CREDIT TRANSACTION
I. LOAN (Arts 1933-1964)
a) Gen Provisions (Arts. 1933-1934)
TITLE XI
LOAN
General Provisions
Article 1933. By the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower. (1740a)
Article 1934. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon parties, but the
commodatum or simple loan itself shall not be perfected until the delivery
of the object of the contract. (n)
1. LIWANAG VS CA, 281 SCRA 225 (1997) #1
CAMASO
Facts:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to
the house of complainant Isidora Rosales (Rosales) and asked her to join them
in the business of buying and selling cigarettes. Convinced of the feasibility of
the venture, Rosales readily agreed. Under their agreement, Rosales would
give the money needed to buy the cigarettes while Liwanag and Tabligan
would act as her agents, with a corresponding 40% commission to her if the
goods are sold; otherwise the money would be returned to Rosales.
Consequently, Rosales gave several cash advances to Liwanag and Tabligan
amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to
Rosales to report on the progress of the transactions. The visits, however,
suddenly stopped, and all efforts by Rosales to obtain information regarding
their business proved futile.
Alarmed by this development and believing that the amounts she advanced
were being misappropriated, Rosales filed a case of estafa against Liwanag.
The Trial Court rendered Liwanag guilty as charged, which was affirmed with
modification by the CA.
Issue:
WON the transaction entered by Liwanag and Rosales can be considered as
a simple loan only?
Held:
No. In a contract of loan once the money is received by the debtor,
ownership over the same is transferred. Being the owner, the borrower
can dispose of it for whatever purpose he may deem proper. The receipt
made by Liwanag indicates that the money delivered to Liwanag was for a
specific purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be returned to Rosales.
It is evident that Liwanag could not dispose of the money as she pleased
because it was only delivered to her for a single purpose, namely, for the
purchase of cigarettes, and if this was not possible then to return the money
to Rosales. Since in this case there was no transfer of ownership of the money
delivered,
2. HERRERA VS PETROPHIL CORP, GR No.
48349, 29 Dec. 1986 #2 ANTIOJO
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A loan must be in form of money or something circulating
as money. It must be payable absolutely and in all events
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 20 yrs. 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 were involve.
ISSUE: Whether 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 rental, 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.
3. KIM VS PEOPLE, GR No. 84719, 25 Jan. 1991
#3 CASTRO S
Cash advance when not liquidated is considered as loan
FACTS:
Petitioner Kim Yong Chan (Kim) was employed as a researcher in
Aquaculture Department of the Southeast Asian Fisheries Development
Center (SEAFDEC) with head office in Tigbauan, Iloilo. His work, being the
head in his unit, requires him to travel to various selected provinces in the
country. On June 15 1982, Kim was issued Travel Order 2222 which covered
his travels to different places in Luzon from June 16 to July 21. He received
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P6,438 cash advance under such TO. Within the same period, he was issued
another travel order, TO 2268, requiring him to travel from head office to Roxas
City from June 30 to July 4. He received P495 cash advance.
He presented both travel orders for liquidation. When the Travel
Expense Reports were audited, it was discovered that there was an overlap of
4 days (June 30-July 3) in the two travel orders for which Kim collected per
diems twice. The total amount charged and collected by Kim when he did not
actually and physically travel is P1,230. Kim claimed that he made make-up
trips he failed to undertake under TO 2222 because he was recalled to the
head office.
` 2 complaints for Estafa were filed against him. One was dismissed for
failure to prosecute. The other one convicted him. The RTC affirmed the
decision of MTC. CA dismissed Kims appeal for being filed out of time.
ISSUE: Whether Kim is criminally liable for the crime of Estafa
HELD: No.
For him to be convicted, it must be proven that he had the obligation
to deliver or return the same money, good or personal property that he had
received. The Court ruled that Kim has no obligation to return the same money
(cash advance) he received.
Under EO no.10, Cash advances are to be liquidated within 30 days
after projected return of the employee, otherwise there will be a corresponding
salary deduction. Liquidation means settling of indebtedness. An employee
who liquidates cash advance is in fact paying back his debt in the form of a
loan of money advanced to him by his employer, as per diems and allowances.
Similarly, as stated in the assailed decision of the lower court, "if the amount
of the cash advance he received is less than the amount he spent for actual
travel . . . he has the right to demand reimbursement from his employer the
amount he spent coming from his personal funds. In other words, the money
advanced by either party is actually a loan to the other.
Under Art.1953, it is provided that the person who receives a loan
acquires the ownership thereof. Applying the foregoing in the present case,
ownership of the money was transferred to Kim. Hence, he was under no
legal obligation to return the same cash or money.
CREDIT CARD
Credit Cards; Words and Phrases; A credit card is defined as any
card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or
anything of value on credit; It traces its roots to the charge card first
introduced by the Diners Club in New York City in 1950; In the
Philippines, the now defunct Pacific Bank was responsible for bringing
the first credit card into the country in the 1970s.A credit card is
defined as any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or
services or anything of value on credit. It traces its roots to the
charge card first introduced by the Diners Club in New York City in
1950. American Express followed suit by introducing its own charge
card to the American market in 1958. In the Philippines, the now
defunct Pacific Bank was responsible for bringing the first credit card
into the country in the 1970s. However, it was only in the early 2000s
that credit card use gained wide acceptance in the country, as
evidenced by the surge in the number of credit card holders then.
Same; Every credit card transaction involves three contracts the
sales contract, the loan agreement, and the promise to pay.Simply
put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or
the business establishment which accepted the credit card; (b) the
loan agreement between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between the credit card
issuer and the merchant or business establishment. Pantaleon vs.
American Express International, Inc., 629 SCRA 276, G.R. No.
174269<br/> August 25, 2010
Credit Cards; Words and Phrases; A credit card is defined as any
card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or
anything of value on credit; It traces its roots to the charge card first
introduced by the Diners Club in New York City in 1950; In the
Philippines, the now defunct Pacific Bank was responsible for bringing
the first credit card into the country in the 1970s.A credit card is
defined as any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or
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services or anything of value on credit. It traces its roots to the
charge card first introduced by the Diners Club in New York City in
1950. American Express followed suit by introducing its own charge
card to the American market in 1958. In the Philippines, the now
defunct Pacific Bank was responsible for bringing the first credit card
into the country in the 1970s. However, it was only in the early 2000s
that credit card use gained wide acceptance in the country, as
evidenced by the surge in the number of credit card holders then.
Same; Every credit card transaction involves three contracts the
sales contract, the loan agreement, and the promise to pay.Simply
put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or
the business establishment which accepted the credit card; (b) the
loan agreement between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between the credit card
issuer and the merchant or business establishment.
Pantaleon vs American Express International Inc
G.R. No. 174269, May 8 2009 [Credit Transaction]
FACTS:
After the Amsterdam incident that happened involving the delay of American
Express Card to approve his credit card purchases worth US$13,826.00 at the
Coster store, Pantaleon commenced a complaint for moral and exemplary
damages before the RTC against American Express. He said that he and his
family experienced inconvenience and humiliation due to the delays in credit
authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached
its obligations to Pantaleon, as the purchase at Coster deviated from
Pantaleon's established charge purchase pattern.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to
Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are approved within
seconds, there really is no strict, legally determinative point of demarcation
on how long must it take for a credit card company to approve or disapprove a
customers purchase, much less one specifically contracted upon by the
parties. One hour appears to be patently unreasonable length of time to
approve or disapprove a credit card purchase.
The culpable failure of AmEx herein is not the failure to timely approve
petitioners purchase, but the more elemental failure to timely act on the same,
whether favorably or unfavorably. Even assuming that AmExs credit
authorizers did not have sufficient basis on hand to make a judgment, we see
no reason why it could not have promptly informed Pantaleon the reason for
the delay, and duly advised him that resolving the same could take some time.
2. Yes. The reason why Pantaleon is entitled to damages is not simply because
AmEx incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code
for which moral damages are remunerative. The somewhat unusual attending
circumstances to the purchase at Coster that there was a deadline for the
completion of that purchase by petitioner before any delay would redound to
the injury of his several traveling companions gave rise to the moral shock,
mental anguish, serious anxiety, wounded feelings and social humiliation
sustained by Pantaleon, as concluded by the RTC.
*Discounting:
It is a mode of loaning with the agreement that interest is
deducted in advance
b) Commodatum (Arts. 1935-1952)
b.1) Nature of Commodatum (Arts. 1935-1940)
Nature of Commodatum
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Article 1935. The bailee in commodatum acquires the use of the thing
loaned but not its fruits; if any compensation is to be paid by him who
acquires the use, the contract ceases to be a commodatum. (1941a)
Article 1936. Consumable goods may be the subject of commodatum if
the purpose of the contract is not the consumption of the object, as when
it is merely for exhibition. (n)
Article 1937. Movable or immovable property may be the object of
commodatum. (n)
Article 1938. The bailor in commodatum need not be the owner of the
thing loaned. (n)
Article 1939. Commodatum is purely personal in character.
Consequently:
(1) The death of either the bailor or the bailee extinguishes the
contract;
(2) The bailee can neither lend nor lease the object of the
contract to a third person. However, the members of the bailee's
household may make use of the thing loaned, unless there is a
stipulation to the contrary, or unless the nature of the thing forbids
such use. (n)
Article 1940. A stipulation that the bailee may make use of the fruits of
the thing loaned is valid. (n)
4. CATHOLIC VICAR APOSTOLIC OF THE MT.
PROV. VS CA, 165 SCRA 515 (1988) #4
CASTRO J
When petitoner borrowed the house of private respondents
predecessors, and the petitioner was allowed its free use,
private respondents became bailors in commodatum, and
petitioner, the bailee
Facts:
Background: Catholic Vicar filed an application for registration of title
over Lots 1, 2, 3, and 4 which were situated in La Trinidad, Benguet. The said
lots were the sites of the Catholic Church building, convents, high school
building, school gymnasium, and other structures. The Heirs of Juan Valdez
and Egmidio Octaviano opposed the registration of lots 2 and 3 respectively.
After trial the land registration court ruled in favor of Vicar but the CA reversed
the lower courts decision and dismissed Vicars application over lots 2 and 3.
The Supreme Court sustained the ruling of the CA. Thereafter, the Heirs of
Octaviano filed with the CFI a Motion for Execution praying that they be placed
in possession of Lot 3 but the lower court denied the motion on the ground that
the CAs prior decision did not grant the Heirs any affirmative relief. The Heirs
appealed the denial of their motion but the case was also dismissed by the CA.
It was at that stage that the instant cases were filed. The Heirs of
Octaviano filed a case for recovery of possession of Lot 3 and the Heirs of
Valdez likewise filed the same case over Lot 2. At the trial, the Heirs of
Octaviano presented Fructuoso Valdez. The latter testified on the ownership
of the land by their predecessors-in-interest, Egmidio Octaviano. On the other
hand, Vicar presented the Register of Deeds of Benguet, Atty. Nicanor Sison,
who testified that the land is not covered by any title in the name of Egmidio
Octaviano. Vicar claims that they have been in possession of the questioned
lots for 75 years continuously and peacefully and has constructed permanent
structures thereon. Both sets of Heirs now argue that Vicar is barred from
setting up the defense of ownership and/or long and continuous possession of
the two lots in question since this is barred by prior judgment of the CA (the
one stated in the Background case) under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already
been determined by the CA and affirmed by the Supreme Court. After yet
another unfavorable decision, Vicar filed a petition for review before the SC.
Issue: WON Vicar can claim ownership over the land in question?
Ruling: NO. Petitioner questions the ruling of respondent Court of Appeals
when it clearly held that it was in agreement with the findings of the trial court
that the Decision of the Court of Appeals (the one in the background facts) on
the question of ownership of Lots 2 and 3, declared that the said Court of
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Appeals did not positively declare private respondents as owners of the land,
neither was it declared that they were not owners of the land, but it held that
the predecessors of private respondents were possessors of Lots 2 and 3, with
claim of ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive
prescription requires possession for ten years, but always with just title (which
the petitioner does not have). Extraordinary acquisitive prescription requires
30 years (petitioner is in possession for only 11 years). Private respondents
were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for
the return of the house, but when they allowed its free use, they (the Heirs)
became bailors in commodatum and the petitioner the bailee. The bailees'
failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim of petitioner came
only in 1951 when it declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.
5. Obligations of the bailee (Arts. 1941 1945) #5 DEIMRY
Obligations of the Bailee
Article 1941. The bailee is obliged to pay for the ordinary expenses for
the use and preservation of the thing loaned. (1743a)
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(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;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own
thing, he chose to save the latter. (1744a and 1745)
Article 1943. The bailee does not answer for the deterioration of the
thing loaned due only to the use thereof and without his fault. (1746)
Article 1944. The bailee cannot retain the thing loaned on the ground
that the bailor owes him something, even though it may be by reason of
expenses. However, the bailee has a right of retention for damages
mentioned in article 1951. (1747a)
Article 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a)
b.3) OBLIGATIONS OF THE BAILOR (Arts. 1946-1952)
Dinglasan
SECTION 3
Obligations of the Bailor
ARTICLE 1946. The bailor cannot demand the return of the thing loaned
till after the expiration of the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted. However, if in the meantime, he should have urgent need of
the thing, he may demand its return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is
suspended while the thing is in the possession of the bailor. (1749a)
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Article 1947. The bailor may demand the thing at will, and the
contractual relation is called a precarium, in the following cases:
(1) If neither the duration of the contract nor the use to which the
thing loaned should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
(1750a)
Article 1948. The bailor may demand the immediate return of the thing if
the bailee commits any act of ingratitude specified in article 765. (n)
Article 1949. The bailor shall refund the extraordinary expenses during
the contract for the preservation of the thing loaned, provided the bailee
brings the same to the knowledge of the bailor before incurring them,
except when they are so urgent that the reply to the notification cannot be
awaited without danger.
If the extraordinary expenses arise on the occasion of the actual use of
the thing by the bailee, even though he acted without fault, they shall be
borne equally by both the bailor and the bailee, unless there is a
stipulation to the contrary. (1751a)
Article 1950. If, for the purpose of making use of the thing, the bailee
incurs expenses other than those referred to in articles 1941 and 1949,
he is not entitled to reimbursement. (n)
Article 1951. The bailor who, knowing the flaws of the thing loaned, does
not advise the bailee of the same, shall be liable to the latter for the
damages which he may suffer by reason thereof. (1752)
Article 1952. The bailor cannot exempt himself from the payment of
expenses or damages by abandoning the thing to the bailee. (n)
1. The primary obligation of the bailor is to allow the bailee the use of
the thing loaned for the duration of the period stipulated or until the
accomplishment of the purpose for which the commodatum was constituted
a. However, the lender may demand its return or temporary use if he
has the urgent need of the thing or if the borrower commits an act
of ingratitude
2. PRECARIUM:
1. If neither the duration of the contract nor the use to which the thing
loaned should be devoted has been stipulated; or
2. If the use of the thing is merely tolerated by the owner
a kind of commodatum where the bailor may demand the thing at will. In this
kind of commodatum, the lender may demand at will the return of thing
under the following circumstances:
a. If neither the duration of the contract nor the use to which the thing
loaned should be devoted, has been stipulated; or
b. If the use of the thing is merely tolerated by the owner.
c. the law recognizes the urgency as well as it is gratuitous.
d. Take note that in precarium, there is no stipulated period or the use is
merely tolerated
3. He may demand the immediate return of the thing if the bailee
commits any act of ingratitude
a. If the bailee should commit some offenses against the person, honor or
the property of the bailor, or
of his wife, and children under his parental authority
b. If the bailee imputes to the bailor any criminal offense or any act
involving moral turpitude, even
though he should prove it, unless the crime or act has been committed
against himself, his wife and
children under his authority
c. If the bailee unduly refuses the bailor support when the bailee is legally
or morally bound to give support
4. He has the obligation to refund extraordinary expenses for the preservation
of the thing loanedit is him who profits from the said expenses anyway.
a. As a rule, notice is required because it is possible that the bailor may
not want to incur the
extraordinary expenses at all
b. An exception of course is where there is urgency that the reply to the
notification cannot be awaited without danger
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c. you have to determine if its ordinary or extraordinary
d. why would you advance for the extraordinary expenses when
you can return the
thing and make the lender pay for the expenses?
5. Regarding, extraordinary expenses arising from the actual use of the thing,
the division of liability between the bailor and bailee is 50-50. This is the default
rule but the parties may stipulate for a different apportionment.
6. For expenses other than ordinary expenses and expenses for the
preservation and use of the thing, the bailor is not liable for the same.
7. He is liable to the bailee for damages in case he has knowledge of
flaws of the thing loaned, and he didn't advise the bailee of the same
a. There is flaw or defect in the thing loaned
b. The flaw or defect is hidden
c. The bailor is aware thereof
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of the said flaw or defect
8. He cannot excuse himself from liability for any expense or damages by
abandoning the thing to the bailee
C. Simple Loan or Mutuum ( Arts. 1953-1961)
CHAPTER 2
Simple Loan or Mutuum
Article 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality. (1753a)
Article 1954. A contract whereby one person transfers the ownership of
non-fungible things to another with the obligation on the part of the latter
to give things of the same kind, quantity, and quality shall be considered
a barter. (n)
Article 1955. The obligation of a person who borrows money shall be
governed by the provisions of articles 1249 and 1250 of this Code.
If what was loaned is a fungible thing other than money, the debtor owes
another thing of the same kind, quantity and quality, even if it should
change in value. In case it is impossible to deliver the same kind, its
value at the time of the perfection of the loan shall be paid. (1754a)
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing. (1755a)
Article 1957. Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall be void.
The borrower may recover in accordance with the laws on usury. (n)
Article 1958. In the determination of the interest, if it is payable in kind,
its value shall be appraised at the current price of the products or goods
at the time and place of payment. (n)
Article 1959. Without prejudice to the provisions of article 2212, interest
due and unpaid shall not earn interest. However, the contracting parties
may by stipulation capitalize the interest due and unpaid, which as added
principal, shall earn new interest. (n)
Article 1960. If the borrower pays interest when there has been no
stipulation therefor, the provisions of this Code concerning solutio
indebiti, or natural obligations, shall be applied, as the case may be. (n)
Article 1961. Usurious contracts shall be governed by the Usury Law and
other special laws, so far as they are not inconsistent with this Code. (n)
7. LAO VS CA, 275 SCRA 237 (1997)
GALICINAO
Necessitous men are nit, truly speaking, free men; but to
answer a present emergency, will submit to terms that the
crafty may impose upon them.
Where the borrowers urgent need for money places the
latter at a disadvantage vis-a-vis the mender who can thus
dictate the terms of their contract, the Court, in case of an
ambiguity, deems the contact to be the one which involves
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the lesser transmission of rights and interest over the
property in controversy
Facts:
Private respondent Better Homes Realty and Housing Corp. filed a
complaint for unlawful detainer with the Metc on the ground that petitioner Lao
occupied its property without rent, but on its pure liberality with the
understanding that he would vacate the property upon demand. However,
despite demand to vacate, Lao refused to vacate the premises.
Lao claimed that he is the true owner of the property; that the private
respondent purchased the same from N. Domingo Realty and Development
Corporation, but the agreement was actually a loan secured by mortgage; and
that plaintiff's cause of action is for accion publiciana, outside the jurisdiction
of an inferior court.
MeTC ruled in favor of private respondent, but RTC reversed its
decision, saying that the real transaction over the subject property was not a
sale but a loan secured by a mortgage thereon. On appeal, the CA reversed
the decision of the RTC.
Issue:
1. Whether or not Better Homes Realty and Housing Corp had acquired
ownership over the property in question.
2. Whether or not petitioner should be ejected from the premises in
question
Held
1. No. the agreement between the private respondent and N. Domingo
Realty & Housing Corporation is one of equitable mortgage. First, possession
of the property in the controversy remained with Petitioner Manuel Lao who
was the beneficial owner of the property, before, during and after the alleged
sale. It is settled that a "pacto de retro sale should be treated as a mortgage
where the (property) sold never left the possession of the vendors." Second,
the option given to Manuel Lao to purchase the property in controversy had
been extended twice through documents executed by the President and
Chairman of the Board of Better Homes Realty & Housing Corporation. Third,
unquestionably, Manuel Lao and his brother were in such "dire need of money"
that they mortgaged their townhouse units registered under the name of N.
Domingo Realty Corporation, the family corporation put up by their parents, to
Private Respondent Better Homes Realty & Housing Corporation. Since the
borrower's urgent need for money places the latter at a disadvantage vis-a-vis
the lender who can thus dictate the terms of their contract, the Court, in case
of an ambiguity, deems the contract to be one which involves the lesser
transmission of rights and interest over the property in controversy.
2. No. There was no sale of the disputed property. Hence, it still belongs
to petitioner's family corporation, N. Domingo Realty & Development
Corporation. Private respondent, being a mere mortgagee, has no right to eject
petitioner.
8. CLARAVALL VS CA, 190 SCRA 439 (1990)
MOGELLO
A contract of loan with mortgage made to appear in
paper as an absolute sale with a companion an
option to buy is null and void even if no usury is
involved
FACTS: Appellant Loreto Claravall and Victoria H. Claravall obtained
loans from the Development Bank of the Philippines (DBP) in the amount of
P52,000.00 for the construction of a commercial building on their property
situated in the Municipality of Ilagan, Isabela. To secure the loan, a mortgage
was executed upon said property in favor of the DBP. Claravall was unable to
pay the amortization over said loan and the DBP threatened to foreclose the
mortgage.
However, Claravall was able to pay DBP by executing a deed of sale
over the property in question with a 5-year option to repurchase the same with
a certain Juan Ang-angan.
Claravall exercised the said right to repurchase the property from Ang-
angan by obtaining a loan from spouses Francisco and Carolina Ramirez in
the amount of P75,000.00. A deed of sale dated December 29, 1965 was
executed over the same property by the Claravalls in favor of Ramirez.
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Another instrument was entered into by Claravall and Ramirez which
granted Claravall an option to repurchase the property in question within a
period of two (2) years from December 29, 1965 but not earlier nor later than
the month of December, 1967, for the sum of P10,000.00 payable at the time
of repurchase.
At the expiration of the 2-year period, appellant Claravall failed to
redeem the property in question and because of this they brought suit against
Francisco and Carolina Ramirez to compel the latter to sell the property in
question back to them (Claravall).
The lower court rendered judgment in favor of defendants, the
Ramirez spouses, (private respondents herein) which was affirmed in toto by
respondent court.
ISSUE: WON the contract of loan with mortgage made to appear in paper as
absolute sale is null and void.
HELD: Yes. A contract of loan with mortgage made to appear in paper as an
absolute sale with a companion option to buy is null and void even if no usury
is involved.
Under Article 1604 a contract purporting to be an absolute sale shall
be presumed to be an equitable mortgage, should any of the conditions in
Article 1602 be present. Otherwise stated, the presence of only one
circumstance defined in Article 1602 is sufficient for a contract of sale with right
to repurchase to be presumed an equitable mortgage.
ART. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
ART. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.
Under Article 1604 a contract purporting to be an absolute sale shall
be presumed to be an equitable mortgage, should any of the conditions in
Article 1602 be present. Otherwise stated, the presence of only one
circumstance defined in Article 1602 is sufficient for a contract of sale with right
to repurchase to be presumed an equitable mortgage.
9. JAVIER VS DE GUZMAN, 192 SCRA 434 (1990)
PALILEO
The Usury Law is legally inexistent pursuant to CB Circular
No. 905, and the interest now legally chargeable depends
upon the agreement of the lender and borrower.
FACTS:
On 7 December 1987, Efren Javier, and his mother, Lolita Javier,
borrowed P200,000.00 from Respondent Judge with interest orally agreed
upon at ten per cent (10%) monthly, They tendered to the latter UCPB Check
No. BNE 012872, dated 7 January 1988, in the amount of P220,000.00. The
drawer of the check was actually Donato Belen, a brother-in-law of Efren, as
the Javiers had no personal checking account. The following day, Respondent
required them to sign a Memorandum of Agreement, which they did. Two of
the conditions imposed were interest at the rate of twenty per cent (20%) per
month, compounded monthly, and should they fail to pay the loan and its
interest upon maturity on 7 January 1988 and the check is deposited and
dishonored, an appropriate charge for violation of Batas Pambansa Blg. 22
may be filed at Respondent's option. When the Javiers defaulted on due date
because of business reverses, partial payments in the total amount of
P177,000.00 were made to Respondent between 6 January 1988 and 16 June
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1988. Meanwhile, the check, which was deposited by Respondent on 14 April
1988, was dishonored by the drawee bank.
On 8 September 1988, Respondent instituted suit for a "Sum of Money
and Damages with Prayer for the Issuance of a Writ of Preliminary Attachment"
in the Regional Trial Court of Makati, Metro Manila, against the spouses Pedro
and Lolita Javier, and their son, Efren, for the recovery of the "sum of
P220,000.00 with 20% interest/penalty a month compounded monthly from
January 7, 1988 until fully paid," computed at P622,871.67. Judgment on the
pleadings was rendered on 3 February 1989 ordering the Javiers to pay
Respondent Judge the "sum of P608,871.67 with 20% interest/penalty a
month compounded monthly beginning September 8, 1988 until fully paid" and
the "sum equal to 10% of the amounts due and recoverable as reimbursement
of attorney's fees and litigation expenses". In the meantime, an Order granting
execution pending appeal was issued by the Trial Court on 14 April 1989. The
Javiers appealed to the Court of Appeals where the case still pends. Still later,
Respondent filed in Manila two (2) criminal complaints, the first, for violation of
B.P. Blg. 22 against Efren, who, however, was acquitted, and the second, for
Estafa against Complainants and Lolita Javier, which complaint was
dismissed.
On 21 March 1989, Respondent further filed an administrative charge
against Complainant father, Pedro, with the Bureau of Internal Revenue where
the latter was employed. Earlier, an administrative charge against Pedro had
also been filed with the Civil Service Commission on 3 March 1989 accusing
Pedro in both instances, of having committed estafa against him and his wife,
of dishonesty and of conduct unbecoming of a government official. Feeling
harassed, Complainants filed this administrative charge against Respondent
Judge on four counts of "dishonorable conduct,
ISSUE: WON the respondent judge can be held liable for the usurious interest.
HELD:
No. As to the usurious rate of interest, while that issue was considered
by Justice de la Fuente as irrelevant since the Usury Law is now legally
inexistent pursuant to Central Bank Circular No. 905 and the interest now
legally chargeable depends upon the agreement of lender and borrower (Liam
Law v. Olympic Sawmill Co., G.R. No. L-30771, May 28, 1984, 129 SCRA
439), she found that the interest charged on the loan was exorbitant. While he
had every right to protect his investment, and while the contract of loan entered
into between him and the Javiers was legal per se, Respondent rendered it
unconscionable by imposing a penalty of twenty per cent (20%) interest per
month compounded monthly. Respondent was equivocal as to the repayments
that were made to him by the Javiers. In his Verified Complaint before the Trial
Court, he averred failure to repay. However, in the computation attached to his
Motion for Judgment on the Pleadings, he made mention of "alleged payments
being accepted by (him) at face value" and included them in the determination
of the balance due.
Respondent also brought suit to collect the staggering sum of
P622,871.67 despite payments by the debtors of approximately P177,000.00
of the original P200,000.00 loan. Although not illegal under the terms of the
Memorandum of Agreement, as in fact, the Trial Court had ruled in
Respondent's favor, it does not necessarily follow that it was moral and fair.
Respondent is not a hard-boiled and callous businessman. He is a Judge.
Finding Respondent Judge, Salvador P. de Guzman, Jr. guilty on
three (3) counts, of irresponsible, improper and dishonorable conduct in
disregard of the Code of Judicial Ethics, he is severely censured, with a stern
warning that a repetition of the said acts or similar acts in the future shall
receive graver sanctions.
10. ALMEDA VS CA, 256 SCRA 292
PAVICO
While the Usury ceiling interest rates was lifted by CB
Circular No. 905, nothing in the said circular could possibly read
as granting carte blanche authority to lenders to raise interest
rates to levels which would either enslave their borrowers or lead
to hemorrhaging of their assets.
Where the escalation clause of the credit agreement in the
instant case required the same be made within the limits
allowed by laws it is obviously referred to specifically to
legislative enactments not administrative circulars.
Facts:
In 1981, PNB granted herein petitioner several loan/credit
accommodations totaling P18.0 Million pesos payable in a period of six years
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at an interest rate of 21% per annum. To secure the loan, the spouses Almeda
executed a Real Estate Mortgage Contract covering a 3,500 square meter
parcel of land, together with the building erected thereon (the Marvin Plaza)
located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying
the terms and conditions of the loan was executed between the parties.
The agreement contains
xxx xxx xxx
The Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may adopt in
the future; provided, that the interest rate on this/these accommodations shall
be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
Between 1981 and 1984, petitioners made several partial payments
on the loan totaling. P7,735,004.66, 2 a substantial portion of which was
applied to accrued interest. Said interest rate thereupon increased from an
initial 21% to a high of 68% between March of 1984 to September, 1986.
Before the loan matures, petitioner filed a complaint in the lower court for
declaratory relief and with prayer for a writ of preliminary injunction and
temporary restraining order. The lower court issued the writ of preliminary
injunction which was appealed in the CA which rendered the assailed
Decision. Hence this petition.
Issue: Whether or not PNB could unilaterally raise interest rates on the loan,
pursuant to the credit agreement's escalation clause, and in relation to Central
Bank Circular No. 905.
Ruling: No, PNB cannot.
Moreover, respondent bank's reliance on C.B. Circular No. 905, Series
of 1982 did not authorize the bank, or any lending institution for that matter, to
progressively increase interest rates on borrowings to an extent which would
have made it virtually impossible for debtors to comply with their own
obligations. True, escalation clauses in credit agreements are perfectly valid
and do not contravene public policy. Such clauses, however, (as are
stipulations in other contracts) are nonetheless still subject to laws and
provisions governing agreements between parties, which agreements while
they may be the law between the contracting parties implicitly incorporate
provisions of existing law. Consequently, while the Usury Law ceiling on
interest rates was lifted by C.B. Circular 905, nothing in the said circular could
possibly be read as granting respondent bank carte blanche authority to raise
interest rates to levels which would either enslave its borrowers or lead to a
hemorrhaging of their assets. Borrowing represents a transfusion of capital
from lending institutions to industries and businesses in order to stimulate
growth. This would not, obviously, be the effect of PNB's unilateral and
lopsided policy regarding the interest rates of petitioners' borrowings in the
instant case.
Loan is a Real Contract
11. GARCIA VS THIO, 518 SCRA 433 (2007)
RIEGO
A loan is a real contract, not consensual, and as asuch is
perfected upon delivery of the object of the contract.
FACTS:
Two crossed check payable to certain Mariou Santiago were given to
the respondent by the petitioner the first check covers one-hundred thousand
US dollar and the second check covers five-hundred thousand pesos.
Petitioner alleged that on February 24, 1995, respondent borrowed
from her the amount of US$100,000 with interest thereon at the rate of 3% per
month, which loan would mature on October 26, 1995. The amount of this loan
was covered by the first check. On June 29, 1995, respondent again borrowed
the amount of P500,000 at an agreed monthly interest of 4%, the maturity date
of which was on November 5, 1995. The amount of this loan was covered by
the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time. Respondent paid the
stipulated monthly interest for both loans but on their maturity dates, she failed
to pay the principal amounts despite repeated demands.
Respondent denied that she contracted the two loans with petitioner
and countered that it was Marilou Santiago to whom petitioner lent the money.
She claimed she was merely asked by petitioner to give the crossed checks to
Santiago. She issued the checks not as payment of interest but to
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accommodate petitioners request that respondent use her own checks instead
of Santiagos.
The lower court decided in favor of the petitioner stating that there is
a contract of load between the two but the appellate court reversed the
decision finding that there is nothing in the record that shows that respondent
received money from petitioner.
ISSUE: Whether or not there is a contract of loan between the petitioner and
the respondent.
HELD:
Yes, there is a contract of loan between the petitioner and the
respondent. A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract. This is evident in Art. 1934
of the Civil Code which provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
Upon delivery of the object of the contract of loan (in this
case the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or loan
proceeds and is bound to pay the creditor an equal amount.
In the case at bar, it is undisputed that the checks were delivered to
respondent. The decision of the Court of Appeals was reversed and set-aside.
NOTE: The held is supposedly short, but for further clarification, I included the
reasons why did the Court believe that there is contract between the
respondent and petitioner.
This is supported by the following reasons:
1. First, respondent admitted that petitioner did not personally know
Santiago. 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 considering that the amounts involved
were quite big. Respondent, on the other hand, already had transactions with
Santiago at that time.
2. Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties list of witnesses) testified that
respondents plan was for petitioner to lend her money at a monthly interest
rate of 3%, after which respondent would lend the same amount to Santiago
at a higher rate of 5% and realize a profit of 2%.33 This explained why
respondent instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz testimony should not be
believed.
3. Third, for the US$100,000 loan, respondent admitted issuing her own
checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight
months to cover the monthly interest. For the P500,000 loan, she also issued
her own checks in the amount of P20,000 each for four months.34 According
to respondent, she merely accommodated petitioners request for her to issue
her own checks to cover the interest payments since petitioner was not
personally acquainted with Santiago.35 She claimed, however, that Santiago
would replace the checks with cash.36 Her explanation is simply incredible. It
is difficult to believe that respondent would put herself in a position where she
would be compelled to pay interest, from her own funds, for loans she allegedly
did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not
only proceed from the mouth of a credible witness, but must be
credible in itself such as the common experience of mankind can
approve as probable under the circumstances. We have no test
of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant
to these belongs to the miraculous, and is outside of juridical
cognizance.
4. Fourth, in the petition for insolvency sworn to and filed by Santiago, it
was respondent, not petitioner, who was listed as one of her (Santiagos)
creditors.
5. Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story. The presumption is that "evidence willfully
suppressed would be adverse if produced." Respondent was not able to
overturn this presumption.
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Payment of Loan
11.A) Cinco vs. C.A., G.R. No. 151903
A loan is paid by the delivery of the sum of money due
(Art. 1233 of the Civil Code).
Article 1233. A debt shall not be understood to have been paid
unless the thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be. (1157).
If the creditor unjustly refuses to accept the tender of
payment, the loan wil still be considered paid if the debtor makes
a consignation or deposits the thing due or place it at the diaposal
of judicial authorities for the creditor to collect. There must
therefore be tender of payment and consignation (Art. 1256, Civil
Code)
Tender of Payment and Consignation
Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear
at the place of payment;
(2) When he is incapacitated to receive the payment at the time it
is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from
respondent Maasin Traders Lending Corporation (MTLC). The loan was
evidenced by the promissory note, and secured by a real
estate mortgage over the spouses Cincos land and 4-storey building.To pay
the loan in favor of MTLC, the spouses Cinco applied for a loan with the
Philippine National Bank(PNB), and offered the same properties they
previously mortgage to MTLC. The PNB approved the loadapplication for 1.3
Million; the release was, however, conditioned on the cancellation of the
mortgage infavor of MTLC. Manuel went to Ester Servacio (Ester), MTLCs
President to inform her that there was money with PNB forPayment of his loan.
Manuel executed a Special Power of Attorney (SPA) authorizing Ester to
collect theproceeds of the loan. Ester went to the PNB to inquire, the second
time around, about the proceeds. Thebank officer confirmed the existence of
such loan, but they required Ester to first sign a deed ofrelease/cancellation of
the mortgage before they could release the proceeds of the loan to her.
Outraged,Ester refused the deed and did not collect the 1.3 Million.Ester
instituted foreclosure proceeding. To prevent the foreclosure, the spouses
Cinco filed an action forspecific performance, damages, and preliminary
injunction.Issue: Whether the loan due the MTLC had been extinguished by
the act of the spouses Cinco amountedto payment.Held: No, While Esters
refusal was unjustified and unreasonable, we cannot agree with Manuels
positionthat this refusal had the effect of payment that extinguished his
obligation to MTLC. Article 1256 is clearand unequivocal on this point when it
provides that ARTICLE 1256. If the creditor to whom tender of payment has
been made refuses without justcause to accept it, the debtor shall be released
from responsibility by the consignation of thething or sum due.In short, a
refusal without just cause is not equivalent to payment; to have the effect of
payment and theconsequent extinguishment of the obligation to pay, the law
requires the companion acts of tender ofpayment and consignation.Tender of
payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,
is the definitiveact of offering the creditor what is due him or her, together with
the demand that the creditor accept thesame. When a creditor refuses the
debtors tender of payment, the law allows the consignation of thething or the
sum due. Tender and consignation have the effect of payment, as by
consignation, the thingdue is deposited and placed at the disposal of the
judicial authorities for the creditor to collect.Nonetheless, the SPA stood as an
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authority to collect the proceeds of the already-approved PNB loanthat, upon
receipt by Ester, would have constituted as payment of the MTLC loan. The
Court agrees withManuel that Esters refusal of the payment was without
basis.Under these circumstances, we hold that while no completed tender of
payment and consignation tookplace sufficient to constitute payment, the
spouses Go Cinco duly established that they have legitimatelysecured a
means of paying off their loan with MTLC; they were only prevented from doing
so by theunjust refusal of Ester to accept the proceeds of the PNB loan through
her refusal to execute the releaseof the mortgage on the properties mortgaged
to MTLC. We also find that under the circumstances, thespouses Go Cinco
have undertaken, at the very least, the equivalent of a tender of payment that
cannotbut have legal effect. Since payment was available and was unjustifiably
refused, justice and equitydemand that the spouses Go Cinco be freed from
the obligation to pay interest on the outstanding
In determining actual damages, the Court cannot rely on speculation,
conjecture or guesswork as to the amount. Actual and compensatory
damages are those recoverable because of pecuniary loss in business,
trade, property, profession, job or occupation and the same must be
sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated, no
damages will be given. [Emphasis supplied.]
12. RA 8183 (11 July 1996 TITO
Republic Act No. 8183 June 11, 1996
Repealing RA 529
All money obligations shall be settled in the Phil.
Currency which is legal tender of the Phil. However, the
parties may agree that the obligation or transaction shall be
settled in any other currency at the time of the payment
"AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN AND
CURRENCY."
Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled::
Section 1. All monetary obligations shall be settled in the Philippine currency
which is legal tender in the Philippines. However, the parties may agree that
the obligation or transaction shall be settled in any other currency at the time
of payment.
Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as
amended entitled "An Act to Assume the Uniform Value of Philippine Coin and
Currency," is hereby repealed.
Sec. 3. This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in two (2) national newspapers of general circulation. The
Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an
intensive information campaign on the effect of this Act.
Approved: June 11, 1996
13. CF SHARP & CO. VS NORTHWEST AIRLINES, GR
NO. 133498, 18 APRIL 2002 - CAMASO
Facts:
On May 9, 1974, respondent, through its Japan Branch, entered into an
International Passenger Sales Agency Agreement with petitioner, authorizing
the latter to sell its air transport tickets. Petitioner failed to remit the proceeds
of the ticket sales, for which reason, respondent filed a collection suit against
petitioner before the Tokyo District Court which rendered judgment on January
29, 1981, ordering petitioner to pay respondent the amount of "83,158,195 Yen
and damages for the delay at the rate of 6% per annum from August 28, 1980
up to and until payment is completed." Unable to execute the decision in
Japan, respondent filed a case to enforce said foreign judgment with the
Regional Trial Court (RTC) of Manila, Branch 54. However, the case was
dismissed on the ground of failure of the Japanese Court to acquire jurisdiction
over the person of the petitioner. Respondent appealed to the Court of
Appeals, which affirmed the decision of the RTC.
Thereafter, the RTC issued a writ of execution for foreign courts decision. The
petitioner filed for certiorari, asserting it has already made partial payments.
The CA lowered the amount to be paid and included in its decision that the
amount may be paid in local currency at rate prevailing at time of payment.
The Supreme Court partly affirmed the decision. The RTC issued a writ of
execution of decision ruling that Sharp is to pay Northwest the sum of
83,158,195 yen at the exchange rate prevailing on the date of the foreign
Page 15 of 50
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judgment plus 6% per annum until fully paid, 6% damages and 6% interest.
On appeal, the Court of Appeals reduced the interest and it ruled that the basis
of the conversion of Petitioners liability in its peso equivalent should be the
prevailing rate at the time of payment and not the rate on the date of the foreign
judgment
Issue:
WON the conversion of CF Sharps liability in its peso equivalent basing on the
prevailing rate at the time of the establishment of the obligation is correct?
Held:
No. Petitioners contention that it is Article 1250 of the Civil Code that should
be applied is untenable. The rule that the value of the currency at the time of
the establishment of the obligation shall be the basis of payment finds
application only when there is an official pronouncement or declaration of the
existence of an extraordinary inflation or deflation.
The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing
the prohibition on the stipulation of currency other than Philippine
currency, such that obligations or transactions may now be paid in the
currency agreed upon by the parties. Just like R.A. No. 529, however, the
new law does not provide for the applicable rate of exchange for the
conversion of foreign currency-incurred obligations in their peso
equivalent. It follows, therefore, that the jurisprudence established in
R.A. No. 529 regarding the rate of conversion remains applicable. Thus,
in Asia World Recruitment, Inc. v. National Labor Relations
Commission,13 the Court, applying R.A. No. 8183, sustained the ruling
of the NLRC that obligations in foreign currency may be discharged in
Philippine currency based on the prevailing rate at the time of payment.
The wisdom on which the jurisprudence interpreting R.A. No. 529 is
based equally holds true with R.A. No. 8183. Verily, it is just and fair to
preserve the real value of the foreign exchange- incurred obligation to
the date of its payment.
Petition is denied.
Claim and Debt
14. PREMIER DEVELOPMENT BANK VS
FLORES, 574 SCRA 66, 16 DEC 2008 -
ANTIOJO
FACTS:
The undisputed facts show that on or about October 1994, Panacor Marketing
Corporation (Panacor for brevity), a newly-formed corporation, acquired an
exclusive distributorship of products manufactured by Colgate Palmolive
Philippines, Inc. (Colgate for short). To meet the capital requirements of the
exclusive distributorship, which required an initial inventory level of P7.5
million, Panacor applied for a loan of P4.1 million with Premiere Development
Bank. After an extensive study of Panacors creditworthiness, Premiere Bank
rejected the loan application and suggested that its affiliate company, Arizona
Transport Corporation (Arizona for short), should instead apply for the loan on
condition that the proceeds thereof shall be made available to Panacor.
Eventually, Panacor was granted a P4.1 million credit line as evidenced by a
Credit Line Agreement. As suggested, Arizona, which was an existing loan
client, applied for and was granted a loan of P6.1 million, P3.4 million of which
would be used to pay-off its existing loan accounts and the remaining P2.7
million as credit line of Panacor. As security for the P6.1 million loan, Arizona,
represented by its Chief Executive Officer Pedro Panaligan and spouses
Pedro and Marietta Panaligan in their personal capacities, executed a Real
Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per
Entry No. 49507 dated October 2, 1995.
Since the P2.7 million released by Premiere Bank fell short of the P4.1 million
credit line which was previously approved, Panacor negotiated for a take-out
loan with IBA-Finance Corporation (hereinafter referred to as IBA-Finance) in
the sum of P10 million, P7.5 million of which will be released outright in order
to take-out the loan from Premiere Bank and the balance of P2.5 million (to
complete the needed capital ofP4.1 million with Colgate) to be released after
the cancellation by Premiere of the collateral mortgage on the property
covered by TCT No. T-3475. Pursuant to the said take-out agreement, IBA-
Finance was authorized to pay Premiere Bank the prior existing loan
obligations of Arizona in an amount not to exceed P6 million.
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano,
officer-in-charge of Premiere Banks San Juan Branch, informing her of the
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approved loan in favor of Panacor and Arizona, and requesting for the release
of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of
conformity thereto and sent the original copy to Premiere Banks legal office.
xxx
On October 12, 1995, Premiere Bank sent a letter-reply to [IBA]-Finance,
informing the latter of its refusal to turn over the requested documents on the
ground that Arizona had existing unpaid loan obligations and that it was the
banks policy to require full payment of all outstanding loan obligations prior to
the release of mortgage documents. Thereafter, Premiere Bank issued to IBA-
Finance a Final Statement of Account showing Arizonas total loan
indebtedness. On October 19, 1995, Panacor and Arizona executed in favor
of IBA-Finance a promissory note in the amount of P7.5 million. Thereafter,
IBA-Finance paid to Premiere Bank the amount of P6,235,754.79,
representing the full outstanding loan account of Arizona. Despite such
payment, Premiere Bank still refused to release the requested mortgage
documents specifically, the owners duplicate copy of TCT No. T-3475.
On November 2, 1995, Panacor requested IBA-Finance for the immediate
approval and release of the remaining P2.5 million loan to meet the required
monthly purchases from Colgate. IBA-Finance explained however, that the
processing of the P2.5 million loan application was conditioned, among others,
on the submission of the owners duplicate copy of TCT No. 3475 and the
cancellation by Premiere Bank of Arizonas mortgage. Occasioned by
Premiere Banks adamant refusal to release the mortgage cancellation
document, Panacor failed to generate the required capital to meet its
distribution and sales targets. On December 7, 1995, Colgate informed
Panacor of its decision to terminate their distribution agreement.
On March 13, 1996, Panacor and Arizona filed a complaint for specific
performance and damages against Premiere Bank before the Regional Trial
Court of Pasig City, docketed as Civil Case No. 65577.
On June 11, 1996, IBA-Finance filed a complaint-in-intervention praying that
judgment be rendered ordering Premiere Bank to pay damages in its favor.
On May 26, 1998, the trial court rendered a decision in favor of Panacor and
IBA-Finance, the decretal portion of which reads: x x x
Premiere Bank appealed to the Court of Appeals contending that the trial court
erred in finding, inter alia, that it had maliciously downgraded the credit-line of
Panacor from P4.1 million to P2.7 million.
In the meantime, a compromise agreement was entered into between IBA-
Finance and Premiere Bank whereby the latter agreed to return without
interest the amount of P6,235,754.79 which IBA-Finance earlier remitted to
Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the
compromise agreement was approved.
On June 18, 2003, a decision was rendered by the Court of Appeals which
affirmed with modification the decision of the trial court, the dispositive portion
of which reads:7 x x x
ISSUE: Whether PDB has a claim or a debt to the other corporations?
RULING:
A distinction must be made between a debt and a mere claim. A
debt is an amount actually ascertained. It is a claim which has been
formally passed upon by the courts or quasi-judicial bodies to which it
can in law be submitted and has been declared to be a debt. A claim, on
the other hand, is a debt in embryo. It is mere evidence of a debt and
must pass thru the process prescribed by law before it develops into
what is properly called a debt. Absent, however, any such categorical
admission by an obligor or final adjudication, no legal compensation or
off-set can take place. Unless admitted by a debtor himself, the
conclusion that he is in truth indebted to another cannot be definitely
and finally pronounced, no matter how convinced he may be from the
examination of the pertinent records of the validity of that conclusion the
indebtedness must be one that is admitted by the alleged debtor or
pronounced by final judgment of a competent court. At best, what
Premiere Development Bank has against respondent corporations is just
a claim, not a debt. At worst, it is a speculative claim.
Default on Demand
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15. Maybank Philippines Inc. (formerly PNB-
Republic Bank) vs. Tarrosa - CASTRO S
FACTS:
Sps. Tarrosa obtained from petitioner-bank Maybank a loan in the
amount of P91,000 secured by a Real Estate Mortgage (parcel of land in San
Carlos City, Negros Occidental). After paying the said loan, Sps. Tarrosa
obtained a second loan in the amount of P60,000 payable on March 11, 1984.
The spouses failed to pay upon maturity. The spouses received their final
demand letter sometime in April 1998. They offered to pay a lesser amount,
which Maybank refused. Thereafter, Maybank commenced extrajudicial
foreclosure. The subject property was eventually sold to Philmay Property Inc.
after a public auction sale proceeding.
The spouses filed a complaint for declaration of nullity and invalidity of
the foreclosure and of the public auction sale proceedings. They averred,
among others, that Maybanks right to foreclosure had prescribed or is barred
by laches. The RTC ruled that Maybanks right to foreclosure, reckoned from
the time the mortgage indebtedness became due and demandable on March
11, 1984, had already prescribed. It ruled in favor of the spouses. The CA
affirmed the RTC ruling that the prescriptive period should be reckoned from
March 11, 1984.
ISSUE: Whether CA erred in finding that Maybanks right to foreclose over the
subject property was barred by prescription.
HELD: No.
An action to enforce a right arising from a mortgage should be
enforced within 10 years from the time the right of action accrues when the
mortgagor defaults in payment of his obligation to the mortgagee. Mere
delinquency in payment does not necessarily mean delay in legal concept.
In order that the debtor may be in default, it is necessary that: (a)
the obligation be demandable and already liquidated; (b) the debtor
delays performance; and (c) the creditor requires the performance
judicially or extrajudicially, unless demand is not necessary - i.e., when
there is an express stipulation to that effect; where the law so provides;
when the period is the controlling motive or the principal inducement for
the creation of the obligation; and where demand would be useless.
In the present case, both the CA and the RTC reckoned the accrual of
Maybank's cause of action to foreclose the real estate mortgage over the
subject property from the maturity of the second loan on May 11, 1984. The
CA reckoned the accrual after construing the par.5 of the REM.
In no way did the mentioned paragraph affect the general parameters
of default, particularly the need of prior demand under Article 1169 of the Civil
Code, considering that it did not expressly declare: (a) that demand shall not
be necessary in order that the mortgagor may be in default; or (b) that default
shall commence upon mere failure to pay on the maturity date of the loan.
Hence, the CA erred in construing the above provision as one through which
the parties had dispensed with demand as a condition sine qua non for the
accrual of Maybank's right to foreclose the real estate mortgage over the
subject property, and thereby, mistakenly reckoned such right from the
maturity date of the loan on March 11, 1984.
On Interest Rates
16. Pan Pacific Service Contractors Inc., vs.
Equitable PCI Bank CASTRO
No interest shall be due unless it has been expressly
stipulated in writing.
Facts:
Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in
contracting mechanical works on air conditioning system. They entered into a
contract with the respondent for P20M. Pan Pacific and respondent also
agreed on nine change orders for P2,622,610.30. They also agreed that Pan
Pacific shall be entitled to a price adjustment in case of increase in labor costs
and prices of materials. Pursuant to the contract, Pan Pacific commenced the
mechanical works in the project site, the PCIB Tower II extension building. The
project was completed and accepted by the respondent in 1992. However, in
1990 labor costs and prices of materials escalated. So in 1991, in accordance
with the escalation clause, Pan Pacific claimed a price adjustment of P5.1M.
In response, the respondent bank appointed TCGI Engineers to assess if the
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said claim was correct. The latter recommended to respondent that the price
adjustment should be pegged at P3.7M only. Pan Pacific contended that with
this recommendation, respondent was already estopped from disclaiming
liability of at least P3.7M in accordance with the escalation clause. Due to the
extraordinary increases in the costs of labor and materials, Pan Pacifics
operational capital was becoming inadequate. However, respondent withheld
the payment of the price adjustment under the escalation clause despite Pan
Pacifics repeated demands. To add insult, the respondent bank instead
offered a loan to the petitioner to enable them to have something to work with.
Out of desperation, and the promise that the price adjustments would be
released soon, the petitioner accepted the loan and they were required to issue
a promissory note. Not a single centavo was received by the petitioner, all of
the amount of the loan was given to the employees for their salary. Petitioners
repeated demands were just ignored. Meanwhile, the loan matured and the
respondent is now the one demanding payment with interest. Petitioner
refused to pay the loan contending that it would not have accepted the loan if
only the respondent released the money that was rightfully theirs. They also
contend that the promissory note they issued did not contain their true
intentions. They maintained that the loan should be considered as an
advanced payment for the balance of the respondent and hence, the
promissory is void for lack of consideration. The petitioner filed a complaint
and judgment was rendered in their favor. As a result the respondent was
ordered to pay the unpaid balance with 12% per annum interest. The
petitioners partially appealed the decision with respect to the interest.
Petitioners claimed that the interest rate applicable should be the 18% bank
lending rate because that is what they have agreed upon in the contract.
Issue: WON erred in fixing in fixing the interest rate at 12% instead of the
18% bank lending rate.
Ruling:
YES. It is settled that the agreement or the contract 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. Thus, when the terms of an
agreement have been reduced to writing, it is considered as containing all the
terms agreed upon and there can be, between the parties and their successors
in interest, no evidence of such terms other than the contents of the written
agreement. When the terms of a contract are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of its stipulations
governs. In these cases, courts have no authority to alter a contract by
construction or to make a new contract for the parties. The Courts duty is
confined to the interpretation of the contract which the parties have made for
themselves without regard to its wisdom or folly as the court cannot supply
material stipulations or read into the contract words which it does not contain.
It is only when the contract is vague and ambiguous that courts are permitted
to resort to construction of its terms and determine the intention of the parties.
The written agreement entered into between petitioners and respondent
provides for an interest at the current bank lending rate in case of delay in
payment and the promissory note charged an interest of 18%. To prove
petitioners entitlement to the 18% bank lending rate of interest, petitioners
presented the promissory note prepared by respondent bank itself. This
promissory note, although declared void by the lower courts because it did not
express the real intention of the parties, is substantial proof that the bank
lending rate at the time of default was 18% per annum. Absent any evidence
of fraud, undue influence or any vice of consent exercised by petitioners
against the respondent, the interest rate agreed upon is binding on them.
17.A) CARLOS LIM, et. al. v. DEVELOPMENT BANK
OF THE PHILIPPINES, G.R. No. 177050, July 1, 2013
The payment of interest and penalty in loans is allowed
only if the parties agreed to it and reduced their agreement
in writing
Civil law; Notice of extrajudicial foreclosure. [U]nless the parties stipulate,
personal notice to the mortgagor in extrajudicial foreclosure proceedings is
not necessary because Section 3 of Act 3135 only requires the posting of the
notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.
In this case, the parties stipulated in paragraph 11 of the Mortgage that:
All correspondence relative to this mortgage, including demand letters,
summons, subpoenas, or notification of any judicial or extra-judicial action
shall be sent to the Mortgagor at xxx or at the address that may hereafter be
given in writing by the Mortgagor or the Mortgagee;
However, no notice of the extrajudicial foreclosure was sent by DBP to
petitioners about the foreclosure sale scheduled on July 11, 1994. The letters
dated January 28, 1994 and March 11, 1994 advising petitioners to
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immediately pay their obligation to avoid the impending foreclosure of their
mortgaged properties are not the notices required in paragraph 11 of the
Mortgage. The failure of DBP to comply with their contractual agreement with
petitioners, i.e., to send notice, is a breach sufficient to invalidate the
foreclosure sale.
17. Pua vs. Lo Bun Tioing- DINGLASAN
Article 1956 (Article 1956. No interest shall be due unless it has
been expressly stipulated in writing. (1755a)). Which refers to the
monetary interest specifically mandates that no interest
shall be due unless it has been expressly stipulated.
FACTS:
Ting Ting Pua extended a loan to respondent spouses Benito Lo Bun
Tiong and Caroline Siok Chung Teng , vouched by her sister, Lilian in 1988,
with a total amount of P 1,795,000 covered by 176 check with an oral
agreement that the same shall incur 2% compounding interest every month..
The checksissued by the spouses were subsequently dishonored by the
drawee bank upon presentment. On demand, the spouses pleaded for more
time because of their financial difficulties. Pua obliged and simply reminded
the respondents of their indebtedness from time to time.
Several years later, in 1996, when their financial situation turned
better, respondents called the petitioner for the computation of their loan
obligation. Hence, petitioner handed them a computation dated Oct 2, 1996
which showed that at the agreed 2% compounding interest per month, the
amount payable to the petitioner rose to P13,218,544,20. The respondents
asked Pua to reduce the amount to P 8,250,000.00. Wanted to get paid ,
petitioner agreed to the lowered amount.
Respondents then delivcered to Pua a check bearing the reduced
amount. In turn, respondents demanded for the return of the 17 previously
dishonored checks. Pua however, said that she will do so only after the
encashment of their payment.
Like the 17 checks. the check payment was dishonored, Hence, Pua
filed a complaint to collect the money owed by respondents.
On defense, Caroline denied having owed Pua as well as issuing the
checks. The husband, Benito contends that he and Caroline had been
separated and did not know anything about the loan.
After trial, the RTC issued its Decision dated January 31, 2006 in favor
of petitioner. In holding thus, the RTC stated that the possession by petitioner
of the checks signed by Caroline, under the Negotiable Instruments Law,
raises the presumption that they were issued and delivered for a valuable
consideration. On the other hand, the court a quo discounted the testimony for
the defense completely denying respondents loan obligation to Pua.
The trial court, however, refused to order respondents to pay petitioner
the amount of PhP 8,500,000 considering that the agreement to pay interest
on the loan was not expressly stipulated in writing by the parties. The RTC,
instead, ordered respondents to pay the principal amount of the loan as
represented by the 17 checks plus legal interest from the date of demand. As
rectified,36 the dispositive portion of RTCs Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are
hereby ordered jointly and solidarily:
1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from
September 30, 1998, until fully paid;
2. To pay plaintiff attorneys fees of P200,000.00; and
3. To pay the costs of the suit.
On motion for reconsideration, the appellate court set aside the RTC
Decision holding that Asiatrust Bank Check No. BND057550 was an
incomplete delivered instrument and that petitioner has failed to prove the
existence of respondents indebtedness to her. Hence, the CA added,
petitioner does not have a cause of action against respondents.
ISSUE: WON the 12% compounding interest on the loan may be collected by
the plaintiff.
HELD: NO, respondents cannot be obliged to pay the interest of the loan on
the ground that the supposed agreement to pay such interest was not reduced
to writing. Article 1956 of the Civil Code, which refers to monetary interest,
specifically mandates that no interest shall be due unless it has been expressly
stipulated inwriting.68 Thus, the collection of interest in loans or forbearance
of money is allowed only when these two conditions concur: (1) there was an
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express stipulation for the payment of interest; (2) the agreement for the
payment of the interest was reduced in writing.69 Absent any of these two
conditions, the money debtor cannot be made liable for interest. Thus,
petitioner is entitled only to the principal amount of the loan plus the allowable
legal interest from the time of the demand,70 at the rate of 6% per annum.
The BSP may prescribe rates
Section 109 of RA No. 265 covered only loans extended by banks, whereas
under section 1_A of the Usury Law, as amended, the Bangko Sentral
Monetary Board (BSP-MB) may prescribe the maximum rate or rates of
interest for loans or renewals thereof or the forbearance of any money,
goods or credits, including those for loans of low priority such as consumer
loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions
Advocates for Truth in Lending Inc. vs. Bangko Sentral
Monetary Board #18 DINGLASAN no available resource material
for the digest
Facts
"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock
corporation organized to engage in pro bono concerns and activities relating
to money lending issues. It was incorporated on July 9, 2010,and a month
later, it filed this petition, joined by its founder and president, Eduardo B.
Olaguer, suing as a taxpayer and a citizen.
HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST RATES
1. R.A. No. 265, which created the Central Bank on June 15, 1948,
empowered the CB-MB toset the maximum interest rates which banks may
charge for all types of loans and other credit operations.
2. The Usury Law was amended by P.D.1684, giving the CB-MB authority
to prescribe different maximum rates of interest which may be imposed for
a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in
advance. Section 1-a of Act No. 2655 now reads:
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued
CB Circular No. 905, Series of 1982, effective on January 1, 1983. It removed
the ceilings on interest rates on loans or forbearance of any money, goods
or credits:
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 juridical, shall not be subject
to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
4. R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46
and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
other law, special charters, rule or regulation issued pursuant to said Republic
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.
Note: R.A. 7653 the law that created BSP to replace CB Note: this law did
not retain the same provision as that of Section 109 in RA 265.
PETITIONERS ARGUMENTS
To justify their skipping the hierarchy of courts petitioners contend
the transcendental importance of their Petition:
a) CB-MB statutory or constitutional authority to prescribe the maximum
rates of interest for all kinds of credit transactions and forbearance of money,
goods or credit beyond the limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB
Circular No. 905, which removed all interest ceilings and thus suspended Act
No. 2655 as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to
enforce CB Circular No. 905.
Petitioners contend that under Section 1-a of Act No. 2655, as
amended by P.D. No. 1684, the CB-MB was authorized only to prescribe or
set the maximum rates of interest for a loan or renewal thereof or for the
forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the
changes to be effected gradually and on scheduled dates; that nothing in P.D.
No. 1684 authorized the CB-MB to lift or suspend the limits of interest on
all credit transactions, when it issued CB Circular No. 905. They further insist
that under Section 109 of R.A. No. 265, the authority of the CB-MB was
clearly only to fix the banks maximum rates of interest, but always within
the limits prescribed by the Usury Law.
CB Circular No. 905, which was promulgated without the benefit of any
prior public hearing, is void because it violated NCC 5 which provides that
"Acts executed against the provisions of mandatory or prohibitory laws shall
be void, except when the law itself authorizes their validity."
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weeks after the issuance of CB Circular No. 905, the benchmark 91-
day Treasury bills shot up to 40% PA, as a result. The banks followed suit and
re-priced their loans to rates which were even higher than those of the "Jobo"
bills.
CB Circular No. 905 is also unconstitutional in light of the Bill of Rights,
which commands that "no person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the equal protection
of the laws."
R.A. No. 7653 did not re-enact a provision similar to Section 109 of RA
265, and therefore, in view of the repealing clause in Section 135 of R.A. No.
7653, the BSP-MB has been stripped of the power either to prescribe the
maximum rates of interest which banks may charge for different kinds of
loans and credit transactions, or to suspend Act No. 2655 and continue
enforcing
CB Circular No. 905.
Ruling
CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury
Law but simply suspended its effectivity; that a Circular cannot repeal a low;
that by virtue of CB the Usury Law has been rendered ineffective; that the
Usury has been legally non-existent in our jurisdiction and interest can now be
charged as lender and borrow may agree upon.
Circular upheld the parties freedom of contract to agree freely on the rate of
interest citing Art. 1306 under which the 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.
BSP-MB has authority to enforce CB Circular No. 905.
RA 265 covered only banks while Section 1-a of the Usury Law, empowers the
Monetary Board, BSP for that matter, to prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the forbearance of any money,
good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the later
merely supplemented the former as it provided regulation for loans by banks
and other financial institutions. RA 7653 was not unequivocally repealed by
RA 765.
CB Circular 905 is essentially based on Section 1-a of the Usury Law and the
Usury Law being broader in scope than the law that created the Central Bank
was not deemed repealed when the law replacing CB with the Bangko Sentral
was enacted despite the non-reenactment in the BSP Law of a provision in the
CB Law which the petitioners purports to be the basis of Circular 905. Magulo
ba? Hahaha. Basta the present set up is: The power of the BSP Monetary
Board to determine interest rates emanates from the Usury Law [which was
further specified by Circular 905].
Granting that the CB had power to "suspend" the Usury Law, the new BSP-
MB did not retain this power of its predecessor, in view of Section 135 of R.A.
No. 7653, which expressly repealed R.A. No. 265. The petitioners point out
that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A.
No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as
amended, the BSP-MB may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No.
265, now R.A. No. 7653, merely supplemented it as it concerns loans by
banks and other financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
terms.
Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full
knowledge of all laws existing pertaining to the subject.An implied repeal
is predicated upon the condition that a substantial conflict or repugnancy is
found between the new and prior laws. Thus, in the absence of an express
repeal, a subsequent law cannot be construed as repealing a prior law unless
an irreconcilable inconsistency and repugnancy exists in the terms of the new
and old laws. We find no such conflict between the provisions of Act 2655 and
R.A. No. 7653.
#generalia specialibus non derogant
The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.
In Castro v. Tan, the Court held that the imposition of unconscionable interest
is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property repulsive to the common sense of man.
They are struck down for being contrary to morals, if not against the law,
therefore deemed inexistent and void ab initio. However this nullity does not
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affect the lenders right to recover the principal of the loan nor affect the other
terms thereof.
PROCEDURAL MATTERS
The Petition is procedurally infirm.
The CB-MB was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions. It
does not perform judicial or quasi-judicial functions. Certainly, the issuance of
CB Circular No. 905 was done in the exercise of an executive function.
Certiorari will not lie in the instant case.
Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that "every action must be prosecuted or defended in the
name of the real party in interest," who is "the party who stands to be benefited
or injured by the judgment in the suit or the party entitled to the avails of the
suit." Succinctly put, a partys standing is based on his own right to the relief
sought.
Even in public interest cases such as this petition, the Court has generally
adopted the "direct injury" test that the person who impugns the validity of a
statute must have "a personal and substantial interest in the case such
that he has sustained, or will sustain direct injury as a result." while
petitioners assert a public right it is nonetheless required of them to make out
a sufficient interest in the vindication of the public order and the securing of
relief.
Petitioners also do not claim that public funds were being misused in the
enforcement of CB Circular No. 905 which would have made the action a public
one, "and justify relaxation of the requirement that an action must be
prosecuted in the name of the real party-in-interest."
The Petition raises no issues of transcendental importance.
In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the
requirements before taxpayers, voters, concerned citizens, and legislators can
be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds
or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are
of transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
In CREBA v. ERC, guidelines as determinants on whether a matter is of
transcendental importance, namely:
1. the character of the funds or other assets involved in the case;
2. the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the
government; and
3. the lack of any other party with a more direct and specific interest in the
questions being raised.
Legal Interest: BSP Circular No. 799 effective July
2013
The rate of interest for loan or forbearance of any money,
goods or credits and the rate allowed in judgements, in the
absence of an express contract as to such rate of interest: shall
be 6% per annum.
19. Andal vs. PNB - GALICINAO
Pursuant to circular 799, series of 2013, issued by the office if the
Governor of the Bnagko Sentral ng Pilipinas on 21 June 2013, and in
accordance with the ruling of the SC in the recent case of Dario Nacar
v. Gallery Frames, 703 scra 439 (2013), effective July 1, 2013, the rate
for the loan or forbearance of the money, goods or credits and the rate
allowed in judgments in the absence of an express contract as to such
interest, shall be fix 6% per annum.
Facts:
Petitioners-spouses obtained a loan from, for which they executed
(12) promissory notes undertaking to pay the bank the principal loan with
varying interest rates per interest period. It was agreed upon by the parties that
the rate of interest may be increased or decreased for the subsequent interest
periods, with prior notice to petitioners-spouses. To secure payment for the
loan, petitioners-spouses executed in favor of the bank a real estate mortgage
using as collateral 5 parcels of land including all improvements therein.
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When the bank advised petitioners-spouses to pay their loan
obligation, the latter complied to avoid foreclosure of the properties subject of
the real estate mortgage. However, despite payment PNB proceeded to
foreclose the real estate mortgage so petitioners-spouses filed a case with the
RTC
Petitioners-spouses alleged that the exorbitant rate of interest
unilaterally determined and imposed by PNB prevented them from paying their
obligation. They also alleged that they signed the promissory notes in blank,
relying on the representation of PNB that they were merely proforma bank
requirements. PNB contended that the penalty charges imposed on the loan
was expressly stipulated under the credit agreements and in the promissory
notes.
RTC rendered judgment in favor of petitioners-spouses. The CA
affirmed the decision, but it also denied petitioners-spouses contention that
no interest is due on their principal loan obligation from the time of foreclosure
until finality of the judgment annulling the foreclosure sale.
Issue: Whether no interest is due on the petitioners-spouses loan obligation
Held:
No. That the rate of interest was subsequently declared illegal and
unconscionable does not entitle petitioners-spouses to stop payment of
interest.1wphi1 It should be emphasized that only the rate of interest was
declared void. The stipulation requiring petitioners-spouses to pay interest on
their loan remains valid and binding. They are, therefore, liable to pay interest
from the time they defaulted in payment until their loan is fully paid.
Forbearance of Money
20. Land Bank of the Philippines vs. Ong
MOGELLO
Forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring
borrower or debtor to repay the loan or debt when due anf for
which 12% per annum is imposed as interest in the absence of a
stipulated.
FACTS: On March 18, 1996, spouses Johnson and Evangeline Sy
secured a loan from Land Bank Legazpi City in the amount of PhP 16 million.
The loan was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be
short-term and would mature on February 28, 1997, while the balance of PhP
10 million would be payable in seven (7) years. The Notice of Loan Approval
dated February 22, 1996 contained an acceleration clause wherein any default
in payment of amortizations or other charges would accelerate the maturity of
the loan.1
Subsequently, however, the Spouses Sy found they could no longer
pay their loan. On December 9, 1996, they sold three (3) of their mortgaged
parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother,
under a Deed of Sale with Assumption of Mortgage.
That as soon as our obligation has been duly settled, the bank is
authorized to release the mortgage in favor of the vendees and for this purpose
VENDEES can register this instrument with the Register of Deeds for the
issuance of the titles already in their names.
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to
inform it about the sale and assumption of mortgage.3 Atty. Edna Hingco, the
Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo
de Lumen that there was nothing wrong with the agreement with the Spouses
Sy but provided them with requirements for the assumption of mortgage. They
were also told that Alfredo should pay part of the principal which was computed
at PhP 750,000 and to update due or accrued interests on the promissory
notes so that Atty. Hingco could easily approve the assumption of mortgage.
Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave
it to Atty. Hingco. A receipt was issued for his payment. He also submitted the
other documents required by Land Bank, such as financial statements for 1994
and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the
Spouses Sy would be transferred in his name but this never materialized. No
notice of transfer was sent to him.
Alfredo later found out that his application for assumption of mortgage
was not approved by Land Bank. The bank learned from its credit investigation
report that the Ongs had a real estate mortgage in the amount of PhP
18,300,000 with another bank that was past due. Alfredo claimed that this was
Page 24 of 50
CREDIT TRANSACTION
fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the
Spouses Sy after several months. Alfredo only learned of the foreclosure when
he saw the subject mortgage properties included in a Notice of Foreclosure of
Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other
counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was
told that the PhP 750,000 he paid would be returned to him.
ISSUE: WON Alfredos conditional payment constitutes forbearance of
money.
HELD: No. Forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring the borrower or
debtor to repay the loan or debt then due and for which 12% per annum is
imposed as interest in the absence of a stipulated rate.
In the instant case, Alfredos conditional payment to Land Bank does
not constitute forbearance of money, since there was no agreement or
obligation for Alfredo to pay Land Bank the amount of PhP 750,000, and the
obligation of Land Bank to return what Alfredo has conditionally paid is still in
dispute and has not yet been determined. Thus, it cannot be said that Land
Banks alleged obligation has become a forbearance of money.
21. Estores vs. Supangan - PALILEO (No Case)
ESTORES V. SPOUSES SUPANGAN, (2012)
(Compensatory, Penalty or Indemnity Interest)
*Forbearance of money
ISSUE: Whether it is proper to impose interest for an obligation that does not
involve a loan or forbearance of money 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 P3.5 million
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 until now. Thus, she is already in default of her obligation from the date of
demand.
Forbearance is defined as a contractual obligation of lender or creditor to refrain
during a given period of time, from requiring the borrower or debtor to repay a loan or
debt then due and payable. This definition describes a loan where a debtor is given
a period within which to pay a loan or debt. In such case, forbearance of money,
goods or credits will have no distinct definition from a loan. We believe however,
that the phrase forbearance of money, goods or credits is meant to have a
separate meaning from a loan, otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer to arrangements
other than loan agreements, where a person acquiesces to the temporary use of his
money, goods or credits pending happening of certain events or fulfillment of certain
conditions.
In this case, the respondent-spouses parted with their money even before the
conditions were fulfilled. They have therefore allowed or granted forbearance to the
seller (petitioner) to use their money pending fulfillment of the conditions. They were
deprived of the use of their money for the period pending fulfillment of the conditions
and when those conditions were breached, they are entitled not only to the return of
the principal amount paid, but also to compensation for the use of their money. And
the compensation for the use of their money, absent any stipulation, should be the
same rate of legal interest applicable to a loan since the use or deprivation of funds is
similar to a loan.
5. Reduction of Unconscionable Interest Rates
22. Phil. Export and Foreign Loan Guarantee
Corp. vs. Amalgamated Management and
Devt. Corp - PAVICO
In contracts, the law empowers the courts to reduce
interest rates and penalty charges that are iniquitos,
unconscionable and exorbitant
Facts:
The petitioner, is a government-owned and controlled-corporation
created by virtue of Presidential Decree No. 1080, as amended by Republic
Act No. 8497. Its primary purpose is to guarantee the foreign loans, in whole
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or in part, granted to any domestic entity, enterprise, or corporation, majority
of the capital of which is owned by Filipino citizens.
Respondent Amalgamated Management and Development
Corporation (AMDC), a domestic corporation, had as its main business the
hauling of different commodities within the Middle East countries. Its co-
respondents Felimon R. Cuevas (Cuevas) and Jose A. Saddul, Jr. (Saddul)
were, respectively, its President and Vice-President.
AMDC obtained from the National Commercial Bank of Saudi Arabia
(NCBSA) a loan amounting to SR3.3 million (equivalent to P9,000,000.00). As
the security for the guaranty, Amalgamated Motors Philippines Incorporated
(AMPI), a sister company of AMDC, acted as an accommodation mortgagor,
and executed in favor of the petitioner a real estate mortgage over two parcels
of land located in Dasmarias. AMDC also executed in favor of the petitioner a
deed of undertaking dated April 21, 1982,[6] with Cuevas and Saddul as its co-
obligors. In the deed of undertaking, AMDC, Cuevas, and Saddul jointly and
severally bound themselves to pay to the petitioner, as obligee, whatever
damages or liabilities that the petitioner would incur by reason of the guaranty.
AMDC defaulted on the obligation. Upon demand, the petitioner paid
the obligation to NCBSA. By subrogation and pursuant to the Deed of
Undertaking, the petitioner then demanded that AMDC, Cuevas and Saddul
should pay the obligation, but its demand was not complied with. Hence, it
extra-judicially foreclosed the real estate mortgage.
Petitioner sued AMDC, Cuevas and Saddul on the premise that the
procees were insufficient to cover balance.
RTC, ruled in favor of Petitioner, however, Cuevas and Saddul were
absolved and the lower court fixed the interest rate from 16% to 6% per
annum(accruing interest until deficiency claim is fully paid)
On appeal, the CA affirmed in toto the decision.
Issue: Whether the CA erred in declaring that AMDC was liable to pay
interest and penalty charge at the rate of only 6% per annum instead of 16%
per annum
Ruling: No, the CA did not err.
We do not subscribe to the petitioners submission.
In contracts, the law empowers the courts to reduce interest rates and
penalty charges that are iniquitous, unconscionable and exorbitant.[33]
Whether an interest rate or penalty charge is reasonable or excessive is
addressed to the sound discretion of the courts. In determining what is
iniquitous and unconscionable, courts must consider the circumstances of the
case.
23. Albos vs. Embisan RIEGO
As case law instructs, the imposition of
unconscionable rate of interest on money debt, even
if knowingly and voluntarily assumed, is immoral and
unjust.
FACTS:
On October 17, 1984, petitioners entered into an agreement,
denominated as "Loan with Real Estate Mortgage," with respondent spouses
Nestor and Iluminada Embisan (spouses Embisan) in the amount of
P84,000.00 payable within 90 days with a monthly interest rate of 5%. To
secure the indebtedness, petitioners mortgaged to the spouses Embisan a
parcel of land in Project 3, Quezon City, measuring around 207.6 square
meters and registered under their name, as evidenced by Transfer Certificate
Title No. 257697. Payments are made but there are times that the petitioners
fails to pay which led to the the request of extension of the loan obligation
which are also granted. Along with the grant of extensions, a stipulation was
made which would make the 5% interest compounded. Unfortunately, such
change in the contract was not deduced to writing. The subject parcel land was
extra-judicially foreclose and was auctioned. The herein respondents became
the highest bidder. The petitioners are forced to sign an agreement that would
make them lease to the parcel of land which was now owned by the
respondents. The petitioners filed a suit to declare the extra-judicial foreclosure
void on the ground that they already paid the principal amount. The lower court
dismissed the case as well as the Court of Appeals. Thus, this petition.
ISSUE: Whether or not the stipulation compounding the interest charged
should specifically be indicated in a written agreement.
Page 26 of 50
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HELD:
Yes, the stipulation compounding the interest charged should
specifically be indicated in a written agreement. In accordance with Article
1956 No interest shall be due unless it has been expressly stipulated in
writing.
As mandated by the foregoing provision, payment of monetary interest
shall be due only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for such payment was reduced in writing. Thus,
the Court has held that collection of interest without any stipulation thereof in
writing is prohibited by law.
In the case at bar, it is undisputed that the parties have agreed for the
loan to earn 5% monthly interest, the stipulation to that effect put in writing.
When the petitioners defaulted, the period for payment was extended, carrying
over the terms of the original loan agreement, including the 5% simple interest.
However, by the third extension of the loan, respondent spouses decided to
alter the agreement by changing the manner of earning interest rate,
compounding it beginning June 1986.
Given the circumstances, the Court rule that the first requirement
that there be an express stipulation for the payment of interestis not
sufficiently complied with, for purposes of imposing compounded interest on
the loan. The requirement does not only entail reducing in writing the interest
rate to be earned but also the manner of earning the same, if it is to be
compounded.
Also, imposing 5% monthly interest, whether compounded or simple,
is unconscionable.
Thus, the stipulation in the Loan with Real Estate Mortgage imposing
an interest of 5% monthly is declared void and in view of the nullity of the
interest imposed on the loan which affected the total arrearages upon which
foreclosure was based, the foreclosure of mortgage, Certificate of Sale,
Affidavit of Consolidation, Deed of Final Sale, and Contract of Lease are
declared void.
Albos vs. Embisan #24 TITO
Facts:
On October 17, 1984, petitioners entered into an agreement,denominated as
Loan with Real Estate Mortgage,2 with respondent spouses Nestor and
IluminadaEmbisan (spouses Embisan) i payable within 90 days with a monthly
interest rate of 5%. To secure the indebtedness, petitioners mortgaged to the
spouses Embisan a parcel of land in Project 3, Quezon City, measuring around
207.6 square meters and registered under their name, as evidenced by
Transfer Certificate Title No. 257697.3chanrobleslaw
For failure to settle their account upon maturity, petitioner Aida Albos
requested and was given an extension of eleven (11) months, when the said
deadline came , petitioners failed to pay his obligation, on agreement of the
parties, another extension on the second time and obligations remained
unpaid. Thus, when the petitioners requested a third extension, as will later be
alleged by the respondent spouses, an additional eight (8) months was granted
on the condition that the monthly 5% interest from then on, i.e. June 1986
onwards, will be compounded. This stipulation, however, was not reduced in
writing.
Issue:
Whether or not the stipulation compounding the interest charged should
specifically be indicated in a written agreement.
Held:
YES. Article 1956 of the New Civil Code, which refers to monetary interest,
provides:
No interest shall be due unless it has been expressly stipulated in
writing.
As mandated by the foregoing provision, payment of monetary interest
shall be due only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for such payment was reduced in writing.
In the case at bar, it is undisputed that the parties have agreed for the loan to
earn 5% monthly interest, the stipulation to that effect put in writing. When the
petitioners defaulted, the period for payment was extended, carrying over the
terms of the original loan agreement, including the 5% simple interest.
However, by the third extension of the loan, respondent spouses decided to
alter the agreement by changing the manner of earning interest rate,
compounding it beginning June 1986. This is apparent from the Statement of
Account prepared by the spouses Embisan themselves.
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Article 1956 of the New Civil Code, which refers to monetary interest, provides:
Article 1956. No interest shall be due unless it has been expressly stipulated
in writing. As mandated by the foregoing provision, payment of monetary
interest shall be due only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for such payment was reduced in
writing. Thus, the collection of interest without any stipulation thereof in writing
is prohibited by law.
II. DEPOSIT ( Arts 1962-2009)
a) Deposit in General & its Different Kinds (Arts 1962-1967)
CHAPTER 1
Deposit in General and its Different Kinds
Article 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. (1758a)
Article 1963. An agreement to constitute a deposit is binding, but the
deposit itself is not perfected until the delivery of the thing. (n)
Article 1964. A deposit may be constituted judicially or extrajudicially.
(1759)
Article 1965. A deposit is a gratuitous contract, except when there is an
agreement to the contrary, or unless the depositary is engaged in the
business of storing goods. (1760a)
Article 1966. Only movable things may be the object of a deposit. (1761)
Article 1967. An extrajudicial deposit is either voluntary or necessary.
(1762)
26. Bank of the Phil. Islands vs. Intermediate Appellate
Court, 164 SCRA 630, No. L-66826, August 19, 1988
The document which embodies the contract states that the
US$ 3,000 was received by the bank fior safekeeping. The
subsequent acts of the parties also shiw that the inteant of the
parties was really for the bank to safely keep the dollars and to return
of the money on May 10,1976 or over months later. The above
arrangeents, is that defined under Art. 1962, Civil Code
Article 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. (1758a
Facts:
A contract of depositum was entered into by Garcia, on behalf of COMTRUST
(BPI), wherein he received US $3,000 (foreign exchange) from Zshornack for
safekeeping. Later on or over five months later, Zshornack demanded the
return of the money but the bank refused alleging that the amount was sold
and transferred to her current account.
Arguments: COMTRUST (BPI): The parties entered into a contract of
depositum which banks do not enter into. Thus, Garcia exceeded his powers
when he entered into the contract on behalf of the bank, hence, the bank
cannot be liable under the contract.
Issue:
WON the contract entered into is a contract of depositum.
Held:
Yes. The situation is one contemplated in Art. 1962 of the NCC:
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
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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.
Note: But because the subject of the contract here is a foreign exchange, it is
covered by Central Bank Circular No. 20 which requires that, All receipts of
foreign exchange by any resident person, firm, company or corporation shall
be sold to authorized agents of the Central Bank by the recipients within one
business day following the receipt of such foreign exchange. Since the
document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who
alleged in his complaint that he is a Philippine resident, the parties did not
intend to sell the US dollars to the Central Bank within one business day from
receipt. Otherwise, the contract of depositum would never have been entered
into at all. In other words, the transaction between Zshornack and the bank
was void having been executed against the provisions of a mandatory law (CB
Circ No. 20). Being in pari delicto, the law cannot afford either of them remedy.
27. BPI FAMILY SAVINGS BANK, INC vs. FIRST
METRO INVESTMENT CORPORATION
Ordinarily, a time deposit ids defined as one the payment
of which cannot legally be required within such specified number
of days In Contrast, demand deposits are all those liabilities of
BSP and other banks which are denominated in Phil. Currency and
are subject to payment in legal tender upon demand by the
presentation of ( depositors) checks
G.R. No. 132390 May 21, 2004 429 SCRA 30
FACTS:
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong,
opened current account and deposited METROBANK check no. 898679
of P100 million with BPI Family Bank (BPI FB) . Ong made the deposit upon
request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian,
then Branch Manager of BPI FB San Francisco del Monte Branch. Sebastians
aim was to increase the deposit level in hisBranch.BPI FB, through Sebastian,
guaranteed the payment of P14,667,687.01 representing 17% per annum
interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB
that it will maintain its deposit of P100 million for a period of one year on
condition that the interest of 17% per annum is paid in
advance. This agreement between the parties was reached
through their communications in writing. Subsequently, BPI FB paid FMIC
17% interest or P14,667,687.01 upon clearance of the latters check deposit
However, on August 29, 1989, on the basis of an Authority to Debit signed by
Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80
million from FMICs current account to the savings account of Tevesteco
Arrastre Stevedoring, Inc. FMIC denied having authorized the transfer of
its funds to Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC, on September
12, 1989, issued BPI FB check no. 129077 forP86,057,646.72 payable to itself
and drawn on its deposit with BPI FB SFDM branch. But upon presentation for
payment on September 13, 1989, BPI FB dishonored the check as it was
"drawn against insufficient funds. Consequently, FMIC filed A COMPLAINT
against BPI FB. FMIC FILED an Information for estafa against Ong, de Asis,
Sebastian and four others. However, the Information was dismissed on the
basis of a demurrer to evidence filed by the accused.
ISSUE:
1. WHETHER THE TRANSACTION BETWEEN FMIC AND BPI FB A TIME
DEPOSIT or a DEMAND DEPOSIT?
HELD:
The SC held that the parties did not intend the deposit to be treated as a
demand deposit but rather as an interest-earning time deposit
not withdrawable anytime.
When respondent FMIC invested its money with petitioner BPI FB, they
intended theP100 million as a time deposit, to earn 17% per annum interest
and to remain intact until its maturity date one year thereafter. Ordinarily, a
time deposit is defined as "one the payment of which cannot legally be
required within such a specified number of days. In contrast, demand
deposits are "all those liabilities of the Bangko Sentral and of other
banks which are denominated in Philippine currency and are subject to
payment in legal tender upon demand by the presentation of
(depositors) checks.
While it may be true that barely one month and seven days from the date of
deposit, respondent FMIC demanded the withdrawal of P86,057,646.72
through the issuance of a check payable to itself, the same was made as a
result of the fraudulent and unauthorized transfer by petitioner BPI FB of its
P80 million deposit to Tevestecos savings account. Certainly, such was a
normal reaction of respondent as a depositor to petitioners failure in its
fiduciary duty to treat its account with the highest degree of care. Under this
circumstance, the withdrawal of deposit by respondent FMIC before the one-
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year maturity date did not change the nature of its time deposit to one
of demand deposit.
The SC have held that if a corporation knowingly permits its officer, or any
other agent, to perform acts within the scope of an apparent authority, holding
him out to the public as possessing power to do those acts, the corporation
will, as against any person who has dealt in good faith with the corporation
through such agent, be estopped from denying such authority. Petitioner
maintains that respondent should have first inquired whether the deposit
of P100 Million and the fixing of the interest rate were pursuant to its
(petitioners)internal procedures. Petitioners stance is a futile attempt to evade
an obligation clearly established by the intent of the parties. What transpires in
the corporate boardroom is entirely an internal matter. Hence, petitioner may
not impute negligence on the part of respondents representative in failing
to find out the scope of authority of petitioners Branch Manager.
Indeed, the public has the right to rely on the trustworthiness of bank
managers and their acts. Obviously, confidence in the banking system, which
necessarily includes reliance on bank managers, is vital in the economic life of
our society.
Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year. Thus,
petitioner is estopped from denying that it authorized its Branch Manager to
enter into an agreement with respondents Executive Vice President
concerning the deposit with the corresponding 17% interest per annum .
b. Voluntary Deposit (Arts 1968-1994)
b.1 General Provisions
SECTION 1 a necessary deposit is that in the former, the depositor
General Provisions
Article 1968. A voluntary deposit is that wherein the delivery is made by
the will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited with
a third person, who shall deliver it in a proper case to the one to whom it
belongs. (1763)
Article 1969. A contract of deposit may be entered into orally or in writing.
(n)
Article 1970. If a person having capacity to contract accepts a deposit
made by one who is incapacitated, the former shall be subject to all the
obligations of a depositary, and may be compelled to return the thing by
the guardian, or administrator, of the person who made the deposit, or by
the latter himself if he should acquire capacity. (1764)
Article 1971. If the deposit has been made by a capacitated person with
another who is not, the depositor shall only have an action to recover the
thing deposited while it is still in the possession of the depositary, or to
compel the latter to pay him the amount by which he may have enriched
or benefited himself with the thing or its price. However, if a third person
who acquired the thing acted in bad faith, the depositor may bring an action
against him for its recovery. (1765a)
Voluntary deposit defined.
A voluntary deposit is one wherein the delivery is made
by the will of the depositor.
Ordinarily, there are only two persons involved.
Sometimes, however, the depositary may be a third
person. (Art. 1968, par. 2.)
Voluntary and necessary deposits distinguished.
The chief difference between a voluntary deposit and
has complete freedom in choosing the depositary,
whereas in the latter, there is lack of free choice in the
depositor. (see 11 Manresa 674.)
Depositor need not be owner of thing.
Generally, the depositor must be the owner of the thing
deposited. But it may belong to a person other than the
depositor.
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110
Arts. 1969-1970 DEPOSIT 111 Voluntary
Deposit/General Provisions
Thus, a carrier, commission agent, a lessee, etc. may
deposit goods temporarily in his possession
considering that the contract does not involve the
transfer of ownership.
As a matter of fact, the depositary cannot dispute the
title of the depositor to the thing deposited. (Art. 1984,
par. 1.) The depositary is in estoppel. (see Art. 1436.)
Where there are several depositors.
Two or more persons each claiming to be entitled to a
thing may deposit the same with a third person. In such
case, the third person assumes the obligation to
deliver to the one to whom it belongs.
The action to compel the depositors to settle their
conflicting claims among themselves would be in the
nature of an interpleader. (Sec. 1, Rule 62, Rules of
Court.1) Here, one of the depositors is not the owner.
Art. 1969. A contract of deposit may be entered into orally or in
writing.
Form of contract of deposit.
The above article follows the general rule that
contracts shall be obligatory in whatever form they
may have been entered into provided all the essential
requisites for their validity are present. (Art. 1356.)
Thus, except for the delivery of the thing, there are no
formalities required for the existence of the contract.
Art. 1970. If a person having capacity to contract accepts a
deposit made by one who is incapacitated, the former shall be
subject to all the obligations of a depositary, and may be
compelled to return the thing by the guardian, or administrator, of
the person who made the deposit, or by the latter himself if he
should acquire capacity.
Where depositary capacitated and depositor
incapacitated.
If the depositary is capacitated, he is subject to all the
obliga- tions of a depositary whether or not the
depositor is capacitated. In the latter case, the
depositary must return the property to the
legalrepresentativeoftheincapacitated
ortothedepositorhim- self if he should acquire capacity.
(see Art. 1986.)
Under the law, persons who are capable cannot
allege the incapacity of those with whom they
contract. (Art. 1397.)
Art. 1971. If the deposit has been made by a capacitated person
with another who is not, the depositor shall only have an action to
recover the thing deposited while it is still in the possession of the
depositary, or to compel the latter to pay him the amount by which
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he may have enriched or benefited himself with the thing or its
price. However, if a third person who acquired the thing acted in
bad faith, the depositor may bring an action against him for its
recovery.
Where depositary incapacitated and depositor
capacitated.
The incapacitated depositary (like a minor or an insane
person) does not incur the obligation of a depositary.
However, he is liable (1) to return the thing deposited
while still in his possession and (2) to pay the depositor
the amount by which he may have benefited himself
with the thing or its price subject to the right of any third
person who acquired the thing in good faith.
EXAMPLE:
A deposited a watch with B, a minor who sold it to C.
If C acted in bad faith, A may recover the watch from
him. But if C acted in good faith, As only recourse is
against B to compel him to return the price received for
the watch or the amount by which he may have
benefited himself.
b.2 Obligations of Depositor
It has been held that when there is no fix period for the
return, withdrawal can be made at any time without necessity
of judicial order (Aboitiz vs Oquinena, 39 phil 926)
Obligations of the Depositary
Article 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and successors, or
to the person who may have been designated in the contract. His
responsibility, with regard to the safekeeping and the loss of the thing, shall
be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe. (1766a)
Article 1973. Unless there is a stipulation to the contrary, the depositary
cannot deposit the thing with a third person. If deposit with a third person
is allowed, the depositary is liable for the loss if he deposited the thing with
a person who is manifestly careless or unfit. The depositary is responsible
for the negligence of his employees. (n)
Article 1974. The depositary may change the way of the deposit if under
the circumstances he may reasonably presume that the depositor would
consent to the change if he knew of the facts of the situation. However,
before the depositary may make such change, he shall notify the depositor
thereof and wait for his decision, unless delay would cause danger. (n)
Article 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter when it
becomes due, and to take such steps as may be necessary in order that
the securities may preserve their value and the rights corresponding to
them according to law.
The above provision shall not apply to contracts for the rent of safety
deposit boxes. (n)
Article 1976. Unless there is a stipulation to the contrary, the depositary
may commingle grain or other articles of the same kind and quality, in
which case the various depositors shall own or have a proportionate
interest in the mass. (n)
Article 1977. The depositary cannot make use of the thing deposited
without the express permission of the depositor.
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Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited requires its use, it
must be used but only for that purpose. (1767a)
Article 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes a loan
or commodatum, except where safekeeping is still the principal purpose of
the contract.
The permission shall not be presumed, and its existence must be proved.
(1768a)
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have
been authorized to use the same. (n)
Article 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan. (n)
Article 1981. When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable for
damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the
contrary.
As regards the value of the thing deposited, the statement of the depositor
shall be accepted, when the forcible opening is imputable to the depositary,
should there be no proof to the contrary. However, the courts may pass
upon the credibility of the depositor with respect to the value claimed by
him.
When the seal or lock is broken, with or without the depositary's fault, he
shall keep the secret of the deposit. (1769a)
Article 1982. When it becomes necessary to open a locked box or
receptacle, the depositary is presumed authorized to do so, if the key has
been delivered to him; or when the instructions of the depositor as regards
the deposit cannot be executed without opening the box or receptacle. (n)
Article 1983. The thing deposited shall be returned with all its products,
accessories and accessions.
Should the deposit consist of money, the provisions relative to agents in
article 1896 shall be applied to the depositary. (1770)
Article 1984. The depositary cannot demand that the depositor prove his
ownership of the thing deposited.
Nevertheless, should he discover that the thing has been stolen and who
its true owner is, he must advise the latter of the deposit.
If the owner, in spite of such information, does not claim it within the period
of one month, the depositary shall be relieved of all responsibility by
returning the thing deposited to the depositor.
If the depositary has reasonable grounds to believe that the thing has not
been lawfully acquired by the depositor, the former may return the same.
(1771a)
Article 1985. When there are two or more depositors, if they are not
solidary, and the thing admits of division, each one cannot demand more
than his share.
When there is solidarity or the thing does not admit of division, the
provisions of articles 1212 and 1214 shall govern. However, if there is a
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stipulation that the thing should be returned to one of the depositors, the
depositary shall return it only to the person designated. (1772a)
Article 1986. If the depositor should lose his capacity to contract after
having made the deposit, the thing cannot be returned except to the
persons who may have the administration of his property and rights. (1773)
Article 1987. If at the time the deposit was made a place was designated
for the return of the thing, the depositary must take the thing deposited to
such place; but the expenses for transportation shall be borne by the
depositor.
If no place has been designated for the return, it shall be made where the
thing deposited may be, even if it should not be the same place where the
deposit was made, provided that there was no malice on the part of the
depositary. (1774)
Article 1988. The thing deposited must be returned to the depositor upon
demand, even though a specified period or time for such return may have
been fixed.
This provision shall not apply when the thing is judicially attached while in
the depositary's possession, or should he have been notified of the
opposition of a third person to the return or the removal of the thing
deposited. In these cases, the depositary must immediately inform the
depositor of the attachment or opposition. (1775)
Article 1989. Unless the deposit is for a valuable consideration, the
depositary who may have justifiable reasons for not keeping the thing
deposited may, even before the time designated, return it to the depositor;
and if the latter should refuse to receive it, the depositary may secure its
consignation from the court. (1776a)
Article 1990. If the depositary by force majeure or government order loses
the thing and receives money or another thing in its place, he shall deliver
the sum or other thing to the depositor. (1777a)
Article 1991. The depositor's heir who in good faith may have sold the
thing which he did not know was deposited, shall only be bound to return
the price he may have received or to assign his right of action against the
buyer in case the price has not been paid him. (1778)
b.3 Obligations of the Depositor (Arts. 1992-1995)
Obligations of the Depositor
Article 1992. If the deposit is gratuitous, the depositor is obliged to
reimburse the depositary for the expenses he may have incurred for the
preservation of the thing deposited. (1779a)
Article 1993. The depositor shall reimburse the depositary for any loss
arising from the character of the thing deposited, unless at the time of the
constitution of the deposit the former was not aware of, or was not
expected to know the dangerous character of the thing, or unless he
notified the depositary of the same, or the latter was aware of it without
advice from the depositor. (n)
Article 1994. The depositary may retain the thing in pledge until the full
payment of what may be due him by reason of the deposit. (1780)
Article 1995. A deposit its extinguished:
(1) Upon the loss or destruction of the thing deposited;
(2) In case of a gratuitous deposit, upon the death of either the
depositor or the depositary. (n)
29. CA-Agro Industrial Development Corp. vs. CA
Castro A.
*safety deposit box a contract for the rent of safety
deposit box an ordinary contract of lease but special king of
deposit
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Facts:
Petitioner (through its President) purchased 2 parcels of land
from spouses Pugao for P350K with a downpayment of P75 K.
Per agreement, the land titles will be transferred upon full
payment and will be placed in a safety deposit box of any bank.
Moreover, the same could be withdrawn only upon the joint
signatures of a representative of the Petitioner and the Pugaos
upon full payment of the purchase price. Thereafter, Petitioner
and spouses placed the titles in the safety deposit box of
Respondent Security Bank and signed a lease contract which
substantially states that the Bank will not assume liability for the
contents of the deposit box. Subsequently, 2 renter's keys were
given to the renters; one to the Petitioner and the other to the
Pugaos. A guard key remained in the possession of the
Respondent Bank. The safety deposit box can only be opened
using these 2 keys simultaneously. Afterwards, a certain Mrs.
Ramos offered to buy from the Petitioner the 2 lots that would
yield a profit of P285K. Mrs. Ramos demanded the execution of
a deed of sale which necessarily entailed the production of the
certificates of title. Thus, Petitioner with the spouses went to
Respondent Bank to retrieve the titles. However, when opened in
the presence of the Bank's representative, the safety deposit box
yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to
purchase the lots; as a consequence, the Petitioner allegedly
failed to realize the expected profit of P285K. Hence, Petitioner
filed a complaint for damages against Respondent Bank. The
Lower court ruled in favor of Respondent Bank.
Issues:
1. Whether or not the disputed contract is an ordinary contract of
lease?
2. Whether or not the provisions of the cited contract are valid?
3. Whether or not Respondent Bank is liable for damages?
Ruling:
1. No. SC ruled that it is a special kind of deposit 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 and
vice versa. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.
Moreover, the renting out of the deposit box is not independent
from, but related to or in conjunction with, the principal function of
a contract of deposit the receiving in custody of funds, documents
and other valuable objects for safekeeping.
2. NO. SC opined that it is void. Generally, the Civil Code provides
that the depositary (Respondent Bank) would be liable if, in
performing its obligation, it is found guilty of fraud, negligence,
delay or contravention of the tenor of the agreement. In the
absence of any stipulation, the diligence of a good father of a
family is to be observed. Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay would be void
for being contrary to law and public policy (which is present in the
disputed contract Said provisions are inconsistent with the
Respondent Bank's responsibility as a depositary under Section
72(a) of the General Banking Act.
3. NO. SC ruled that: no competent proof was presented to show
that Respondent Bank was aware of the private agreement
between the Petitioner and the Pugaos that the Land titles were
withdrawable from the safety deposit box only upon both parties'
joint signatures, and that no evidence was submitted to reveal
that the loss of the certificates of title was due to the fraud or
negligence of the Respondent Bank.
TRIPLE-V vs. FILIPINO MERCHANTS???
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FACTS:
A certain Mary Jo-anne De Asis is an employee of Crispa
Textile Inc. A car was issued to her by the latter. She went to
Kamayan Restaurant in Quezon City. De Asis availed of the valet
parking service of petitioner and entrusted her car key to
petitioner's valet counter. A corresponding parking ticket was
issued as receipt for the car. The car was then parked by
petitioner's valet attendant, a certain Madridano, at the
designated parking area. Few minutes later, Madridano noticed
that the car was not in its parking slot and its key 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, herein respondent
Filipino Merchants Insurance Company, Inc. (FMICI). Having
indemnified Crispa in the amount of P669.500 for the loss of the
subject vehicle, FMICI, as subrogee to Crispa's rights, filed with
the RTC at Makati City an action for damages against petitioner.
The trial court ruled in favor of the respondent. Its decision
was affirmed on appeal.
The petitioner argues that it was not a depositary of the
subject car and that it exercised due diligence and prudence in
the safe keeping of the vehicle, in handling the car-napping
incident and in the supervision of its employees. It further argued
that there was no valid subrogation of rights between Crispa and
respondent FMICI.
ISSUE: Whether petitioner is a depositary of the subject
vehicle
HELD: YES. It is a depositary of the subject vehicle.
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.
When De Asis entrusted the car in question to petitioners
valet attendant while eating at petitioner's Kamayan Restaurant,
the former expected the car's safe return at the end of her meal.
Thus, petitioner was constituted as a depositary of the same car.
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.
As to petitioners argument that the stub given to the
employee is an explicit waiver of any right to claim indemnity
for the loss of the car
The parking claim stub embodying the terms and
conditions of the parking, including that of relieving petitioner from
any loss or damage to the car, is essentially a contract of
adhesion, drafted and prepared as it is by the petitioner
alone with no participation whatsoever on the part of the
customers, like De Asis, who merely adheres to the printed
stipulations therein appearing. While contracts of adhesion are
not void in themselves, yet this Court will not hesitate to rule out
blind adherence thereto if they prove to be one-sided under the
attendant facts and circumstances.
*Bank Deposits
Case 1.
31. People v Ong, 204 scra 942
All kinds of deposits whether fixed or current are to be
treated as loans and are to be covered by the law on loans*
Facts:
Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust
Company (HSBTC) opened a savingsaccount with HSBTC with an initial
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deposit of P22.14 in cash and P10,000.00 in check.Ong was allowed to
withdraw from his savings account with the Bank the sum of P5,000.00,
without his check undergoingthe usual and reglementary clearance. The
withdrawal slip was signed and approved by Lino Morfe, then the
BranchManager, and accused Lucila Talabis, the Branch
Cashier.Subsequently, Ong deposited eleven checks in his savings account
with the Bank and against which he made withdrawalsagainst its amount.
Again, the withdrawal of the amount by Ong was made before said checks
were cleared and the Bank had collected their amounts and with the approval
of Talabis.However, when the Bank presented the eleven checks issued,
deposited and against which Ong made withdrawals againstits amounts, to
their respective drawee banks for payment, they were all dishonored for lack
or insufficiency of funds.Because of this, the Bank filed a criminal action for
Estafa against Ong, and the Banks officer in charge Villaran
andTalabis.Talabis testified that the approval of the withdrawals of Ong against
his uncleared checks was in accordance with theinstruction of their then bank
manager and that it is a kind of accommodation given to Ong and also
a common practice of the Bank.RTC ruled Ong as guilty for the crime of estafa
but acquitted Villarin and Talabis as their guilt were not proven
beyondreasonable doubt. CA affirmed RTCs decisions.Issue:
1.
What is the nature of bank deposits?
2.
WON Ong is guilty of Estafa. No.Ruling:
1.
The Supreme Court held that bank deposits are in the nature of irregular
deposits.Bank deposits are really loans because they earn interest. Whether
fixed, savings, or current, all bank Adepositsare to be treated as loans and are
to be covered by the law on loans.
2.
The elements of this kind of estafa are the following: (1) postdating or issuance
of a check in payment of anobligation contracted at the time the check was
issued; (2) lack or insufficiency of funds to cover the check; and(3) damage to
the payee thereof.In this case, the fact was established that Ong either issued
or indorsed the subject checks. However, it must beremembered that the
reason for the conviction of an accused of the crime of estafa is his guilty
knowledge of thefact that he had no funds in the bank when he negotiated the
spurious check.In the present case, however, the prosecution failed to prove
that Ong had knowledge with respect to the checkshe indorsed.Moreover, it
has also been proven that it was the Bank which granted him a drawn against
uncollected deposit(DAUD) privilege without need of any pretensions on his
part. The privilege this privilege was not only for thesubject checks, but for
other past transactions. If ever, he, indeed acted fr audulently, he could not
have done so without the active cooperation of the Banks employees. Since
Talabis andVillaran were declared innocent of the crimes charged against
them, the same should be said for the Ong.
Thus, Ong cannot be held criminally liable against the Bank. He can only be
held civilly liable as the Bank incurred damages
Case 2
32. Guingona vs City Fiscal, 128 scra 577
While have obligation to return the amount deposited,
they have no obligation to return or deliver the same money
deposited in the same denomination as was deposited.
Thus, Estafa will not prosper
Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. The City
Fiscal of Manila, Hon. Jose Flaminiano, Asst. City Fiscal Felizardo Lota
and
Facts:
From March 1979 to March 1981, Clement David made several investments
with the National Savings and Loan Association. On March 21, 1981, the bank
was placed under receivership by the Bangko Sentral. Upon Davids request,
petitioners Guingona and Martin issued a joint promissory note, absorbing the
obligations of the bank. On July 17, 1981, they divided the indebtedness. David
filed a complaint for estafa and violation of Central Bank Circular No. 364 and
related regulations regarding foreign exchange transactions before the Office
of the City Fiscal of Manila. Petitioners filed the herein petition for prohibition
and injunction with a prayer for immediate issuance of restraining order and/or
writ of preliminary injunction to enjoin the public respondents to proceed with
the preliminary investigation on the ground that the petitioners obligation is
civil in nature.
Issue:
(1) Whether the contract between NSLA and David is a contract of depositor a
contract of loan, which answer determines whether the City Fiscal has the
jurisdiction to file a case for estafa
(2) Whether there was a violation of Central Bank Circular No. 364
Held:
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(1) When private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of deposit. Hence, the
relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the
contract and it can make use of the amount deposited for its banking
operations, such as to pay interests on deposits and to pay withdrawals. While
the Bank has the obligation to return theamount deposited, it has, however, no
obligation to return or deliver the same money that was deposited. And, the
failure of the Bank to return the amount deposited will not constitute estafa
through misappropriation punishable under Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to civil liability over which the public
respondents have no jurisdiction.
But even granting that the failure of the bank to pay the time and savings
deposits of private respondent David would constitute a violation of paragraph
1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners Guingona and
Martin assumed the obligation of the bank to private respondent David, thereby
resulting in the novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust relation between
the bank and private respondent David into an ordinary debtor-creditor relation
between the petitioners and private respondent. Consequently, the failure of
the bank or petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would merely be a failure
to pay the obligation as a debtor. Moreover, while it is true that novation does
not extinguish criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal information in court.
In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of the
bank to private respondent David; while the criminal complaint for estafa was
filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the
Office of the City Fiscal. Consequently, as aforestated, any incipient criminal
liability would be avoided but there will still be a civil liability on the part of
petitioners Guingona and Martin to pay the assumed obligation.
(2) Petitioner Guingona merely accommodated the request of the Nation
Savings and loan Association in order to clear the bank draft through his dollar
account because the bank did not have a dollar account. Immediately after the
bank draft was cleared, petitioner Guingona authorized Nation Savings and
Loan Association to withdraw the same in order to be utilized by the bank for
its operations. It is safe to assume that the U.S. dollars were converted first
into Philippine pesos before they were accepted and deposited in Nation
Savings and Loan Association, because the bank is presumed to have
followed the ordinary course of the business which is to accept deposits in
Philippine currency only, and that the transaction was regular and fair, in the
absence of a clear and convincing evidence to the contrary.
In conclusion, considering that the liability of the petitioners is purely civil in
nature and that there is no clear showing that they engaged in foreign
exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners.
Consequently, public respondents should be restrained from further
proceeding with the criminal case for to allow the case to continue, even if the
petitioners could have appealed to the Ministry of Justice, would work great
injustice to petitioners and would render meaningless the proper administration
of justice.
# 33 Tan, Tiong, Tick vs. American Hypothecary Co.,
G.R. No. L-43682 March 31, 1938 - DINGLASAN
Money deposited in banks, whether fixed, savings
and current, are really loans to a bank because the bank
can use the same for its ordinary transactions and for
banking business in which it is engaged.
DOCTRINES:
1. The bank can make use as its own the money deposited.
2. Current account and savings deposts are not preferred
credits in case of insolvency and liquidation.
3. The bank can offset the deposit of the client who has a debt
with the bank.
4. Deposits should not earn interest from the time the bank
cease to do business. IMPERIAL, J.:
Facts:
In the proceedings for the liquidation of the Mercantile Bank of
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China, the appellant presented a written claim alleging: that
when this bank ceased to operate on September 19, 1931, his
current account in said bank showed a balance of P9,657.50 in
his favor; that on the same date his savings account in the said
bank also showed a balance in his favor of P20,000 plus interest
then due amounting to P194.78; that on the other hand, he
owed the bank in the amount of P13,262.58, the amount of the
trust receipts which he signed because of his withdrawal from
the bank of certain merchandise consigned to him without
paying the drafts drawn upon him by the remittors thereof; that
the credits thus described should be set off against each other
according to law, and on such set off being made it appeared
that he was still the creditor of the bank in the sum of
P16,589.70. And he asked that the court order the Bank
Commissioner to pay him the aforesaid balance and that the
same be declared as preferred credit. The claim was referred to
the commissioner appointed by the court, who at the same time
acted as referee, and this officer recommended that the balance
claimed be paid without interest and as an ordinary credit. The
court approved the recommendation and entered judgment in
the accordance therewith. The claimant took an appeal.
ISSUES:
1. Whether or not the current account and savings deposits are
preferred credits in cases involving insolvency and liquidation of
the bank.
2. Whether or not the deposits could be offset with the debt of
the depositor with the bank.
3. Whether or not the deposits should earn interest from the
time the bank ceased to operate.
RULING:
1.The SC ruled that, these deposits are essentially merchantile
contracts and should, therefore, be governed by the provisions
of the Code of Commerce. In accordance with article 309, the
so-called current account and savings deposits have lost the
character of deposits properly so-called, and are converted into
simple commercial loans, because the bank disposed of the
funds deposited by the claimant for its ordinary transactions and
for the banking business in which it was engaged. That the bank
had the authority of the claimant to make use of the money
deposited on current and savings account is deducible from the
fact that the bank has been paying interest on both deposits,
and the claimant himself asks that he be allowed interest up to
the time when the bank ceased its operations. Moreover,
according to section 125 of the Corporation Law and 9 of Act
No. 3154, said bank is authorized to make use of the current
account, savings, and fixed deposits provided it retains in its
treasury a certain percentage of the amounts of said deposits.
2.It appears that even after the enactment of the Insolvency Law
there was no law in this jurisdiction governing the order or
preference of credits in case of insolvency and liquidation of a
bank. But the Philippine Legislature subsequently enacted Act
No. 3519, amended various sections of the Revised
Administrative Code, which took effect on February 20, 1929,
and section 1641 of this latter Code. as amended by said Act
provides:
SEC. 1641. Distribution of assets. In the case of the
liquidation of a bank or banking institution, after payment of the
costs of the proceeding, including reasonable expenses,
commissions and fees of the Bank Commissioner, to be allowed
by the court, the Bank Commissioner shall pay the debts of the
institution, under of the court in the order of their legal priority.
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From this section 1641 we deduce that the intention of the
Philippine Legislature, in providing that the Bank Commissioner
shall pay the debts of the company by virtue of an order of the
court in the order of their priority, was to enforce the provisions
of section 48, 49 and 50 of the Insolvency Law in the sense that
they are made applicable to cases of insolvency or bankruptcy
and liquidation of banks. No other deduction can be made from
the phrase in the order of their legal priority employed by the
law, for there being no law establishing any priority in the order
of payment of credits, the legislature could not reasonably refer
to any legislation upon the subject, unless the interpretation
above stated is accepted.
Examining now the claims of the appellant, it appears that none
of them falls under any of the cases specified by section 48, 49
and 50 of the Insolvency Law; wherefore, we conclude that the
appellants claims, consisting of his current and savings
account, are not preferred credits.
3. It may be stated as a general rule that when a depositor is
indebted to a bank, and the debts are mutual that is, between
the same parties and in the same right the bank may apply
the deposit, or such portion thereof as may be necessary, to the
payment of the debt due it by the depositor, provided there is no
express agreement to the contrary and the deposit is not
specially applicable to some other particular purposes. (7 Am.
Jur., par. 629, p.455; United States vs. Butterworth-Judson
Corp., 267 U.S., 387; National Bank vs. Morgan, 207 Ala.., 65;
Bank of Guntersville vs. Crayter, 199 Ala., 699; Tatum vs.
Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co.
vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45
Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279;
Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat Bank vs.
Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.)
The situation referred to by the appellees is inevitable because
section 1639 of the Revised Administrative Code, as amended
by Act No. 3519, provides that the Bank Commissioner shall
reduce the assets of the bank into cash and this cannot be done
without first liquidating individually the accounts of the debtors of
said bank, and in making this individual liquidation the debtors
are entitled to set off, by way of compensation, their claims
against the bank.
4. Upon this point a distinction must be made between the
interest which the deposits should earn from their existence until
the bank ceased to operate, and that which they may earn from
the time the banks operations were stopped until the date of
payment of the deposits. As to the first class, it should be paid
because such interest has been earned in the ordinary course of
the banks business and before the latter has been declared in a
state or liquidation. Moreover, the bank being authorized by law
to make us of the deposits, with the limitation stated, to invest
the same in its business and other operations, it may be
presumed that it bound itself to pay interest to the depositors as
in fact it paid interest prior to the date of the said claims.
As to the interest which may be charged from the date the bank
ceased to do business because it was declared in a state of
liquidation, SC held that the said interest should not be paid.
Under articles 1101 and 1108 of the Civil Code, interest is
allowed by way of indemnity for damages suffered, in the cases
wherein the obligation consists in the payment of money. In view
of this, SC held that in the absence of any express law or any
applicable provision of the Code of Commerce, it is not proper to
pay this last kind of interest to the appellant upon his deposits in
the bank, for this would be anomalous and unjustified in a
liquidation or insolvency of a bank. This rule should be strictly
observed in the instant case because it is understood that the
assets should be prorated among all the creditors as they are
insufficient to pay all the obligations of the bank.
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In view of all the foregoing considerations, SC affirmed the part
of the appealed decision for the reasons stated herein, and it is
ordered that the net claim of the appellant, amounting to
P13,611.21, is an ordinary and not a preferred credit, and that
he is entitled to charge interest on said amount up to September
19, 1931.
34. People vs Puig, 563 scra 564 (2008)
Facts
The petitioners filed before the RTC of Iloilo 112 cases of
Qualified Theft against respondents Teresita Puig (Puig)
and Romeo Porras (Porras) who were the Cashier
and Bookkeeper, respectively, of private complainant Rural
Bank of Pototan, Inc for taking various amounts of money with
grave abuse of confidence, and without the knowledge and
consent of the bank, to the damage and prejudice of the bank.
The RTC dismissed the cases and refused to issue a warrant of
arrest against Puig and Porras on the ground of lack of probable
cause because the complaint failed to state the facts constituting
the qualifying circumstance of grave abuse of confidence and
the element of taking without the consent of the owner, since the
owner of the money is not the Bank, but the depositors
therein. Motion for Reconsideration was filed but it was also
denied.
Issue
1. Whether the relationship between banks and depositors is
that of creditor and debtor.
2. Whether the bank acquires ownership of the money
deposited by its clients.
Held
Yes. It is beyond doubt that tellers, Cashiers, Bookkeepers
and other employees of a Bank who come into possession
of the monies deposited therein enjoy the confidence
reposed in them by their employer. Banks, on the other hand,
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.
Yes. The Bank acquires ownership of the money deposited
by its clients (Art 1953).
Art. 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same
kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan. (n)
c. Necessary Deposit (Arts- 1996-2004)
Article 1996. A deposit is necessary:
(1) When it is made in compliance with a legal obligation;
(2) When it takes place on the occasion of any calamity, such as
fire, storm, flood, pillage, shipwreck, or other similar events.
(1781a)
Article 1997. The deposit referred to in No. 1 of the preceding article shall
be governed by the provisions of the law establishing it, and in case of its
deficiency, by the rules on voluntary deposit.
The deposit mentioned in No. 2 of the preceding article shall be regulated
by the provisions concerning voluntary deposit and by article 2168. (1782)
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Article 1998. The deposit of effects made by travellers in hotels or inns d. Sequestration of Judicial Deposit (Arts 2005-2009)
shall also be regarded as necessary. The keepers of hotels or inns shall
be responsible for them as depositaries, provided that notice was given to Sequestration or Judicial Deposit
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-keepers
Article 2005. A judicial deposit or sequestration takes place when an
or their substitutes advised relative to the care and vigilance of their effects.
attachment or seizure of property in litigation is ordered. (1785)
(1783)
Article 2006. Movable as well as immovable property may be the object of
Article 1999. The hotel-keeper is liable for the vehicles, animals and
sequestration. (1786)
articles which have been introduced or placed in the annexes of the hotel.
(n)
Article 2007. The depositary of property or objects sequestrated cannot
be relieved of his responsibility until the controversy which gave rise
Article 2000. The responsibility referred to in the two preceding articles
thereto has come to an end, unless the court so orders. (1787a)
shall include the loss of, or injury to the personal property of the guests
caused by the servants or employees of the keepers of hotels or inns as
well as strangers; but not that which may proceed from any force majeure. Article 2008. The depositary of property sequestrated is bound to comply,
The fact that travellers are constrained to rely on the vigilance of the keeper with respect to the same, with all the obligations of a good father of a family.
of the hotels or inns shall be considered in determining the degree of care (1788)
required of him. (1784a)
Article 2009. As to matters not provided for in this Code, judicial
Article 2001. The act of a thief or robber, who has entered the hotel is not sequestration shall be governed by the Rules of Court. (1789a)
deemed force majeure, unless it is done with the use of arms or through
an irresistible force. (n) GARNISHMENT

Article 2002. The hotel-keeper is not liable for compensation if the loss is 1. Nature
due to the acts of the guest, his family, servants or visitors, or if the loss
arises from the character of the things brought into the hotel. (n)
36. NPC vs PCIB
Article 2003. The hotel-keeper cannot free himself from responsibility by 598 scra 326
posting notices to the effect that he is not liable for the articles brought by
the guest. Any stipulation between the hotel-keeper and the guest whereby Facts:
the responsibility of the former as set forth in articles 1998 to 2001 is The complaint for a sum of money filed by the Philippine
suppressed or diminished shall be void. (n)
Commercial International Bank (PCIB) against B.R. Sebastian
and Associates, Inc. (Sebastian). The court rendered decision in
Article 2004. The hotel-keeper has a right to retain the things brought into
the hotel by the guest, as a security for credits on account of lodging, and
favor of PCIB and ordered to pay the PCIB inclusive of marginal
supplies usually furnished to hotel guests. (n) deposits, interest, commission and other bank charges plus
interests and other bank.
The CA affirmed the decision of CFI.
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On July 20, 1976, CFI issued an alias writ of execution that
became the basis for the issuance on of a Notice of Garnishment
by the Sheriff, attaching and levying on all the good(s), effects,
moneys in the possession and control of NPC. The amount to be
satisfied is Sebastians liability in Civil Case
The NPC argue that it cannot be made to pay interests and bank
charges since there is nothing in the dispositive portions that
requires NPC to do so; the NPC bases its argument on the
principle that only the dispositive portion of the decision becomes
the subject of execution.
Issue:
Whether NPC is to pay interest and bank charges on the
garnished amount, where said interest and bank charges are over
and beyond the amount specified in the notice of garnishment
Held:
YES. NPC is required to pay the interest and other bank charges.
The legal basis of garnishment is found in Section 9(c), Rule 39
of the Rules of Court, which states:
(c) Garnishment of debts and credits. The officer may levy on
debts due the judgment obligor and other credits, including bank
deposits, financial interests, royalties, commissions and other
personal property not capable of manual delivery in the
possession or control of third parties. Levy shall be made by
serving notice upon the person owing such debts or having in his
possession or control such credits to which the judgment obligor
is entitled. The garnishment shall cover only such amount as will
satisfy the judgment and all lawful fees.
Garnishment has been defined as a specie of attachment for
reaching credits belonging to the judgment debtor and
owing to him from a stranger to the litigation. Under this rule,
the garnishee [the third person] is obliged to deliver the
credits, etc. to the proper officer issuing the writ and the law
exempts from liability the person having in his possession
or under his control any credits or other personal property
belonging to the defendant.
The garnishee is obliged to pay all interests and bank
charges that have accumulated on the amount garnished or,
on such amount which has not been paid, from the date of
its receipt of the notice of garnishment until it has made
payment.
All that is necessary for the trial court to lawfully bind the person
of the garnishee or any person who has in his possession credits
belonging to the judgment debtor is service upon him of the writ
of garnishment.
2. Garnishment is proper only in money judgments
37. NHMFC vs. ABAYARI et al., 602 scra 242
Garnishment is proper only when the judgment to be
enforced is one for the payment of a sum of money it
cannot be employed to implement a special judgment such
as that rendered in a special civil action for mandamus
Facts: Petitioner, the National Home Mortgage Finance
Corporation (NHMFC), is a government-owned and controlled
corporation created under the authority of Presidential Decree
No. 1267 for the primary purpose of developing and providing a
secondary market for home mortgages granted by public and/or
private home-financing institutions. In its employ were
respondents, mostly rank-and-file employees, who all profess as
having been hired after June 30, 1989.
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On July 1, 1989, Republic Act No. 6758, otherwise known as The
Compensation and Position Classification Act of 1989, was
enacted and was subsequently approved on August 21,
1989. Section 12 thereof directed that all allowances
namely representation and transportation allowance, clothing
and laundry allowance, subsistence allowance, hazard pay and
other allowances as may be determined by the budget
department enjoyed by covered employees should be deemed
included in the standardized salary rates prescribed therein, and
that the other additional compensation being received by
incumbents only as of July 1, 1989 not integrated into the
standardized salary rates should continue to be authorized.
Respondents filed a petition for mandamus with the RTC of
Makati City, Branch 138[11] to compel petitioner to pay them meal,
rice, medical, dental, optical and childrens allowances, as well as
longevity pay, which allegedly were already being enjoyed by
other NHMFC employees as early as July 1, 1989. In its April 27,
2001 Decision, the trial court ruled favorably and ordered
petitioner to pay respondents the allowances prayed for,
retroactive to the respective dates of appointment.
CA affirmed. Instead of an appeal the Parties entered into a
compromise agreement in which petitioner bound itself to comply
with the decision rendered in the case, except that the payment
of the allowances adjudicated in favor of respondents would be
made in four installments instead.
Conflict arose when the DBM sent a letterto NHMFC
disallowing the payment of certain allowances, including those
awarded by the trial court to respondents. DBM then curtailed the
award to respondent pursuant to DBM letter.
This eventuality compelled respondents to file for the
second time a motion for a writ of execution of the trial court
decision. The trial court found merit in respondents motion;
hence, it directed the execution of the judgment, the trial court
issued a Writ of Execution/Garnishment with a directive to the
sheriff to tender to respondents the amount of their collective
claim equivalent to P4,806,530.00 to be satisfied out of
petitioners goods and chattels and if the same be not sufficient,
out of its existing real property. On appeal by petitioner, the CA
dismissed the appeal.
Hence, this recourse.
Issue: (Credit only) Whether or Not the garnishment order was
proper.
Ruling; No, the garnishment was not proper.
Petitioner asserts that the garnishment of its funds was not
in order as there was no existing appropriation therefor.
Garnishment is proper only when the judgment to be
enforced is one for payment of a sum of money. It cannot be
employed to implement a special judgment such as that
rendered in a special civil action formandamus.
On this score, not only did the trial court exceed the scope of its
judgment when it awarded the benefits claimed by respondents. It
also committed a blatant error when it issued the February 16,
2004 Order directing the garnishment of petitioners funds with the
Land Bank of the Philippines equivalent to P4,806,530.00, even
though the said amount was not specified in the decision it sought
to implement.
Be that as it may, assuming for the sake of argument that
execution by garnishment could proceed in this case against the
funds of petitioner, it must bear stress that the latter is a
government-owned or controlled corporation with a charter of its
own. Its juridical personality is separate and distinct from the
government and it can sue and be sued in its name. As such,
while indeed it cannot evade the effects of the execution of an
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adverse judgment and may not ordinarily place its funds beyond
an order of garnishment issued in ordinary cases, it is imperative
in order for execution to ensure that a claim for the payment of
the judgment award be first filed with the Commission on Audit
(COA).
Being a special judgment, the decision may not be
executed in the same way as a judgment for money handed
down in an ordinary civil case governed by Section 9, Rule
39 of the Rules Court which sanctions garnishment of debts
and credits to satisfy a monetary award.
III GUARANTY & SURETY (Arts. 2047 2084)
Contracts of security are either personal or real. In
contracts of personal security, such as guaranty or
suretyship, the faithful performance of the obligation by the
principal debtor is secured by the personal commitment of
another ( the guarantor or surety)
39. Acme Shoe, Rubber & Plastic Corp vs. CA,
Producers Bank of the Phil.
Facts:
Petitioner Chua Pac, the president and general manager of co-
petitioner corporation, executed, a chattel mortgage in favor of
private respondent Producers Bank of the Philippines. The
mortgage stood by way of security for petitioner's corporate loan
of three million pesos (P3,000,000.00) A pertinent portion of the
instrument states that:
"(c) If the MORTGAGOR, his heirs, executors or administrators
shall well and truly perform the full obligation or obligations
above-stated according to the terms thereof, then this mortgage
shall be null and void. x x x.
In case the MORTGAGOR executes subsequent promissory
note or notes either as a renewal of the former note, as an
extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments
on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new
contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations
were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind and
nature, whether such obligations have been contracted before,
during or after the constitution of this mortgage
The Loan of P3M was paid. Petitioner Obtained another loan of
P2.7M and was also paid.
10 and 11 January 1984, the bank again obtained loan of P1M in
4 promissory notes of 250K each. But Due to financial
constraints, the loan was not settled at maturity.
Bank applied for extrajudicial foreclosure of chattel mortgage.
Acme filed action for injunction however RTCultimately dismissed
complaint and ordered foreclosure saying Acme was bound by
stipulations.
CA dismissed appeal and affirmed RTC.
Issue:
Whether or not a clause in the chattel mortgage that purports to
likewise extend its coverage to obligations yet to be contracted or
incurred?
Held:
No.
Contracts of security are either personal or real. In contracts of
personal security, such as a guaranty or a suretyship, the
faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor or
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surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by
an encumbrance of property - in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage, by
the execution of the corresponding deed substantially in the form
prescribed by law; in real estate mortgage, by the execution of a
public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor
the right to receive the fruits of an immovable property with the
obligation to apply such fruits to the payment of interest, if owing,
and thereafter to the principal of his credit - upon the essential
condition that if the principal obligation becomes due and the
debtor defaults, then the property encumbered can be alienated
for the payment of the obligation,[7] but that should the obligation
be duly paid, then the contract is automatically extinguished
proceeding from the accessory character[8] of the agreement. As
the law so puts it, once the obligation is complied with, then
the contract of security becomes, ipso facto, null and void.
A Chattel Mortgage, however, can only cover obligations existing
at the time the mortgage is constituted. Although
a promise expressed in a chattel mortgage to include debts that
are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come
into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel
Mortgage Law.
Since the 1978 chattel mortgage had ceased to exist
coincidentally with the full payment of the P3,000,000.00
loan,] there no longer was any chattel mortgage that could cover
the new loans that were concluded thereafter.
a. Nature and Extent of Guaranty (Arts. 2047-2057)
Nature and Extent of Guaranty
Article 2047. By guaranty a person, called the guarantor, binds himself to
the creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such case
the contract is called a suretyship. (1822a)
Article 2048. A guaranty is gratuitous, unless there is a stipulation to the
contrary. (n)
Article 2049. A married woman may guarantee an obligation without the
husband's consent, but shall not thereby bind the conjugal partnership,
except in cases provided by law. (n)
Article 2050. If a guaranty is entered into without the knowledge or
consent, or against the will of the principal debtor, the provisions of articles
1236 and 1237 shall apply. (n)
Article 2051. A guaranty may be conventional, legal or judicial, gratuitous,
or by onerous title.
It may also be constituted, not only in favor of the principal debtor, but also
in favor of the other guarantor, with the latter's consent, or without his
knowledge, or even over his objection. (1823)
Article 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also
guarantee a natural obligation. (1824a)
Article 2053. A guaranty may also be given as security for future debts,
the amount of which is not yet known; there can be no claim against the
guarantor until the debt is liquidated. A conditional obligation may also be
secured. (1825a)
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Article 2054. A guarantor may bind himself for less, but not for more than Facts:
the principal debtor, both as regards the amount and the onerous nature Engr. Ingersol L. Santia (Santia) loaned the amount of
of the conditions. P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC),
through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The
Should he have bound himself for more, his obligations shall be reduced
to the limits of that of the debtor. (1826)
loan was evidenced by a promissory note. Allegedly as a
guaranty for the payment of the note, Aglibot issued and delivered
Article 2055. A guaranty is not presumed; it must be express and cannot to Santia eleven (11) post-dated personal checks drawn from her
extend to more than what is stipulated therein. own account maintained at Metrobank. Upon presentment of the
checks for payment, they were dishonored by the bank for having
If it be simple or indefinite, it shall compromise not only the principal been drawn against insufficient funds or closed account. Santia
obligation, but also all its accessories, including the judicial costs, provided thus demanded payment from PLCC and Aglibot of the face value
with respect to the latter, that the guarantor shall only be liable for those of the checks, but neither of them heeded his demand.
costs incurred after he has been judicially required to pay. (1827a) Consequently, eleven (11) Informations for violation of B.P. 22
were filed before the MTCC.
Article 2056. One who is obliged to furnish a guarantor shall present a
person who possesses integrity, capacity to bind himself, and sufficient
property to answer for the obligation which he guarantees. The guarantor MTCC acquitted Aglibot. On appeal, the RTC rendered a decision
shall be subject to the jurisdiction of the court of the place where this absolving Aglibot and dismissing the civil aspect of the case on
obligation is to be complied with. (1828a) the ground of failure to fulfill a condition precedent of exhausting
all means to collect from the principal debtor.
Article 2057. If the guarantor should be convicted in first instance of a
crime involving dishonesty or should become insolvent, the creditor may On appeal, the Court of Appeals ruled that the RTC erred when it
demand another who has all the qualifications required in the preceding dismissed the civil aspect of the case. Hence, the CA ruled that
article. The case is excepted where the creditor has required and stipulated
Aglibot is personally liable for the loan.
that a specified person should be the guarantor. (1829a)

40. Aglibot vs. Santia
A guaranty agreement is a promise to answer for the debt
or default of another, the law clearly requires that it, or some note
or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified, although it does not have to appear
in a public document.
Article 2055 of the Civil Code provides that a guaranty is
not presumed, but must be express, and cannot extend to more
than what is stipulated therein.
Thus, Aglibot filed before the SC arguing that she was merely a
guarantor of the obligation and therefore, entitled to the benefit of
excussion under Article of the 2058 of the Civil Code. She further
posited that she is not personally liable on the checks since she
merely contracted the loan in behalf of PLCC.
ISSUE:
I. Whether or not Aglibot is entitled to the benefit of
excussion?

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RULING: No. Aglibot cannot invoke the benefit of
excussion.
It is settled that the liability of the guarantor is only subsidiary,
and all the properties of the principal debtor, the PLCC in this
case, must first be exhausted before the guarantor may be held
answerable for the debt. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against
the principal debtor and the latter is unable to pay, for obviously
the exhaustion of the principals property the benefit of which the
guarantor claims cannot even begin to take place before
judgment has been obtained. This rule is contained in Article
2062 of the Civil Code, which provides that the action brought
by the creditor must be filed against the principal debtor alone,
except in some instances mentioned in Article 2059 when the
action may be brought against both the guarantor and the
principal debtor.
The Court must, however, reject Aglibots claim as a mere
guarantor of the indebtedness of PLCC to Santia for want of
proof, in view of Article 1403(2) of the Civil Code, embodying
the Statute of Frauds. Under the above provision, concerning a
guaranty agreement, which is a promise to answer for the debt
or default of another, the law clearly requires that it, or some
note or memorandum thereof, be in writing. Otherwise, it would
be unenforceable unless ratified, although under Article 1358 of
the Civil Code, a contract of guaranty does not have to appear
in a public document. Contracts are generally obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present, and the Statute
of Frauds simply provides the method by which the contracts
enumerated in Article 1403(2) may be proved, but it does not
declare them invalid just because they are not reduced to
writing. Thus, the form required under the Statute is for
convenience or evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also
provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of
guarantee is unenforceable unless made in writing or
evidenced by some writing.
41. Prudential Guarantee and Assurance Inc. vs.
Anscor Land, Inc -TITO
630 SCRA 368, G.R. No. 177240 September 8, 2010
Facts:
On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered
into a Construction Contract for the construction of an 8-unit
townhouse (project). Under the contract, KRDC was to build and
complete the project within 275 continuous calendar days from
the date of receipt of a notice to proceed for the consideration
of P18,800,000.00.
As part of its undertaking, KRDC submitted a surety bond
amounting to P4,500,000.00 to secure the reimbursement of the
down payment paid by ALI in case of failure to finish the project
and a performance bond amounting to P4,700,000.00 to
guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project. The said bonds
were issued in favor of ALI by herein petitioner PGAI.
KRDC then received a notice to proceed on November 24,
1999. On October 16, 2000 or 325 days after KRDC received the
notice to proceed, and 50 days beyond the contract date of
completion, ALI sent PGAI a letter notifying the latter that the
contract with KRDC was terminated due to very serious
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delays. The letter also informed PGAI that ALI may be making
claims against the said bonds.
KRDC, through a letter on October 20, 2000, asked ALI to
reconsider its decision to terminate the contract and requested
that it be allowed to continue with the project. On October 27,
2000, ALI replied with regrets that it stands by its earlier decision
to terminate the construction contract.
Through a letter dated November 29, 2001, or exactly one
(1) year after the expiration date in the performance bond, ALI
reiterated its claim against the performance bond issued by PGAI
amounting to P3,852,800.84. PGAI however did not respond to
the letter.
On February 7, 2002, ALI commenced arbitration
proceedings against KRDC and PGAI in the CIAC. PGAI
answered with cross-claim contending that it was not a party to
the construction contract and that the claim of ALI against the
bonds was filed beyond the expiration period.
On September 2, 2002, the CIAC rendered judgment
awarding a total of P7,552,632.74 to ALI and a total
of P1,292,487.81 to KRDC. CIAC also allowed the offsetting of
the awards to both parties which resulted to a net amount due to
ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC
found PGAI liable for the reimbursement of the unliquidated
portion of the down payment as a solidary liability under the
surety bond in the amount of P1,771,264.06.
Issue: Whether the performance bond become liable for the
completion of the construction project in the event KRDC fails in
its contractual undertaking.
Held:
A guarantee or a surety contract under Article 2047 of
the Civil Code of the Philippines is an accessory contract
because it is dependent for its existence upon the principal
obligation guaranteed by it; As regards the first requirement,
the Performance Bond issued by the petitioner was meant to
guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project. A guarantee or a
surety contract under Article 2047 of the Civil Code of the
Philippines is an accessory contract because it is dependent for
its existence upon the principal obligation guaranteed by it. In
fact, the primary and only reason behind the acquisition of the
performance bond by KRDC was to guarantee to ALI that the
construction project would proceed in accordance with the
contract terms and conditions. In effect, the performance bond
becomes liable for the completion of the construction project in
the event KRDC fails in its contractual undertaking.
In practice, a performance bond is usually a condition or a
necessary component of construction contracts. Because of the
performance bond, the construction contract between ALI and
KRDC is guaranteed to be performed even if KRDC fails in its
obligation. In practice, a performance bond is usually a condition
or a necessary component of construction contracts. In the case
at bar, the performance bond was so connected with the
construction contract that the former was agreed by the parties to
be a condition for the latter to push through and at the same time,
the former is reliant on the latter for its existence as an accessory
contract.
s
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