ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs.

COURT OF APPEALS [August 22, 1996]

Chua Pac, the president and general manager of ACME executed on June 27, 1978, for and in behalf of the company,
a chattel mortgage in favor of Producers Bank of the Philippines. The mortgage was a security for ACME’s corporate
loan of P3 million. A provision in the chattel mortgage reads as follows: "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 million was paid by ACME. Subsequently, in 1981, it obtained from Producers Bank
additional financial accommodations of P2.7 million. These were on due date also fully paid.

In 1984, the bank again extended to ACME a loan of P1 million covered by four promissory notes for P250,000
each. Due to financial constraints, the loan was not settled at maturity. Producers Bank then applied for an extra
judicial foreclosure of the chattel mortgage, with the Sheriff of Caloocan City, prompting ACME to file an action for
injunction, with damages and a prayer for a writ of preliminary injunction, before the RTC of Caloocan City.

RTC: dismissed the complaint and ordered the foreclosure of the chattel mortgage, holding ACME bound by the
stipulations of the chattel mortgage; CA affirmed the decision of RTC.

ISSUE: W/N a clause in a chattel mortgage that purports to extend its coverage to obligations yet to be contracted
or incurred is valid or effective.

HELD: NO. Since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the P3 million
loan, there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter.

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship,
the faithful performance of the obligation by the principal debt or is secured by the personal commitment of another
(the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment
is secured by an encumbrance of property — in pledge, the placing of movable property in the possession of the
creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law;
in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and
in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable
property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal
of his credit — upon the essential condition that if the obligation becomes due and the debtor defaults, then the
property encumbered can be alienated for the payment of the obligation, but that should the obligation be duly
paid, then the contract is automatically extinguished proceeding from the accessory character of the agreement.
As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and
void.

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred 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.
 A chattel mortgage must comply substantially with the form prescribed by the Chattel Mortgage Law itself.
One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such
an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties
(not against third persons acting in good faith), the fact, however, that the statute has provided that the
parties to the contract must execute an oath that —

. . . (the) mortgage is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purpose, and that the same is a just and valid obligation, and one not
entered into for the purpose of fraud. 13

makes it obvious that the debt referred to in the law is a current, not an obligation that is merely
contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage
contract was the P3 million loan which petitioner corporation later fully paid. By virtue of Section 3 of the
Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or
terminated. A mortgage that contains a stipulation in regard to future advances in the credit will take effect
only from the date the same are made and not from the date of the mortgage.

We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a
specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent
bank against it." This prayer is not reflected in its complaint which has merely asked for the amount of P3 million by
way of moral damages.

Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
A corporation, being an artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental
anguish. Mental suffering can be experienced only by one having a nervous system and it flows from
real ills, sorrows, and griefs of life — all of which cannot be suffered by respondent bank as an
artificial person.

While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so
named as a party in representation of ACME.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to
the appropriate legal recourse by PRODUCERS BANK as may still be warranted as an unsecured creditor.
OLIVIA and ERNESTO NAVOA vs. CA, TERESITA and EDUARDO DOMDOMA [December 29, 1995]

In 1977, Teresita got acquainted with Olivia in the jewelry business, Teresita selling the jewelries of Olivia. Later that
year, Olivia asked for a loan from Teresita, for the purpose of investing the same in the purchase of jewelries, which
loan were secured by personal checks of Olivia. Olivia promised Teresita 1/2 of the profit to be realized. On these
loans, Teresita was given a share in the amount of P1,200 in the first transaction, and P950 in the second.
On August 15, 1977, Olivia got from Teresita, one diamond ring – 1½ karats, heart shape, worth P15,000. As a security for the
ring, Olivia issued a PCIB Bank Check, on the condition that if the ring is not returned within 15 days, the ring is considered sold.
‘hold it for sometime.’ In November, 1977, the check was dishonored for lack of sufficient funds.
On August 25, 1977, Teresita extended a loan of P10,000 to Olivia, secured by a PCIB bank Check. This loan was upon
representation of Olivia that she needed money to pay for jewelries which she can resell for a big profit.
On August 27, 1977, Teresita extended a loan of P5,000 to Olivia, secured by a PCIB bank Check.
On August 30, 1977, Teresita extended a loan of P5,000 to Olivia, secured by a PCIB bank Check.
On Sept. 15, 1977, Teresita extended a loan of P10,000 to Olivia, secured by a PCIB bank Check.
On Sept. 27, 1977, Teresita extended a loan of P10,000 to Olivia, secured by a PCIB bank Check.
In December 1977, Teresita and Eduardo Domdoma filed with RTC-Manila an action against Olivia and Ernesto
Navoa for collection of various sums of money based on loans obtained by the latter. On January 1978, the Navoas
filed a motion to dismiss the complaint on the ground that the complaint stated no cause of action and that the
Domdomas had no capacity to sue.
RTC dismissed the case; CA modified the order of dismissal "by returning the records of this case for trial on the
merits, upon filing of an answer subject to the provisions of Articles 1182 and 1197 of the Civil Code for the first
cause of action. The other causes of action should be tried on the merits subject to the defenses alleged.
NAVOA: submit that the Domdomas failed to specify in their complaint a fixed period within which Navoa should pay
their obligations. Instead of stating that Navoa failed to discharge their obligations upon maturity, Domdoma sought
to collect on the checks which were issued to them merely as security for the loans. The Domdomas failed to make a
formal demand on Navoa to satisfy their obligations before filing the action.
ISSUE: W/N the complaint filed by the DOMDOMAS sufficiently stated a cause of action.
HELD: YES, the complaint stated a cause of action. A CAUSE OF ACTION is the fact or combination of facts which
affords a party a right to judicial interference in his behalf. The requisites for a cause of action are:
(a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created,
(b) an obligation on the part of the defendant to respect and not to violate such right; and,
(c) an act or omission on the part of the defendant constituting a violation of the plaintiff's right or breach of the obligation of the
defendant to the plaintiff.
Briefly stated, it is the reason why the litigation has come about; it is the act or omission of defendant resulting in the
violation of someone's right. In determining the existence of a cause of action, only the statements in the
complaint may properly be considered. If a defendant moves to dismiss the complaint on the ground of lack of cause
of action, such as what petitioners did in the case at bar, he is regarded as having hypothetically admitted all the
averments thereof. The test of sufficiency of the facts found in a complaint as constituting a cause of action is
whether or not admitting the facts alleged the court can render a valid judgment upon the same in accordance
with the prayer thereof. The hypothetical admission extends to the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom. Hence, if the allegations in a complaint furnish sufficient basis
by which the complaint can be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendants.

From the aforesaid facts, the ring mentioned in the first cause of action was considered sold to Olivia Navoa, 15 days
from August 15, 1977. Despite the sale, the latter failed to pay the price even as she was given ample time to pay the
agreed amount covered by a check. Clearly, respondent Teresita Domdoma's right under the agreement with Olivia
Navoa was violated by the latter.

In the second to the sixth causes of action it was alleged that Teresita granted loans to Olivia in different amounts on
different dates. All these loans were secured by separate checks intended for each amount of loan obtained and
dated one month after the contracts of loan were executed. That when these checks were deposited on their due
dates they were all dishonored by the bank. As a consequence, private respondents prayed that petitioners be
ordered to pay the amounts of the loans granted to them plus one percent interest monthly from the dates the
checks were dishonored until fully paid.

Culled from the above, the right of private respondents to recover the amounts loaned to petitioners is clear.
Moreover, the corresponding duty of petitioners to pay private respondents is undisputed. The question now is
whether Petitioners committed an act or omission constituting a violation of the right of private respondents.

All the loans granted to petitioners are secured by corresponding checks dated a month after each loan was
obtained. SECURITY is defined as a means of ensuring the enforcement of an obligation or of protecting some
interest in property. It may be personal, as when an individual becomes a surety or a guarantor; or a property
security, as when a mortgage, pledge, charge, lien, or other device is used to have property held, out of which the
person to be made secure can be compensated for loss. Security is something to answer for as a promissory
note.8 That is why a secured creditor is one who holds a security from his debtor for payment of a debt. 9From the
allegations in the complaint there is no other fair inference than that the loans were payable one month after they
were contracted and the checks issued by petitioners were drawn to answer for their debts to private respondents.

NAVOA failed to make good the checks on their due dates for the payment of their obligations. Hence, private
respondents filed the action with the trial court precisely to compel petitioners to pay their due and demandable
obligations. Art. 1169 of the Civil Code is explicit — those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. The
continuing refusal of petitioners to heed the demand of private respondents stated in their complaint unmistakably
shows the existence of a cause of action on the part of the latter against the former.

Quite obviously, the trial court erred in dismissing the case on the ground of lack of cause of action. Court of Appeals
therefore is correct in remanding the case to the trial court for the filing of an answer by petitioners and to try the
case on the merits.

WHEREFORE, the petition is DENIED. The judgment of the Court of Appeals dated 11 December 1980 remanding the
case to the trial court for the filing of petitioners' answer and thereafter for trial on the merits is AFFIRMED. Costs
against petitioners.
PEOPLE vs. VENANCIO CONCEPCION [November 29, 1922]

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Venancio Concepcion, President of PNB,
via telegram and a letter of confirmation to the manager of the Aparri branch of PNB, authorized an extension of
credit in favor of "Puno y Concepcion, in the amount of P300,000. This special authorization was essential in view of
the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases,
could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of
"Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with
the interest, were paid by July 17, 1919.

President Concepcion was charged and found guilty in CFI-Cagayan with a violation of Sec. 35 of Act No. 2747.
Section 35 of Act No. 2747, effective on February 20, 1918, reads as follows: "The National Bank shall not, directly or
indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch
banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be
punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such
fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but
were repealed by Act No. 2938, approved on January 30, 1921.

ISSUE: W/N the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, a "loan" within the meaning of section 35 of Act No. 2747.

CONCEPCION: argue that the documents of record do not prove that authority to make a loan was given, but only
show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a
"credito" (credit) and not of a " prestamo" (loan).

SC: 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,"

ISSUE: W/N the granting of a credit of P300,000 to the copartnership a "loan" or a "discount"?

SC: It’s a loan. To discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a
discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount
is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the
conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount
paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes,
but was paid when the notes fell due; and (2) they were single-name and not double-name paper.

ISSUE: W/N the granting of a credit of P300,000 to the co-partnership, is an "indirect loan" within the meaning of
section 35 of Act No. 2747.

SC: YES. The wife of the defendant held one-half of the capital of this partnership. In this instance, the purpose of
the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no man may serve two masters — that where
personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the
husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which
the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. A loan,
therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact
that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and
to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.

ISSUE: W/N Concepcion could be convicted of a violation of section 35 of Act No. 2747 in relation with section 49
of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?

SC: Section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who
shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these
sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.

Where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same
offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and
sentenced offenders charged with violations of the old law.

ISSUE: W/N the granting of a credit of P300,000 to the copartnership in violation of section 35 of Act No. 2747, is
penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49
of said Act provides a punishment not on the bank when it violates any provisions of the law, but on a person
violating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained
in said section 35 is without penal sanction. The answer is that when the corporation itself is forbidden to do an
act, the prohibition extends to the board of directors, and to each director separately and individually.
(People vs. Concepcion, supra.)

ISSUE: W/N the alleged good faith of Venancio Concepcion in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by
rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership
"Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.

SC: Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated,
criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and
public interest, constitutes the crime. In this instance, the acts of the President of the Philippine National Bank do not
fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says: It is fraud for directors to secure by means of their trust,
and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will
not listen to any proof of honest intent.

No reversible error was committed in the trial of this case. President Concepcion has been proved guilty beyond a
reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law. Judgment is affirmed, with the costs of this instance against the appellant.
REPUBLIC vs. PHILIPPINE NATIONAL BANK [December 30, 1961]

In 1975, the Republic of the Philippines filed before CFI-Manila a complaint for escheat of certain unclaimed bank
deposits balances under the provisions of Act No. 3936 against several banks, among them the First National City
Bank of New York. Pursuant to Section 2 of said Act, defendant banks forwarded to the Treasurer of the Philippines a
statement under oath of their respective managing officials of all the credits and deposits held by them in favor of
persons known to be dead or who have not made further deposits or withdrawals during the period of 10 years or
more. It is prayed that said credits and deposits be escheated to the Republic of the Philippines by ordering
defendant banks to deposit them to its credit with the Treasurer of the Philippines.

FIRST NATIONAL: claims that, while it admits that various savings deposits, pre-war inactive accounts, and sundry
accounts contained in its report submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling
more than P100,000, which remained dormant for 10 years or more, are subject to escheat, HOWEVER, it has
inadvertently included in said report certain items amounting to P18,589.89 which are not credits or deposits within
the contemplation of Act No. 3936. Hence, it prayed that said items be not included in the claim of plaintiff.

CFI: rendered judgment holding that cashier's or manager's checks and demand drafts (those which defendant wants
excluded from the complaint) come within the purview of Act No. 3936, but not the telegraphic transfer payment
which orders are of different category; CFI-MR: held that even said demand drafts do not come within the purview
of said Act and so amended its decision accordingly.

Section 1, Act No. 3936, provides: "Unclaimed balances" within the meaning of this Act shall include credits or deposits of
money, bullion, security or other evidence of indebtedness of any kind, and interest thereon with banks, as hereinafter defined,
in favor of any person unheard from for a period of ten years or more. Such unclaimed balances, together with the increase and
proceeds thereof, shall be deposited with the Insular Treasure to the credit of the Government of the Philippine Islands to be as
the Philippine Legislature may direct.

"Unclaimed balances" that are subject to escheat include credits or deposits money, or other evidence of
indebtedness of any kind with banks, in favor of any person unheard from for a period of 10 years or more. The term
"credit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to
it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to
make a promised payment. It is the correlative to debt or indebtedness, and that which is due to any person, a
distinguished from that which he owes. The same is true with the term "deposits" in banks where the relationship
created between the depositor and the bank is that of creditor and debtor.

ISSUE: W/N demand draft and telegraphic orders come within the meaning of the term "credits" or "deposits"
employed in the law.

DEMAND DRAFT is a bill of exchange payable on demand. Considered as a bill of exchange, a DRAFT is said to be, like
the former, an open letter of request from, and an order by, one person on another to pay a sum of money therein
mentioned to a third person, on demand or at a future time therein specified.

A bill of exchange within the meaning of our NIL does not operate as an assignment of funds in the hands of the
drawee who is not liable on the instrument until he accepts it. Section 127 says: "A bill of exchange of itself does not
operate as an assignment of the funds in the hands of the drawee available for the payment thereon and the drawee
is not liable on the bill unless and until he accepts the same." In order that a drawee may be liable on the draft and
then become obligated to the payee it is necessary that he first accepts the same. In fact, our law requires that with
regard to drafts or bills of exchange there is need that they be presented either for acceptance or for payment within
a reasonable time after their issuance or after their last negotiation thereof as the case may be. Failure to make such
presentment will discharge the drawer from liability or to the extent of the loss caused by the delay (Section
186, Ibid.)

SC: DEMAND DRAFT is not subject to escheat. Since it is admitted that the demand drafts herein involved have not
been presented either for acceptance or for payment, the inevitable consequence is that the appellee bank never
had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee
concerned and as such the aforesaid drafts cannot be considered as credits subject to escheat within the meaning
of the law.
SC: A CASHIER’S/MANAGER’S CHECK is subject to escheat. HOWEVER, a cashier's or manager's check is a primary
obligation of the bank which issues it and constitutes its written promise to pay upon demand. A cashier's check
issued by a bank, however, is not an ordinary draft. A cashier's check is of a very different character. It is the primary
obligation of the bank which issues it and constitutes its written promise to pay upon demand.

A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of exchange drawn by a
bank on itself and accepted in advance by the act of issuance. A cashier's check issued on request of a depositor is
the substantial equivalent of a certified check and the deposit represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount. A cashier's check, being merely a bill of exchange drawn
by a bank on itself, and accepted in advance by the act of issuance, is not subject to countermand by the payee
after indorsement, and has the same legal effects as a certificate deposit or a certified check. A demand draft is not
therefore of the same category as a cashier's check which should come within the purview of the law.

SC: A TELEGRAPHIC PAYMENT ORDER is subject to escheat. As the transaction is for the establishment of a
telegraphic or cable transfer, the agreement to remit creates a contractual obligation. It has been termed a purchase
and sale transaction. The purchaser of a telegraphic transfer upon making payment completes the transaction insofar
as he is concerned, though insofar as the remitting bank is concerned, the contract is executory until the credit is
established

"This is so because the drawer bank was already paid the value of the telegraphic transfer payment order. In the
particular cases under consideration, it appears in the books of the defendant bank that the amounts represented
by the telegraphic payment orders appear in the names of the respective payees. If the latter choose to demand
payment of their telegraphic transfers at the time the same was (were) received by the defendant bank, there could
be no question that this bank would have to pay them. Now, the question is, if the payees decide to have their
money remain for sometime in the defendant bank, can the latter maintain that the ownership of said telegraphic
payment orders is now with the drawer bank? The latter was already paid the value of the telegraphic payment
orders otherwise it would not have transmitted the same to the defendant bank. Hence, it is absurd to say that the
drawer banks are still the owners of said telegraphic payment orders."

WHEREFORE, the decision of the trial court is hereby modified in the sense that the items specifically referred to and
listed under paragraph 3 of appellee bank's answer representing telegraphic transfer payment orders should be
escheated in favor of the Republic of the Philippines. No costs.
FRANCISCO HERRERA vs. PETROPHIL CORPORATION [December 29, 1986]

On December 5, 1969, Francisco Herrera and ESSO Standard Eastern. Inc., entered into a "Lease Agreement" whereby
Herrer leased to ESSO a portion of his property for a period of 20 years, for P2,930.20 per month, payable yearly in
advance. The portion on the side of the leased premises will be occupied by LESSEE without rental during the lifetime
of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month
discounted at 12% interest per annum.

Pursuant to the contract, ESSO paid to HERRERA advance rentals for the first eight years, subtracting therefrom
P101,010.73 (P98,828.03), the amount it computed as constituting the interest or discount for the first eight
years. 3

In 1974, Herrera sued ESSO for P98,828.03, claiming this had been illegally deducted from him in violation of the
Usury Law. ESSO admitted the factual allegations of the complaint but argued that the amount deducted was not
usurious interest but a given to it for paying the rentals in advance for eight years.

CFI: held in favor of ESSO, but the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12) and that the interest
therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first 8 years should be only P33,755.90
(P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant claimed it to be.

HERRERA: argues that the interest collected by ESSO 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.

ISSUE: W/N the discounts were in violation of the usury law.

SC: NO. The 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. ESSO 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.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may
establish such stipulations, clauses, terms and condition as they may want to include; and as long as such agreements
are not contrary to law, morals, good customs, public policy or public order, they shall have the force of law between
them.

There is no usury in this case because no money was given by ESSO to HERRERA, 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.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan
or forbearance is subject to repayment and is therefore governed by the laws on usury. It has been held that the
elements of usury are: (1) a loan, express or implied; (2) an understanding between the parties that the money lent
shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned.
Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from
which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of
P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.

The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by
the respondent for the flat reduction of P130,288.47.
SAURA IMPORT and EXPORT CO. vs. DEVELOPMENT BANK OF THE PHILIPPINES [April 27, 1972]

In July 1953, Saura, Inc. applied to the Rehabilitation Finance Corporation (before its conversion into DBP), for an
industrial loan of P500,000 – P250,000 for the construction of a factory building; P240,900 for the balance of the
purchase price of the jute mill machinery and equipment; and P9,100 as additional working capital.

On January 7, 1954, RFC passed a Resolution approving the loan application for P500,000, to be secured by a first
mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be
installed. It was stated that spouses Saura, et al., shall sign the promissory notes jointly with the borrower-
corporation. The release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to
availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of
this Corporation.

Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having
China Engineers, Ltd. sign as co-maker on the notes, Saura, Inc. would put up a bond for P123,500. RFC then
approved another Resolution, designating members of its Board "to reexamine all the aspects of this approved
loan ... with special reference as to the advisability of financing this particular project based on present conditions…”
Later, Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan.

On April 13, 1954 the loan documents were executed: the promissory note and the corresponding deed of mortgage,
which was duly registered. It appears, however, that despite the formal execution of the loan agreement, the
reexamination by RFC proceeded. Later, it was decided to reduce the loan from P500,000 to P300,000.

Saura, Inc. had written RFC requesting that the loan of P500,000 be granted. The request was denied by RFC, which
added that it was "constrained to consider as cancelled the loan of P300,000.00 in view of a notification from the
China Engineers Ltd., expressing their desire to consider the loan cancelled insofar as they are concerned."

Saura, Inc. informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note
if RFC releases to us the P500,000 originally approved by you." RFC thus restored the loan to P500,000, "it appearing
that China Engineers, Ltd. is now willing to sign the promissory notes, along with Saura," but with the following
proviso: That the Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The certification was required "as the intention of the original approval (of the loan) is to develop the manufacture
of sacks on the basis of locally available raw materials." This fact, according to DBP, is what moved RFC to approve
the loan application in the first place.

Saura, Inc. sent its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of
Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be
necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made.

RFC replied that they “shall be able to act on your request for revised purpose and manner of releases upon re-
appraisal of the securities offered for the loan.” However, the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally available raw materials. Saura’s statement would not be in line with
RFC’s principle in approving the loan. With the foregoing letter the negotiations came to a standstill. Saura, Inc. did
not pursue the matter further. Instead, it requested RFC to cancel the mortgage.

It appears that the cancellation was requested to make way for the registration of a mortgage contract over the same
property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of
the same year within which to pay its obligation on the trust receipt. For failure to pay the said obligation, Prudential
Bank sued Saura, Inc.

Nine years after the mortgage was cancelled, Saura, Inc. commenced the present suit for damages, alleging failure
of RFC to comply with its obligation to release the proceeds of the loan applied for and approved.
CFI: rendered judgment for Saura, ruling that there was a perfected contract between the parties and that RFC was
guilty of breach thereof.

ISSUE: W/N Saura is entitled to recover damages for RFC’s alleged failure to fulfill its obligation.

SC: NO. There was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which
provides:
ART. 1954. 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 perferted until the 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 was
approved by resolution of the defendant, and the corresponding mortgage was executed and registered.

HOWEVER, it should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principally kenaf. It was in line with such
assumption that when RFC restored the loan to the original amount of P500,000, it imposed two conditions, to wit:
"(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the
requirements of the factory."

The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step
in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution
No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building — P250,000; for payment of the balance of purchase price of
machinery and equipment — P240,900; for working capital — P9,100." Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be
able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution
No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan
to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for
the implementation of the agreement reached an impasse. 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 — what
Manresa terms "MUTUO DISENSO" — 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.

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of
contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-
compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application
was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request,
that Saura, Inc. brought this action for damages. All these circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.
RAOUL and HONESTO BONNEVIE vs. CA [October 24, 1983]

Spouses Jose and Josefa Lozano were the owners of the property which they mortgaged on December 6, 1966, to
secure the payment of a loan of P75,000 that they were about to obtain from Philippine Bank of Commerce. On
December 8, 1966, sps. Lozano executed in favor Raoul and Honesto Bonnevie the Deed of Sale with Mortgage for
P100,000 – P25,000 of which being payable to the Lozano spouses and P75,000 being payable to PBC. On December
6, 1966, when the mortgage was executed by the Lozano spouses in favor of PBC, the P75,000 was not yet received
them. It was on December 12, 1966 when they signed the promissory note for that amount; From April 28, 1967 to
July 12, 1968, the LOZANOS made payments to defendant-appellee on the mortgage in the total amount of
P18,944.22. On May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption of
Mortgage to his brother, Raoul Bonnevie. On June 10, 1968, PBC applied for the foreclosure of the mortgage, and
notice of sale was published in the Luzon Weekly Courier. Auction sale was conducted and the property was sold to
PBC for P84,387. Offers from the Bonnevies to repurchase the property failed, and they caused an adverse claim to
be annotated on the title of the property.

ISSUE: W/N the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and
legally executed.

BONNEVIE: contended that the mortgage, when it was executed on December 6, 1966, there was yet no principal
obligation to secure as the loan of P75,000 was not received by the Lozano spouses "So much so that in the absence
of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs its
validity and fatally affects its very existence."

SC: YES, the REM was VALID. It is clearly seen that the mortgage deed was executed for and on condition of the loan
granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of
the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein
contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note
executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of
the mortgage at the time of its execution.

Provision 2 of the contract of mortgage prohibits the sale, disposition of, mortgage and encumbrance of the
mortgaged properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite
of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the terms and
conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale
with Assumption of Mortgage.

Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage.
Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the
Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage
the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the
same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an
innocent mortgagee for value.

Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be
and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that
petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of
Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals
thereof.

ISSUE: W/N the extrajudicial foreclosure of the said mortgage was validly and legally effected.

SC: YES. The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed of Sale with
Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may not be obliged to notify petitioners. Secondly,
petitioner Honesto Bonnevie was not entitled to any notice because he had transferred and assigned all his rights and interests over the
property in favor of intervenor Raoul Bonnevie. Most importantly, Act No. 3135 does not require personal notice on the mortgagor. In the case
at bar, the notice of sale was published in the Luzon Courier notices of the sale were posted for not less than twenty days in at least three (3)
public places in the Municipality where the property is located. Petitioners were thus placed on constructive notice.
CENTRAL BANK OF THE PHILIPPINES vs. CA and SULPICIO TOLENTINO [October 3, 1985]

On April 28, 1965, Island Savings Bank approved the loan application for P80,000 of Sulpicio Tolentino, who, as a
security for the loan, executed a real estate mortgage over his 100-hectare land in Agusan. On May 22, 1965, a
P17,000 partial release of the P80,000 loan was made by the Bank, and Sulpicio and his wife signed a promissory
note for P17,000 at 12% annual interest, payable within 3 years.

On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity
problems, issued a Resolution which prohibited the bank from making new loans and investments. Thereafter, after
finding that Island Savings Bank failed to put up the required capital to restore its solvency, the Monetary Board
prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank.

Island Savings Bank, in view of non-payment of the P17,000 covered by the promissory note, filed an application for
the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio. Sulpicio filed a
petition with the CFI-Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000 balance of the P80,000 loan, he is
entitled to specific performance by ordering Island Savings Bank to deliver the P63,000 and if said balance cannot be
delivered, to rescind the real estate mortgage.

CFI: rendered its decision in favor of ISLAND BANK, ordering Sulpicio to pay the amount of P17,000 and lifting the
restraining order so that the sheriff may proceed with the foreclosure.

CA: modified the CFI decision by affirming the dismissal of Sulpicio’s petition for specific performance, but it ruled
that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000 loan.

ISSUE: W/N Sulpicio’s real estate mortgage may be foreclosed to satisfy the P17,000 loan.

HELD: When Island Savings Bank and Sulpicio entered into an P80,000 loan agreement, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the
other, and when one party has performed or is ready and willing to perform his part of the contract, the other
party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code).

The promise of Sulpicio to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000
loan. When Sulpicio executed a real estate mortgage, he signified his willingness to pay the P80,000 loan. From such
date, the obligation of Island Savings Bank to furnish the P80,000 loan accrued. Thus, the Bank's delay in furnishing
the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the
Central Bank issued a Resolution which prohibited Island Savings Bank from doing further business. Such prohibition
made it legally impossible for Island Savings Bank to furnish the P63,000 balance of the P80,000 loan.

The first Board Resolution cannot interrupt the default of Island Savings Bank in complying with its obligation of
releasing the P63,000 balance because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements
previously contracted. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio, under Article 1191 of the Civil Code, may choose between specific performance or rescission
with damages in either case. But since Island Savings Bank is now prohibited from doing further business by
Monetary Board Resolution, WE cannot grant specific performance in favor of Sulpicio. Rescission is the only
alternative remedy left.

HOWEVER, rescission is only for the P63,000 balance of the P80,000 loan, because the bank is in default only insofar
as such amount is concerned, as there is no doubt that the bank failed to give the P63,000. As far as the partial
release of P17,000, which Sulpicio accepted and executed a promissory note to cover it, the bank was deemed to
have complied with its reciprocal obligation to furnish a P17,000 loan. The promissory note gave rise to Sulpicio's
reciprocal obligation to pay the P17,000 loan when it falls due. His failure to pay the overdue amortizations under
the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code).
If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000 within 3 years, he would be
entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him
to perform his reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio failed to comply with his obligation to
pay his P17,000 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio for damages, in
the form of penalties and surcharges, for not paying his overdue P17,000 debt. The liability of Sulpicio for interest on
his P17,000 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived
some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.

WE hold, however, that the real estate mortgage of Sulpicio cannot be entirely foreclosed to satisfy his P 17,000
debt. The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract. For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a
valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real
estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of
the execution of the contract of real mortgage. lt may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is
created as a binding contract to pay. When there is partial failure of consideration, the mortgage becomes
unenforceable to the extent of such failure. Where the indebtedness actually owing to the holder of the mortgage is
less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due.

Since Island Savings Bank failed to furnish the P63,000, the real estate mortgage of Tolentino became unenforceable
to such extent. P63,000 is 78.75% of P80,000, hence the real estate mortgage covering 100 hectares is unenforceable
to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for
the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to
the facts of this case.

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply.

REPUBLIC vs. JOSE BAGTAS [October 3, 1985]

In 1948, Jose 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 one year from May 1948 to May 1949 for breeding purposes, subject to a government charge of breeding fee of
10% of the book value of the bulls. Upon the expiration of the contract, Bagtas asked for a renewal for another
period of one year. The Secretary of Agriculture and Natural Resources approved a renewal of only one bull for
another year and requested the return of the other two. In 1950, Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls, with a deduction of yearly depreciation to be approved by the Auditor
General. The Director of Animal Industry advised him that the book value of the three bulls could not be reduced and
that they either be returned or their book value paid not later than October 31, 1950.

Bagtas failed to pay the book value of the three bulls or to return them. Thus, the Republic of the Philippines
commenced an action against him in CFI-Manila, praying that he be ordered to return the three bulls loaned to him
or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee.

BAGTAS: answered that because of the bad peace and order situation in Cagayan Valley, and of the pending appeal to
the Secretary of Agriculture and Natural Resources and the President of the Philippines to deduct from the book
value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, he could not return the
animals nor pay their value and prayed for the dismissal of the complaint.

CFI: sentence Bagtas to pay the total value of the three bulls; during pendency of trial, Bagtas died.

FELICIDAD: alleged that the two bulls, Sindhi and Bhagnari, were returned to the Bureau Animal of Industry, and that
sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on
Hacienda Felicidad Intal. The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the
Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal
was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or
paying its value to the appellee. The appellant contends that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure.

ISSUE: W/N Bagtas is relieved from the duty of returning the bull.

HELD: NO. 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, because article 1942 of the Civil
Code provides that a bailee in a contract of commodatum is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;

The original period of the loan was from May 1948 to May 1949. The loan of one bull was renewed for another
period of one year to end on 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. 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.

As the appellant already had returned the two bulls to the appellee, 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 to the appellee, because it was killed while in
the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31
January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

ALEJANDRA MINA, ET AL. vs. RUPERTA PASCUAL, ET AL . [October 14, 1913]

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired a lot in the center of the
town of Laoag. Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the
said lot. Upon the death of Francisco, herein plaintiffs, Alejandra Mina, et al., were recognized as his heirs. Andres
Fontanilla also having died, the children of Ruperta Pascual were recognized as heirs.

As per Ruperta, they are entitled to only 6/7 of ½ of the building, the other half and the remaining 1/7 belonging to
the plaintiffs. On the other hand, plaintiffs are the owners of the lot.

In 1909, Ruperta petitioned the CFI-Ilocos Norte for authorization to sell 6/7 of ½ of the warehouse, together
with its lot." Alejandra Mina, et al. opposed the petition for the reason that the latter had included therein the lot
occupied by the warehouse, which they claimed was their exclusive property. They requested the court to decide the
question of the ownership of the lot before it passed upon the petition for the sale of the warehouse. But the court
before determining the matter of the ownership of the lot occupied by the warehouse, ordered the sale of this
building. So, the warehouse, together with the lot on which it stands, was sold to Cu Joco.

CFI: held that the lot belonged to the owner of the warehouse which had been built thereon thirty years; SC:
reversed the decision of the lower court and held that the appellants were the owners of the lot in question.

When the judgment became final and executory, a writ of execution issued and the plaintiffs were given possession
of the lot; but the trial court annulled this possession for the reason that it affected Cu Joco, who had not been a
party to the suit in which that writ was served. Thus, Alejandra Mina commenced the present action to have the
sale of the said lot declared null and void.

ISSUE: W/N the sale of the warehouse and the lot to Cu Joco was valid.

HELD: NO. The nullity of the sale of the lot is in all respects quite evident, whatsoever be the manner in which the
sale was effected, whether judicially or extrajudicially.

He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a transfer of the
ownership of the thing, it is evident that he who has only the mere use of the thing cannot transfer its ownership.
The sale of a thing effected by one who is not its owner is null and void. The defendants never were the owners of
the lot sold. The sale of it by them is necessarily null and void. One cannot convey to another what he has never had
himself.

The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in
possession of the vendor might be sold, for at a judicial auction nothing else is disposed of. What the minor children
of Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half of the warehouse
and the use of the lot occupied by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that
sale: not the ownership of the lot; neither the other half, nor the remaining one-seventh of the said first half, of
the warehouse. Consequently, the sale made to him of this one-seventh of one-half and the entire other half of the
building was null and void, and likewise with still more reason the sale of the lot the building occupies.

The purchaser could and should have known what it was that was offered for sale and what it was that he purchased.
There is nothing that can justify the acquisition by the purchaser of the warehouse of the ownership of the lot that
this building occupies, since the minors represented by Ruperta Pascual never were the owners of the said lot, nor
were they ever considered to be such.

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, yet that denomination given by them to the use of the lot granted by
Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be interpreted in
conformity with the name that the parties thereto agree to give them, but must be construed, duly considering their
constitutive elements, as they are defined and denominated by law.

By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that
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 to another shall for a
certain period. Francisco Fontanilla did not fix any definite period or time during which Andres Fontanilla could have
the use of the lot whereon the latter was to erect a stone warehouse of considerable value, and so it is that for the
past 30 years, the lot has been used by both Andres and his successors in interest. The present contention of the
plaintiffs that Cu Joco, now in possession of the lot, should pay rent for it at the rate of P5 a month, would destroy
the theory of the commodatum sustained by them, since, according to the second paragraph of the aforecited article
1740, "commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of their brief is to
be believed, it never entered Francisco's mind to limit the period during which his brother Andres was to have the
use of the lot, because he expected that the warehouse would eventually fall into the hands of his son, Fructuoso
Fontanilla, called the adopted son of Andres, which did not come to pass for the reason that Fructuoso died before
his uncle Andres. With that expectation in view, it appears more likely that Francisco intended to allow his brother
Andres a surface right; but this right supposes the payment of an annual rent, and Andres had the gratuitous use of
the lot.

Hence, as the facts aforestated only show that a building was erected on another's ground, the question should be
decided in accordance with the statutes that, thirty years ago, governed accessions to real estate, and which were
Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of the Civil
Code. So, then, pursuant to article 361, the owner of the land on which a building is erected in good faith has a right
to appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453 and 454, or to oblige
the builder to pay him the value of the land. Such, and no other, is the right to which the plaintiff are entitled.

For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual, in
representation of her minor children, to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs
shall choose one or the other of the two rights granted them by article 361 of the Civil Code.

The judgment appealed from is reversed and the sale of the lot in question is held to be null and void and of no force
or effect. No special finding is made as to the costs of both instances.

SALVADOR and ALMA ABELLA vs. ROMEO and ANNIE ABELLA [July 8, 2015]
Spouses Salvador and Alma Abella alleged that Romeo and Annie Abella obtained a loan from them in the amount of
P500,000. The loan was evidenced by an acknowledgment receipt and was payable within one year. Petitioners
added that respondents were able to pay a total of P200,000, leaving an unpaid balance of P300,000.

ROMEO & ANNIE: alleged that the amount involved did not pertain to a loan they obtained from petitioners but was
part of the capital for a joint venture involving the lending of money. Respondents claimed that they were
approached by petitioners, who proposed that if respondents were to "undertake the management of whatever
money petitioners would give them, petitioners would get 2.5% a month with a 2.5% service fee to
respondents." The 2.5% that each party would be receiving represented their sharing of the 5% interest that the
joint venture was supposedly going to charge against its debtors. The one year averred by petitioners was not a
deadline for payment but the term within which they were to return the money placed by petitioners should the
joint venture prove to be not lucrative.

RTC: ruled in favor of SALVADOR & ALMA. It noted that the terms of the acknowledgment receipt executed by
ROMEO & ANNIE clearly showed that: (a) respondents were indebted to the extent of P500,000.00; (b) this
indebtedness was to be paid within one (1) year; and (c) the indebtedness was subject to interest. Thus, the trial
court concluded that respondents obtained a simple loan, although they later invested its proceeds in a lending
enterprise. The Regional Trial Court adjudged respondents solidarily liable to petitioners for the sum of P300,000
with interest at the rate of 30% per annum.

CA: ruled that while respondents had indeed entered into a simple loan with petitioners, respondents were no longer
liable to pay the outstanding amount of P300,000. The loan could not have earned interest, whether as contractually
stipulated interest or as interest in the concept of actual or compensatory damages. As to the loan’s not having
earned stipulated interest, the Court of Appeals anchored its ruling on Article 1956 of the Civil Code, which requires
interest to be stipulated in writing for it to be due. The Court of Appeals noted that while the acknowledgement
receipt showed that interest was to be charged, no particular interest rate was specified.

ISSUE: W/N interest accrued on respondents’ loan from petitioners. If so, at what rate?

SC: Respondents entered into a simple loan or mutuum, rather than a joint venture, with petitioners. Respondents’
claims, as articulated in their testimonies before the trial court, cannot prevail over the clear terms of the
document attesting to the relation of the parties. "If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control."

Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual relation is one of simple loan or mutuum:
Art. 1933. 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.
....
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.

Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it has been expressly
stipulated in writing."

On the matter of interest, the text of the acknowledgment receipt is simple, plain, and unequivocal. It attests to the
contracting parties’ intent to subject to interest the loan extended by petitioners to respondents. The controversy,
however, stems from the acknowledgment receipt’s failure to state the exact rate of interest.

Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. In Spouses
Toring v. Spouses Olan,35 this court clarified the effect of Article 1956 of the Civil Code and noted that the legal rate of
interest (then at 12%) is to apply: "In a loan or forbearance of money, according to the Civil Code, the interest due
should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum."36
Also, when the obligation is breached, and it consists in the payment of a sum of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

Recently, however, the Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest, shall be (6%) per annum.

Applying this, the loan obtained by respondents from petitioners is deemed subjected to conventional interest at
the rate of 12% per annum, the legal rate of interest at the time the parties executed their agreement.
Moreover, should conventional interest still be due as of July 1, 2013, the rate of 12% per annum shall persist as the
rate of conventional interest.

This is so because interest in this respect is used as a surrogate for the parties’ intent, as expressed as of the time
of the execution of their contract. In this sense, the legal rate of interest is an affirmation of the contracting parties’
intent; that is, by their contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the cost
of borrowing money. This rate, which by their contract the parties have settled on, is deemed to persist regardless of
shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional interest,
shall always be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate.

Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is unconscionable. As
emphasized in Castro v. Tan,50 the willingness of the parties to enter into a relation involving an unconscionable
interest rate is inconsequential to the validity of the stipulated rate:

The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed,
is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained
within the sphere of public or private morals. The imposition of an unconscionable interest rate is void ab initio for
being "contrary to morals, and the law."

Apart from respondents’ liability for conventional interest at the rate of 12% per annum, outstanding conventional
interest—if any is due from respondents—shall itself earn legal interest from the time judicial demand was made by
petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with Article 2212 of the Civil
Code, which provides:

Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may
be silent upon this point.

Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,54 the interest due on conventional interest
shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013. Thereafter, or starting July 1, 2013, this
shall be at the rate of 6% per annum.

Proceeding from these premises, we find that respondents made an overpayment in the amount of P3,379.17.

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs. CA, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ [September 21, 1988]
VICAR filed with the CFI-Baguio on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4
in La Trinidad, Benguet, said Lots being the sites of the Catholic Church building, convents, high school building,
school gymnasium, school dormitories, social hall, stonewalls, etc. Heirs of Juan Valdez and the Heirs of Egmidio
Octaviano filed their Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto.

LAND REGISTRATION COURT: confirmed the registrable title of VICAR to Lots 1, 2, 3, and 4; CA: reversed the decision
of the LRC, dismissing the VICAR's application as to Lots 2 and 3.

HEIRS of OCTAVIANO: filed a motion for reconsideration praying the CA to order the registration of Lot 3 in the
names of the Heirs of Egmidio Octaviano; HEIRS of VALDEZ: filed their motion for reconsideration praying that both
Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez.

CA: denied the motion for reconsideration filed by the Heirs of Valdez & Octiviano on the ground that there was "no
sufficient merit to justify reconsideration one way or the other. SC denied both petitions for review. Upon the finality
of both Supreme Court resolutions, the Heirs of Octaviano filed with CFI-Baguio a Motion For Execution of Judgment
praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court denied the motion on the ground that
the Court of Appeals decision did not grant the Heirs of Octaviano any affirmative relief.

HEIRS: filed civil cases for recovery of possession. The heirs argue that Vicar is barred from setting up the defense of
ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment
of the Court of Appeals under the principle of res judicata. Plaintiffs contend that the question of possession and
ownership have already been determined by the Court of Appeals and affirmed by the Supreme Court.

VICAR: maintains that the principle of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior judgment in CA merely dismissed their
application for registration and titling of lots 2 and 3. Vicar contends that only the dispositive portion of the decision,
and not its body, is the controlling pronouncement of the Court of Appeals.

The Court of Appeals Decision 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. VICAR 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 VICAR applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept
of owner only for 11 years. Ordinary acquisitive prescription requires possession for 10 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.

An examination of the Court of Appeals Decision shows that it reversed the trial court's Decision finding petitioner to
be entitled to register the lands in question under its ownership. The Court of Appeals found that petitioner did not
meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase
and Lot 3 was acquired also by purchase from Egmidio Octaviano by Vicar because there was absolutely no
documentary evidence to support the same and the alleged purchases were never mentioned in the application for
registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and
Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not
petitioner Vicar, were in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3,
because the buildings standing thereon were only constructed after liberation in 1945. Vicar only declared Lots 2 and
3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was
appointed only in 1947, the church was constructed only in 1951 and the new convent only 2 years before the trial in
1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from
Fructuoso Valdez. Lots 2 and 3 were surveyed by request of Vicar only in 1962.

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.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim
of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of
fact have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has
become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held
that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata,
hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence
established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated Aug.
31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against
petitioner. SO ORDERED.

MARGARITA QUINTOS and ANGEL ANSALDO vs. BECK [November 3, 1939]

BECK was a tenant of Margarita Quintos and Angel Ansalado. As such, BECK occupied the latter's house. In January
1936, upon the novation of the contract of lease, Margarita an Angel gratuitously granted to BECK the use of the
furniture, subject to the condition that BECK would return them to the plaintiff upon the latter's demand.

The plaintiff sold the property to Maria and Rosario Lopez. BECK was notified of such and was given 60 days to vacate
the premises, as per the contract of lease. Thereafter, BECK was required to return all the furniture transferred to him
for them in the house where they were found. BECK, through another person, wrote to the plaintiff reiterating that
she may call for the furniture in the ground floor of the house. BECK then 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 in 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. Thus, before vacating the house, BECK
deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse,
in the custody of the said sheriff.

CFI: held that the plaintiff violated the contract by not calling for all the furniture on November 5, 1936, when the
defendant placed them at their disposal. CFI ordered plaintiff to get all the furniture from the Sheriff at their
expenses, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both
parties.

ISSUE: W/N BECK complied with his obligation to return the furniture upon the plaintiff's demand, and W/N the
latter is bound to bear the deposit fees thereof.

HELD: NO. 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. 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.

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. Should the defendant fail to deliver some of the furniture, the value thereof
should be latter 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. 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.

CEBU INTERNATIONAL FINANCE CORPORATION vs. CA, VICENTE ALEGRE [October 12, 1999]
CIFC, a quasi-banking institution, is engaged in money market operations. Vicente Alegre, invested with CIFC,
P500,000 in cash. CIFC issued a promissory note for P516,238.67 to mature on May 27, 1991. On May 27, 1991, CIFC
issued a BPI Check for P514,390.94 in favor of Alegre. The CHECK was drawn from CIFC’s current account, maintained
with BPI-Makati City.

When Alegre’s wife deposited the CHECK with RCBC, BPI dishonored the CHECK with the annotation, that the "Check
is Subject of an Investigation." BPI took custody of the CHECK pending an investigation of several counterfeit checks
drawn against CIFC's checking account. BPI used the check to trace the perpetrators of the forgery. Alegre notified
CIFC of the dishonored CHECK and demanded that he be paid in cash. CIFC refused the request, and instructed Alegre
to wait for its ongoing bank reconciliation with BPI. Thus Alegre filed a complaint for recovery of a sum of money
against CIFC with RTC-Makati.

CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action for collection of a sum of
money with the RTC-Makati. The collection suit alleged that BPI unlawfully deducted from CIFC's checking account,
counterfeit checks amounting to P1,724,364.58. CIFC also filed a motion for leave of court to file a third-party
complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and indemnity, with respect to
Alegre's claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded.

BPI then entered into a Compromise Agreement with CIFC which provided that BPI shall pay CIFC P1,724,364.58 plus
P20,000 litigation expenses. Thereupon, BPI shall debit P514,390.94 from the aforesaid current account payable to
Vicente Alegre. In case BPI is adjudged liable to Vicente Alegre, plaintiff cannot go after the defendant.

BPI then filed a separate collection suit against Vicente Alegre, alleging that Alegre connived with certain Lina Pena
and Lita Anda and forged several checks of BPI's client, CIFC. BPI admitted that the CHECK, payable to Vicente Alegre
for P514,390.94, was deducted from BPI's claim, hence, the balance of the loss incurred by BPI was P914,198.57, plus
costs of suit for P20,000.

RTC-Makati: rendered judgment in favor of Vicente Alegre; CA: affirmed the decision of the trial court.

ISSUE: W/N CIFC was discharged from the liability of paying the value of the subject check to private respondent
after BPI has debited the value thereof against CIFC’s current account.

HELD: NO. Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for
the medium in the "payment of debts." It provides that: “The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency, which is legal tender in the Philippines. xxx The delivery of promissory
notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. xxx In the meantime, the action derived from the original
obligation shall be held in abeyance.

Considering the nature of a money market transaction, the above-quoted provision should be applied in the present
controversy. A "money market” is a market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in
open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private respondent is in the
nature of a loan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he
presented it to RCBC for encashment, the same was dishonored by non-acceptance. Under these circumstances, and
after the notice of dishonor, the holder has an immediate right of recourse against the drawer, 13 and consequently
could immediately file an action for the recovery of the value of the check.

In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender
or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does
not, by itself, operate as payment. A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3.)

ISSUE: W/N the bank’s deduction of the amount of the CHECK from CIFC's current account ipso facto operate as a
discharge or payment of the instrument.

HELD: NO. Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to the payee,
Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from forgeries of CIFC checks, allegedly
committed by Alegre. The confiscation of the value of the check was agreed upon by CIFC and BPI.

A COMPROMISE is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an
end to one already commenced. It is an agreement between two or more persons who, for preventing or putting an
end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone
of them prefers in the hope of gaining, balanced by the danger of losing. The compromise agreement could not
bind a party who did not sign the compromise agreement nor avail of its benefits. Thus, the stipulations in the
compromise agreement is unenforceable against Vicente Alegre, not a party thereto. His money could not be the
subject of an agreement between CIFC and BPI. Although Alegre's money was in custody of the bank, the bank's
possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own.

Art. 1317: No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.
xxx A Contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.

BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a valid proceeding in
court. Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of the
defendant in the hands of a third person or money owed to such third person or a garnishee to the defendant. 21 The
garnishment procedure must be upon proper order of RTC-Makati, the court who had jurisdiction over the collection
suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its obligation to the private
respondent. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the former's obligation and demanding that the latter accept the
same. Tender of payment cannot be presumed by a mere inference from surrounding circumstances.

With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following requisites
must concur: (a) identity of parties or at least such as to represent the same interest in both actions; (b) identity of
rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases
should be such that the judgment which may be rendered in one would, regardless of which party is successful,
amount to res judicata in the other. 23

We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner
against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against the bank in Civil Case No. 92-1940, there is
identity of parties as well as identity of rights asserted, and that any judgment that may be rendered in one case will
amount to res judicata in another.

The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff is adjudged liable to
Vicente Alegre in Civil Case arising from the alleged dishonor of BPI Check, CIFC cannot go after BPI. Otherwise
stated, the defendant shall not be liable to the plaintiff." 25Clearly, this stipulation expressed that CIFC had already
abandoned any further claim against BPI with respect to the value of BPI Check No. 513397. To ask this Court to
allow BPI to be a party in the case at bar, would amount to res judicata and would violate terms of the compromise
agreement between CIFC and BPI. The general rule is that a compromise has upon the parties the effect and
authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms
should be deemed to have been included therein. 26 This holds true even if the agreement has not been judicially
approved.