COMMODATUM
the transaction was onerous as Doronilla was obliged to pay interest.
1. REPUBLIC V. BAGTAS - LEA
2. PRODUCERS BANK V. CA - DON
Producers Bank of the Philippines vs CA and Vives
Doctrine: XPN of Commodatum
FACTS:
Franklin Vives (private respondent) was asked by his friend
Angeles Sanchez (Sanchez) to help her friend Arturo Doronilla
(Doronilla) in incorporating his business, Sterela Marketing and
Services (Sterela). Sanchez asked private respondent to deposit
P200,000.00 in the Producers Bank of the Philippines account of
Sterela for purposes of its incorporation.
Private respondent learned that part of the money had been
withdrawn by Doronilla. Doronilla assured private respondent that the
money was intact and would be returned to him. Doronilla issued
postdated check in favor of private respondent. However, the check
was dishonored.
Procedure:
Private respondent instituted an action for recovery of sum of
money in the Regional Trial Court (RTC). Private respondent won the
case. Producers Bank of the Philippines (petitioner), feeling
aggrieved, appealed the RTC’s decision to the Court of Appeals (CA).
Petitioner lost the case. Petitioner, being unsatisfied with the ruling,
filed the present petition.
Attack:
Petitioner contends that the transaction between private
respondent and Doronilla is a simple loan (mutuum) since all the
elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second,
Defense:
Private respondent argues that the transaction between him
and Doronilla is not a mutuum but an accommodation, since he did
not actually part with the ownership of his P200,000.
ISSUE:
Whether or not the transaction between Doronilla and private
respondent was a commodatum?
RULING:
YES. The transaction between private respondent and
Doronilla was a commodatum and not a mutuum.
According to Article 1933 of the Civil Code (Art 1933), the
contract is commodatum when 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; the contract is mutuum when the
money or consumable thing, upon the condition that the same amount
of the same kind and quality shall be paid. However, Article 1936 of
the Civil Code (Art 1936) provides for the exception of Art 1933. Art
1936 provides that: consumable goods may be the subject of
commodatum if the purpose of the contract is not the consumption of
the object, as when it is merely for exhibition.
The evidence shows that private respondent merely
“accomodated” Doronilla by lending his money without consideration
for the purpose of making it appear that the Sterela had sufficient
capitalization for incorporation, with the promise that the money shall
be returned. It is clear that the money borrowed is to be used for
exhibition purposes only. Therefore, Art 1366 shall apply in this case.
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 3. REPUBLIC V. BAGTAS –
(ARTICLE 1942)
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the
Philippines through the Bureau of Animal Industry three bulls: a Red
Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and
a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to
7 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 on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay the
value of the three bulls. On 17 October 1950 he reiterated his desire
to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 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 31 October 1950. Bagtas failed to pay the
book value of the three bulls or to return them. In the Court of First
Instance of Manila the Republic of the Philippines commenced an
action against him 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 in the sum of P199.62, both with
interests, and costs; and that other just and equitable relief be granted
. CFI Manila ruled in favor of the Republic.
On 7 January 1959 Felicidad M. Bagtas, the surviving spouse of the
defendant Jose Bagtas filed a motion alleging that on 26 June 1952
the two bull 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, and praying that the writ of execution be
quashed and that a writ of preliminary injunction be issued.
Issue:Whether or not the borrower is liable for the loss of the thing
loaned?
Holding:
YES.A contract ofcommodatum is essentially gratuitous.1 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 8 May 1948 to 7 May 1949.
The loan of one bull was renewed for another period of one year to
end on 8 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, to with: the
Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. 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.
4. MINA V. PASCUAL -YELA
GR NO L- 8321 OCTOBER 14, 1913
FACTS
Francisco Fontanilla and Andres Fontanilla were brothers.
Francisco Fontanilla acquired during his lifetime the property having
been awarded to him through its purchase at a public auction held by
the alcalde mayor of that province. Andres Fontanilla, with the
consent of his brother Francisco, erected a warehouse on a part of
the said lot.
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 Alejandro Mina, et al were recognized as Francisco
Fontanilla’s heirs and the children of Ruperta Pascual were
recognized as Andres Fontanilla’s heirs. Ruperta Pascual petitioned
the Court of First Instance of Ilocos Norte for authorization to sell "the
six-sevenths of the one-half of the warehouse, of 14 by 11 meters,
together with its lot." Mina et al pposed the petition of Ruperta
Pascual for the reason that the latter had included therein the lot
occupied by the warehouse, which they claimed was their exclusive
property.
Mina et al requested the court to decide the question of
the ownership of the lot before it pass upon the petition for the sale of
the warehouse. Despite this, the court ordered the sale of the
building. So, the warehouse, together with the lot on which it stands,
was sold to Cu Joco. Mina et. al insisted upon a decision of the
question of the ownership of the lot, and the court decided it by
holding that this land belonged to the owner of the warehouse which
had been built thereon thirty years before.
Mina et al appealed and this court reversed the judgment of
the lower court and held that they were the owners of the lot in
question. When the judgment became final and executory, 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. It
was then that the plaintiffs commenced the present action for the
purpose of having the sale of the said lot declared null and void and of
no force and effect.
ISSUE
Whether or not Ruperta Pascual had the right to sell the
warehouse and the lot where it was situated on the ground that she
only acquired the said property by way of a commodatum agreement
between Andres and Francisco
RULING
No. Article 1740 of the Civil Code provides “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” 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
thirty years of the lot has been used by both Andres and his
successors in interest.
5. QUINTOS V. BECK - JODELLE
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
appellants, vs. BECK, defendant-appellee.
IMPERIAL, J.:
The defendant was a tenant of the plaintiff and as such occupied the
latter's house. Upon the novation of the contract of lease between the
plaintiff and the defendant, the former gratuitously granted to the latter
the use of the furniture subject to the condition that the defendant
would return them to the plaintiff upon the latter's demand. The
plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one
of the clauses of the contract of lease. Thereafter the plaintiff required
the defendant to return all the furniture transferred to him for them in
the house where they were found. the defendant wrote a 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. On November 15th, before
vacating the house, the defendant deposited with the Sheriff all the
furniture belonging to the plaintiff.
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Plaintiffs contended that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling for all the furniture
on November 5, 1936, when the defendant placed them at their
disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get
all the furniture from the Sheriff at their expenses; in ordering them to
pay-half of the expenses claimed by the Sheriff for the deposit of the
furniture; in ruling that both parties should pay their respective legal
expenses or the costs;
Issue:
Whether or not the defendant complied with his obligation to return
the furniture upon the plaintiff’s demand?
Holding:
No. The contract entered into between the parties is one of
commadatum, 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 latters 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 eletric lamps. The trial court, therefore, erred when it
came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her. The
defendant, 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.
6. PAJUYO V. CA - HAZELLE
G.R. No. 146364. June 3, 2004
Facts:
Petitioner Colito Pajuyo, paid to a certain Pedro Perez or the
rights over a 250-square meter lot in Barrio Payatas, Quezon City.
Pajuyo and private respondent Eddie Guevarra (Guevarra) executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed
Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on Pajuyos
demand. Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused. Pajuyo
filed an ejectment case against Guevarra with the Metropolitan Trial
Court of Quezon City, Branch 31 (MTC).
Guevarra claimed that Pajuyo had no valid title or right of
possession over the lot where the house stands because the lot is
within the 150 hectares set aside by Proclamation No. 137 for
socialized housing.
Judgment of MTC and RTC was thus rendered in favor of
Pajuyo. Guevarra filed with SC directly motion for extension under
Rule 42, and as approved it referred the case to CA. CA, reversed the
decision of RTC. CA stated that both parties are squatters. Both
illegally occupied the lot, which a government owned. CA also stated
that the kasunduan between Pajuyo and Guevarra created a legal tie
akin to that of Landlord- Tenant relationship ruled that the Kasunduan
is not a lease contract but a commodatum because the agreement is
not for a price certain.
ISSUE:WON the agreement of the parties falls under commodatum or
contract of lease.
HELD:
· No. it is not commodatum.
· Based on the Kasunduan, Pajuyo permitted Guevarra to reside
in the house and lot free of rent, but Guevarra was under obligation to
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maintain the premises in good condition. Guevarra promised to vacate
the premises on Pajuyos demand but Guevarra broke his promise and
refused to heed Pajuyos demand to vacate.
· Where the plaintiff allows the defendant to use his property by
tolerance without any contract, the defendant is necessarily bound by
an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie. Pajuyo did not require Guevarra to
pay any rent but only to maintain the house and lot in good condition.
· In a contract of commodatum, one of the parties delivers to
another something not consumable so that the latter may use the
same for a certain time and return it.
· An essential feature of commodatum is that it is gratuitous.
Another feature of commodatum is that the use of the thing belonging
to another is for a certain period. Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period stipulated,
or after accomplishment of the use for which the commodatum is
constituted. If the bailor should have urgent need of the thing, he may
demand its return for temporary use. If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in
which case the contractual relation is called a precarium. Under the
Civil Code, precarium is a kind of commodatum.
· The Kasunduan reveals that the accommodation accorded by
Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him to
maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from
that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would result in
the termination of the lease.
7. PEOPLE V. BALOY – LEA (pero parang walang ganitong
case sa net)-WAG NALANG :)
SIMPLE LOAN
1. REPUBLIC V. GRIJALDO - DON
2. REPUBLIC V. GRIJALDO - JODELLE
1953 REPUBLIC V. GRIJALDO G.R. No. L-20240
December 31, 1965
ZALDIVAR, J.:
Facts:
Appellant Jose Grijaldo obtained five loans from the branch office of
the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97
with interest at the rate of 6% per annum, compounded quarterly.
These loans are evidenced by five promissory notes executed by the
appellant in favor of the Bank of Taiwan, Ltd. To secure the payment
of the loans the appellant executed a chattel mortgage on the
standing crops on his land.
By virtue of Vesting Order No. P-4 and Trading with the Enemy Act,
as amended, the assets in the Philippines of the Bank of Taiwan, Ltd.
were vested in the Government of the United States. Pursuant to the
Philippine Property Act of 1946 of the United States, these assets,
including the loans in question, were subsequently transferred to the
Republic of the Philippines by the Government of the United States
under Transfer Agreement dated July 20, 1954. These assets were
among the properties that were placed under the administration of the
Board of Liquidators created under Executive Order No. 372, dated
November 24, 1950, and in accordance with Republic Acts Nos. 8 and
477 and other pertinent laws.
On September 29, 1954 the appellee made a written extrajudicial
demand upon the appellant for the payment of the account in question
but he failed to pay. The appellee filed a complaint in the Justice of
the Peace Court of Hinigaran, Negros Occidental, but the case was
dismissed on the ground that the action had prescribed. However, the
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CFI of Negros Occidental reversed the decision and ordered the
appellant to pay the appellee.
Issue:
Whether or not the lost of the crops growing at appellant’s land as
security for the fulfillment of appellant’s obligation extinguishes his
obligation to pay?
Holding:
No, The obligation of the appellant under the five promissory notes
was not to deliver a determinate thing namely, the crops to be
harvested from his land, or the value of the crops that would be
harvested from his land. Rather, his obligation was to pay a generic
thing — the amount of money representing the total sum of the five
loans, with interest. The transaction between the appellant and the
Bank of Taiwan, Ltd. was a series of five contracts of simple loan of
sums of money. "By a contract of (simple) loan, one of the parties
delivers to another ... money or other consumable thing upon the
condition that the same amount of the same kind and quality shall be
paid." (Article 1933, Civil Code) The obligation of the appellant under
the five promissory notes evidencing the loans in questions is to pay
the value thereof; that is, to deliver a sum of money — a clear case of
an obligation to deliver, a generic thing.
The chattel mortgage on the crops growing on appellant's land simply
stood as a security for the fulfillment of appellant's obligation covered
by the five promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be
paid from other sources aside from the mortgaged crops.
3. TAN V. VALDEHUESA -YELA
GR NO L- 38745 AUGUST 6, 1975
FACTS
An action instituted by the plaintiff-appellee Lucia Tan against the
defendants-appellants Arador Valdehueza and Rediculo Valdehueza
for (a) declaration of ownership and recovery of possession of the
parcel of land described in the first cause of action of the complaint,
and (b) consolidation of ownership of two portions of another parcel of
(unregistered) land described in the second cause of action of the
complaint, purportedly sold to the plaintiff in two separate Deeds of
Pacto De Retro.
The parcel of land described in the first cause of action was the
subject matter of the public auction wherein Lucia Tan was the
highest bidder. Due to the failure of defendant Arador Valdehueza to
redeem the said land within the period of one year, an absolute deed
of sale was executed in favor of Lucia Tan. In the second cause of
action, Arador Valdehueza and Rediculo Valdehueza have executed
two documents of Deed of Pacto De Retro Sale in favor of Lucia Tan
of two portions of a parcel of land. From the execution of the Deed of
Sale with right to repurchase mentioned in the second cause of
action, Arador Valdehueza and Rediculo Valdehueza remained in the
possession of the land and as such paid the corresponding land
taxes.
ISSUE
Whether or not the second cause of action that the transactions
between the parties were a simple loan
RULING
No. The trial court treated the registered Deed of Pacto De Retro as
an equitable mortgage but considered the unregistered deed of pacto
de retro "as a mere case of simple loan, secured by the property thus
sold under pacto de retro," on the ground that no suit lies to foreclose
an unregistered mortgage. It would appear that the trial judge had not
updated himself on law and jurisprudence; he cited, in support of his
ruling, article 1875 of the old Civil Code and decisions of this Court
circa 1910 and 1912. Under article 1875 of the Civil Code of 1889,
registration was a necessary requisite for the validity of a mortgage
even as between the parties, but under article 2125 of the new Civil
Code (in effect since August 30,1950), this is no longer so. 4 If the
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instrument is not recorded, the mortgage is nonetheless binding
between the parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the
realty taxes having been paid by them, the contracts which purported
to be pacto de retro transactions are presumed to be equitable
mortgages, 5 whether registered or not, there being no third parties
involved.
4. JARDENIL V. SALAS - JODELLE
G.R. No. L-47878 July 24, 1942
GIL JARDENIL, plaintiff-appellant, vs.HEFTI SOLAS (alias HEPTI
SOLAS, JEPTI SOLAS), defendant-appellee.
Facts: This is an action for foreclosure of mortgage. Solas agreed to
pay interest only up to the date of maturity. The contract is silent as to
whether after the date of maturity, in the event of non-payment, the
debtor would continue to pay interest.
Issue:
Whether or not Solas was bound to pay interest up to the date the
payment is effected?
Holding:
No, he is obliged to pay interest only up to the date of maturity as
fixed in the promissory note. As the contract is silent as to whether
after that date, in the event of non-payment, the debtor would
continue to pay interest, we cannot in law, indulge in any presumption
as to such interest; otherwise, we would be imposing upon the debtor
an obligation that the parties have not chosen to agree upon. Article
1755 of the Civil Code provides that "interest shall be due only when it
has been expressly stipulated." The act of the mortgage of granting
to the mortgagor on the same date of execution of the deed of
mortgage, an extension of one year from the date of maturity within
which to make payment, without making any mention of any interest
which the mortgagor should pay during the additional period, indicates
that the true intention of the parties was that no interest should be
paid during the period of grace. What reason the parties may have
therefor, we need not here seek to explore.
5. FRIAS V. SAN DIEGO - HAZELLE
Frias vs San Diego-Sison
G.R. No. 155223 April 4, 2007
Facts:
Frias is the owner of a house in Ayala Alabang acquired from Island
Masters Realty and Development Corp (IMRDC). She entered into a
MOA with respondent San Diego-Sison.
In the MOA they had agreed that the petitioner would receive from
respondent P3M. That respondent has a period of 6 months from the
date of execution of the contract to notify petitioner of her intention to
purchase the parcel of land at the price of 6.4M Upon notice, there is
another six months to pay the remaining balance.
Prior to the six months given to the respondent, petitioner may still
offer the property to other persons provided that the first P3M be
returned to respondent including interest based on prevailing
compounded bank interest plus amount of sale in excess of P7M.
In case there are no other buyers, no interest shall be charged by the
respondent on the P3M, but in the event that on the 6th month,
respondent would decide not to purchase, the petitioner has a period
of another 6 months to pay P3M provided that the said amount shall
earn compounded bank interest for the last six months only.
Petitioner received P2M in cash and P1M in a post-dated check dated
February 28, 1990 instead of 1991 which rendered the check stale.
Defendant decided not to purchase the property so what happened
was that the P3M would be considered as a loan payable within six
months. Petitioner failed to pay the P2M. Defendant filed with the RTC
a complaint for sum of money.
RTC rules in favor or defendant. Orders the payment of P2M plus
interest at 32% interest per annum
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Petitioner appeals to CA, CA affirms RTC decision with modification
with regard to the interest from 32% to 25% starting from June 7,
1991
Issue:
WON the CA correct in awarding a 25% per annum on the P2M loan
even beyond the second six months stipulated period? Yes
HELD:
 The Memorandum of Agreement provides that in the event
that respondent opts not to buy the property, the money given
by respondent to petitioner shall be treated as a loan and the
property shall be considered as the security for the mortgage.
It was testified to by respondent that after they executed the
agreement on December 7, 1990, petitioner gave her the
owners copy of the title to the property, the Deed of Sale
between petitioner and IMRDC, the certificate of occupancy,
and the certificate of the Secretary of the IMRDC who signed
the Deed of Sale.
 The phrase “for the last six months only” should be taken in
the context of the entire agreement. In the agreement, there
were two periods of 6 months each. The first six months was
for the respondent to make up her mind WON she would
purchase the property. The second 6 months was for the
petitioner to pay the P2M in the event that respondent decide
not to buy the property, in which case interest will be charged
for the “last six months only” So that means, no interest shall
be charged for the first six month period while appellee was
making up her mind whether to buy the property.
 The agreement that the amount given shall bear compounded
bank interest for the last six months only, i.e., referring to the
second six-month period, does not mean that interest will no
longer be charged after the second six-month period since
such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date
stipulated. Considering that petitioner failed to pay the amount
given which under the Memorandum of Agreement shall be
considered as a loan, the monetary interest for the last six
months continued to accrue until actual payment of the loaned
amount.
6. ARWOOD V. DMCI -LEA
7. SONAYA V. AZARRAGA - DON
Doctrine: When there is an interest that is expressly stipulated in
writing, such contract is considered mutuum and not a sale with pacto
de retro.
Note: This is not absolute and subject to the intention of the parties.
FACTS:
The defendants surnamed Azarraga (defendants) became
indebted to Attorney Leodegario Azarraga (attorney). The defendants
agreed among themselves to pay attorney his attorney’s fees by
special mortgage of the former’s parcels of land (property). It is stated
in their agreement that: the property will be adjudicated to the attorney
if the defendants were unable to pay in full the former’s said fees
within five years. Attorney sell his credit against the defendant to
Josue Soncuya (plaintiff) for the sum of P2,500 with all the rights
inherent therein.
When the plaintiff became the creditor of the defendants by
virtue of the sale and cession which attorney had made, the plaintiff
allowed the defendants an extension but with express condition that
the defendants would pay the plaintiff an interest rate of 12 per cent
per annum. Upon expiration of the extension, the plaintiff went to the
house of the defendants and asked for the delivery of the credit.
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Attack:The contracts entered by the plaintiff with attorney and the
defendants are a sale with pacto de recto.
Defense: The contracts entered by the defendants with attorney and
the plaintiff are simply a loan (mutuum) with real estate security.
ISSUE:Whether or not the contacts entered into by the parties are
mutuum with real estate security?
RULING:YES. The fact that the plaintiff never considered the contract
entered into by him with the other parties a sale with pacto de retro.
What could have been considered as a antichresis or pacto
comisorio – not an assignment in payment of a debt or a sale with
pacto de retro because there is nothing to indicate that such was the
intention of the defendants.
The defendants bound themselves to deliver the property in
question to the plaintiff and that the latter should pay the former the
value thereof. Such was converted into a simple loan because of the
following: (1) there was a resolutory condition of five years, and (2)
the plaintiff chose to collect the 12 per cent per annum interest.
8. ROYAL SHIRT V. CO -JODELLE
G.R. No. L-6313 May 14, 1954
THE ROYAL SHIRT FACTORY, INC., plaintiff-appellee, vs.CO BON
TIC, defendant-appellant.
MONTEMAYOR, J.:
Facts:
The present appeal involves an action originally brought in the
Municipal Court of Manila by the plaintiff, the ROYAL SHIRT COURT,
INC., to recover from defendant CO BON TIC the sum of P1,422 said
to represent the balance of the purchase price of 350 pairs of
"Balleteenas" shoes at P7 a pair, with interest at 12 per cent per
annum from August 27, 1948, and 25 per cent of said sum as
attorney's fees, and costs.
The Municipal Court held that the contract was of sale on
consignment. But the Court of First Instance of Manila held that the
transaction involved was one of outright sale at P7 per pair of shoes,
sales tax included, the court accepting the version given by the
plaintiff to the effect that on the basis of the order slip (Exhibit A), the
defendant had 9 days from delivery of the shoes to make his choice of
the two alternatives, that is to consider the sale of the 350 pairs of
shoes closed at the flat rate of P7 per pair, sales tax included, or, at
the expiration of 9 days to pay for the shoes sold at P8 per pair, and
to return the remaining unsold ones to plaintiff; and that, inasmuch as
defendant, at the expiration of the 9 days stipulated, failed to return
the shoes, and actually began making partial payments on account of
the purchase price agreed upon, the transaction in the nature of a
straight sale, was considered closed.
Issue:
Whether or not the Municipal Court was correct when it ordered the
defendant to pay the unpaid balance with interest on the amount due
at the rate of 12percent per annum plus 25percent of the same sum
for attorney’s fees as stipulated?
Holding:
No. In the order slip, the conditions of sale printed provide for
20percent only as attorney’s fees and no rate of interest in case of
litigation. But the defendant did not sign such order slip. Because of
the absence of stipulation as to the rate of interest he would be paying
only the legal rate of 6percent per annum. Hence, the defendant
should only pay 6percent interest on the amount due him from the
date of the filing of the complaint, with costs, and nothing for
attorney’s fees.
Page | 9
 9. OVERSEAS V. CORDERO -YELA
GR NO L-33582 MARCH 30, 1982
FACTS
On July 20, 1967, Vicente Cordero opened a one-year time deposit
with The Overseas Bank of Manila in the amount of P80,000.00 to
mature on July 20, 1968 with interest at the rate of 6% per annum.
However, due to its distressed financial condition, the Overseas Bank
of Manila was unable to pay Cordero his said time deposit together
with the interest. To enforce payment, Cordero instituted an action in
the Court of First Instance of Manila.
The Overseas Bank of Manila raised as special defense the finding by
the Monetary Board of its state of insolvency. It cited the Resolution of
August 1, 1968 of the Monetary Board which authorized the Overseas
Bank of Manila’s board of directors to suspend all its operations, and
the Resolution of August 13, 1968 of the same Board, ordering the
Superintendent of Banks to take over the assets of the Overseas
Bank of Manila for purposes of liquidation. The second is a
Manifestation acknowledging receipt of the sum of P73,840. Said
Manifestation is in the nature of a quit claim
ISSUE
Whether or not the Overseas Bank of Manila is still obligated to return
to Cordero his time deposit despite the bank’s state of insolvency
RULING
Certain supervening events, however, have rendered these issues
moot and academic. The first of these supervening events is the letter
of Julian Cordero, brother and attorney-in-fact of respondent Vicente
Cordero, addressed to the Commercial Bank of Manila (Combank),
successor of petitioner Overseas Bank of Manila. In this letter dated
February 13, 1981, copy of which was furnished this Court, it appears
that respondent Cordero had received from the Philippine Deposit
Insurance Company the amount of P10,000.00.
10. RAMOS V. CENTRAL BANK - JODELLE
EMERITO M. RAMOS, et al., petitioners, vs.
CENTRAL BANK OF THE PHILIPPINES, respondents;
COMMERCIAL BANK OF MANILA, intervenor.
GR NO. L-29352 JULY 22 1985
Facts:
This involves a clarificatory question as to applicability of Tapia ruling
wherein the Court held that "the obligation to pay interest on the
deposit ceases the moment the operation of the bank is completely
suspended by the duly constituted authority, the Central Bank," to
loans and advances by the Central Bank.
Government Corporate Counsel and general counsel of the
COMBANK Manuel Lazaro claimed that applying the Tapia ruling as
reaffirmed by the Court in subsequent cases, COMBANK is not liable
for interest on CB loans and advances during the period of its closure
form August 2, 1968 to January 8, 1981.
Issue:
Whether or not COMBANK is liable for interest on CB loans and
advances during the period of its closure
Held:
No. Respondents have failed to adduce any cogent argument to
persuade the Court to reconsider its Resolution at bar that the Tapia
ruling is fully applicable to the non-payment of interest, during the
period of the bank's forcible closure, on loans and advances made by
respondent Central Bank.
Respondent Central Bank itself when it was then managing the
Overseas Bank of Manila (now Commercial Bank of Manila) under a
holding trust agreement, held the same position in Idelfonso D. Yap
vs. OBM wherein it argued that "(I)n a suit against the receiver of a
national bank for money loaned to the Bank while it was a going
concern, it was error to permit plaintiff to recover interest on the loan
after the bank's suspension"
It should be further noted that the respondent Central Bank when
called upon to deal with commercial banks and extend to them
emergency loans and advances, deals with them not as an ordinary
Page | 10
creditor engaged in business, but as the ultimate monetary authority
of government charged with the supervision and preservation of the
banking system. A significant development of the case, the
Government Service Insurance System (GSIS) has acquired
ownership of 99.93% of the outstanding capital stock of COMBANK.
The Court's Resolution manifestly redounds to the benefit of another
government institution, the GSIS, and to the preservation of the
banking system.
11. LIRAG V. SSS - HAZELLE
G.R. No. L-33205 August 31, 1987
Facts:
Plaintiff SSS and defendants Lirag Textile entered into a Purchase
Agreement under which the plaintiff agreed to purchase from the said
defendant preferred shares of stock worth ONE MILLION PESOS
[P1,000,000.00].
That pursuant to the Purchase Agreement the plaintiff, on January 31,
1962, paid the defendant Lirag Textile Mills, Inc. the sum of FIVE
HUNDRED THOUSAND PESOS [P500,000.00] for which the said
defendant issued to plaintiff 5,000 preferred shares with a par value of
one hundred pesos [P10000] per share as evidenced by stock
Certificate. the plaintiff paid to the Lirag Textile Mills, Inc. the sum of
FIVE UNDRED THOUSAND PESOS [P500,000.00] for which the said
defendant issued to plaintiff 5,000 preferred shares with a par value of
one hundred pesos.
That to guarantee the redemption of the stocks purchased by the
plaintiff, the payment of dividends, as well as the other obligations of
the Lirag Textile Mills, Inc., defendants Basilio L. Lirag signed the
Purchase Agreement of September 4, 1961 not only as president of
the defendant corporation, but also as surety so that should the Lirag
Textile Mills, Inc. fail to perform any of its obligations in the said
Purchase Agreement, the surety shall immediately pay to the vendee
the amounts then outstanding. That defendant corporation failed to
redeem certificates of Stock No. That the Lirag Textile Mills, lnc. has
not paid dividends in the amounts and within the period set forth in
paragraph 10 of the complaint;
For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply
with the terms of the Purchase Agreement, the SSS filed an action
with RTC. Praying for specific performance, adjudge that they should
be liable for the entire obligation of 1M which became due and
demandable upon defendants' failure to repurchase the stocks as
scheduled; [21 dividends in the amount of P220,000.00; [31 liquidated
damages in an amount equivalent to twelve percent (12%) of the
amount then outstanding; [4] exemplary damages in the amount of
P100,000.00 and [5] attorney's fees of P20,000.00.
Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of
the complaint, but were denied the relief sought. RTC ruled in favor of
SSS.
Issue:
WON the Purchase Agreement entered into by petitioners and
respondent SSS is a debt instrument.
Held:
Yes. We uphold the lower court's finding that the Purchase
Agreement is, indeed, a debt instrument. Its terms and conditions
unmistakably show that the parties intended the repurchase of the
preferred shares on the respective scheduled dates to be an absolute
obligation which does not depend upon the financial ability of
petitioner corporation.
This absolute obligation on the part of petitioner corporation is made
manifest by the fact that a surety was required to see to it that the
obligation is fulfilled in the event of the principal debtor's inability to do
so. The unconditional undertaking of petitioner corporation to redeem
the preferred shares at the specified dates constitutes a debt which is
defined "as an obligation to pay money at some fixed future time, or at
Page | 11
a time which becomes definite and fixed by acts of either party and
which they expressly or impliedly, agree to perform in the contract.
The aforementioned rights specially stipulated for the benefit of the
plaintiff [respondent SSS] suggest eloquently an intention on the part
of the plaintiff [respondent SSS] to facilitate a loan to the defendant
corporation upon the latter's request.
The plaintiff [respondent SSS] to facilitate a loan to the defendant
corporation upon the latter's request. In order to afford protection to
the plaintiff which otherwise is provided by means of collaterals, as
the plaintiff exacts in its grants of loans in its ordinary transactions of
this kind, as it is looked upon more as a lending institution rather than
as an investing agency, the purchase agreement supplied these
protective rights which would otherwise be furnished by collaterals to
the loan.
Moreover, the Purchase Agreement provided that failure on the part of
petitioner to repurchase the preferred shares on the scheduled due
dates renders the entire obligation due and demandable, with
petitioner in such eventuality liable to pay 12% of the then outstanding
obligation as liquidated damages.
12. ANGEL JOSE V. CHELDA - LEA
13. CUUNYIENG V. MABALACAT -DON
Cu Unjieng vs Mabalacat
Doctrine: Interest cannot be allowed in the absence of stipulation.
Interest due and unpaid shall not earn interest.
FACTS:
Mabalacat Sugar Company (appellant) is indebted to Cu
Unjieng e Hijos (appellee) with interest and mortgage. The debt of
appellant become due. However, appellee extends the time for
payment of the mortgage indebtedness, yet, appellant failed to comply
with the terms of this extension. Appellee imposes compound interest
charges to the debt of appellant in estimating the amount of
indebtedness.
Attack:Interest should be calculated upon indebtedness at the rate of
12 per cent per annum and not by compound interest charges made
by the appellee.
Defense:
Interest of the appellant should be estimated by appellee’s
compound interest charges.
ISSUE: Whether or not the imposition of compound interest charges
is proper?
RULING:
NO. The compound interest must be eliminated from the
judgment.
The parties may stipulate that interest shall be compounded,
but in the absence of express stipulation for the accumulation of
compound interest, no interest can be collected upon interest until the
debt is judicially claimed.
It is evident in the precedent that there was no express
stipulation for the accumulation of compound interest nor a judicial
claim for indebtedness prior to this case.
14. DAVID V. CA - JODELLE
David vs. Court of Appeals
G.R. No. 115821 | October 13, 1999
Facts:
RTC Manila Judge Diaz issued a writ of attachment over the real
properties of private respondents. Judge Diaz ordered private
respondent to pay petitioner P 66,500.00 with interest from July 24,
Page | 12
1974, until fully paid. However, Judge Diaz amended said Decision,
so that the legal rate of interest should be computed from January 4,
1966, instead of from July 24, 1974. Private respondent appealed to
CA and SC, which both affirmed the decision of the lower court.
Subsequently, entries of judgment were made and the record of the
case was remanded to RTC Branch 27, presided by respondent
Judge Cruz, for the final execution of the decision as amended.
Upon petitioner's motion, Judge Cruz issued an alias writ of execution
by virtue of which respondent Sheriff Peña conducted a public
auction. Sheriff Peña informed the petitioner that the total amount of
the judgment is P 270,940.52. The amount included a computation of
simple interest. Petitioner, however, claimed that the judgment award
should be P 3,027,238.50, because the amount due ought to be
based on compounded interest. Although the auctioned properties
were sold to the petitioner, Sheriff Peña did not issue the Certificate of
Sale because there was an excess in the bid price in the amount of P
2,941,524.47, which the petitioner failed to pay despite notice.
Petitioner filed a motion praying that respondent Judge Cruz issue an
order directing respondent Sheriff Peña to prepare and execute a
certificate of sale in favor of the petitioner, placing therein the amount
of the judgment as P 3,027,238.50, the amount he bid during the
auction which he won. His reason is that compound interest, which is
allowed by Article 2212 of the Civil Code, should apply in this case.
RTC and CA did not favor petitioner. Petitioner argued that the Court
of Appeals erred in ruling that Article 2212 of the Civil Code applies
only where the parties to an obligation stipulated or agreed to pay
compounded interest.
Issue: Whether or not CA erred in affirming respondent Judge's order
for the payment of simple interest only rather than compounded
interest?
Ruling:
Petitioner insists that in computing the interest due of the P 66,500.00,
interest should be computed at 6% on the principal sum of P
66,500.00 pursuant to Article 2209 and then "interest on the legal
interest" should also be computed in accordance with the language of
Article 2212 of the Civil Code.
Article 2212 contemplates the presence of stipulated or conventional
interest which has accrued when demand was judicially made. In
cases where no interest had been stipulated by the parties, no
accrued conventional interest could further earn interest upon judicial
demand. the Court of Appeals made the factual finding that . . . no
interest was stipulated by the parties. In the promissory note
denominated as Compromise Agreement signed by the private
respondent which was duly accepted by petitioner no interest was
mentioned. In his complaint, petitioner merely prayed that defendant
be ordered to pay plaintiff the sum of P66,500.00 with interest thereon
at the legal rate from the date of the filing of the complaint until fully
paid
15. VELDEZ V. BALZARSA - YELA
GR NO L -48389 JULY 27, 1942
FACTS
On November 16, 1937, Cleofe Velez in an amended
complaint prayed for the return of certain parcels of land which she
alleged had been sold by the Maximo Balzarsa and Flavia Mabilin to
her deceased husband, Ramon Neri San Jose, with right of
repurchase. She further alleged that Maximo Balzarsa and Flavia
Mabilin had remained in possession of said land under a contract of
lease, but that for over two years Maximo Balzarsa and Flavia Mabilin
had not paid the agreed rentals. In their amended answer, Maximo
Balzarsa and Flavia Mabilin alleged that the real agreement was loan
secured by a mortgage of those lands; and that whereas the amount
borrowed was only P2,400, Maximo Balzarsa and Flavia Mabilin had
Page | 13
however already paid P4,420.88. Maximo Balzarsa and Flavia Mabilin
therefore prayed for the return of the excess, or P2,029.88.
ISSUE Whether or not the payments made by Maximo Balzarsa and
Flavia Mabilin were for the rent of the land
RULING: No. The payments could not have been intended as rents
because in accordance with a clause in the contract, Neri took
possession of the lands, and collected the fruits thereof. The creditor
having enjoyed the beneficial use of lands delivered as security of
loan, it appears to have been the intention of the parties that the
creditor should be compensated thereby. Furthermore, in none of the
contracts offered in evidence is there any promise made by Maximo
Balzarsa and Flavia Mabilin to pay rents. It is true that in the receipts
signed by Neri and by plaintiff these payments are called rents. But
these receipts have been prepared by Neri and by plaintiff, and
defendants in their ignorance did not look into the wording, being
merely satisfied that they were proofs of payment.
16. GSIS. CA - DON
GSIS vs CA and Spouses Medina
Doctrine: The parties may stipulate a compound interest. The
contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.
FACTS:
Spouses Namencio R. Medina and Josefina G. Medina
(private respondents) applied with the Government Service Insurance
System (petitioner) for a loan of P600,000. The approved loan was
only P350,000 at the interest rate of 9% per annum compounded
monthly and the rate of 9%/12% per month for any installment or
amortization that remains due and unpaid. The approved loan amount
was further reduced to P295,000. The private respondents accepted
the reduced amount and executed a promissory note and a real
estate mortgage in favor of the petitioner. Subsequently, upon
application by the private respondents, the petitioner approved an
additional loan of P230,000 on the security of the same mortgaged
properties to bear interest at 9% per annum compounded monthly and
repayable in ten years. However, the private respondents defaulted in
payment of the monthly amortization loan. Hence, the petitioner
imposed 9%/12% interest on installments that are due and unpaid.
Attack:
Petitioner claims that the amendment of the real estate
mortgage did not supersede the original mortgage contract which was
being amended only with respect to the amount secured thereby, and
the amount of monthly amortizations. All other provisions of aforesaid
mortgage contract including that on compounding of interest were
deemed rewritten and thus binding on and enforceable against the
private respondents.
Defense:
Private respondents maintain that there is no express
stipulation on compounded interest in the amendment of mortgage
contract so that the compounded interest stipulation in the original
mortgage contract which has been superseded cannot be enforced in
the later mortgage.
ISSUE:
Whether or not there is compound interest in the stipulation?
RULING:
YES. There appears no ambiguity whatsoever in the terms
and conditions of the amendment of the mortgage contract as stated
earlier. As correctly stated by the petitioner, the said Amendment was
never intended to completely supersede the mortgage contract. First,
the title "Amendment of Real Estate Mortgage" recognizes the
existence and effectivity of the previous mortgage contract. Second,
Page | 14
nowhere in the aforesaid Amendment did the parties manifest their
intention to supersede the original contract.
17. LIGUTAN V. CA -HAZELLE
G.R. No. 138677. February 12, 2002
Facts:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11
May 1981 a loan in the amount of P120,000.00 from respondent
Security Bank and Trust Company, to which they have executed
promissory note with an interest of 15.189% per annum upon maturity
and to pay a penalty of 5% every month on the outstanding principal
and interest in case of default, but then petitioners defaulted on their
scheduled payments. The bank filed a complaint for recovery with the
RTC. To which the lower court rendered judgment in favor of the
bank.
Petitioner prayed for the reduction of the 5% monthly charge for being
unconscionable. The bank, on the other hand, asked that the payment
of interest and penalty be commenced not from the date of filing of
complaint but from the time of default as so stipulated in the contract
of the parties.
Petitioners contended that the execution of the real estate mortgage
had the effect of novating the contract between them and the bank.
Petitioners further averred that the mortgage was extrajudicially
foreclosed on 26 August 1986, that they were not informed about it,
and the bank did not credit them with the proceeds of the sale.
CA find merit in plaintiff-appellees claim that the principal sum of
P114,416.00 with interest thereon must commence not on the date of
filing of the complaint as we have previously held in our decision but
on the date when the obligation became due.
Default generally begins from the moment the creditor demands the
performance of the obligation. However, demand is not necessary to
render the obligor in default when the obligation or the law so
provides.
In the case at bar, defendants-appellants executed a promissory note
where they undertook to pay the obligation on its maturity date
'without necessity of demand.' They also agreed to pay the interest in
case of non-payment from the date of default.
ISSUE: WON the execution of REM had the effect of novating the
contract of loan.
HELD: NO.
· At any rate, the subsequent execution of the real estate
mortgage as security for the existing loan would not have resulted in
the extinguishment of the original contract of loan because of
novation. Petitioners acknowledge that the real estate mortgage
contract does not contain any express stipulation by the parties
intending it to supersede the existing loan agreement between the
petitioners and the bank. Respondent bank has correctly postulated
that the mortgage is but an accessory contract to secure the loan in
the promissory note.
· An obligation to pay a sum of money is not extinctively novated
by a new instrument which merely changes the terms of payment or
adding compatible covenants or where the old contract is merely
supplemented by the new one.
· When not expressed, incompatibility is required so as to ensure
that the parties have indeed intended such novation despite their
failure to express it in categorical terms. The incompatibility, to be
sure, should take place in any of the essential elements of the
obligation, i.e.,
· (1)the juridical relation or tie, such as from a mere
commodatum to lease of things, or from negotiorum gestio to agency,
or from a mortgage to antichresis, or from a sale to one of loan;
o (2) the object or principal conditions, such as a change of the
nature of the prestation; or
Page | 15
o (3) the subjects, such as the substitution of a debtor or the
subrogation of the creditor. Extinctive novation does not necessarily
imply that the new agreement should be complete by itself; certain
terms and conditions may be carried, expressly or by implication, over
to the new obligation.
18. EASTERN SHIPPING LINES V. CA - LEA
19. BPI Family Bank V. FRANCO and CA -DON
Doctrine: The deposits of money in banks is governed by the Civil
Code provisions on simple loan or mutuum.
FACTS:
Amado Franco (private respondent) opened three accounts,
namely: (1) current, (2) savings, and (3) time deposit, with BPI Family
Bank (petitioner). The current and savings accounts were respectively
funded with an initial deposit of P500,000 each, while the time deposit
account had P1,000,000. The total amount of P2,000,000 used to
open these accounts is traceable to a check issued by Tevesteco
Arraste-Stevedoring Co., Inc. (Tevesteco). The funding for the
P2,000,000 check was part of the P80,000,000 debited by petitioner
from First Metro Investment Corporation (FMIC) time deposit account
and credited to Tevesteco’s current account pursuant to an Authority
to Debit purportedly signed by FMICs officer.
FMIC alleges that the Authority to Debit was forged. Because
of this incident, the petitioner freezes the accounts of the private
respondent. Private respondent demands the petitioner to unfreeze
his account. The petitioner refused the demand of private respondent.
Hence, private respondent filed a complaint and prayed for the
unfreezing of his account with interest.
Attack: Petitioner has no right to freeze the account of private
respondent.
Defense: Petitioner insist that it was correct in freezing the accounts
of private respondent and refusing to release the latter’s deposits,
claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn.
ISSUE/s:
1.) Whether or not the petitioner has the right to freeze the
accounts of the private respondent?
2.) Whether or not the petitioner has a better right to money in the
accounts of the private respondent?
RULING:
1.) NO. Petitioner does not have a unilateral right to freeze the
accounts of the private respondent based on its mere
suspicion that the funds therein were proceeds of the multi-
million peso scam the latter was allegedly involved in. If such
would be allowed, it would open the floodgates of public
distrust in the banking industry.
2.) NO. The deposit money in banks is governed by the Civil
Code provisions on simple loan or mutuum. Petitioner
acquired ownership of the private respondent’s deposits, but
such ownership is coupled with a corresponding obligation to
pay the latter an equal amount of demand as there is a debtor-
creditor relationship between a bank and its depositor.
20. PEOPLE V. PUIG -JODELLE
G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner, vs.TERESITA PUIG and
ROMEO PORRAS, respondents.
Facts:
On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed
before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of
Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively,
of private complainant Rural Bank of Pototan, Inc.. The allegations in
the Informations filed before the RTC were uniform and pro-forma,
except for the amounts, date and time of commission.
Page | 16

After perusing the Informations in these cases, the trial court did not
find the existence of probable cause that would have necessitated the
issuance of a warrant of arrest and eventually dismissed the case.
The trial court reasoned out that the element of taking without the
consent of the owners was missing on the ground that it is the
depositors-clients and not the bank, who are the owners of the money
allegedly taken by respondents and hence are the real parties-in-
interest. Petitioner went directly to SC via petition for review on
certiorari.
Issue: Whether or not the 112 Informations for qualified theft
sufficiently allege the element of taking without the consent of the
owner?
Holding:
Yes, under Article 1980 of the New Civil Code, "fixed, savings, and
current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans." Corollary
thereto, Article 1953 of the same Code provides that "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." Thus, it posits that the
depositors who place their money with the bank are considered
creditors of the bank. The bank acquires ownership of the money
deposited by its clients, making the money taken by respondents as
belonging to the bank.
21. RIZAL COMMERCIAL BANKING CORPORATION VS. ALFA
RTW MANUFACTURING CORPORATION -YELA
GR NO 133877 NOVEMBER 14, 2001
FACTS
Alfa RTW Manufacturing Corporation (Alfa RTW), on separate
instances, had applied for and was granted by the plaintiff Rizal
Commercial Banking Corporation (RCBC) four Letters of Credit to
facilitate its purchase of raw materials for its garments business. Upon
such letters of credit, corresponding bills of exchange of various
amounts were drawn, and charged to the account of said defendants.
Alfa RTW, in turn, had executed four Trust Receipts stipulating that it
had received in trust for RCBC the goods and merchandise described
therein, and which were purchased with the drawings upon the letters
of credit.
When the obligations upon the said commercial documents became
due, RCBC demanded payment of the Alfa RTW undertakings, citing
two documents allegedly executed by the individual defendants
Johnny Teng, Ramon Lee, Antonio D. Lacdao and Ramon Uy and
Alfa Integrated Textile Mills Inc. (Alfa ITM), labeled Comprehensive
Surety Agreements dated September 8, 1978 and October 10, 1979.
Under such Comprehensive Surety Agreements, it was essentially
agreed that Alfa ITM and the signatory officers agreed to guarantee in
joint and several capacity the punctual payment at maturity to RCBC
of any and all such indebtedness and also any and all indebtedness of
every kind which was then or may thereafter become due or owing to
plaintiff bank by RTW, together with any and all expenses of
collection, etc.
Petitioner RCBC contends that the Court of Appeals erred in
awarding to it the minimal sum of P3,060,406.25 instead of
P18,961,372.43 granted by the trial court.
ISSUE
Whether or not the Court of Appeals can deviate from the provisions
of the contract, which itself is the law between the parties
RULING
No. Herein lies the reversible error on the part of the Court of Appeals.
When it ruled that only P3,060,406.25 should be awarded to petitioner
RCBC, the Appellate Court disregarded the parties’ stipulations in
their contracts of loan, more specifically, those pertaining to the
agreed (1) Interest rates, (2) service charge and (3) penalties in case
of any breach thereof. The CA failed to apply the honoured doctrine”
Page | 17

In the determination and computation of interest of payment, this
court, in Eastern Shipping Lines, Inc. (234 SCRA 18, 1994) vs
Court of Appeals, through Justice Jose C. Vitug, held:
When the obligation is breached and it consist in the payment of a
sum of money, the interest due should be that which may be have
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 i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 169 of the Civil Code
When the obligation, not constituting a loan or forbearance of money,
is breached, and interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty.
22. ESTORES V. SPOUSES SUPANGAN – HAZELLE
G.R. No. 175139
FACTS:
Petitioner Hermojina Estores and respondent-spouses Arturo and
Laura Supangan entered into a Conditional Deed of Sale whereby
petitioner offered to sell, and respondent-spouses offered to buy, a
parcel of land in Cavite for P4.7M. After almost seven years from the
time of the execution of the contract and notwithstanding payment of
P3.5 million on the part of respondent-spouses, petitioner still failed to
comply with her obligation respondent-spouses demanded the return
of the amount of P3.5 million within 15 days from receipt of the letter.
Respondent-spouses were amenable to the proposal provided an
interest of 12% compounded annually shall be imposed on the P3.5
million.When petitioner still failed to return the amount despite
demand, respondent-spouses were constrained to file a Complaint for
sum of money before the Regional Trial Court (RTC) of Malabon
against herein petitioner.
In their Answer with Counterclaim, petitioner and Arias averred that
they are willing to return the principal amount of P3.5 million but
without any interest as the same was not agreed upon. In their Pre-
Trial Brief, they reiterated that the only remaining issue between the
parties is the imposition of interest.
RTC ruled that the interest is only at 6% per annum and not 12%. CA
affirmed the decision of the RTC.
Petitioner a argues that the award of attorneys fees in favor of the
respondent-spouses is unwarranted because it cannot be said that
the latter won over the former since the CA even sustained her
contention that the imposition of 12% interest compounded annually is
totally uncalled for.
ISSUE:
WON the interest rate of 12% is acceptable in the case at bar.
HELD:
We sustain the ruling of both the RTC and the CA that it is proper to
impose interest notwithstanding the absence of stipulation in the
contract. Article 2210 of the Civil Code expressly provides that
[i]nterest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract. In this case, there is no question that
petitioner is legally obligated to return the P3.5 million because of her
failure to fulfill the obligation under the Conditional Deed of Sale,
despite demand.
The interest at the rate of 12% is applicable in the instant case.
Anent the interest rate, the general rule is that the applicable rate of
interest shall be computed in accordance with the stipulation of the
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parties. Absent any stipulation, the applicable rate of interest shall be
12% per annum when the obligation arises out of a loan or a
forbearance of money, goods or credits. In other cases, it shall be six
percent (6%).
In this case, the parties did not stipulate as to the applicable rate of
interest. The only question remaining therefore is whether the 6% as
provided under Article 2209 of the Civil Code, or 12% under Central
Bank Circular No. 416, is due.
When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance 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, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
Decision affirmed with modification that from judgment of 6% interest,
it be changed to 12%.
23. SPOUSES SILOS V. PNB – HAZELLE
G.R. No. 181045 JULY 02, 2014
FACTS:
Petitioner spouses has been in business of department store. They
secure a one year revolving credit line with respondent PNB amouting
to 150,000 and in return they constituted a deed of REM. The credit
line was increased to 1.8m same as to the mortgage, then increased
to 2.5 M. Petitioner issued 8 prom notes and signed a credit
agreement.
The eight Promissory Notes, on the other hand, contained a
stipulation granting PNB the right to increase or reduce interest rates
“within the limits allowed by law or by the Monetary Board.” The Real
Estate Mortgage agreement provided the same right to increase or
reduce interest rates “at any time depending on whatever policy PNB
may adopt in the future.”
Petitioners religiously paid the interest on the prom notes. The
petitioner thus made an amendment to the credit agreement and
issued 18 Prom Notes.
Respondent regularly renewed the line from 1990 up to 1997, and
petitioners made good on the promissory notes, religiously paying the
interests without objection or fail. But in 1997, petitioners faltered
when the interest rates soared due to the Asian financial crisis.
Despite demand, SPS failed to pay. The foreclosure mortgage went
through and eventually sold for auction. Petitioners filed annulment for
the foreclosure of the sale, also contended that the interest were fixed
by the respondent without their agreement. They even prayed for the
reimbursement of alleged overpayments that they made to which PNB
denied all.
RTC rendered judgment dismissing the case While the Credit
Agreement allows PNB to unilaterally increase its spread over the
floating interest rate at any time depending on whatever policy it may
adopt in the future, it likewise allows for the decrease at any time of
the same. Thus, such stipulation authorizing both the increase and
decrease of interest rates as may be applicable is valid. The
Promissory Note, as the principal contract evidencing petitioners’
loan, prevails over the Credit Agreement and the Real Estate
Mortgage.
On appeal, CA affirmed the judgment but then modifying that the
interest should be 12% per annum.
ISSUE: WON that the interest rate to be applied after the expiration of
the first 30-day interest period should be 12% per annum;
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HELD: YES.
Contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that
the rate of interest is always a vital component, for it can make or
break a capital venture. Thus, any change must be mutually agreed
upon; otherwise, it is bereft of any binding effect.
In order that obligations arising from contracts may have the force of
law between the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void.
It is plainly obvious, therefore, from the undisputed facts of the case
that respondent bank unilaterally altered the terms of its contract with
petitioners by increasing the interest rates on the loan without the
prior assent of the latter.
in Article 1956 that “No interest shall be due unless it has been
expressly stipulated in writing.” What has been “stipulated in writing”
from a perusal of interest rate provision of the credit agreement
signed between the parties is that petitioners were bound merely to
pay 21% interest, subject to a possible escalation or de-escalation,
when 1) the circumstances warrant such escalation or de-escalation;
2) within the limits allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon by
the parties to the contract in this case was the 21% rate stipulated in
the interest provision. Any doubt about this is in fact readily resolved
by a careful reading of the credit agreement because the same plainly
uses the phrase “interest rate agreed upon,” in reference to the
original 21% interest rate.
Petitioners never agreed in writing to pay the increased interest rates
demanded by respondent bank in contravention to the tenor of their
credit agreement. That an increase in interest rates from 18% to as
much as 68% is excessive and unconscionable is indisputable.
To repeat what has been said in the above-cited cases, any
modification in the contract, such as the interest rates, must be made
with the consent of the contracting parties. The minds of all the parties
must meet as to the proposed modification, especially when it affects
an important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the
most important component. Thus, any modification thereof must
be mutually agreed upon; otherwise, it has no binding effect.
It appears that by its acts, respondent violated the Truth in
Lending Act, or Republic Act No. 3765, which was enacted “to
protect x x x citizens from a lack of awareness of the true cost of
credit to the user by using a full disclosure of such cost with a
view of preventing the uninformed use of credit to the detriment
of the national economy.”
The rationale of this provision is to protect users of credit from a
lack of awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate
the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at
business decisions.
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ARTICLE III, 1987 CONSTITUTION
1.LOZANO V. MARTINEZ
Lozano vs Martinez
Facts:
The constitutionality of Batas Pambansa Bilang 22, popularly known
as the Bouncing Check Law, is the sole issue presented in various
petitions for decision. These petitions arose from cases involving
prosecution of offenses under the statute. The defendants in those
cases moved seasonably to quash the information on the ground that
the acts charged did not constitute an offense, the statute being
unconstitutional. The motions were denied by the respondent trial
courts, except in one case wherein the trial court declared the law
unconstitutional and dismissed the case. Among the constitutional
objections raised against BP 22, the most serious is the alleged
conflict between the statute and the constitutional provision forbidding
imprisonment for debt. It is contended that the statute runs counter to
the inhibition in the Bill of Rights which states, "No person shall be
imprisoned for debt or non-payment of a poll tax." As a threshold
issue the former Solicitor General in his comment on the petitions,
maintained the posture that it was premature for the accused to
elevate to the SC the orders denying their motions to quash, these
orders being interlocutory.
Issue: WON BP BP 22 is violative of the constitutional provision on
non-imprisonment due to debt
Held:
No. The gravamen of the offense punished by BP 22 is the act of
making and issuing a worthless check or a check that is dishonored
upon its presentation for payment. It is not the non-payment of an
obligation which the law punishes. The law is not intended or
designed to coerce a debtor to pay his debt. The thrust of the law is to
prohibit, under pain of penal sanctions, the making of worthless
checks and putting them in circulation. Because of its deleterious
effects on the public interest, the practice is proscribed by the law.
The law punishes the act not as an offense against property, but an
offense against public order. Unlike a promissory note, a check is not
a mere undertaking to pay an amount of money. It is an order
addressed to a bank and partakes of a representation that the drawer
has funds on deposit against which the check is drawn, sufficient to
ensure payment upon its presentation to the bank. There is therefore
an element of certainty or assurance that the instrument wig be paid
upon presentation. For this reason, checks have become widely
accepted as a medium of payment in trade and commerce. Although
not legal tender, checks have come to be perceived as convenient
substitutes for currency in commercial and financial transactions. The
basis or foundation of such perception is confidence. If such
confidence is shaken the usefulness of checks as currency substitutes
would be greatly diminished. Any practice therefore tending to destroy
that confidence should be deterred for the proliferation of worthless
checks can only create havoc in trade circles and the banking
community. The effects of the issuance of a worthless check
transcends the private interests of the parties directly involved in the
transaction and touches the interests of the community at large. The
mischief it creates is not only a wrong to the payee or holder, but also
an injury to the public. The harmful practice of putting valueless
commercial papers in circulation, multiplied a thousand fold, can very
wen pollute the channels of trade and commerce, injure the banking
system and eventually hurt the welfare of society and the public
interest.
2. Tiomico v. CA
Doctrine: PD 115 does not violate the constitutional proscription
against imprisonment for non-payment of debts.
FACTS:
Jesus V. Tiomico (petitioner) opened a Letter of Credit with the
Bank of the Philippine Islands (BPI) for $5,600 to be used for the
importation of two units of Forklifts, Shovel loader and a truck
mounted with crane. The said machineries were received by the
petitioner as evidenced by the covering trust receipt. Upon maturity of
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the trust receipt, he made a partial payment of US$855.94, thereby
leaving an unpaid obligation of US$4,770.46. Petitioner still owed BPI
US$4,770.46. or P109,386.65. Failing to pay the said amount or to
deliver subject machineries and equipments, despite several
demands, the International Operations Department of BPI referred the
matter to the Legal Department of the bank. Consequently, the
petitioner was accused of a violation of PD 115, otherwise known as
the Trust Receipts Law.

Attack:
PD 115 is unconstitutional because it violates the
constitutional right against non-imprisonment for non-payment of debt.

Defense:
PD 115 is a valid exercise of police power and is not
repugnant to the constitutional provision of non-imprisonment for non-
payment of debt.

ISSUE:
Whether or not PD 115 is unconstitutional?

RULING:
NO. PD 115 is constitutional.

The Court has repeatedly upheld the validity of the Trust

Receipts Law and consistently declared that the said law does not
violate the constitutional proscription against imprisonment for non-
payment of debts. In addition, PD 115 is a valid exercise of a police
power and is not repugnant to the constitutional provision of non-
imprisonment for non-payment of debt. The Trust Receipts Law
punishes the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another regardless of whether the
latter is the owner or not. The law does not seek to enforce payment
of a loan. Thus, there can be no violation of the right against
imprisonment for non-payment of a debt.
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