I.

LOANS IN GENERAL

PEOPLE vs. VENANCIO CONCEPCION

G.R. No. L-19190
November 29, 1922

FACTS
An extension of credit was authorized by the defendant in favor "Puno y Concepcion, S. en C. to
the manager of the Aparri branch of the Philippine National Bank. Defendant was a partner of the co-
partnership "Puno y Concepcion, S. en C. Further, defendant was found guilty of violating Sec. 35 of
Act No. 2747 which provides that the National Bank shall not, directly or indirectly, grant loans to any of
the members of the Board of Directors of the bank or to agents of the branch banks. As a defense,
defendants counsel argued that the documents of record only prove a concession of a credit, and not a
loan.

ISSUE
Whether or not the granting of credit to the co-partnership was considered as a loan within the
meaning of Sec. 35 of Act No. 2747.

HELD
YES, it is considered as a loan and not merely a concession of credit
The "credit" of an individual means his ability to borrow money by virtue of the confidence or
trust reposed by a lender that he will pay what he may promise. A "loan" means the delivery by one party
and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to
repay the sum loaned, with or without interest. The concession of a "credit" necessarily involves the
granting of "loans" up to the limit of the amount fixed in the "credit.
DBP vs. GUARINA
G.R. No. 160758
January 15, 2014

FACTS
Guaria Corporation applied for a loan from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. Guaria Corporation executed a promissory note worth
P3,387,000.00 that would be due on November 3, 1988. Guaria Corporation executed a real estate
mortgage over several real properties in favor of DBP as security for the repayment of the loan.
Thereafter , Guaria Corporation executed a chattel mortgage over the personal properties existing at the
resort complex and those yet to be acquired out of the proceeds of the loan, also to secure the performance
of the obligation. Prior to the release of the loan, DBP required Guaria Corporation to put up a cash
equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort
complex. The loan was released in several instalments. In all, the amount released totaled P3,003,617.49,
from which DBP withheld P148,102.98 as interest.

Guaria Corporation demanded the release of the balance of the loan, but DBP refused. Instead,
DBP directly paid some suppliers of Guaria Corporation over the latter's objection. DBP found upon
inspection of the resort project, its developments and improvements that Guaria Corporation had not
completed the construction works. DBP thus demanded that Guaria Corporation expedite the completion
of the project, and warned that it would initiate foreclosure proceedings should Guaria Corporation not
do so. Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guaria Corporation

Guaria Corporation sued DBP in the RTC to demand specific performance of the latter's
obligations under the loan agreement, and to stop the foreclosure of the mortgages. However, DBP moved
for the dismissal of the complaint, stating that the mortgaged properties had already been sold to satisfy
the obligation of Guaria Corporation at a public auction. Due to this, Guaria Corporation amended the
complaint to seek the nullification of the foreclosure proceedings and the cancellation of the certificate of
sale.

ISSUE
WON the foreclosure of a mortgage prior to the mortgagors default on the principal obligation is
valid.

HELD
NO, the foreclosure of the mortgage is premature and should be nullified.

The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan requires
the delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid. Loan is a reciprocal obligation, as
it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount
and the debtor repays it when it becomes due and demandable.

By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on
Guaria Corporation the latter's compliance with its own obligation under the loan. Indeed, if a party in a
reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to
perform what is expected of it while the other's obligation remains unfulfilled. In other words, the latter
party does not incur delay.

DBP's actuations were legally unfounded and it's foreclosure of the mortgage and the sale of the
mortgaged properties at its instance were premature, and, therefore, void and ineffectual.
DE LOS SANTOS vs. JARRA
G. R. No. L-4150
February 10, 1910

FACTS
A certain Magdaleno Jimenea borrowed from Felix de los Santos 10 first-class carabaos, to be
used at the animal mill of his hacienda from 1901-02 without recompense or remuneration whatever for
the use thereof, under the sale condition that he will return them after the completion of the work at the
mill, but Jimenea did not return the carabaos. He died in 1904 and the trial court appointed Agustina Jarra
as the administratrix of his estate. De los Santos claimed to the estate requesting for the return of his
carabaos, but it was rejected. Jarra was summoned by the trial court and denied the allegation of de los
Santos, that the late Jimenea only obtained 3 second-class animals, and in case of the carabaos, 4 died of
rinderpest, in which only six surviving carabaos were in issue. The trial court ruled in favour of de los
Santos and ordered Jarra to return the 6 carabaos and 3 second-class animals or its value.

ISSUE
Whether or not the contract is a loan, in this case a commodatum.

HELD
Yes. The carabaos delivered to be used not being returned by the defendants upon demand there
is no doubt that she is under obligation to indemnify the owner thereof by paying him their value. Since
the six carabaos were not the property of the deceased or of any of his descendant s it is the duty of the
administrator of the estate to either return them or indemnify the owner thereof their value.
SAURA IMPORT & EXPORT CO., INC. vs. DBP
44SCRA 445
1972

FACTS
Saura Inc. applied for a loan of 500k from to the RFC (before its conversion to DBP) secured by a
first mortgage of the factory building to finance for the construction of a jute mill factory, including its
equipment. 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?

HELD
On the first issue, yes, there was indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code. Article 1934 provides: An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until delivery of the object of the contract. 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.

However, the loan came with conditions and Saura, Inc. obviously was in no position to comply
with RFCs conditions. So instead of doing so and insisting that the loan be released as agreed upon,
Saura, Inc. asked that the mortgage be cancelled. The actions thus taken by both parties was of a mutual
desistance, which is a mode of extinguishing obligations. It is a concept that derives from the principle
that since a mutual agreement can create a contract, a mutual disagreement by the parties can cause its
extinguishment.
NAGUIAT vs. CA
412 SCRA 591
October 3, 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 for the amount P95,000.00, which was earlier issued
to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank
Check, to the order of Queao, 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 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties. Queao issued to Naguiat a promissory note for the amount of
P200,000.00, with interest at 12% per annum. Queao also issued a Security Bank and Trust Company
check, postdated for the amount of P200,000.00 and payable to the order of Naguiat. Upon presentment
on its maturity date, the Security Bank check was dishonored for insufficiency of funds. Queao received
a letter from Naguiats lawyer, demanding settlement of the loan. Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting,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. Before the scheduled
sale, Queao filed annulment of the mortgage deed.

ISSUE:
Whether the mere issuance of check results in the perfection of loan.

HELD:
The loan was not perfected by the mere issuance of check because there was no proof that the
checks were encashed. Absolutely no evidence was submitted by Naguiat that the checks she issued or
endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the 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. It is only after the checks have produced the effect of payment that the contract of loan may be
deemed perfected. 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. Since
Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos
account
CAROLYN M. GARCIA VS. RICA MARIE S. THIO
G.R. No. 154878
March 16, 2007

FACTS:
Sometime in 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia
two (2) crossed checks in the amounts of US$100,000 and P500,000 payable to the order of a certain
Marilou Santiago. Petitioner alleged that the respondent borrowed from her the amounts of US$100,000
with interest rate of 3% per month and P500,000 at an agreed monthly interest of 4%. Additionally, such
loans would mature on their own respective dates. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time. According to petitioner, though the respondent
paid the corresponding interests of said loans, the same failed to pay the principal amounts of the loans
when they fell due. Respondent denied that she contracted the two loans with petitioner and countered
that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago. Thus, the petitioner filed a complaint for sum of money
and damages in the RTC of Makati City, who ruled in her favour. However, on appeal, the CA reversed
the decision of the RTC.

ISSUE:
Whether or not Thio was the one who contracted a loan from Garcia.

HELD:
Yes. Delivery is the act by which the res or substance thereof is placed within the actual or
constructive possession or control of another. Although respondent did not 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 amounts to Santiago.Therefore, the CAs decision that the receipt of the
crossed checks by respondent is not the issuance and delivery to the payee in contemplation of law since
the latter is not the person who could take the checks as a holder. Moreover, the respondent inexplicably
never presented Santiago as a witness to corroborate her story that she was just facilitating the loan
transactions. The presumption is that evidence willfully suppressed would be adverse if produced. The
respondent was not able to overturn this presumption. CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. The Court instead
agrees with the ruling of the RTC making respondent liable for the principal amounts of the loans and
their respective interests.
POLO S. PANTALEON vs. AMERICAN EXPRESS INTERNATIONAL, INC.
629 SCRA 276

FACTS
The Pantaleons where at a European Tour currently in Amsterdam. They decided to purchase a
diamond at Coster. Mrs. Pantaleon had already planned to purchase even before the tour began a 2.5 karat
diamond brilliant cut, and she found a diamond close enough in approximation that she decided to buy.2
Mrs. Pantaleon also selected for purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. The Tour with the group needed to leave by 9:30 am to be able to have
ample time to have a city tour of Amsterdam. However, the credit card took about an hour to approve said
transaction by Mrs. Pantaleon. This lead to the group to lose time and cancel the city tour much to the
irritation by the other tourist in the group. Mrs. Pantaleon ended up weeping, while her husband had to
take a tranquilizer to calm his nerves. This delay occurred 2 more times while the family was in USA. On
4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the respondent,
demanding an apology for the "inconvenience, humiliation and embarrassment he and his family thereby
suffered" for respondents refusal to provide credit authorization for the aforementioned purchases.8 In
response, respondent sent a letter dated 24 March 1992,9 stating among others that the delay in
authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of
US $13,826.00 "was out of the usual charge purchase pattern established. Hence, Pantaleon decided to
file a case before the RTC praying that he be awarded 2,000,000.00, as moral damages; 500,000.00, as
exemplary damages; 100,000.00, as attorneys fees; and 50,000.00 as litigation expenses.12The RTC
decided in petitioners favor but with reduced monetary awards. Upon appeal at the Court of Appeals, the
decision was reversed. Hence this petition.

ISSUES
1) Whether respondent, in connection with the aforementioned transactions, had committed a breach
of its obligations to Pantaleon
2) Claim for Damages

HELD
Petition is Granted. RTC decision reinstated.
The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent
in acting on petitioners purchase at Coster did constitute culpable delay on its part in complying with its
obligation to act promptly on its customers purchase request, whether such action be favorable or
unfavorable. Such delay would not fall under mora accipiendi, which contemplates that the obligation of
the debtor, such as the actual purchases on credit, has already been constituted. The three requisites for a
finding of default are that the obligation is demandable and liquidated; the debtor delays performance;
and the creditor judicially or extrajudicially requires the debtors performance.Herein, the establishment
of the debt itself (purchases on credit of the jewelry) had not yet been perfected, as it remained pending
the approval or consent of the respondent credit card company. As evidenced in the records, the Credit
Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands
viewed the delay as unusually frustrating. Manila Amexco could be unaware of the need for speed in
resolving the charge purchase referred to it, yet it sat on its hand, unconcerned. The Court is convinced
that defendants delay constitute[s] breach of its contractual obligation to act on his use of the card abroad
"with special handling. The Court explained, that one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the
customer to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.
Had they rejected the transaction instantly, petitioner and his family would have returned to the bus
without delay internally humiliated perhaps over the rejection of his card yet spared the shame of
being held accountable by newly-made friends for making them miss the chance to tour the city of
Amsterdam.
As to the damages, the findings of the trial court are ample in establishing the bad faith and
unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of respondents Manila
credit authorizer, Edgardo Jaurique. 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.
GIRONELLA v. PNB
G.R. No. 194515
Sept. 16, 2015

FACTS:
On November 11, 1991 and January 16, 1992, the Spouses Oscar and Gina Gironella obtained
two co-terminus loans amounting to 7,500,000 php and 2,000,000 php from Philippine National Bank
(PNB) for the construction of the Dagupan Village Hotel and Sports Complex. Both loans were payable
on installment and secured by the same real estate mortgage over a parcel of land covered by TCT No.
56059 in favor of PNB.

In May 1992, the Spouses Gironella applied for another loan amounting to 5,800,000 php for the
construction of a disco-restaurant and bar and the purchase of a generator set.
From the period of February 1993 to October 2, 1995, the Spouses Gironella paid 4,219,000 php in total
for their first two loans.

The Spouses Gironella defaulted in paying the prior two loans. The Spouses alleged that: (1) they
were made to believe by PNB that their third loan would be approved, (2) they were directed to proceed
with their expansion plans and (3) there would be a loan restructuring. Thus, they used income generated
by the hotel while the third was pending.

In January and April 1998, the Spouses Gironella paid a total of 2,650,000 php allegedly to effect
the restructuring of their loans. Despite restructuring negotiations, PNB filed a petition to foreclose the
mortgaged property on May 29, 1996 and April 17, 1998 and a Notice of Extra-judicial Foreclosure Sale.
The final foreclosure was subsequently stalled but was refiled on July 25, 2000 after failure to agree on
the restructuring.

Spouses Gironella filed a complaint before the RTC with prayer for issuance of a Temporary
Restraining Order (TRO) and preliminary injunction to enjoin the enforcement of the original credit
agreements and the foreclosure of the mortgaged property. The RTC issued the TRO and Writ of
Preliminary injunction and subsequently, grant the complaint by ruling that there was a binding credit
restructuring agreement. On Motion for Partial Reconsideration, RTC clarified that actual and
compensatory damages to reckon from the date of the filing of the amended complaint and declared
permanent the writ of preliminary injunction.

PNB filed a petition an appeal to the CA arguing that the letters sent on January 2000 and
February 7, 2000 were not perfected since there was only a qualified acceptance equivalent to a counter-
offer. CA favored PNB. The bare allegations of abuse of right by PNB on giving the Spouses Gironella
false hope was insufficient to grant them damages.
Spouses Gironella filed a petition for review under Rule 45 of the Rules of Court.

ISSUE:
W/N CA is correct that there is no acceptance to perfect the credit restructuring agreement.
HELD:
Yes. No restructured loan agreement at all that was perfected. Petition is Denied.

There are 3 distinct stages of a contract: (1) preparation or negotiation (2) perfection and (3)
consummation. The credit restructuring loan was in the negotiation stage. The application for additional
loan separate from the first two credit loans was also in the negotiation stage.
The approval of the additional loan is not contingent on the representation of the PNB officers as PNB
must comply with the General Banking Law to assess based on specific legal banking requirements.
Thus, it cannot be approved without qualification.

A contract is perfected by mere consent. In turn, consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance seasonable and absolute. If qualified, the acceptance would merely
constitute a counter-offer as what occurred in this case.

To reach that moment of perfection, the parties must agree on the same thing in the same sense,
so that their minds meet as to all the terms. They must have a distinct intention common to both and
without doubt or difference; until all understand alike, there can be no assent, and therefore no contract.
The minds of parties must meet at every point; nothing can be left open for further arrangement. So long
as there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the
parties, there is not a completed contract, and in fact, there is no contract at all.

The Spouses Gironella's payments under its original loan account cannot be considered as partial
execution of the proposed restructuring loan agreement. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of agreement of the
parties. Once there is concurrence of the offer and acceptance of the object and cause, the stage of
negotiation is finished. Since there was a counter-offer, the parties were not past the stage of negotiation.
BPI v. CA
G.R. No. 133632
February 15, 2002

FACTS
Roa obtained a loan from BPI for the construction of a house. The house and lot was mortgaged
as security. Interest rate of loan 16.25%. Roa sold the house and lot to Litonjua for 850,000. They paid
350,000 and assumed the loan obligation(500,000) of Roa with BPI. BPI did not agree in providing the
same terms of the loan to Litonjua, they wanted a new loan contract, secured by the same properties with
an interest rate of 20%. Litonjua made payments of over 100,000

BPI instituted foreclosure proceedings against Litonjua for alleged non-payment of obligation.
Litonjua argued that only 464,000 out of the 500,000 loan was released so foreclosure proceedings were
immature as they were not obliged to fully pay the amortization yet. BPI argued that loan was a
consensual contract therefore there was already a binding agreement bet them and Litonjua. RTC ruled in
favor of Litonjua; CA affirmed

ISSUE
WON loan is a consensual contract

HELD
A simple loan is a real contract, not a consensual contract. Perfection is upon the delivery of the
object which was the full amount of the loan in this case. There was no default on the part of Litonjua as
his obligation to pay does not arise until full release of loan.
PENTA vs. MAHINAY
GR 1717368
July 5,2010

FACTS:
Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on
two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total amount
of P1,936,800.00. These loans were evidenced by two promissory notes dated February 23, 1996. Despite
repeated demands, respondent failed to pay the loans, hence, the complaint. In his Answer with
Compulsory Counterclaim, respondent claimed that petitioner had no cause of action because the
promissory notes on which its complaint was based were subject to a condition that did not occur. While
admitting that he indeed signed the promissory notes, he insisted that he never took out a loan and that the
notes were not intended to be evidences of indebtedness. By way of counterclaim, respondent prayed for
the payment of moral and exemplary damages plus attorneys fees. Respondent explained that he was the
counsel of Ciudad Real Development Inc. (CRDI). In 1994, Pentacapital Realty Corporation (Pentacapital
Realty) offered to buy parcels of land known as the Molino Properties, owned by CRDI, located in
Molino, Bacoor, Cavite. The Molino Properties, with a total area of 127,708 square meters, were sold at
P400.00 per sq m. As the Molino Properties were the subject of a pending case, Pentacapital Realty paid
only the down payment amounting to P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to
pay the formers creditors, including respondent who thus received a check worth P1,715,156.90. It was
further agreed that the balance would be payable upon the submission of an Entry of Judgment showing
that the case involving the Molino Properties had been decided in favor of CRDI. Respondent,
Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien equivalent to 20% of
the total consideration of the sale in the amount of P10,277,040.00. Pending the submission of the Entry
of Judgment and as a sign of good faith, respondent purportedly returned the P1,715,156.90 check to
Pentacapital Realty. However, the Molino Properties continued to be haunted by the seemingly
interminable court actions initiated by different parties which thus prevented respondent from collecting
his commission. On motion of respondent, the Regional Trial Court (RTC) allowed him to file a Third
Party Complain against CRDI, subject to the payment of docket fees. Admittedly, respondent earlier
instituted an action for Specific Performance against Pentacapital Realty before the RTC of Cebu City,
Branch 57, praying for the payment of his commission on the sale of the Molino Properties. In an
Amended Complaint, respondent referred to the action he instituted as one of Preliminary Mandatory
Injunction instead of Specific Performance. Acting on Pentacapital Realtys Motion to Dismiss, the RTC
dismissed the case for lack of cause of action. The dismissal became final and executory. With the
dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental Compulsory
Counterclaim. In addition to the damages that respondent prayed for in his compulsory counterclaim, he
sought the payment of his commission amounting to P10,316,640.00, plus interest at the rate of 16% per
annum, as well as attorneys fees equivalent to 12% of his principal claim. Respondent claimed that
Pentacapital Realty is a 100% subsidiary of petitioner. Thus, although petitioner did not directly
participate in the transaction between Pentacapital Realty, CRDI and respondent, the latters claim against
petitioner was based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent
alleged that petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital
Group of Companies. Over the opposition of petitioner, the RTC, in an Order dated August 22, 2002,
allowed the filing of the supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA
through a special civil action for certiorari, seeking to reverse and set aside the RTC Order. The case was
docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed Decision
dismissing the petition. The appellate court sustained the allowance of the supplemental compulsory
counterclaim based on the allegations in respondents pleading. The CA further concluded that there was
a logical relationship between the claims of petitioner in its complaint and those of respondent in his
supplemental compulsory counterclaim. The CA declared that it was inconsequential that respondent did
not clearly allege the facts required to pierce the corporate separateness of petitioner and its subsidiary,
the Pentacapital Realty.

ISSUE:
Whether or not respondent is bound by the promissory notes

RULING:
It must be established that all the elements of a contract of loan are present. Like any other
contract, a contract of loan is subject to the rules governing the requisites and validity of contracts in
general.
It is elementary in this jurisdiction that what determines the validity of a contract, in general, is
the presence of the following elements: (1) consent of the contracting parties; (2) object certain which is
the subject matter of the contract; and (3) cause of the obligation which is established. Under Article 1354
of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the
contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the following are disputable
presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has
been followed; and (3) there was sufficient consideration for a contract.
SIERRA VS CA
G.R. No. 90270
July 24, 1992

FACTS
On November 2, 1984 the petitioner Sierra filed a complaint against the private respondents
EPIFANIA SOL ELE all surname EBARLE, sought to recover sum of money of 85, 000 pesos with 12 %
interest per anum indicated in a promissory note signed by the Private respondents. That the said amount
was loaned by the respondents to the petitioner for the purpose "to pay some cattle for fattening to be
inspected by the inspector of the Land Bank that day" in connection with their application for a loan of
P400,000.00 from the said bank to finance their logging and cattle business. The application was
apparently not approved. When the note fell due, he made demands for their payment, which were
ignored. However, in their answer the respondents denied the genuineness, due execution, legality and
validity of the promissory notes. That for them the petitioner asked them to sign the notes for formality
that he will be needing as a proof to his business partners. RTC decided that the promissory notes were
invalid and deciding in favor of the private respondents and was affirmed by the CA.

ISSUE
WON the promissory note was valid?

HELD
Yes, A promissory note is supposed to be a genuine document acknowledging a loan duly
received and promising to pay the same on the date indicated in accordance with the conditions therein set
forth. There is no record is there cannot be of the number of times such a promise has been fulfilled
and the debt discharged. But our casebooks are replete with reports of litigations where the promissory
note has been rejected and even indignantly denounced. The usual objection is that it is spurious or
fabricated, or vitiated by fraud or duress or undue influence, or not reflective of the true intention of the
parties. That the Supreme Court does not recognized the defense of the respondents being that they would
know what they really signed into and that there were no undue influence, vitiated action that they were
highly educated not to know the consequences therein. A promissory note is a solemn acknowledgment of
a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the
borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate
obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he
reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves
instead its sharp repudiation. So must it be in the case at bar.
LOZANO vs. MARTINEZ
G.R. No. L-63419

FACTS
The constitutionality of Batas Pambansa Bilang 22, popularly known as the Bouncing Check
Law, is the sole issue presented in various petitions for decision. These petitions arose from cases
involving prosecution of offenses under the statute. The defendants in those cases moved seasonably to
quash the information on the ground that the acts charged did not constitute an offense, the statute being
unconstitutional. The motions were denied by the respondent trial courts, except in one case wherein the
trial court declared the law unconstitutional and dismissed the case. Among the constitutional objections
raised against BP 22, the most serious is the alleged conflict between the statute and the constitutional
provision forbidding imprisonment for debt. It is contended that the statute runs counter to the inhibition
in the Bill of Rights which states, "No person shall be imprisoned for debt or non-payment of a poll tax."
As a threshold issue the former Solicitor General in his comment on the petitions, maintained the posture
that it was premature for the accused to elevate to the SC the orders denying their motions to quash, these
orders being interlocutory.

ISSUE
WON BP BP 22 is violative of the constitutional provision on non-imprisonment due to debt

HELD
No. The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless
check or a check that is dishonored upon its presentation for payment. It is not the non-payment of an
obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt.
The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and
putting them in circulation. Because of its deleterious effects on the public interest, the practice is
proscribed by the law. The law punishes the act not as an offense against property, but an offense against
public order. Unlike a promissory note, a check is not a mere undertaking to pay an amount of money. It
is an order addressed to a bank and partakes of a representation that the drawer has funds on deposit
against which the check is drawn, sufficient to ensure payment upon its presentation to the bank. There is
therefore an element of certainty or assurance that the instrument wig be paid upon presentation. For this
reason, checks have become widely accepted as a medium of payment in trade and commerce. Although
not legal tender, checks have come to be perceived as convenient substitutes for currency in commercial
and financial transactions. The basis or foundation of such perception is confidence. If such confidence is
shaken the usefulness of checks as currency substitutes would be greatly diminished. Any practice
therefore tending to destroy that confidence should be deterred for the proliferation of worthless checks
can only create havoc in trade circles and the banking community. The effects of the issuance of a
worthless check transcends the private interests of the parties directly involved in the transaction and
touches the interests of the community at large. The mischief it creates is not only a wrong to the payee or
holder, but also an injury to the public. The harmful practice of putting valueless commercial papers in
circulation, multiplied a thousand fold, can very wen pollute the channels of trade and commerce, injure
the banking system and eventually hurt the welfare of society and the public interest.
TIOMICO vs. CA
G.R. No. L- 122539
March 4, 1999

FACTS
Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter of Credit with the Bank of the Philippine
Islands (BPI) for $5,600 to be used for the importation of two (2) units of Forklifts, Shovel loader and a
truck mounted with crane. On October 29, 1982, the said machineries were received by the accused, as
evidenced by the covering trust receipt. Upon maturity of the trust receipt, on December 28, 1982, he
made a partial payment of US$855.94, thereby leaving an unpaid obligation of US$4,770.46. As of
December 21, 1989, Tiomico owed BPI US$4,770.46, or P109,386.65, computed at P22.93 per US dollar,
the rate of exchange at the time. Failing to pay the said amount or to deliver subject machineries and
equipments, despite several demands, the International Operations Department of BPI referred the matter
to the Legal Department of the bank. But the letter of demand sent to him notwithstanding, Tiomico failed
to satisfy his monetary obligation sued upon.

Consequently, he was accused of a violation of PD 115, otherwise known as the Trust Receipts
Law and in the arraigned Tiomico entered a plea of Not Guilty
Counsel for petitioner objected to the admission of evidence on the ground that witness failed to identify
the said documents inasmuch as her testimony regarding the signatures appearing therein were evidently
hearsay. But the trial court admitted the said documentary evidence, despite the objections raised thereto
by the defense. Thereafter, the prosecution rested.

On January 30, 1991, the trial court promulgated its decision finding petitioner guilty of a
violation of PD 115, and CA affirmed the decision of the RTC sentencing Tiomico to suffer an
indeterminate penalty of ten (10) years of prision mayor as minimum, to fifteen (15) years of reclusion
temporal as maximum; to indemnify Bank of the Philippine Islands the sum of P109,386.65 and to pay
the costs.

ISSUE
WHETHER OR NOT PD 115 OR TRUST RECEIPTS LAW IS UNCONSTITUTIONAL DUE
TO NON-IMPRISONMENT FROM DEBT CLAUSE?

HELD
NO, the Court has repeatedly upheld the validity of the Trust Receipts Law and consistently
declared that the said law does not violate the constitutional proscription againts imprisonment for non-
payment of debts. Verily, PD 115 is a declaration by the legislative authority that, as a matter of public
policy, the failure of a person to turn over the proceeds of the sale of goods covered by a trust receipt or to
return said goods if not sold is a public nuisance to be abated by the imposition of penal sanctions.
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not
seek to enforce payment of a loan. Thus, there can be no violation of the right against imprisonment for
non-payment of a debt.In fine, PD 115 is a valid exercise of police power and is not repugnant to the
constitutional provision of non-imprisonment for non-payment of debt.
II. LOAN
A. COMMODATUM

REPUBLIC VS BAGTAS
G.R. No. L-17474
October 25, 1962

FACTS:
Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for a period of one year for
breeding purposes subject to a government charge of breeding fee of 10% of the book value of the books.
Upon the expiration of the contract, Bagtas asked for a renewal for another one year, however, the
Secretary of Agriculture and Natural Resources approved only the renewal for one bull and other two
bulls be returned. Bagtas then wrote a letter to the Director of Animal Industry that he would pay the
value of the three bulls with a deduction of yearly depreciation. The Director advised him that the value
cannot be depreciated and asked Bagtas to either return the bulls or pay their book value. Bagtas neither
paid nor returned the bulls. The Republic then commenced an action against Bagtas ordering him to
return the bulls or pay their book value.
After hearing, the trial Court ruled in favor of the Republic, as such, the Republic moved ex parte
for a writ of execution which the court granted. Felicidad Bagtas, the surviving spouse and administrator
of Bagtas estate, returned the two bulls and filed a motion to quash the writ of execution since one bull
cannot be returned for it was killed by gunshot during a Huk raid. The Court denied her motion hence,
this appeal certified by the Court of Appeals because only questions of law are raised.

ISSUE:
WON the contract was commodatum;thus, Bagtas be held liable for its loss due to force majeure.

RULING:
A contract of commodatum is essentially gratuitous. Supreme Court held that Bagtas was liable
for the loss of the bull even though it was caused by a fortuitous event. If the contract was one of lease,
then the 10% breeding charge is compensation (rent) for the use of the bull and Bagtas, as lessee, is
subject to the responsibilities of a possessor. He is also in bad faith because he continued to possess the
bull even though the term of the contract has already expired. If the contract was one of commodatum, he
is still liable because: (1) he kept the bull longer than the period stipulated; and (2) the thing loaned has
been delivered with appraisal of its value (10%). No stipulation that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from liability.
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed
for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and
delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt
from liability.
PRODUCERS BANK vs. CA
397 SCRA 651

FACTS
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business,
the Sterela Marketing and Services (Sterela for brevity). Specifically, 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. Private respondent asked Sanchez to bring Doronilla to their house so that they could
discuss Sanchezs request.
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private 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.
Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact.
Private 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 private respondent. However, upon presentment thereof by private respondent
to the drawee bank, 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
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients 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. The case was
docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi
in the RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the
trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case
No. 44485 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 CA committed an error when it ruled that the transaction between the parties was
a commodatum.

HELD
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of
the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so
that the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum, the bailor
retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum may
have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.[27] In case of doubt, the contemporaneous and subsequent
acts of the parties shall be considered in such determination.[28] 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.
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
private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has
no bearing on the question of petitioners liability for the return of private respondents money because the
factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was
partly responsible for the loss of private respondents money and is liable for its restitution.
MINA vs. PASCUAL
25 Phil 540
(1913)

FACTS
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during
his lifetime, on March 12, 1874, a lot. Andres Fontanilla, with the consent of his brother Francisco,
erected a warehouse on a part of the said lot,embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et al.,
were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta
Pascualwere recognized, though it is not said how, and consequently are entitled to the said building, or
rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging, as
it appears, to the plaintiffs themselves, and the remaining one-seventh of the first one-half to the children
ofone of the plaintiffs, Elena de Villanueva. Ruperta Pascual, as the guardian of her minor children, the
herein defendants, petitioned the Court of First Instance of Ilocos Norte for authorization to sell "the six-
sevenths of the one-half of the warehouse,of 14 by 11 meters, together with its lot. The warehouse,
together with the lot on which it stands, was sold to Cu Joco, the other defendant in this case.

ISSUE
WON, there exist a contract of commodatum?

HELD
Although both litigating parties may have agreed in their idea of the commodatum, on account of
its not being, as indeed it is not, a question of fact but of law Contracts are not to be interpreted in
conformity with the name that the parties thereto agree to givethem, but must be construed, duly
considering their constitutive elements, as they are defined anddenominated by law. By the contract of
loan, one of the parties delivers to the other, either anything not perishable, in orderthat the latter may use
it during the certain period and return it to the former, in which case it is called commodatum...(Art. 1740,
Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing belonging
toanother shall be for a certain period.
Francisco Fontanilla did not fix any definite period or time duringwhich Andres Fontanilla could
have the use of the lot whereon the latter was to erect a stonewarehouse of considerable value, and so it is
that for the past thirty years of the lot has been used by both Andres and his successors in interest. The
Supreme Court held that it was not a commodatum. It is an essential feature of commodatum that the use
of the thing belonging to another shall be for a certain period. The parties never fixed a definite period
during which Andres could use the lot and afterwards return it.
QUINTOS vs. BECK
69 PHIL 108

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

ISSUE:
Whether or not Beck complied with his obligation to return the furniture by surrendering it to the
sheriff instead of returning it to Quintos himself.

RULING:
The contract entered into between the parties is one of commodatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership
thereof ; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the
latters demand (clause 7 of the contract, exhibit A, articles 174, paragraph 1, and 1741 of the civil code).
The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiffs demand,
means that he should return all of them to the plaintiff at the latters residence or house. The defendant did
not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for
his benefit the three gas heaters and the four electric lamps. The defendant had voluntarily undertaken to
return all the furniture to the plaintiff, upon the latters demand; the court could not legally compel her to
bear the expenses occasioned by the deposit of the furniture at the defendants behest. The latter, as
bailee, was not entitled to place the furniture on deposit nor was the plaintiff under a duty to accept the
order to return the furniture, because the defendant wanted to retain the three gas heaters and the four
electric lamps.
PAJUYO v. CA
GR No. 146364
June 3, 2004

FACTS
Pajuyo entrusted a house to Guevara for the latter's use provided he should return the same upon
demand and with the condition that Guevara should be responsible of the maintenance of the property.
Upon demand Guevara refused to return the property to Pajuyo. The petitioner then filed an ejectment
case against Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the
appellate court reversed the judgment of the lower court on the ground that both parties are illegal settlers
on the property thus have no legal right so that the Court should leave the present situation with respect to
possession of the property as it is, and ruling further that the contractual relationship of Pajuyo and
Guevara was that of a commodatum.

ISSUE
Whether or not the contractual relationship of Pajuyo and Guevara is that of a commodatum.

HELD
No. The Court of Appeals theory that the Kasunduan is one of commodatum is devoid of merit.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it. An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a
certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the
thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum. The
Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case
law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease. The tenants
withholding of the property would then be unlawful.
REPUBLIC vs. BALOY
GR NO. L-46145
November 26, 1986

FACTS:
This case originally emanated from a decision of the Court of Instance of Zamabales, denying
Domingo Baloy heirs application for registration of title of their land. The heirs then interposed an
appeal on the Court of Appeals. The appellate court rendered a decision approving the application for
registration. The Republic, representing Bureau of Lands, filed motion for reconsideration but was
denied, hence this petition for certiorari.
The heirs claim is anchored on their possessory title coupled with their continuous, adverse and
public possession over the land. The possessory title shows that the title has been acquired by Domingo
Baloy under the provisions of the Spanish Mortgage Law.
However, the Director of Lands opposed the registration alleging that the land had become public
land through the operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to
the executive order of the President of US, the area was declared within the US Naval Reservation. Under
Act 627 as amended by Act 1138, a period was fixed within which persons affected thereby could file
their application otherwise such land would be declared to be public land and claims will forever be
barred. Republic argues that since Domingo Baloy failed to file his claim within the period, the land had
become irrevocably public and could not be subject of valid registration for private ownership.

ISSUE:
Whether or not Domingo Baloy heirs rights over the land was lost by prescription

HELD:
Under Sec. 3 of Act 627, it is clear that private land could only be deemed to have become public
land only by virtue of a judicial declaration after due notice and hearing. Without a judgement or order
declaring the land to be public, its private character and possessory information tile must be respected.
Since no such order has been rendered by the Land Registration, it never became a public land.
Hence, the disputed property is private land and the possession was merely interrupted by the occupation
of US Navy for recreational purposes. The US navy eventually abandoned the premises. The heirs of
Domingo Baloy are now in actual possession, and this has been so since the abandonment.
Clearly, the occupancy of the US Navy was not in the concept of owner. It partakes of the character of a
commodatum. Ones ownership of a thing may be lost by prescription by reason of anothers possession
if such possession be under claim of ownership, not where the possession is only intended to be
momentary, as in the case, in which the owner is not divested of his title, although it cannot be exercised
in the meantime.
B. MUTUUM

REPUBLIC OF THE PHILS. vs. JOSE GRIJALDO

G.R. No. L-20240
December 31, 1965

FACTS:
In 1943, Jose Grijaldo (appellant) obtained five loans from Bank of Taiwan Bacolod Branch, in
the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans
are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan. To
secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his
land known as Hacienda Campugas.

In 1954, Republic of the Philippines (appellee), 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. The record shows that the appellant had actually received the written demand for payment, but
he failed to pay.

In 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. The appellee
appealed to the Court of First Instance of Negros Occidental; the court rendered a decision ordering the
appellant to pay the appellee.

The appellant appealed directly to this Court. During the pendency of this appeal the appellant
Jose Grijaldo died.

ISSUE:
Whether or not the Republic of the Philippines is the successor of the rights, title and interests in
said loans

RULING:
It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the
appellant and the Bank of Taiwan was a private contract of loans. However, pursuant to the Trading with
the Enemy Act, E.O. 9095 of the US, and under Vesting Order, the properties of the Bank of Taiwan,
Ltd., were vested in the United States Government. Pursuant, further, to the Philippine Property Act of
1946 and Transfer Agreements between the United States Government and the Republic of the
Philippines, the assets of the Bank of Taiwan. were transferred to and vested in the Republic of the
Philippines. The successive transfers of the rights over the loans in question from the Bank of Taiwan,
Ltd. to the United States Government, and from the United States Government to the government of the
Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and
interests in said loans, thereby creating a privity of contract between the appellee and the appellant.
TAN vs. VALDEHUESA
56 SCRA 61
(1965)

FACTS:
An action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador
Valdehueza and Rediculo Valdehueza for (a) declaration of ownership and recovery of possession of the
parcel of land described in the first cause of action of the complaint, and (b) consolidation of ownership
of two portions of another parcel of (unregistered) land described in the second cause of action of the
complaint, purportedly sold to the plaintiff in two separate deeds of pacto de retro. Parcel of land
described in the first cause of action was the subject matter of the public auction sale in Oroquieta,
Misamis Occidental, wherein the Tan was the highest bidder . Due to the failure of defendant Arador
Valdehueza to redeem the said land within the period of one year as being provided by law, Mr. Vincente
Roa who was then the Ex-Officio Provincial Sheriff executed an absolute deed of sale in favor of the
plaintiff Lucia Tan. Civil case 2002 was a complaint for injunction filed by Tan on July 24, 1957 against
the Valdehuezas, to enjoin them "from entering the above-described parcel of land and gathering the nuts
therein.This complaint and the counterclaim were subsequently dismissed. The Valdehuezas appealed to
the lower court alleging that it erred in making a finding on the second cause of action that the
transactions between the parties were simple loan, instead, it should be declared as equitable mortgage.

ISSUE:
Whether the transactions between the parties were simple loan?

HELD:
No. Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the
validity of a mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect
since August 30,1950), this is no longer so. If the instrument is not recorded, the mortgage is nonetheless
binding between the parties. (Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes having been paid
by them, the contracts which purported to be pacto de retro transactions are presumed to be equitable
mortgages, 5 whether registered or not, there being no third parties involved.
JARDENIL vs. SALAS
G.R. No. L-47878
July 24, 1942

FACTS
This is an action for foreclosure of mortgage. Salas agreed to pay interest only up to the date of
maturity. The contract is silent as to whether after the date of maturity, in the event of non-payment; the
debtor would continue to pay interest.

ISSUE
Whether or not Salas was bound to pay interest up to the date the payment is effected?

HELD
No, he is obliged to pay interest only up to the date of maturity as fixed in the promissory note.
As the contract is silent as to whether after that date, in the event of non-payment, the debtor would
continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we
would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article
1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated."
The act of the mortgage of granting to the mortgagor on the same date of execution of the deed of
mortgage, 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,
indicates that the true intention of the parties was that no interest should be paid during the period of
grace. What reason the parties may have therefor, we need not here seek to explore.
FRIAS vs. SAN DIEGO
520 SCRA 244
(2007)

FACTS:
Frias entered into an agreement with Sison whereby the latter shall buy the house and lot of the
former covered by TCT No. 168173 for a sum of P6.4 million pesos with a down payment of P3 million
although Frias actually received only P2 million because the check covering the P1 million was
dishonored. The buyer was given 6 months to decide whether to buy the property or not and if she does,
she is given another 6 months to pay the balance of P3.4 million. Frias is also given the right to offer the
property to a 3rd party within the 6-month period and if sold to said 3rd party, to return the down payment
to Sison with interest based on prevailing compounded bank interest. But if there is no other buyer and
Sison should also decide not to buy the property, Frias has another 6 months within which to pay the P3
million with compounded bank interest for the last 6 months only and the 3 million shall be treated as a
loan with the property as security. There was no buyer and after the lapsed of the period, Sison decided
not to buy the property. Frias failed to pay the amount despite demand so Sison instituted a complaint for
sum money. The debtor was later investigated for perjury and false testimony when Frias made a false
report of the loss of owners copy of TCT No. 168173, executing an affidavit of loss and by filing a
petition for the issuance of a new owners duplicate of title. When the civil case was decided against her
and was ordered to pay Sison the amount due plus damages, she claimed that such award is without basis
because she was acquitted in the case for perjury and false testimony.

ISSUE:
WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO
SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.

COURTS RULING:
No, the interest should not be limited to 6 months.

The Court noted that their agreement speaks of two (2) periods of six months each. The first six-
month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase
defendant-appellants (petitioner's) property. The second six-month period was given to defendant-
appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject
property in which case interest will be charged "for the last six months only", referring to the second six-
month period. This means that no interest will be charged for the first six-month period while appellee
was making up her mind whether to buy the property, but only for the second period of six months after
appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months
only". Certainly, there is nothing in their agreement that suggests that interest will be charged for six
months only even if it takes defendant-appellant an eternity to pay the loan.

The agreement that the amount given shall bear compounded bank interest for the last six months
only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged
after the second six-month period since such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated. Considering that petitioner failed
to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the
monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until
the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount. It has been held that for a debtor to continue in possession of the
principal of the loan and to continue to use the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the
creditor.
ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc.
G.R. No. 142277
December 11, 2002

FACTS:
Petitioner and respondent, as owner and contractor, respectively entered into an Agreement for
the construction of petitioners condominium. Despite the completion of the project, petitioner was not
able to pay respondent the full amount and left a balance. Repeated demands were left unheeded
prompting respondent to file a civil case against petitioner, with a prayer among others that the full
amount be paid with interest of 2% per month, from Nov. 1990 up to the time of payment. RTC ruled in
favor of respondent. Petitioner appealed to the CA, particularly opposing the imposition of the 2%
interest. The CA ruled in favor of the 2% interest.
Petitioners contention- The imposition of the interest is without basis because (1) although it was
written in the Agreement, it was not mentioned by the RTC in the dispositive portion and (2) the interest
does not apply to the respondents claim but to the monthly progress billing.

ISSUE:
WON the RTC and Ca is correct in imposing a 2% per month interest on the monetary award or
the balance of the contract price.

HELD:
Yes. The Agreement between the parties is the formal expression of the parties rights, duties and
obligations. It is the best evidence of the intention of the parties. Consequently, upon the fulfillment by
respondent of its obligation to complete the construction project, petitioner had the correlative duty to pay
for respondents services. However, petitioner refused to pay the balance of the contract price. From the
moment respondent completed the construction of the condominium project and petitioner refused to pay
in full, there was delay on the part of petitioner.
Delay in the performance of an obligation is looked upon with disfavor because, when a party to a
contract incurs delay, the other party who performs his part of the contract suffers damages thereby.
Obviously, respondent suffered damages brought about by the failure of petitioner to comply with its
obligation on time. And, sans elaboration of the matter at hand, damages take the form of interest.
Accordingly, the appropriate measure of damages in this case is the payment of interest at the rate agreed
upon, which is 2% interest for every month of delay.
It must be noted that the Agreement provided the contractor, respondent in this case, two options
in case of delay in monthly payments, to wit: a) suspend work on the project until payment is remitted by
the owner or b) continue the work but the owner shall be required to pay interest at a rate of two percent
(2%) per month or a fraction thereof. Evidently, respondent chose the latter option, as the condominium
project was in fact already completed. The payment of the 2% monthly interest, therefore, cannot be
jettisoned overboard.
Since the Agreement stands as the law between the parties, this Court cannot ignore the existence
of such provision providing for a penalty for every months delay. Facta legem facunt inter partes.
Neither can petitioner impugn the Agreement to which it willingly gave its consent. From the moment
petitioner gave its consent, it was bound not only to fulfill what was expressly stipulated in the
Agreement but also all the consequences which, according to their nature, may be in keeping with good
faith, usage and law. Petitioners attempt to mitigate its liability to respondent should thus fail.
As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed
by respondent and later awarded by the lower courts does not refer to monthly progress billings, the
delayed payment of which would earn interest at 2% per month.
Petitioner appears confused by a semantics problem. Monthly progress billings certainly form
part of the contract price. If the amount claimed by respondent is not the monthly progress billings
provided in the contract, what then does such amount represent? Petitioner has not in point of fact
convincingly supplied an answer to this query. Neither has petitioner shown any effort to clarify the
meaning of monthly progress billings to support its position. This leaves us no choice but to agree with
respondent that the phrase monthly progress billings refers to a portion of the contract price payable by
the owner (petitioner) of the project to the contractor (respondent) based on the percentage of completion
of the project or on work accomplished at a particular stage. It refers to that portion of the contract price
still to be paid as work progresses, after the downpayment is made.
This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which
respectively provides that the (b)alance shall be paid in monthly progress payments based on actual
value of the work accomplished and that the progress payments shall be reduced by a portion of the
downpayment made by the OWNER corresponding to the value of the work completed give sense to
respondents interpretation of monthly progress billings.
SONCUYA V. AZARRAGA
65 Phil 635
(1938)

FACTS
An agreement was entered into by Defendants surnamed Azarraga and Atty. Leodegario Azarraga
stating in Exhibit A that parcels of land are specially mortgaged and said attorney may hold said
lands under no obligation to pay any rent until his fees shall have been fully paid.
After 9 months when the Exhibit A was approved by the court, the credit of Attorney Leodegario
Azarraga was sold to Plaintiff Soncuya, the herein petitioner. By virtue of the sale and cessions which
Atty. Azarraga had made in his favor, Soncuya became the creditor of the defendants. Soncuya allowed
the defendants to pay him his credit until February 16, 1926 with a condition that they should also pay an
interest rate of 12% per annum from August 30, 1924. Upon the request of the defendants, the term was
extended to April 26, 1926 with the same condition.

ISSUE
Was the contract entered into by the defendants Azarraga with Attorney Leodegario Azarraga,
from whom the plaintiff derived his right, a sale with pacto de retro, or was it merely a loan with real
estate security?

HELD
The contract was a simple loan.

The contract was converted into a simple loan when the plaintiff extended the period to February
16, 1926 within which the defendants Azarraga could pay him his credit with a condition that a 12%
annual interest shall be paid and gave them another extension up to April 26, 1926, under the same
conditions as regard interest. Interests can be demanded only in contracts of loan, with or without
guaranty. In this case, it can be shown that the obligation which the defendants had imposed upon
themselves by Exhibit A had ceased to exist and became a simple loan with security of the lands in
question.
ROYAL SHIRT FACTORY, INC. v CO
94 PHIL 994
(1954)

FACTS:
The parties entered into a contract wherein it is stipulated that 350 pairs of ballet shoes will be
sold by Co and that Co had 9 days from delivery of the shoes to make his choice of 2 alternatives:
a) consider the sale for the shoes closed at a flat rate, or
b) return the remaining unsold ones to Royal.

Co failed to return the unsold pairs after 9 days and actually began making partial payments on account of
the purchase price agreed upon. Co then contended that there was merely a consignment of the goods and
he wanted to return the unsold shoes. Royal refused contending that it was an outright sale.

ISSUE:
Whether the sale was an outright sale and whether Co is bound by the interest stipulated in the
invoice.

SC Ruling:
YES.
- OUTRIGHT SALE
o Co accepted the invoice of the ballet shoes and he even noted down in his own handwriting the
partial payments that he made.
o If the sale has been on consignment, a stipulation as to the period of time for the return of the
unsold shoes should have been made, however, this was not done.
NO.
- NOT BOUND BY THE INTEREST
o He did not sign the invoice slip the stipulated interest was 20%, hence, not binding
o However, he is bound by the legal interest of 6%

Hence, Co was ordered to pay the balance of the purchase price for the ballet shoes + legal interest.
OVERSEAS BANK OF MANILA vs. CORDERO
G.R. No. L-33582
March 30, 1982

FACTS
On July 20, 1967, Vicente Cordero, the private respondent opened a 1-year time deposit with
petitioner bank amounting to P80,000, with interest of 6% per annum until fully paid. Due to its
distressed financial condition, the bank was unable to pay. Cordero instituted an action before the Court
of First Instance of Manila. Petitioner raised the defenses of insolvency and prejudice to other depositors.
The lower court, and the Court of Appeals, ruled in favor of Cordero. Hence, the instant petition for
review on certiorari.

Certain supervening events rendered the issue moot and academic. Respondents brother and
attorney-in-fact sent a letter to the Commercial Bank of Manila (petitioners successor-in-interest),
acknowledging receipt of P10,000.00 from the Philippine Deposit Insurance Company and another
manifestation for P73,840 representing the principal and interest, with waiver of damages. Upon further
examination, it was found that the respondents brother has no Special Power of Attorney. Respondents
brother submitted the Special Power of Attorney, with explanatory comment that the waiver applies only
to third party claims, suits and damages, not to interest and attorneys fees.

ISSUE
Whether respondent is entitled to interest and attorneys fees?

HELD
The lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set
aside. It appearing that the amount of the latter's time deposit had been fully paid.

The obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the Central Bank. Neither can respondent Cordero recover attorneys fees.
Petitioners refusal to pay was not due to a willful and dishonest refusal to comply with its obligation but
to restrictions imposed by Central Bank.
RAMOS vs. CENTRAL BANK
137 SCRA 685
July 22, 1985

FACTS
Pending final determination is Central Bank's motion for reconsideration dated December 28,
1982 of the Court's Resolution of October 19, 1982 which ruled "applying the Tapia ruling as reaffirmed
by the Court in the subsequent cases cited above OBM vs. Vicente Cordero, 113 SCRA 303 (March 30,
1982), per Escolin, J.; OBM vs. Julian Cordero, 113 SCRA 778 (April 27, 1982), per Barredo, J.) that the
bank is not liable for interest on the Central Bank loans and advances during the period of its closure from
August 21 1968 to January 8, 1981."

ISSUE
Whether or not petitioner is liable to pay interest

HELD
No. In the Tapia ruling (105 SCRA 49, June 11, 1981), the Court held that "the obligation to pay
interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank," and that "for the guidance of those who might be concerned, and
so that unnecessary litigations may be avoided from further clogging the dockets of the courts, that in the
light of the considerations expounded in the above opinion, the same formula that exempts petitioner from
the payment of interest to its depositors during the whole period of factual stoppage of its operations by
orders of the Central Bank, modified in effect by the decision as well as the approval of a formula of
rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in respect to all
other obligations of petitioner which could not be paid during the period of its actual complete closure."

Central Bank 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.

The Central Bank itself held the the same position when it was managing the Overseas Bank of
Manila, Central Bank argued in brief that in 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". In Pablo R. Roman et al vs. Central Bank, 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.
LIRAG TEXTILE MILLS, INC. and BASILIO L. LIRAG vs.
SOCIAL SECURITY SYSTEM and HON. PACIFICO DE CASTRO
153 SCRA 338

FACTS:
SSS, herein respondent, and Lirag Textile, herein petitioner, entered into a Purchase Agreement under
which SSS agreed to purchase from Lirag Textile preferred shares of stock worth P1,000,000.00 subject
to the following conditions:
For the repurchase by Lirag Textile of the shares of stock at regular intervals of 1 year and
payment of dividends; and
Failure to redeem and pay the dividends, the entire obligation shall become immediately due and
demandable, and Lirag Textile shall be liable to SSS in amount equivalent to 12% of the amount then
outstanding as liquidated damages.

Under such agreement, Basilio Lirag, as President of Lirag Textile, signed the agreement as a surety to
guarantee the redemption of the stocks, payment of dividends and other obligations. Pursuant to the
agreement, SSS paid Lirag Textile P500,000.00 on two occasions and the latter issued 5,000 preferred
shares of stock with a par value of P100 as evidence by Stock Certificate Nos. 128 and 139.

Despite sending letters of demand to Lirag Textile, it still has not made any redemption nor made
dividend payments. Since Lirag Textile failed to comply with the terms of the agreement, SSS filed an
action for specific performance and damages.

Lirag Textile contends that there is no obligation on their part to redeem since SSS is still a preferred
stockholder of the corporation and such redemption is dependent upon the financial ability of the
corporation. As for Mr. Lirags part, he contends that his liability arises only if the company is liable and
does not perform its obligations under the agreement. The lower court ruled in favor of SSS, held that the
Purchase Agreement was a debt instrument and sentenced petitioners to pay SSS jointly and severally
P1,000,000.00 plus legal interest and P220,000.00 representing the 8% per annum dividends plus legal
interest, among others.

ISSUES:
1. Whether or not the Purchase Agreement is a debt instrument
2. Whether or not petitioners are liable to pay the 8% cumulative dividends

HELD:
1. YES. The Purchase Agreement is a debt instrument. Its terms and conditions show that parties intended
the repurchase of the preferred shares on the scheduled dates to be an absolute obligation which does not
depend upon the financial ability of Lirag Textile. This absolute obligation is made manifest by the fact
that a surety was required. Also, the undertaking of Lirag Textile to redeem the preferred shares at the
specified dates constitutes a debt which is defined as an obligation to pay money at some fixed future
time, or at a time which becomes definite and fixed by acts of either party and which they expressly or
impliedly, agree to perform in the contract.
Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase the
preferred shares on the scheduled due dates renders the entire obligation due and demandable, with
petitioner in such eventuality liable to pay 12% of the then outstanding obligation as liquidated damages.
These features of the Agreement, taken collectively, clearly show the intent of the parties to be bound
therein as debtor and creditor, and not as corporation and stockholder. Thus, it follows that Mr. Lirag
cannot deny liability for Lirag Textiles default. As surety, he is bound immediately to pay SSS the
amount then outstanding.

2. YES. The dividends stipulated by the parties served evidently as interests. The amount thereof was
fixed at 8% per annum and was not made to depend upon or to fluctuate with the amount of profits or
surplus realized, a clear indication that the parties intended to give a sure and fixed earnings on the
principal loan. The fact that the dividends were supposed to be paid out of net profits and earned surplus,
of which there were none, does not excuse petitioners from the payment thereof, again for the reason that
the undertaking of Mr. Lirag as surety, included the payment of dividends and other obligations then
outstanding.
ANGEL JOSE vs. CHELDA
23 SCRA 119
(1968)

FACTS
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged
unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint, plus
attorneys fees of P5,000.00. Alleging that post dated checks issued by defendants to pay said account
were dishonored, that defendants industrial partner, Chellaram I. Mohinani, had left the country, and that
defendants have removed or disposed of their property, or are about to do so, with intent to defraud their
creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount of
P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged
and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month, and,
consequently, plaintiff has no cause of action against defendants and should not be permitted to recover
under the law. A counterclaim for P2,000.00 attorneys fees was interposed.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of
pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law
(Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on
the contract. So they continue the New Civil Code provisions must be upheld as against the Usury
Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New
Civil Code, that: Usurious contracts shall be governed by the Usury Law and other special laws, so far as
they are not inconsistent with this Code. (Emphasis ours.)

ISSUE
Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal terms as to
payments of the principal debt.

HELD
Article 1420 of the New Civil Code provides in this regard: In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced.
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality
lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.
CU UNJIENG E HIJOS, vs. THE MABALACAT SUGAR CO., ET AL.,THE MABALACAT
SUGAR CO.,
G.R. No. L-32644
October 4, 1930

FACTS:
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the
purpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to more than
P163,00, with interest, and to foreclose a mortgage given by the debtor to secure the same, as well as to
recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff for insurance upon the
mortgaged property, with incidental relief. Trial Judge ruled in favor of Cu Unjieng, and added that
Mabalacat is liable to pay compound interest in favor of Cu Unjieng. However, Mabalacat Sugar
Company, appealed. Malacat alleged that there are points assigned as errors.

ISSUES:
Whether or not the action was prematurely stated.
Whether or not the appellate court erred in finding Mabalacat to pay compound interest.

HELD:

The first point assigned as error has relation to the question whether the action was prematurely stated.
The mortgage executed by the Mabalacat contains a provision to the effect that non-compliance on the
part of the mortgage debtor with any of the obligations assumed in virtue of this contract will cause the
entire debt to become due and give occasion for the foreclosure of the mortgage. Mabalacat failed to
comply, however, Cu Unjieng, agreed to extend the time for payment of the mortgage. But Mabalacat
failed altogether to pay the balance due. Notwithstanding the failure of the debtor to comply with the
terms of this extension, it is insisted for the appellant that this 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. This
contention is untenable. The agreement to extend the time of payment was voluntary and without
consideration so far as the creditor is concerned; and the failure of the debtor to comply with the terms of
the extension justified the creditor in treating it as of no effect. The first error is therefore without merit.

The second error is directed to the propriety of the interest charges made by the plaintiff in estimating the
amount of the indebtedness. Under the second clause of the mortgage, interest should be calculated upon
the indebtedness at the rate of 12 per cent per annum. In the same clause, but in a separate paragraph,
there is another provision with respect to the payment of interest. "Interest, to be computed upon the still
unpaid capital of the loan, shall be paid monthly, at the end of each month."

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 the present case, however, the language
which we have quoted above does not justify the charging of interest upon interest, so far as interest on
the capital is concerned. The provision quoted merely requires the debtor to pay interest monthly at the
end of each month, such interest to be computed upon the capital of the loan not already paid. Clearly this
provision does not justify the charging of compound interest upon the interest accruing upon the capital
monthly. It is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the
interest can be thus computed upon sums which the creditor would have to pay out (a) to maintain
insurance upon the mortgaged property, (b) to pay the land tax upon the same property, and (c) upon
disbursements that might be made by the mortgagee to maintain the property in good condition. But the
chief thing is that interest cannot be thus accumulated on unpaid interest accruing upon the capital of the
debt. The Exhibit 1 therefore adds no support to the contention of the plaintiff that interest upon interest
can be accumulated in the manner adopter by the creditor in this case. It is merely a receipt showing that
the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. It
results that the appellant's second assignment of error is well taken, and the compound interest must be
eliminated from the judgment.

DAVID vs. CA
316 SCRA 710
(1999)
FACTS
Judge Diaz of RTC Manila, issued a writ of attachment over the real properties of private
respondents. Judge Diaz ordered private respondents Afable to pay petitioner P 66,500.00 with interest
from July 24, 194, until fully paid. However, Judge Diaz amended said Decision, so that the legal rate of
interest should be computed from January 4, 1966, instead of from July 24, 1974. Respondent Afable
appealed to CA and SC, which both affirmed the decision of the lower court. Subsequently, entries of
judgment were made and the record of the case was remanded to RTC Branch 27, presided by respondent
Judge Cruz, for the final execution of the decision as amended.
Upon petitioners motion, respondent Judge issued an Alias Writ of Execution by virtue of which
respondent judgment is P 270, 940.52. The amount included the computation of simple interest.
Petitioner, however, claimed that the judgment award should be P 3, 027, 238.50, because the amount due
ought to be based on compounded interest. Although the auctioned properties were sold to the petitioner,
Sheriff Pea did not issue a certificate of sale because there was an excess in the bid price in the amount
of P, 941,524.47, which the petitioner failed to pay despite notice.
Petitioner filed a motion praying that respondent Judge Cruz issue an order directing respondent
Sheriff Pea to prepare and execute a certificate of sale in favor of the petitioner, placing therein the
amount of judgment as P 3,027,238.50, the amount he bid during the auction which he won. His reason is
that compound interest, which was allowed in Article 22 12 of the Civil Code, should apply in this case.
RTC and CA din not favor petitioner. Petitioner argued that the CA erred in ruling Article 2212 of the
Civil Code applies only where the parties to an obligation stipulated or agreed to pay compound interest.

ISSUE
Whether or not appellate court erred in affirming respondent Judges order for the payment of simple
interest only rather than compound interest:

RULING
Petitioner insists that in computing the interest due of the P 66, 500.00, interest should be
computed at 6% on the principal sum of P 66,500.00 pursuant to Article 2212 of the Civil Code. In his
view, said article meant compound interest. However, Article 2212 contemplates the presence of
stipulated or conventional interest which has accrued when demand was judicially made. In cases where
no interest had been stipulated by the parties, no accrued conventional interest could further earn interest
upon judicial demand.
Furthermore, when the judgment sought to be executed ordered the payment of simple legal
interest only and said nothing about payment of compound interest, but the respondent judge orders
payment of compound interest, then, he goes beyond the confined judgment which had become final. In
this case, the CA made a finding the no interest was stipulated by the parties. Responded Judge
followed Reformina and applied Central Bank Circular No. 416 amending Act 2655 (Ususry Law) and
raising the legal rate of interest from 6% to 12% per annum. The passage of the Central Bank Circular
416 was a supervening event which happened after the decision had become executor.

VELEZ vs. BALZARA

73 Phil 630
(1942)
FACTS
Plaintiff in an amended complaint prayed for the return of certain parcels of land which she alleged had
been sold by the defendants to plaintiff's deceased husband, Ramon Neri San Jose, with right of
repurchase. She further alleged that defendants had remained in possession of said land under a contract
of lease, but that for over two years defendants had not paid the agreed rentals." In their amended answer,
defendants alleged that the real agreement was loan secured by a mortgage of those lands; and that
whereas the amount borrowed was only P2,400, defendants had however already paid P4,420.88.
Defendants therefore prayed for the return of the excess, or P2,029.88. Balzara alleged that the real
agreement was a loan secured by a mortgage of those lands. Trial court found that the payments made by
defendants were not made by way of interest but as payments for the principal. Balzara overpaid and
Plaintiff should return the excess.

ISSUE
Whether or not the excess payment should be returned

RULING
The liability of plaintiff to return the excess payments is in keeping with Article 1895 (Old Civil
Code) which provides that, when something is received which there is no right to collect, and which by
mistake has been unduly delivered, the obligation to restore it arises.The 2 requisites are present: 1)
There is no right to collect these excess sums; and 2) the amounts have been paid through mistake by
defendants. Such mistake is shown by the fact that their contracts never intended that either rents or
interest should be paid, and by the further fact that when these payments were made, they were intended
by defendants to be applied to the principal, but they overpaid the amounts loaned to them.

THE GOVERNMENT SERVICE INSURANCE SYSTEM v. COURT OF APPEALS, ET. AL.,

145 SCRA 311
October 30, 1986
FACTS
A loan of P350,000.00, subject to an interest of 9% per annum compounded monthly, was
approved by the GSIS in favor of private respondents Spouses Medina. In addition to the said agreement,
a stipulation was also made by the parties which provides that any installment that remains due and
unpaid shall bear interest at the rate of 9%/12% per month. After sometime, the loan was subsequently
reduced to P295,000.00. An Amendment of Real Estate Mortgage, was executed by private respondent
Medina in favor of GSIS which states that the mortgagor shall pay to the system P4, 433.65 monthly
including principal and interest.
An additional loan o P230,000.00 on the security of the same mortgaged properties and additional
properties with a 9% interest per annum compounded monthly and repayable in 10 years was approved by
the Board of Trustees of GSIS. Upon default of the private respondents in the payment of the monthly
amortization on their loan, a 9%/12% interest on installments due and unpaid were imposed by the GSIS.
However, as argued by the private respondent, there is no express stipulation on compounded interest in
the amendment of mortgage and the compounded interest stipulation in the original mortgage which has
been superseded cannot be enforced in the later mortgage.

ISSUES
1. Whether or not the imposition of 9%/12% interest on instalments is proper in view of the Amendment
of Real Estate Mortgage.
2. Whether or not the interest rate is usurious.

HELD
1. Yes, the imposition of 9%/12% interest on installments is proper. The Court held that the amendment
was never intended to completely supersede the mortgage contract. As provided by the amendment, it
carries the provisions that it shall be subject to the same terms and conditions of the original mortgage
contract except for the amount and amortization.

2. No, the interest rate is not usurious. It is a well-settled rule that Usury Law applies only to interest by
way of compensation for the use or forbearance of money. On the other hand, interest by way of damages
is governed by Article 2209 of the Civil Code of the Philippines which provides:
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.
As held by the Court, the Civil Code permits the agreement upon a penalty apart from the interest. In case
there is an agreement, the interest should not be included in the penalty since there are two different
things which may be demanded separately.

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA vs. COURT OF APPEALS &

SECURITY BANK & TRUST COMPANY
G.R. No. 138677
February 12, 2002

FACTS:
Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120, 000.00 from
Security Bank and Trust Company. Petitioners executed a promissory note binding them, jointly and
severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a
penalty of 5% every month on the outstanding principal and interest in case of default. In addition,
petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were
indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured
on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May
1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners
informing them that they had five days within which to make full payment. Since petitioners still
defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of
Makati, Branch 143, a complaint for recovery of the due amount.
Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two
consecutive occasions. In view of the absence of petitioners and their counsel on 28 August 1985, the
third hearing date, the bank moved, and the trial court resolved, to consider the case submitted for
decision.Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the
order of the trial court declaring them as having waived their right to present evidence and prayed that
they be allowed to prove their case.
Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial
court of their motion to present evidence and assailing the imposition of the 2% service charge, the 5%
per month penalty charge and 10% attorney's fees. In its decision3 of 7 March 1996, the appellate court
affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted
pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court,
both parties filed their respective motions for reconsideration. Petitioners prayed for the reduction of the
5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of
interest and penalty be commenced not from the date of filing of complaint but from the time of default as
so stipulated in the contract of the parties. The Court of Appeals resolved the defendants-appellants
Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank
and Trust

ISSUE:
Whether a penalty is reasonable or iniquitous can be partly subjective and partly objective.

RULING:
"Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for
reconsideration of a judgment or final resolution by the same party shall be entertained. Considering that
the instant motion is already a second motion for reconsideration, the same must therefore be denied.
"Furthermore, it would appear from the records available to this court that the newly-discovered evidence
being invoked by defendants-appellants have actually been existent when the case was brought on appeal
to this court as well as when the first motion for reconsideration was filed.1wphi1 Hence, it is quite
surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage
when they could have done so in the earlier pleadings filed before this court.
"The propriety or acceptability of such a second motion for reconsideration is not contingent
upon the averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore
presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely,
depending on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or
'newly discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for
reconsideration."20
At any rate, the subsequent execution of the real estate mortgage as security for the existing loan
would not have resulted in the extinguishment of the original contract of loan because of novation.
Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by
the parties intending it to supersede the existing loan agreement between the petitioners and the bank.21
Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan
in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the
parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new
one.22 In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every
point incompatible with each other.23 An obligation to pay a sum of money is not extinctively novated by
a new instrument which merely changes the terms of payment or adding compatible covenants or where
the old contract is merely supplemented by the new one.24 When not expressed, incompatibility is
required so as to ensure that the parties have indeed intended such novation despite their failure to express
it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements
of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things,
or from negotiorum gestio to agency, or from a mortgage to antichresis,25 or from a sale to one of
loan;26(2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the
subjects, such as the substitution of a debtor27 or the subrogation of the creditor. Extinctive novation does
not necessarily imply that the new agreement should be complete by itself; certain terms and conditions
may be carried, expressly or by implication, over to the new obligation.
EASTERN SHIPPING vs. CA
GR No. 97412,
12 July 1994

FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured
with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to
one drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company.
Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse. The latter excepted to one drum which
contained spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the
insurance company paid the consignee, so that it became subrogated to all the rights of action of
consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance
company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay
the former with present legal interest of 12% per annum from the date of the filing of the complaint. On
appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial
court.

ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the
time the complaint is filed from the date the decision appealed from is rendered.

HELD
(1) The Court held that the legal interest is 6% computed from the decision of the court a quo.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal
interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed fro default, J or EJD.

(2) From the date the judgment is made. Where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or EJ but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shll begin to run only
from the date of judgment of the court is made.

(3) The Court held that it should be computed from the decision rendered by the court a quo.
BPI FAMILY BANK VS. FRANCO and CA
G.R. No. 123498
November 23, 2007

FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon
thereafter, FMIC also opened a time deposit account with the same branch of BPI-FB. On August 31,
1989, Franco opened three accounts, namely, a current, savings, and time deposit, with BPI-FB. The total
amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco
allegedly in consideration of Francos introduction of Eladio Teves, to Jaime Sebastian, who was then
BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the
P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the Authority to Debit were
forged. BPI-FB, debited Francos savings and current accounts for the amounts remaining therein. In the
meantime, two checks drawn by Franco against his BPI-FB current account were dishonored and stamped
with a notation account under garnishment. Apparently, Francos current account was garnished by
virtue of an Order of Attachment issued by RTC Makati. Notably, the dishonored checks were issued by
Franco and presented for payment at BPI-FB prior to Francos receipt of notice that his accounts were
under garnishment. It was only on May 15, 1990, that Franco was impleaded in the Makati case.
Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment. On May 17,
1990, Franco pre-terminated his time deposit account.
BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him. Consequently, in light of BPI-FBs refusal to heed Francos
demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the
Manila RTC the subject suit.

ISSUE:
Whether or not respondent had better right to the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit

HELD:
No. There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a
legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB
conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on
simple loan or mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-
FB ultimately acquired ownership of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in
Francos accounts, it cannot prevent him from demanding payment of BPI-FBs obligation by drawing
checks against his current account, or asking for the release of the funds in his savings account. Thus,
when Franco issued checks drawn against his current account, he had every right as creditor to expect that
those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly
involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on
deposits which it supposes are derived from shady transactions, would open the floodgates of public
distrust in the banking industry.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco
and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.
PEOPLE vs. PUIG
563 SCRA 564

FACTS
On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before RTC in
Dumangas, 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. It was alleged in the information that Teresita Puig and Romeo Porras took away P15,000
without the consent of the owner Bank to the prejudice and damage of the bank. The RTC dismissed the
case for insufficiency of the information ruling that the real parties in interest are the depositors-clients
and not the bank because the bank does not acquire ownership of the money deposited in it.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning simple
loans." Corollary thereto, Article 1953 of the same Code provides that "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." Thus, it posits that the depositors who place their money
with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited
by its clients, making the money taken by respondents as belonging to the bank.

ISSUE
Whether or not the Bank acquired ownership of the money deposited in it to be able to hold the
respondents liable for qualified theft which requires that there must be taking of the money without the
consent of the owners.

HELD
YES. Banks 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.

In a long line of cases involving Qualified Theft, the 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. 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.
RCBC vs. ALFA RTW MANUFACTUARING CORPORATION et al.
G.R. No. 133877
14 November 2001

FACTS
Defendant Alfa RTW Manufacturing Corporation (Alfa RTW), on separate instances, had applied
for and was granted by plaintiff Rizal Commercial Banking Corporation (RCBC) four (4) Letters of
Credit to facilitate its purchase of raw materials for its garments business. Alfa RTW, in turn, had
executed four (4) Trust Receipts stipulating that it had received in trust for RCBC the goods and
merchandise described therein, and which were purchased with the drawings upon the letters of credit.

When the obligations upon the said commercial documents became due, RCBC demanded
payment of Alfa RTWs undertakings. However, Alfa RTW failed to heed RCBCs demand. On 12
March 1982, RCBC filed a civil case for a sum of money against Alfa RTW. The trial court thereafter
rendered judgment in favor of RCBC and ordered Alfa RTW to pay RCBC the amount of
PhP18,961,372.43. On appeal, the Court of Appeals (CA) affirmed the trial courts decision with
modification. Instead of PhP18,961,372.43, Alfa RTW was ordered to pay RCBC the amount of
PhP3,060,406.25.

ISSUE
Whether or not the CA can deviate from the provisions of the contract between RCBC and Alfa RTW.

HELD
No. The CA cannot deviate from the provisions of the contract between RCBC and Alfa RTW. In
this case, it failed to apply this time-honored doctrine: That which is agreed to in a contract is the law
between the parties. Thus, obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Further, the Court cannot vary the terms and conditions therein stipulated unless such stipulation
is contrary to law, morals, good customs, public order or public policy. The CA made findings contrary
to the admissions of the parties. When it ruled that only PhP3,060,406.25 should be awarded to RCBC, it
disregarded the parties stipulations in their contracts of loan, more specifically, those pertaining to the
agreed (1) interest rates, (2) service charges, and (3) penalties in case of any breach thereof.

Hence, the Supreme Court granted RCBCs petition. The amount awarded by the CA was set
aside and the case was remanded to the trial court for the proper computation thereof.
ESTORES vs. SPOUSES SUPANGAN
GR 175139,
April 18, 2012

FACTS
The parties entered into a contract of conditional deed of sale for a parcel of land located at Naic Cavite in
consideration for 4.7 million. And stipulated among others that, If and after the vendor has completed all
necessary documents for registration of the title and the vendee fails to complete payment as per
agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to
complete necessary documents within thirty days without any sufficient reason, or without informing the
vendee of its status, vendee has the right to demand return of full amount of down payment.

After seven years of execution of the contract and notwithstanding payment of 3.5 million on the part of
respondent-spouses, petitioner still failed to comply with her obligation. Hence, in a letter7 dated
September 27, 2000, respondent-spouses demanded the return of the amount of 3.5 million within 15
days from receipt of the letter. Which defendant promised to return the same within 120 days on the
condition imposed by the spouses that it will be charged a 12% interest compounded annually. Which
Estores declined.

A case was filed at RTC Malabon against Estores and his agent, which rendered a decision in favor of the
spouses respondent but up to 6% of interest annually and was Also awarded for damages. On appeal, the
RTC decision was affirmed with modification to the award of the amount of damages.

ISSUE:
Whether it is proper to impose interest for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties.

HELD:
YES. Interest may be imposed even in the absence of stipulation in the contract.
Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract. In this case, there is no question that petitioner
is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the
Conditional Deed of Sale, despite demand. Petitioner enjoyed the use of the money from the time it was
given to her until now. Thus, she is already in default of her obligation from the date of demand.

Forbearance is defined as a contractual obligation of lender or creditor to refrain during a given period of
time, from requiring the borrower or debtor to repay a loan or debt then due and payable. This definition
describes a loan where a debtor is given a period within which to pay a loan or debt. In such case,
forbearance of money, goods or credits will have no distinct definition from a loan. We believe
however, that the phrase forbearance of money, goods or credits is meant to have a separate meaning
from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently
defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions.

In this case, the respondent-spouses parted with their money even before the conditions were fulfilled.
They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending
fulfillment of the conditions. They were deprived of the use of their money for the period pending
fulfillment of the conditions and when those conditions were breached, they are entitled not only to the
return of the principal amount paid, but also to compensation for the use of their money. And the
compensation for the use of their money, absent any stipulation, should be the same rate of legal interest
applicable to a loan since the use or deprivation of funds is similar to a loan.
SPOUSES EDUARDO and LYDIA SILOS vs PHILIPPINE NATIONAL BANK
G.R. No. 181045, July 2, 2014

FACTS:
Spouses Eduardo and Lydia Silos have been in the business for about two decades of operating a
department store and buying and selling of ready-to-wear apparel. Respondent PNB is a banking
corporation organized and existing under Philippine laws.
Spouses Silos secured a revolving credit line with Philippine National Bank (PNB) through a real estate
mortgage as a security. After two years, their credit line increased. Spouses Silos then signed a Credit
Agreement which was also amended two years later, and several Promissory Notes (PN) as regards their
Credit Agreements with PNB. The said loan was initially subjected to a19.5% interest rate per annum. In
the Credit Agreements, Spouses Silos bound themselves to the power of PNB to modify the interest rate
depending on whatever policy that PNB may adopt in the future, without the need of notice upon them.
Thus, the said interest rates played from 16% to as high as 32% per annum. Spouses Silos acceded to the
policy by pre-signing a total of twenty-six (26) PNs leaving the individual applicable interest rates at hand
blank since it would be subject to modification by PNB. Spouses Silos regularly renewed and made good
on their promissory notes, religiously paid the interests without objection or fail. However, during the
1997 Asian Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses Silos 26th
Promissory Note became past due, and despite repeated demands by PNB, they failed to make good on
the note. Thus, PNB foreclosed and auctioned the involved security for the mortgage. Spouses Silos
instituted an action to annul the foreclosure sale on the ground that the succeeding interest rates used in
their loan agreements was left to the sole will of PNB, the same fixed by the latter without their prior
consent and thus, void. The Regional Trial Court (RTC) ruled that such stipulation authorizing both the
increase and decrease of interest rates as may be applicable is valid. The Court of Appeals (CA) affirmed
the RTC decision.

ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement without violating the mutuality of
contracts?

RULING:
No. Any modification in the contract, such as the interest rates, must bemade with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed modification, especially
when it affects an important aspect of the agreement. In the case of loan agreements, the rate of interest is
a principal condition, if not the most important component.
Loan and credit arrangements may be made enticing by, or sweetened with, offers of low initial interest
rates, but actually accompanied by provisions written in fine print that allow lenders to later on increase
or decrease interest rates unilaterally, without the consent of the borrower, and depending on complex and
subjective factors. Because they have been lured into these contracts by initially low interest rates,
borrowers get caught and struck in the web of subsequent steep rates and penalties, surcharges and the
like. Being ordinary individuals or entities, they naturally dread legal complications and cannot afford
court litigation; they succumb to whatever charges the lenders impose. At the very least, borrowers should
be charged rightly; but then again this is not possible in a one-sided credit system where the temptation to
abuse is strong and the willingness to rectify is made weak by the eternal desire for profit.
III. DEPOSIT

CALIBO vs. CA
350 Scra 427
(2001 )

FACTS
In 1985, Mike Abella rented a house owned by Atty. Dionisio Calibo, Junior. Meanwhile, Dr. Pablo
Abella, Mikes father entrusted to Mike a tractor. Pablo delivered the tractor to Mike in order for the latter
to safe-keep the same. In November 1986, Mike defaulted in his rental payments to Calibo. Calibo
repeatedly demanded payments but Mike failed to pay. However, Mike assured Calibo that he will soon
pay and Mike used his fathers tractor as a security. Hence, Calibo took possession of the tractor. Later,
Mike advised Calibo that he can sell the tractor as payment for his debts.
Pablo learned of the foregoing and so he contacted Calibo. He offered to pay a portion of Mikess debt
and in return Calibo must return the tractor. Calibo refused and he wanted Pablo to guarantee all of
Mikes debt which Pablo does not want. Eventually, to redeem his tractor, Pablo filed a replevin suit
against Calibo, which Pablo won.
On appeal, Calibo invoked that the replevin should not have been granted as there was a valid contract of
pledge between him and Mike, and that Mike was Pablos agent because Pablo was aware of the fact that
Mike pledged the tractor to him. In the alternative, Calibo invoked that if theres no contract of pledge,
there is at least a contract of deposit since Mike himself left the tractor with him in the concept of an
innkeeper.

ISSUE
Whether or not the arguments of Calibo are valid.

HELD
He who is not the owner or proprietor of the property pledged or mortgaged to guarantee the
fulfillment of a principal obligation, cannot legally constitute such a guaranty as may validly bind the
property in favor of his creditor and the pledge or mortgagee in such a case acquires no right whatsoever
in the property pledged or mortgaged.
There is likewise no valid deposit in this case. In a contract of deposit , a person receives an object
belonging to another with the obligation of safety keeping it and of returning the same. Petitioner himself
states that he received the tractor not to safety keep it but as a form of security for the payment of Mike
Abellas obligations. There is no deposit where the principal purpose for receiving the object is not
safekeeping.
Wherefore, the instant petition is DENIED for lack of merit.
TRIPLE V FOOD SERVICES INC. VS. FILIPINO MECHANTS INSURANCE
COMPANY
GR NO. 160554
FEBRUARY 21,2005

FACTS
Mary JoAnne De Asis dined at petitioners Kamayan Restaurant. De Asis was using a Mitsubishi
Galant Super Saloon Model 1995 issued by her employer Crispa Textile Inc., On said date, De Asis
availed of the valet parking service of petitioner and entrusted her car key to petitioners valet counter.
Afterwards, a certain Madridano, valet attendant, noticed that the car was not in the parking slot and its
key is no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The
car was never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent
Filipino Merchants Insurance Company Inc. Having indemnified Crispa for the loss of the subject
vehicle, FMICI, as subrogee to Crispas rights, filed with the RTC at Makati City an action for
damages against petitioner Triple V Food Services Inc., Petitioner claimed that the complaint
failed to adduce facts to support the allegations of recklessness and negligence committed in
the safekeeping and custody of the subject vehicle. Besides, when De Asis availed the free parking
stab which contained a waiver of the petitioners liability in case of loss, she hereby waived her rights.

ISSUE
WON petitioner Triple V Food Services Inc. is liable for the loss

HELD
The SC ruled in the affirmative. In a contract of deposit, a person receives an object belonging to
another with the obligation of safely keeping it and returning the same. A deposit may be
constituted even without any consideration. It is not necessary that the depositary receives a fee before
it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor.
Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance,
guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking
service.
THE ROMAN CATHOLIC BISHOP OF JARO vs.GREGORIO DE LA PEA,\
G.R. No. L-6913
November 21, 1913

FACTS:
The plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that
father Agustin de la Pea was the duly authorized representative of the plaintiff to receive the legacy. The
defendant is the administrator of the estate of Father Dela Pea. In the year 1898 the books Father De la
Pea, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by
him for the charitable purposes aforesaid. In the same year he deposited in his personal account
P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the
revolution, Father De la Pea was arrested by the military authorities as a political prisoner, and
while thus detained made an order on said bank in favor of the United States Army officer under
whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la Pea and the
confiscation of the funds in the bank were the result of the claim of the military authorities that he was an
insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The
money was take from the bank by the military authorities by virtue of such order, was confiscated and
turned over to the Government. While there is considerable dispute in the case over the question
whether the P6,641 of trust funds was included in the P19,000 deposited as aforesaid, nevertheless,
a careful examination of the case leads us to the conclusion that said trust funds were a part of the
funds deposited and which were removed and confiscated by the military authorities of the United
States.

ISSUE:
Whether or not Father de la Pea is liable for the loss of the money under his trust?

HELD:
The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that
said money was forcibly taken from the bank by the armed forces of the United States during the war
of the insurrection; and that said Father De la Pea was not responsible for its loss. Father De la
Peas liability is determined by those portions of the Civil Code which relate to obligations.(Book 4,
Title 1.)Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art.1094), it also provides,
following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest ,
that "no one shall be liable for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation
so declares." (Art. 1105.)By placing the money in the bank and mixing it with his personal funds De
la Pea did not thereby assume an obligation different from that under which he would have lain
if such deposit had not been made, nor did he thereby make himself liable to repay the money at all
hazards. If the had been forcibly taken from his pocket or from his house by the military forces of one of
the combatants during a state of war, it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor who must
respond at all hazards.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. V. CA
G.R. No. 90027
March 3, 1993

FACTS
An agreement was entered into by the petitioner and the spouses Pugao for the sale of 2 parcels of
land. The parties reached an agreement wherein a safety deposit box will be rented. This safety deposit
box is where they would keep the certificates of title until the full payment of the purchase price of the
said parcels of land. Thereafter, the safety deposit box of respondent was rented by the parties. The
following are the terms and conditions of the lease:
1. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of
the same;
2. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith.

Upon opening the safety deposit box, the certificate cannot be found. The appellate court held that the
Bank has no liability for the loss of the certificates of title.

ISSUE
Whether or not the Banks waiver of liability is valid.

HELD
No, the waiver of the bank is not valid.

As provided by law, the depositary would be liable if, in performing its obligation, it is found guilty of
fraud, negligence, delay or contravention of the tenor of the agreement. Further, any stipulation
exempting the depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy.

Furthermore, the Bank cannot argued that it has neither the possession nor control of the contents of the
box because the safety deposit box itself was located in its premises and is under its absolute control.
ANGEL JAVELLANA vs. JOSE LIM, ET AL.
11 PHIL 141
(1908)

FACTS:
The attorney for the plaintiff, Angel Javellana, filed a complaint in 1906 with the CFI Iloilo, for
the defendants Lim to pay him the sum owed him with interest. The complaint alleged that in 1897 the
Lims executed and subscribed a document in favor of Javellana reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six
hundred and eighty-six cents of pesos fuertes (P2600.86), which we will return to the said gentleman,
jointly and severally, on the 20th of January, 1898. - Jaro, 26th of May, 1897. - Signed Jose Lim. -
Signed: Ceferino Domingo Lim.
When the obligation became due, the Lims begged Javellana for an extension of time for the
payment to which the plaintiff acceded. he debtors paid, on account of interest due, the sum of P1,000 in
1900. In 1902, the parties executed another document where it was acknowledged that the amount
deposited had not been returned to Javellana on the stipulated date, for which reason he was subjected to
losses and damages amounting to P830.
The return of the amount was again stipulated in that later document, with the further agreement
that the amount deposited should bear interest at the rate of 15% per annum, less the 1,000 pesos paid.
The document was called a deposit, and stated that they could accomplish its return by the delivery of a
sum equal to the one received by them.
The Lims answered acknowledging the facts stated in the complaint, and admitted that they paid
P1,102.16. However, they denied that payment was made on account of the interest, instead alleging that
it was for the account of the principal. They also denied that there had been any agreement as to an
extension of the time for payment and the payment of interest. As a counterclaim, the defendants alleged
that they had paid to the plaintiff sums which, together with the P1,102.16 acknowledged in the
complaint, came up to the total sum of P5,602.16, and that, deducting therefrom the total sum of
P2,686.58 stated in the document transcribed in the complaint, the plaintiff still owed the defendants
P2,915.58

ISSUE: WON the transaction was one of deposit or loan

HELD:
It was a loan. The debtors were lawfully authorized to make use of the amount deposited, which
they have done, as shown by the fact that they asked for an extension of the time for the return thereof,
and acknowledged that they have subjected their creditor to losses and damages for not complying with
what had been stipulated. Also, the Lims were conscious that they had used for their own profit and gain
the money that they received apparently as a deposit, which was why they engaged to pay interest. Such
conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the
interested parties was not a deposit, but a real contract of loan.
Article 1767 CC: The depository can not make use of the thing deposited without the express
permission of the depositor. Otherwise he shall be liable for losses and damages.
Article 1768 CC: When the depository has permission to make use of the thing deposited, the contract
loses the character of a deposit and becomes a loan or bailment. The permission shall not be presumed,
and its existence must be proven.
GAVERES vs. TAVERA
1 PHIL 71
(1901)

FACTS
This is an appeal from a decision made by CFI of Tondo commenced by Gavierra as plaintiff and
successor in the interest of the deceased de Garrido against de Tavera as universal heir and successor of
the deceased de Tavera. The plaintiff alleges that Ignacia deposited with Don Trinidad the amount of
P3,000.00 in gold, as a deposit payable on 2 months notice in advance, with interest at 6% per annum
that was evidence by an agreement signed by the 2 parties. Don Manuel came before the court to seek aid
in recovering the balance of P1,235.75 from the estate of Don Trinidad. The defendant in answering the
original complaint alleged that the document which the complaint is based upon was not a contract of
deposit but one for a contract of loan. The defendant further presented evidence that showed that the
principal obligations was paid by Don Trinidad through his agent and that in case of non-payment of the
balance that any action is barred by prescription.

ISSUE
Wheter or not the document presented by the plaintiff a contract of loan or that of a deposit.

HELD
The contract was a contract of loan. Although in the document in question a deposit is spoken of,
nevertheless from an examination of the entire document it clearly appears that the contract was a loan
and that such was the intention of the parties. The obligation of the depository to pay interest at the rate of
6% to the depositor suffices to cause the obligation to be considered as a loan and makes it likewise
evident that it was the intention of the parties that the depository should have the right to make use of the
amount deposited.
BARON vs. DAVID
51 Phil 1
(1927)

FACTS
David operated a rice mill in Magalang, Pampanga. It was well patronized by the rice growers of the
vicinity and almost constantly running. During its operations, a fire started and destroyed the mill and its
contents, and it was some time before the mill could be rebuilt and put in operation again. Petitioners
placed a quantity of palay into the defendants mill prior to its destruction and seeks to recover the
compensation to be paid for the palay. David raised that the palay were deposited subject to future
withdrawals by the depositors or subject to some future sale which was never effected. He claims that he
should be relieved from all responsibility by virtue of the fire.

ISSUE
Can the Barons still recover for the lost palay?

HELD
The palay of all depositors were all mixed in and it was impossible for the plaintiffs alone to be
segregated. In view of the nature of the defendants activities and the way palay was handled in the mill,
it is quite certain that all of the plaintiffs palay which was put, has been milled and disposed of long
before the fire couldve happen. Besides, even if the palay was deposited and not sold, subject to future
sale or withdrawal at the plaintiffs elections, nevertheless it was understood that the defendant might mill
the palay and he has in fact appropriated it to his own use. He is of course bound to account for its value.
1768 lf the Civil Code provides that when the depository has permission to make use of the thing
deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum, and of
course by appropriating the thing, the bailee becomes responsible for its value.
THE UNITED STATES vs.JOSE M. IGPUARA
G.R. No. L-7593
March 27, 1913

FACTS:
The defendant is charged by the Court of First Instance with the crime of estafa, for having swindled
Juana Montilla and Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit
from the former to be at the latter's disposal. The document setting forth the obligation reads: We hold at
the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight pesos (P2,498),
the balance from Juana Montilla's sugar. Iloilo, June 26, 1911, Jose Igpuara, for Ramirez and Co.
The defendant appealed, alleging as errors: Holding that the document executed by him was a certificate
of deposit; that the instrument drawn up in the form of a deposit certificate could be indorsed or
negotiated like any other commercial instrument; and the other, that the sum of P2,498 remained in
defendant's possession as a loan. Hence, this appeal.

ISSUE:
Whether the defendant as a depositary can be charged of estafa on the use or disposal of a things
deposited.

HELD:
Yes. According to article 548, No. 5, of the Penal Code, those who to the prejudice of another
appropriate or abstract for their own use money, goods, or other personal property which they may have
received as a deposit, on commission, or for administration, or for any other purpose which produces the
obligation of delivering it or returning it, and deny having received it, shall suffer the penalty of the
preceding article," which punishes such act as the crime of estafa.
A deposit is constituted from the time a person receives a thing belonging to another with the obligation
of keeping and returning it. (Art. 1758, Civil Code.) They remained in his possession, surely in no other
sense than to take care of them, for they remained has no other purpose. In order that the depositary may
use or dispose of the things deposited, the depositor's consent is required, and then: The rights and
obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to
commercial loans, commission, or contract which took the place of the deposit shall be observed. (Art.
309, Code of Commerce.)
It is erroneous to assert that the certificate of deposit in question is negotiable like any other commercial
instrument: First, because every commercial instrument is not negotiable; and second, because only
instruments payable to order are negotiable. Hence, this instrument not being to order but to bearer, it is
not negotiable. It is also erroneous to assert that sum of money set forth in said certificate is, according to
it, in the defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the
thing lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody
or safe-keeping.
ANICETA PALACIO VS. DIONISIO SUDARIO
G.R. No. 2908
January 2, 1907

FACTS:
Dionisio Sudario, the defendant, together with three herdsmen made an arrangement with Aniceta
Palacio, the plaintiff, for the pasturing of eighty-one head of cattle. In return, Palacio needs to give one-
half of the calves that might be born and pay the defendant one-half peso for each calf branded. The
defendant, who was president of the municipality, alleged that the agreement was only between the
plaintiff and the herdsmen. Furthermore, the defendant claimed that the thirty-three cows either died of
disease or were drowned in a flood.

ISSUE:
Whether or not the defendant should be held liable for the loss of the 33 cows.

HELD:
Yes. If the Court considers the contract as one of deposit, then under article 1183 of the Civil Code, the
burden of explanation of the loss rested upon the depositary and under article 1769 the fault is presumed
to be his. At the present case, the defendant has not succeeded in showing that the loss occurred either
without fault on his part or by reason of caso fortuito. In support of this, the defendant's witnesses swore
that of the cows that perished, six died from overfeeding, and they failed to make clear the happening of
any flood sufficient to destroy the others. If, however, the contract be not one strictly of deposit but one
according to a local custom for the pasturing of cattle, the obligations of the parties remain the same.
PAULINO GULLAS vs. THE PHILIPPINE NATIONAL BANK
62 PHIL 519
(1935)

FACTS
On August 2, 1933, the Treasurer of the United States for the United States Veterans Bureau issued a
Warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and
Pedro Lopez signed as endorsers of this check. It was cashed by the Philippine National Bank but was
subsequently dishonored by the Insular Treasurer. At that time the outstanding balance of Attorney Gullas
on the books of the bank was P509 and this amount was offset with the amount due to the dishonored
check. The bank send notices to Mr. Gullas stating that In view of this therefore we have applied the
outstanding balances of your current accounts with us to the part payment of the foregoing check but
was not received since Mr. Gullas was out of town. On the return of Attorney Gullas to Cebu on August
31, 1933, notice of dishonor was received and the unpaid balance of the United States Treasury warrant
was immediately paid by him. Mr. Gullas though because of this experienced 2 problems. In the first
place, as above indicated, checks including one for his insurance were not paid because of the lack of
funds standing to his credit in the bank. In the second place, periodicals in the vicinity gave prominence to
the news to the great mortification of Gullas.

ISSUE
1) Whether or not the Philippine National Bank has a right to apply a deposit to the debt of depositor
to the bank
2) The rightful amount of damages Mr. Gullas is entitled to

HELD
As provided in the Negotiable Instruments Law Sec. 66, the general indorser of negotiable instrument
engages that if he be dishonored and the, necessary proceedings of dishonor be duly taken, he will pay the
amount thereof to the holder. However, the cause of action does not accrue until the notice is given to the
indorser. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of
a third party, it has been held that he has a right of action against the bank for its refusal to pay such a
check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment
of past due claims held against him.
The question now is whether the PNB enforced the remedy properly.The fact we believe is undeniable
that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank
made use of the money standing in his account to make good for the treasury warrant. At this point recall
that Gullas was merely an indorser and had issued in good faith. Since, Mr. Gullas did not receive this
notice then the bank is liable. As far as the damages is concerned, the Court had determined that the
amount should be P250.
SERRANO vs, CB
GR-L 30511
96 SCRA 96

FACTS:
Serrano had 350k worth of time deposits in Overseas Bank of Manila. He made a series of encashment
but was not successful. He filed a case against Overseas Bank and he also included the Central Bank so
that the latter may also be jointly and severally liable. Serrano argued that the Central Bank failed to
supervise the acts of the Overseas Bank and protect the interests of its depositors by virtue of constructive
trust.

ISSUE:
W/N the Central Bank is liable

HELD:
No. There is no breach of trust from a bank's failure to return the subject matter of the deposit. Bank
deposits are in the nature of irregular deposits. All kinds of bank deposits are to be treated as loans and
are to be covered by the law on loans Art. 1980. In reality the depositor is the creditor while the bank is
the debtor. Failure of the respondent bank to honor the time deposit is failure to pay its obligation as a
debtor.
SESBRENO V. CA
222 SCRA 466
(1933)

FACTS
Sesbreno entered into a money market, giving 300k to Philfinance. As an exchange, Philfinance gave
checks and confirmation of sale of Delta Motor Corp certificates. Checks bounced. Sesbreno is running
after Philipinas Bank (payee) (Holder of security of primissory note) and Delta (maker). Delta contends
that it is not liable because there was "reconstruction" of debt of Delta to Philfinance, the promissory note
is not valid anymore. It also contends that the document cannot be assigned because its non negotiable.
RTC ruled that Philfinance is liable because Philfinance already knows that the liability was already
waived and it still issued the certificate. However, since Philfinance was not impleaded, judgment cannot
be made against Philfinance. The issue related in this case is regarding trasferrability and assignability.

ISSUE
WoN the non-negotiable instrument is non transferrable/assignable

RULING
Assignable is different from tranferrability. Negotiable instruments can be indorsed. Non negotiable
instrumets can be assigned. Therefore, non negotiable instrument can be assigned.
DELOS SANTOS vs. TAN KHEY
58 OG 7693
(1992)

FACTS:
Tan Khey was the owner of International Hotel located in Iloilo city. Romeo de los Santos lodged in Tna
Kheys hotel. After arrival, he left the hotel, depositing his revolver and his bag with the person in charge
in the hotel. When he returned to the hotel, he took his revolver and his bag from the person in charge in
the hotel and proceeded to his room. He locked the door before sleeping. When he woke up, he
discovered that the door in his room was opened and his bag and pants, wherein he placed his revolver ,
was missing. He reported the matter to the Assistant Manager of the hotel, who in turn informed Tan
Khey. A secret service agent was sent to investigate and it was found that the wall of the room occupied
by De los Santos was only seven feet high with an open space above through which one could enter from
outside. De los Santos told the detective that he lost his revolver. Tan Khey disclaimed liability because
De los Santos did not deposit his properties with the manager despite a notice to that effect was posted in
the hotel. Tan Khey contended that to be liable under Article 1998 of the Civil Code, the following
conditions must concur: 1.) Deposit of effects by travellers in hotel or inn 2.) Notice given to hotel
keepers or employees of the effects brought by guests 3.) Guest or travellers take the precautions which
said hotel keepers or their substitutes advised relative to the care and vigilance of their effects.

ISSUE:
Whether or not the hotel should be held liable for the loss of the effects of the guest

RULING:
YES. The Court ruled that the hotel owner should be liable for the loss of the revolver, pants and bag of
the guest.
While the law speaks of deposit of effects by travellers in hotels or inns, personal receipt by the
innkeeper for safe keeping of effects is not necessarily meant thereby. The reason therefor is the fact that
it is the nature of business of an innkeeper to provide not only lodging for travellers but also to security to
their persons and effects. The secuity mentioned is not confined to the effects actually delivered to the
innkeeper but also to all effects placed within the premises of the hotel. This is because innkeepers by the
neture of their business, have supervision and control of their inns and the premises thereof. It is not
necessary that the effect was actually delivered but it is enough that they are within the inn. If a guest and
goods are within the inn, that is sufficient to charge him. The owner of a hotel may exonerate himself
from liability by showing that the guest has taken exclusive control of his own goods, but this must be
exclusive custody and control of a guest, and must not be held under the supervision and care of the
innkeeper, ey are kept in a room assigned to a guest or the other proper depository in the house. In this
case, the guest deposited his effects in the hotel because they are in his room and within the premises of
the hotel, and therefore, within the supervision and control of the hotel owner.
In this case, the notice requiring actual deposit of the effects with the manager was an unreasonable
regulation. It was unreasonable to require the guest to deposit his bag, pants and revolver to the manager.
De los Santos had exercised the necessary diligence with respect to the care and vigilance of his effects.
BPI vs. IAC
G.R. No. L-66826
August 19, 1988

FACTS
Rizaldy Zshornack maintained in the Commercial Bank and Trust Company of the Philippines or
COMTRUST (absorbed by BPI) a dollar savings account and a peso current account. In 1975, Virgilio
Garcia, Assistant Branch Manager of COMTRUST, accomplished an application for a dollar draft that
was payable to a certain Dizon in the amount of 1,000 USD. Garcia indicated that the amount was to be
charged to the dollar savings account of Rizaldy. However, there was no indication of the name of the
purchaser of the dollar draft. When Rizaldy noticed the withdrawal, he demanded an explanation from the
bank.
COMTRUST claimed that the withdrawal was made pursuant to an agreement where Rizaldy
allegedly authorized the bank to withdraw from his dollar savings account such amount which, when
converted to pesos, would be needed to fund his peso current account. However, Rizaldy alleged that he
entrusted to COMTRUST, thru Garcia, 3,000.00 USD cash for safekeeping, and that such agreement was
embodied in a document indicating: We acknowledged (sic) having received from you today the sum of
US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping. Moreover, Rizaldy
alleged that when he requested for the return of the money, COMTRUST explained that the sum was
already disposed in separate transactions. COMTRUST posited that the document is a contract of
depositum which banks do not enter into; hence, COMTRUST claimed that it cannot be liable.

ISSUE
Whether or not the contract between Rizaldy and COMTRUST is a deposit.

RULING
YES. It is a contract of deposit. The document which embodies the contract states that the
US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that
the intent of the parties was really for the bank to safely keep the dollars and to return it to Rizaldy at a
later time, Thus, Rizaldy demanded the return of the money on May 10, 1976, or over five months later.
This agreement is that contract defined under Article 1962 of the New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit but some other contract.

However, note that the object of the contract between Rizaldy and COMTRUST was foreign
exchange. Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and
Foreign Exchange Transactions. This circular does not authorize transactions for mere safekeeping
without selling them to the Central Bank within one business day from receipt. It must be considered as
one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of action against the other because Article 1411 of the
New Civil Code provides "When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no
cause of action against each other. . ." The only remedy is one on behalf of the State to prosecute the
parties for violating the law. The Court ruled that Rizaldy cannot recover under his claim.
YHT REALTY CORP. v CA
G.R. No. 126780
February 17, 2005

FACTS
On 30 Oct 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a
safety deposit box as his usual practice. The box required two keys, the guest had one and one from the
management. He placed US $10,000 in one envelope and US$5,000 in another, AU$10,000 in another
envelope and other envelopes with his passport and credit cards. On 12 Dec 1987, he took from the box
the envelope with US$5,000 and the one with AU$10,000 to go to Hong Kong for a short visit, because
he was not checking out. When he arrived in HK, the envelope with US$5,000 only contained US$3,000,
but because he had no idea if the safety deposit box has been tampered, he thought it was just bad
accounting.
After returning to Manila, he checked out of the Tropicana on 18 Dec 1987 and left for Australia.
When he arrived he discovered that the envelope with US$10,000 was short of US$5,000. He also noticed
that the jewelry he bought in Hong Kong which he stored in the safety deposit box upon his return to
Tropicana was likewise missing, except for a diamond bracelet.
He went back to the Philippines on 4 Apr 1988 and asked Lainez (who had custody of the management
key) if some money was missing or returned to her, to which the latter answered there was not. He again
registered at the Tropicana and rented a safety deposit box. He placed an envelope containing US$15,000,
another of AU$10,000. On 16 Apr, he opened his safety deposit box and noticed that US$2,000 and
AU$4,500 was missing from the envelopes.
He immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit
box with the key assigned to McLoughlin. McLoughlin went up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen McLoughlins key and was able to open the safety
deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole
the key assigned to McLoughlin while the latter was asleep.
McLoughlin requested the management for an investigation of the incident. Lopez got in touch
with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive,
Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of
paper a promissory note. He made Lopez and Tan sign a promissory note for him for the loss. However,
Lopez refused liability on behalf of the hotel, reasoning that McLoughlin signed an "Undertaking for the
Use of Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box.

ISSUE:
Whether or not a hotel may evade liability for the loss of items left with it for safekeeping by its
guests, by having these guests execute written waivers holding the establishment or its employees free
from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

RULING
NO. Article 2003 was incorporated in the New Civil Code as an expression of public policy
precisely. The hotel business like the common carriers business is imbued with public interest. Catering
to the public, hotel-keepers are bound to provide not only lodging for hotel guests and security to their
persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any contrary stipulation in so-called
undertakings that ordinarily appear in prepared forms imposed by hotel-keepers on guests for their
signature