ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC v. HON.

COURT OF
APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY, 260 SCRA 714, G.R. No. 103576 August 22, 1996
FACTS: Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed
a chattel mortgage in favor of private respondent Producers Bank as a security for a loan of
P3,000,000. A provision in the chattel mortgage agreement was to this effect:
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of
the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or accommodations without the
necessity of executing a new contract and this mortgage shall have the same force and effect as
if the said promissory note or notes and/or accommodations were existing on the date thereof.
This mortgage shall also stand as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations
have been contracted before, during or after the constitution of this mortgage."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional loan
totalling P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00) covered by four promissory notes for
P250,000.00 each, but went unsettled prompting the bank to apply for an extrajudicial
foreclosure with the Sheriff.
CLAIMS
ACME: opposed the foreclosure as it alleged that the 1984 loan was no longer covered by the
chattel mortgage of 1978. Acme is also asking for moral damages (worth P3 million) for the
groundless foreclosure done by Producers Bank.
RESPONDENT BANK: applied for an extra judicial foreclosure of the chattel mortgage, herein
before cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file
an action for injunction, with damages and a prayer for a writ of preliminary injunction, before
the Regional Trial Court of Caloocan City.
ISSUEs: Would it be valid and effective to have a clause in a chattel mortgage that purports to
likewise extend its coverage to obligations yet to be contracted or incurred?
HELD: No. While a pledge, real estate mortgage, or antichresis may exceptionally secure afterincurred obligations so long as these future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the mortgage is constituted. Although a
promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a
binding commitment that can be compelled upon, the security itself, however, does not come
into existence or arise until after a chattel mortgage agreement covering the newly contracted
debt is executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the promise is
written but, of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.

FRANCISCO HERRERA, plaintiff-appellant, vs. PETROPHIL CORPORATION,

defendant-appellee, 146 SCRA 385, G.R. No. L-48349,December 29, 1986
FACTS: On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil
Corp.,) entered into a lease agreement, whereby the former leased to the latter a portion of his
property for a period of 20yrs. subject to the condition that monthly rentals should be paid and
there should be an advance payment of rentals for the first eight years of the contract, to which
ESSO paid on December 31, 1969. However, ESSO deducted the amount of 101, 010.73 as
interest or discount for the eight years advance rental.
On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation
of the interest and paid an additional sum of 2,182.70; thus, it was reduced to 98, 828.03.
As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that this had
been illegally deducted to him in violation of the Usury Law.
ESSO argued that amount deducted was not usurious interest but rather a discount given to it
for paying the rentals in advance. Judgment on the pleadings was rendered in favor of ESSO.
Thus, the matter was elevated to the SC for only questions of law was involve.
CLAIMS
HERRERA:
1.
2.
3.
4.

that the lower court erred in the computation of the interest collected out of the rentals
paid for the first eight years;
that such interest was excessive and violative of the Usury Law; and
that he had neither agreed to nor accepted the defendant-appellant's computation of
the total amount to be deducted for the eight years advance rentals.
The interest collected by defendant out of the rentals for the first eight years was
excessive and beyond that allowable by law, because the total interest on the said
amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the
interest should be computed excluding the first year rental because at the time the
amount of P281, 199.20 was paid it was already due under the lease contract hence no
interest should be collected from the rental for the first year, the amount of
P29,536.42 only as the total interest should have been deducted by defendant from
the sum of P281,299.20.

PETROPHIL CORP: The defendant maintains that the correct amount of the discount is
P98,828.03 and that the same is not excessive and above that allowed by law.
RULING: Contract between the parties is one of lease and not of loan. It is clearly denominated
a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a
loan rather than a lease. The provision for the payment of rentals in advance cannot be
construed as a repayment of a loan because there was no grant or forbearance of money as to
constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee
was discharging its obligation in advance by paying the eight years rentals, and it was for this
advance payment that it was getting a rebate or discount.
There is no usury in this case because no money was given by the defendant-appellee to the
plaintiff-appellant, nor did it allow him to use its money already in his possession. There was
neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the
defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor
had the right to determine, and any reduction thereof, by any amount, would not contravene the
Usury Law.

BPI Investment Corp v. CA and ALS MANAGEMENT & DEVELOPMENT CORPORATION,

377 SCRA 117, G.R. no. 133632, February 15, 2002
FACTS: Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment
and Development Corporation (AIDC), the predecessor of BPI Investment Corp. (BPIIC), for the
construction of a house on his lot in New Alabang Village, Muntinlupa.
He mortgaged the house and lot to AIDC as security for the loan.
1980: Roa sold the house and lot to ALS Management & Development Corp. and Antonio
Litonjua for P850K who paid P350K in cash and assumed the P500K indebtness of ROA with
AIDC.
AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested rate of
20%/annum and service fee of 1%/annum on the outstanding balance payable within 10 years
through equal monthly amortization of P9,996.58 and penalty interest of 21%/annum/day from
the date the amortization becomes due and payable.
March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation with the
provision that the monthly amortization will commence on May 1, 1981
August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K principal loan to
P457,204.90.
September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be what was
left of their loan after full payment of Roas loan
June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the ground
that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984
amounting to P475,585.31
August 13, 1984: Notice of sheriff's sale was published
February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging that they
are not in arrears and instead they made an overpayment as of June 30, 1984 since the P500K
loan was only released September 13, 1982 which marked the start of the amortization and
since only P464,351.77 was released applying legal compensation the balance of P35,648.23
should be applied to the monthly amortizations
RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to ALS and
Litonjua was only in the principal sum of P464,351.77 and awarding moral damages, exemplary
damages and attorneys fees for the publication
CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the contract
which is on September 13, 1982
CLAIMS:
BPI-IC: instituted foreclosure proceedings against ALS and Litonjua on the ground that they
failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984 amounting to
P475,585.31.
In their petition to the SC, they contended that:
1.

the Court of Appeals erred in ruling that because a simple loan is perfected upon the
delivery of the object of the contract, the loan contract in this case was perfected only
on September 13, 1982.

2.

3.

that a contract of loan is a consensual contract, and a loan contract is perfected at the
time the contract of mortgage is executed conformably with our ruling in Bonnevie v.
Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected
on March 31, 1981, the date when the mortgage deed was executed, hence, the
amortization and interests on the loan should be computed from said date.
that while the documents showed that the loan was released only on August 1982, the
loan was actually released on March 31, 1981, when BPIIC issued a cancellation of
mortgage of Frank Roas loan. This finds support in the registration on March 31, 1981
of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of
the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC.
Moreover, petitioner claims, the delay in the release of the loan should be attributed to
private respondents. As BPIIC only agreed to extend a P500,000 loan, private
respondents were required to reduce Frank Roas loan below said amount. According
to petitioner, private respondents were only able to do so in August 1982.

ALS & LITONJUA:

1.
2.
3.
4.

that they were not in arrears in their payment, but in fact made an overpayment as of
June 30, 1984.
that they should not be made to pay amortization before the actual release of the
P500,000 loan in August and September 1982.
Further, out of the P500,000 loan, only the total amount of P464,351.77 was released
to private respondents.
Hence, applying the effects of legal compensation, the balance of P35,648.23 should
be applied to the initial monthly amortization for the loan

In their comment to the petition of the BPI-IC, they:

1.

2.

Asserted that based on Article 1934 of the Civil Code,[4] a simple loan is perfected
upon the delivery of the object of the contract, hence a real contract. In this case,
even though the loan contract was signed on March 31, 1981, it was perfected only on
September 13, 1982, when the full loan was released to private respondents. They
submit that petitioner misread Bonnevie. To give meaning to Article 1934, according
to private respondents, Bonnevie must be construed to mean that the contract to
extend the loan was perfected on March 31, 1981 but the contract of loan itself was
only perfected upon the delivery of the full loan to private respondents on September
13, 1982.
maintained that even granting, arguendo, that the loan contract was perfected on
March 31, 1981, and their payment did not start a month thereafter, still no default
took place. According to private respondents, a perfected loan agreement imposes
reciprocal obligations, where the obligation or promise of each party is the
consideration of the other party. In this case, the consideration for BPIIC in entering
into the loan contract is the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the money. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. Therefore,
private respondents conclude, they did not incur in delay when they did not commence
paying the monthly amortization on May 1, 1981, as it was only on September 13,
1982 when petitioner fully complied with its obligation under the loan contract.

ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second
release of the loan?
HELD: The obligation to pay commenced only on October 13, 1982, a month after the perfection
of the contract.

The contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Consequently, petitioner could only demand
for the payment of the monthly amortization after September 13, 1982 for it was only then
when it complied with its obligation under the loan contract.
BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the amount actually released and the date
when it was released. Such negligence resulted in damage for which an award of nominal
damages should be given.
SSS where we awarded attorneys fees because private respondents were compelled to litigate,
we sustain the award of P50,000 in favor of private respondents as attorneys fees.