Truth in Lending Act (2009)

A loan agreement which provides that the debtor shall pay interest at the rate determined by the
banks branch manager violates the disclosure requirement of the Truth in Lending Act.

SUGGESTED ANSWER

True. This contrary to the duty of the creditor to disclose in detail the interests,
charges and other figures indicating in detail the cost of the credit granted to the
debtor (United Coconut Planters Bank v. Beluso, 530 SCRA 567(2007)).

Mutuum; Interest; Solutio Indebiti(2012)

Siga-an granted a loan toVillanueva in the amount of P 540, 000.00.

Such agreement was not reduced to writing. Siga-an demanded interest which was paid by
Villanueva in cash and checks. The total amount Villanueva paid accumulated
to P 1, 200, 000.00. Upon advice of her lawyer, Villanueva demanded for the return
of the excess amount of P 660, 000.00 which was ignored by Siga-an.(1) Is the payment of
interest valid? Explain. (3%)

SUGGESTED ANSWER:

No, Art. 1956, Civil Code, provides that no interest shall be due unless it has been
expressly stipulated in writing.

(2) Is solution indebiti applicable? Explain.(2%)

SUGGESTED ANSWER:

Yes, Solutio Indebiti is applicable because Villanueva Overpaid byP600,000.00

representing interest payment which is not due. He can, therefore, demand its return.

Guaranty (2009)

No.I.TRUE or FALSE.

An oral promise of guaranty is valid and binding. (1%)

SUGGESTED ANSWER: FALSE. An oral contract of guaranty, being a special promise to

answer for the debt of another, is unenforceable unless in writing (Article 1403 [2] b,
NCC ).

ALTERNATIVE ANSWER: TRUE. An oral promise of guaranty is valid and binding. While
the contract is valid, however, it is unenforceable because it is not writing. Being a
special promise to answer for the debt, or miscarriage of another, the Statute of
Frauds requires it to be in writing to be enforceable (Article 1403 [2] b, NCC).The
validity of the contract should be distinguished from its enforceability .

Surety (2010)

Define, Enumerate or Explain. (2%each)

(A). What is the difference between"guaranty" and "suretyship"?

SUGGESTED ANSWER:Guaranty and Suretyship distinguished

(1)The obligation in guaranty is secondary; whereas, in suretyship, it is primary.

(2)In guranty, the undertaking is to pay if the principal debtor cannot pay;
whereas, in suretyship, the undertaking is to pay if the principal debtor does not pay.

(3) In guranty, the guarantor is entitled to the benefit of excussion; whereas, in

suretyship the surety is not entitled.

(4) Liability in guaranty depends upon an independent agreement to pay the

obligations of the principal if he fails to do so; whereas, in suretyship, the surety
assumes liability as a regular party.

(5)The Guarantor insures the solvency of the principal debtor; whereas, the surety
insures the debt.

(6)In a guaranty, the guarantor is subsidiarity liable; whereas, in a suretyship, the

surety binds himself solidarily with the principal debtor (Art2047, Civil Code).

Mutuum; Interests (2002)

Carlos sues Dino for (a) collection on a promissory note for a loan, with no agreement on interest,
on which Dino defaulted, and (b) damages caused by Dino on his (Carlos) priceless
Michaelangelo painting on which Dino is liable on the promissory note and awards damages to
Carlos for the damaged painting, with interests for both awards.

What rates of interest may the court impose with respect to both awards? Explain. (5%)

SUGGESTED ANSWER: With respect to the collection of money or promissory note, it being a
forbearance of money, the legal rate of interest for having defaulted on the payment of 12% will
apply. With respect to the damages to the painting, it is 6% from the time of the final demand up
to the time of finality of judgment until judgment credit is fully paid. The court considers the
latter as a forbearance of money. (Eastern Shipping Lines, Inc. v. CA, 234 SCRA 78 [1994]; Art
2210 and 2211, CC)

Mutuum; Interests (2004)

The parties in a contract of loan of money agreed that the yearly interest rate is 12% and it can
be increased if there is a law that would authorize the increase of interest rates. Suppose OB, the
lender, would increase by 5% the rate of interest to be paid by TY, the borrower, without a law
authorizing such increase, would OBs action be just and valid? Why? Has TY a remedy against
the imposition of the rate increase? Explain. (5%)

SUGGESTED ANSWER: OB's action is not just and valid. The debtor cannot be required to pay the
increase in interest there being no law authorizing it, as stipulated in the contract. Increasing the
rate in the absence of such law violates the principle of mutuality of contracts.

ALTERNATIVE ANSWER: Even if there was a law authorizing the increase in interest rate, the
stipulation is still void because there is no corresponding stipulation to decrease the interest due
when the law reduces the rate of interest.

DEPOSIT Compensation; Bank Loan (1997)

In order to secure a bank loan, XYZ Corporation surrendered its deposit certificate, with a
maturity date of 01 September 1997 to the bank. The corporation defaulted on the due
repayment of the loan, prompting the bank to encash the deposit certificate. XYZ Corporation
questioned the above action taken by the bank as being a case of pactum commissorium. The
bank disagrees. What is your opinion?

SUGGESTED ANSWER: We submit that there is no pactum commissorium here. Deposits of

money in banks and similar institutions are governed by the provisions on simple loans (Art.
1980. Civil Code). The relationship between the depositor and a bank is one of creditor and
debtor. Basically this is a matter of compensation as all the elements of compensation are
present in this case (BPI vs. CA, 232 SCRA 302).

ADDITIONAL ANSWER: Where the security for the debt is also money deposited in a bank, it is not
illegal for the creditor to encash the time deposit certificates to pay the debtor's overdue
obligation. (Chu us. CA, et al., G.R 78519, September 26, 1989).

Deposit; Exchange (1992)

X and Y staged a daring bank robbery in Manila at 10:30 AM in the morning of a regular business
day, and escaped with their loot of two (2) bags, each bag containing P50,000,00. During their
flight to elude the police, X and Y entered the nearby locked house of A, then working in his
Quezon City office. From A's house, X and Y stole a box containing cash totaling P50,000.00
which box A had been keeping in deposit for his friend B. In their hurry, X and Y left in A's
bedroom one (1) of the bags which they had taken from the bank. With X and Y now at large and
nowhere to be found, the bag containing P50.000.00 is now claimed by B, by the Mayor of
Manila, and by the bank. B claims that the depository. A, by force majeure had obtained the bag
of money in place of the box of money deposited by B. The Mayor of Manila, on the other hand,
claims that the bag of money should be deposited with the Office of the Mayor as required of the
finder by the provisions of the Civil Code. The bank resists the claims of B and the Mayor of
Manila. To whom should a deliver the bag of money? Decide with reasons.

SUGGESTED ANSWER: B would have no right to claim the money. Article 1990 of the Civil Code is
not applicable. The law refers to another thing received in substitution of the object deposited
and is predicated upon something exchanged. The Mayor of Manila cannot invoke. Article 719 of
the Civil Code which requires the finder to deposit the thing with the Mayor only when the
previous possessor is unknown. In this case , a must return the bag of money to the bank as the
previous possessor and known owner (Arts. 719 and 1990. Civil Code.)

SURETY Recovery of Deficiency (1997)

AB sold to CD a motor vehicle for and in consideration of P120,000.00 to be paid in twelve

monthly equal installments of P10,000,00, each installment being due and payable on the 15th
day of each month starting January 1997. To secure the promissory note, CD (a) executed a
chattel mortgage on the subject motor vehicle, and (b) furnished a surety bond issued by Philam
life, CD failed to pay more than two (2) installments, AB went after the surety but he was only
able to obtain three-fourths (3/4) of the total amount still due and owing from CD. AB seeks your
advice on how he might, if at all, recover the deficiency. How would you counsel AB?

SUGGESTED ANSWER: Yes, he can recover the deficiency. The action of AB to go after the surety
bond cannot be taken to mean a waiver of his right to demand payment for the whole debt, The
amount received from the surety is only payment pro tanto, and an action may be maintained for
a deficiency debt.