ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs.HON.
cover obligations existing at the time the mortgage is constituted.
COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY
G.R. No. 103576 August 22, 1996
FACTS:
Petitioner Chua Pac, the president and general manager of co-
petitioner Acme executed a chattel mortgage in favor of private
respondent Producers Bank as a security for a loan of P3,000,000. A
provision in the chattel mortgage agreement was to this effect:
"In case the MORTGAGOR executes subsequent promissory note or
notes either as a renewal of the former note, as an extension thereof, or
as a new loan, or is given any other kind of accommodations such as
overdrafts, letters of credit, acceptances and bills of exchange, releases
of import shipments on Trust Receipts, etc., this mortgage shall also stand
as security for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new contract
and this mortgage shall have the same force and effect as if the said
promissory note or notes and/or accommodations were existing on the
date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the
MORTGAGEE of whatever kind and nature, whether such obligations
have been contracted before, during or after the constitution of this
mortgage."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained
additional loan totalling P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00) covered by four
promissory notes for P250,000.00 each, but went unsettled prompting the
bank to apply for an extrajudicial foreclosure with the Sheriff.
ISSUE:
Would it be valid and effective to have a clause in a chattel mortgage
that purports to likewise extend its coverage to obligations yet to be
contracted or incurred?
HELD:
No. While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these future
debts are accurately described, a chattel mortgage, however, can only
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.
Central Bank of the Philippines v. CA (1985)
Ponente: Makasiar, C.J.
Topic: Delay (Art. 1169)
Facts:
April 28, 1965 - Island Savings Bank (ISB) approved the loan application
for P80,000 of Sulpicio Tolentino, who, as a security for the loan, also
executed a real estate mortgage over his 100-ha land. The approved
loan application called for P80,000 loan, repayable in semi-annual
installments for a period of 3 years, with 12% interest.
May 22, 1965 – a mere P17,000 partial release of the loan was made by
ISB, and Tolentino and his wife Edita signed a promissory note for P17,000
at 12% annual interest, payable within 3 years from the date of execution
of the contract at semi-annual installments of P3,459.
An advance interest for the P80,000 loan covering a 6-mo period
amounting to P4,800was deducted from the partial release of P17,000,
but this was refunded to Tolentino on July 23, 1965, after being informed
by ISB that there was no fund yet available for the release of the P63,000
balance.
Aug. 13, 1965 – the Monetary Board of the Central Bank issued Resolution
No. 1049, which prohibited ISB from making new loans and investments,
after finding that it was suffering liquidity problems.
June 14, 1968 – the Monetary Board issued Resolution No. 967, which
prohibited ISB from doing business in the Philippines, after finding that it
failed to put up the required capital to restore its solvency.
Aug. 1, 1968 – ISB, 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-ha land; and the sheriff
scheduled auction.
Tolentino filed a petition with the CFI for injunction, specific performance
or rescission and damages with preliminary injunction, alleging that since
ISB failed to deliver the P63,000 remaining balance of the loan, he is
entitled to specific performance by ordering ISB to deliver it with interest
of 12% per annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage.
CFI issued a TRO enjoining ISB from continuing with the foreclosure of the
mortgage, however, after finding Tolentino’s petition unmeritorious,
ordered the latter to pay ISB P17,000 plus legal interest and legal charges
and lifting the TRO so the sheriff may proceed with the foreclosure.
CA, on appeal by Tolentino, modified CFI’s decision by affirming
dismissal of Tolentino’s petition for specific performance, but ruled that
ISB can neither foreclose the mortgage nor collect the P17,000 loan.
SC: The parties, in the P80,000 loan agreement, undertook reciprocal
obligations, wherein the obligation/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, CC).
When Tolentino executed a real estate mortgage, he signified his
willingness to pay the P80,000 loan, and from such date, the obligation
of ISB to furnish the loan accrued. Thus, ISB’s delay started on April 28,
1965 and lasted 3 years or when Resolution No. 967 was issued
prohibiting ISB from doing further business, which made it legally
impossible from ISB to furnish the P63,000 of the loan.
Resolution No. 1049 cannot interrupt the default of ISB in complying with
its obligation to release the P63,000 balance because it merely
prohibited ISB from making new loans and investments, not from
releasing the balance of loan agreements previously contracted.
The mere pecuniary inability to fulfill an engagement does not discharge
the obligation of the contract, nor does it constitute any defense to a
decree of specific performance; and the mere fact of insolvency of a
debtor is never an excuse for the nonfulfillment of an obligation, but
instead, is taken as a breach of contract.
The fact that Tolentino demanded and accepted the refund of the pre-
deducted interest cannot be taken as a waiver of his right to collect the
P63,000 balance. The act of ISB in asking for the advance interest was
improper considering that only P17,000 out of the P80,000 loan was
released.
The alleged discovery by ISB of the overvaluation of the loan collateral
cannot exempt it from complying with its obligation to furnish the entire
P80,000 loan because bank officials/employees have the obligation to
investigate the existence and valuation of the properties being offered
as a loan security before approving the loan application.
Issues/Held/Ratio
1) WON the action of Tolenitno for specific performance can
prosper. NO.
Since ISB was in default under the agreement, Tolentino may choose
between specific performance or rescission, but since ISB is now
prohibited from doing further business, the only remedy left is Rescission
only for the P63,000 balance of the loan.
2) WON Tolentino is liable to pay the P17,000 debt covered by the
promissory note. YES.
The bank was deemed to have complied with its reciprocal obligation
to furnish a P17,000 loan. The promissory note gave rise to Tolentino’s
reciprocal obligation to pay such loan when it falls due and his failure to
pay the overdue amortizations under the promissory note made him a
party in default, hence not entitled to rescission (Art. 1191, CC). ISB has
the right to rescind the promissory note, being the aggrieved party.
Since both parties were in default in the performance of their reciprocal
obligations, both are liable for damages. In case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equirably tempered by the courts (Art. 1192, CC).
The liability of ISB for damages in not furnishing the entire loan is offset by
the liability of Tolentino for damages (penalties and surcharges) for not
paying his overdue P17,000 debt. Since Tolentino derived some benefit
for his use of the P17,000, he should account for the interest thereon
(interest was not included in the offsetting).
3) WON Tolentino’s real estate mortgage can be foreclosed to
satisfy the P17,000 if his liability to pay therefor subsists. NO.
The fact that when Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because
ISB 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. When the consideration is
subsequent to the mortgage, the latter can take effect only when the
debt secured by it is created as a binding contract to pay. And 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 ISB failed to furnish the P63,000 balance, the real estate mortgage
of Tolentino became unenforceable to such extent. P63,000 is 78.75% of
P80,000, hence the mortgage covering 100 ha is unenforceable to the
extent of 78.75 ha. The mortgage covering the remainder of 21.25 ha
subsists as a security for the P17,000 debt.
Judgment:
1) Tolentino is ordered to pay ISB P17,000 plus P41, 210 (12% interest
per annum)
2) In case Tolentino fails to pay, his real estate mortgage covering
21.25 ha shall be foreclosed to satisfy his total indebtedness
3) The real estate mortgage covering 78.75 ha is unenforceable
and ordered released in favor of Tolentino
HERRERA vs PETROPHIL CORP.
[G.R. No. L-48349, December 29, 1986]
CRUZ, J.
Facts:
On December 5, 1969, Herrera and ESSO Standard, (later substituted by
Petrophil Corp.,) entered into a lease agreement, whereby the former
leased to the latter a portion of his property for a period of 20yrs. subject
to the condition that monthly rentals should be paid and there should
be an advance payment of rentals for the first eight years of the
contract, to which ESSO paid on December 31, 1969. However, ESSO
deducted the amount of 101, 010.73 as interest or discount for the eight
years advance rental.
On August 20, 1970, ESSO informed Herrera that there had been a
mistake in the computation of the interest and paid an additional sum
of 2,182.70; thus, it was reduced to 98, 828.03.
As such, Herrera sued ESSO for the sum of 98, 828.03, with interest,
claiming that this had been illegally deducted to him in violation of the
Usury Law.
ESSO argued that amount deducted was not usurious interest but rather
a discount given to it for paying the rentals in advance. Judgment on
the pleadings was rendered in favor of ESSO. Thus, the matter was
elevated to the SC for only questions of law was involve.
Issue:
W/N the contract between the parties is one of loan or lease.
Ruling:
Contract between the parties is one of lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT." 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.
Contract between the parties is one of lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT." Nowhere in the contract is there
any showing that the parties intended a loan rather than a lease. The
provision for the payment of rentals in advance cannot be construed as
a repayment of a loan because there was no grant or forbearance of
money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in
advance by paying the eight years rentals, and it was for this advance
payment that it was getting a rebate or discount.
Issue:
W/N the defendant violated the usury law?
There is no usury in this case because no money was given by the
defendant-appellee to the plaintiff-appellant, nor did it allow him to use
its money already in his possession. There was neither loan nor
forbearance but a mere discount which the plaintiff-appellant allowed
the defendant-appellee to deduct from the total payments because
they were being made in advance for eight years. The discount was in
effect a reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount, would not
contravene the Usury Law.
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.
To constitute usury, "there must be loan or forbearance; the loan must
be of money or something circulating as money; it must be repayable
absolutely and in all events; and something must be exacted for the use
of the money in excess of and in addition to interest allowed by law."
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.
Olivia Navoa and Ernesto Navoa vs. C.A., Teresita Domdoma and
Eduardo Domdoma
GR No 59255 Devember 20, 1995
Facts:
On December 1977 Teresita Domdoma and Eduardo Domdoma filed a
case with the RTC for collection of various sums of money based on loans
given by them to Olivia Navoa. They cased was dismissed on the ground
that there was no cause of action and that the Domdoma’s do not have
no capacity to sue. They appealed to the C.A. and was granted a
favourable decision.
There were 6 instances in which the Domdoma’s gave Olivia Navoa a
loan. The first instance is when Teresita gave Olivia a diamond ring
valued at 15,000.00 which was secured by a PCIB check under the
condition that if the ring was not returned within 15 days from August 15,
1977 the ring is considered sold. Teresita attempted to deposit the check
on November 1977 but the check was not honoured for lack of funds.
After this instance, there were other loans of various amounts that were
extended by Teresita to Olivia, loans which were secured by PCIB
checks, which were all dated to 1 month after the loan. All these checks
were not honoured under the same reason as the first loan.
Issue:
Was the decision of the RTC to dismiss the case due to having no cause
of action valid?
- NO, A cause of action is the fact or combination of facts which affords
a party a right to judicial interference in his behalf.
- For the first loan it is a fact, that the ring was considered sold to Olivia
Navoa 15 days after August 15, 1977, and even then, Olivia Navoa failed
to pay the price for the ring when the payment was due (check issued
was not honoured. Thus it is confirmed that Teresita’s right under the
agreement was violated.
- As for the other loans extended by Teresita to Olivia, they were all
secured by PCIB checks. It can be inferred that since the checks were
all dated to 1 month after the loan, it follows that the loans are then
payable 1 month after they were contracted, and also these checks
were dishonoured by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks that were
issued as payment for their 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 extra-judicially demands from them the
fulfilment of the obligations, the continuing refusal of Olivia and Ernesto
Navoa to comply with the demand of payment shows the existence of
a cause of action.
Held:
The petition is DENIED and the decision of the C.A. remanding the case
to the RTC for trial on the merits is affirmed.
Obligations and Contracts terms:
Security- A means of ensuring the enforcement of an obligation or of
protecting some interest in property. It may be personal or property
security.
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 favour of the plaintiff by whatever means and
under whatever law it arises or 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.
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.
VENANCIO CONCEPCION, defendant-appellant.
FACTS:
Venancio Concepcion, President of the Philippine National Bank, sent
telegrams and a confirmation letter to the manager of the Aparri branch
of PNB, authorizing an extension of credit in favour of Puno y
Concepcion, S. en C. in the amount of P300,000.00. This special
authorization limited the discretional power of the local manager of the
Aparri branch 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 to Puno
y Concepcion, S. en C., the only security required consisting of six
demand notes. This Puno y Concepcion, S. en C., in reality is a
copartnership capitalized at P100,000 wherein, Venancio Concepcion’s
wife owns half of the copartnership. Venancio Concepcion was found
guilty by the CFI for violation of Section 354 of Act 2747 which provides
that: : "The National Bank shall not, directly or indirectly, grant loans to
any of the members of the board of directors of the bank nor to agents
of the branch banks."
ISSUES:
1. Whether or not the granting of a credit of P300,000 to the
copartnership was a “loan” within the meaning of Section 35 of Act No.
2747.
YES. 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,"
2. Whether or not the granting of a credit of P300,000 to the
copartnership was a “loan” or a “discount”.
LOAN. Discounts are favored by bankers because of their liquid nature,
growing, as they do, out of an actual, live, transaction. But in its last
analysis, 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, 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.
3. Whether or not the granting of a credit of P300,000 to the
copartnershop was an “indirect loan” within the meaning of Section 35
of Act 2747.
YES. In the interpretation and construction of statutes, the primary rule is
to ascertain and give effect to the intention of the Legislature. 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. (Articles 1315, 1393, 1401, 1407, 1408, and
1412 can be specially noted.) 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.
Bonnevie V. CA (1983)
G.R. No. L-49101 October 24, 1983
Lessons Applicable: Simple Loan
Laws Applicable:
Facts:
December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano
secured their loan of P75K from Philippine Bank of Commerce (PBC) by
mortgaging their property
December 8, 1966: Executed Deed of Sale with Mortgage to Honesto
Bonnevie where P75K is payable to PBC and P25K is payable to Spouses
Lanzano.
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of
P18,944.22 to PBC
May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of
Sale with Assumption of Mortgage to his brother, intervenor Raoul
Bonnevie
June 10, 1968: PBC applied for the foreclosure of the mortgage, and
notice of sale was published
January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against
Philippine Bank of Commerce for the annulment of the Deed of
Mortgage dated December 6, 1966 as well as the extrajudicial
foreclosure made on September 4, 1968.
CFI: Dismissed the complaint with costs against the Bonnevies
CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.
HELD: YES. CA affirmed
A contract of loan being a consensual contract is 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.
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.
Thru certificate of sale in favor of appellee was registered on September
2, 1968 and the one year redemption period expired on September 3,
1969. It was not until September 29, 1969 that Honesto Bonnevie first
wrote respondent and offered to redeem the property.
loan matured on December 26, 1967 so when respondent Bank applied
for foreclosure, the loan was already six months overdue. Payment of
interest on July 12, 1968 does not make the earlier act of PBC inequitous
nor does it ipso facto result in the renewal of the loan. In order that a
renewal of a loan may be effected, not only the payment of the
accrued interest is necessary but also the payment of interest for the
proposed period of renewal as well. Besides, whether or not a loan may
be renewed does not solely depend on the debtor but more so on the
discretion of the bank.
 Saura Import & Export Co., Inc. vs DBP
GR No. L-24968, 27 April 972
44 SCRA 445

FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC), before
its conversion into DBP, for an industrial loan to be used for construction
of factory building, for payment of the balance of the purchase price of
the jute machinery and equipment and as additional working capital.
In Resolution No.145, the loan application was approved to be secured
first by mortgage on the factory buildings, the land site, and machinery
and equipment to be installed.

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

After 9 years after the mortgage was cancelled, Saura sued RFc alleging
failure to comply with tits obligations to release the loan proceeds,
thereby prevented it from paying the obligation to Prudential Bank.

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

ISSUE
Whether or not there was a perfected contract between the parties.

HELD
The Court held in the affirmative. Article 1934 provides: An accepted
promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until delivery of the object of the contract.

There was undoubtedly offer and acceptance in the case. When an

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