ACME vs.
CA Refusal on the part of the borrower to execute the agreement so as to cover the
(G.R. NO. 103576, AUG 22, 1996)
VITUG, J
FACTS:  constitution and during the life of the chattel mortgage sought to be foreclosed.
Petitioner Chua Pac, the president and general manager of co-petitioner Acme
executed a chattel mortgage in favor of private respondent Producers Bank as a
security for a loan of P3,000,000. A provision in the chattel mortgage agreement
was to this effect:
"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."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained
additional loan totalling P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00) covered by four promissory notes
for P250,000.00 each, but went unsettled prompting the bank to apply for an
extrajudicial foreclosure with the Sheriff.
ISSUE: 
Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred?
HELD:
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure
after-incurred obligations so long as these future debts are accurately described, 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.
after-incurred obligation can constitute an act of default on the part of the
borrower of the financing agreement whereon the promise is written but, of course,
the remedy of foreclosure can only cover the debts extant at the time of
NAVOA vs. CA
(G.R. NO. 59255, DEC 29, 1995)
BELLOSILLO, J
FACTS:
On December 1977 Teresita Domdoma and Eduardo Domdoma filed a case with the
RTC for collection of various sums of money based on loans given by them to Olivia
Navoa. They cased was dismissed on the ground that there was no cause of action
and that the Domdoma’s do not have no capacity to sue. They appealed to the C.A.
and was granted a favourable decision.
There were 6 instances in which the Domdoma’s gave Olivia Navoa a loan. The first
instance is when Teresita gave Olivia a diamond ring valued at 15,000.00 which was
secured by a PCIB check under the condition that if the ring was not returned within
15 days from August 15, 1977 the ring is considered sold. Teresita attempted to
deposit the check on November 1977 but the check was not honoured for lack of
funds. After this instance, there were other loans of various amounts that were
extended by Teresita to Olivia, loans which were secured by PCIB checks, which
were all dated to 1 month after the loan. All these checks were not honoured under
the same reason as the first loan.
ISSUE:
Was the decision of the RTC to dismiss the case due to having no cause of action
valid?
HELD:
NO. A cause of action is the fact or combination of facts which affords a party a right
to judicial interference in his behalf. 
- For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15
days after August 15, 1977, and even then, Olivia Navoa failed to pay the price for
the ring when the payment was due (check issued was not honoured. Thus it is
confirmed that Teresita’s right under the agreement was violated.
- As for the other loans extended by Teresita to Olivia, they were all secured by PCIB
checks. It can be inferred that since the checks were all dated to 1 month after the
loan, it follows that the loans are then payable 1 month after they were contracted,
and also these checks were dishonoured by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks that were issued as
payment for their obligations. Art 1169 of the Civil Code is explicit: those obliged to
deliver or to do something incur in delay from the time the obligee judicially or
extra-judicially demands from them the fulfilment of the obligations, the continuing HERRERA vs. PETROPHIL
refusal of Olivia and Ernesto Navoa to comply with the demand of payment shows (G.R. NO. L-48349, DEC 29, 1986)
the existence of a cause of action. The petition is DENIED and the decision of the
C.A. remanding the case to the RTC for trial on the merits is affirmed.  CRUZ, J

Obligations and Contracts

Security- A means of ensuring the enforcement of an obligation or of protecting
terms:
On December 5,
1969, Herrera and
some interest in property. It may be personal or property security.
Cause of Action- is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right
in favour of the plaintiff by whatever means and under whatever law it arises or
created, (b) an obligation on the part of the defendant to respect and not to violate
such right; and, (c) an act or omission on the part of the defendant constituting a
violation of the plaintiff’s right or breach of the obligation of the defendant to the
ESSO Standard,
plaintiff. 
(later substituted
PEOPLE vs. CONCEPCION
(G.R. NO. 19190, NOV 29, 1922) by Petrophil Corp.,)
entered into a lease
MALCOLM, J
FACTS:
Defendant authorized an extension of credit in favor of Concepcion, a co-

agreement,
partnership.  Defendant’s  wife was  a director  of  this  co-partnership. Defendant
was found guilty of violating Sec. 35 of Act No. 2747 which says that “The National
Bank shall not, directly or indirectly, grant loans to any of the members of the Board

whereby the former

of Directors of the bank nor to agents of the branch banks.” This Section was
in effect in 1919 but was repealed in Act No. 2938 approved on January 30, 1921.

ISSUE:
W/N Defendant can be convicted of violating Sections of Act No. 2747, which were
repealed by Act No. 2938. leased to the latter
HELD:
 In the interpretation and construction, the primary rule is to ascertain and
give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act
a portion of his
No. 2747 provides a punishment for any person who shall violate any provisions of
the Act. Defendant contends that the repeal of these Sections by Act No. 2938 has
served to take away basis for criminal  prosecution. The Court holds that where an
property
act of the Legislature  which penalizes  an offense repeals  a former  act  which
penalized the same offense,  such repeal  does  not  have the
effect  of  thereafter  depriving the Courts of jurisdiction to try, convict and
sentence offenders charged with violations of the old law.
for a period of ESSO deducted the
20yrs. subject to the amount of 101,
condition that 010.73 as interest
monthly rentals or discount for the
should be paid and eight years advance
there rental.
should be an  On August 20,
advance payment of 1970, ESSO
rentals for the first informed Herrera
eight years of the that there had been
contract, to which a mistake in the
ESSO computation of the
paid on December interest and paid an
31, 1969. However, additional sum of
2,182.70; thus, it was not usurious
was reduced to interest but rather a
98, 828.03. discount
 As such, Herrera given to it for
sued ESSO for the paying the rentals in
sum of 98, 828.03, advance. Judgment
with interest, on the pleadings
claiming that was rendered in
this had been favor of ESSO.
illegally deducted to Thus, the matter
him in violation of was elevated to
the Usury Law. the SC for only
 ESSO argued that questions of law
amount deducted was
involve. condition that
On December 5, monthly rentals
1969, Herrera and should be paid and
ESSO Standard, there
(later substituted should be an
by Petrophil Corp.,) advance payment of
entered into a lease rentals for the first
agreement, eight years of the
whereby the former contract, to which
leased to the latter ESSO
a portion of his paid on December
property 31, 1969. However,
for a period of ESSO deducted the
20yrs. subject to the
amount of 101, 2,182.70; thus, it
010.73 as interest was reduced to
or discount for the 98, 828.03.
eight years advance  As such, Herrera
rental. sued ESSO for the
 On August 20, sum of 98, 828.03,
1970, ESSO with interest,
informed Herrera claiming that
that there had been this had been
a mistake in the illegally deducted to
computation of the him in violation of
interest and paid an the Usury Law.
additional sum of  ESSO argued that
amount deducted
was not usurious involve.
interest but rather a On December 5,
discount 1969, Herrera and
given to it for ESSO Standard,
paying the rentals in (later substituted
advance. Judgment by Petrophil Corp.,)
on the pleadings entered into a lease
was rendered in agreement,
favor of ESSO. whereby the former
Thus, the matter leased to the latter
was elevated to a portion of his
the SC for only property
questions of law for a period of
was 20yrs. subject to the
condition that amount of 101,
monthly rentals 010.73 as interest
should be paid and or discount for the
there eight years advance
should be an rental.
advance payment of  On August 20,
rentals for the first 1970, ESSO
eight years of the informed Herrera
contract, to which that there had been
ESSO a mistake in the
paid on December computation of the
31, 1969. However, interest and paid an
ESSO deducted the additional sum of
2,182.70; thus, it was not usurious
was reduced to interest but rather a
98, 828.03. discount
 As such, Herrera given to it for
sued ESSO for the paying the rentals in
sum of 98, 828.03, advance. Judgment
with interest, on the pleadings
claiming that was rendered in
this had been favor of ESSO.
illegally deducted to Thus, the matter
him in violation of was elevated to
the Usury Law. the SC for only
 ESSO argued that questions of law
amount deducted was
involve.
(L-17474, OCT 25, 1962)

PADILLA, J
FACTS:
Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for
breeding purposes subject to payment of breeding fee of 10% of book value of the
bull. Upon expiration, Bagtas asked for renewal. The renewal was granted only to
one bull. Bagtas offered to buy the bulls at its book value less depreciation but the
Bureau refused. The Bureau said that Bagtas should either return or buy it at book
value. Bagtas proved that he already returned two of the bulls, and the other bull
died during a Huk raid, hence, obligation already extinguished. He claims that the
contract is a commodatum hence, loss through fortuitous event should be borne by
the owner.

ISSUE:
WON Bagtas is liable for the death of the bull.

HELD:
Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10%
charge. If this is considered compensation, then the case at bar is a lease. Lessee is
liable as possessor in bad faith because the period already lapsed.
Even if this is a commodatum, Bagtas is still liable because the fortuitous event
happened when he held the bull and the period stipulated already expired and he is
liable because the thing loaned was delivered with appraisal of value and there was
no contrary stipulation regarding his liability in case there is a fortuitous event.

MINA vs. PASCUAL

(G.R. No. 8321, OCT 14, 1913)

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

ISSUE:
Whether or not the nature of the contract of Francisco and Andres is that of
commodatum

REPUBLIC vs. BAGTAS HELD:

YES.  It is an essential feature of commodatum that the use of the thing belonging to
another shall be for a certain period. The parties never fixed a definite period during
which Andres could use the lot and afterwards return it.
CEBU INTERNATIONAL vs. CA
(G.R. No. 123031, OCT 12, 1999)
QUISUMBING, J
FACTS:
Vicente Alegre invested with Cebu International Finance Corporation (CIFC)
P500,000 in cash. CIFC issued promissory note which covered private respondent’s
placement. CIFC issued BPI Check No. 513397 (the Check) in favor of private
respondent as proceeds of his matured investment. Mrs. Alegre deposited the
Check with RCBC but BPI dishonoured it, annotating therein that the “Check is
subject of an investigation”. BPI took possession of the Check pending investigation
of several counterfeit checks drawn against CIFC’s checking account. Private
respondent demanded from CIFC that he be paid in cash but the latter refused.
Private respondent Alegre filed a case for recovery of a sum of money against CIFC.
CIFC asserts that since BPI accepted the instrument, the bank became primarily
liable for the payment of the Check. When BPI offset the value of the Check against
the losses from the forged cheks allegedly committed by private respondent, the
Check was deemed paid.
ISSUE:
Whether or not petitioner CIFC is discharged from the liability of paying the value of
the Check.
HELD:
The Court held in the negative. In a money market transaction, the investor is a
lender who loans his money to a borrower through a middleman or dealer. A check
is not legal tender, and therefore cannot constitute valid tender of payment. Since a
negotiable instrument is only substitute for money and not money, the delivery of
such an instrument does not by itself, operate as payment. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is
actually realized. (Article 1249)
Petition denied.
COLINARES vs. CA
(G.R. No. 90828, SEP 5, 2000)
DAVIDE, JR., CJ
FACTS:
Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to
renovate the latter’s convent at Camaman-an, Cagayan de Oro City. Colinares
applied for a commercial letter of credit  with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC
approved the letter of credit  for P22,389.80 to cover the full invoice value of the
goods. Petitioners signed a pro-forma trust receipt  as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the
loan.  After the initial payment, the spouses defaulted.  PBC wrote  to Petitioners
demanding that the amount be paid within seven days from notice. Instead of
complying with PBC’s demand, Veloso confessed that they lost P19,195.83 in the
Carmelite Monastery Project and requested for a grace period of until 15 June 1980
to settle the account.  Colinares proposed  that the terms of payment of the loan be
modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending
approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981.
Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel,
PBC continued to demand payment of the balance.  On 14 January 1983, Petitioners
were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to
Article 315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner
Colinares signed the documents without reading the fine print, only learning of the
trust receipt implication much later. When he brought this to the attention of PBC,
Mr. Tuiza assured him that the trust receipt was a mere formality. The Trust
Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. Here, it is crystal
clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
ISSUE:
Whether or not the transaction of Colinares falls within the ambit of the Law on
Trust Receipt
HELD:
Colinares received the merchandise from CM Builders Centre on 30 October 1979.
On that day, ownership over the merchandise was already transferred to
Petitioners who were to use the materials for their construction project. It was only
a day later, 31 October 1979, that they went to the bank to apply for a loan to pay
for the merchandise. This situation belies what normally obtains in a pure trust
receipt transaction where goods are owned by the bank and only released to the
importer in trust subsequent to the grant of the loan.
The bank acquires a “security interest” in the goods as holder of a security title for
the advances it had made to the entrustee. The ownership of the merchandise
continues to be vested in the person who had advanced payment until he has been
paid in full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or successor
in interest. To secure that the bank shall be paid, it takes full title to the goods at
the very beginning and continues to hold that title as his indispensable security until
the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. In a
certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has
paid its price. There are two possible situations in a trust receipt transaction. The
first is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it (devolvera) to the owner.
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered
by the trust receipt to the entruster or to return said goods if they were not
disposed of in accordance with the terms of the trust receipt shall be punishable as
estafa under Article 315 (1) of the Revised Penal Code, without need of proving
intent to defraud.