Credit Transactions

Liwanag vs. CA, G.R. No. 114398 October 24, 1997

Petitioner was charged with the crime of estafa Liwanag and a certain Thelma Tabligan went to the house of complainant
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 acorresponding 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.

HELD:
The elements of estafa are present, as follows: (1) that the accused defrauded another by abuse of confidence or deceit; and (2)
that damage or prejudice capable of pecuniary estimation is caused to the offended party or third party, and it is essential that
there be a fiduciary relation between them either in the form of a trust, commission or administration. The language of the
receipt could not be any clearer. It 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. Thus, even
assuming that a contract of partnership was indeed entered into by and between the parties, we have ruled that when money
or property have been received by a partner for a specific purpose (such as that obtaining in the instant case) and he later
misappropriated it, such partner is guilty of estafa. Neither can the transaction be considered a loan, since 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. Since in this case there was no transfer of ownership of the money delivered,
Liwanag is liable for conversion under Art.315, par. l(b) of the Revised Penal Code.

Herrera v Petrophil Corp

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 20years from said date 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, 010.73as 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 thus it was reduced to98, 828.03. As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that
this had been illegally deducted to him in violation of the Usury Law. ESSO argued that amount deducted was not usurious
interest but rather a discount given to it for paying the rentals in advance. Judgment on the pleadings was rendered in favor
of ESSO. Thus, the matter was elevated to the SC for only questions of law was involve.

ISSUE: WON the lower court erred in the computation of the interest collected out of the rentals paid for eight years; that such
interest was excessive and violative of the usury Law; and that he neither agreed nor accepted the computation of the
total amount to be deducted.

RULING: contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT."
Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of
money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or
discount. There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor
did it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and
any reduction thereof, by any amount, would not contravene the Usury Law. The difference between a discount and a loan or
forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury. To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use
of the money in excess of and in addition to interest allowed by law." It has been held that the elements of usury are (1) a loan,
express or implied; (2) an understanding between the parties that the money lent shall or may be returned; that for such loan a
greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to
take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to
affirm that no case of usury can be declared.

Catholic Vicar Apostolic of Mt. Province v. Court of Appeals

FATCS: Mountain Province (Vicar for brevity) filed with the CFI of Baguio, Benguet an application for registration of title for Lots
1,2,3 and 4 of Psu-194357 situated at Poblacion Central, La Trinidad, Benguet. Said lots being the sites of the Catholic Church
building, convents, school, etc., Upon learning of the application, the Heirs of Juan Valdez and the Heirs of Emigdio Octaviano
filed an Answer/Opposition thereto on Lots 2 and 3,respectively, asserting ownership and title thereto. The land registration
court promulgated its decision confirming the registrable title to Vicar. Both heirs of Valdez and Octaviano appealed to the
Court of Appeals. The CA modified the decision of the land registration court and found that Lots 2 and 3 were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that Vicar has been
in possession of the same lots as bailee in commodatum up to 1951, when Vicar repudiated the trust and when it applied for
registration in1962; that Vicar had just been in possession as owner for 11years, hence there is no possibility of acquisitive
prescription which requires 10 years possession with just title and 30 years possession without.

ISSUE: WON the failure of Vicar to return the subject property to private respondents would constitute an adverse possession
that would entitle Vicar to have a just title in order for ordinary acquisitive prescription to set in.

RULING: 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
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. The Court of Appeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951

Almeda v Court of Appeals

FACTS:PNB granted to the spouses Almeda several loan/credit accommodations totaling P18 M in a period of six years 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).On the contract, it was
stipulated that 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 theinterest rate on this/these accommodations shall becorrespondingly 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 theeffectivity date of the increase or decrease of themaximum interest rate.Petitioners
made partial payments on the loan totaling.P7,735,004.66. On March 31, 1984, PNB raised theinterest rate to 28%. It was
thereupon increased from an initial 21% to a high of 68% between March of 1984 to September, 1986. Petitioner protested the
increase in interest rates. Before the loan was to mature in March, 1988, the spouses filed a petition for injunction and TRO
with the RTC. The RTC issued a writ of preliminary injunction and supplemental preliminary writ of injunction Upon the posting
of a counter bond by the PNB, the trial court dissolved the supplemental writ of preliminary injunction. PNB set a new date for
the foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to
thescheduled date, however, petitioners tendered torespondent bank the amount of P40,142,518.00,consisting of the principal
(P18,000,000.00) and accrued interest calculated at the originally stipulated rate of 21%. The PNB refused to accept the
payment.

Petitioners formally consigned the amount of P40,142,518.00 with the Regional Trial Court
Case History:
RTC – issued a writ of preliminary injunction enjoining the foreclosure sale of Marvin Plaza
CA - set aside the assailed orders and upheld PNB’s right to foreclose the mortgaged property

ISSUE: WON PNB was authorized to raise its interest rates to

ashigh as 68%, pursuant to the credit agreement'sescalation clause, and in relation to Central Bank Circular No. 905

RATIO: The binding effect of any agreement between parties to a contract is premised on two settled principles:
(1)that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality
between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract
which is left solely to the will of one of the parties, is likewise, invalid.
•PNB unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior
assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article
1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing"
from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound
merely to pay 21%interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation
or de-escalation; 2) within the limits allowed by law; and 3) upon agreement.
•C.B. Circular No. 905 did not authorize the bank, or any lending institution for that matter, to progressively increase interest
rates. Nothing in the said circular could possibly be read as granting respondent bank carteblanche authority to raise interest
rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets.
The credit agreement specifically requires that the increase be "within the limits allowed by law".
The escalation clause of the credit agreement requires that the same be made "within the limits allowed by law," obviously
referring specifically to legislative enactments not administrative circulars.

Garcia v Thio
FACTS: Respondent Thio received from petitioner Garcia two crossed checks which amount to US$100,000 and US$500,000,
respectively, payable to the order of Marilou Santiago. According to petitioner, respondent failed to pay the principal amounts
of the loans when they fell due and so she filed a complaint for sum of money and damages with the RTC. Respondent denied
that she contracted the two loans and countered that it was Marilou Satiago to whom petitioner lent the money. She claimed
she was merely asked y petitioner to give the checks to Santiago. She issued the checks for P76,000 and P20,000 not as
payment of interest but to accommodate petitioner’s request that respondent use her own checks instead of Santiago’s.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract of loan between the parties.

ISSUE: Whether or not there was a contract of loan between petitioner and respondent.

HELD: The Court held in the affirmative. A loan is a real contract, not consensual, and as such I perfected only upon the delivery
of the object of the contract. Upon delivery 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. It is undisputed that the checks were delivered to respondent.

Pan Pacific Service Contractors Inc. v Equitable PCI Bank

FACTS: Pan Pacific and its president Del Rosario entered into a contract with Equitable PCI for mechanical works on air
conditioning system. They stipulated that the total consideration is P23.3M subject to price adjustment in case
of increase in labor cost and price of materials. There was an increase in such in 1990 so the price was adjusted. But this caused
the operational capital of Pan pacific to be inadequate for the project. Equitable withheld payment and offered a loan of 1.8M
to Pan Pacific. .
Against its will and on the strength of respondent’s promise that the price adjustment would be released soon, Pan Pacific,
through DelRosario, was constrained to execute apromissory note in the amount of P1.8million as a requirement for the loan.
Pan Pacific also posted a surety bond. The P1.8million was released directly to laborers and suppliers and not a single centavo
was given to Pan Pacific. Pan Pacific made several demands for payment on the price adjustment but respondent merely kept
on promising to release the same .Meanwhile, the P1.8 million loan matured and respondent demanded payment plus interest
and penalty. Pan Pacific refused to pay the loan. Pan Pacific insisted that it would not have incurred the
loan if respondent released the price adjustment on time.
On 6 May 1994, Pan pacific filed acomplaint for declaration of nullity/annulment of the promissory note,
sum of money, and damages against Equitable .RTC ruled that Equitable is to pay Pan pacific 1.3M representing unpaid balance
of the adjusted price with interest of 12%starting May 1994, the filing of the complaint. CA affirmed this.
Petitioners filed a Motion for Partial Reconsideration seeking a reconsideration of the CA’s Decision imposing the legal rate of
12%. Petitioners claimed that the interest rate applicable should be the 18%bank lending rate. Specifically, petitioners invoke
Section 2.5of the Agreement and Section 60.10 of the General Conditions as follows:
Agreement 2.5 If any payment is delayed, theCONTRACTOR may charge interest thereon at the current bank lending rates,
without prejudice to OWNER’S recourse to any other remedy available under existing law

ISSUE: 12% or 18%.

HELD: Under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the
parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal to
the regular monetary interest becomes due and payable. Finally,
if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of
legal interest which is6%, or in the case of loans or forbearances of money, 12% per annum. It is only when the parties to a
contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest
per annum on a loan or forbearance of money. 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.

Land Bank of the Philippines v Ong

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 Spouses Sy could no longer pay their loan which resulted to the sale of three
(3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with
Assumption of Mortgage. Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform
them about the sale and assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing wrong with
agreement with the Spouses Sy and provided him requirements for the assumption of mortgage. Alfredo later found out that
his application for assumption of mortgage was not approved by Land Bank. On December 12, 1997, Alfredo initiated an action
for recovery of sum of money with damages against Land Bank, as Alfredo’s payment was not returned by Land Bank. Alfredo
said that Land Bank’s foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith
and that he was made to believed that P750,000 would cause Land Bank to approve his assumption to the mortgage. He also
claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages.
This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the case, RTC held that the contract
approving the assumption of mortgage was not perfected as a result of the credit investigation conducted on Alfredo where he
was disapproved.. As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the
fulfillment of the obligation under Article1236 of the Civil Code. Although Land Bank was not bound by the Deed between
Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank’s active preparations for Alfredo’s
assumption of mortgage essentially novated the agreement.

Issues :
1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there
is novation.
2) Whether or not the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court decision’s
ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum.

Ruling :
The Supreme Court affirmed with modification to the appealed decision that recourse against Land Bank. Land Bank contends
that Art.1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of
Land Bank. The court agreed with Land Bank on the point mentioned as to the first part of paragraph 1 of Art. 1236. However,.
Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage which
Land Bank required from him would be approved. Thus, he made payment not as a debtor but as a prospective mortgagor.
Furthermore, the contract between Alfredo and Land Bank was not perfected nor consummated because of the adverse
disapproval of the proposed assumption. The Supreme Court did not agree with the Court of Appeals that there was novation in
the contract between the parties because not all elements of novation were present. The court further stresses that the instant
case would not have been litigated had Land Bank been more circumspect in dealing with Alfredo. The bank chose to accept
payment from Alfredo even before a credit investigation was underway and also failed to informed him of the disapproval. The
court found that there was negligence to a certain degree on the part of Land Bank in handling the transaction with Alfredo. A
bank as a business entity should observe a higher standard of diligence when dealing with the public which Land Bank neglect
to observe in this case. The petitioner’s appeal was denied by the Supreme Court and the decision of the Court of Appeals was
affirmed with modification in that the amount of PhP 750,000 will earn interest at 6% per annum and the total aggregate
monetary awards will in turn earn 12% per annum from the finality of this Decision until fully paid.