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People v.

Conception
, G.R. No. L-19190, November 29, 1922, 44 Phil 126 - Em
DOCTRINE:

Credit 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.

Loan means the delivery by


one party and the receipt by the other party of a given sum ofmoney,
upon an agreement, express or implied, to repay the sum loaned, with or
withoutinterest.
FACTS:

Herein defendant Venancio Concepcion is the President of PNB. He


executed a specialauthorization of an extension of credit for P300,000
to the Aparri bank manager in favor of a copartnership named Puno y Concepcion of which his wife was a member.

This was a special authorization because by a memo, Concepcion


originally limited thediscretional power of the manager to grant loans
to only P5,000 which could be increased toP10,000.

The only security consisted of 6 demand notes. The co-partnership


itself was capitalized atP100,000. The notes and interest were taken
up and paid.

Concepcion was
then charged with a violation of Sec 35 Act 2747 which states that: the
National Bank shall not directly or indirectly grant loans neither to any
of the members of the
board or directors of the bank nor to agents of the branch banks.

CFI of Cagayan: Venancio Concepcion is guilty of violation of Sec


35 Act 2747
ISSUES:
(1) Whether or not the granting of a credit to the copartnership a loan within the meaning of Sec 35
Act 2747
(2) Whether or not the granting of a credit of P300,000 aloan or a
discount
HELD:
(1) No. It was a credit.
However, the concession of a credit necessarily involves the granting
of loansup to the limit of the amount fixed in the credit.
Credit v. Loan
Credit means his ability to borrow money by virtue of the confi
dence or trust

reposed by a lender that he will pay what he may promise.


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 sumloaned, with or withoutinterest.

HERRERA vs PETROPHIL CORP.


[G.R. No. L-48349, December 29, 1986]
CRUZ, J.
FACTS:

On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil Corp.,) entered into a lease
agreement, whereby the former leased to the latter a portion of his property for a period of 20yrs. subject to the
condition that monthly rentals should be paid and there should be an advance payment of rentals for the first eight
years of the contract, to which ESSO paid on December 31, 1969. However, ESSO deducted the amount of 101, 010.73
as interest or discount for the eight years advance rental.

On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation of the interest and paid
an additional sum of 2,182.70; thus, it was reduced to 98, 828.03.

As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that this had been illegally deducted to
him in violation of the Usury Law.

ESSO argued that amount deducted was not usurious interest but rather a discount given to it for paying the rentals in
advance. Judgment on the pleadings was rendered in favor of ESSO. Thus, the matter was elevated to the SC for only
questions of law was involve.

ISSUE: W/N the contract between the parties is one of loan or lease.
RULING:

Contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT."
Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance
of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was
discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was
getting a rebate or discount.

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did
it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount
which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were
being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the
right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or
forbearance is subject to repayment and is therefore governed by the laws on usury.

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as
money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in
excess of and in addition to interest allowed by law."

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between
the parties that the money lent shall or may be returned; that for such loan a greater rate or interest
that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent
to take more than the legal rate for the use of money loaned. Unless these four things concur in every
transaction, it is safe to affirm that no case of usury can be declared.

BPI Investment Corporation vs. Court of Appeals and ALS Mgt. & Dev.
Corp.G.R. No. 133632
|
Feb. 15, 2002
Facts:
Frank Roa obtained a loan with an interest rate of 16 % per annum from Ayala Investment
and Development
Corporation,p r e d e c e s s o r o f B P I I C . To s e c u r e t h e l o a n , R o a ' s h o u s e a n d l o t
w e r e m o r t g a g e d . L a t e r , R o a s o l d t h e h o u s e a n d l o t t o A L S and Antonio
Litonjua, who assumed Roa's P500,000 debt with Ayala Investment. Ayala Investment, however,
was unwilling to grantALS and Litonjua the same interest rate so they granted a new loan to be
applied to Roa's debt, secured by the same property at adifferent interest rate of 20% per
annum. The amortization for this loan was to begin on May 1, 1981. In Aug. 1982, BPIIC applied
theloan of ALS and Litonjua to the balance of Roas debt, P457,204.90. However it
was only on Sept. 13, 1982 that BPIIC released P7,146.87, the balance of the loan after

applying the proceeds to the full payment of Roas loan.In June 1984, BPIIC instituted the
foreclosure of mortgage alleging that ALS and Litonjua failed to pay their debt from May 1, 1981
upto June 30, 1984.On Feb. 28, 1985, ALS and Litonjua filed a civil case against BPIIC alleging
that they were not in arrears in their payment, but they infact made an overpayment as of June
30, 1984. They contend that they should not be made to pay amortization before the
actualrelease of the P500,000 loan in Aug. and Sept. 1982. And that out of the P500,000 loan,
only the total amount of P464,351.77 wasreleased to them, thus, the balance of P35,648.23
should be applied to the initial monthly amortization for the loan. The trial court rendered a
judgment in favor of ALS and Litonjua holding that the amount of loan granted by BPI to ALS
and Litonjuawas only in the principal sum of P464,351.77 and that suffered
compensable damages when BPI caused their publication in a newspaper of general
circulation as defaulting debtors. This was affirmed by the CA which also ruled that a simple
loan is perfectedupon the delivery of the object of the contract, thus, the loan contract in this
case was perfected only on Sept. 13, 1982.BPIIC claims that a contract of loan is a consensual
contract, and a loan contract is perfected at the time the contract of mortgage isexecuted.
Issue:
WON a contract of loan is a consensual contract?
NO.Held:
A loan contract is not a consensual contract but a real contract. It is perfected only
upon the delivery of the object of thecontract. Although a perfected consensual
contract can give rise to an action for damages, it does not constitute a real
contractwhich requires delivery for perfection. A perfected real contract gives rise only to
obligations on the part of the borrower.In this case, the loan contract was only perfected
on Sept. 13, 1982, which was the second release of the loan. The payment
of amortization should accrue from the time BPIIC released the loan amount to ALS and
Litonjua because it was only at that time (thedelivery of the amount -- the object of the contract)
that the loan contract was perfected.A contract of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of theother. In reciprocal
obligations neither party incurs in delay, if the other does not comply or is not ready to comply in
a proper mannerwith what is incumbent upon him. It is only when a party has performed his part
of the contract can he demand that the other partyalso fulfills his own obligation and if the latter
fails, default sets in. Thus, BPIIC could only demand payment of amortization after Sept. 13,
1982 for it was only then that it complied with its obligationunder the loan contract. Therefore, in
computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure
of the mortgage, the starting date is Oct. 13, 1982 and not May 1, 1981

Central Bank v Court of Appeals G.R. No. L45710 October 3, 1985


MARCH 16, 2014LEAVE A COMMENT

The banks asking for advance interest for the loan is improper considering that
the total loan hasnt been released. A person cant be charged interest for
nonexisting debt. The alleged discovery by the bank of overvaluation of the loan
collateral is not an issue. Since Island Savings Bank failed to furnish the

P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio
M. Tolentino became unenforceable to such extent.
Facts: Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for
the loan, executed on the same day a real estate mortgage over his 100-hectare land
located in Cubo, Las Nieves, Agusan. The loan called for a lump sum of P80,000, repayable
in semi-annual installments for 3 yrs, with 12% annual interest. After the agreement, a mere
P17K partial release of the loan was made by the bank and Tolentino and his wife signed a
promissory note for the P17,000 at 12% annual interest payable w/in 3 yrs. An advance
interest was deducted fr the partial release but this prededucted interest was refunded to
Tolentino after being informed that there was no fund yet for the release of the P63K
balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems,
prohibited the bank fr making new loans and investments. And after the bank failed to
restore its solvency, the Central Bank prohibited Island Savings Bank from doing business in
the Philippines. Island Savings Bank in view of the non-payment of the P17K filed an
application for foreclosure of the real estate mortgage. Tolentino filed petition for specific
performance or rescission and damages with preliminary injunction, alleging that since the
bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the
real estate mortgage.

Issues: 1) Whether or not Tolentinos can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the
promissory note
3) Whether or not the real estate mortgage can be foreclosed
Held:
1) Whether or not Tolentinos can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to
perform, the other party not ready nor willing incurs in delay. When Tolentino executed real
estate mortgage, he signified willingness to pay. That time, the banks obligation to furnish

the P80K loan accrued. Now, the Central Bank resolution made it impossible for the bank to
furnish the P63K balance. The prohibition on the bank to make new loans is irrelevant bec it
did not prohibit the bank fr releasing the balance of loans previously contracted. Insolvency
of debtor is not an excuse for non-fulfillment of obligation but is a breach of contract.
The banks asking for advance interest for the loan is improper considering that the total
loan hasnt been released. A person cant be charged interest for nonexisting debt. The
alleged discovery by the bank of overvaluation of the loan collateral is not an issue. The
bank officials should have been more responsible and the bank bears risk in case the
collateral turned out to be overvalued. Furthermore, this was not raised in the pleadings so
this issue cant be raised. The bank was in default and Tolentino may choose bet specific
performance or rescission w/ damages in either case. But considering that the bank is now
prohibited fr doing business, specific performance cannot be granted. Rescission is the only
remedy left, but the rescission shld only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191
of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note
setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date
for him to perform his reciprocal obligation to pay. Since both parties were in default in the
performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares
is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of
21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.

Credit Transactions Case Digest: Bonnevie V. CA (1983)


G.R. No. L-49101 October 24, 1983
Lessons Applicable: Simple Loan
Laws Applicable:
Facts:

December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of
P75K from Philippine Bank of Commerce (PBC) by mortgaging their property

December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where
P75K is payable to PBC and P25K is payable to Spouses Lanzano.

April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22 to PBC

May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie

June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of sale was
published

January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of
Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well as
the extrajudicial foreclosure made on September 4, 1968.

CFI: Dismissed the complaint with costs against the Bonnevies

CA: Affirmed

ISSUE: W/N the forclosure on the mortgage is validly executed.

HELD: YES. CA affirmed

A contract of loan being a consensual contract is perfected at the same time


the contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its execution.

Respondent Bank had every right to rely on the certificate of title. It was not
bound to go behind the same to look for flaws in the mortgagor's title, the

doctrine of innocent purchaser for value being applicable to an innocent


mortgagee for value.

Thru certificate of sale in favor of appellee was registered on September 2,


1968 and the one year redemption period expired on September 3, 1969. It was
not until September 29, 1969 that Honesto Bonnevie first wrote respondent and
offered to redeem the property.

loan matured on December 26, 1967 so when respondent Bank applied for
foreclosure, the loan was already six months overdue. Payment of interest on
July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso
facto result in the renewal of the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest is necessary but also the
payment of interest for the proposed period of renewal as well. Besides, whether
or not a loan may be renewed does not solely depend on the debtor but more so
on the discretion of the bank.

Credit Transactions Case Digest: Republic V. Bagtas (1962)


G.R. No. L-17474 October 25, 1962
Laws Applicable: Commodatum
Lessons Applicable:
FACTS:

May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding
purposes subject to a breeding fee of 10% of the book value of the bulls

May 7, 1949: Jose requested for a renewal for another year for the three bulls but only
one bull was approved while the others are to be returned

March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value
of the 3 bulls

October 17, 1950: he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General.

October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to
be returned or their book value without deductions should be paid not later than October 31,
1950 which he was not able to do

December 20, 1950: An action at the CFI was commenced against Jose praying that he
be ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid
breeding fee of P199.62, both with interests, and costs

July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered
that because of the bad peace and order situation in Cagayan Valley, particularly in the
barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines, he could not return the animals
nor pay their value and prayed for the dismissal of the complaint.

RTC: granted the action

December 1958: granted an ex-parte motion for the appointment of a special sheriff to
serve the writ outside Manila

December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on
October 23, 1951 and administratrix of his estate, was notified

January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26,
1952 evidenced by recipt and the 3rd bull died from gunshot wound inflicted during a Huk
raid and prayed that the writ of execution be quashed and that a writ of preliminary
injunction be issued.

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be
liable for the loss due to force majeure due to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as
to costs

If contract was commodatum then Bureau of Animal Industry retained


ownership or title to the bull it should suffer its loss due to force majeure. 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 if he keeps it longer than the period
stipulated

the estate of the late defendant is only liable for the sum of P859.63, the
value of the bull which has not been returned because it was killed while in the
custody of the administratrix of his estate

Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the CFI, the money judgment
rendered in favor of the appellee cannot be enforced by means of a writ of
execution but must be presented to the probate court for payment by the
appellant, the administratrix appointed by the court.

MARGARITA QUINTOS AND ANGEL A. ANSALDO VS. BECK


G.R. No. L-46240; November 3, 1939
FACTS:
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del
Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between
the plaintiff and the defendant, the former gratuitously granted to the latter the use of the
furniture, subject to the condition that the defendant would return them to the plaintiff upon the
latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the conveyance, giving him sixty
days to vacate the premises. Thereafter, the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were found on several instances.
The plaintiff refused to get the furniture in view of the fact that the defendant had declined to
make delivery of all of them. On November 15, before vacating the house, the defendant
deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit
in the warehouse in the custody of the said sheriff.
ISSUES:
1. Whether or not the defendant complied with his obligation to return the furniture upon the
plaintiff's demand;
2. Whether or not plaintiff is bound to bear the deposit fees thereof, and whether she is entitled
to the costs of litigation.
RULING:
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herselfthe
ownership thereof; by this contract the defendant bound himself to return the furniture to the
plaintiff, upon the latters demand. The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff
at the latter's residence or house. The defendant did not comply with this obligation when he

merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters
and the four eletric lamps.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the
latter's demand, the Court could not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place
the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas heaters and the four electric
lamps.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (Sec. 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract of commodatum, and without any reason he refused to return and deliver
all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that
he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed

TOLENTINO(plaintiff-apellant) v GONZALES SY CHIAM (defendantappellee)


G.R. No. 26085

August 12, 1927

FACTS:
1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio purchased
Luzon Rice Mills, Inc., parcel of land in Tarlac for P25,000.00 to be paid in
three installments.
a. First installment is P2,000 due on or before May 2, 1921
b. Second installment is P8,000 due on or before May 31, 1921
c. Third installment of P15,000 at 12% interest due on or before Nov 30,
1922
One of the conditions of the contract of purchase was that if Tolentino and
Manio failed to pay the balance of any of the installments on the date agreed
upon, the property bought would revert to the original owner.
The first and second installments were paid but the balance was paid on Dec
1, 1922
2. On Nov 7, 1922, a representative of vendor of said property wrote Manio ,
notifying her that if the balance of said indebtedness was not paid, they
would recover the property with damages for non compliance with the
condition of the contract of purchase.
3. Tolentino and Manio borrowed money from Benito Gonzales Sy Chiam to
satisfy their indebtedness to the vendor.
4. Gonzales agreed to loan the P17,500 upon condition that they execute and
deliver to him a pacto de retro of the property.
5. The contract includes a contract of lease on the property whereby the lessees
as vendors apparently bind themselves to pay rent at the rate of P375 per

month and whereby "Default in the payment of the rent agreed for two
consecutive months will terminate this lease and will forfeit our right of
repurchase, as though the term had expired naturally"
6. Upon maturation of loan, Tolentino defaulted payment and Gonzales
demanded recovery of land.
Tolentinos argument: that the pacto de retro sale is a mortgage and not an absolute
sale and that the rental price paid during the period of the existence of the right
to repurchase, or the sum of P375 per month, based upon the value of the
property, amounted to usury.
ISSUE: WoN the contract in question is a mortgage
HELD: No.
RATIO: The contract is a pacto de retro and not a mortgage. There is not a word, a
phrase, a sentence or a paragraph in the entire record, which justifies this court
in holding that the said contract of pacto de retro is a mortgage and not a sale
with the right to repurchase.
The purpose of the contract is expressed clearly that there can certainly be no
doubt as to the purpose of the Tolentino to sell the property in question, reserving
the right only to repurchase the same:
Second. That is a condition of this sale that if in the course of five (5)
years from the 1st of December, 1922, we return to Don Benito
Gonzales Sy Chiam the above-mentioned price of seventeen thousand
five hundred (P17,500), Mr. Benito Gonzales Sy Chiam is forced to
return the farm; but if it passes the above mentioned term of five (5)
years without exercising to the right of redemption that we have saved
ourselves, then this sale will be absolute and irrevocable.
From the foregoing, we are driven to the following conclusions: First, that the
contract of pacto de retro is an absolute sale of the property with the right to
repurchase and not a mortgage; and, second, that by virtue of the said contract the
vendor became the tenant of the purchaser, under the conditions mentioned in
paragraph 3 of said contact. When the vendor of property under a pacto de retro
rents the property and agrees to pay a rental value for the property during the
period of his right to repurchase, he thereby becomes a "tenant" and in all respects
stands in the same relation with the purchaser as a tenant under any other contract
of lease.
In the present case the property in question was sold. It was an absolute sale with
the right only to repurchase. During the period of redemption the purchaser was the
absolute owner of the property. During the period of redemption the vendor was not
the owner of the property. During the period of redemption the vendor was a tenant
of the purchaser. During the period of redemption the relation which existed
between the vendor and the vendee was that of landlord and tenant. That relation

can only be terminated by a repurchase of the property by the vendor in accordance


with the terms of the said contract. The contract was one of rent. The contract was
not a loan, as that word is used in Act No. 2655.
Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act fixing
rates of interest upon 'loans' and declaring the effect of receiving or taking usurious
rates."
Usury, generally speaking, may be defined as contracting for or receiving something
in excess of the amount allowed by law for the loan or forbearance of moneythe
taking of more interest for the use of money than the law allows.
It will be noted that said statute imposes a penalty upon a "loan" or forbearance of
any money, goods, chattels or credits, etc. The central idea of said statute is to
prohibit a rate of interest on "loans." A contract of "loan," is very different contract
from that of "rent". A "loan," as that term is used in the statute, signifies the giving
of a sum of money, goods or credits to another, with a promise to repay, but not a
promise to return the same thing. To "loan," in general parlance, is to deliver to
another for temporary use, on condition that the thing or its equivalent be returned;
or to deliver for temporary use on condition that an equivalent in kind shall be
returned with a compensation for its use. The word "loan," however, as used in the
statute, has a technical meaning. It never means the return of the same thing. It
means the return of an equivalent only, but never the same thing loaned. A "loan"
has been properly defined as an advance payment of money, goods or credits upon
a contract or stipulation to repay, not to return, the thing loaned at some future day
in accordance with the terms of the contract. Under the contract of "loan," as used
in said statute, the moment the contract is completed the money, goods or chattels
given cease to be the property of the former owner and becomes the property of
the obligor to be used according to his own will, unless the contract itself expressly
provides for a special or specific use of the same. At all events, the money, goods or
chattels, the moment the contract is executed, cease to be the property of the
former owner and becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract of
"rent" the owner of the property does not lose his ownership. He simply loses his
control over the property rented during the period of the contract. In a contract of
"loan" the thing loaned becomes the property of the obligor. In a contract of "rent"
the thing still remains the property of the lessor. He simply loses control of the same
in a limited way during the period of the contract of "rent" or lease. In a contract of
"rent" the relation between the contractors is that of landlord and tenant. In a
contract of "loan" of money, goods, chattels or credits, the relation between the
parties is that of obligor and obligee. "Rent" may be defined as the compensation
either in money, provisions, chattels, or labor, received by the owner of the soil from
the occupant thereof. It is defined as the return or compensation for the possession
of some corporeal inheritance, and is a profit issuing out of lands or tenements, in
return for their use. It is that, which is to paid for the use of land, whether in money,
labor or other thing agreed upon. A contract of "rent" is a contract by which one of
the parties delivers to the other some nonconsumable thing, in order that the latter

may use it during a certain period and return it to the former; whereas a contract of
"loan", as that word is used in the statute, signifies the delivery of money or other
consumable things upon condition of returning an equivalent amount of the same
kind or quantity, in which cases it is called merely a "loan." In the case of a contract
of "rent," under the civil law, it is called a "commodatum."

Republic vs Grijaldo
Facts:
y
Grijaldo obtained five loans from the Bank of Taiwanin the total sum of P1,281.97 with interest at therats of 6%
per annum compounded quarterly. Thesewere evidenced by five promissory notes.
y
These loans were crop loans and was considered tobe due one year after they were incurred.
y
A
s a security for the payment of the loans, a chattelmortgage was executed on the standing crops of hisland.
y
The assets in the Bank of Taiwan were vested in theUS Govt which were subsequently transferred to theRepublic
of the Philippines
y
RP is now demanding the payment of the account.
y
J
ustice of Peace dismisses the case on the ground ofprescription. C
A
rendered a decision ordering theappellant to pay the appellee
D
efendants contentions:
1)
The appellee has no cause of action againstappellant since the transaction was with TaiwanBank.2)

That if the appellee has a cause of action at all, ithad prescribed3)


The lower court erred in ordering the appellant topay P2,377.23
I
ssue:
Can RP still collect from Grijaldo?
Held:
Yes
Ratio:
The obligation of the contract was not to deliver adeterminate thing, it was a generic thing the amount ofmoney
representing the total sum of his loans. Thedestruction of anything of the same kind does not extinguishthe
obligation. The loss of the crops did not extinguish hisobligation to pay because the account could still be paid
fromother sources aside from the mortgaged crops.
A
lso,prescription does not run against the State.

Security Bank and Trust Company v RTC (Credit Transactions)


SECURITY BANK AND TRUST COMPANY v RTC-MAKATI
G.R. No. 113926
October 23, 1996

FACTS:

In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed
interest rate was 23% per annum. The promissory note was freely and voluntarily signed by both
parties. Leia Ventura was the co-maker. Eusebio defaulted from paying. Security Bank sued for
collection.

DECISION OF LOWER COURTS:


* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the interest rate to
12% per annum.
* directly to SC in petition for certiorari.

ISSUES & RULING:

1. Should the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a
contract, far in excess of the ceiling prescribed under or pursuant to the Usury Law, prevail over
Section 2 of Central Bank Circular No. 905 which prescribes that the rate of interest thereof shall
continue to be 12% per annum? or whether or not the 23% rate of interest per annum agreed upon
by petitioner bank and respondents is allowable and not against the Usury Law?

Yes, the rate per contract prevails.

From the examination of the records, it appears that indeed the agreed rate of interest as stipulated
on the three (3) promissory notes is 23% per annum. The applicable provision of law is the Central
Bank Circular No. 905 which took effect on December 22, 1982:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or judicial, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as amended.

Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly
excessive.

Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and
conditions. The promissory notes were signed by both parties voluntarily. Therefore, stipulations
therein are binding between them.

2. Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory
notes and stipulated interest rates of promissory notes and thereby impose a 12% interest on the
loans, in the absence of evidence justifying the imposition of a higher rate?

NO. The rate of interest was agreed upon by the parties freely. Significantly, respondent did not
question that rate. It is not for respondent court a quo to change the stipulations in the contract where
it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy. We find no valid reason
for the respondent court a quo to impose a 12% rate of interest on the principal balance owing to
petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance of money, the
interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per
annum. Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.

APPLICABLE PROVISION OF LAW:

Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2
which state:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or judicial, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as amended.

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of express contract as to such rate of interest, shall continue to
be twelve per cent (12%) per annum.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No.
905. Contrary to the claim of respondent court, this circular did not repeal nor in anyway amend the
Usury Law but simply suspended the latter's effectivity.

BRIONES VS CAMMAYO
GR 23559 October 4, 1971
FACTS:
Aurelio G. Briones filed an action in the Municipal
Court of Manila against Primitivo, Nicasio, Pedro, Hilario
and Artemio, all surnamed Cammayo, to recover from
them, jointly and severally, the amount of P1,500.00, plus
damages, attorney's fees and costs of suit.
Defendants executed the real estate mortgage as
security for the loan of P1,200.00 given to Primitivo P.
Cammayo upon the usurious agreement that defendant
pays to the plaintiff, out of the alleged loan of P1,500.00
(which includes as interest the sum of P300.00) for one
year.
Although the mortgage contract was executed for
securing the payment of P1,500.00 for a period of one
year, without interest, the truth and the real fact is that
plaintiff delivered to the defendant Primitivo P. Cammayo
only the sum of P1,200.00 and withheld the sum of
P300.00 which was intended as advance interest for one
year.
On account of said loan of P1,200.00, defendant
Primitivo P. Cammayo paid to the plaintiff during the
period from October 1955 to July 1956 the total sum of
P330.00 which plaintiff, illegally and unlawfully refused to

acknowledge as part payment of the account but as in


interest of the said loan for an extension of another term of
one year.
ISSUE:
Can Briones recover the amount of P1,500.00?
RULING:
Loan is valid but usurious interest is void. Creditor
has the right to recover his capital by judicial action. To
discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan
becomes one without stipulation as to payment of interest.
It should not, however, be interpreted to mean forfeiture
even of the principal, for this would unjustly enrich the
borrower at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a
further deterrence to usury.
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.
Barrredo, J., concurring
The Usury law is clear that he may recover only all
interests, including of course, the legal part thereof, with
legal interests from the date of judicial demand, without
maintaining that he can also recover the principal he has
already paid to the lender.
Castro Fernando, and Conception, JJ., dissenting
In a contract which is tainted with usury, that is,
with a stipulation (whether written or unwritten) to pay
usurious interest, the prestation to pay such interest is an
integral part of the cause of the contract. It is also the
controlling cause, for a usurer lends his money not just to
have it returned but indeed, to acquire in coordinate gain.
Article l957, which declares the contract itself not
merely the stipulation to pay usurious interest -- void,
necessarily regards the prestation to pay usurious interest
as an integral part of the cause, making it illegal.

Velasquez v. Solidbank
FACTS:

Marlou Velasquez, under the name Wilderness Trading is engaged in the export of
dried sea cucumber to Goldwell Trading, an entity in Pusan, Korea. Their exchange
of transactions is facilitated by a letter of credit opened by Goldwell with the Bank
of Seoul in favour of Wilderness. They have had 3 export deals, however the third
one failed. This is because by wanting to be paid in advance, Velasquez negotiated
a sight draft with Solidbank Corporation to be drawn on the letter of credit and
bound himself through a letter of undertaking to be liable in case the draft is not
accepted. The sight draft is dishonoured by non-acceptance by the Bank of Seoul for
several reasons. Goldwell likewise issued a stop payment order because the
shipment of sea cucumber contained soil. Solidbank demanded payment and
thereafter filed a claim for recovery of sum of money. Velasquez argues that his
liability under the sight draft was extinguished when Solidbank failed to protest its
non-acceptance under NIL 152, it follows then that his liability on the letter of
undertaking should be likewise extinguished being merely a :superfluous contract.
ISSUE: Is Mr. Velasquez liable under the letter of undertaking?
HELD:
RTC yes. His liability remains under the letter of undertaking which he signed and
without which Solidbank would not have advanced or credited to him the amount.
CA yes. He is bound to fulfil his undertaking as the letter is the law between him
and Solidbank, otherwise he will unjustly enriched at the expense of Solidbank.
SC Mr. Velasquez is NOT LIABLE under the SIGHT DRAFT. A sight draft made
payable outside the Philippines is a foreign bill of exchange, and when it is
dishonoured by non-acceptance or non-payment, PROTEST is necessary to hold the
drawer and indorsers liable. Solidbanks failure to protest resulted in the discharge
of Mr. Velasquez from liability under the instrument. However he is still LIABLE under
the LETTER OF UNDERTAKING where his liability is direct and primary, independent
of his liability under the sight draft. And he cannot be deemed merely a guarantor
because he cannot be both the primary debtor and the guarantor of his own debt.
He has to comply with the tenor of his undertaking under such letter.

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