate at which interest upon accrued interest must be
computed is fixed at 6 per cent per annum. In this case, there was no compound interest in
the agreement.

GSIS vs. CA G.R. No. L-52478 | 30 October 1986

FACTS
Sps. Medina applied for a loan with GSIS in the amount of P600,000. But only P350,000 had
been approved (BR 5041) subject to the conditions:
a. that 9% per annum shall be the interest rate, compounded monthly;
b. that the loan shall be repayable in 10 years at a monthly mortization of P4,433.65
including principal and interest, and that any installment or amortization due and unpaid
shall bear an interest of 9%/12 per month.

The Office of the Economic Coordinator, in a 2nd Indorsement, further reduced the approved
amount to P295,000. The Medinas accepted the reduced amount, executed a promissory note
and a REM in favor of GSIS. On June 6, 1962, the approved loan was restored to P350,000 and
was denominated as Account No.
31055. As a consequence, the Medinas subsequently executed an Amendment of Real Estate
Mortgage. Upon application by the Medinas, GSIS adopted Resolution No. 121, as amended by
Resolution No. 348, granting an additional loan of P230,000 on the security of the same
mortgaged properties and additional properties. The loan was denominated as Account No.
31442.

Beginning 1965, the Medinas defaulted in their payments and in 1967, they began defaulting
in the payment of their fire insurance premiums. On May 3, 1974, GSIS informed the debtors
that they had arrearages in the amount of P575,652.42 as of April 18, 1974 and demanded
payment within 7 days, otherwise, it would foreclose the mortgage.
On Apr. 21, 1975, GSIS applied for foreclosure of the mortgage. The Medinas filed a complaint,
praying for the issuance of a restraining order or writ of PI, but no such RO or WPI was issued
in view of PD No. 385. On Apr. 25, 1975, the Medinas made a last partial payment in the
amount of P209, 662.80. The properties of the medinas were sold at public auction with GSIS
as the highest bidder. Hence, the Medinas filed an amended complaint, praying for the
declaration of nullity of their 2 REM contracts with the GSIS, as well as of the EJ foreclosure
proceedings, and for the refund of excess payments, damages and AF.

TC: N&V + Medinas to pay GSIS P1,611.12 in fully payment of their obligation with 9%
p.a. interest from Dec. 11, 1975
CA: Affirmed: GSIS to reimburse P9,580 OP and pay Sp Medina P3,000 AF and P1,000
litigation exp;
SC: PRC ; MR: due course

ISSUE # 1
WON the CA erred in holding that the amendment of the REM dated July 6,
1962superseded the mortgage contract dated Apr. 4, 1962, particularly wrt the
compounding of interest

HELD
Said Amendment was never intended to completely supersede the mortgage contract dated
April 4, 1962. In fact, GSIS, as a matter of policy, imposes uniform terms and conditions for all
its real estate loans, particularly with respect to compounding of interest.

GSIS: Did not supersede; amended only wrt the amount secured thereby and the amount
of monthly amortizations; others deemed rewritten

Medinas: no express stipulation on the compounded interest OP o The difference in the

computation lies in the inclusion of the compounded interest as demanded by the GSIS on the
one hand and the exclusion
thereof, as insisted by the Medinas on the other.

ISSUE # 2
WON the CA erred in sustaining the Sp. Medinas claim of OP, by crediting the fire
insurance proceeds in the sum of P11,152.02 to the total payment made by said
spouses as of Dec. 11, 1975

HELD
YES. The plaintiffs were not entitled to a credit of P19,381.07 as FI proceeds, as they were
only entitled to and were credited with P11,152.02.

ISSUE # 3
WON the CA erred in holding that the interest rates on the loan accounts of the
Medinas are usurious

HELD
NO. Usury Law applies only to interest by way of compensation for the use or forbearance of
money. Interest by way of damages is governed by Article 2209 of the Civil Code

ISSUE # 4:
WON the CA erred in affirming the annulment of the subject EJ foreclosure
andsheriffs Certificate of Sale

HELD
Since the Medinas failed to settle their accounts with the GSIS, the latter had a perfect right to
foreclose the mortgage.
Reversed and set asideVALID.
LIGUTAN VS. CA G.R. No. 138677 | 12 February 2002

FACTS
1. Tolomeo Ligutan and Leonidas dela Llana obtained a loan from private respondent Security
Bank and Trust Company (PN, jointly and severally, P120k, 15.189% p.a., penalty of 5% every
month on outstanding principal and interest in case of default, 10% atty fees). Maturity date:
8 Sep 1981, extension till 29 Dec
1981.
2. Several demands from bank; as of 20 May 1982: P114,416.10
3. Final demand letter (full payment required): 30 Sep 1982; default
4. Bank filed a complaint for recovery: RTC Makati Br 143
a. Bank presented evidence, rested case
b. Petitioners reset on 2 occasions
1) Bank moved to declare petitioners in default granted
2) 2 years later, petitioners MRd denied
c. TC ruled in favor of plaintiff (P114,416, 15.189% p.a., 2% service charge, 5% p.m.
penalty charge, commencing 20 May 1982 until fully paid, 10% atty fees)
5. Petitioners appealed to CA
a. Assailed rejection of motion to present evidence, 2% service charge, 5% p.m. penalty
charge, 10% atty fees
b. CA affirmed except for 2% service charge (deleted pursuant to CB Circular 783)
c. Petitioners MRd for reduction of 5% p.m. penalty charge for being unconscionable
d. Bank MRd that payment of interest and penalty commences from time of default
(not filing of complaint)
e. CA: when obligation fell due, 5% p.m. penalty charge
f. Petitioners filed omnibus MR and to admit newly- discovered evidence alleging
executing a real estate mortgage as security effect of novation
g. Mortgage foreclosed without notice; they did not credit them with proceeds
h. CA denied MR (R52 S2: no second MR allowed) and admission of newly
discovered evidence (evidence known to them, not newly-discovered)

ISSUE # 1
Was penalty clause unconscionable?

RATIO

Impliedly NO, but reduced due to partial performance. SC agreed with CA that it
may be reduced due to partial performance and to allow petitioners to finally settle the
obligation. (Art 1229 CC)
Penalty Clause: Accessory undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation
Function of Penalty Clause
o To strengthen the coercive force of the obligation;
o To provide, in effect, for what could be the liquidated damages resulting from such a breach

ISSUE # 2
Was the 15% p.a. interest unreasonable?

RATIO
NO. The interest on its face is not excessive.
Interest: Cost of money; fundamental part of banking business; core of banks existence.
Interest and penalty are distinct concepts which may separately be demanded.

ISSUE # 3
Did the execution of the mortgage novate the contract?

RATIO
NO. Petitioners acknowledge that there is no express stipulation that the mortgage is
intended to supersede the loan agreement. (Besides, as we now know, mortgage is an
accessory obligation! )
EASTERN SHIPPING LINES vs. CA G.R. No. 97412 | 12 July 1994
FACTS
1. Contract of carriage between Eastern Shipping Lines & an unnamed shipper to carry 2 fiber
drums of riboflavin aboard SS Eastern Comet from Yokohama, Japan to Manila, insured by
respondent Mercantile Insurance Company
a. Arrastre operator Metro Port Service received one drum in bad order (others
OK)
b. Broker-forwarder Allied Brokerage Corporation received one drum opened
and without seal (others OK)
c. Consignees warehouse received one drum which contained spillages, while
the rest of the contents were adulterated/fake; losses: P19,032.95 which
insurance paid for
2. RTC held the defendants (common carrier) liable
3. CA affirmed

ISSUE
WON interest should commence at filing of complaint (12% p.a.) or at date of TC
decision (6% p.a.)

HELD
6% p.a. legal interest, then 12% p.a. from finality of decision till payment
1) loan or forbearance of money
a. as stipulated in writing, or
b. 12% p.a. from default (extra-judicial/judicial demand)
2) not loan or forbearance of money
a. reasonable certainty 6% p.a. from judicial/extra-judicial demand
b. no certainty 6% p.a. from date of judgment
3) legal interest 12% p.a. from finality till satisfaction

Antonio Tan vs. Court of Appeals/CCP GR No. 116285

FACTS:

1. Petition for review.

2. TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM CCP.

a. Executed a promissory note in amount of P3,411,421.32; payable in 5

installments.

b. TAN failed to pay any installment on the said restructured loa.

c. In a letter, TAN requested and proposed to respondent CCP a mode of paying the
restructured loan

i. 20% of the principal amount of the loan upon the respondent giving its
conformity to his proposal
ii. Balance on the principal obligation payable 36 monthly installments until
fully paid.

d. TAN requested for a moratorium on his loan obligation until the following year
allegedly due to a substantial deduction in the volume of his business and on
account of the peso devaluation.

i. No favorable response was made to said letters.

ii. CCP demanded full payment, within ten (10) days from receipt of said
letter P6,088,735.03.

3. CCP FILED COMPLAINT collection of a sum of money

a. TAN interposed the defense that he accommodated a friend who asked for help
 to obtain a loan from CCP.

i. Claimed that cannot find the friend.

b. TAN filed a Manifestation wherein he proposed to settle his indebtedness to CCP
by down payment of P140,000.00 and to issue1 2 checks every beginning of the
year to cover installment payments for one year, and every year thereafter until
the balance is fully paid.

i. CCP did not agree to the petitioners proposals and so the trial of the case
ensued.
4. TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67, representing defendants
outstanding account as of August 28, 1986, with the corresponding stipulated interest
and charges thereof, until fully paid, plus attorneys fees in an amount equivalent to
25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs.
a. REASONS:

i. Reason of loan for accommodation of friend was not credible.

ii. Assuming, arguendo, that the TAN did not personally benefit from loan,
he should have filed a 3rd-party complaint against Wilson Lucmen

iii. 3 times the petitioner offered to settle his loan obligation with CCP.

iv. TAN may not avoid his liability to pay his obligation under the promissory
note which he must comply with in good faith.

v. TAN is estopped from denying his liability or loan obligation to the private
respondent.

5. TAN APPEALED TO CA, asked for the reduction of the penalties and charges on his loan
obligation.
a. Judgment appealed from is hereby AFFIRMED.

1. No alleged partial or irregular performance.

2. However, the appellate court modified the decision of the trial court by deleting exemplary
damages because not proportionate to actual damage caused by the non-performance of the
contract

ISSUES:

WON there are contractual and legal bases for the imposition of the penalty, interest on the
penalty and attorneys fees.

TAN imputes error on CA in not fully eliminating attorney fees and in not reducing the
penalties considering that he made partial payments on the loan.

And if penalty is to be awarded, TAN asking for non-imposition of interest on the surcharges
because compounding of these are not included in promissory note.

No basis in law for the charging of interest on the surcharges for the reason that the New Civil
Code is devoid of any provision allowing the imposition of interest on surcharges.

WON interest may accrue on the penalty or compensatory interest without violating ART
1959: Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest due
and unpaid, which as added principal, shall earn new interest.

TAN- No legal basis for the imposition of interest on the penalty charge for the reason that the
 law only allows imposition of interest on monetary interest but not the charging of interest on
penalty. Penalties should not earn interest.

WON TAN can file reduction of penalty due to made partial payments.

Petitioner contends that reduction of the penalty is justifiable under 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.

HELD

CA DECISION AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%)
per month on the total amount due, compounded monthly, is hereby reduced to a straight
twelve percent (12%) per annum starting from August 28, 1986. With costs against the
petitioner.

1. WON there are contractual and legal bases for the imposition of the penalty, interest on
the penalty and attorneys fees. YES. WITH LEGAL BASES.
a. ART 1226: In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance,
if there is no stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

i. The penalty may be enforced only when it is demandable in accordance

with the provisions of this Code.
b. CASE AT BAR: promissory note expressed the imposition of both interest and
penalties in case of default on the part of the petitioner in the payment of the
subject restructured loan.
c. PENALTY IN MANY FORMS:

i. If the parties stipulate penalty apart monetary interest, two are different
and distinct from each other and may be demanded separately.
ii. If stipulation about payment of an additional interest rate partakes of the
nature of a penalty clause which is sanctioned by law:

1. ART 2209: If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.

d. CASE AT BAR: Penalty charge of 2% per month began to accrue from the time of
default by the petitioner.

i. No doubt petitioner is liable for both the stipulated monetary interest and
the stipulated penalty charge.
1. PENALTY CHARGE = penalty or compensatory interest.

2. WON interest may accrue on the penalty or compensatory interest without violating
ART 1959.
a. Penalty clauses can be in the form of penalty or compensatory interest.

i. Thus, the compounding of the penalty or compensatory interest is

sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New
 Civil Code considering that:
1. There is an express stipulation in the promissory note (Exhibit A) permitting the
compounding of interest.

a. 5th paragraph of the said promissory note provides that: Any interest which may
be due if not paid shall be added to the total amount when due and shall become part
thereof, the whole amount to bear interest at the maximum rate allowed by law..

2. Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve
percent (12%) per annum, in the absence of express stipulation on the specific rate of
interest, as in the case at bar.

b. ART 2212: Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
c. CASE AT BAR: interest began to run on the penalty interest upon the filing of the
complaint in court by CCP.

i. Hence, the courts did not err in ruling that the petitioner is bound to pay
the interest on the total amount of the principal, the monetary interest and the penalty
interest.

3. WON TAN can file reduction of penalty due to made partial payments. YES. BUT NOT
10% REDUCTION AS SUGGESTED BY PETITIONER.
a. REDUCED TO 2% REDUCTION:

i. PARTIAL PAYMENTS showed his good faith despite difficulty in complying

with his loan obligation due to his financial problems.

1. However, we are not unmindful of the respondents long overdue deprivation of the use of its
money collectible.

4. The petitioner also imputes error on the part of the appellate court for not declaring the
suspension of the running of the interest during period when the CCP allegedly failed to
assist the petitioner in applying for relief from liability
a. Alleges that his obligation to pay the interest and surcharge should have been
suspended because the obligation to pay such interest and surcharge has
become conditional

i. Dependent on a future and uncertain event which consists of whether the

petitioners request for condonation of interest and surcharge would be
recommended by the Commission on Audit.
1. Since the condition has not happened due to the private respondents reneging on its
promise, his liability to pay the interest and surcharge on the loan has not arisen.

b. COURT ANSWER:

i. Running of the interest and surcharge was not suspended.

ii. CCP correctly asserted that it was the primary responsibility of petitioner
to inform the Commission on Audit of his application for condonation of
interest and surcharge.