CREDIT TRANSACTION DISGESTS

I. CONCEPT
II. COMMODATUM

1. Republic of the Phils v. Bagtas GR. No L-17474, October 25 1962

Laws Applicable: Commodatum

Lessons Applicable:

FACTS:

May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of 1 year for breeding purposes subject to a breeding fee of 10% of
the book value of the bulls

May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one bull was
approved while the others are to be returned

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

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

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

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

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

RTC: granted the action

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

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

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

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

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs

If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull it
should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous. If the
breeding fee be considered a compensation, then the contract would be a lease of the bull. Under
article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad
faith, because she had continued possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable if he keeps it longer than the period stipulated

the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not
been returned because it was killed while in the custody of the administratrix of his estate

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the CFI, the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate court for payment by
the appellant, the administratrix appointed by the court.

2.) Rogers vs Smith Bell GR. No. L-4347 March 9 1908

G.R. No. L-4347 March 9, 1908

JOSE ROGERS, plaintiff-appellant,

vs.

SMITH, BELL, & CO., defendants-appellees.

Chicote and Miranda for appellant.

Kinney and Lawrence for appellees.

WILLARD, J.:

The plaintiff brought this action in the Court of First Instance of the city of Manila upon the following
document:

No. 1418. $12,000.

The sum of pesos twelve thousand has been deposited with us, received from Jose Rogers, which sum
we will pay on the last day of the six months after the presentation of this document, to the order of Mr.
Jose Rogers.

Manila, February 17, 1876.

SMITH, BELL & CO.

The said sum of twelve thousand pesos shall bear interest at the rate of eight per centum (8%) per
annum from this date, February 17, 1876.

SMITH, BELL & CO.

When this document was delivered by the defendants to the plaintiff the former delivered to the latter
the following letter:

MANILA, 17 February, 1876.

JOSE ROGERS, Esq., Present.

DEAR SIR: We have this day signed a receipt (quedan No. 1418) in your favor for twelve thousand
dollars, deposited in our hands, at interest of 8% per annum, commencing from to-day.
This interest will be paid to your order every three months, either in Manila or in London, as you may
wish.

If at any time you should desire to receive said deposit of twelve thousand dollars in London it will be
paid to you, or your order, by Messrs. Smith, Wood and Co., of that place, after two months' notice, and
on presentation of said receipt or quedan No. 1418.

We are, dear sir, yours, truly,

SMITH, BELL & CO.

The only question in the case is, whether upon these documents the plaintiff is entitled to recover
12,000 pesos or 24,000 pesos. The court below held that he was entitled to recover only 12,000 pesos,
and the defendants having deposited that amount in court, judgment was ordered in their favor, from
which judgment the plaintiff has appealed.

The facts in the case are disputed. When this document was delivered 12,000 pesos in silver were worth
more than 12,000 pesos in gold. the plaintiff delivered to the defendants in consideration of the
execution of the document 12,000 in gold. Soon thereafter the plaintiff removed to Barcelona and has
since resided there. The defendants remitted the interest to him every three months at the rate of 8 per
cent per annum until the 30th day of January, 1888, when they notified him that thereafter the interest
would be 6 per cent. The plaintiff accepted this reduction and interest at that rate was remitted to him
by the defendants until the 10th of February, 1904. This interest was remitted in silver; that is to say,
every three months the defendants took 180 pesos in silver and with it bought exchange on Barcelona
or other European point converted into pesetas. The plaintiff received this payments in silver without
any protest whatever until the 10th day of February, 1904. He then, in his letter of that date, called the
attention of the defendants to the fact that by the new American law in force in the Philippines the gold
standard had been introduced and that by reason thereof he was entitled to receive his interest in gold,
in view of the fact that when he delivered the money to the defendants in 1876 he delivered it in gold
coin. In another letter of the 15th of December, 1904, he expressly refers to the act of Congress of
March 2, 1903, and to the subsequent proclamations of the Governor-General relating to coinage. These
are practically all the fat in the case, and the claim of the plaintiff is that, having paid to the defendants
12,000 pesos in gold coin, he is now entitled to receive from them the value of 12,000 pesos in gold
coin; that is to say, 24,000 pesos in silver.

It is necessary to determine in the first place the nature of the contract evidenced by the document of
the 17th of February, 1876.
The important, and to our minds decisive, question in the case is, whether or not this document is
evidence of an ordinary loan which created between the plaintiff and the defendants the simple relation
of debtor and creditor. The appellant in his brief repeatedly calls it a deposit, but we do not understand
that he claims that it is or ever was a deposit in the technical sense of the term; that is, that he
ownership of the particular coin which was delivered by him to Smith, Bell & Co. did not pass to Smith,
Bell & Co. but remained in him and that Smith, Bell & Co. was bound to return to him the identical coin
which they had received. It is apparent that no such claim could be maintained in view of that part of
the instrument which provides for the payment of interest.

It is claimed, however, by the appellant, that while not a deposit in the strict sense of the word, the
document evidences what is known as an "irregular deposit." The parties agree that the case must be
decided in this respect in view of the legislation in force prior to the adoption of the Civil Code, and the
appellant says that the definition of an irregular deposit is found in Law II, Title III of the Fifth Partida.
Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states that there are three points of
difference between a loan and an irregular deposit. The first difference which he points out consists in
the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in loan
the essential cause for the transaction is the necessity of the borrower. The contract in question does
not fulfill this requirement of an irregular deposit. It is very apparent that is was not for the sole benefit
of Rogers. It, like any other loan of money, was for the benefit of both parties. The benefit which Smith,
Bell & Co. received was the use of the money; the benefit which Rogers received was the interest of his
money. In the letter which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the
reduction of the interest, they said: "We call your attention to this matter in order that you may if you
think best employ your money in some other place."

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

The second difference which exists, according to Manresa, between an irregular deposit and a loan lies
in the fact that in an irregular deposit the depositor has a preference over other creditors in the
distribution of the debtor's property. That this preference may exist and the transaction be still a loan,
appears from the decision of the supreme court of Spain of the 8th of April, 1881. The court there said:

Whereas, although the irregular deposit is considered as mutual, with respect to the repayment
between the depositor and the depositary, notwithstanding this, the latter retains the original status of
personal creditor and is simply privileged, in concurrence with other creditors against the former, and
he must be paid after the mortgage creditors and before the creditors whose right appears only by
written instruments, in accordance with Law XII, Title XIV, fifth Partida.

It is apparent, therefore, that this document does not state those requisites which are essential to an
irregular deposit.

But even if it did, it seems that the appellant's contention could not be sustained. He claims that in
accordance with said Law II, title III, Fifth Partida, the defendants are bound to return to him the same
kind of money which was received. That law is in part as follows:

And the ownership of the thing given in deposit is not transferred to the one who receives the same;
but, should the thing be one of those which can be counted, weighed, or measured, if, when receiving it,
the same were given by count, weight, or measure, then the ownership would be transferred to him. Yet
he would be obliged to return the same thing, or the same quantity, or another similar to the one
received, to him who gave it to him in deposit.

An examination, however, of Law II, Title I, of the Fifth Partida, which relates to loans, will show that the
obligation of the borrower in such case is stated in almost exactly the same words. That law is in part as
follows:

A man may loan to another any of the things mentioned in the last law which are susceptible of being
counted, weighed, or measured. And this is understood with regard to things belonging to him who
lends them, or which are loaned by another by authority of his principal; provided, however, that once
the thing is in the possession of him who secures the loan, he may dispose of it as though it were his
own. But he must return to the owner of the thing equal amount of the same kind and quality, although
the creditor should not specify either of the conditions.

The supreme court of Spain in the judgment of the 27th of October, 1868, speaking of the obligation of
the borrower in such case, says:

Whereas the principle in Laws I and II of Title I of the Fifth Partida, according to which the borrower,
acquires ownership of the thing and is bound to return an equal amount of the same kind and quality,
have special application to cases relating to loans of money or its equivalent; whereas the thing loaned
not being in such cases what properly constitutes the material or the object of deposit, as happens with
other perishable things, but rather the value that the coins or the paper money represents, the
obligation of the depository in this kind of contracts is to return the sum or amount therein expressed,
whatever may have been the increase or depreciation suffered by the specific kind of coin or paper,
unless the contrary be stipulated.

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

It having been determined that the contract between the parties created the common relation of debtor
and creditor, the case is easily resolved. Section 3 of the act of Congress of March 2, 1903, entitled "An
act to establish a standard of value and to provide for a coinage system in the Philippine Islands," is as
follows:

That the silver Philippine pesos authorized by this act shall be legal tender in the Philippine Islands for all
debts, public and private, unless otherwise specifically provided by contract: Provided, That debts
contracted prior to the thirty-first day of December, nineteen hundred and three, may be paid in the
legal tender currency of said Islands existing at the time of the making of said contracts, unless
otherwise expressly provided by contract.

That this case falls within the terms of this section is very clear. The debt in question is a private debt,
calling for the payment of 12,000 pesos. This section authorizes the payment of that debt in the
Philippine pesos authorized by the act. That the act applies as well to debts created prior to its passage
as to those created after, appears from the proviso. The effect of that proviso is to give the debtor and
not the creditor the option as to the kind of money with which the debt shall be paid.

The only possible way to avoid the application of this section to the case at bar is by saying that
Congress had no power to pass the act and that sa to debts created prior to its passage it is therefore
null and void. That the act can not be declared void on this ground is well settled by the decisions of the
Supreme Court of the United States. (Legal Tender Cases, 12 Wall., 457; Dooley vs. Smith, 13 Wall., 604;
Railroad Company vs. Johnson, 15 Wall., 195;; Maryland vs. Railroad Company, 22 Wall., 105 and Julliard
vs. Greenman, 110 U. S., 421.) In the first four of those cases it was held that debts created when the
only legal-tender money was gold and silver could be paid in paper money issued by the Government
and which had no intrinsic value.
The appellant in his brief discusses at length the meaning of the word "dollars." We do not see how such
a discussion is material. The contract provides for the payment of "pesos," not "dollars." It is very
evident that the contract was not changed nor intended to be changed by the use of the word "dollars"
in the letter of February 17, 1876. That in English houses especially the word "dollars" was, until very
recently, used to indicate pesos of local currency, whether Mexican, Spanish, or Hongkong, is well
known.

In conclusion it may be said that the plaintiff, in 1876, delivered to the defendants the cheapest kind of
money then in use. If he had desired to be repaid in the same money which he delivered, he should have
so provided expressly in the contract. He had a perfect right to do so, and if he had done so he could
now, by reason of the provisions of the said act of Congress, demand payment in gold.

That the plaintiff's protest in 1904 was based entirely upon his construction of this act of Congress
admits of no doubt; that he delivered that by the terms of the contract, without the act of Congress,
Smith, Bell & Co. had the right to pay him in silver is beyond question. This belief is shown not only by
his letters of protest which expressly refer to the act of Congress as the basis of his claim but also by his
conduct during more than twenty-five years in receiving interest in silver without a sign of protest. That
he would have received the principal also in silver had the defendants tendered it to him at any time
prior to 1903 is also free from doubt. In making his protest in 1904 he evidently believed that the act of
Congress required the payment of the 12,000 pesos in gold and that he thereby has acquired additional
rights. His construction of the act is, as we have seen, wrong.

The judgment of the court below is affirmed, with the costs of this instance against the appellant. So
ordered

2. Lucman vs Malawi Et. Al G.R No. 159794 December 19, 2006

MACLARING LUCMAN vs. ALIMANTAR MALAWI

G.R. No. 158794, December 19, 2006, 511 SCRA 268

NATURE OF BANK DEPOSITS

FACTS: Malawi, et. al. were Barangay Chairmen of various barangays of Lanao del Sur. From the 2nd
quarter of 1997, the Land Bank was selected as the government depository bank of the Internal
Revenue Allotments (IRAs) of the said barangays. After the failed 1997 elections, Malawi et. al.
attempted to open their respective IRA bank accounts, but they were refused by Lucman, Land Bank
manager, because the former needed to show their individual certifications showing their right to
continue serving as Barangay Chairmen and the requisite Municipal Accountant’s Advice giving them the
authority to withdraw the IRA deposits, which they were unable to show.

Later, five (5) other persons presented themselves before Lucman as the newly proclaimed Barangay
chairmen each of them presenting certifications. Without verifying the authenticity of the certifications,
Lucman proceeded to release the IRA funds to them. Malawi et. al. filed a petition for mandamus to
compel Lucman to allow them to open and maintain deposit accounts covering the IRAs of their
barangays and withdraw therefrom.

ISSUE: What is the nature of bank deposits?

HELD: Bank deposits are in the nature of irregular deposits. They are really loans because they earn
interest. All kinds of bank deposits, whether fixed, savings or current are to be treated as loans are to be
covered by the law on loans. (Guingona, Jr. vs. City Fiscal of Manila, 96 SCRA 96 (1980)].

There exists between the barangay as depositors and Land Bank, as depository, a creditor-debtor
relationship. Fixed, savings and current deposits of money in banks and similar institutions are governed
by the provisions concerning simple loan. The barangays are the lenders while the bank is the borrower.
Failure of the Land Bank to honor the time deposit is failure to pay its obligations as a debtor and not a
breach of trust arising from a depositor’s failure to return the subject matter of the deposit. Thus, the
relationship being contractual, mandamus is not an available remedy since mandamus does not lie to
enforce the performance of contractual obligations.

3. Saura Import and Export Co. vs DBP , GR. No L-24968 April 27 , 1972

FACTS:

In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of
P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill
machinery and equipment and as additional working capital. In Resolution No.145, the loan application
was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and
equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. But then, later on,
was cancelled to make way for the registration of a mortgage contract over the same property in favor
of Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute
machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to
pay said obligation, Prudential sued Saura.

After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the latter to
comply with its obligations to release the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered into, in connection with its jute mill
project.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties
and that the RFC was guilty of breach thereof.

ISSUE: Whether or not there was a perfected contract between the parties. YES. There was indeed a
perfected consensual contract.

HELD:

·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 the case. The application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. The defendant failed to fulfill its obligation and the plaintiff is therefore
entitled to recover damages.

· When an application for a loan of money was approved by resolution of the respondent corporation
and the responding mortgage was executed and registered, there arises a perfected consensual
contract.

· However, it should be noted that RFC imposed two conditions (availability of raw materials and
increased production) when it restored the loan to the original amount of P500,000.00.

· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled.The
action thus taken by both parties was in the nature of mutual desistance which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can cause its extinguishment.

·WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.

4. Naguiat vs CA and Quano Gr. No 118305 , October 3, 2003

Naguiat vs CA and Queaño

GR No. 118375, 03 October 2003

412 SCRA 591

FACTS

Queaño applied with Naguiat a loan for P200,000, which the latter granted. Naguiat indorsed to Queaño
Associated bank Check No. 090990 for the amount of P95,000 and issued also her own Filmanbank
Check to the order of Queaño for the amount of P95,000. The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño. To secure the loan, Queaño executed a Deed of Real
Estate Mortgage in favor of Naguiat, and surrendered the owner’s duplicates of titles of the mortgaged
properties. The deed was notarized and Queaño issued to Naguiat a promissory note for the amount of
P200,000. Queaño also issued a post-dated check amounting to P200,000 payable to the order of
Naguait. The check was dishonoured for insufficiency of funds. Demand was sent to Queaño. Shortly,
Queaño, and one Ruby Reubenfeldt met with Naguiat. Queaño told Naguiat that she did not receive the
loan proceeds, adding that the checks were retained by Reubenfeldt, who purportedly was Naguiat’s
agent.

Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared the Deed as null and void
and ordered Naguiat to return to Queaño the owner’s duplicates of titles of the mortgaged lots.

ISSUE

Whether or not the issuance of check resulted in the perfection of the loan contract.

HELD

The Court held in the negative. 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. 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 been produced the effect of payment that the contract of loan
may have been perfected.

Article 1934 of the Civil Code provides: An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itsel shall
not be perfected until the delivery of the object of the contract. A loan contract is a real contract, not
consensual, and as such, is perfected only upon the delivery of the objects of the contract.
 6. Delos Santos vs Jarra, Gr. No. L-4150, February 10,1910

Facts: The Plaintiff Felix delos Santos filed this suit against Agustina Jarra. Jarra was the administratix of
the estate of Jimenea. Plaintiff alleged that he owned 10 1st class carabaos which he lent to his father-
in-law Jimenea to be used in the animal-power mill without compensation. This was done on the
condition of their return after the work at the latter’s mill is terminated. When delos Santos demanded
the return of the animals Jimenea refused, hence this suit.

Issue: W/N the contracts is one of a commodatum

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

7. Pajuyo vs CA and Guevarra G.R No. 146364 June 3, 2004

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: Is the contractual relationship of Pajuyo and Guevara 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 tenant’s withholding of the property would then be unlawful.

8. Producers Bank of the Philippines(now First International Bank) vs CA and Franklin Vives GR No
115324, February 19, 2003

Producers Bank of the Philippines vs CA (2003)

Doctrine:

Facts:

• Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s friend,
Doronilla (will be the debtor in this case) in incorporating Doronilla’s business “Strela”. This “help”
basically involved Vives depositing a certain amount of money in Strela’s bank account for purposes of
incorporation (rationale: Doronilla had to show that he had sufficient funds for incorporation). This
amount shall later be returned to Vives.

• Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check of
P200,00 in favor of Strela and deposited the same into Strela’s newly-opened bank account (the
passbook was given to the wife of Vives and the passbook had an instruction that no
withdrawals/deposits will be allowed unless the passbook is presented).

• Later on, Vives learned that Strela was no longer holding office in the address previously given
to him. He later found out that the funds had already been withdrawn leaving only a balance of P90,000.
The Vives spouses tried to withdraw the amount, but it was unable to since the balance had to answer
for certain postdated checks issued by Doronilla.

• Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which
were dishonored.

• Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and
Producer’s Bank.

• TC & CA: ruled in favor of Vives.

Issue/s:
(1) WON the transaction is a commodatum or a mutuum. COMMODATUM.

(2) WON the fact that there is an additional P 12,000 (allegedly representing interest) in the
amount to be returned to Vives converts the transaction from commodatum to mutuum. NO.

(3) WON Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the
transaction between Vives and Doronilla. YES.

Held/Ratio:

(1) The transaction is a commodatum.

• CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the
subject of the contract is a consummable thing, such as money, the contract would be a mutuum.
However, there are instances when a commodatum may have for its object a consummable thing. Such
can be found in CC 1936 which states that “consummable 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”. In
this case, the intention of the parties was merely for exhibition. Vives agreed to deposit his money in
Strela’s account specifically for purpose of making it appear that Streal had sufficient capitalization for
incorporation, with the promise that the amount should be returned withing 30 days.

(2) CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not its
fruits”. In this case, the additional P 12,000 corresponds to the fruits of the lending of the P 200,000.

(3) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of
Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted
except upon the production of the passbook (recall in this case that the passbook was in the possession
of the wife of Vives all along). Hence, this only proves to show that Atienza allowed the withdrawals
because he was party to Doronilla’s scheme of defrauding Vives. By virtue of CC 2180, PNB, as
employer, is held primarily and solidarily liable for damages caused by their employees acting within the
scope of their assigned tasks. Atienza’s acts, in helpong Doronilla, a customer of the bank, were
obviously done in furtherance of the business of the bank, even though in the process, Atienza violated
some rules.

9. Mina et al vs Pascual et al. Gr. No. L8321 , October 14, 1913

Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that lot. Both
Francisco and Andres died and their children became their respective heirs: Mina for Francisco and
Pascual for Andres. Pascual sold his share of the warehouse and lot. Mina opposed because the lot is
hers because her predecessor (Francisco) never parted with its ownership when he let Andres construct
a warehouse, hence, it was a contract of commodatum. What is the nature of the contract between
Francisco and Andres?
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.

NOTA BENE: It would seem that the Supreme Court failed to consider the possibility of a contract of
precardium between Francisco and Andres. Precardium is a kind of commodatum wherein the bailor
may demand the object at will if the contract does not stipulate a period or use to which the thing is
devoted.

10. Catholic Vicar Apostle of the Mountain province vs CA, heirs of Octaviano and Valdez G.R No
80294-95 September 1988

Facts:

The whole controversy started when the herein petitioner filed an application for registration of lands 1,
2, 3 and 4 in La Trinidad, Benguet on September 5, 1962. The heirs of Juan Valdez and the heirs of
Egmidio Octaviano filed an opposition on lots 2 and 3, respectively. On November 17, 1965, the land
registration court confirmed the registrable title of the petitioner. On May 9, 1977, the Court of Appeals
reversed the decision and dismissed the Vicar’s application. The heirs filed a motion for reconsideration,
praying that the lots be ordered registered under their names. The Court of Appeals denied the motion
for lack of sufficient merit. Both parties then came before the Supreme Court. The Supreme Court, in a
minute resolution, denied both petitions. The heirs filed the instant cases for the recovery and
possession of the lots.

Respondents argue that the petitioner is barred from setting up the defense of ownership or long and
continuous possession by the prior judgment of the Court of Appeals under the principle of res judicata.
Petitioner contends that the principle is not applicable because the dispositive portion of the judgment
merely dismissed the application for registration.

Issues:

(1) Whether the decision of the Court of Appeals constitute res judicata and therefore bars the
petitioner from alleging ownership over the lots
(2) Whether the petitioner has acquired the lots through acquisitive prescription

Held:

(1) The Court of Appeals did not positively declare private respondents as owners of the land, neither
was it declared that they were not owners of the land, but it held that the predecessors of private
respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by
declaring the properties in its name for taxation purposes. When petitioner applied for registration of
Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven years. Ordinary
acquisitive prescription requires possession for ten years, but always with just title. Extraordinary
acquisitive prescription requires 30 years. On the above findings of facts supported by evidence and
evaluated by the Court of Appeals, affirmed by this Court, We see no error in respondent appellate
court's ruling that said findings are res judicata between the parties. They can no longer be altered by
presentation of evidence because those issues were resolved with finality a long time ago. To ignore the
principle of res judicata would be to open the door to endless litigations by continuous determination of
issues without end.

(2) Private respondents were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for the return of the house,
but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.
The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.

Motion for Reconsideration

Issue:

Who is entitled to the possession and ownership of the land?

Held:
Pursuant to the said decision in CA-G.R. No. 38830-R, the two lots in question remained part of the
public lands. This is the only logical conclusion when the appellate court found that neither the
petitioner nor private respondents are entitled to confirmation of imperfect title over said lots. Hence,
the Court finds the contention of petitioner to be well taken in that the trial court and the appellate
court have no lawful basis in ordering petitioner to return and surrender possession of said lots to
private respondents. Said property being a public land its disposition is subject to the provision of the
Public Land Act, as amended.

Article 555 of the Civil Code provides as follows:

Art. 555. A possessor may lose his possession:

(4) By the possession of another, subject to the provisions of Article 537, if the new possession has
lasted longer than one year. But the real right of possession is not lost till after the lapse of ten years.

It is clear that the real right of possession of private respondents over the property was lost or no longer
exists after the lapse of 10 years that petitioner had been in adverse possession thereof. Thus, the
action for recover of possession of said property filed by private respondents against petitioner must
fail. The Court, therefore, finds that the trial court and the Court of Appeals erred in declaring the
private respondents to be entitled to the possession thereof. Much less can they pretend to be owners
thereof. Said lots are part of the public domain.

11. Quintos and Ansaldo vs Beck GR. No. L-46240, November 3 , 1939

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return to her certain furniture which she
lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which
ordered that the defendant return to her the three gas heaters and the four electric lamps found in the
possession of the Sheriff of said city, that she call for the other furniture from the said Sheriff of Manila
at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be
paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar
street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff
and the defendant, the former gratuitously granted to the latter the use of the furniture described in the
third paragraph of the stipulation of facts, subject to the condition that the defendant would return
them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving
him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the
plaintiff required the defendant to return all the furniture transferred to him for his use. The defendant
answered that she may call for them in the house where they are found. On November 5, 1936, the
defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture
in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to
the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps
because he would use them until the 15th of the same month when the lease is due to expire. The
plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery
of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff
all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No.
1521, Rizal Avenue in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling for all the furniture on November 5, 1936, when
the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff
at their expenses; in ordering them to pay one-half of the expenses claimed by the Sheriff for the
deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only
necessary to decide whether the defendant complied with his obligation to return the furniture upon
the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is
entitled to the costs of litigation.

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
latter's demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil
Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's 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 provisions of
article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by
the defendant in case of his inability to return some of the furniture, because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.
Should the defendant fail to deliver some of the furniture, the value thereof should be later determined
by the trial Court through evidence which the parties may desire to present.

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

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in
the residence or house of the latter, all the furniture described in paragraph 3 of the stipulation of facts
Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with
the Sheriff shall be for the account of the defendant. The defendant shall pay the costs in both
instances. So ordered.