I.

LOAN
ARTICLES 1933 TO 1934

1. G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

FACTS

Venancio Concepcion is President of the Philippine National Bankissued a memorandum order

which limits the power of a Bank Manager to grant loans and discounts without prior
authorization. Later onMr Concepcion sent telegram and letter to the manager of PNB - Aparri
and authorized the extension of credit to Puno Concepcion in the amount of 300K without any
collateral. Puno Concepcion is co-partnership to which wife of Mr Concepcion is a board.
RTC ruled that defendant violated Section 35 of Act No. 2747 which states 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.Defendant contends that was extended
to the partnership is not a loan but a credit only show the concession of a credit

ISSUE

W/nthe granting of a credit "loan" within the meaning of section 35 of Act No. 2747?

RULING

The court ruled that "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. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit"
necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"
The defendant was charge in violation of Sec 35 of Act 2747.
2. G.R. No. 160758 January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.

FACTS

Guarina corporation obtained a loan (₱3,387,000.00) with DBP for the construction and
development of its resort. To secure the loan Guarinaissued promissory notes and real estate
mortgage and later on chattel mortgage as security for the repayment of the loan.
DPB released totalled of ₱3,003,617.49, from which DBP withheld ₱148,102.98 as interest.
Guarina demanded release of the balance of loan but DPB refused. DPB upon inspection found
that construction was not completed thus it demanded Guarina to expedite the completion of
the project otherwise it would initiate foreclosure proceedings.
However, unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings. Guarina sued DPB to demand specific performance of the
banks obligation under the loan agreement and to stop the foreclosure of mortgage. DBP on the
other hand proceeded with its public auction satisfying the obligation of the Guarina. RTC
ruled that foreclosure are null and void which was affirmed by CA

ISSUE

Whether or Not the foreclosure of the properties made by DBP is valid?

RULING

NO. The court ruled that agreement between DBP and Guariña was a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to another
who acquires ownership thereof, on the condition that the same amount or quality shall be
paid.
Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor,
and the other the debtor. The obligation of one party in a reciprocal obligation is dependent
upon the obligation of the other, and the performance should ideally be simultaneous. This
means that in a loan, the creditor should release the full loan amount and the debtor repays it
when it becomes due and demandable.
When the DBP did not release the total amount of the approved loan. DBP therefore could not
have made a demand for payment of the loan since it did not fulfil its own obligation. Moreover,
the fact that Guarinawas not yet in default rendered the foreclosure proceedings premature
and improper.
3. G.R. No. L-4150 February 10, 1910

FELIX DE LOS SANTOS, plaintiff-appelle,

vs.
AGUSTINA JARRA, administratrix of the estate of MagdalenoJimenea, deceased, defendant-
appellant.

FACTS

Felix delos Santos alleged that MagdalenoJimenea loan 10 elite carabao’s from him for the
operation of the latter’s mill. It was used without any recompense until the death of
MagadlenoJimenea. Following the death of Jimenea, Agustina Jarra was appointed as the
administrator of the estate who claimed that the carabao were sold by Santos to Jimenea, this
claim however is not proven by any material document pertaining to the sale.
It can be inferred that carabaos were loaned or given on commodatum. Therefore, the carabaos
were not property of the deceased nor any of its descendants and it is the duty of the
administrator of the estate to return them or indemnify the owner for their value. The court
ordered the administrator to return the 10 elite carabaos or to pay its current value of 120
each.

ISSUE

Whether or Notdeath the contract is loan or commodatum?

RULING

The court ruled that its commodatumin dealing with loans in general, from which generic
denomination the specific one of commodatum is derived, establishes prescriptions in relation
to the last-mentioned contract by the following articles:
ART. 1740. 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 a certain period and return it to the
former, in which case it is called commodatum, or money or any other perishable thing, under
the condition to return an equal amount of the same kind and quality, in which case it is
merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee acquires
the use thereof, but not its fruits; if any compensation is involved, to be paid by the person
requiring the use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of
both contracting parties, unless the loan has been in consideration for the person of the bailee,
in which case his heirs shall not have the right to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon demand, there is
no doubt that she is under obligation to indemnify the owner thereof by paying him their value.
4. G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

FACTS

Saura applied to Rehabilitation Finance Corporation (RFC)for an industrial loan for the
creation of jute sack factory. Prior to the approval of loan Saura already bought the machines
for the factory it issued a letter of credit to Prudential Bank.
RFC approved the loan subject to conditions that a local material must be use by the factory.
Saura failed to comply. As a result RFC did not release any amount and sensing that it could
not obtain the full amount of loan. Saura asked for the cancellation of the mortgage which RFC
approved. Nine years after the cancellation of mortgage, Saura sued RFC for damages and non-
fulfillment of its obligation contending that there was a perfected consensual contract.

ISSUE

Whether or Not there was a perfected consensual contract between RFC and Saura Inc?

RULING

The court ruled in affirmative. There is perfected consensual contract.

Under Article 1934 of the Civil Code. 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.
The offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00
was approved by a resolution by RFC as well as the corresponding mortgage was executed and
registered.
The loan came with conditions and Saura, Inc. was in no position to comply with RFC’s
condition. As result Saura, Inc. asked that the mortgage be cancelled. The actions thus taken
by both parties was of a mutual desistance, which is a mode of extinguishing obligations. It is a
concept that derives from the principle that since a mutual agreement can create a contract, a
mutual disagreement by the parties can cause its extinguishment.
5. G.R. No. 118375 October 3, 2003

CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.

FACTS

Aurora Queaño applied with Celestina Naguiat a loan Naguiatissued two checks. In
returnQueaño executed a Deed of Real Estate Mortgage and surrendered to duplicates of the
titles to Naguiat. Upon presentation of the check issued by Naguiatit was dishonoured by bank.
Queno received a letter for the settlement of loan. On a meeting Queno told Naguiat that she
did not received the proceeds of the loan and that check was retained by certain Ruby
Rubenfeldt agent of Naguiat.
Later on, Naguiat move for the foreclosure of the property while Queano filed for annulment of
real estate mortgage. It contended that the mortgage deed enjoys presumption that recitals are
true and that the loan proceeds were actually received by Queano from the checks she issued.

ISSUE

Whether or Not there is a contract of loan?

RULING

No. The mere issuance of the checks did not result in the perfection of the contract of loan. The
Civil Code provides that the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have been cashed. It is only after
the checks have produced the effect of payment that the contract of loan may be deemed
perfected.
A loan contract is a real contract and perfected only upon delivery of the object of the contract.
In the case at bar, There is no evidence submitted by Naguitthat thechecks issued or endorsed
were actually encashed or deposited.
The consideration of the mortgage contract is the contract of loan for it mere being an
accessory contract. Without the principal contract it follows that mortgage which is supposed
to secure the loan is null and void.
6. G.R. No. 154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner,

vs.
RICA MARIE S. THIO, Respondent.

FACTS:

Carolyn Garcia issued several cross check to Rica Marie Thio on different dates that said
checks were payable to Marilou Santiago. Thereafter, Garcia received payments every month
from Thio. When Thio failed to pay the loan when they fell due including the interest. Garcia
filed complaint for sum of money. Garcia alleged that Thio borrowed money which Thio
contested and claimed that she was merely asked by petitioner to give the crossed check to
Santiago and such loan is between Marilou Santiago and Carolyn Garcia and since check were
crossed it may not be encashed but only deposited in the bank by the payee that is, by
Marilou Santiago herself
The RTC held there exists contracts of loan while CA held there is no contract of loan.

ISSUE:

Whether or NotThio contracted a loan with Garcia?

RULING:

Yes. A loan is a real contract, not consensual, and as such is perfected only upon the delivery
of the object of the contract.
Delivery is the act by which the res or substance thereof is placed within the actual or
constructive possession or control of another.30 Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under
an arrangement whereby she actually re-lent the amounts to Santiago.
The contention of respondent is implausible. It was highly improbable that petitioner would
grant two loans to a complete stranger without requiring as much as promissory notes or any
written acknowledgment of the debt. CA committed reversible error when it ruled that
respondent did not borrow the money. The Court instead agrees with the ruling of the RTC
making respondent liable for the principal amounts of the loans and their respective interests.
7. G.R. No. 174269 May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent

FACTS

Petitioner Polo Pantaleon together with his wife Julialinda, daughter Anna Regina and son
Roberto joined a tour in Europe. One of the destination is Coster Diamond House where the
visitor are given lecture on art of diamond polishing and access to showroom wherein guests
can purchase the item. Mrs Pantaleon had already planned to purchase a diamond. Her
purchase amounts to $13,826.00. To pay the purchase she presented her American Express
credit card together with her passport. The AmexCard was not approved taking almost 45
minutes. The delay of the approval resulted to cancellation of a tour destination that the group
were in together with other tourists due to lack of time. Situation where family was put in
humiliation. There are several instances that AmeXcard was used by the family in United
States and without hassle or delay and other 2 instancessimilar to their Europe tour.
After coming back to Manila Mr. Pantaleon through counsel send a letter to American Express
demanding for an apology for the inconvenience, humiliation and embarrassment he and his
family suffered" for respondent’s refusal to provide credit authorization. The petitioner prays
for the following 2,000,000 as moral damages; 500,000 as exemplary damages; 100,000 as
attorney's fees; and 50,000 as litigation expenses. The RTC ruled in favor of petitioner but
reduced the monetary awards. While the CA reversed the decision.

ISSUE:

Whether or Not the Amex breach its obligations to Pantaleons?

RULING

Yes. The tardiness on the part of respondent in acting on petitioner’s purchase at Coster
Diamond House constitute culpable delay on its part in complying with its obligation to act
promptly on its customer’s purchase request, whether such action be favorable or
unfavourable. Even assuming that respondent’s credit authorizers did not have sufficient basis
on hand to make a judgment, we see no reason why respondent could not have promptly
informed petitioner the reason for the delay, and duly advised him that resolving the same
could take some time. In that way, petitioner would have had informed basis on whether or not
to pursue the transaction at Coster, given the attending circumstances. The delay committed
by defendant was clearly attended by unjustified neglect and bad faith. The court sustain the
amount of moral damages awarded to petitioner by the RTC.
8. G.R. No. 194515

SPOUSES OSCAR AND GINA GIRO NELLA, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

FACTS:

Petitioner spouses obtained two co-terminus loans totalling to 9,500,000 millionwith Philippine
National Bank (PNB) for the construction of the Dagupan Village Hotel and its Sports Complex.
The loans were payable on instalment secured by the same real estate mortgage in favor of
PNB. The Spouses applied for a third loan and later ondefaulted in paying their 2 loans.
The spouse alleged that the default happened because income generated by the hotel was used
for the construction while the third loan was pending and that PNB made to believe that their
third loan would be approved, they were directed to proceed with their expansion plans and (3)
there would be a loan restructuring. Despite restructuring negotiations, PNB filed a petition to
foreclose the mortgaged.Spouses Gironella filed a complaint before the RTC with prayer for
issuance of a Temporary Restraining Order (TRO) and preliminary injunction. The RTC issued
the TRO and Writ of Preliminary injunction and subsequently, grant the complaint by ruling
that there was a binding credit restructuring agreement.
PNB filed an appeal to CA and argue that there was no contract perfected since there was only
a qualified acceptance equivalent to a counter-offer. CA ruled in favor of PNB.

ISSUE:

Whether or Not there is a perfected contract as to the restructure agreement?

RULING.

No. A contract is perfected by mere consent.16 In turn, consent is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the
contract.17 The offer must be certain and the acceptance seasonable and absolute.18 If
qualified, the acceptance would merely constitute a counter-offer19 as what occurred in this
case.
To reach that moment of perfection, the parties must agree on the same thing in the same
sense, so that their minds meet as to all the terms.20 They must have a distinct intention
common to both and without doubt or difference; until all understand alike, there can be no
assent, and therefore no contract. The minds of parties must meet at every point; nothing can
be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or
future negotiations or considerations to be had between the parties, there is not a completed
contract, and in fact, there is no contract at all.21
The Spouses Gironella's payments under its original loan account cannot be considered as
partial execution of the proposed restructuring loan agreement because negotiation begins
from the time the contracting parties manifest their interest in the contract and ends at the
moment of agreement of the parties. The petitioner and respondent were not past the stage of
negotiation.
9. G.R. No. 133632 February 15, 2002

BPI INVESTMENT CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION,
respondents.

FACTS

Antonio Litonjua bought the property of Frank Roa to which the latter loaned from Ayala
Investment Development Corporation (former BPI). Litonjua paid in cash and assumed the
500,000 balance of Roa with AIDC. BPI did not agree in providing the same terms of the loan
to Litonjua, they wanted a new loan contract, secured by the same properties with an interest
rate of 20%. Litonjua made payments of over 100,000 and service fee of 1% per annum on the
outstanding principal balance and penalty interest at 21% per annum per day from the date
the amortization became due and payable.
Consequently, in 1984, BPIIC instituted foreclosure proceedings against ALS for failure of
payment of mortgage

ISSUE:

Whether or Notloan is a consensual contract.

RULING:

A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of
the object of the contract. Although a perfected consensual contract can give rise to an action
for damages, it does not constitute a real contract which requires delivery for perfection. A
perfected real contract gives rise only to obligations on the part of the borrower.
In the present case, the loan contract was only perfected on the date of the second release of
the loan.
A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Only when a party has performed his part of
the contract can he demand that the other party also fulfill his own obligation and if the latter
fails, default sets in.
10. G.R. No. 171736 July 5, 2010

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

vs.
MAKILITO B. MAHINAY, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 181482
PENTACAPITAL INVESTMENT CORPORATION, Petitioner,
vs.
MAKILITO B. MAHINAY, Respondent.

FACTS:

The respondent was the counsel of Ciudad Real Development Inc. (CRDI). In 1994, Pentacapital
Realty Corporation (Pentacapital Realty) offered to buy parcels of land known as the Molino
Properties, owned by CRDI, located in Molino, Bacoor, Cavite. As the Molino Properties were
the subject of a pending case, Pentacapital Realty paid only the down payment amounting to
₱12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the former’s creditors,
including respondentMaklitoMahinay who thus received a check worth ₱1,715,156.90.11 It
was further agreed that the balance would be payable upon the submission of an Entry of
Judgment of the case.
Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging
lien equivalent to 20% of the total consideration of the sale in the amount of ₱10,277,040.00.
Pending the submission of the Entry of Judgment and as a sign of good faith, respondent
purportedly returned the ₱1,715,156.90 check to Pentacapital Realty. However, the Molino
Properties continued to be haunted by the seemingly interminable court actions initiated by
different parties which thus prevented respondent from collecting his commission.
Petitioner filed a complaint for a sum of money against respondent based on two separate loans
obtained by the latter, amounting to ₱1,520,000.00 and ₱416,800.00, or a total amount of
₱1,936,800.00. These loans were evidenced by two promissory notes. Despite repeated
demands, respondent failed to pay the loans.
Respondent on the other hand claimed that petitioner had no cause of action because the
promissory notes on which its complaint was based were subject to a condition that did not
occur. The loan never took place and that the notes were not intended to be evidences of
indebtedness and further insisted that he did not receive the proceeds of the loan.

ISSUE:

Whether or Not respondent is bound by the promissory notes?

RULING:

Yes. The elements of a contract of loan are present. Like any other contract, a contract of loan
is subject to the rules governing the requisites and validity of contracts in general. It is
elementary in this jurisdiction that what determines the validity of a contract, in general, is the
presence of the following elements: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the obligation which is
established.37
In this case, respondent denied liability on the ground that the promissory notes lacked
consideration as he did not receive the proceeds of the loan.

Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the
debtor proves the contrary. The presumption that a contract has sufficient consideration
cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent
that it has no consideration.41 The alleged lack of consideration must be shown by
preponderance of evidence.
The promissory notes clearly stated that respondent promised to pay petitioner ₱1,520,000.00
and ₱416,800.00, plus interests and penalty charges, a year after their execution. Nowhere in
the notes was it stated that they were subject to a condition.
The court finds that , a penalty charge of 3% per month is unconscionable;47hence, it was
reduce to 1% per month or 12% per annum, pursuant to Article 1229 of the Civil Code which
states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable
Court ruled in favor or Petitioner.
11. G.R. No. 90270 July 24, 1992

ARMANDO V. SIERRA, petitioner,

vs.
HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE EBARLE, respondents.

FACTS:

Petitioner filed a complaint against the private respondents for recovery of a sum of money
allegedly lent to them. To which the respondent signed a promisory notes. The respondents
denied under oath "the genuineness, due execution, legality and validity" of the promissory
note executed "under duress, fear and undue influence.
The petitioner testified that he had lent the private respondents the sum of P85,000.00 and
54,550 which they said they needed to pay some cattle for fattening because their bank loan
was not granted.
When the note fell due, Petitioner demanded payment, which were ignored by respondents. He
thereupon filed is complaint.
The respondent argue that Promissory notes were signed because of petitioner's assurance that
the documents were a mere formality and it was signed when was while petitioner was in a
hurry to conclude the transactions. Further, respondent alleged that petitioner made them
believe that amount will later on be corrected.
The trial court rendered a decision holding that the promissory for 85,000 invalid.

ISSUE:

Whether or Not the promissory note executed by respondents binding?

RULING:

Yes. A promissory note is a solemn acknowledgment of a debt and a formal commitment to

repay it on the date and under the conditions agreed upon by the borrower and the lender. A
person who signs such an instrument is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes thereto as a token of his good faith.
The notes were written in plain English and consisted of only two short paragraphs. There was
no fine print to conceal hidden meanings. Each was a simple promise to pay to the petitioner,
for value received, the amounts indicated therein not later than October 8, 1984, at his
residence and to assume all litigation expenses, with 12% interest, in case of default.
The court noted that private respondents are not unlettered peasants with a modicum of
intelligence and unfamiliar with business and legal matters. They are educated persons with
not a little experience in business affairs and possibly even legal transactions. They own and
operate an hacienda consisting of 33 hectares. Epifania Ebarle was a professor in English for
25 years at the Silliman University. Sol Ebarle holds a degree in commerce, EleEbarle in
agriculture. There is no question that these three professionals fully understood the import and
consequences of what they were doing when they signed the two promissory notes. Hence, it is
binding.
 ARTICLES 1935 – 1952 (COMMODATUM)

1. G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.

FACTS:

Jose V. Bagtas borrowed from Bureau of Animal Industry three bulls for breeding purposes. He
was charge of 10% breeding fee of the book value of the bulls. Upon the expiration of the
contract, he asked for one year renewal. The Secretary of Agriculture approved the renewal but
only for one bull and requested the return of two bulls. Bagtas offered to buy the bull on
reduced amount due yearly depreciation but the Director decline his offer and instead asked
for the return of the three bulls. When respondent failed to return or pay the bull. An action
against him was filed ordering for the return of the bull loaned to him or payment of book
value.
When Jose Bagtas died, FelicidadBagtas surviving spouse became the administratrix of his
estate. She alleged that 2 bulls were returned to Bureau while the other 1 was accidentally
killed during a raid in their barrio such death was due to force majuere and she should be
relieved from returning the bull or paying its value because the contract was commodatum.

ISSUE:

Whether or not the contract is commodatum?

HELD:

A contract of commodatum is essentially gratuitous. If the breeding fee be considered a

compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she
had continued possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides
that a bailee in a contract of commodatum
. . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;

Furthermore, when lent and delivered to the deceased husband bulls had each an appraised
book value and 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.
2. G.R. No. 115324 February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,

vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

FACTS:

Arturo Doronilla is in the process of incorporating his business and to comply with one of the
requirements of incorporation, he caused Vives’ to issue a check which was then deposited in
Doronilla’s savings account. It was agreed that Vives can withdraw his money in a month’s
time. However, what Doronilla did was to open a current account and instructed the bank to
debit from the savings account and deposit it in his current account. So when Vives checked
the savings account, the money was gone.

ISSUE:

Is the contract a mutuum or commodatum?

HELD:

Supreme Court held that the contract is a commodatum. Although in a commodatum, the
object is a non-consumable thing, there are instances where a consumable thing may be the
object of a commodatum, such as when the purpose is not for consumption of the object but
merely for exhibition (Art. 1936). Thus, if consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend consumable goods and to have the
very same goods returned at the end of the period agreed upon, the loan is a commodatum and
not a mutuum.
4. G.R. No. L-8321 October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.

FACTS:

Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that
lot. Both Francisco and Andres died and their children became their respective heirs: Mina for
Francisco and Pascual for Andres. Pascual sold his share of the warehouse and lot. Mina
opposed because the lot is hers because her predecessor (Francisco) never parted with its
ownership when he let Andres construct a warehouse, hence, it was a contract of
commodatum.

ISSUE:

Whether or Not the contract between Francisco and Andres is commodatum?

HELD:

The Supreme Court held that it was not a commodatum. It is an essential feature of
commodatum that the use of the thing belonging to another shall be for a certain period.
Francisco Fontanilla did not fix any definite period or time duringwhich Andres Fontanilla
could have the use of the lot whereon the latter was to erect a stonewarehouse 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. 69 Phil 108 (1939)

QUINTOS vs. BECK

FACTS

Beck was a tenant of the Quintos and as such occupied the latter's house. On Jan 14, 1936,
the contract of lease was novated, wherein Quintos gratuitously granted to Beck the use of the
furniture, subject to the condition that Beck should return the furniture to Quintos upon
demand. Thereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was notified
of the conveyance and giving him 60 days to vacate the premises. In addition, Quintos required
Beck to return all the furniture. Beck refused to return 3 gas heaters and 4 electric lamps since
he would use them until the lease was due to expire. Quintos refused to get the furniture since
Beck had declined to return all of them. Beck deposited all the furniture belonging to Quintos
to the sheriff.

ISSUE

Whether or not Beck complied with his obligation to return the furniture by surrendering it to
the sheriff instead of returning it to Quintos himself.

RULING

The contract entered into between the parties is one of commodatum, because under it the
Quintos gratuitously granted the use of the furniture to the defendant, reserving for herself the
ownership thereof ; by this contract the Beck bound himself to return the furniture to the
plaintiff, upon the latter’s demand (articles 174, paragraph 1, and 1741 of the civil code).
The obligation voluntarily assumed by Beck to return the furniture upon the plaintiff’s
demand, means that he should return all of them to the Quintos at the latter’s residence or
house. Beck did not comply with this obligation when he merely placed them at the disposal of
the Quintos, retaining for his benefit the three gas heaters and the four electric lamps. The
defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the
latter’s demand; the court could not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant’s behest. The latter, as bailee, was not entitled to place
the furniture on deposit nor was the plaintiff under a duty to accept the order to return the
furniture, because the defendant wanted toretain the three gas heaters and the four electric
lamps. Therefore Beck is ordered to return and deliver to Quintos in the residence and to
return and deliver to Quintos, in the residence or house of the latter all the furnitures.
6. GR No. 146364

PAJUYO v. CA
June 3, 2004

FACTS

Pajuyo and Guevarra executed a Kasunduan or agreement, as owner of the house, allowed
Guevarra to live in his house for free provided Guevarra would be responsible for the
maintenance of the house and that he promised that he would voluntarily vacate the premises
on Pajuyo's demand. Upon demand Guevara refused to return the property to Pajuyo. The
petitioner then filed an ejectment case against Guevara with the MTC who ruled in favor of the
petitioner. On appeal with the CA, the appellate court reversed the judgment of the lower court
on the ground that both parties are illegal settlers on the property thus have no legal right so
that the Court should leave the present situation with respect to possession of the property as
it is, and ruling further that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.

ISSUE

Whether or not the contractual relationship of Pajuyo and Guevara is that of a commodatum.

HELD

No. The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid of merit.
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. The tenant’s withholding of the
property would then be unlawful.
 ARTICLES 1953 – 1961 (SIMPLE LOAN OR MUTUUM)

1. G.R. No. L-20240

REPUBLIC OF THE PHILS. vs. JOSE GRIJALDO

December 31, 1965

FACTS:

In 1943, Jose Grijaldo (appellant) obtained five loans from Bank of Taiwan (PBT)Bacolod
Branch, 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. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land known as Hacienda Campugas. By virtue of a Vesting Order and
under the authority provided in the Trading with the Enemy Act, the assets of the PBT were
vested in the Government of the US and subsequently transferred to the Republic of the
Philippines under a Transfer Agreement. In 1954, Republic of the Philippines (appellee),
represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand
upon the appellant for the payment of the account in question. The record shows that the
appellant had actually received the written demand for payment, but he failed to pay.In 1961,
the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental,
to collect from the appellant the unpaid account in question. The Justice of the
PeaceOfHinigaran, after hearing, dismissed the case on the ground that the action had
prescribed. The appellee appealed to the Court of First Instance of Negros Occidental; the court
rendered a decisionorderingtheappellant to pay the appellee.The appellant appealed directly to
this Court. During the pendency of this appeal the appellant Jose Grijaldo died.

ISSUE:

Whether or not the Republic of the Philippines is the successor of the rights, title and interests
in said loans.

RULING:

While it is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction
between the appellant and the Bank of Taiwan was a private contract of loans however,
pursuant to the Trading with the Enemy Act, E.O. 9095 of the US, and under Vesting Order,
the properties of the Bank of Taiwan, Ltd., were vested in the United States Government.
Pursuant, further, to the Philippine Property Act of 1946 and Transfer Agreements between the
United States Government and the Republic of the Philippines, the assets of the Bank of
Taiwan. were transferred to and vested in the Republic of the Philippines. The successive
transfers of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United
States Government, and from the United States Government to the government of the Republic
of the Philippines, made the Republic of the Philippines the successor of the rights, title and
interests in said loans, thereby creating a privity of contract between the appellee and the
appellant. The Court held that the Ballantyne scale of values should be applied as the time of
the obligation was incurred and that was on June 1943.
3. 56 SCRA 61 (1965)

TAN vs. VALDEHUESA

FACTS:

An action was instituted by the Lucia Tan against AradorValdehueza and RediculoValdehueza
(brothers and sisters) 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. Parcel of land described in the first cause of action was the subject matter of the
public auction sale in Oroquieta, Misamis Occidental, wherein the Tan was the highest bidder .
Due to the failure of defendant AradorValdehueza to redeem the said land within the period of
one year as being provided by law, an absolute deed of sale was executed in favor of Tan. Mr.
Vincente Roa who was then the Ex-Officio Provincial Sheriff executed an absolute deed of sale
in favor of the plaintiff Lucia Tan. Civil case 2002 was a complaint for injunction filed by Tan
on July 24, 1957 against the Valdehuezas, to enjoin them "from entering the above-described
parcel of land and gathering the nuts therein.This complaint and the counterclaim were
subsequently dismissed. The Valdehuezas appealed to the lower court alleging that it erred in
making a finding on the second cause of action that the transactions between the parties were
simple loan, instead, it should be declared as equitable mortgage.

ISSUE:

Whether the transactions between the parties were simple loan?

HELD:

No. 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, this is no longer in effect. If the instrument is not recorded, the mortgage is nonetheless
binding between the parties as stated in Article 2125.
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, whether registered or not, there being no third parties involved.
4. G.R. No. L-47878

JARDENIL vs. SALAS

July 24, 1942

FACTS

This is an action for foreclosure of mortgage. Salas agreed to pay interest only up to the date of
maturity or until March 31, 1934. As 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 Salas was bound to pay interest up to the date the payment is effected?

HELD

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. 520 SCRA 244 (2007)

FRIAS vs. SAN DIEGO

FACTS:

Frias is an owner of the house which she acquired from IMRDC by virtue of a Deed of Sale
Frias then entered into an agreement with Dra. Flora San Diego Sison whereby the latter shall
buy the house and lot of the former covered by TCT No. 168173 for a sum of P6.4 million pesos
with a down payment of P3million although Frias actually received only P2 million because the
check covering the P1 million was dishonored. The buyer was given 6 months to decide
whether to buy the property or not and if she does, she is given another 6 months to pay the
balance of P3.4 million. Frias is also given the right to offer the property to a 3rd party within
the 6-month period and if sold to said 3rd party, to return the down payment to Sison with
interest based on prevailing compounded bank interest. But if there is no other buyer and
Sison should also decide not to buy the property, Frias has another 6 months within which to
pay the P3 million with compounded bank interest for the last 6 months only and the 3 million
shall be treated as a loan with the property as security. There was no buyer and after the
lapsed of the period, Sison decided not to buy the property. Frias failed to pay the amount
despite demand so Sison instituted a complaint for sum money. The debtor was later
investigated for perjury and false testimony when Frias made a false report of the loss of
owner’s copy of TCT No. 168173, executing an affidavit of loss and by filing a petition for the
issuance of a new owner’s duplicate of title.

ISSUE:

WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6)
MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.

HELD

No, the interest should not be limited to 6 months.

The Court noted that their agreement speaks of two (2) periods of six months each. The first
sixmonth period was given to plaintiff-appellee (respondent) to make up her mind whether or
not to purchase defendant-appellant’s (petitioner's) property. The second six-month period was
given to defendantappellant to pay the P2 million loan in the event that plaintiff-appellee
decided not to buy the subject property in which case interest will be charged "for the last six
months only", referring to the second sixmonth period. This means that no interest will be
charged for the first six-month period while appellee was making up her mind whether to buy
the property, but only for the second period of six months after appellee had decided not to buy
the property. This is the meaning of the phrase "for the last six months only". Certainly, there
is nothing in their agreement that suggests that interest will be charged for six months only
even if it takes defendant-appellant an eternity to pay the loan.The agreement that the amount
given shall bear compounded bank interest for the last six months only. Considering that
petitioner failed to pay the amount given which under the 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.The payment of regular interest constitutes the price or cost of the use of
money and thus, until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount.
6. G.R. No. 142277

ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc.

December 11, 2002

FACTS:

Petitioner and respondent, as owner and contractor, entered into an Agreement for the
construction of petitioner’s condominium. Despite the completion of the project, petitioner was
not able to pay respondent the full amount and left a balance. Repeated demands were left
unheeded prompting respondent to file a civil case against petitioner, with a prayer among
others that the full amount be paid with interest of 2% per month, from Nov. 1990 up to the
time of payment. RTC ruled in favor of respondent. Petitioner appealed to the CA, particularly
opposing the imposition of the 2% interest. The CA ruled in favor of the 2% interest.Petitioner’s
contention- The imposition of the interest is without basis because (1) although it was written
in the Agreement, it was not mentioned by the RTC in the dispositive portion and (2) the
interest does not apply to the respondent’s claimbut to the “monthly progress billing”.

ISSUE:

WON the RTC and Ca is correct in imposing a 2% per month interest on the monetary award or
the balance of the contract price.

HELD:

Yes. The Agreement between the parties is the formal expression of the parties’ rights, duties
and obligations. It is the best evidence of the intention of the parties. Consequently, upon the
fulfillment by respondent of its obligation to complete the construction project, petitioner had
the correlative duty to pay for respondent’s services. However, petitioner refused to pay the
balance of the contract price. From the moment respondent completed the construction of the
condominium project and petitioner refused to pay in full, there was delay on the part of
petitioner. Delay in the performance of an obligation is looked upon with disfavor because,
when a party to a contract incurs delay, the other party who performs his part of the contract
suffers damages thereby. Obviously, respondent suffered damages brought about by the failure
of petitioner to comply with its obligation on time, elaboration of the matter at hand, damages
take the form of interest. Accordingly, the appropriate measure of damages in this case is the
payment of interest at the rate agreed upon, which is 2% interest for every month of delay.It
must be noted that the Agreement provided the contractor, respondent in this case, two
options in case of delay in monthly payments, respondent chose the 2% interest option, as the
condominium project was in fact already completed. The payment of the 2% monthly interest,
therefore, cannot be jettisoned overboard.Since the Agreement stands as the law between the
parties, this Court cannot ignore the existence of such provision providing for a penalty for
every month’s delay. Factalegemfacunt inter partes. From the moment petitioner gave its
consent, it was bound not only to fulfill what was expressly stipulated in the Agreement but
also all the consequences which, according to their nature, may be in keeping with good faith,
usage and law.Petitioner appears confused by a semantics problem. “Monthly progress billings”
certainly form part of the contract price butneither has petitioner shown any effort to clarify the
meaning of “monthly progress billings” to support its position. This leaves us no choice but to
agree with respondent, It refers to that portion of the contract price still to be paid as work
progresses, after the downpayment is made.”This definition is, indeed, not without basis.
Articles 6.02 and 6.03 of the Agreement, which respectively provides that the “balance shall be
paid in monthly progress payments based on actual value of the work accomplished” and that
“the progress payments shall be reduced by a portion of the downpayment made by the owner
corresponding to the value of the work completed” give sense to respondent’s interpretation of
“monthly progress billings.”
7. 65 Phil 635 (1938)

SONCUYA V. AZARRAGA

FACTS

An agreement was entered into by Defendants surnamed Azarraga and Atty.

LeodegarioAzarraga stating in Exhibit A that “parcels of land … are specially mortgaged… and
said attorney may hold said lands under no obligation to pay any rent until his fees shall have
been fully paid.”
After 9 months when the Exhibit A was approved by the court, the credit of Attorney
LeodegarioAzarraga was sold to Plaintiff Soncuya, the herein petitioner. By virtue of the sale
and cessions which Atty. Azarraga had made in his favor, Soncuya became the creditor of the
defendants. Soncuya allowed the defendants to pay him his credit until February 16, 1926 with
a condition that they should also pay an interest rate of 12% per annum from August 30,
1924. Upon the request of the defendants, the term was extended to April 26, 1926 with the
same condition.

ISSUE

Was the contract entered into by the defendants Azarraga with Attorney LeodegarioAzarraga,
from whom the plaintiff derived his right, a sale with pacto de retro, or was it merely a loan
with realestate security?

HELD

The contract was a simple loan.

The contract was converted into a simple loan when the plaintiff extended the period to
February 16, 1926 within which the defendants Azarraga could pay him his credit with a
condition that a 12% annual interest shall be paid and gave them another extension up to April
26, 1926, under the same conditions as regard interest. Interests can be demanded only in
contracts of loan, with or without guaranty. In this case, it can be shown that the obligation
which the defendants had imposed upon themselves by Exhibit A had ceased to exist and
became a simple loan with security of the lands in question.
8. G.R. No. L-6313 May 14, 1954

Royal Shirt Factory vs Co

FACTS:

An action for the recovery of money by Royal Shirt Factory from Co Bon Tic the sum of P1,422
to represent the balance of the price of 350 pairs of “Balleteenas” shoes at P7 a pair with
interest at 12% per annum

ISSUE:

Whether it was an outright sale or a sale merely on consignment ?

Municipal court held that it was a sale on consignment while CFI held that it was an outright
sale.

HELD:

It was an outright sale.

In Exhibit A, an order slip contained a condition in the sale. According to the testimony of Mr.
Chebat it means that Co could either consider the sale as 1) one on consignment, sell as many
shoes as he could for any price and pay for it at P8 a pair and at the end of 9 days, return the
shoes unsold; or 2) an absolute sale at P7 a pair. Since he was not able to return any of the
shoes at the end of nine days, he must have chosen the second alternative. But since this was
a self serving evidence, it was not admitted.
The court looked at the conduct of the parties. Exhibit B was an invoice of the same 350 shoes
including sales tax listed as P2,450. It was noted down in his own handwriting the different
partial payments of P500, P528 and lastly the P420 by check. It was obvious that he accepted
the outright sale since in making the partial payments, he made no mention of the number of
shoes sold by him and the number of shoes remaining unsold which he should have done if the
sale was on consignment.
9. G.R. No. L-33582

OVERSEAS BANK OF MANILA vs. CORDERO

March 30, 1982

FACTS

Vicente Cordero opened a 1-year time deposit with petitioner bank amounting to P80,000, with
interest of 6% per annum until fully paid. Due to its distressed financial condition, the bank
was unable to pay. Cordero instituted an action. The petitioner raised the defenses of
insolvency and prejudice to other depositors.
Certain supervening events rendered the issue moot and academic. Respondent’s brother and
attorney-in-fact sent a letter to the Commercial Bank of Manila (petitioner’s successor-in-
interest), acknowledging receipt of P10,000.00 from the Philippine Deposit Insurance Company
and another manifestation for P73,840 representing the principal and interest, with waiver of
damages. Upon further examination, it was found that the respondent’s brother has no Special
Power of Attorney. Respondent’s brother submitted the Special Power of Attorney, with
explanatory comment that the waiver applies only to third party claims, suits and damages,
not to interest and attorney’s fees.

ISSUE

Whether respondent is entitled to interest and attorney’s fees?

HELD

The lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set
aside. It appearing that the amount of the latter's time deposit had been fully paid.
The obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the Central Bank. Neither can respondent Cordero recover attorney’s
fees. Petitioner’s refusal to pay was not due to a willful and dishonest refusal to comply with its
obligation but to restrictions imposed by Central Bank.
10. 137 SCRA 685

RAMOS vs. CENTRAL BANK

July 22, 1985

FACTS

The Overseas Bank of Manila (OBM) is a commercial banking corporation. Ramos et. al are the
majority and controlling stockholders OBM. Because of the financial situation of the OBM
caused mounting concern in the Central Bank, petitioner Ramos and the OBM management
met with respondent Central Bank on the necessity and urgency of rehabilitating the OBM
through the extension of necessary financial assistance. Central Bank issued a resolution
excluding OBM from clearing with it and authorizing the nominee board of directors to suspend
operations. Worse, Central Bank Monetary Board issued a resolution ordering the liquidation
the bank. Petitioners charged that the OBM became financially distressed because of this
suspension and the deprivation by the Central Bank of all the usual credit facilities and
accommodations accorded to the other banks. Central Bank contended that to assail
Resolution of the Monetary Board ordering the liquidation of the Overseas Bank, an action
must be filed in the Court of First Instance of Manila by the Bank itself, and not by petitioning
stockholders.

ISSUE

WON the CB had agreed to rehabilitate, normalize and stabilize OBM

HELD

The Central Bank made express representations to petitioners herein that it would support the
OBM, and avoid its liquidation if the petitioners would execute (a) the voting trust agreement
turning over the management of OBM to the Central Bank or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with value to the profit of the CB
(which thus acquired additional security for its own advances), the Central Bank may not now
renege on its representations and liquidate the OBM, to the detriment of its stockholders,
depositors and other creditors, under the rule of promissory estoppel.
11. 153 SCRA 338

LIRAG TEXTILE MILLS, INC. and BASILIO L. LIRAG vs.

SOCIAL SECURITY SYSTEM and HON. PACIFICO DE CASTRO

FACTS:

SSS and Lirag Textile entered into a Purchase Agreement under which SSS agreed to purchase
from Lirag Textile preferred shares of stock. Under such agreement, BasilioLirag, as President
of Lirag Textile, signed the agreement as a surety to guarantee the redemption of the stocks,
payment of dividends and other obligations. Pursuant to the agreement, SSS paid Lirag Textile
on two occasions and the latter issued preferred shares of stock.
Despite sending letters of demand to Lirag Textile, it still has not made any redemption nor
made dividend payments. Since Lirag Textile failed to comply with the terms of the agreement,
SSS filed an action for specific performance and damages.

ISSUES:

Whether or not the Purchase Agreement is a debt instrument

HELD:

YES. The Purchase Agreement is a debt instrument. Its terms and conditions show that parties
intended the repurchase of the preferred shares on the scheduled dates to be an absolute
obligation which does not depend upon the financial ability of Lirag Textile. This absolute
obligation is made manifest by the fact that a surety was required. Also, the undertaking of
Lirag Textile 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 a time which becomes
definite and fixed by acts of either party and which they expressly or impliedly, agree to
perform in the contract.”
12. 23 SCRA 119 (1968)

ANGEL JOSE vs. CHELDA

FACTS

Plaintiff corporation filed suit against the partnership Chelda Enterprises and David Syjueco
for recovery of alleged unpaid loans with legal interest from the filing of the complaint, plus
attorney’s fees. Alleging that post dated checks issued by defendants to pay said account were
dishonored, that defendants’ industrial partner, Chellaram I. Mohinani, had left the country,
and that defendants have removed or disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff; that plaintiff
charged and deducted from the loan usurious interests thereon, and, consequently, plaintiff
has no cause of action against defendants and should not be permitted to recover under the
law.

ISSUE

Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt.

HELD

Article 1420 of the New Civil Code provides in this regard: “In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced.”
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.
13. G.R. No. L-32644

CU UNJIENG E HIJOS, vs. THE MABALACAT SUGAR CO., ET AL.,THE MABALACAT SUGAR
CO.,
October 4, 1930

FACTS:

This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for
the purpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to
more than P163,00, with interest, and to foreclose a mortgage given by the debtor to secure the
same, as well as to recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff
for insurance upon the mortgaged property, with incidental relief. Trial Judge ruled in favor of
Cu Unjieng, and added that Mabalacat is liable to pay compound interest in favor of Cu
Unjieng. However, Mabalacat Sugar Company, appealed. Malacat alleged that there are points
assigned as errors.

ISSUES:

Whether or not the action was prematurely stated.

HELD:

The mortgage executed by the Mabalacat contains a provision to the effect that non-compliance
on the part of the mortgage debtor with any of the obligations assumed in virtue of this
contract will cause the entire debt to become due and give occasion for the foreclosure of the
mortgage. Mabalacat failed to comply, however, Cu Unjieng, agreed to extend the time for
payment of the mortgage. But Mabalacat failed altogether to pay the balance due.
Notwithstanding the failure of the debtor to comply with the terms of this extension, it is
insisted for the appellant that this agreement for the extension of the time of payment had the
effect of abrogating the stipulation of the original contract with respect to the acceleration of
the maturity of the debt by non-compliance with the terms of the mortgage. This contention is
untenable. The agreement to extend the time of payment was voluntary and without
consideration so far as the creditor is concerned; and the failure of the debtor to comply with
the terms of the extension justified the creditor in treating it as of no effect.
14. 316 SCRA 710 (1999)

JESUS T. DAVID, petitioner,

vs.
THE COURT OF APPEALS, HON. EDGARDO P. CRUZ, MELCHOR P. PEÑA, and VALENTIN
AFABLE, JR., respondents.

FACTS

Judge Ricardo Diazissued a writ of attachment over real properties of private respondents. In
his DecisionJudge Diaz ordered private respondent Afable to pay petitioner plus
interest.Respondent Afable appealed to the Court of Appeals and then to the Supreme Court. In
both instances, the decision of the lower court was affirmed. The case was remanded to
respondent Judge Edgardo P. Cruz, for the final execution of the Decision.
Upon petitioner's motion, respondent Judge issued an Alias Writ of Execution by virtue of
which respondent Sheriff Melchor P. Peña conducted a public auction. 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 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 judgment as P 3,027,238.50, the amount he bid during the
auction which he won. His reason is that compound interest, which was allowed in Article 22
12 of the Civil Code, should apply in this case.
RTC and CA din not favor petitioner. Petitioner argued that the CA erred in ruling Article 2212
of the Civil Code applies only where the parties to an obligation stipulated or agreed to pay
compound interest.

ISSUE

Whether or not appellate court erred in affirming respondent Judge’s order for the payment of
simple interest only rather than compound interest:

HELD

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 2212 of the Civil
Code. In his view, said article meant “compound interest”. However, 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.
Furthermore, “when the judgment sought to be executed ordered the payment of simple “legal
interest” only and said nothing about payment of compound interest, but the respondent judge
orders payment of compound interest, then, he goes beyond the confined judgment which had
become final. In this case, the CA made a finding the “no interest was stipulated by the
parties”. Responded Judge followed Reformina and applied Central Bank Circular No. 416
amending Act 2655 (Ususry Law) and raising the legal rate of interest from 6% to 12% per
annum. The passage of the Central Bank Circular 416 was a supervening event which
happened after the decision had become executor.
15. 73 PHIL 630 (1942)

CLEOFE VELEZ, plaintiff-appellant,

vs.
MAXIMO BALZARSA and FLAVIA MABILIN, defendants-appellees.

FACTS

Plaintiff prayed for the return of certain parcels of land which she alleged had been sold by the
defendants to plaintiff's deceased husband, Ramon Neri San Jose, with right of repurchase.
She further alleged that defendants had remained in possession of said land under a contract
of lease, but that for over two years defendants had not paid the agreed rentals." In their
amended answer, defendants alleged that the real agreement was loan secured by a mortgage
of those lands; and that whereas the amount borrowed was only P2,400, defendants had
however already paid P4,420.88. Defendants therefore prayed for the return of the excess, or
P2,029.88.
Balzara alleged that the real agreement was a loan secured by a mortgage of those lands. Trial
court found that the payments made by defendants were not made by way of interest but as
payments for the principal. Balzara overpaid and Plaintiff should return the excess.

ISSUE

Whether or not the excess payment should be returned

HELD

The liability of plaintiff to return the excess payments is in keeping with Article 1895 (Old Civil
Code) which provides that, “when something is received which there is no right to collect, and
which by mistake has been unduly delivered, the obligation to restore it arises.”The 2 requisites
are present: 1) There is no right to collect these excess sums; and 2) the amounts have been
paid through mistake by defendants. Such mistake is shown by the fact that their contracts
never intended that either rents or interest should be paid, and by the further fact that when
these payments were made, they were intended by defendants to be applied to the principal,
but they overpaid the amounts loaned to them.
16. 145 SCRA 311

THE GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner-appellant,

vs.
HONORABLE COURT OF APPEALS, NEMENCIO R. MEDINA and JOSEFINA G. MEDINA,
respondents-appellants.

FACTS

Private respondents spouses Nemencio R. Medina and Josefina G. Medinaapplied with

petitioner Government Service Insurance System for a loan. The GSIS Board of Trustees
approved subject to conditions.The Medinas accepting the amount, executed a promissory note
and a real estate mortgage in favor of GSIS.
The Medinas having defaulted in the payment of the monthly amortization on their loan, the
GSIS imposed interest on installments due and unpaid. The GSIS filed an Application for
Foreclosure of Mortgage.The Medinas filed a complaint praying that a restraining order or writ
of preliminary injunction be issued to prevent the proceeding of the extra-judicial foreclosure of
their mortgaged properties. However, no restraining order or writ of preliminary injunction was
issued by the trial court.
On appeal before the Court of Appeals, the CA declared the extra-judicial foreclosure of real
estate mortgage contracts null and void and the Certificate of Sale in favor of the GSIS of no
legal force and effect; and directing plaintiffs to pay the GSIS of their obligation.

ISSUES

Whether or not the imposition of 9%/12% interest on instalments is proper in view of the
Amendment of Real Estate Mortgage and whether or not the interest rate is usurious.

HELD

1. Yes, the imposition of 9%/12% interest on installments is proper. The Court held that the
amendment was never intended to completely supersede the mortgage contract. As provided by
the amendment, it carries the provisions that it shall be subject to the same terms and
conditions of the original mortgage contract except for the amount and amortization.
2. No, the interest rate is not usurious. It is a well-settled rule that Usury Law applies only to
interest by way of compensation for the use or forbearance of money. On the other hand,
interest by way of damages is governed by Article 2209 of the Civil Code of the Philippines
which provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon.
As held by the Court, the Civil Code permits the agreement upon a penalty apart from the
interest. In case there is an agreement, the interest should not be included in the penalty since
there are two different things which may be demanded separately.
17. 376 SCRA 560

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners,

vs.
HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.

FACTS

Petitioners TolomeoLigutan and Leonidas delaLlana obtained a loan from respondent Security
Bank and Trust Company. Petitioners executed a promissory note binding themselvesto pay
the sum borrowed with interest upon maturity and to pay a penalty in case of default.
Despite several demands, petitioners failed to settle the debt. The bank sent a final demand
letter to petitioners informing them that they had five days within which to make full payment.
Petitioners still defaulted, the bank filed a complaint for recovery of the due amount.
Petitioners filed an omnibus motion for reconsideration alleging that, petitioner
TolomeoLigutan and his wife BienvenidaLigutan executed a real estate mortgage to secure the
existing indebtedness with the bank. 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, that they were not informed
about it, and the bank did not credit them with the proceeds of the sale. The appellate court
denied the omnibus motion for reconsideration.

ISSUE

Whether a penalty is reasonable or iniquitous can be partly subjective and partly objective.

HELD

The essence or rationale for the payment of interest, quite often referred to as cost of money, is
not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not
necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct
concepts which may separately be demanded. What may justify a court in not allowing the
creditor to impose full surcharges and penalties, despite an express stipulation therefor in a
valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the
interest prescribed in loan financing arrangements is a fundamental part of the banking
business and the core of a bank's existence.
18. 234 SCRA 78

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

FACTS

Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as
insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service,
which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from
Metro, one drum opened and without seal. Allied delivered the shipment to the consignee’s
warehouse. The latter excepted to one drum which contained spillages while the rest of the
contents was adulterated/fake. As consequence of the loss, the insurance company paid the
consignee, so that it became subrogated to all the rights of action of consignee against the
defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed
before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the
former with present legal interest of 12% per annum from the date of the filing of the
complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto
the decision of the trial court.

ISSUE

Whether or not Eastern Shipping Lines, Inc. jointly and severally liable with the arrastre
operator and customs broker for the claim of private respondent

HELD

The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier
is similar to that of the consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.
The arrastre operator and the customs broker are not themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary
the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being
the carrier and not having been able to rebut the presumption of fault, is, in any event, to be
held liable in this particular case. Accordingly, the liability imposed on Eastern Shipping Lines,
Inc., the sole petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
19. 538 SCRA 184

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

FACTS

Tevesteco opened a savings and current account with BPI-FB. Thereafter, FMIC also opened a
time deposit account with the same branch of BPI-FB. On August 31, 1989, Franco opened
three accounts with BPI-FB. The total amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in consideration of Franco’s introduction of
EladioTeves, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the
funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from
FMIC’s time deposit account and credited to Tevesteco’s current account pursuant to an
Authority to Debit purportedly signed by FMIC’s officers.
The signatures of FMIC’s officers on the Authority to Debit were forged. BPI-FB, debited
Franco’s savings and current accounts for the amounts remaining therein. Two checks drawn
by Franco against his BPI-FB current account were dishonored and stamped with a notation
“account under garnishment.” Apparently, Franco’s current account was garnished by virtue of
an Order of Attachment issued by RTC Makati. The dishonored checks were issued by Franco
and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts were
under garnishment. Immediately, upon receipt of such copy, Franco filed a Motion to Discharge
Attachment. Franco pre-terminated his time deposit account.
BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit
account representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to
heed Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed
on June 4, 1990 with the Manila RTC the subject suit.

ISSUE:

Whether or not respondent had better right to the deposits in the subject accounts which are
part of the proceeds of a forged Authority to Debit

HELD

No. There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s
account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the
Civil Code provisions on simple loan or mutuum. As there is a debtor-creditor relationship
between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits,
but such ownership is coupled with a corresponding obligation to pay him an equal amount on
demand. Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from
demanding payment of BPI-FB’s obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued checks
drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the multi-million peso
scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right
to take whatever action it pleases on deposits which it supposes are derived from shady
transactions, would open the floodgates of public distrust in the banking industry.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in
the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift
liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent
withdrawals from their respective accounts without the appropriate court writ or a favorable
final judgment.
20. 563 SCRA 564

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.

FACTS

Iloilo Provincial Prosecutor’s Office filed112 cases of Qualified Theft against respondents
TeresitaPuigand Romeo Porraswho were the Cashier and Bookkeeper, respectively, of private
complainant Rural Bank of Pototan, Inc.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.
It added that allowing the 112 cases for Qualified Theft filed against the respondents to push
through would be violative of the right of the respondents under Section 14(2), Article III of the
1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the
right to be informed of the nature and cause of the accusation against him. Following Section
6, Rule 112 of the Revised Rules of Criminal Procedure.
Petitioner explains that 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.

ISSUE

Whether or not the Bank acquired ownership of the money deposited in it to be able to hold the
respondents liable for qualified theft which requires that there must be taking of the money
without the consent of the owners.

HELD

YES. Banks where monies are deposited, are considered the owners thereof. This is very clear
not only from the express provisions of the law, but from established jurisprudence. The
relationship between banks and depositors has been held to be that of creditor and debtor.
In a long line of cases involving Qualified Theft, the Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to
it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. In
summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of confidence.
21. GR No. 133877

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
ALFA RTW MANUFACTURING CORPORATION, BA FINANCE CORPORATION, NORTH
AMERICAN GARMENTS CORPORATION, JOHNNY TENG, RAMON LEE, ANTONIO LACDAO,
RAMON LUY and ALFA INTEGRATED TEXTILE MILLS, respondents.

FACTS

Defendant Alfa RTW Manufacturing Corporationhad applied for and was granted by plaintiff
Rizal Commercial Banking Corporationfour (4) Letters of Credit to facilitate its purchase of raw
materials for its garments business. Alfa RTW, in turn, had executed four (4) 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 Alfa RTW’s undertakings. However, Alfa RTW failed to heed RCBC’s demand. RCBC
filed a civil case for a sum of money against Alfa RTW.

ISSUE

Whether or not the CA can deviate from the provisions of the contract between RCBC and Alfa
RTW.

HELD

No. The CA cannot deviate from the provisions of the contract between RCBC and Alfa RTW. In
this case, it failed to apply this time-honored doctrine: “That which is agreed to in a contract is
the law between the parties. Thus, obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.”
Further, “the Court cannot vary the terms and conditions therein stipulated unless such
stipulation is contrary to law, morals, good customs, public order or public policy.” The CA
made findings contrary to the admissions of the parties. When it ruled that only
PhP3,060,406.25 should be awarded to RCBC, it disregarded the parties’ stipulations in their
contracts of loan, more specifically, those pertaining to the agreed (1) interest rates, (2) service
charges, and (3) penalties in case of any breach thereof.
Hence, the Supreme Court granted RCBC’s petition. The amount awarded by the CA was set
aside and the case was remanded to the trial court for the proper computation thereof.
22. GR 175139,

ESTORES vs. SPOUSES SUPANGAN

April 18, 2012

FACTS

The parties entered into a contract of conditional deed of sale for a parcel of land. Stipulated
that, If and after the vendor has completed all necessary documents for registration of the title
and the vendee fails to complete payment as per agreement, a forfeiture fee shall be applied.
However, if the vendor fails to complete necessary documents within thirty days without any
sufficient reason, or without informing the vendee of its status, vendee has the right to demand
return of full amount of down payment.
After seven years of execution of the contract and notwithstanding payment on the part of
respondent-spouses, petitioner still failed to comply with her obligation. Respondent-spouses
demanded the return of the amount. Defendant promised to return the same within 120 days
on the condition imposed by the spouses that it will be charged with interest which Estores
declined.
A case was filed against Estores and his agent, which rendered a decision in favor of the
spouses respondent. On appeal, the decision was affirmed with modification to the award of
the amount of damages.

ISSUE:

Whether or not it is proper to impose interest for an obligation in the absence of stipulation of
the parties.

HELD:

YES. Interest may be imposed even in 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 amount because of her failure to fulfill
the obligation under the Conditional Deed of Sale, despite demand. Petitioner enjoyed the use
of the money from the time it was given to her. Thus, she is already in default of her obligation
from the date of demand.
23. GR No. 181043

SPOUSES EDUARDO and LYDIA SILOS, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

FACTS

Spouses Silos secured a revolving credit line with Philippine National Bank (PNB) through a
real estate mortgage as a security. Silos signed a Credit Agreement and several Promissory
Notes (PN) as regards their Credit Agreements with PNB. In the Credit Agreements, Spouses
Silos bound themselves to the power of PNB to modify the interest rate depending on whatever
policy that PNB may adopt in the future, without the need of notice upon them..
Spouses Silos acceded to the policy by pre-signing a total of twenty-six (26) PNs leaving the
individual applicable interest rates at hand blank since it would be subject to modification by
PNB. Spouses Silos regularly renewed and made good on their promissory notes, religiously
paid the interests without objection or fail.
During the 1997 Asian Financial Crisis, Spouses Silos faltered when the interest rates soared.
Spouses Silos’ 26th Promissory Note became past due, and despite repeated demands by PNB,
they failed to make good on the note. Thus, PNB foreclosed and auctioned the involved security
for the mortgage. Spouses Silos instituted an action to annul the foreclosure sale on the
ground that the succeeding interest rates used in their loan agreements was left to the sole will
of PNB, the same fixed by the latter without their prior consent and thus, void. The Regional
Trial Court (RTC) ruled that such stipulation authorizing both the increase and decrease of
interest rates as may be applicable is valid. The Court of Appeals (CA) affirmed the RTC
decision.

ISSUE

May the bank, on its own, modify the interest rate in a loan agreement without violating the
mutuality of contracts?

HELD

No. Any modification in the contract, such as the interest rates, must bemade 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.
Loan and credit arrangements may be made enticing by, or “sweetened” with, offers of low
initial interest rates, but actually accompanied by provisions written in fine print that allow
lenders to later on increase or decrease interest rates unilaterally, without the consent of the
borrower, and depending on complex and subjective factors. Because they have been lured into
these contracts by initially low interest rates, borrowers get caught and struck in the web of
subsequent steep rates and penalties, surcharges and the like. Being ordinary individuals or
entities, they naturally dread legal complications and cannot afford court litigation; they
succumb to whatever charges the lenders impose. At the very least, borrowers should be
charged rightly; but then again this is not possible in a one-sided credit system where the
temptation to abuse is strong and the willingness to rectify is made weak by the eternal desire
for profit.
 ARTICLE III 1987 CONSTITUTION

1. L-63419

FLORENTINA A. LOZANO, petitioner,

vs.
THE HONORABLE ANTONIO M. MARTINEZ, in his capacity as Presiding Judge, Regional Trial
Court, National Capital Judicial Region, Branch XX, Manila, and the HONORABLE JOSE B.
FLAMINIANO, in his capacity as City Fiscal of Manila, respondents.

FACTS

Petitioners were charged with violation of Batas Pambansa Bilang 22 (Bouncing Check Law).
They moved seasonably to quash the informations 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. The parties adversely affected thus appealed.

ISSUE

Whether or not BP 22 is violative of the constitutional provision on non-imprisonment due to

debt

HELD

The enactment of BP 22 is a valid exercise of the police power and is not repugnant to the
constitutional inhibition against imprisonment for debt. 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.
2. L-122539

JESUS V. TIOMICO, petitioner,

vs.
THE HON. COURT OF APPEALS (FORMER FIFTH DIVISION) and PEOPLE OF THE
PHILIPPINES, respondent.

FACTS

Petitioner Tiomico opened a Letter of Credit with the Bank of the Philippine Islands to be used
for the importation of 2 units of Forklifts, Shovel loader and a truck mounted with crane. The
said machineries were received by the accused, as evidenced by the covering trust receipt.
Upon maturity of the trust receipt, on December 28, 1982, he made a partial payment thereby
leaving an unpaid obligation. Tiomico failing to satisfy his monetary obligation, he was accused
of a violation of PD 115, otherwise known as the Trust Receipts Law.

ISSUE

Whether or not the Trust Receipts Law is unconstitutional

HELD

No. 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. Verily, PD 115 is a declaration by the legislative
authority that, as a matter of public policy, the failure of a person to turn over the proceeds of
the sale of goods covered by a trust receipt or to return said goods if not sold is a public
nuisance to be abated by the imposition of penal sanctions.
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.
 II. DEPOSIT
ARTICLES 1962 - 2009

1. 350 SCRA 427 (2001)

ATTY. DIONISIO CALIBO, JR., petitioner,

vs.
COURT OF APPEALS and DR. PABLO U. ABELLA, respondents.

FACTS

Mike Abella rented a house owned by Atty. Dionisio Calibo. Dr. Pablo Abella, Mike’s father
entrusted to Mike a tractor. Pablo delivered the tractor to Mike in order for the latter to safe-
keep the same. Mike defaulted in his rental payments to Calibo. Calibo repeatedly demanded
payments but Mike failed to pay. Mike assured Calibo that he will soon pay and Mike used his
father’s tractor as a security. Calibo took possession of the tractor. Later, Mike advised Calibo
that he can sell the tractor as payment for his debts.
Pablo learned of the foregoing and so he contacted Calibo. He offered to pay a portion of
Mikes’s debt and in return Calibo must return the tractor. Calibo refused and he wanted Pablo
to guarantee all of Mike’s debt which Pablo does not want. Eventually, to redeem his tractor,
Pablo filed a replevin suit against Calibo, which Pablo won.
On appeal, Calibo invoked that the replevin should not have been granted as there was a valid
contract of pledge between him and Mike, and that Mike was Pablo’s agent because Pablo was
aware of the fact that Mike pledged the tractor to him. In the alternative, Calibo invoked that if
there’s no contract of pledge, there is at least a contract of deposit since Mike himself left the
tractor with him in the concept of an innkeeper.

ISSUE

Whether or not the arguments of Calibo are valid.

HELD

No. He who is not the owner or proprietor of the property pledged or mortgaged to guarantee
the fulfillment of a principal obligation, cannot legally constitute such a guaranty as may
validly bind the property in favor of his creditor and the pledge or mortgagee in such a case
acquires no right whatsoever in the property pledged or mortgaged.
There is likewise no valid deposit in this case. In a contract of deposit , a person receives an
object belonging to another with the obligation of safety keeping it and of returning the same.
Petitioner himself states that he received the tractor not to safety keep it but as a form of
security for the payment of Mike Abella’s obligations. There is no deposit where the principal
purpose for receiving the object is not safekeeping.
2. GR No. 160544

TRIPLE V FOOD SERVICES INC.

VS.
FILIPINO MECHANTS INSURANCE COMPANY

FACTS

Mary JoAnne De Asis dined at petitioner’s Kamayan Restaurant. De Asis was using a
Mitsubishi Galant Super Saloon issued by her employer Crispa Textile Inc. De Asis availed of
the valet parking service of petitioner and entrusted her car key to petitioner’s valet counter. A
certain Madridano, valet attendant, noticed that the car was not in the parking slot and its key
is no longer in the box where valet attendants usually keep the keys of cars entrusted to them.
The car was never recovered.
Crispa filed a claim against its insurer, respondent Filipino Merchants Insurance Company Inc.
Having indemnified Crispa for the loss of the subject vehicle, FMICI, as subrogee to Crispa’s
rights, filed an action for damages against petitioner Triple V Food Services Inc., Petitioner
claimed that the complaint failed to adduce facts to support the allegations of recklessness and
negligence committed in the safekeeping and custody of the subject vehicle. Besides, when De
Asis availed the free parking stab which contained a waiver of the petitioner’s liability in case of
loss, she hereby waived her rights.

ISSUE

Whether or not petitioner Triple V Food Services Inc. is liable for the loss

HELD

Yes. In a contract of deposit, a person receives an object belonging to another with the
obligation of safely keeping it and returning the same. A deposit may be constituted even
without any consideration. It is not necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for safekeeping and to return it later to the
depositor. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that
of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of
its free valet parking service.
3. G.R. NO. L-6913 (NOVEMBER 21, 1913)

THE ROMAN CATHOLIC BISHOP OF JARO, PLAINTIFF-APPELLEE,

VS.
GREGORIO DE LA PEÑA, ADMINISTRATOR OF THE ESTATE OF FATHER AGUSTIN DE LA
PEÑA, DEFENDANT-APPELLANT

FACTS

In 1898 Fr. De la Peña assigned as trustee of the sum of P6,641, collected by him for the
charitable purposes he deposited in his personal account P19,000 in the Hongkong and
Shanghai Bank at Iloilo. During the war of the revolution, Father De la Peña was arrested by
the military authorities as a political prisoner. The arrest of Father De la Peña and the
confiscation of the funds in the bank were the result of the claim of the military authorities
that he was an insurgent and that the funds deposited had been collected by him is for
revolutionary purposes. The money was taken from the bank by the military authorities by
virtue of such order, was confiscated and turned over to the Government.

ISSUES

Whether or not Father De la Peña is liable for the loss of the funds?

RULLING

No, he is not liable because there is no negligent act on the part of Fr. De la Peña. It was so
happened that during that time the money was taken from him by the U.S. military forces
which is unforeseen event. Although the Civil Code states that “a person obliged to give
something is also bound to preserve it with the diligence pertaining to a good father of a
family”, it also provides, following the principle of the Roman law that “no one shall be liable for
events which could not be foreseen, or which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or those in which the obligation so
declares.”
4. 219 SCRA 426

CA-AGRO INDUSTRIAL DEVELOPMENT CORPORATION VS CA

FACTS:

On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses Ramon and
Paula Pugao entered into an agreement whereby the former purchase two parcel of lands from
the latter. It was paid of downpayment while the balance was covered by there postdated
checks. Among the terms and conditions embodied in the agreement were the titles shall be
transferred to the petitioner upon full payment of the price and the owner's copies of the
certificate of titles shall be deposited in a safety deposit box of any bank. Petitioner and the
Pugaos then rented Safety Deposit box of private respondent Security Bank and Trust
Company.

Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos demand
the execution of a deed of sale which necessarily entailed the production of the certificate of
titles. In view thereof, Aguirre, accompanied by the Pugaos, then proceed to the respondent
Bank to open the safety deposit box and get the certificate of titles. However, when opened in
the presence of the Bank's representative, the box yielded no such certificate. Because of the
delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.

Hence this petition.

ISSUE:

Whether or not the contract of rent between a commercial bank and another party for the use
of safety deposit box can be considered alike to a lessor-lessee relationship.

RULING:

The petitioner is correct in making the contention that the contract for the rent of the deposit
box is not a ordinary contract of lease as defined in Article 1643 of the Civil Code. However, the
Court do not really subscribe to its view that the same is a contract of deposit that is to be
strictly governed by the provisions in Civil Code on Deposit; the contract in the case at bar is a
special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control of the safety deposit box was not
given to the joint renters- the petitioner and the Pugaos. The guard key of the box remained
with the respondent bank; without this key, neither of the renters could open the box. On the
other hand, the respondent bank could not likewise open the box without the renter's key. The
Court further assailed that the petitioner is correct in applying American Jurisprudence.
Herein, the prevailing view is that the relation between the a bank renting out safe deposits
boxes and its customer with respect to the contents of the box is that of a bail or/ and bailee,
the bailment being for hire and mutual benefits. That prevailing rule has been adopted in
Section 72 of the General Banking Act.

Section 72. In addition to the operations specifically authorized elsewhere in this Act, banking
institutions other that building and loan associations may perform the following services:
(a) Receive in custody funds, document and valuable objects and rents safety deposits
taxes for the safeguard of such effects.

The bank shall perform the services permitted under subsections (a) (b) and (c) of this section
as depositories or as agents.
5. GR 4015, 24 AUGUST 1908

ANGEL JAVELLANA V JOSE LIM, ET AL;

FACTS:

(1) On 26 May 1897, Jose and others executed a document in favor of Angel, wherein it stated
that they had received a sum of PhP 2,600.86 as a “deposit” without interest from the latter.
The document also stipulated that they would return the same amount jointly and severally on
20 January 1898. (2) Upon the stipulated due date, however, Jose and others asked for an
extension to pay and bound themselves to pay 15% interest per annum on the amount of their
indebtedness, to which the Angel acceded. Despite the extension, Jose and others still failed to
pay the full amount of their indebtedness. Consequently, this prompted Angel to file a civil
action before the CFI of Iloilo. The CFI of Iloilo subsequently ruled in favor of Angel to recover
the amount due plus the payment of 15% interest per annum.

ISSUE:

Whether or not the contract executed by Angel and Jose and others was that of a deposit.

RULING:

No, the contract executed by Angel and Jose and others was not a deposit. Instead, it was a
contract of simple loan or mutuum.
Ratio: (1) It must be understood that Jose and others were lawfully authorized to make use of
the amount deposited, which they have done as subsequently shown when they asked for an
extension of the time for the return thereof. They were conscious that they had used, for their
own profit and gain, the money which they apparently received as a “deposit”. Moreover, they
engaged to pay interest to Angel from the stipulated date until the time when the refund should
have been made. (2) Where money, consisting of coins of legal tender, is deposited with a
person and the latter is authorized by the depositor to use and dispose of the same, the
agreement is not a contract of deposit, but a loan. Moreover, Article 1768 of the old Civil Code
(now Article 1978 of the New Civil Code) provides that when the depository has per mission to
make use of the thing deposited, the contract loses the character of a de posit and becomes a
loan or bailment. (3) A subsequent agreement between the parties as to interest on the amount
said to have been deposited, because the same could not be returned at the time fixed
therefore, does not constitute a renewal of an agreement of deposit, but it is the best evidence
that the original contract entered into between them was for a loan under the guise of a
deposit.
6. 1 PHIL 71 (1901)

GAVIERES VS TAVERA

FACTS:

Don Manuel Garcia Gavieres, plaintiff and successor in interest of the deceased Doña Ignacia
de Gorricho filed an action against Don Trinidad H. Pardo de Tavera, heir of Don Felix de
Tavera for the collection of a balance of P1,423.75, remaining due on the original obligation of
P3,000.00. The agreement between the parties appears in the following writing:
Received of Señorita Ignacia e Gorricho the sum of 3,000 pesos, gold (3,000 pesos), as a deposit
payable on two months’ notice in advance, with interest at 6 percent per annum with a
hypothecation of the goods now owned by me or which may be owned thereafter, as a security
of payment.
The plaintiff alleged in the complaint that the contract executed by Felix and Ignacia was a
contract of deposit. The defendant, on the other hand, alleged that it was a contract of loan and
therefore the prescription applicable to the contract of loan extinguished the right of action.

ISSUE:

W/N the contract executed is a contract of loan or deposit.

HELD:

The contract executed is a CONTRACT OF LOAN.

There is a stipulation of interest at 6% per annum and the amount could be collected after
notice of two months in advance, evident that the intention of the parties that the depositary
should have the right to make use of the amount deposited (The purpose of the contract of
deposit is the safekeeping of the thing delivered by the depositor to the depository. Art. 1962)
The prescription has extinguished the contract of loan as provided in the old civil code. All
personal actions, such as those which arise from a contract of loan, cease to have legal effect
after twenty years according to the former law and after fifteen years according to the Civil
Code now in force.
7. G.R. NOS. L-26948 AND L-26949 | OCTOBER 8, 1927| STREET, J.

BARON V DAVID

FACTS

PABLO RUNS A RICE MILL, PLAINTIFF PLACES RICE IN MILL, FIRE GUTS MILL, PALAY GONE

Defendant Pablo David has been running a rice mill in Pampanga. One day a fire occurred that
destroyed the mill and its contents. Silvestra Baron, the plaintiff in the first action, is an aunt
of the defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the
months of March, April, and May, 1920, Silvestra Baron placed a quantity of palay in the
defendant's mill. During the same period Guillermo Baron also placed palay in the mill.

PLAINTIFFS CLAIM PALAY WAS SOLD, DEFENDANT ARGUES IT WAS DEPOSIT AND THAT
THE FIRE RELIEVED HIM OF LIABILITY

Both plaintiffs claim that the palay delivered by them to defendant was sold to defendant; while
defendant claims that the palay was deposited subject to future withdrawal by the depositors
or subject to some future sale which was never effected. He therefore supposes himself to be
relieved from all responsibility by virtue of the fire, already mentioned.

ISSUE:

WON the palay was a deposit or a sale (SALE)

WON defendants are liable to plaintiffs (YES)

HELD

PALAY WAS SOLD, LIABILITY NOT EXTINGUISHED BY FIRE. PLAINTIFF BOUND TO

ACCOUNT FOR IT

In view of the nature of the defendant's activities and the way in which the palay was handled
in the defendant's mill, it is quite certain that all of the plaintiffs' palay, which was put in
before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921.

Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs' palay
prior to the date of the fire, it result that he is bound to account for its value, and his liability
was not extinguished by the occurrence of the fire.

EVEN IF DEPOSIT, USE OF THE THING BINDS DEFENDANT TO ACCOUNT FOR ITS VALUE

Even supposing that the palay may have been delivered in the character of deposit, subject to
future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that the
defendant might mill the palay and he has in fact appropriated it to his own use, he is of
course bound to account for its value

Under art 1768 of the Civil Code when the depository has permission to make use of the thing
deposited, the contract loses the character of mere deposit and becomes a loan or a
commodatum; and of course by appropriating the thing, the bailee becomes responsible for its
value.

In this connection we wholly reject the defendant's pretense that the palay delivered by the
plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the
liability of the defendant in any wise affected by the circumstance that, by a custom prevailing
among rice millers in this country, persons placing palay with them without special agreement
as to price are at liberty to withdraw it later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.
8. G.R. NO. L-7593

UNITED STATES V. JOSE M. IGPUARA

FACTS:

That the defendant received P2,498 is a fact proven. The defendant drew up a document
declaring that they remained in his possession, which he could not have said had he not
received them. They remained in his possession, surely in no other sense than to take care of
them, for they remained has no other purpose. They remained in the defendant's possession at
the disposal of Veraguth; but on August 23 of the same year Veraguth demanded for him
through a notarial instrument restitution of them, and to date he has not restored them.
The defendant therein is charged with the crime of estafa, for having swindled Juana Montilla
and Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from
the former to be at the latter's disposal. The document setting forth the obligation reads:
We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and
ninety-eight pesos (P2,498), the balance from Juana Montilla's sugar. — Iloilo, June 26, 1911,
— Jose Igpuara, for Ramirez and Co.
The Court of First Instance of Iloilo sentenced the defendant to two years of presidio
correccional, to pay Juana Montilla P2,498 Philippine currency, and in case of insolvency to
subsidiary imprisonment at P2.50 per day, not to exceed one-third of the principal penalty, and
the costs.
The defendant appealed, alleging as errors: (1) Holding that the document executed by him was
a certificate of deposit; (2) holding the existence of a deposit, without precedent transfer or
delivery of the P2,498; and (3) classifying the facts in the case as the crime of estafa.

ISSUE:

May he use the thing deposited?

HELD:

NO. The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an
instrument payable on demand, and as no attempt was made to cash it until August 23, 1911,
he could indorse and negotiate it like any other commercial instrument. There is no doubt that
if Veraguth accepted the receipt for P2,498 it was because at that time he agreed with the
defendant to consider the operation of sale on commission closed, leaving the collection of said
sum until later, which sum remained as a loan payable upon presentation of the receipt."
Then, after averring the true facts: (1) that a sales commission was precedent; (2) that this
commission was settled with a balance of P2,498 in favor of the principal, Juana Montilla; and
(3) that this balance remained in the possession of the defendant, who drew up an instrument
payable on demand, he has drawn two conclusions, both erroneous: One, that the instrument
drawn up in the form of a deposit certificate could be indorsed or negotiated like any other
commercial instrument; and the other, that the sum of P2,498 remained in defendant's
possession as a loan.
It is also erroneous to assert that sum of money set forth in said certificate is, according to it,
in the defendant's possession as a loan. In a loan the lender transmits to the borrower the use
of the thing lent, while in a deposit the use of the thing is not transmitted, but merely
possession for its custody or safe-keeping.
In order that the depositary may use or dispose of the things deposited, the depositor's consent
is required, and then:
The rights and obligations of the depositary and of the depositor shall cease, and the rules and
provisions applicable to commercial loans, commission, or contract which took the place of the
deposit shall be observed. (Art. 309, Code of Commerce.)

The defendant has shown no authorization whatsoever or the consent of the depositary for
using or disposing of the P2,498, which the certificate acknowledges, or any contract entered
into with the depositor to convert the deposit into a loan, commission, or other contract.
That demand was not made for restitution of the sum deposited, which could have been
claimed on the same or the next day after the certificate was signed, does not operate against
the depositor, or signify anything except the intention not to press it. Failure to claim at once
or delay for sometime in demanding restitution of the things deposited, which was immediately
due, does not imply such permission to use the thing deposited as would convert the deposit
into a loan.
9. G.R. NO. 2908 (JANUARY 02, 1907)

ANICETA PALACIO V. DIONISIO SUDARIO

FACTS:

The plaintiff made an arrangement for the pasturing of eighty-one head of cattle, in return for
which she has to give one-half of the calves that might be born and was to pay the defendant
one-half peso for each calf branded. On demand for the whole, forty-eight head of cattle were
afterwards returned to her and this action is brought to recover the remaining thirty-three. It is
claimed that the thirty-three cows either died of disease or were drowned in a flood. The
defendant's witnesses swore that of the cows that perished, six died from overfeeding, and they
failed to make clear the happening of any flood sufficient to destroy the others.

ISSUE:

Whether or not defendant should be held liable for the loss of the 33 cows.

HELD:

If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the
burden of explanation of the loss rested upon the depositary and under article 1769 the fault is
presumed to be his. The defendant has not succeeded in showing that the loss occurred either
without fault on his part or by reason of casofortuito.
If, however, the contract be not one strictly of deposit but one according to a local custom for
the pasturing of cattle, the obligations of the parties remain the same.
The judgment of the lower court holding defendant liable was affirmed.
10. G.R. No. L-43191

PAULINO GULLAS V. PHILIPPINE NATIONAL BANK,

FACTS:

The parties to the case are PaulinoGullas and the Philippine National Bank. The first named is
a member of the Philippine Bar, resident in the City of Cebu. The second named is a banking
corporation with a branch in the same city. Attorney Gullas has had a current account with
the bank.
It appears from the record that on August 2, 1933, the Treasurer of the United States for the
United States Veterans Bureau issued a Warrant in the amount of $361, payable to the order
of Francisco SabectoriaBacos. PaulinoGullas and Pedro Lopez signed as endorsers of this
check. Thereupon it was cashed by the Philippine National Bank. Subsequently the treasury
warrant was dishonored by the Insular Treasurer.
At that time the outstanding balance of Attorney Gullas on the books of the bank was P509.
Against this balance he had issued certain cheeks which could not be paid when the money
was sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila.
The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas
which could not be delivered to him at that time because he was in Manila. In the bank's letter
of August 21, 1933, addressed to Messrs. PaulinoGulla and Pedro Lopez, they were informed
that the United States Treasury warrant No. 20175 in the name of Francisco SabectoriaBacos
for $361 or P722, the payment for which had been received has been returned by our Manila
office with the notation that the payment of his check has been stopped by the Insular
Treasurer. "In view of this therefore we have applied the outstanding balances of your current
accounts with us to the part payment of the foregoing check", namely, Mr. PaulinoGullas P509.
On the return of Attorney Gullas to Cebu on August 31, 1933, notice of dishonor was received
and the unpaid balance of the United States Treasury warrant was immediately paid by him.
As a consequence of these happenings, two occurrences transpired which inconvenienced
Attorney Gullas. In the first place, as above indicated, checks including one for his insurance
were not paid because of the lack of funds standing to his credit in the bank. In the second
place, periodicals in the vicinity gave prominence to the news to the great mortification of
Gullas.
A variety of incidental questions have been suggested on the record which it can be taken for
granted as having been adversely disposed of in this opinion.

ISSUE:

Does the Philippine National Bank have the right to apply a deposit to the debt of depositor to
the bank?

HELD:

Generally YES. However, in this case, NO.

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195
et seq., 1758 et seq. The portions of Philippine law provide that compensation shall take place
when two persons are reciprocally creditor and debtor of each other (Civil Code, article 1195).
In his connection, it has been held that the relation existing between a depositor and a bank is
that of creditor and debtor. (Fulton Iron Works Co. vs. China Banking Corporation [1933], 59
Phil., 59.)
As a general rule, a bank has a right of set off of the deposits in its hands for the payment of
any indebtedness to it on the part of a depositor. In Louisiana, however, a civil law jurisdiction,
the rule is denied, and it is held that a bank has no right, without an order from or special
assent of the depositor to retain out of his deposit an amount sufficient to meet his
indebtedness. The basis of the Louisiana doctrine is the theory of confidential contracts arising
from irregular deposits, e. g., the deposit of money with a banker. With freedom of selection
and after full preference to the minority rule as more in harmony with modern banking practice
Starting, therefore, from the premise that the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The
fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting
for any action by Gullas, the bank made use of the money standing in his account to make
good for the treasury warrant. At this point recall that Gullas was merely an indorser and had
issued in good faith.
11. G.R. No. L-30511

MANUEL M. SERRANO V. CENTRAL BANK OF THE PHILIPPINES

FACTS:

Petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand
Pesos (P150,000.00) with the respondent Overseas Bank of Manila. Concepcion Maneja also
made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila.
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and
conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent
Overseas Bank of Manila.
Notwithstanding series of demands for encashment of the aforementioned time deposits from
the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968,
not a single one of the time deposit certificates was honored by respondent Overseas Bank of
Manila.
In the case of Ramos vs. Central Bank of the Philippines,petitioner Manuel Serrano filed on
September 6, 1968, a motion to intervene on the ground that Serrano had a real and legal
interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case.
This was denied on the ground that his claim as depositor of the Overseas Bank of Manila
should properly be ventilated in the Court of First Instance, and if this Court were to allow
Serrano to intervene as depositor, thousands of other depositors would follow and thus cause
an avalanche of cases in this Court.

ISSUE:

Whether or not plaintiff is entitled to the relief sought.

HELD:

This case isfor the recovery of time deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent Central Bank for its alleged failure to
strictly supervise the acts of the other respondent Bank and protect the interests of its
depositors by virtue of the constructive trust created when respondent Central Bank required
the other respondent to increase its collaterals for its overdrafts said emergency loans, said
collaterals allegedly acquired through the use of depositors money.
Claims of these nature are not proper in actions for mandamus and prohibition as there is no
shown clear abuse of discretion by the Central Bank in its exercise of supervision over the
other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper
party to raise that question, but rather the Overseas Bank of Manila.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn
interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as
loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a
bank because it can use the same. The petitioner here in making time deposits that earn
interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of
he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not
a breach of trust arising from depositary's failure to return the subject matter of the deposit.
Petition is dismissed.
12. GR No. 89252. May 24, 1993

SESBRENO vs CA

FACTS:

Raul Sesbreno made a money market placement in the amount of P300, 000 with the
Philippine Underwriters Finance Corporation (Philfinance), with a term of 32 days. Philfinance
issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation
Promissory Note, the Certificate of Securities Delivery Receipt indicating the sale of the note
with notation that said security was in the custody of Pilipinas Bank, and postdated checks
drawn against the Insular bank of Asia and America for P305, 533.33 payable on March 31,
1981. The checks were dishonored for having been drawn against insufficient funds.
Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno but
Sesbreno learned that the security was issued April 10, 1980, maturing on April 6, 1981, has
the face value of P2, 300, 833.33 with Philfinance as payee and Delta Motors as maker, and
was stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment
and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank.
RTC: Dismissed the complaint
CA: Affirmed

ISSUE:

Whether or not Philfinance remains liable to petitioner under the terms of assignment made by
Philfinance to petitioner.

RULING:

Yes.
Petitioner notified Delta of his rights as assignee after compensation had taken place by
operation of law because the offsetting instruments had both reached maturity. It is firmly
settled doctrine that the rights of an assignee are not only greater than the rights of the
assignor, since the assignee is merely substituted in the place of the assignor and that the
assignee acquires right subject to equities.
The record is bare of any indication that Philfinance had itself notified Delta of
assignment to petitioner, the court is compelled to uphold the defense of compensation raised
by private respondent Delta. Philfinance remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.

Notes:
Money market
- It is a market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other by through a
middle man or dealer in open market – in a money transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer.
13. 58 OG 7693 (1992)

DELOS SANTOS VS. TAN KHEY

FACTS

De los Santos (Plaintiff) lodged in the International Hotel in Iloilo City, which was owned by Tan
Khey (Defendant). When Plaintiff arrived in the hotel, he left shortly thereafter, depositing his
revolver and bag with a certain Abutanatin. The latter was in charge of the hotel. The bag
contained a birthstone ring, an eyeglass, and a pocketbook. He returned that evening and took
his things from Abutanatin. When he got into his room, he locked the door and went to sleep.
The next morning, he woke up and found that the door to his room was open and that his
pants and bag containing the revolver was missing. When he reported the incident to the
authorities, a secret service agent investigated the matter and found that a wall of the room of
the Plaintiff was only 7 feet high and had an opening from which one could enter from the
outside. Tan Khey disclaims liability for the loss, saying that the things were not deposited with
the manager at the time they were lost despite notice to that effect posted in the hotel. He
likewise claims that to be liable under Art. 1998 of the Civil Code, the following must concur.
Deposit of effects made by travelers in hotels or inns Notice was given to the hotel keeper or
employee of the effects brought by guests.That the guests/travelers take the precautions
advised by the hotel keepers/employees relative to the vigilance of their effects

ISSUE

W/N Tan Khey, as owner of the hotel, is liable for the loss despite their being lost not while in
actual custody of an employee of the hotel, having no notice of the effects lost, and for failure of
De los Santos to take the necessary precautions advised by the hotel.

HELD

YES. Under Art. 1998, when the law speaks of “depositing of effects by travelers in hotels or
inns,” it does not mean that there is a personal receipt by the innkeeper of such effects. This is
so because nature of the business of an innkeeper is not only to provide lodgings, but also to
provide security to their persons and effects. Such security is not only confined to those effects
actually delivered to the innkeeper for safekeeping, but also to all effects brought in the hotel.
Also, a hotel has supervision and control of the premises thereof. The guests being strangers to
the place, they must rely on the vigilance and protection of the innkeepers over the effects
placed in the premises of the hotel. Thus, it is not even necessary that the effects be actually
delivered to the innkeeper hold him liable. It is sufficient that such effects are within the inn.
This liability is not discharged even if the effects are in the personal custody of the guest but
still within the inn or hotel. However, since Plaintiff failed to give notice of the contents of the
bag at the time of his check-in, Defendant cannot be held liable on the value of these contents.
Only the value of the bag, revolver, and pants can be recovered since notice thereof was
unnecessary considering that they were in plain view. As to Defendant’s contention that there
was a notice posted in the hotel on how things are to be deposited and therefore the failure of
the Plaintiff to heed such notice bars him from recovery, such contention cannot be
maintained. Though a hotel can impose rules and regulations, such must be just and
reasonable. In this case, it was unreasonable for the Plaintiff to be required to deposit the items
stolen considering that he needs the gun for protection, the pants to have something to wear
and there is no cogent reason for him to deposit his bag. He even locked the door before he
went to sleep which is evidence of due diligence. [Contention on measure of damages omitted.]
14. G.R. No. L-66826

BANK OF THE PHILIPPINE ISLANDS V. INTERMEDIATE APPELLATE COURT

FACTS:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a
peso current account. An application for a dollar drat was accomplished by Virgillo Garcia
branch manager of COMTRUST payable to a certain LeovigildaDizon. In the application, Garcia
indicated that the amount was to be charged to the dollar savings account of the Zshornacks.
There was no indication of the name of the purchaser of the dollar draft. Comtrust issued a
check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account,
he demanded an explanation from the bank. In its answer, Comtrust claimed that the peso
value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy when he
encashed with COMTRUST a cashier’s check for P8450 issued by the manila banking
corporation payable to Ernesto.

ISSUE:

Whether the contract between petitioner and respondent bank is a deposit?

HELD:

The document which embodies the contract states that the US$3,000.00 was received by the
bank for safekeeping. The subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later
time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five
months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which
reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract, there is no deposit but some
other contract.
15. G.R. NO. 126780

YHT REALTY V. CA
FEBRUARY 17, 2005

FACTS:
• Respondent McLoughlin would stay at Tropicana Hotel every time he is here in the
Philippines and would rent a safety deposit box.
• The safety deposit box could only be opened through the use of 2 keys, one of which is
given to the registered guest, and the other remaining in the possession of the management of
the hotel.
• McLoughlin allegedly placed the following in his safety deposit box – 2 envelopes
containing US Dollars, one envelope containing Australian Dollars, Letters, credit cards,
bankbooks and a checkbook.
• When he went abroad, a few dollars were missing and the jewelry he bought was
likewise missing.
• Eventually, he confronted Lainez and Paiyam who admitted that Tan opened the safety
deposit box with the key assigned to him. McLoughlin went up to his room where Tan was
staying and confronted her. Tan admitted that she had stolen McLouglin’s key and was able to
open the safety deposit box with the assistance of Lopez, Paiyam and Lainez. Lopez alsto told
McLoughlin that Tan stole the key assigned to McLouglin while the latter was asleep.
• McLoughlin insisted that it must be the hotel who must assume responsibility for the
loss he suffered.
• Lopez refused to accept responsibility relying on the conditions for renting the safety
deposit box entitled “Undertaking For the Use of Safety Deposit Box”

ISSUE:

Whether the hotel’s Undertaking is valid?

HELD:

NO
• Article 2003 was incorporated in the New Civil Code as an expression of public policy
precisely to apply to situations such as that presented in this case. The hotel business like the
common carrier’s business is imbued with public interest. Catering to the public, hotelkeepers
are bound to provide not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any contrary stipulation in so-called
“undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for
their signature.
• In an early case (De Los Santos v. Tan Khey), CA ruled that to hold hotelkeepers or
innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered
to the innkeepers or their employees. It is enough that such effects are within the hotel or inn.
With greater reason should the liability of the hotelkeeper be enforced when the missing items
are taken without the guest’s knowledge and consent from a safety deposit box provided by the
hotel itself, as in this case.
• Paragraphs (2) and (4) of the “undertaking” manifestly contravene Article 2003, CC for
they allow Tropicana to be released from liability arising from any loss in the contents and/or
use of the safety deposit box for any cause whatsoever. Evidently, the undertaking was
intended to bar any claim against Tropicana for any loss of the contents of the safety deposit
box whether or not negligence was incurred by Tropicana or its employees.