Chee Kiong Yam v.

Malik
GR No-50550-52 October 31, 1979

Facts: Petitioners filed a petition for certiorari, prohibition and mandamus with preliminary injunction against
the respondent Judge Malik who ruled that several cases of estafa filed against the petitioners should be
admitted for trial in his sala. It must be noted that all complainants admitted that the money which the
petitioners did not return were obtained from them by the latter in a form of loans.

Issue: Can there be a crime of estafa for non-payment of a loan?

Held: No. In order that a person be convicted of Swindling (Estafa) under Art. 315 of the Revised Penal Code,
it must be proven that he has the obligation to deliver or return the same money, goods or personal property
that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which
they received from private respondents. This is so because as clearly stated in criminal complaints, the related
civil complaints and the supporting sworn statements, the sums of money that petitioners received were
loans. In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), the Supreme Court held that it is not estafa for a person to
refuse to pay his debt or to deny its existence.

It is the opinion of the Court that when the relation is purely that of debtor and creditor, the debtor can not
be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the
indebtedness.

It appeared that respondent judge failed to appreciate the distinction between the two types of loan,
mutuum and commodatum, when he performed the questioned acts. He mistook the transaction between
petitioners and private respondents to be commodatum wherein the borrower does not acquire ownership
over the thing borrowed and has the duty to return the same thing to the lender.
Producers Bank of the Phil v. CA

FACTS:

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela
Marketing and Services (“Sterela” for brevity). Specifically, Sanchez asked private respondent to deposit
in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation.
She assured private respondent that he could withdraw his money from said account within a month’s
time. With this, Mrs. Vivies, Sanchez and a certain Estrella Dumagpi, secretary of Doronilla, went to the
bank to open an account with Mrs. Vives and Sanchez as signatories. A passbook was then issued to Mrs.
Vives. Subsequently, private respondent learned that part of the money was withdrawn without
presentment of the passbook as it was his wife got hold of such. Mrs. Vives could not also withdraw said
remaining amount because it had to answer for some postdated checks issued by Doronilla who opened
a current account for Sterela and authorized the bank to debit savings.

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his client’s money. Doronilla issued another check for P212,000.00 in private respondent’s
favor but the check was again dishonored for insufficiency of funds.

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in
Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The RTC ruled in favor of the
private respondent which was also affirmed in toto by the CA. Hence this petition.

ISSUE: WON THE TRANSACTION BETWEEN THE DORONILLA AND RESPONDENT VIVES WAS ONE OF
SIMPLE LOAN.

HELD: NO.

A circumspect examination of the records reveals that the transaction between them was a
commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:

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.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum
may have for its object a consumable thing. Article 1936 of the Civil Code provides:

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.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent
acts of the parties shall be considered in such determination.
Tolentino v. Chiam

Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three installments. Tolentino
defaulted on the balance so the owner sent a letter of demand to him. To pay, Tolentino applied for loan
from Gonzalez on condition that he would execute a pacto de retro sale on the property in favor of
Gonzalez. Upon maturation of loan, Tolentino defaulted so Gonzalez is demanding recovery of the land.
Tolentino contends that the pacto de retro sale is a mortgage and not an absolute sale.

Issue:

WoN the contract between Gonzales and Tolentino is a pacto de retro sale or a mortgage.

Held:

It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to
declare the same to be a mortgage and not a sale whenever the interpretation of such a contract
justifies that conclusion. There must be something, however, in the language of the contract or in the
conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a
"mortgage" and not a pacto de retro. There is not a word, a phrase, a sentence or a paragraph in the
entire record, which justifies this court in holding that the said contract of pacto de retro is a mortgage
and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a
contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its
stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the
contracting parties, attention must be paid principally to their conduct at the time of making the
contract and subsequently thereto.
LIWANAG v. CA

G.R. No. 114398; October 24, 1997

FACTS:

Petitioner Carmen 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

Alarmed that Liwanag was no longer visiting her regarding their business and believing that the amounts
she advanced were being misappropriated, Rosales filed a case of estafa against Liwanag.

Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership,
wherein Rosales would contribute the funds while she would buy and sell the cigarettes, and later divide
the profits between them. She also argues that the transaction can also be interpreted as a simple loan,
with Rosales lending to her the amount stated on an installment basis. RTC found Liwanag guilty for
the crime of estafa. The Court of Appeals affirmed the lower court’s decision

ISSUE:

Whether Liwanag can be acquitted from the crime of estafa because she and Rosales formed a
partnership

HELD:

No, Liwanag could not be acquitted from the crime of estafa.

The Supreme Court held that Estafa is a crime committed by a person who defrauds another
causing him to suffer damages, by means of unfaithfulness or abuse of confidence, or of false pretenses
or fraudulent acts.

In the case at hand, 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.
SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE PHILIPPINES,
defendant-appellant. G.R. No. L-24968 | 1972-04-27

DOCTRINE: 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.

FACTS: Saura, Inc. applied to the RFC, for an industrial loan of P500,000.00 which approved by the latter
and to be secured by a mortgage. Loan documents were executed: the promissory note and the
corresponding deed of mortgage, which was duly registered. Subsequently in a meeting of RFC board to
which the President of Saura, Inc. was present, the loan was reduced to 300,000. Saura Inc. however that
the loan of 500,000 be approved. RFC accepted and approved the loan application subject to some
conditions which Saura admitted it could not comply with. Correspondence and negotiations came to a
halt and Saura, Inc. did not pursue further and instead requested the cancellation of mortgage and was
delivered to the President of Saura, Inc. Almost nine years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (DBP) to comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.

ISSUES

1. Whether there was there a perfected consensual contract?

2. Whether there was a real contract of loan which would warrant recovery of damages arising
out of breach of such contract?

HELD

1. Yes. There was indeed a perfected consensual contract, as recognized in Article 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. There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short of resolving the
basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.

2. None. Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so
wrote its letter asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw
materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied
in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes
other than those agreed upon. When RFC turned down the request in its letter the negotiations which
had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously
was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by
both parties was in the nature of mutual desistance — what Manresa terms "mutuo disenso" — which is
a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.
Roño v. Gomez

Facts:
On October 5, 1944, Cristobal Roño received as a loan four thousand pesos in Japanese fiat money from
Jose L. Gomez. He informed the later that he would use the money to purchase a jitney; and he agreed
to pay that debt one year after date in the currency then prevailing. He signed a promissory note of the
following tenor:

For value received, I promise to pay one year after date the sum of four thousand pesos (4,000) to Jose L.
Gomez. It is agreed that this will not earn any interest and the payment It is agreed that this will not earn
any interest and the payment prevailing by the end of the stipulated period of one year.

In consideration of this generous loan, I renounce any right that may come to me by reason of any
postwar arrangement, of privilege that may come to me by legislation wherein this sum may be
devalued. I renounce flatly and absolutely any condition, term right or privilege which in any way will
prejudice the right engendered by this agreement wherein Atty. Jose L. Gomez will receive by right his
money in the amount of P4,000. I affirm the legal tender, currency or any medium of exchange, or
money in this sum of P4,000 will be paid by me to Jose L. Gomez one year after this date, October 5,
1944.

On October 15, 1945, i.e., after the liberation, Roño was sued for payment in the Laguna Court of First
Instance. His main defense was his liability should not exceed the equivalent of 4,000 pesos "mickey
mouse" money — and could not be 4,000 pesos Philippine currency, because the contract would be void
as contrary to law, public order and good morals.

Issue:

WoN Roño will haveto pay four thousand pesos in Philippine currency.

Held:

Yes. One basic principle of the law on contracts of the Civil Code is that "the contracting parties may
establish any pacts, clauses and conditions they may deem advisable, provided they are not contrary to
law, morals or public order." (Article 1255.) Another principle is that "obligations arising from contracts
shall have the force of law between the contracting parties and must be performed in accordance with
their stipulations" (Article 1091).

Invoking the above proviso, Roño asserts this contract is contrary to the Usury law, because on the basis
of calculations by Government experts he only received the equivalent of one hundred Philippine pesos
and now he is required to disgorge four thousand pesos or interest greatly in excess of the lawful rates.

But he is not paying interest. Precisely the contract says that the money received "will not earn any
interest." Furthermore, he received four thousand pesos; and he is required to pay four thousand pesos
exactly. The increased intrinsic value and purchasing power of the current money is consequence of an
event (change of currency) which at the time of the contract neither party knew would certainly happen
within the period of one year. They both elected to subject their rights and obligations to that
contingency. If within one year another kind of currency became legal tender, Gomez would probably get
more for his money. If the same Japanese currency continued, he would get less, the value of Japanese
money being then on the downgrade.
Nepomuceno v. Narciso

Facts:

On November 14, 1938, appellant Mariano Nepomuceno executed a mortgage in favor of the appellees
on a parcel of land situated in the municipality of Angeles, Province of Pampanga, to secure the payment
within the period of seven years from the date of the mortgage of the sum of P24,000 together with
interest thereon at the rate of 8 per cent per annum.

On September 30, 1943, that is to say, more than two years before the maturity of said mortgage, the
parties executed a notarial document entitled "Partial Novation of Contract" whereby they modified the
terms of said mortgage as follows:

(1) From December 8, 1941, to January 1, 1944, the interest on the mortgage shall be at 6 per
cent per annum, unpaid interest also paying interest also paying interest at the same rate.
(2) Xxxxxxx
(3) Xxxxxxx
(4) While the war goes on, the mortgagor, his administrators or assigns, cannot redeem the
property mortgaged.

Appellants contend that the stipulation in the contract of September 30, 1943, that "while the war goes
on the mortgagor, his administrators or assigns cannot redeem the property mortgaged," is against
public policy and therefore null and void.

They argue that "it would certainly be against public policy and a restraint on the freedom of commerce
to compel a debtor not to release his property from a lien — even if he wanted to by the payment of the
indebtedness — while the war goes on, which was undoubtedly of a very uncertain duration."

Issue:

WoN the stipulation in their contract that the mortgagor shall not pay off the mortgage while the war
went on is against public policy.

Held:

We find nothing immoral or violative of public order in that stipulation. The mortgagees apparently did
not want to have their prewar credit paid with Japanese military notes, and the mortgagor voluntarily
agreed not to do so in consideration of the reduction of the rate of interest.

It was a perfectly equitable and valid transaction, in conformity with the provision of the Civil Code
hereinabove quoted.

Appellants were bound by said contract and appellees were not obligated to receive the payment before
it was due. Hence the latter had reason not to accept the tender of payment made to them by the
former.
EQUITABLE PCI BANK V. NG SHEUNG NGOR (2007)

FACTS: Respondent Ng Sheung Ngor, Ken Appliance Division, Inc and Benjamin E. Go filed an action for
annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel Apas.

1. Respondents claimed that Equitable induced them to avail of its peso and dollar credit facilities by
offering low interest rates so they accepted the propodal and signed the bank’s printed promissory notes
on various dates beginning 1996. But they were unaware that the documents contain identical escalation
clause granting Equitable authority to increase interest rates without their consent

2. Equitable asserted that respondents knowingly accepted all the terms and conditions contained in the
promissory notes, also they continuously availed of and benefited from Equitable’s credit facilities for
five years.

3. The trial court upheld the validity of the promissory notes however it invalidated the escalation clause
for it violated the principle of mutuality of contracts. It also took judicial notice of the steep depreciation
of the peso during the intervening period and declared the existence of extraordinary deflation

4. RTC ordered the use of the 1996 dollar exchange rate in computing respondent’s dollar denominated
loans and awarded moral and exemplary damages.

5. Equitable filed an MR, while respondents prayed for the issuance of a writ of execution.

6. RTC issued an omnibus order denying MR and ordered the issuance of the motion of a writ of
execution in favor of respondents.

7. Three real properties of Equitable were levied upon and were sold in a public auction. Respondents
were the highest bidder and certificates of sale were issued.

8. Equitable filed a petition for certiorari with an application for an injunction in the CA to enjoin the
implementation and execution of the omnibus order. CA granted Equitable’s application for injunction
was granted.

9. Despite the injunction, Equitable’s properties previously levied were sold in a public auction to
respondent. Equitable moved to annul the auction sale. CA dismissed the petition for certiorari, hence
this petition.

ISSUE: What is the relationship between the bank and its depositor?

HELD: The relationship between the bank and its depositor is that of creditor and debtor. For this reason,
a bank has the right to set off the deposit in its hands for the payment of a depositor’s indebtedness.
Respondent indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its
legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately)
concluded that Equitable acted “fraudulently or in bad faith or in wanton disregard” of its contractual
obligations despite the absence of proof. The undeniable fact was that, whatever damage respondents
sustained was purely the consequence of their failure to pay their loans. There was therefore absolutely
no basis for the award of moral damages to them.
PAN PACIFIC SERVICE CONTRACTORS, INC. and RICARDO F. DEL

ROSARIO, Petitioners,

vs.

EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL

INTERNATIONAL BANK), Respondent.

Facts:

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on
airconditioning system. On 24 November 1989, Pan Pacific through its President, Ricardo F. Del Rosario
(Del Rosario), entered into a contract of mechanical works (Contract) with respondent for P20,688,800.
Pan Pacific and respondent also agreed on nine change orders for P2,622,610.30. Thus, the total
consideration for the whole project was P23,311,410.30. The Contract stipulated, among others, that
Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of
materials under paragraphs 70.1 and 70.2 of the "General Conditions for the Construction of PCIB Tower
II Extension" (the escalation clause). Pursuant to the contract, Pan Pacific commenced the mechanical
works in the project site, the PCIB Tower II extension building in Makati City. The project was completed
in June 1992. Respondent accepted the project on 9 July 1992.

In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the escalation
clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondent’s appointed project
engineer, TCGI Engineers, asked for a reduction in the price adjustment. To show goodwill, Pan Pacific
reduced the price adjustment toP4,858,548.67.

On 28 April 1992, TCGI Engineers recommended to respondent that the price adjustment should be
pegged atP3,730,957.07. TCGI Engineers based their evaluation of the price adjustment on the following
factors:

1. Labor Indices of the Department of Labor and Employment.

2. Price Index of the National Statistics Office. PD 1594 and its Implementing Rules and Regulations as
amended, 15 March 1991.

Shipping Documents submitted by PPSCI.

Sub-clause 70.1 of the General Conditions of the Contract Documents.

Pan Pacific contended that with this recommendation, respondent was already estopped from
disclaiming liability of at least P3,730,957.07 in accordance with the escalation clause. Due to the
extraordinary increases in the costs of labor and materials, Pan Pacific’s operational capital was
becoming inadequate for the project. However, respondent withheld the payment of the price
adjustment under the escalation clause despite Pan Pacific’s repeated demands. Instead, respondent
offered Pan Pacific a loan of P1.8 million. Against its will and on the strength of respondent’s promise
that the price adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained to
execute a promissory note in the amount of P1.8 million as a requirement for the loan. Pan Pacific also
posted a surety bond. The P1.81 million 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. Pan Pacific alleged that the promissory note did not
express the true agreement of the parties. Pan Pacific maintained that the P1.8 million was to be
considered as an advance payment on the price adjustment. Therefore, there was really no
consideration for the promissory note; hence, it is null and void from the beginning.

Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it
would offset the price adjustment with Pan Pacific’s outstanding balance of P3,226,186.01, representing
the loan, interests, penalties and collection charges.

Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as
recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and
P414,942 as advance payments.

On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory
note, sum of money, and damages against the respondent with the RTC.

Issue:

Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate
at 12% instead of the 18% bank lending rate.

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 is 6%, 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.