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CREDIT TRANSACTIONS JD-B ATTY.

IGNACIO
I. LOAN (Arts 1933-1964) Under their agreement, Rosales would give the money needed to buy
the cigarettes while Liwanag and Tabligan would act as her agents, with
a) Gen Provisions (Arts. 1933-1934) 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
TITLE XI amounting to P633,650.00.
LOAN
During the first two months, Liwanag and Tabligan made periodic visits
General Provisions to Rosales to report on the progress of the transactions. The visits,
however, suddenly stopped, and all efforts by Rosales to obtain
Article 1933. By the contract of loan, one of the parties delivers to information regarding their business proved futile.
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 Alarmed by this development and believing that the amounts she
called a commodatum; or money or other consumable thing, upon the advanced were being misappropriated, Rosales filed a case of estafa
condition that the same amount of the same kind and quality shall be against Liwanag.
paid, in which case the contract is simply called a loan or mutuum.
The Trial Court rendered Liwanag guilty as charged, which was
Commodatum is essentially gratuitous. affirmed with modification by the CA.

Simple loan may be gratuitous or with a stipulation to pay interest. Issue:

WON the transaction entered by Liwanag and Rosales can be


In commodatum the bailor retains the ownership of the thing loaned,
considered as a simple loan only?
while in simple loan, ownership passes to the borrower. (1740a)
Held:
Article 1934. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon parties, but the No. In a contract of loan once the money is received by the debtor,
commodatum or simple loan itself shall not be perfected until the ownership over the same is transferred. Being the owner, the
delivery of the object of the contract. (n) 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
1. LIWANAG VS CA, 281 SCRA 225 (1997) #1 CAMASO purchase of cigarettes, and in the event the cigarettes cannot be sold,
the money must be returned to Rosales.
Facts:
It is evident that Liwanag could not dispose of the money as she
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan pleased because it was only delivered to her for a single purpose,
went to the house of complainant Isidora Rosales (Rosales) and asked namely, for the purchase of cigarettes, and if this was not possible then
her to join them in the business of buying and selling cigarettes. to return the money to Rosales. Since in this case there was no transfer
Convinced of the feasibility of the venture, Rosales readily agreed. of ownership of the money delivered,
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
than a lease. The provision for the payment of rentals in advance
2. HERRERA VS PETROPHIL CORP, GR No. 48349, 29 Dec. cannot be construed as a repayment of a loan because there was no
1986 #2 ANTIOJO grant or forbearance of money as to constitute an indebtedness on the
part of the lessor. On the contrary, the defendant-appellee was
A loan must be in form of money or something circulating discharging its obligation in advance by paying the eight years rental,
as money. It must be payable absolutely and in all events and it was for this advance payment that it was getting a rebate or
discount.
FACTS:
There is no usury in this case because no money was given by
On December 5, 1969, Herrera and ESSO Standard, (later the defendant-appellee to the plaintiff-appellant, nor did it allow him to
substituted by Petrophil Corp.,) entered into a lease agreement, use its money already in his possession. There was neither loan nor
whereby the former leased to the latter a portion of his property for a forbearance but a mere discount which the plaintiff-appellant allowed
period of 20 yrs. subject to the condition that monthly rentals should be the defendant-appellee to deduct from the total payments because they
paid and there should be an advance payment of rentals for the first were being made in advance for eight years. The discount was in effect
eight years of the contract, to which ESSO paid on December 31, 1969. a reduction of the rentals which the lessor had the right to determine,
However, ESSO deducted the amount of 101, 010.73 as interest or and any reduction thereof, by any amount, would not contravene the
discount for the eight years advance rental. Usury Law.

On August 20, 1970, ESSO informed Herrera that there had The difference between a discount and a loan or forbearance is
been a mistake in the computation of the interest and paid an additional that the former does not have to be repaid. The loan or forbearance is
sum of 2,182.70; thus, it was reduced to 98, 828.03. subject to repayment and is therefore governed by the laws on usury.

As such, Herrera sued ESSO for the sum of 98, 828.03, with To constitute usury, "there must be loan or forbearance; the loan
interest, claiming that this had been illegally deducted to him in violation must be of money or something circulating as money; it must be
of the Usury Law. 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
ESSO argued that amount deducted was not usurious interest by law."
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 It has been held that the elements of usury are (1) a loan,
matter was elevated to the SC for only questions of law were involve. 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
ISSUE: Whether the contract between the parties is one of loan or or interest that is allowed by law shall be paid, or agreed to be paid, as
lease? 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
RULING: every transaction, it is safe to affirm that no case of usury can be
declared.
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
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3. KIM VS PEOPLE, GR No. 84719, 25 Jan. 1991 #3 CASTRO Under EO no.10, Cash advances are to be liquidated within 30
S days after projected return of the employee, otherwise there will be a
corresponding salary deduction. Liquidation means settling of
Cash advance when not liquidated is considered as loan 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
FACTS: 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
Petitioner Kim Yong Chan (Kim) was employed as a researcher he received is less than the amount he spent for actual travel . . . he
in Aquaculture Department of the Southeast Asian Fisheries has the right to demand reimbursement from his employer the amount
Development Center (SEAFDEC) with head office in Tigbauan, Iloilo. he spent coming from his personal funds. In other words, the money
His work, being the head in his unit, requires him to travel to various advanced by either party is actually a loan to the other.
selected provinces in the country. On June 15 1982, Kim was issued
Travel Order 2222 which covered his travels to different places in Luzon Under Art.1953, it is provided that the person who receives a
from June 16 to July 21. He received P6,438 cash advance under such loan acquires the ownership thereof. Applying the foregoing in the
TO. Within the same period, he was issued another travel order, TO present case, ownership of the money was transferred to Kim. Hence,
2268, requiring him to travel from head office to Roxas City from June he was under no legal obligation to return the same cash or money.
30 to July 4. He received P495 cash advance.
CREDIT CARD
He presented both travel orders for liquidation. When the Travel
Expense Reports were audited, it was discovered that there was an Credit Cards; Words and Phrases; A credit card is defined as any
overlap of 4 days (June 30-July 3) in the two travel orders for which Kim card, plate, coupon book, or other credit device existing for the
collected per diems twice. The total amount charged and collected by purpose of obtaining money, goods, property, labor or services or
Kim when he did not actually and physically travel is P1,230. Kim anything of value on credit; It traces its roots to the charge card first
claimed that he made make-up trips he failed to undertake under TO introduced by the Diners Club in New York City in 1950; In the
2222 because he was recalled to the head office. Philippines, the now defunct Pacific Bank was responsible for bringing
the first credit card into the country in the 1970s.A credit card is
` 2 complaints for Estafa were filed against him. One was defined as any card, plate, coupon book, or other credit device
dismissed for failure to prosecute. The other one convicted him. The existing for the purpose of obtaining money, goods, property, labor or
RTC affirmed the decision of MTC. CA dismissed Kims appeal for services or anything of value on credit. It traces its roots to the
being filed out of time. charge card first introduced by the Diners Club in New York City in
ISSUE: Whether Kim is criminally liable for the crime of Estafa 1950. American Express followed suit by introducing its own charge
card to the American market in 1958. In the Philippines, the now
HELD: No. 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
For him to be convicted, it must be proven that he had the that credit card use gained wide acceptance in the country, as
obligation to deliver or return the same money, good or personal evidenced by the surge in the number of credit card holders then.
property that he had received. The Court ruled that Kim has no Same; Every credit card transaction involves three contracts the
obligation to return the same money (cash advance) he received. sales contract, the loan agreement, and the promise to pay.Simply
put, every credit card transaction involves three contracts, namely: (a)
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the sales contract between the credit card holder and the merchant or
the business establishment which accepted the credit card; (b) the After the Amsterdam incident that happened involving the delay of
loan agreement between the credit card issuer and the credit card American Express Card to approve his credit card purchases worth
holder; and lastly, (c) the promise to pay between the credit card US$13,826.00 at the Coster store, Pantaleon commenced a complaint
issuer and the merchant or business establishment. Pantaleon vs. for moral and exemplary damages before the RTC against American
American Express International, Inc., 629 SCRA 276, G.R. No. Express. He said that he and his family experienced inconvenience and
174269<br/> August 25, 2010 humiliation due to the delays in credit authorization. RTC rendered a
decision in favor of Pantaleon. CA reversed the award of damages in
Credit Cards; Words and Phrases; A credit card is defined as any favor of Pantaleon, holding that AmEx had not breached its obligations
card, plate, coupon book, or other credit device existing for the to Pantaleon, as the purchase at Coster deviated from Pantaleon's
purpose of obtaining money, goods, property, labor or services or established charge purchase pattern.
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 ISSUE:
Philippines, the now defunct Pacific Bank was responsible for bringing 1. Whether or not AmEx had committed a breach of its obligations to
the first credit card into the country in the 1970s.A credit card is Pantaleon.
defined as any card, plate, coupon book, or other credit device 2. Whether or not AmEx is liable for damages.
existing for the purpose of obtaining money, goods, property, labor or
services or anything of value on credit. It traces its roots to the RULING:
charge card first introduced by the Diners Club in New York City in 1. Yes. The popular notion that credit card purchases are approved
1950. American Express followed suit by introducing its own charge within seconds, there really is no strict, legally determinative point of
card to the American market in 1958. In the Philippines, the now demarcation on how long must it take for a credit card company to
defunct Pacific Bank was responsible for bringing the first credit card approve or disapprove a customers purchase, much less one
into the country in the 1970s. However, it was only in the early 2000s specifically contracted upon by the parties. One hour appears to be
that credit card use gained wide acceptance in the country, as patently unreasonable length of time to approve or disapprove a credit
evidenced by the surge in the number of credit card holders then. card purchase.
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 culpable failure of AmEx herein is not the failure to timely approve
the sales contract between the credit card holder and the merchant or petitioners purchase, but the more elemental failure to timely act on the
the business establishment which accepted the credit card; (b) the same, whether favorably or unfavorably. Even assuming that AmExs
loan agreement between the credit card issuer and the credit card credit authorizers did not have sufficient basis on hand to make a
holder; and lastly, (c) the promise to pay between the credit card judgment, we see no reason why it could not have promptly informed
issuer and the merchant or business establishment. Pantaleon the reason for the delay, and duly advised him that resolving
the same could take some time.
Pantaleon vs American Express International Inc

G.R. No. 174269, May 8 2009 [Credit Transaction] 2. Yes. The reason why Pantaleon is entitled to damages is not simply
because AmEx incurred delay, but because the delay, for which
FACTS: culpability lies under Article 1170, led to the particular injuries under
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Article 2217 of the Civil Code for which moral damages are (1) The death of either the bailor or the bailee extinguishes the
remunerative. The somewhat unusual attending circumstances to the contract;
purchase at Coster that there was a deadline for the completion of
that purchase by petitioner before any delay would redound to the injury (2) The bailee can neither lend nor lease the object of the
of his several traveling companions gave rise to the moral shock, contract to a third person. However, the members of the
mental anguish, serious anxiety, wounded feelings and social bailee's household may make use of the thing loaned, unless
humiliation sustained by Pantaleon, as concluded by the RTC. there is a stipulation to the contrary, or unless the nature of the
thing forbids such use. (n)
*Discounting:
Article 1940. A stipulation that the bailee may make use of the fruits
It is a mode of loaning with the agreement that interest is of the thing loaned is valid. (n)
deducted in advance

b) Commodatum (Arts. 1935-1952) 4. CATHOLIC VICAR APOSTOLIC OF THE MT. PROV. VS CA,
165 SCRA 515 (1988) #4 CASTRO J
b.1) Nature of Commodatum (Arts. 1935-1940)
When petitoner borrowed the house of private respondents
predecessors, and the petitioner was allowed its free use, private
Nature of Commodatum respondents became bailors in commodatum, and petitioner, the
bailee
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 Facts:
acquires the use, the contract ceases to be a commodatum. (1941a)
Background: Catholic Vicar filed an application for registration
Article 1936. Consumable goods may be the subject of commodatum of title over Lots 1, 2, 3, and 4 which were situated in La Trinidad,
if the purpose of the contract is not the consumption of the object, as Benguet. The said lots were the sites of the Catholic Church building,
when it is merely for exhibition. (n) convents, high school building, school gymnasium, and other
structures. The Heirs of Juan Valdez and Egmidio Octaviano opposed
Article 1937. Movable or immovable property may be the object of the registration of lots 2 and 3 respectively. After trial the land
commodatum. (n) registration court ruled in favor of Vicar but the CA reversed the lower
courts decision and dismissed Vicars application over lots 2 and 3.
Article 1938. The bailor in commodatum need not be the owner of the The Supreme Court sustained the ruling of the CA. Thereafter, the
thing loaned. (n) 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
Article 1939. Commodatum is purely personal in character. motion on the ground that the CAs prior decision did not grant the Heirs
Consequently: any affirmative relief. The Heirs appealed the denial of their motion but
the case was also dismissed by the CA.

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It was at that stage that the instant cases were filed. The Heirs and the convent were destroyed. They never asked for the return of the
of Octaviano filed a case for recovery of possession of Lot 3 and the house, but when they allowed its free use, they (the Heirs) became
Heirs of Valdez likewise filed the same case over Lot 2. At the trial, the bailors in commodatum and the petitioner the bailee. The bailees'
Heirs of Octaviano presented Fructuoso Valdez. The latter testified on failure to return the subject matter of commodatum to the bailor did not
the ownership of the land by their predecessors-in-interest, Egmidio mean adverse possession on the part of the borrower. The bailee held
Octaviano. On the other hand, Vicar presented the Register of Deeds in trust the property subject matter of commodatum. The adverse claim
of Benguet, Atty. Nicanor Sison, who testified that the land is not of petitioner came only in 1951 when it declared the lots for taxation
covered by any title in the name of Egmidio Octaviano. Vicar claims that purposes. The action of petitioner Vicar by such adverse claim could
they have been in possession of the questioned lots for 75 years not ripen into title by way of ordinary acquisitive prescription because
continuously and peacefully and has constructed permanent structures of the absence of just title.
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 5. Obligations of the bailee (Arts. 1941 1945) #5 DEIMRY
judicata. Plaintiffs contend that the question of possession and
ownership have already been determined by the CA and affirmed by Obligations of the Bailee
the Supreme Court. After yet another unfavorable decision, Vicar filed
a petition for review before the SC. Article 1941. The bailee is obliged to pay for the ordinary expenses
for the use and preservation of the thing loaned. (1743a)
Issue: WON Vicar can claim ownership over the land in question?
Article 1942. The bailee is liable for the loss of the thing, even if it
Ruling: NO. Petitioner questions the ruling of respondent Court
should be through a fortuitous event:
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
(1) If he devotes the thing to any purpose different from that for
the background facts) on the question of ownership of Lots 2 and 3,
which it has been loaned;
declared that the said Court of 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 (2) If he keeps it longer than the period stipulated, or after the
respondents were possessors of Lots 2 and 3, with claim of ownership accomplishment of the use for which the commodatum has
in good faith from 1906 to 1951. Petitioner was in possession as been constituted;
borrower in commodatum up to 1951, when it repudiated the trust by
declaring the properties in its name for taxation purposes. When (3) If the thing loaned has been delivered with appraisal of its
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in value, unless there is a stipulation exempting the bailee from
possession in concept of owner only for eleven years. Ordinary responsibility in case of a fortuitous event;
acquisitive prescription requires possession for ten years, but always
with just title (which the petitioner does not have). Extraordinary (4) If he lends or leases the thing to a third person, who is not
acquisitive prescription requires 30 years (petitioner is in possession for a member of his household;
only 11 years). Private respondents were able to prove that their
predecessors' house was borrowed by petitioner Vicar after the church
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(5) If, being able to save either the thing borrowed or his own (2) If the use of the thing is merely tolerated by the owner.
thing, he chose to save the latter. (1744a and 1745) (1750a)

Article 1943. The bailee does not answer for the deterioration of the Article 1948. The bailor may demand the immediate return of the
thing loaned due only to the use thereof and without his fault. (1746) thing if the bailee commits any act of ingratitude specified in article
765. (n)
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 Article 1949. The bailor shall refund the extraordinary expenses
of expenses. However, the bailee has a right of retention for damages during the contract for the preservation of the thing loaned, provided
mentioned in article 1951. (1747a) 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
Article 1945. When there are two or more bailees to whom a thing is notification cannot be awaited without danger.
loaned in the same contract, they are liable solidarily. (1748a)
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
b.3) OBLIGATIONS OF THE BAILOR (Arts. 1946-1952) Dinglasan is a stipulation to the contrary. (1751a)

Article 1950. If, for the purpose of making use of the thing, the bailee
SECTION 3 incurs expenses other than those referred to in articles 1941 and
Obligations of the Bailor 1949, he is not entitled to reimbursement. (n)

ARTICLE 1946. The bailor cannot demand the return of the thing Article 1951. The bailor who, knowing the flaws of the thing loaned,
loaned till after the expiration of the period stipulated, or after the does not advise the bailee of the same, shall be liable to the latter for
accomplishment of the use for which the commodatum has been the damages which he may suffer by reason thereof. (1752)
constituted. However, if in the meantime, he should have urgent need
of the thing, he may demand its return or temporary use. Article 1952. The bailor cannot exempt himself from the payment of
expenses or damages by abandoning the thing to the bailee. (n)
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)

Article 1947. The bailor may demand the thing at will, and the 1. The primary obligation of the bailor is to allow the bailee the
contractual relation is called a precarium, in the following cases: use of the thing loaned for the duration of the period stipulated or until
the accomplishment of the purpose for which the commodatum was
(1) If neither the duration of the contract nor the use to which constituted
the thing loaned should be devoted, has been stipulated; or 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
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thing and make the lender pay for the expenses?
2. PRECARIUM: 5. Regarding, extraordinary expenses arising from the actual use of
the thing, the division of liability between the bailor and bailee is 50-50.
1. If neither the duration of the contract nor the use to which the This is the default rule but the parties may stipulate for a different
thing loaned should be devoted has been stipulated; or apportionment.
2. If the use of the thing is merely tolerated by the owner 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.
a kind of commodatum where the bailor may demand the thing at will. 7. He is liable to the bailee for damages in case he has
In this kind of commodatum, the lender may demand at will the knowledge of flaws of the thing loaned, and he didn't advise the
return of thing under the following circumstances: bailee of the same
a. If neither the duration of the contract nor the use to which the a. There is flaw or defect in the thing loaned
thing loaned should be devoted, has been stipulated; or b. The flaw or defect is hidden
b. If the use of the thing is merely tolerated by the owner. c. The bailor is aware thereof
c. the law recognizes the urgency as well as it is gratuitous. d. He doesn't advise the bailee of the same
d. Take note that in precarium, there is no stipulated period or the use e. The bailee suffers damages by reason of the said flaw or
is merely tolerated defect
3. He may demand the immediate return of the thing if the bailee 8. He cannot excuse himself from liability for any expense or damages
commits any act of ingratitude by abandoning the thing to the bailee
a. If the bailee should commit some offenses against the person,
honor or the property of the bailor, or C. Simple Loan or Mutuum ( Arts. 1953-1961)
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 CHAPTER 2
though he should prove it, unless the crime or act has been committed Simple Loan or Mutuum
against himself, his wife and
children under his authority Article 1953. A person who receives a loan of money or any other
c. If the bailee unduly refuses the bailor support when the bailee fungible thing acquires the ownership thereof, and is bound to pay to
is legally or morally bound to give support the creditor an equal amount of the same kind and quality. (1753a)
4. He has the obligation to refund extraordinary expenses for the
preservation of the thing loanedit is him who profits from the said Article 1954. A contract whereby one person transfers the ownership
expenses anyway. of non-fungible things to another with the obligation on the part of the
a. As a rule, notice is required because it is possible that the bailor latter to give things of the same kind, quantity, and quality shall be
may not want to incur the considered a barter. (n)
extraordinary expenses at all
b. An exception of course is where there is urgency that the reply Article 1955. The obligation of a person who borrows money shall be
to the notification cannot be awaited without danger governed by the provisions of articles 1249 and 1250 of this Code.
c. you have to determine if its ordinary or extraordinary
d. why would you advance for the extraordinary expenses
when you can return the
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If what was loaned is a fungible thing other than money, the debtor Where the borrowers urgent need for money places the
owes another thing of the same kind, quantity and quality, even if it latter at a disadvantage vis-a-vis the mender who can thus
should change in value. In case it is impossible to deliver the same dictate the terms of their contract, the Court, in case of an
kind, its value at the time of the perfection of the loan shall be paid. ambiguity, deems the contact to be the one which involves
(1754a) the lesser transmission of rights and interest over the
property in controversy
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing. (1755a) Facts:

Article 1957. Contracts and stipulations, under any cloak or device Private respondent Better Homes Realty and Housing Corp.
whatever, intended to circumvent the laws against usury shall be void. filed a complaint for unlawful detainer with the Metc on the ground that
The borrower may recover in accordance with the laws on usury. (n) petitioner Lao occupied its property without rent, but on its pure liberality
with the understanding that he would vacate the property upon demand.
Article 1958. In the determination of the interest, if it is payable in However, despite demand to vacate, Lao refused to vacate the
kind, its value shall be appraised at the current price of the products premises.
or goods at the time and place of payment. (n)
Lao claimed that he is the true owner of the property; that the
Article 1959. Without prejudice to the provisions of article 2212, private respondent purchased the same from N. Domingo Realty and
interest due and unpaid shall not earn interest. However, the Development Corporation, but the agreement was actually a loan
contracting parties may by stipulation capitalize the interest due and secured by mortgage; and that plaintiff's cause of action is for accion
unpaid, which as added principal, shall earn new interest. (n) publiciana, outside the jurisdiction of an inferior court.

MeTC ruled in favor of private respondent, but RTC reversed its


Article 1960. If the borrower pays interest when there has been no
decision, saying that the real transaction over the subject property was
stipulation therefor, the provisions of this Code concerning solutio
not a sale but a loan secured by a mortgage thereon. On appeal, the
indebiti, or natural obligations, shall be applied, as the case may be.
CA reversed the decision of the RTC.
(n)
Issue:
Article 1961. Usurious contracts shall be governed by the Usury Law 1. Whether or not Better Homes Realty and Housing Corp had
and other special laws, so far as they are not inconsistent with this acquired ownership over the property in question.
Code. (n)
2. Whether or not petitioner should be ejected from the premises
in question
7. LAO VS CA, 275 SCRA 237 (1997) GALICINAO
Held
Necessitous men are nit, truly speaking, free men; but to
answer a present emergency, will submit to terms that the 1. No. the agreement between the private respondent and N.
crafty may impose upon them. Domingo Realty & Housing Corporation is one of equitable mortgage.
First, possession of the property in the controversy remained with
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Petitioner Manuel Lao who was the beneficial owner of the property, However, Claravall was able to pay DBP by executing a deed
before, during and after the alleged sale. It is settled that a "pacto de of sale over the property in question with a 5-year option to repurchase
retro sale should be treated as a mortgage where the (property) sold the same with a certain Juan Ang-angan.
never left the possession of the vendors." Second, the option given to
Manuel Lao to purchase the property in controversy had been extended Claravall exercised the said right to repurchase the property
twice through documents executed by the President and Chairman of from Ang-angan by obtaining a loan from spouses Francisco and
the Board of Better Homes Realty & Housing Corporation. Third, Carolina Ramirez in the amount of P75,000.00. A deed of sale dated
unquestionably, Manuel Lao and his brother were in such "dire need of December 29, 1965 was executed over the same property by the
money" that they mortgaged their townhouse units registered under the Claravalls in favor of Ramirez.
name of N. Domingo Realty Corporation, the family corporation put up
by their parents, to Private Respondent Better Homes Realty & Housing Another instrument was entered into by Claravall and Ramirez
Corporation. Since the borrower's urgent need for money places the which granted Claravall an option to repurchase the property in
latter at a disadvantage vis-a-vis the lender who can thus dictate the question within a period of two (2) years from December 29, 1965 but
terms of their contract, the Court, in case of an ambiguity, deems the not earlier nor later than the month of December, 1967, for the sum of
contract to be one which involves the lesser transmission of rights and P10,000.00 payable at the time of repurchase.
interest over the property in controversy.
At the expiration of the 2-year period, appellant Claravall failed
2. No. There was no sale of the disputed property. Hence, it still to redeem the property in question and because of this they brought
belongs to petitioner's family corporation, N. Domingo Realty & suit against Francisco and Carolina Ramirez to compel the latter to sell
Development Corporation. Private respondent, being a mere the property in question back to them (Claravall).
mortgagee, has no right to eject petitioner.
The lower court rendered judgment in favor of defendants, the
Ramirez spouses, (private respondents herein) which was affirmed in
8. CLARAVALL VS CA, 190 SCRA 439 (1990) MOGELLO toto by respondent court.

A contract of loan with mortgage made to appear in paper ISSUE: WON the contract of loan with mortgage made to appear
as an absolute sale with a companion an option to buy is in paper as absolute sale is null and void.
null and void even if no usury is involved
HELD: Yes. A contract of loan with mortgage made to appear in paper
FACTS: Appellant Loreto Claravall and Victoria H. Claravall as an absolute sale with a companion option to buy is null and void
obtained loans from the Development Bank of the Philippines (DBP) in even if no usury is involved.
the amount of P52,000.00 for the construction of a commercial building
on their property situated in the Municipality of Ilagan, Isabela. To Under Article 1604 a contract purporting to be an absolute sale
secure the loan, a mortgage was executed upon said property in favor shall be presumed to be an equitable mortgage, should any of the
of the DBP. Claravall was unable to pay the amortization over said loan conditions in Article 1602 be present. Otherwise stated, the presence
and the DBP threatened to foreclose the mortgage. 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.

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ART. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases: On 7 December 1987, Efren Javier, and his mother, Lolita
Javier, borrowed P200,000.00 from Respondent Judge with interest
(1) When the price of a sale with right to repurchase is unusually orally agreed upon at ten per cent (10%) monthly, They tendered to the
inadequate; latter UCPB Check No. BNE 012872, dated 7 January 1988, in the
(2) When the vendor remains in possession as lessee or otherwise; amount of P220,000.00. The drawer of the check was actually Donato
(3) When upon or after the expiration of the right to repurchase Belen, a brother-in-law of Efren, as the Javiers had no personal
another instrument extending the period of redemption or granting a checking account. The following day, Respondent required them to sign
new period is executed; a Memorandum of Agreement, which they did. Two of the conditions
(4) When the purchaser retains for himself a part of the purchase imposed were interest at the rate of twenty per cent (20%) per month,
price; compounded monthly, and should they fail to pay the loan and its
(5) When the vendor binds himself to pay the taxes on the thing sold; interest upon maturity on 7 January 1988 and the check is deposited
(6) In any other case where it may be fairly inferred that the real and dishonored, an appropriate charge for violation of Batas Pambansa
intention of the parties is that the transaction shall secure the payment Blg. 22 may be filed at Respondent's option. When the Javiers
of a debt or the performance of any other obligation. defaulted on due date because of business reverses, partial payments
in the total amount of P177,000.00 were made to Respondent between
ART. 1604. The provisions of Article 1602 shall also apply to a contract 6 January 1988 and 16 June 1988. Meanwhile, the check, which was
purporting to be an absolute sale. deposited by Respondent on 14 April 1988, was dishonored by the
drawee bank.
Under Article 1604 a contract purporting to be an absolute sale
shall be presumed to be an equitable mortgage, should any of the On 8 September 1988, Respondent instituted suit for a "Sum of
conditions in Article 1602 be present. Otherwise stated, the presence Money and Damages with Prayer for the Issuance of a Writ of
of only one circumstance defined in Article 1602 is sufficient for a Preliminary Attachment" in the Regional Trial Court of Makati, Metro
contract of sale with right to repurchase to be presumed an equitable Manila, against the spouses Pedro and Lolita Javier, and their son,
mortgage. 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
9. JAVIER VS DE GUZMAN, 192 SCRA 434 (1990) PALILEO meantime, an Order granting execution pending appeal was issued by
the Trial Court on 14 April 1989. The Javiers appealed to the Court of
The Usury Law is legally inexistent pursuant to CB Circular No. Appeals where the case still pends. Still later, Respondent filed in
905, and the interest now legally chargeable depends upon the Manila two (2) criminal complaints, the first, for violation of B.P. Blg. 22
agreement of the lender and borrower. against Efren, who, however, was acquitted, and the second, for Estafa
against Complainants and Lolita Javier, which complaint was
FACTS: dismissed.
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that it was moral and fair. Respondent is not a hard-boiled and callous
On 21 March 1989, Respondent further filed an administrative businessman. He is a Judge.
charge against Complainant father, Pedro, with the Bureau of Internal
Revenue where the latter was employed. Earlier, an administrative Finding Respondent Judge, Salvador P. de Guzman, Jr. guilty
charge against Pedro had also been filed with the Civil Service on three (3) counts, of irresponsible, improper and dishonorable
Commission on 3 March 1989 accusing Pedro in both instances, of conduct in disregard of the Code of Judicial Ethics, he is severely
having committed estafa against him and his wife, of dishonesty and of censured, with a stern warning that a repetition of the said acts or
conduct unbecoming of a government official. Feeling harassed, similar acts in the future shall receive graver sanctions.
Complainants filed this administrative charge against Respondent
Judge on four counts of "dishonorable conduct,
10. ALMEDA VS CA, 256 SCRA 292
ISSUE: WON the respondent judge can be held liable for the usurious PAVICO
interest.

HELD: While the Usury ceiling interest rates was lifted by CB


Circular No. 905, nothing in the said circular could possibly read
No. As to the usurious rate of interest, while that issue was as granting carte blanche authority to lenders to raise interest
considered by Justice de la Fuente as irrelevant since the Usury Law is rates to levels which would either enslave their borrowers or lead
now legally inexistent pursuant to Central Bank Circular No. 905 and to hemorrhaging of their assets.
the interest now legally chargeable depends upon the agreement of Where the escalation clause of the credit agreement in the
lender and borrower (Liam Law v. Olympic Sawmill Co., G.R. No. L- instant case required the same be made within the limits
30771, May 28, 1984, 129 SCRA 439), she found that the interest allowed by laws it is obviously referred to specifically to
charged on the loan was exorbitant. While he had every right to protect legislative enactments not administrative circulars.
his investment, and while the contract of loan entered into between him
and the Javiers was legal per se, Respondent rendered it Facts:
unconscionable by imposing a penalty of twenty per cent (20%) interest
per month compounded monthly. Respondent was equivocal as to the In 1981, PNB granted herein petitioner several loan/credit
repayments that were made to him by the Javiers. In his Verified accommodations totaling P18.0 Million pesos payable in a period of six
Complaint before the Trial Court, he averred failure to repay. However, years at an interest rate of 21% per annum. To secure the loan, the
in the computation attached to his Motion for Judgment on the spouses Almeda executed a Real Estate Mortgage Contract covering
Pleadings, he made mention of "alleged payments being accepted by a 3,500 square meter parcel of land, together with the building erected
(him) at face value" and included them in the determination of the thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro
balance due. Manila. A credit agreement embodying the terms and conditions of the
loan was executed between the parties.
Respondent also brought suit to collect the staggering sum of
P622,871.67 despite payments by the debtors of approximately The agreement contains
P177,000.00 of the original P200,000.00 loan. Although not illegal xxx xxx xxx
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
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
The Bank reserves the right to increase the interest rate within or lead to a hemorrhaging of their assets. Borrowing represents a
the limits allowed by law at any time depending on whatever policy it transfusion of capital from lending institutions to industries and
may adopt in the future; provided, that the interest rate on this/these businesses in order to stimulate growth. This would not, obviously, be
accommodations shall be correspondingly decreased in the event that the effect of PNB's unilateral and lopsided policy regarding the interest
the applicable maximum interest rate is reduced by law or by the rates of petitioners' borrowings in the instant case.
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. Loan is a Real Contract

Between 1981 and 1984, petitioners made several partial 11. GARCIA VS THIO, 518 SCRA 433 (2007) RIEGO
payments on the loan totaling. P7,735,004.66, 2 a substantial portion
of which was applied to accrued interest. Said interest rate thereupon A loan is a real contract, not consensual, and as asuch is
increased from an initial 21% to a high of 68% between March of 1984 perfected upon delivery of the object of the contract.
to September, 1986. Before the loan matures, petitioner filed a
complaint in the lower court for declaratory relief and with prayer for a FACTS:
writ of preliminary injunction and temporary restraining order. The lower
court issued the writ of preliminary injunction which was appealed in the Two crossed check payable to certain Mariou Santiago were
CA which rendered the assailed Decision. Hence this petition. given to the respondent by the petitioner the first check covers one-
hundred thousand US dollar and the second check covers five-hundred
Issue: Whether or not PNB could unilaterally raise interest rates on the thousand pesos.
loan, pursuant to the credit agreement's escalation clause, and in
relation to Central Bank Circular No. 905. Petitioner alleged that on February 24, 1995, respondent
borrowed from her the amount of US$100,000 with interest thereon at
Ruling: No, PNB cannot. 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
Moreover, respondent bank's reliance on C.B. Circular No. 905, 29, 1995, respondent again borrowed the amount of P500,000 at an
Series of 1982 did not authorize the bank, or any lending institution for agreed monthly interest of 4%, the maturity date of which was on
that matter, to progressively increase interest rates on borrowings to an November 5, 1995. The amount of this loan was covered by the second
extent which would have made it virtually impossible for debtors to check. For both loans, no promissory note was executed since
comply with their own obligations. True, escalation clauses in credit petitioner and respondent were close friends at the time. Respondent
agreements are perfectly valid and do not contravene public policy. paid the stipulated monthly interest for both loans but on their maturity
Such clauses, however, (as are stipulations in other contracts) are dates, she failed to pay the principal amounts despite repeated
nonetheless still subject to laws and provisions governing agreements demands.
between parties, which agreements while they may be the law
between the contracting parties implicitly incorporate provisions of Respondent denied that she contracted the two loans with
existing law. Consequently, while the Usury Law ceiling on interest petitioner and countered that it was Marilou Santiago to whom petitioner
rates was lifted by C.B. Circular 905, nothing in the said circular could lent the money. She claimed she was merely asked by petitioner to give
possibly be read as granting respondent bank carte blanche authority the crossed checks to Santiago. She issued the checks not as payment
to raise interest rates to levels which would either enslave its borrowers
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
of interest but to accommodate petitioners request that respondent use 1. First, respondent admitted that petitioner did not personally
her own checks instead of Santiagos. know Santiago. It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as promissory
The lower court decided in favor of the petitioner stating that notes or any written acknowledgment of the debt considering that the
there is a contract of load between the two but the appellate court amounts involved were quite big. Respondent, on the other hand,
reversed the decision finding that there is nothing in the record that already had transactions with Santiago at that time.
shows that respondent received money from petitioner.
2. Second, Leticia Ruiz, a friend of both petitioner and respondent
ISSUE: Whether or not there is a contract of loan between the petitioner (and whose name appeared in both parties list of witnesses) testified
and the respondent. 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
HELD: 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
Yes, there is a contract of loan between the petitioner and the payable to Santiago. Respondent has not shown any reason why Ruiz
respondent. A loan is a real contract, not consensual, and as such is testimony should not be believed.
perfected only upon the delivery of the object of the contract. This is
evident in Art. 1934 of the Civil Code which provides: 3. Third, for the US$100,000 loan, respondent admitted issuing
her own checks in the amount of P76,000 each (peso equivalent of
An accepted promise to deliver something by way of US$3,000) for eight months to cover the monthly interest. For the
commodatum or simple loan is binding upon the parties, but P500,000 loan, she also issued her own checks in the amount of
the commodatum or simple loan itself shall not be perfected P20,000 each for four months.34 According to respondent, she merely
until the delivery of the object of the contract. accommodated petitioners request for her to issue her own checks to
cover the interest payments since petitioner was not personally
Upon delivery of the object of the contract of loan (in this acquainted with Santiago.35 She claimed, however, that Santiago
case the money received by the debtor when the checks were would replace the checks with cash.36 Her explanation is simply
encashed) the debtor acquires ownership of such money or loan incredible. It is difficult to believe that respondent would put herself in a
proceeds and is bound to pay the creditor an equal amount. 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
In the case at bar, it is undisputed that the checks were that:
delivered to respondent. The decision of the Court of Appeals was
reversed and set-aside. In the assessment of the testimonies of witnesses, this
Court is guided by the rule that for evidence to be believed,
NOTE: The held is supposedly short, but for further clarification, I it must not only proceed from the mouth of a credible
included the reasons why did the Court believe that there is contract witness, but must be credible in itself such as the common
between the respondent and petitioner. experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human
This is supported by the following reasons: testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
these belongs to the miraculous, and is outside of juridical (1) When the creditor is absent or unknown, or does not
cognizance. appear at the place of payment;

4. Fourth, in the petition for insolvency sworn to and filed by (2) When he is incapacitated to receive the payment at the
Santiago, it was respondent, not petitioner, who was listed as one of time it is due;
her (Santiagos) creditors.
(3) When, without just cause, he refuses to give a receipt;
5. Last, respondent inexplicably never presented Santiago as a
witness to corroborate her story. The presumption is that "evidence (4) When two or more persons claim the same right to collect;
willfully suppressed would be adverse if produced." Respondent was
not able to overturn this presumption.
(5) When the title of the obligation has been lost. (1176a)
Payment of Loan

11.A) Cinco vs. C.A., G.R. No. 151903


Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from
respondent Maasin Traders Lending Corporation (MTLC). The loan
A loan is paid by the delivery of the sum of money due (Art.
was evidenced by the promissory note, and secured by a real
1233 of the Civil Code).
estate mortgage over the spouses Cincos land and 4-storey
building.To pay the loan in favor of MTLC, the spouses Cinco applied
Article 1233. A debt shall not be understood to have been paid
for a loan with the Philippine National Bank(PNB), and offered the same
unless the thing or service in which the obligation consists has been
properties they previously mortgage to MTLC. The PNB approved the
completely delivered or rendered, as the case may be. (1157).
loadapplication for 1.3 Million; the release was, however, conditioned
on the cancellation of the mortgage infavor of MTLC. Manuel went to
If the creditor unjustly refuses to accept the tender of
Ester Servacio (Ester), MTLCs President to inform her that there was
payment, the loan wil still be considered paid if the debtor makes
money with PNB forPayment of his loan. Manuel executed a Special
a consignation or deposits the thing due or place it at the diaposal
Power of Attorney (SPA) authorizing Ester to collect theproceeds of the
of judicial authorities for the creditor to collect. There must
loan. Ester went to the PNB to inquire, the second time around, about
therefore be tender of payment and consignation (Art. 1256, Civil
the proceeds. Thebank officer confirmed the existence of such loan, but
Code)
they required Ester to first sign a deed ofrelease/cancellation of the
mortgage before they could release the proceeds of the loan to her.
Tender of Payment and Consignation
Outraged,Ester refused the deed and did not collect the 1.3
Million.Ester instituted foreclosure proceeding. To prevent the
Article 1256. If the creditor to whom tender of payment has been foreclosure, the spouses Cinco filed an action forspecific performance,
made refuses without just cause to accept it, the debtor shall be damages, and preliminary injunction.Issue: Whether the loan due the
released from responsibility by the consignation of the thing or sum MTLC had been extinguished by the act of the spouses Cinco
due. amountedto payment.Held: No, While Esters refusal was unjustified
and unreasonable, we cannot agree with Manuels positionthat this
Consignation alone shall produce the same effect in the following refusal had the effect of payment that extinguished his obligation to
cases:
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
MTLC. Article 1256 is clearand unequivocal on this point when it occupation and the same must be sufficiently proved, otherwise, if
provides that ARTICLE 1256. If the creditor to whom tender of the proof is flimsy and unsubstantiated, no damages will be given.
payment has been made refuses without justcause to accept it, the [Emphasis supplied.]
debtor shall be released from responsibility by the consignation of
thething or sum due.In short, a refusal without just cause is not 12. RA 8183 (11 July 1996 TITO
equivalent to payment; to have the effect of payment and
theconsequent extinguishment of the obligation to pay, the law requires Republic Act No. 8183 June 11, 1996
the companion acts of tender ofpayment and consignation.Tender of Repealing RA 529
payment, as defined in Far East Bank and Trust Company v. Diaz
Realty, Inc., All money obligations shall be settled in the Phil. Currency
which is legal tender of the Phil. However, the parties may agree
is the definitiveact of offering the creditor what is due him or her, that the obligation or transaction shall be settled in any other
together with the demand that the creditor accept thesame. When a currency at the time of the payment
creditor refuses the debtors tender of payment, the law allows the
consignation of thething or the sum due. Tender and consignation have "AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN
the effect of payment, as by consignation, the thingdue is deposited and AND CURRENCY."
placed at the disposal of the judicial authorities for the creditor to
collect.Nonetheless, the SPA stood as an authority to collect the Be it enacted by the Senate and House of Representatives of the
proceeds of the already-approved PNB loanthat, upon receipt by Ester, Philippines in Congress assembled::
would have constituted as payment of the MTLC loan. The Court Section 1. All monetary obligations shall be settled in the Philippine
agrees withManuel that Esters refusal of the payment was without currency which is legal tender in the Philippines. However, the parties
basis.Under these circumstances, we hold that while no completed may agree that the obligation or transaction shall be settled in any other
tender of payment and consignation tookplace sufficient to constitute currency at the time of payment.
payment, the spouses Go Cinco duly established that they have Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No.
legitimatelysecured a means of paying off their loan with MTLC; they 529), as amended entitled "An Act to Assume the Uniform Value of
were only prevented from doing so by theunjust refusal of Ester to Philippine Coin and Currency," is hereby repealed.
accept the proceeds of the PNB loan through her refusal to execute the Sec. 3. This Act shall take effect fifteen (15) days after its publication in
releaseof the mortgage on the properties mortgaged to MTLC. We also the Official Gazette or in two (2) national newspapers of general
find that under the circumstances, thespouses Go Cinco have circulation. The Bangko Sentral ng Pilipinas and the Department of
undertaken, at the very least, the equivalent of a tender of payment that Finance shall conduct an intensive information campaign on the effect
cannotbut have legal effect. Since payment was available and was of this Act.
unjustifiably refused, justice and equitydemand that the spouses Go Approved: June 11, 1996
Cinco be freed from the obligation to pay interest on the outstanding

In determining actual damages, the Court cannot rely on 13. CF SHARP & CO. VS NORTHWEST AIRLINES, GR NO.
speculation, conjecture or guesswork as to the amount. Actual and 133498, 18 APRIL 2002 - CAMASO
compensatory damages are those recoverable because of
pecuniary loss in business, trade, property, profession, job or Facts:
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
No. Petitioners contention that it is Article 1250 of the Civil Code that
On May 9, 1974, respondent, through its Japan Branch, entered into an should be applied is untenable. The rule that the value of the currency
International Passenger Sales Agency Agreement with petitioner, at the time of the establishment of the obligation shall be the basis of
authorizing the latter to sell its air transport tickets. Petitioner failed to payment finds application only when there is an official pronouncement
remit the proceeds of the ticket sales, for which reason, respondent filed or declaration of the existence of an extraordinary inflation or deflation.
a collection suit against petitioner before the Tokyo District Court which
rendered judgment on January 29, 1981, ordering petitioner to pay The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of
respondent the amount of "83,158,195 Yen and damages for the delay removing the prohibition on the stipulation of currency other than
at the rate of 6% per annum from August 28, 1980 up to and until Philippine currency, such that obligations or transactions may
payment is completed." Unable to execute the decision in Japan, now be paid in the currency agreed upon by the parties. Just like
respondent filed a case to enforce said foreign judgment with the R.A. No. 529, however, the new law does not provide for the
Regional Trial Court (RTC) of Manila, Branch 54. However, the case applicable rate of exchange for the conversion of foreign
was dismissed on the ground of failure of the Japanese Court to acquire currency-incurred obligations in their peso equivalent. It follows,
jurisdiction over the person of the petitioner. Respondent appealed to therefore, that the jurisprudence established in R.A. No. 529
the Court of Appeals, which affirmed the decision of the RTC. regarding the rate of conversion remains applicable. Thus, in Asia
World Recruitment, Inc. v. National Labor Relations
Thereafter, the RTC issued a writ of execution for foreign courts Commission,13 the Court, applying R.A. No. 8183, sustained the
decision. The petitioner filed for certiorari, asserting it has already ruling of the NLRC that obligations in foreign currency may be
made partial payments. The CA lowered the amount to be paid and discharged in Philippine currency based on the prevailing rate at
included in its decision that the amount may be paid in local currency the time of payment. The wisdom on which the jurisprudence
at rate prevailing at time of payment. The Supreme Court partly interpreting R.A. No. 529 is based equally holds true with R.A. No.
affirmed the decision. The RTC issued a writ of execution of decision 8183. Verily, it is just and fair to preserve the real value of the
ruling that Sharp is to pay Northwest the sum of 83,158,195 yen at the foreign exchange- incurred obligation to the date of its payment.
exchange rate prevailing on the date of the foreign judgment plus 6%
per annum until fully paid, 6% damages and 6% interest. On appeal, Petition is denied.
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 Claim and Debt
the prevailing rate at the time of payment and not the rate on the date
of the foreign judgment 14. PREMIER DEVELOPMENT BANK VS FLORES, 574
SCRA 66, 16 DEC 2008 - ANTIOJO
Issue:
FACTS:
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 The undisputed facts show that on or about October 1994, Panacor
is correct? Marketing Corporation (Panacor for brevity), a newly-formed
corporation, acquired an exclusive distributorship of products
Held: 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
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for a loan of P4.1 million with Premiere Development Bank. After an all outstanding loan obligations prior to the release of mortgage
extensive study of Panacors creditworthiness, Premiere Bank rejected documents. Thereafter, Premiere Bank issued to IBA-Finance a Final
the loan application and suggested that its affiliate company, Arizona Statement of Account showing Arizonas total loan indebtedness. On
Transport Corporation (Arizona for short), should instead apply for the October 19, 1995, Panacor and Arizona executed in favor of IBA-
loan on condition that the proceeds thereof shall be made available to Finance a promissory note in the amount of P7.5 million. Thereafter,
Panacor. Eventually, Panacor was granted a P4.1 million credit line as IBA-Finance paid to Premiere Bank the amount of P6,235,754.79,
evidenced by a Credit Line Agreement. As suggested, Arizona, which representing the full outstanding loan account of Arizona. Despite such
was an existing loan client, applied for and was granted a loan of P6.1 payment, Premiere Bank still refused to release the requested
million, P3.4 million of which would be used to pay-off its existing loan mortgage documents specifically, the owners duplicate copy of TCT
accounts and the remaining P2.7 million as credit line of Panacor. As No. T-3475.
security for the P6.1 million loan, Arizona, represented by its Chief
Executive Officer Pedro Panaligan and spouses Pedro and Marietta On November 2, 1995, Panacor requested IBA-Finance for the
Panaligan in their personal capacities, executed a Real Estate immediate approval and release of the remaining P2.5 million loan to
Mortgage against a parcel of land covered by TCT No. T-3475 as per meet the required monthly purchases from Colgate. IBA-Finance
Entry No. 49507 dated October 2, 1995. explained however, that the processing of the P2.5 million loan
application was conditioned, among others, on the submission of the
Since the P2.7 million released by Premiere Bank fell short of the P4.1 owners duplicate copy of TCT No. 3475 and the cancellation by
million credit line which was previously approved, Panacor negotiated Premiere Bank of Arizonas mortgage. Occasioned by Premiere Banks
for a take-out loan with IBA-Finance Corporation (hereinafter referred adamant refusal to release the mortgage cancellation document,
to as IBA-Finance) in the sum of P10 million, P7.5 million of which will Panacor failed to generate the required capital to meet its distribution
be released outright in order to take-out the loan from Premiere Bank and sales targets. On December 7, 1995, Colgate informed Panacor of
and the balance of P2.5 million (to complete the needed capital ofP4.1 its decision to terminate their distribution agreement.
million with Colgate) to be released after the cancellation by Premiere
of the collateral mortgage on the property covered by TCT No. T-3475. On March 13, 1996, Panacor and Arizona filed a complaint for specific
Pursuant to the said take-out agreement, IBA-Finance was authorized performance and damages against Premiere Bank before the Regional
to pay Premiere Bank the prior existing loan obligations of Arizona in Trial Court of Pasig City, docketed as Civil Case No. 65577.
an amount not to exceed P6 million.
On June 11, 1996, IBA-Finance filed a complaint-in-intervention
On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. praying that judgment be rendered ordering Premiere Bank to pay
Martillano, officer-in-charge of Premiere Banks San Juan Branch, damages in its favor.
informing her of the approved loan in favor of Panacor and Arizona, and
requesting for the release of TCT No. T-3475. Martillano, after reading On May 26, 1998, the trial court rendered a decision in favor of Panacor
the letter, affixed her signature of conformity thereto and sent the and IBA-Finance, the decretal portion of which reads: x x x
original copy to Premiere Banks legal office. x x x
Premiere Bank appealed to the Court of Appeals contending that the
On October 12, 1995, Premiere Bank sent a letter-reply to [IBA]- trial court erred in finding, inter alia, that it had maliciously downgraded
Finance, informing the latter of its refusal to turn over the requested the credit-line of Panacor from P4.1 million to P2.7 million.
documents on the ground that Arizona had existing unpaid loan
obligations and that it was the banks policy to require full payment of
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In the meantime, a compromise agreement was entered into between 15. Maybank Philippines Inc. (formerly PNB-Republic
IBA-Finance and Premiere Bank whereby the latter agreed to return Bank) vs. Tarrosa - CASTRO S
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 FACTS:
March 11, 1999, the compromise agreement was approved.
Sps. Tarrosa obtained from petitioner-bank Maybank a loan in
On June 18, 2003, a decision was rendered by the Court of Appeals the amount of P91,000 secured by a Real Estate Mortgage (parcel of
which affirmed with modification the decision of the trial court, the land in San Carlos City, Negros Occidental). After paying the said loan,
dispositive portion of which reads:7 x x x 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,
ISSUE: Whether PDB has a claim or a debt to the other corporations? Maybank commenced extrajudicial foreclosure. The subject property
was eventually sold to Philmay Property Inc. after a public auction sale
RULING: proceeding.

A distinction must be made between a debt and a mere The spouses filed a complaint for declaration of nullity and
claim. A debt is an amount actually ascertained. It is a claim which invalidity of the foreclosure and of the public auction sale proceedings.
has been formally passed upon by the courts or quasi-judicial They averred, among others, that Maybanks right to foreclosure had
bodies to which it can in law be submitted and has been declared prescribed or is barred by laches. The RTC ruled that Maybanks right
to be a debt. A claim, on the other hand, is a debt in embryo. It is to foreclosure, reckoned from the time the mortgage indebtedness
mere evidence of a debt and must pass thru the process became due and demandable on March 11, 1984, had already
prescribed by law before it develops into what is properly called a prescribed. It ruled in favor of the spouses. The CA affirmed the RTC
debt. Absent, however, any such categorical admission by an ruling that the prescriptive period should be reckoned from March 11,
obligor or final adjudication, no legal compensation or off-set can 1984.
take place. Unless admitted by a debtor himself, the conclusion
that he is in truth indebted to another cannot be definitely and ISSUE: Whether CA erred in finding that Maybanks right to
finally pronounced, no matter how convinced he may be from the foreclose over the subject property was barred by prescription.
examination of the pertinent records of the validity of that
conclusion the indebtedness must be one that is admitted by the HELD: No.
alleged debtor or pronounced by final judgment of a competent
court. At best, what Premiere Development Bank has against An action to enforce a right arising from a mortgage should be
respondent corporations is just a claim, not a debt. At worst, it is enforced within 10 years from the time the right of action accrues
a speculative claim. when the mortgagor defaults in payment of his obligation to the
mortgagee. Mere delinquency in payment does not necessarily mean
Default on Demand 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)
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the debtor delays performance; and (c) the creditor requires the They also agreed that Pan Pacific shall be entitled to a price adjustment
performance judicially or extrajudicially, unless demand is not in case of increase in labor costs and prices of materials. Pursuant to
necessary - i.e., when there is an express stipulation to that effect; the contract, Pan Pacific commenced the mechanical works in the
where the law so provides; when the period is the controlling project site, the PCIB Tower II extension building. The project was
motive or the principal inducement for the creation of the completed and accepted by the respondent in 1992. However, in 1990
obligation; and where demand would be useless. labor costs and prices of materials escalated. So in 1991, in accordance
with the escalation clause, Pan Pacific claimed a price adjustment of
In the present case, both the CA and the RTC reckoned the P5.1M. In response, the respondent bank appointed TCGI Engineers
accrual of Maybank's cause of action to foreclose the real estate to assess if the said claim was correct. The latter recommended to
mortgage over the subject property from the maturity of the second loan respondent that the price adjustment should be pegged at P3.7M only.
on May 11, 1984. The CA reckoned the accrual after construing the Pan Pacific contended that with this recommendation, respondent was
par.5 of the REM. already estopped from disclaiming liability of at least P3.7M in
accordance with the escalation clause. Due to the extraordinary
In no way did the mentioned paragraph affect the general increases in the costs of labor and materials, Pan Pacifics operational
parameters of default, particularly the need of prior demand under capital was becoming inadequate. However, respondent withheld the
Article 1169 of the Civil Code, considering that it did not expressly payment of the price adjustment under the escalation clause despite
declare: (a) that demand shall not be necessary in order that the Pan Pacifics repeated demands. To add insult, the respondent bank
mortgagor may be in default; or (b) that default shall commence upon instead offered a loan to the petitioner to enable them to have
mere failure to pay on the maturity date of the loan. Hence, the CA erred something to work with. Out of desperation, and the promise that the
in construing the above provision as one through which the parties had price adjustments would be released soon, the petitioner accepted the
dispensed with demand as a condition sine qua non for the accrual of loan and they were required to issue a promissory note. Not a single
Maybank's right to foreclose the real estate mortgage over the subject centavo was received by the petitioner, all of the amount of the loan
property, and thereby, mistakenly reckoned such right from the maturity was given to the employees for their salary. Petitioners repeated
date of the loan on March 11, 1984. demands were just ignored. Meanwhile, the loan matured and the
respondent is now the one demanding payment with interest. Petitioner
On Interest Rates 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.
16. Pan Pacific Service Contractors Inc., vs. Equitable PCI They also contend that the promissory note they issued did not contain
Bank CASTRO their true intentions. They maintained that the loan should be
considered as an advanced payment for the balance of the respondent
No interest shall be due unless it has been expressly and hence, the promissory is void for lack of consideration. The
stipulated in writing. petitioner filed a complaint and judgment was rendered in their favor.
As a result the respondent was ordered to pay the unpaid balance with
Facts: 12% per annum interest. The petitioners partially appealed the decision
with respect to the interest. Petitioners claimed that the interest rate
Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged applicable should be the 18% bank lending rate because that is what
in contracting mechanical works on air conditioning system. They they have agreed upon in the contract.
entered into a contract with the respondent for P20M. Pan Pacific and
respondent also agreed on nine change orders for P2,622,610.30.
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Issue: WON erred in fixing in fixing the interest rate at 12% instead of Civil law; Notice of extrajudicial foreclosure. [U]nless the parties
the 18% bank lending rate. stipulate, personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary because Section 3 of Act 3135 only
Ruling: requires the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation.
YES. It is settled that the agreement or the contract between the
parties is the formal expression of the parties rights, duties, and In this case, the parties stipulated in paragraph 11 of the Mortgage that:
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 All correspondence relative to this mortgage, including demand letters,
considered as containing all the terms agreed upon and there can be, summons, subpoenas, or notification of any judicial or extra-judicial
between the parties and their successors in interest, no evidence of action shall be sent to the Mortgagor at xxx or at the address that may
such terms other than the contents of the written agreement. When the hereafter be given in writing by the Mortgagor or the Mortgagee;
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 However, no notice of the extrajudicial foreclosure was sent by DBP to
these cases, courts have no authority to alter a contract by construction petitioners about the foreclosure sale scheduled on July 11, 1994. The
or to make a new contract for the parties. The Courts duty is confined letters dated January 28, 1994 and March 11, 1994 advising petitioners
to the interpretation of the contract which the parties have made for to immediately pay their obligation to avoid the impending foreclosure
themselves without regard to its wisdom or folly as the court cannot of their mortgaged properties are not the notices required in paragraph
supply material stipulations or read into the contract words which it does 11 of the Mortgage. The failure of DBP to comply with their contractual
not contain. It is only when the contract is vague and ambiguous that agreement with petitioners, i.e., to send notice, is a breach sufficient to
courts are permitted to resort to construction of its terms and determine invalidate the foreclosure sale.
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 17. Pua vs. Lo Bun Tioing- DINGLASAN
charged an interest of 18%. To prove petitioners entitlement to the 18%
bank lending rate of interest, petitioners presented the promissory note Article 1956 (Article 1956. No interest shall be due unless it has
prepared by respondent bank itself. This promissory note, although been expressly stipulated in writing. (1755a)). Which refers to the
declared void by the lower courts because it did not express the real monetary interest specifically mandates that no interest shall be
intention of the parties, is substantial proof that the bank lending rate at due unless it has been expressly stipulated.
the time of default was 18% per annum. Absent any evidence of fraud,
undue influence or any vice of consent exercised by petitioners against FACTS:
the respondent, the interest rate agreed upon is binding on them.
Ting Ting Pua extended a loan to respondent spouses Benito
17.A) CARLOS LIM, et. al. v. DEVELOPMENT BANK OF THE Lo Bun Tiong and Caroline Siok Chung Teng , vouched by her sister,
PHILIPPINES, G.R. No. 177050, July 1, 2013 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
The payment of interest and penalty in loans is allowed only if interest every month.. The checksissued by the spouses were
the parties agreed to it and reduced their agreement in writing
subsequently dishonored by the drawee bank upon presentment. On
demand, the spouses pleaded for more time because of their financial
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
difficulties. Pua obliged and simply reminded the respondents of their Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching
indebtedness from time to time. Teng, are hereby ordered jointly and solidarily:

Several years later, in 1996, when their financial situation turned 1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from
better, respondents called the petitioner for the computation of their September 30, 1998, until fully paid;
loan obligation. Hence, petitioner handed them a computation dated 2. To pay plaintiff attorneys fees of P200,000.00; and
Oct 2, 1996 which showed that at the agreed 2% compounding interest 3. To pay the costs of the suit.
per month, the amount payable to the petitioner rose to
P13,218,544,20. The respondents asked Pua to reduce the amount to On motion for reconsideration, the appellate court set aside the
P 8,250,000.00. Wanted to get paid , petitioner agreed to the lowered RTC Decision holding that Asiatrust Bank Check No. BND057550 was
amount. an incomplete delivered instrument and that petitioner has failed to
Respondents then delivcered to Pua a check bearing the prove the existence of respondents indebtedness to her. Hence, the
reduced amount. In turn, respondents demanded for the return of the CA added, petitioner does not have a cause of action against
17 previously dishonored checks. Pua however, said that she will do so respondents.
only after the encashment of their payment.
ISSUE: WON the 12% compounding interest on the loan may be
Like the 17 checks. the check payment was dishonored, Hence, collected by the plaintiff.
Pua filed a complaint to collect the money owed by respondents.
HELD: NO, respondents cannot be obliged to pay the interest of the
On defense, Caroline denied having owed Pua as well as loan on the ground that the supposed agreement to pay such interest
issuing the checks. The husband, Benito contends that he and Caroline was not reduced to writing. Article 1956 of the Civil Code, which refers
had been separated and did not know anything about the loan. to monetary interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated inwriting.68 Thus, the collection
After trial, the RTC issued its Decision dated January 31, 2006 of interest in loans or forbearance of money is allowed only when these
in favor of petitioner. In holding thus, the RTC stated that the two conditions concur: (1) there was an express stipulation for the
possession by petitioner of the checks signed by Caroline, under the payment of interest; (2) the agreement for the payment of the interest
Negotiable Instruments Law, raises the presumption that they were was reduced in writing.69 Absent any of these two conditions, the
issued and delivered for a valuable consideration. On the other hand, money debtor cannot be made liable for interest. Thus, petitioner is
the court a quo discounted the testimony for the defense completely entitled only to the principal amount of the loan plus the allowable legal
denying respondents loan obligation to Pua. interest from the time of the demand,70 at the rate of 6% per annum.

The trial court, however, refused to order respondents to pay The BSP may prescribe rates
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 Section 109 of RA No. 265 covered only loans extended by banks,
parties. The RTC, instead, ordered respondents to pay the principal whereas under section 1_A of the Usury Law, as amended, the
amount of the loan as represented by the 17 checks plus legal interest Bangko Sentral Monetary Board (BSP-MB) may prescribe the
from the date of demand. As rectified,36 the dispositive portion of maximum rate or rates of interest for loans or renewals thereof or the
RTCs Decision reads: forbearance of any money, goods or credits, including those for loans

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
of low priority such as consumer loans, as well as such loans made by the provisions of any other law, special charters, rule or regulation
pawnshops, finance companies and similar credit institutions issued pursuant to said Republic Act No. 265, as amended, or parts
thereof, which may be inconsistent with the provisions of this Act are
Advocates for Truth in Lending Inc. vs. Bangko Sentral hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Monetary Board #18 DINGLASAN no available resource Note: R.A. 7653 the law that created BSP to replace CB Note: this
material for the digest law did not retain the same provision as that of Section 109 in RA 265.

Facts PETITIONERS ARGUMENTS


"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock To justify their skipping the hierarchy of courts petitioners
corporation organized to engage in pro bono concerns and activities contend the transcendental importance of their Petition:
relating to money lending issues. It was incorporated on July 9, a) CB-MB statutory or constitutional authority to prescribe the
2010,and a month later, it filed this petition, joined by its founder and maximum rates of interest for all kinds of credit transactions and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen. forbearance of money, goods or credit beyond the limits prescribed in
the Usury Law;
HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST b) If so, whether the CB-MB exceeded its authority when it issued
RATES CB Circular No. 905, which removed all interest ceilings and thus
1. R.A. No. 265, which created the Central Bank on June 15, 1948, suspended Act No. 2655 as regards usurious interest rates;
empowered the CB-MB toset the maximum interest rates which c) Whether under R.A. No. 7653, the new BSP-MB may continue
banks may charge for all types of loans and other credit to enforce CB Circular No. 905.
operations. Petitioners contend that under Section 1-a of Act No. 2655, as
2. The Usury Law was amended by P.D.1684, giving the CB-MB amended by P.D. No. 1684, the CB-MB was authorized only to
authority to prescribe different maximum rates of interest which prescribe or set the maximum rates of interest for a loan or
may be imposed for a loan or renewal thereof or the forbearance of renewal thereof or for the forbearance of any money, goods or
any money, goods or credits, provided that the changes are effected credits, and to change such rates whenever warranted by prevailing
gradually and announced in advance. Section 1-a of Act No. 2655 now economic and social conditions, the changes to be effected gradually
reads: and on scheduled dates; that nothing in P.D. No. 1684 authorized the
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB CB-MB to lift or suspend the limits of interest on all credit
issued CB Circular No. 905, Series of 1982, effective on January 1, transactions, when it issued CB Circular No. 905. They further insist
1983. It removed the ceilings on interest rates on loans or that under Section 109 of R.A. No. 265, the authority of the CB-MB was
forbearance of any money, goods or credits: clearly only to fix the banks maximum rates of interest, but always
Sec. 1. The rate of interest, including commissions, premiums, fees within the limits prescribed by the Usury Law.
and other charges, on a loan or forbearance of any money, goods, or CB Circular No. 905, which was promulgated without the benefit
credits, regardless of maturity and whether secured or unsecured, that of any prior public hearing, is void because it violated NCC 5 which
may be charged or collected by any person, whether natural or provides that "Acts executed against the provisions of mandatory or
juridical, shall not be subject to any ceiling prescribed under or prohibitory laws shall be void, except when the law itself authorizes their
pursuant to the Usury Law, as amended. validity."
4. R.A. No. 7653 establishing the BSP replaced the CB: weeks after the issuance of CB Circular No. 905, the benchmark
Sec. 135. Repealing Clause. Except as may be provided for in 91-day Treasury bills shot up to 40% PA, as a result. The banks
Sections 46 and 132 of this Act, Republic Act No. 265, as amended,
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
followed suit and re-priced their loans to rates which were even higher CB Circular 905 is essentially based on Section 1-a of the Usury Law
than those of the "Jobo" bills. and the Usury Law being broader in scope than the law that created the
CB Circular No. 905 is also unconstitutional in light of the Bill of Central Bank was not deemed repealed when the law replacing CB with
Rights, which commands that "no person shall be deprived of life, liberty the Bangko Sentral was enacted despite the non-reenactment in the
or property without due process of law, nor shall any person be denied BSP Law of a provision in the CB Law which the petitioners purports to
the equal protection of the laws." be the basis of Circular 905. Magulo ba? Hahaha. Basta the present
R.A. No. 7653 did not re-enact a provision similar to Section 109 set up is: The power of the BSP Monetary Board to determine interest
of RA 265, and therefore, in view of the repealing clause in Section rates emanates from the Usury Law [which was further specified by
135 of R.A. No. 7653, the BSP-MB has been stripped of the power Circular 905].
either to prescribe the maximum rates of interest which banks may Granting that the CB had power to "suspend" the Usury Law, the new
charge for different kinds of loans and credit transactions, or to BSP-MB did not retain this power of its predecessor, in view of Section
suspend Act No. 2655 and continue enforcing 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
CB Circular No. 905. similar to Section 109 of R.A. No. 265.
Ruling A closer perusal shows that Section 109 of R.A. No. 265 covered only
CB-MB merely suspended the effectivity of the Usury Law when it loans extended by banks, whereas under Section 1-a of the Usury
issued CB Circular No. 905. Law, as amended, the BSP-MB may prescribe the maximum rate or
In Medel v. CA, it was said that the circular did not repeal nor amend rates of interest for all loans or renewals thereof or the forbearance of
the Usury Law but simply suspended its effectivity; that a Circular any money, goods or credits, including those for loans of low priority
cannot repeal a low; that by virtue of CB the Usury Law has been such as consumer loans, as well as such loans made by pawnshops,
rendered ineffective; that the Usury has been legally non-existent in our finance companies and similar credit institutions. It even authorizes the
jurisdiction and interest can now be charged as lender and borrow may BSP-MB to prescribe different maximum rate or rates for different types
agree upon. of borrowings, including deposits and deposit substitutes, or loans of
Circular upheld the parties freedom of contract to agree freely on the financial intermediaries.
rate of interest citing Art. 1306 under which the contracting parties may Act No. 2655, an earlier law, is much broader in scope, whereas
establish such stipulations, clauses terms and conditions as they may R.A. No. 265, now R.A. No. 7653, merely supplemented it as it
deem convenient provided they are not contrary to law, morals, good concerns loans by banks and other financial institutions. Had R.A.
customs, public order or public policy. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would
have so stated in unequivocal terms.
BSP-MB has authority to enforce CB Circular No. 905. Moreover, the rule is settled that repeals by implication are not
RA 265 covered only banks while Section 1-a of the Usury Law, favored, because laws are presumed to be passed with
empowers the Monetary Board, BSP for that matter, to prescribe the deliberation and full knowledge of all laws existing pertaining to
maximum rate or rates of interest for all loans or renewals thereof or the subject.An implied repeal is predicated upon the condition that a
the forbearance of any money, good or credits substantial conflict or repugnancy is found between the new and prior
The Usury Law is broader in scope than RA 265, now RA 7653, the laws. Thus, in the absence of an express repeal, a subsequent law
later merely supplemented the former as it provided regulation for loans cannot be construed as repealing a prior law unless an irreconcilable
by banks and other financial institutions. RA 7653 was not inconsistency and repugnancy exists in the terms of the new and old
unequivocally repealed by RA 765. laws. We find no such conflict between the provisions of Act 2655 and
R.A. No. 7653.
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#generalia specialibus non derogant 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 lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and iniquitous The Petition raises no issues of transcendental importance.
interest. In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the
In Castro v. Tan, the Court held that the imposition of unconscionable requirements before taxpayers, voters, concerned citizens, and
interest is immoral and unjust. It is tantamount to a repugnant spoliation legislators can be accorded a standing to sue, viz:
and an iniquitous deprivation of property repulsive to the common (1) the cases involve constitutional issues;
sense of man. (2) for taxpayers, there must be a claim of illegal disbursement of public
They are struck down for being contrary to morals, if not against the funds or that the tax measure is unconstitutional;
law, therefore deemed inexistent and void ab initio. However this nullity (3) for voters, there must be a showing of obvious interest in the validity
does not affect the lenders right to recover the principal of the loan nor of the election law in question;
affect the other terms thereof. (4) for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled early;
PROCEDURAL MATTERS and
The Petition is procedurally infirm. (5) for legislators, there must be a claim that the official action
The CB-MB was created to perform executive functions with respect to complained of infringes upon their prerogatives as legislators.
the establishment, operation or liquidation of banking and credit In CREBA v. ERC, guidelines as determinants on whether a matter is
institutions. It does not perform judicial or quasi-judicial functions. of transcendental importance, namely:
Certainly, the issuance of CB Circular No. 905 was done in the exercise 1. the character of the funds or other assets involved in the case;
of an executive function. Certiorari will not lie in the instant case. 2. the presence of a clear case of disregard of a constitutional or
statutory prohibition by the public respondent agency or instrumentality
Petitioners have no locus standi to file the Petition of the government; and
Locus standi is defined as "a right of appearance in a court of justice on 3. the lack of any other party with a more direct and specific interest
a given question." In private suits, Section 2, Rule 3 of the 1997 Rules in the questions being raised.
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 Legal Interest: BSP Circular No. 799 effective July 2013
who stands to be benefited or injured by the judgment in the suit or the The rate of interest for loan or forbearance of any money,
party entitled to the avails of the suit." Succinctly put, a partys standing goods or credits and the rate allowed in judgements, in the
is based on his own right to the relief sought. absence of an express contract as to such rate of interest: shall
Even in public interest cases such as this petition, the Court has be 6% per annum.
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 19. Andal vs. PNB - GALICINAO
sustain direct injury as a result." while petitioners assert a public
right it is nonetheless required of them to make out a sufficient interest Pursuant to circular 799, series of 2013, issued by the office if
in the vindication of the public order and the securing of relief. the Governor of the Bnagko Sentral ng Pilipinas on 21 June 2013,
Petitioners also do not claim that public funds were being misused in and in accordance with the ruling of the SC in the recent case of
the enforcement of CB Circular No. 905 which would have made the Dario Nacar v. Gallery Frames, 703 scra 439 (2013), effective July
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
1, 2013, the rate for the loan or forbearance of the money, goods No. That the rate of interest was subsequently declared illegal
or credits and the rate allowed in judgments in the absence of an and unconscionable does not entitle petitioners-spouses to stop
express contract as to such interest, shall be fix 6% per annum. payment of interest.1wphi1 It should be emphasized that only the rate
of interest was declared void. The stipulation requiring petitioners-
Facts: spouses to pay interest on their loan remains valid and binding. They
are, therefore, liable to pay interest from the time they defaulted in
Petitioners-spouses obtained a loan from, for which they payment until their loan is fully paid.
executed (12) promissory notes undertaking to pay the bank the Forbearance of Money
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 20. Land Bank of the Philippines vs. Ong MOGELLO
petitioners-spouses. To secure payment for the loan, petitioners-
spouses executed in favor of the bank a real estate mortgage using as Forbearance of money refers to the contractual obligation of the
collateral 5 parcels of land including all improvements therein. lender or creditor to desist for a fixed period from requiring
borrower or debtor to repay the loan or debt when due anf for
When the bank advised petitioners-spouses to pay their loan which 12% per annum is imposed as interest in the absence of a
obligation, the latter complied to avoid foreclosure of the properties stipulated.
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 FACTS: On March 18, 1996, spouses Johnson and Evangeline
Sy secured a loan from Land Bank Legazpi City in the amount of PhP
Petitioners-spouses alleged that the exorbitant rate of interest 16 million. The loan was secured by three (3) residential lots, five (5)
unilaterally determined and imposed by PNB prevented them from cargo trucks, and a warehouse. Under the loan agreement, PhP 6
paying their obligation. They also alleged that they signed the million of the loan would be short-term and would mature on February
promissory notes in blank, relying on the representation of PNB that 28, 1997, while the balance of PhP 10 million would be payable in
they were merely proforma bank requirements. PNB contended that the seven (7) years. The Notice of Loan Approval dated February 22, 1996
penalty charges imposed on the loan was expressly stipulated under contained an acceleration clause wherein any default in payment of
the credit agreements and in the promissory notes. amortizations or other charges would accelerate the maturity of the
loan.1
RTC rendered judgment in favor of petitioners-spouses. The CA
affirmed the decision, but it also denied petitioners-spouses contention Subsequently, however, the Spouses Sy found they could no
that no interest is due on their principal loan obligation from the time of longer pay their loan. On December 9, 1996, they sold three (3) of their
foreclosure until finality of the judgment annulling the foreclosure sale. mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong,
Evangelines mother, under a Deed of Sale with Assumption of
Issue: Whether no interest is due on the petitioners-spouses loan Mortgage.
obligation
That as soon as our obligation has been duly settled, the bank
Held: is authorized to release the mortgage in favor of the vendees and for

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
this purpose VENDEES can register this instrument with the Register 12% per annum is imposed as interest in the absence of a stipulated
of Deeds for the issuance of the titles already in their names. rate.

Evangelines father, petitioner Alfredo Ong, later went to Land In the instant case, Alfredos conditional payment to Land Bank
Bank to inform it about the sale and assumption of mortgage.3 Atty. does not constitute forbearance of money, since there was no
Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo agreement or obligation for Alfredo to pay Land Bank the amount of
and his counsel Atty. Ireneo de Lumen that there was nothing wrong PhP 750,000, and the obligation of Land Bank to return what Alfredo
with the agreement with the Spouses Sy but provided them with has conditionally paid is still in dispute and has not yet been
requirements for the assumption of mortgage. They were also told that determined. Thus, it cannot be said that Land Banks alleged obligation
Alfredo should pay part of the principal which was computed at PhP has become a forbearance of money.
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 21. Estores vs. Supangan - PALILEO (No Case)
and personally gave it to Atty. Hingco. A receipt was issued for his
payment. He also submitted the other documents required by Land ESTORES V. SPOUSES SUPANGAN, (2012)
Bank, such as financial statements for 1994 and 1995. Atty. Hingco (Compensatory, Penalty or Indemnity Interest)
then informed Alfredo that the certificate of title of the Spouses Sy *Forbearance of money
would be transferred in his name but this never materialized. No notice ISSUE: Whether it is proper to impose interest for an obligation that does
of transfer was sent to him. not involve a loan or forbearance of money in the absence of stipulation of
the parties.
Alfredo later found out that his application for assumption of
mortgage was not approved by Land Bank. The bank learned from its HELD:
credit investigation report that the Ongs had a real estate mortgage in YES. Interest may be imposed even in the absence of stipulation in the
the amount of PhP 18,300,000 with another bank that was past due. contract.
Alfredo claimed that this was fully paid later on. Nonetheless, Land Article 2210 of the Civil Code expressly provides that [i]nterest may, in the
Bank foreclosed the mortgage of the Spouses Sy after several months. discretion of the court, be allowed upon damages awarded for breach of
Alfredo only learned of the foreclosure when he saw the subject contract. In this case, there is no question that petitioner is legally obligated
mortgage properties included in a Notice of Foreclosure of Mortgage to return the P3.5 million because of her failure to fulfill the obligation under
and Auction Sale at the RTC in Tabaco, Albay. Alfredos other counsel, the Conditional Deed of Sale, despite demand. Petitioner enjoyed the use
Atty. Madrilejos, subsequently talked to Land Banks lawyer and was of the money from the time it was given to her until now. Thus, she is
told that the PhP 750,000 he paid would be returned to him. already in default of her obligation from the date of demand.

ISSUE: WON Alfredos conditional payment constitutes Forbearance is defined as a contractual obligation of lender or creditor to
forbearance of money. 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
HELD: No. Forbearance of money refers to the contractual obligation where a debtor is given a period within which to pay a loan or debt. In such
of the lender or creditor to desist for a fixed period from requiring the case, forbearance of money, goods or credits will have no distinct definition
borrower or debtor to repay the loan or debt then due and for which 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,
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otherwise there would have been no need to add that phrase as a loan is the hauling of different commodities within the Middle East countries.
already sufficiently defined in the Civil Code. Its co-respondents Felimon R. Cuevas (Cuevas) and Jose A. Saddul,
Jr. (Saddul) were, respectively, its President and Vice-President.
Forbearance of money, goods or credits should therefore refer to
arrangements other than loan agreements, where a person acquiesces to AMDC obtained from the National Commercial Bank of Saudi
the temporary use of his money, goods or credits pending happening of Arabia (NCBSA) a loan amounting to SR3.3 million (equivalent to
certain events or fulfillment of certain conditions. P9,000,000.00). As the security for the guaranty, Amalgamated Motors
Philippines Incorporated (AMPI), a sister company of AMDC, acted as
In this case, the respondent-spouses parted with their money even before an accommodation mortgagor, and executed in favor of the petitioner a
the conditions were fulfilled. They have therefore allowed or granted real estate mortgage over two parcels of land located in Dasmarias.
forbearance to the seller (petitioner) to use their money pending fulfillment of AMDC also executed in favor of the petitioner a deed of undertaking
the conditions. They were deprived of the use of their money for the period dated April 21, 1982,[6] with Cuevas and Saddul as its co-obligors. In
pending fulfillment of the conditions and when those conditions were the deed of undertaking, AMDC, Cuevas, and Saddul jointly and
breached, they are entitled not only to the return of the principal amount severally bound themselves to pay to the petitioner, as obligee,
paid, but also to compensation for the use of their money. And the whatever damages or liabilities that the petitioner would incur by reason
compensation for the use of their money, absent any stipulation, should be of the guaranty.
the same rate of legal interest applicable to a loan since the use or
deprivation of funds is similar to a loan. AMDC defaulted on the obligation. Upon demand, the petitioner
paid the obligation to NCBSA. By subrogation and pursuant to the Deed
5. Reduction of Unconscionable Interest Rates of Undertaking, the petitioner then demanded that AMDC, Cuevas and
Saddul should pay the obligation, but its demand was not complied
22. Phil. Export and Foreign Loan Guarantee Corp. vs. with. Hence, it extra-judicially foreclosed the real estate mortgage.
Amalgamated Management and Devt. Corp - PAVICO
Petitioner sued AMDC, Cuevas and Saddul on the premise that
In contracts, the law empowers the courts to reduce interest the procees were insufficient to cover balance.
rates and penalty charges that are iniquitos, unconscionable and
exorbitant RTC, ruled in favor of Petitioner, however, Cuevas and Saddul
were absolved and the lower court fixed the interest rate from 16% to
Facts: 6% per annum(accruing interest until deficiency claim is fully paid)

The petitioner, is a government-owned and controlled- On appeal, the CA affirmed in toto the decision.
corporation created by virtue of Presidential Decree No. 1080, as
amended by Republic Act No. 8497. Its primary purpose is to guarantee Issue: Whether the CA erred in declaring that AMDC was liable to pay
the foreign loans, in whole or in part, granted to any domestic entity, interest and penalty charge at the rate of only 6% per annum instead of
enterprise, or corporation, majority of the capital of which is owned by 16% per annum
Filipino citizens.
Ruling: No, the CA did not err.
Respondent Amalgamated Management and Development
Corporation (AMDC), a domestic corporation, had as its main business We do not subscribe to the petitioners submission.
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ISSUE: Whether or not the stipulation compounding the interest
In contracts, the law empowers the courts to reduce interest charged should specifically be indicated in a written agreement.
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 HELD:
determining what is iniquitous and unconscionable, courts must Yes, the stipulation compounding the interest charged should
consider the circumstances of the case. 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.
23. Albos vs. Embisan RIEGO
As mandated by the foregoing provision, payment of monetary
As case law instructs, the imposition of unconscionable interest shall be due only if: (1) there was an express stipulation for the
rate of interest on money debt, even if knowingly and payment of interest; and (2) the agreement for such payment was
voluntarily assumed, is immoral and unjust. reduced in writing. Thus, the Court has held that collection of interest
without any stipulation thereof in writing is prohibited by law.
FACTS:
In the case at bar, it is undisputed that the parties have agreed
On October 17, 1984, petitioners entered into an agreement, for the loan to earn 5% monthly interest, the stipulation to that effect put
denominated as "Loan with Real Estate Mortgage," with respondent in writing. When the petitioners defaulted, the period for payment was
spouses Nestor and Iluminada Embisan (spouses Embisan) in the extended, carrying over the terms of the original loan agreement,
amount of P84,000.00 payable within 90 days with a monthly interest including the 5% simple interest. However, by the third extension of the
rate of 5%. To secure the indebtedness, petitioners mortgaged to the loan, respondent spouses decided to alter the agreement by changing
spouses Embisan a parcel of land in Project 3, Quezon City, measuring the manner of earning interest rate, compounding it beginning June
around 207.6 square meters and registered under their name, as 1986.
evidenced by Transfer Certificate Title No. 257697. Payments are
made but there are times that the petitioners fails to pay which led to Given the circumstances, the Court rule that the first
the the request of extension of the loan obligation which are also requirementthat there be an express stipulation for the payment of
granted. Along with the grant of extensions, a stipulation was made interestis not sufficiently complied with, for purposes of imposing
which would make the 5% interest compounded. Unfortunately, such compounded interest on the loan. The requirement does not only entail
change in the contract was not deduced to writing. The subject parcel reducing in writing the interest rate to be earned but also the manner of
land was extra-judicially foreclose and was auctioned. The herein earning the same, if it is to be compounded.
respondents became the highest bidder. The petitioners are forced to
sign an agreement that would make them lease to the parcel of land Also, imposing 5% monthly interest, whether compounded or
which was now owned by the respondents. The petitioners filed a suit simple, is unconscionable.
to declare the extra-judicial foreclosure void on the ground that they
already paid the principal amount. The lower court dismissed the case Thus, the stipulation in the Loan with Real Estate Mortgage
as well as the Court of Appeals. Thus, this petition. 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
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mortgage, Certificate of Sale, Affidavit of Consolidation, Deed of Final for the payment of interest; and (2) the agreement for such payment
Sale, and Contract of Lease are declared void. was reduced in writing.
In the case at bar, it is undisputed that the parties have agreed for the
Albos vs. Embisan #24 TITO loan to earn 5% monthly interest, the stipulation to that effect put in
writing. When the petitioners defaulted, the period for payment was
Facts: extended, carrying over the terms of the original loan agreement,
including the 5% simple interest. However, by the third extension of the
On October 17, 1984, petitioners entered into an loan, respondent spouses decided to alter the agreement by changing
agreement,denominated as Loan with Real Estate Mortgage,2 with the manner of earning interest rate, compounding it beginning June
respondent spouses Nestor and IluminadaEmbisan (spouses Embisan) 1986. This is apparent from the Statement of Account prepared by the
i payable within 90 days with a monthly interest rate of 5%. To secure spouses Embisan themselves.
the indebtedness, petitioners mortgaged to the spouses Embisan a
parcel of land in Project 3, Quezon City, measuring around 207.6 Article 1956 of the New Civil Code, which refers to monetary interest,
square meters and registered under their name, as evidenced by provides: Article 1956. No interest shall be due unless it has been
Transfer Certificate Title No. 257697.3chanrobleslaw expressly stipulated in writing. As mandated by the foregoing provision,
payment of monetary interest shall be due only if: (1) there was an
For failure to settle their account upon maturity, petitioner Aida Albos express stipulation for the payment of interest; and (2) the agreement
requested and was given an extension of eleven (11) months, when the for such payment was reduced in writing. Thus, the collection of interest
said deadline came , petitioners failed to pay his obligation, on without any stipulation thereof in writing is prohibited by law.
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 II. DEPOSIT ( Arts 1962-2009)
additional eight (8) months was granted on the condition that the
monthly 5% interest from then on, i.e. June 1986 onwards, will be a) Deposit in General & its Different Kinds (Arts 1962-1967)
compounded. This stipulation, however, was not reduced in writing.
CHAPTER 1
Deposit in General and its Different Kinds
Issue:
Whether or not the stipulation compounding the interest charged should Article 1962. A deposit is constituted from the moment a person
specifically be indicated in a written agreement. receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing
Held: delivered is not the principal purpose of the contract, there is no
YES. Article 1956 of the New Civil Code, which refers to monetary deposit but some other contract. (1758a)
interest, provides:
No interest shall be due unless it has been expressly stipulated Article 1963. An agreement to constitute a deposit is binding, but the
in writing. deposit itself is not perfected until the delivery of the thing. (n)
As mandated by the foregoing provision, payment of monetary
interest shall be due only if: (1) there was an express stipulation
Article 1964. A deposit may be constituted judicially or extrajudicially.
(1759)
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Article 1965. A deposit is a gratuitous contract, except when there is Arguments: COMTRUST (BPI): The parties entered into a contract of
an agreement to the contrary, or unless the depositary is engaged in depositum which banks do not enter into. Thus, Garcia exceeded his
the business of storing goods. (1760a) powers when he entered into the contract on behalf of the bank, hence,
the bank cannot be liable under the contract.
Article 1966. Only movable things may be the object of a deposit.
(1761) Issue:
WON the contract entered into is a contract of depositum.
Article 1967. An extrajudicial deposit is either voluntary or necessary.
(1762) 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
26. Bank of the Phil. Islands vs. Intermediate Appellate Court, 164 SCRA a thing belonging to another, with the obligation of safely keeping it and
630, No. L-66826, August 19, 1988 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.
Note: But because the subject of the contract here is a foreign
The document which embodies the contract states that the US$ exchange, it is covered by Central Bank Circular No. 20 which requires
3,000 was received by the bank fior safekeeping. The subsequent acts of that, All receipts of foreign exchange by any resident person, firm,
the parties also shiw that the inteant of the parties was really for the bank to company or corporation shall be sold to authorized agents of the
safely keep the dollars and to return of the money on May 10,1976 or over Central Bank by the recipients within one business day following the
months later. The above arrangeents, is that defined under Art. 1962, Civil receipt of such foreign exchange. Since the document and the
Code subsequent acts of the parties show that they intended the bank to
safekeep the foreign exchange, and return it later to Zshornack, who
Article 1962. A deposit is constituted from the moment a person alleged in his complaint that he is a Philippine resident, the parties did
receives a thing belonging to another, with the obligation of safely not intend to sell the US dollars to the Central Bank within one business
keeping it and of returning the same. If the safekeeping of the thing day from receipt. Otherwise, the contract of depositum would never
delivered is not the principal purpose of the contract, there is no have been entered into at all. In other words, the transaction between
deposit but some other contract. (1758a 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.

Facts:
A contract of depositum was entered into by Garcia, on behalf of 27. BPI FAMILY SAVINGS BANK, INC vs. FIRST METRO
COMTRUST (BPI), wherein he received US $3,000 (foreign exchange) INVESTMENT CORPORATION
from Zshornack for safekeeping. Later on or over five months later,
Zshornack demanded the return of the money but the bank refused Ordinarily, a time deposit ids defined as one the payment
alleging that the amount was sold and transferred to her current of which cannot legally be required within such specified number
account. of days In Contrast, demand deposits are all those liabilities of
BSP and other banks which are denominated in Phil. Currency and
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
are subject to payment in legal tender upon demand by the The SC held that the parties did not intend the deposit to be treated
presentation of ( depositors) checks as a demand deposit but rather as an interest-earning time deposit
not withdrawable anytime.
G.R. No. 132390 May 21, 2004 429 SCRA 30 When respondent FMIC invested its money with petitioner BPI FB, they
FACTS: intended theP100 million as a time deposit, to earn 17% per annum
On August 25, 1989, FMIC, through its Executive Vice President interest and to remain intact until its maturity date one year thereafter.
Antonio Ong, opened current account and Ordinarily, a time deposit is defined as "one the payment of which
deposited METROBANK check no. 898679 of P100 million with BPI cannot legally be required within such a specified number of days.
Family Bank (BPI FB) . Ong made the deposit upon request of his In contrast, demand deposits are "all those liabilities of the
friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Bangko Sentral and of other banks which are denominated in
Branch Manager of BPI FB San Francisco del Monte Branch. Philippine currency and are subject to payment in legal tender
Sebastians aim was to increase the deposit level in hisBranch.BPI FB, upon demand by the presentation of (depositors) checks.
through Sebastian, guaranteed the payment of P14,667,687.01 While it may be true that barely one month and seven days from the
representing 17% per annum interest of P100 million deposited by date of deposit, respondent FMIC demanded the withdrawal
FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of P86,057,646.72 through the issuance of a check payable to itself,
of P100 million for a period of one year on condition that the interest the same was made as a result of the fraudulent and unauthorized
of 17% per annum is paid in advance. This agreement between the transfer by petitioner BPI FB of its P80 million deposit to Tevestecos
parties was reached through their communications in writing. savings account. Certainly, such was a normal reaction of respondent
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon as a depositor to petitioners failure in its fiduciary duty to treat its
clearance of the latters check deposit account with the highest degree of care. Under this circumstance, the
However, on August 29, 1989, on the basis of an Authority to Debit withdrawal of deposit by respondent FMIC before the one-year maturity
signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI date did not change the nature of its time deposit to one of demand
FB transferred P80 million from FMICs current account to the savings deposit.
account of Tevesteco Arrastre Stevedoring, Inc. FMIC denied having The SC have held that if a corporation knowingly permits its officer, or
authorized the transfer of its funds to Tevesteco, claiming that the any other agent, to perform acts within the scope of an apparent
signatures of Ong and David were falsified. Thereupon, to authority, holding him out to the public as possessing power to do those
recover immediately its deposit, FMIC, on September 12, 1989, issued acts, the corporation will, as against any person who has dealt in good
BPI FB check no. 129077 forP86,057,646.72 payable to itself and faith with the corporation through such agent, be estopped from
drawn on its deposit with BPI FB SFDM branch. But upon presentation denying such authority. Petitioner maintains that respondent should
for payment on September 13, 1989, BPI FB dishonored the check as have first inquired whether the deposit of P100 Million and the fixing of
it was "drawn against insufficient funds. Consequently, FMIC filed A the interest rate were pursuant to its (petitioners)internal procedures.
COMPLAINT against BPI FB. FMIC FILED an Information for estafa Petitioners stance is a futile attempt to evade an obligation clearly
against Ong, de Asis, Sebastian and four others. However, established by the intent of the parties. What transpires in the corporate
the Information was dismissed on the basis of a demurrer to evidence boardroom is entirely an internal matter. Hence, petitioner may not
filed by the accused. impute negligence on the part of respondents representative in failing
ISSUE: to find out the scope of authority of petitioners Branch Manager.
1. WHETHER THE TRANSACTION BETWEEN FMIC AND BPI FB A Indeed, the public has the right to rely on the trustworthiness of bank
TIME DEPOSIT or a DEMAND DEPOSIT? managers and their acts. Obviously, confidence in the banking system,
HELD:
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
which necessarily includes reliance on bank managers, is vital in the Voluntary deposit defined.
economic life of our society.
Significantly, the transaction was actually acknowledged and ratified A voluntary deposit is one wherein the delivery is made by
by petitioner when it paid respondent in advance the interest for one the will of the depositor.
year. Thus, petitioner is estopped from denying that it authorized its
Branch Manager to enter into an agreement with respondents Ordinarily, there are only two persons involved. Sometimes,
Executive Vice President concerning the deposit with the however, the depositary may be a third person. (Art. 1968,
corresponding 17% interest per annum. par. 2.)

b. Voluntary Deposit (Arts 1968-1994) Voluntary and necessary deposits distinguished.

b.1 General Provisions The chief difference between a voluntary deposit and a
necessary deposit is that in the former, the depositor has
SECTION 1 complete freedom in choosing the depositary, whereas in
General Provisions the latter, there is lack of free choice in the depositor. (see
11 Manresa 674.)
Article 1968. A voluntary deposit is that wherein the delivery is made
Depositor need not be owner of thing.
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
Generally, the depositor must be the owner of the thing
with a third person, who shall deliver it in a proper case to the one to
deposited. But it may belong to a person other than the
whom it belongs. (1763)
depositor.
Article 1969. A contract of deposit may be entered into orally or in 110
writing. (n)
Arts. 1969-1970 DEPOSIT 111 Voluntary Deposit/General
Article 1970. If a person having capacity to contract accepts a deposit Provisions
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 Thus, a carrier, commission agent, a lessee, etc. may
by the guardian, or administrator, of the person who made the deposit, deposit goods temporarily in his possession considering
or by the latter himself if he should acquire capacity. (1764) that the contract does not involve the transfer of ownership.

Article 1971. If the deposit has been made by a capacitated person As a matter of fact, the depositary cannot dispute the title of
with another who is not, the depositor shall only have an action to the depositor to the thing deposited. (Art. 1984, par. 1.) The
recover the thing deposited while it is still in the possession of the depositary is in estoppel. (see Art. 1436.)
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. Where there are several depositors.
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) Two or more persons each claiming to be entitled to a thing
may deposit the same with a third person. In such case, the
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third person assumes the obligation to deliver to the one to incapacity of those with whom they contract. (Art. 1397.)
whom it belongs.

The action to compel the depositors to settle their conflicting


claims among themselves would be in the nature of an Art. 1971. If the deposit has been made by a capacitated person with
interpleader. (Sec. 1, Rule 62, Rules of Court.1) Here, one another who is not, the depositor shall only have an action to recover
of the depositors is not the owner. 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
Art. 1969. A contract of deposit may be entered into orally or in writing. may bring an action against him for its recovery.

Form of contract of deposit. Where depositary incapacitated and depositor capacitated.

The above article follows the general rule that contracts The incapacitated depositary (like a minor or an insane
shall be obligatory in whatever form they may have been person) does not incur the obligation of a depositary.
entered into provided all the essential requisites for their However, he is liable (1) to return the thing deposited while
validity are present. (Art. 1356.) Thus, except for the still in his possession and (2) to pay the depositor the
delivery of the thing, there are no formalities required for the amount by which he may have benefited himself with the
existence of the contract. thing or its price subject to the right of any third person who
acquired the thing in good faith.

EXAMPLE:
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 A deposited a watch with B, a minor who sold it to C.
obligations of a depositary, and may be compelled to return the thing
by the guardian, or administrator, of the person who made the deposit, If C acted in bad faith, A may recover the watch from him.
or by the latter himself if he should acquire capacity. 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
Where depositary capacitated and depositor incapacitated. the amount by which he may have benefited himself.

If the depositary is capacitated, he is subject to all the b.2 Obligations of Depositor


obliga- tions of a depositary whether or not the depositor is
capacitated. In the latter case, the depositary must return It has been held that when there is no fix period for the return,
the property to the legalrepresentativeoftheincapacitated withdrawal can be made at any time without necessity of judicial
ortothedepositorhim- self if he should acquire capacity. (see order (Aboitiz vs Oquinena, 39 phil 926)
Art. 1986.)
Obligations of the Depositary
Under the law, persons who are capable cannot allege the
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Article 1972. The depositary is obliged to keep the thing safely and to Article 1977. The depositary cannot make use of the thing deposited
return it, when required, to the depositor, or to his heirs and successors, without the express permission of the depositor.
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, Otherwise, he shall be liable for damages.
shall be governed by the provisions of Title I of this Book.
However, when the preservation of the thing deposited requires its use,
If the deposit is gratuitous, this fact shall be taken into account in it must be used but only for that purpose. (1767a)
determining the degree of care that the depositary must observe.
(1766a) Article 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes a
Article 1973. Unless there is a stipulation to the contrary, the loan or commodatum, except where safekeeping is still the principal
depositary cannot deposit the thing with a third person. If deposit with purpose of the contract.
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 permission shall not be presumed, and its existence must be
The depositary is responsible for the negligence of his employees. (n) proved. (1768a)

Article 1974. The depositary may change the way of the deposit if Article 1979. The depositary is liable for the loss of the thing through a
under the circumstances he may reasonably presume that the fortuitous event:
depositor would consent to the change if he knew of the facts of the
situation. However, before the depositary may make such change, he (1) If it is so stipulated;
shall notify the depositor thereof and wait for his decision, unless delay
would cause danger. (n) (2) If he uses the thing without the depositor's permission;
Article 1975. The depositary holding certificates, bonds, securities or (3) If he delays its return;
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
(4) If he allows others to use it, even though he himself may
that the securities may preserve their value and the rights
have been authorized to use the same. (n)
corresponding to them according to law.
Article 1980. Fixed, savings, and current deposits of money in banks
The above provision shall not apply to contracts for the rent of safety
and similar institutions shall be governed by the provisions concerning
deposit boxes. (n)
simple loan. (n)
Article 1976. Unless there is a stipulation to the contrary, the
Article 1981. When the thing deposited is delivered closed and sealed,
depositary may commingle grain or other articles of the same kind and
the depositary must return it in the same condition, and he shall be
quality, in which case the various depositors shall own or have a
liable for damages should the seal or lock be broken through his fault.
proportionate interest in the mass. (n)
Fault on the part of the depositary is presumed, unless there is proof to
the contrary.
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As regards the value of the thing deposited, the statement of the When there is solidarity or the thing does not admit of division, the
depositor shall be accepted, when the forcible opening is imputable to provisions of articles 1212 and 1214 shall govern. However, if there is
the depositary, should there be no proof to the contrary. However, the a stipulation that the thing should be returned to one of the depositors,
courts may pass upon the credibility of the depositor with respect to the the depositary shall return it only to the person designated. (1772a)
value claimed by him.
Article 1986. If the depositor should lose his capacity to contract after
When the seal or lock is broken, with or without the depositary's fault, having made the deposit, the thing cannot be returned except to the
he shall keep the secret of the deposit. (1769a) persons who may have the administration of his property and rights.
(1773)
Article 1982. When it becomes necessary to open a locked box or
receptacle, the depositary is presumed authorized to do so, if the key Article 1987. If at the time the deposit was made a place was
has been delivered to him; or when the instructions of the depositor as designated for the return of the thing, the depositary must take the thing
regards the deposit cannot be executed without opening the box or deposited to such place; but the expenses for transportation shall be
receptacle. (n) borne by the depositor.

Article 1983. The thing deposited shall be returned with all its products, If no place has been designated for the return, it shall be made where
accessories and accessions. 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
Should the deposit consist of money, the provisions relative to agents part of the depositary. (1774)
in article 1896 shall be applied to the depositary. (1770)
Article 1988. The thing deposited must be returned to the depositor
Article 1984. The depositary cannot demand that the depositor prove upon demand, even though a specified period or time for such return
his ownership of the thing deposited. may have been fixed.

Nevertheless, should he discover that the thing has been stolen and This provision shall not apply when the thing is judicially attached while
who its true owner is, he must advise the latter of the deposit. 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
If the owner, in spite of such information, does not claim it within the deposited. In these cases, the depositary must immediately inform the
period of one month, the depositary shall be relieved of all responsibility depositor of the attachment or opposition. (1775)
by returning the thing deposited to the depositor.
Article 1989. Unless the deposit is for a valuable consideration, the
If the depositary has reasonable grounds to believe that the thing has depositary who may have justifiable reasons for not keeping the thing
not been lawfully acquired by the depositor, the former may return the deposited may, even before the time designated, return it to the
same. (1771a) depositor; and if the latter should refuse to receive it, the depositary
may secure its consignation from the court. (1776a)
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.
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Article 1990. If the depositary by force majeure or government order *safety deposit box a contract for the rent of safety
loses the thing and receives money or another thing in its place, he deposit box an ordinary contract of lease but special king of
shall deliver the sum or other thing to the depositor. (1777a) deposit

Article 1991. The depositor's heir who in good faith may have sold the Facts:
thing which he did not know was deposited, shall only be bound to Petitioner (through its President) purchased 2 parcels of land from
return the price he may have received or to assign his right of action spouses Pugao for P350K with a downpayment of P75 K. Per
against the buyer in case the price has not been paid him. (1778) 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
b.3 Obligations of the Depositor (Arts. 1992-1995) could be withdrawn only upon the joint signatures of a representative
of the Petitioner and the Pugaos upon full payment of the purchase
Obligations of the Depositor price. Thereafter, Petitioner and spouses placed the titles in the safety
deposit box of Respondent Security Bank and signed a lease contract
Article 1992. If the deposit is gratuitous, the depositor is obliged to which substantially states that the Bank will not assume liability for the
reimburse the depositary for the expenses he may have incurred for the contents of the deposit box. Subsequently, 2 renter's keys were given
preservation of the thing deposited. (1779a) 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.
Article 1993. The depositor shall reimburse the depositary for any loss
Afterwards, a certain Mrs. Ramos offered to buy from the Petitioner the
arising from the character of the thing deposited, unless at the time of
2 lots that would yield a profit of P285K. Mrs. Ramos demanded the
the constitution of the deposit the former was not aware of, or was not
execution of a deed of sale which necessarily entailed the production
expected to know the dangerous character of the thing, or unless he
of the certificates of title. Thus, Petitioner with the spouses went to
notified the depositary of the same, or the latter was aware of it without
Respondent Bank to retrieve the titles. However, when opened in the
advice from the depositor. (n)
presence of the Bank's representative, the safety deposit box yielded
no such certificates. Because of the delay in the reconstitution of the
Article 1994. The depositary may retain the thing in pledge until the full title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a
payment of what may be due him by reason of the deposit. (1780) consequence, the Petitioner allegedly failed to realize the expected
profit of P285K. Hence, Petitioner filed a complaint for damages against
Article 1995. A deposit its extinguished: Respondent Bank. The Lower court ruled in favor of Respondent Bank.
Issues:
(1) Upon the loss or destruction of the thing deposited; 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?
(2) In case of a gratuitous deposit, upon the death of either the 3. Whether or not Respondent Bank is liable for damages?
depositor or the depositary. (n) 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
29. CA-Agro Industrial Development Corp. vs. CA Castro A. 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
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had a duplicate which was made so that both renters could have access Crispa filed a claim against its insurer, herein respondent
to the box. Moreover, the renting out of the deposit box is not Filipino Merchants Insurance Company, Inc. (FMICI). Having
independent from, but related to or in conjunction with, the principal indemnified Crispa in the amount of P669.500 for the loss of the subject
function of a contract of deposit the receiving in custody of funds, vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at
documents and other valuable objects for safekeeping. Makati City an action for damages against petitioner.
2. NO. SC opined that it is void. Generally, the Civil Code provides that The trial court ruled in favor of the respondent. Its decision was
the depositary (Respondent Bank) would be liable if, in performing its affirmed on appeal.
obligation, it is found guilty of fraud, negligence, delay or contravention The petitioner argues that it was not a depositary of the subject
of the tenor of the agreement. In the absence of any stipulation, the car and that it exercised due diligence and prudence in the safe keeping
diligence of a good father of a family is to be observed. Hence, any of the vehicle, in handling the car-napping incident and in the
stipulation exempting the depositary from any liability arising from the supervision of its employees. It further argued that there was no valid
loss of the thing deposited on account of fraud, negligence or delay subrogation of rights between Crispa and respondent FMICI.
would be void for being contrary to law and public policy (which is ISSUE: Whether petitioner is a depositary of the subject vehicle
present in the disputed contract Said provisions are inconsistent with HELD: YES. It is a depositary of the subject vehicle.
the Respondent Bank's responsibility as a depositary under Section In a contract of deposit, a person receives an object belonging
72(a) of the General Banking Act. to another with the obligation of safely keeping it and returning the
3. NO. SC ruled that: no competent proof was presented to show that same. A deposit may be constituted even without any consideration. It
Respondent Bank was aware of the private agreement between the is not necessary that the depositary receives a fee before it becomes
Petitioner and the Pugaos that the Land titles were withdrawable from obligated to keep the item entrusted for safekeeping and to return it
the safety deposit box only upon both parties' joint signatures, and that later to the depositor.
no evidence was submitted to reveal that the loss of the certificates of When De Asis entrusted the car in question to petitioners valet
title was due to the fraud or negligence of the Respondent Bank. 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
TRIPLE-V vs. FILIPINO MERCHANTS??? insurance, guaranty or surety for the loss of the car was constituted
when De Asis availed of its free valet parking service.
FACTS: As to petitioners argument that the stub given to the employee is
A certain Mary Jo-anne De Asis is an employee of Crispa Textile an explicit waiver of any right to claim indemnity for the loss of the
Inc. A car was issued to her by the latter. She went to Kamayan car
Restaurant in Quezon City. De Asis availed of the valet parking service The parking claim stub embodying the terms and conditions
of petitioner and entrusted her car key to petitioner's valet counter. A of the parking, including that of relieving petitioner from any loss or
corresponding parking ticket was issued as receipt for the car. The car damage to the car, is essentially a contract of adhesion, drafted and
was then parked by petitioner's valet attendant, a certain Madridano, at prepared as it is by the petitioner alone with no participation
the designated parking area. Few minutes later, Madridano noticed that whatsoever on the part of the customers, like De Asis, who merely
the car was not in its parking slot and its key no longer in the box where adheres to the printed stipulations therein appearing. While contracts
valet attendants usually keep the keys of cars entrusted to them. The of adhesion are not void in themselves, yet this Court will not hesitate
car was never recovered. to rule out blind adherence thereto if they prove to be one-sided under
the attendant facts and circumstances.
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WON Ong is guilty of Estafa. No.Ruling:
1.
*Bank Deposits The Supreme Court held that bank deposits are in the nature
of irregular deposits.Bank deposits are really loans because they earn
Case 1. interest. Whether fixed, savings, or current, all bank Adepositsare to be
treated as loans and are to be covered by the law on loans.
31. People v Ong, 204 scra 942 2.
The elements of this kind of estafa are the following: (1) postdating or
All kinds of deposits whether fixed or current are to be issuance of a check in payment of anobligation contracted at the time
treated as loans and are to be covered by the law on loans* 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
Facts: established that Ong either issued or indorsed the subject checks.
Accused Dick Ong, one of the depositors of the Home Savings Bank However, it must beremembered that the reason for the conviction of
and Trust Company (HSBTC) opened a savingsaccount with HSBTC an accused of the crime of estafa is his guilty knowledge of thefact that
with an initial deposit of P22.14 in cash and P10,000.00 in check.Ong he had no funds in the bank when he negotiated the spurious check.In
was allowed to withdraw from his savings account with the Bank the present case, however, the prosecution failed to prove that Ong had
the sum of P5,000.00, without his check undergoingthe usual and knowledge with respect to the checkshe indorsed.Moreover, it has also
reglementary clearance. The withdrawal slip was signed and approved been proven that it was the Bank which granted him a drawn against
by Lino Morfe, then the BranchManager, and accused Lucila Talabis, uncollected deposit(DAUD) privilege without need of any pretensions
the Branch Cashier.Subsequently, Ong deposited eleven checks in his on his part. The privilege this privilege was not only for thesubject
savings account with the Bank and against which he made checks, but for other past transactions. If ever, he, indeed acted
withdrawalsagainst its amount. Again, the withdrawal of the amount by fr audulently, he could not have done so without the active cooperation
Ong was made before said checks were cleared and the Bank had of the Banks employees. Since Talabis andVillaran were declared
collected their amounts and with the approval of Talabis.However, innocent of the crimes charged against them, the same should be said
when the Bank presented the eleven checks issued, deposited and for the Ong.
against which Ong made withdrawals againstits amounts, to their
respective drawee banks for payment, they were all dishonored for lack Thus, Ong cannot be held criminally liable against the Bank. He can
or insufficiency of funds.Because of this, the Bank filed a criminal action only be held civilly liable as the Bank incurred damages
for Estafa against Ong, and the Banks officer in charge Villaran
andTalabis.Talabis testified that the approval of the withdrawals of Ong Case 2
against his uncleared checks was in accordance with theinstruction of 32. Guingona vs City Fiscal, 128 scra 577
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 While have obligation to return the amount deposited, they
guilty for the crime of estafa but acquitted Villarin and Talabis as their have no obligation to return or deliver the same money deposited
guilt were not proven beyondreasonable doubt. CA affirmed RTCs in the same denomination as was deposited. Thus, Estafa will not
decisions.Issue: prosper
1.
What is the nature of bank deposits?
2.
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Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. But even granting that the failure of the bank to pay the time and
The City Fiscal of Manila, Hon. Jose Flaminiano, Asst. City Fiscal savings deposits of private respondent David would constitute a
Felizardo Lota and violation of paragraph 1(b) of Article 315 of the Revised Penal Code,
nevertheless any incipient criminal liability was deemed avoided,
Facts: because when the aforesaid bank was placed under receivership by
From March 1979 to March 1981, Clement David made several the Central Bank, petitioners Guingona and Martin assumed the
investments with the National Savings and Loan Association. On March obligation of the bank to private respondent David, thereby resulting in
21, 1981, the bank was placed under receivership by the Bangko the novation of the original contractual obligation arising from deposit
Sentral. Upon Davids request, petitioners Guingona and Martin issued into a contract of loan and converting the original trust relation between
a joint promissory note, absorbing the obligations of the bank. On July the bank and private respondent David into an ordinary debtor-creditor
17, 1981, they divided the indebtedness. David filed a complaint for relation between the petitioners and private respondent. Consequently,
estafa and violation of Central Bank Circular No. 364 and related the failure of the bank or petitioners Guingona and Martin to pay the
regulations regarding foreign exchange transactions before the Office deposits of private respondent would not constitute a breach of trust but
of the City Fiscal of Manila. Petitioners filed the herein petition for would merely be a failure to pay the obligation as a debtor. Moreover,
prohibition and injunction with a prayer for immediate issuance of while it is true that novation does not extinguish criminal liability, it may
restraining order and/or writ of preliminary injunction to enjoin the public however, prevent the rise of criminal liability as long as it occurs prior
respondents to proceed with the preliminary investigation on the ground to the filing of the criminal information in court. In the case at bar, there
that the petitioners obligation is civil in nature. is no dispute that petitioners Guingona and Martin executed a
Issue: promissory note on June 17, 1981 assuming the obligation of the bank
(1) Whether the contract between NSLA and David is a contract of to private respondent David; while the criminal complaint for estafa was
depositor a contract of loan, which answer determines whether the City filed on December 23, 1981 with the Office of the City Fiscal. Hence, it
Fiscal has the jurisdiction to file a case for estafa is clear that novation occurred long before the filing of the criminal
(2) Whether there was a violation of Central Bank Circular No. 364 complaint with the Office of the City Fiscal. Consequently, as
Held: aforestated, any incipient criminal liability would be avoided but there
(1) When private respondent David invested his money on nine. and will still be a civil liability on the part of petitioners Guingona and Martin
savings deposits with the aforesaid bank, the contract that was to pay the assumed obligation.
perfected was a contract of simple loan or mutuum and not a contract (2) Petitioner Guingona merely accommodated the request of the
of deposit. Hence, the relationship between the private respondent and Nation Savings and loan Association in order to clear the bank draft
the Nation Savings and Loan Association is that of creditor and debtor; through his dollar account because the bank did not have a dollar
consequently, the ownership of the amount deposited was transmitted account. Immediately after the bank draft was cleared, petitioner
to the Bank upon the perfection of the contract and it can make use of Guingona authorized Nation Savings and Loan Association to withdraw
the amount deposited for its banking operations, such as to pay the same in order to be utilized by the bank for its operations. It is safe
interests on deposits and to pay withdrawals. While the Bank has the to assume that the U.S. dollars were converted first into Philippine
obligation to return theamount deposited, it has, however, no obligation pesos before they were accepted and deposited in Nation Savings and
to return or deliver the same money that was deposited. And, the failure Loan Association, because the bank is presumed to have followed the
of the Bank to return the amount deposited will not constitute estafa ordinary course of the business which is to accept deposits in Philippine
through misappropriation punishable under Article 315, par. l(b) of the currency only, and that the transaction was regular and fair, in the
Revised Penal Code, but it will only give rise to civil liability over which absence of a clear and convincing evidence to the contrary.
the public respondents have no jurisdiction.
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In conclusion, considering that the liability of the petitioners is purely without paying the drafts drawn upon him by the remittors thereof; that
civil in nature and that there is no clear showing that they engaged in the credits thus described should be set off against each other
foreign exchange transactions, We hold that the public respondents according to law, and on such set off being made it appeared that he
acted without jurisdiction when they investigated the charges against was still the creditor of the bank in the sum of P16,589.70. And he
the petitioners. Consequently, public respondents should be restrained asked that the court order the Bank Commissioner to pay him the
from further proceeding with the criminal case for to allow the case to aforesaid balance and that the same be declared as preferred credit.
continue, even if the petitioners could have appealed to the Ministry of The claim was referred to the commissioner appointed by the court,
Justice, would work great injustice to petitioners and would render who at the same time acted as referee, and this officer recommended
meaningless the proper administration of justice. 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.
# 33 Tan, Tiong, Tick vs. American Hypothecary Co., G.R. No. L-
43682 March 31, 1938 - DINGLASAN ISSUES:

Money deposited in banks, whether fixed, savings and 1. Whether or not the current account and savings deposits are
current, are really loans to a bank because the bank can use the preferred credits in cases involving insolvency and liquidation of the
same for its ordinary transactions and for banking business in bank.
which it is engaged.
2. Whether or not the deposits could be offset with the debt of the
DOCTRINES: depositor with the bank.
1. The bank can make use as its own the money deposited.
2. Current account and savings deposts are not preferred credits in 3. Whether or not the deposits should earn interest from the time the
case of insolvency and liquidation. bank ceased to operate.
3. The bank can offset the deposit of the client who has a debt with
the bank. RULING:
4. Deposits should not earn interest from the time the bank cease to
do business. IMPERIAL, J.: 1.The SC ruled that, these deposits are essentially merchantile
contracts and should, therefore, be governed by the provisions of the
Facts: Code of Commerce. In accordance with article 309, the so-called
current account and savings deposits have lost the character of
In the proceedings for the liquidation of the Mercantile Bank of China, deposits properly so-called, and are converted into simple commercial
the appellant presented a written claim alleging: that when this bank loans, because the bank disposed of the funds deposited by the
ceased to operate on September 19, 1931, his current account in said claimant for its ordinary transactions and for the banking business in
bank showed a balance of P9,657.50 in his favor; that on the same which it was engaged. That the bank had the authority of the claimant
date his savings account in the said bank also showed a balance in to make use of the money deposited on current and savings account
his favor of P20,000 plus interest then due amounting to P194.78; that is deducible from the fact that the bank has been paying interest on
on the other hand, he owed the bank in the amount of P13,262.58, the both deposits, and the claimant himself asks that he be allowed
amount of the trust receipts which he signed because of his interest up to the time when the bank ceased its operations.
withdrawal from the bank of certain merchandise consigned to him Moreover, according to section 125 of the Corporation Law and 9 of
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
Act No. 3154, said bank is authorized to make use of the current or such portion thereof as may be necessary, to the payment of the
account, savings, and fixed deposits provided it retains in its treasury debt due it by the depositor, provided there is no express agreement
a certain percentage of the amounts of said deposits. to the contrary and the deposit is not specially applicable to some
other particular purposes. (7 Am. Jur., par. 629, p.455; United States
2.It appears that even after the enactment of the Insolvency Law there vs. Butterworth-Judson Corp., 267 U.S., 387; National Bank vs.
was no law in this jurisdiction governing the order or preference of Morgan, 207 Ala.., 65; Bank of Guntersville vs. Crayter, 199 Ala., 699;
credits in case of insolvency and liquidation of a bank. But the Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T.
Philippine Legislature subsequently enacted Act No. 3519, amended Co. vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho,
various sections of the Revised Administrative Code, which took effect 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; Niblack vs. Park
on February 20, 1929, and section 1641 of this latter Code. as Nat. Bank, 169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162;
amended by said Act provides: Bedford Bank vs. Acoam, 125 Ind., 584.) The situation referred to by
the appellees is inevitable because section 1639 of the Revised
SEC. 1641. Distribution of assets. In the case of the liquidation of a Administrative Code, as amended by Act No. 3519, provides that the
bank or banking institution, after payment of the costs of the Bank Commissioner shall reduce the assets of the bank into cash and
proceeding, including reasonable expenses, commissions and fees of this cannot be done without first liquidating individually the accounts of
the Bank Commissioner, to be allowed by the court, the Bank the debtors of said bank, and in making this individual liquidation the
Commissioner shall pay the debts of the institution, under of the court debtors are entitled to set off, by way of compensation, their claims
in the order of their legal priority. against the bank.

From this section 1641 we deduce that the intention of the Philippine 4. Upon this point a distinction must be made between the interest
Legislature, in providing that the Bank Commissioner shall pay the which the deposits should earn from their existence until the bank
debts of the company by virtue of an order of the court in the order of ceased to operate, and that which they may earn from the time the
their priority, was to enforce the provisions of section 48, 49 and 50 of banks operations were stopped until the date of payment of the
the Insolvency Law in the sense that they are made applicable to deposits. As to the first class, it should be paid because such interest
cases of insolvency or bankruptcy and liquidation of banks. No other has been earned in the ordinary course of the banks business and
deduction can be made from the phrase in the order of their legal before the latter has been declared in a state or liquidation. Moreover,
priority employed by the law, for there being no law establishing any the bank being authorized by law to make us of the deposits, with the
priority in the order of payment of credits, the legislature could not limitation stated, to invest the same in its business and other
reasonably refer to any legislation upon the subject, unless the operations, it may be presumed that it bound itself to pay interest to
interpretation above stated is accepted. the depositors as in fact it paid interest prior to the date of the said
Examining now the claims of the appellant, it appears that none of claims.
them falls under any of the cases specified by section 48, 49 and 50
of the Insolvency Law; wherefore, we conclude that the appellants As to the interest which may be charged from the date the bank
claims, consisting of his current and savings account, are not ceased to do business because it was declared in a state of
preferred credits. 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
3. It may be stated as a general rule that when a depositor is indemnity for damages suffered, in the cases wherein the obligation
indebted to a bank, and the debts are mutual that is, between the consists in the payment of money. In view of this, SC held that in the
same parties and in the same right the bank may apply the deposit, absence of any express law or any applicable provision of the Code of
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Commerce, it is not proper to pay this last kind of interest to the monies deposited therein enjoy the confidence reposed in them
appellant upon his deposits in the bank, for this would be anomalous by their employer. Banks, on the other hand, where monies are
and unjustified in a liquidation or insolvency of a bank. This rule deposited, are considered the owners thereof. This is very clear
should be strictly observed in the instant case because it is not only from the express provisions of the law, but from
understood that the assets should be prorated among all the creditors established jurisprudence. The relationship between banks and
as they are insufficient to pay all the obligations of the bank. depositors has been held to be that of creditor and debtor.
Yes. The Bank acquires ownership of the money deposited by its
In view of all the foregoing considerations, SC affirmed the part of the clients (Art 1953).
appealed decision for the reasons stated herein, and it is ordered that Art. 1953. A person who receives a loan of money or any other
the net claim of the appellant, amounting to P13,611.21, is an ordinary fungible thing acquires the ownership thereof, and is bound to pay
and not a preferred credit, and that he is entitled to charge interest on to the creditor an equal amount of the same kind and quality.
said amount up to September 19, 1931. Art. 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
34. People vs Puig, 563 scra 564 (2008) concerning simple loan. (n)
Facts
The petitioners filed before the RTC of Iloilo 112 cases of c. Necessary Deposit (Arts- 1996-2004)
Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, Article 1996. A deposit is necessary:
respectively, of private complainant Rural Bank of Pototan, Inc for
taking various amounts of money with grave abuse of confidence, and (1) When it is made in compliance with a legal obligation;
without the knowledge and consent of the bank, to the damage
and prejudice of the bank. The RTC dismissed the cases and refused (2) When it takes place on the occasion of any calamity, such
to issue a warrant of arrest against Puig and Porras on the ground as fire, storm, flood, pillage, shipwreck, or other similar events.
of lack of probable cause because the complaint failed to state the facts (1781a)
constituting the qualifying circumstance of grave abuse of confidence
and the element of taking without the consent of the owner, since the Article 1997. The deposit referred to in No. 1 of the preceding article
owner of the money is not the Bank, but the depositors therein. Motion shall be governed by the provisions of the law establishing it, and in
for Reconsideration was filed but it was also denied. case of its deficiency, by the rules on voluntary deposit.
Issue
The deposit mentioned in No. 2 of the preceding article shall be
1. Whether the relationship between banks and depositors is that
regulated by the provisions concerning voluntary deposit and by article
of creditor and debtor. 2168. (1782)
2. Whether the bank acquires ownership of the money deposited
by its clients. Article 1998. The deposit of effects made by travellers in hotels or inns
shall also be regarded as necessary. The keepers of hotels or inns shall
be responsible for them as depositaries, provided that notice was given
Held to them, or to their employees, of the effects brought by the guests and
Yes. It is beyond doubt that tellers, Cashiers, Bookkeepers and that, on the part of the latter, they take the precautions which said hotel-
other employees of a Bank who come into possession of the
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keepers or their substitutes advised relative to the care and vigilance of Article 2005. A judicial deposit or sequestration takes place when an
their effects. (1783) attachment or seizure of property in litigation is ordered. (1785)

Article 1999. The hotel-keeper is liable for the vehicles, animals and Article 2006. Movable as well as immovable property may be the
articles which have been introduced or placed in the annexes of the object of sequestration. (1786)
hotel. (n)
Article 2007. The depositary of property or objects sequestrated
Article 2000. The responsibility referred to in the two preceding articles cannot be relieved of his responsibility until the controversy which gave
shall include the loss of, or injury to the personal property of the guests rise thereto has come to an end, unless the court so orders. (1787a)
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 Article 2008. The depositary of property sequestrated is bound to
majeure. The fact that travellers are constrained to rely on the vigilance comply, with respect to the same, with all the obligations of a good
of the keeper of the hotels or inns shall be considered in determining father of a family. (1788)
the degree of care 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 sequestration shall be governed by the Rules of Court. (1789a)
not 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 1. Nature
is 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
598 scra 326
Article 2003. The hotel-keeper cannot free himself from responsibility
by posting notices to the effect that he is not liable for the articles Facts:
brought by the guest. Any stipulation between the hotel-keeper and the The complaint for a sum of money filed by the Philippine Commercial
guest whereby the responsibility of the former as set forth in articles International Bank (PCIB) against B.R. Sebastian and Associates, Inc.
1998 to 2001 is suppressed or diminished shall be void. (n) (Sebastian). The court rendered decision in favor of PCIB and ordered
to pay the PCIB inclusive of marginal deposits, interest, commission
Article 2004. The hotel-keeper has a right to retain the things brought and other bank charges plus interests and other bank.
into the hotel by the guest, as a security for credits on account of The CA affirmed the decision of CFI.
lodging, and supplies usually furnished to hotel guests. (n) 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,
d. Sequestration of Judicial Deposit (Arts 2005-2009) attaching and levying on all the good(s), effects, moneys in the
possession and control of NPC. The amount to be satisfied is
Sequestration or Judicial Deposit Sebastians liability in Civil Case

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The NPC argue that it cannot be made to pay interests and bank
charges since there is nothing in the dispositive portions that requires 2. Garnishment is proper only in money judgments
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. 37. NHMFC vs. ABAYARI et al., 602 scra 242

Issue: Garnishment is proper only when the judgment to be


Whether NPC is to pay interest and bank charges on the garnished enforced is one for the payment of a sum of money it cannot be
amount, where said interest and bank charges are over and beyond the employed to implement a special judgment such as that rendered
amount specified in the notice of garnishment in a special civil action for mandamus

Held: Facts: Petitioner, the National Home Mortgage Finance Corporation


YES. NPC is required to pay the interest and other bank charges. (NHMFC), is a government-owned and controlled corporation created
The legal basis of garnishment is found in Section 9(c), Rule 39 of the under the authority of Presidential Decree No. 1267 for the primary
Rules of Court, which states: purpose of developing and providing a secondary market for home
(c) Garnishment of debts and credits. The officer may levy on debts mortgages granted by public and/or private home-financing institutions.
due the judgment obligor and other credits, including bank deposits, In its employ were respondents, mostly rank-and-file employees, who
financial interests, royalties, commissions and other personal property all profess as having been hired after June 30, 1989.
not capable of manual delivery in the possession or control of third On July 1, 1989, Republic Act No. 6758, otherwise known as The
parties. Levy shall be made by serving notice upon the person owing Compensation and Position Classification Act of 1989, was enacted
such debts or having in his possession or control such credits to which and was subsequently approved on August 21, 1989. Section 12
the judgment obligor is entitled. The garnishment shall cover only such thereof directed that all allowances namely representation and
amount as will satisfy the judgment and all lawful fees. transportation allowance, clothing and laundry allowance, subsistence
allowance, hazard pay and other allowances as may be determined by
Garnishment has been defined as a specie of attachment for the budget department enjoyed by covered employees should be
reaching credits belonging to the judgment debtor and owing to deemed included in the standardized salary rates prescribed therein,
him from a stranger to the litigation. Under this rule, the garnishee and that the other additional compensation being received by
[the third person] is obliged to deliver the credits, etc. to the incumbents only as of July 1, 1989 not integrated into the standardized
proper officer issuing the writ and the law exempts from liability salary rates should continue to be authorized.
the person having in his possession or under his control any Respondents filed a petition for mandamus with the RTC of Makati City,
credits or other personal property belonging to the defendant. Branch 138[11] to compel petitioner to pay them meal, rice, medical,
dental, optical and childrens allowances, as well as longevity pay, which
The garnishee is obliged to pay all interests and bank charges that allegedly were already being enjoyed by other NHMFC employees as
have accumulated on the amount garnished or, on such amount early as July 1, 1989. In its April 27, 2001 Decision, the trial court ruled
which has not been paid, from the date of its receipt of the notice favorably and ordered petitioner to pay respondents the allowances
of garnishment until it has made payment. prayed for, retroactive to the respective dates of appointment.
CA affirmed. Instead of an appeal the Parties entered into a
All that is necessary for the trial court to lawfully bind the person of the compromise agreement in which petitioner bound itself to comply with
garnishee or any person who has in his possession credits belonging the decision rendered in the case, except that the payment of the
to the judgment debtor is service upon him of the writ of garnishment.
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allowances adjudicated in favor of respondents would be made in four it must bear stress that the latter is a government-owned or controlled
installments instead. corporation with a charter of its own. Its juridical personality is separate
Conflict arose when the DBM sent a letterto NHMFC disallowing and distinct from the government and it can sue and be sued in its
the payment of certain allowances, including those awarded by the trial name. As such, while indeed it cannot evade the effects of the
court to respondents. DBM then curtailed the award to respondent execution of an adverse judgment and may not ordinarily place its funds
pursuant to DBM letter. beyond an order of garnishment issued in ordinary cases, it is
imperative in order for execution to ensure that a claim for the payment
This eventuality compelled respondents to file for the second of the judgment award be first filed with the Commission on Audit
time a motion for a writ of execution of the trial court decision. The trial (COA).
court found merit in respondents motion; hence, it directed the
execution of the judgment, the trial court issued a Writ of Being a special judgment, the decision may not be
Execution/Garnishment with a directive to the sheriff to tender to executed in the same way as a judgment for money handed down
respondents the amount of their collective claim equivalent in an ordinary civil case governed by Section 9, Rule 39 of the
to P4,806,530.00 to be satisfied out of petitioners goods and chattels Rules Court which sanctions garnishment of debts and credits to
and if the same be not sufficient, out of its existing real property. On satisfy a monetary award.
appeal by petitioner, the CA dismissed the appeal.
Hence, this recourse.
III GUARANTY & SURETY (Arts. 2047 2084)
Issue: (Credit only) Whether or Not the garnishment order was proper. Contracts of security are either personal or real. In
contracts of personal security, such as guaranty or suretyship,
Ruling; No, the garnishment was not proper. the faithful performance of the obligation by the principal debtor
is secured by the personal commitment of another ( the guarantor
Petitioner asserts that the garnishment of its funds was not in or surety)
order as there was no existing appropriation therefor.
39. Acme Shoe, Rubber & Plastic Corp vs. CA, Producers Bank of
Garnishment is proper only when the judgment to be the Phil.
enforced is one for payment of a sum of money. It cannot be Facts:
employed to implement a special judgment such as that rendered Petitioner Chua Pac, the president and general manager of co-
in a special civil action formandamus. petitioner corporation, executed, a chattel mortgage in favor of private
respondent Producers Bank of the Philippines. The mortgage stood by
On this score, not only did the trial court exceed the scope of its way of security for petitioner's corporate loan of three million pesos
judgment when it awarded the benefits claimed by respondents. It also (P3,000,000.00) A pertinent portion of the instrument states that:
committed a blatant error when it issued the February 16, 2004 Order "(c) If the MORTGAGOR, his heirs, executors or administrators shall
directing the garnishment of petitioners funds with the Land Bank of the well and truly perform the full obligation or obligations above-stated
Philippines equivalent to P4,806,530.00, even though the said amount according to the terms thereof, then this mortgage shall be null and
was not specified in the decision it sought to implement. void. x x x.
In case the MORTGAGOR executes subsequent promissory note or
Be that as it may, assuming for the sake of argument that execution by notes either as a renewal of the former note, as an extension thereof,
garnishment could proceed in this case against the funds of petitioner, or as a new loan, or is given any other kind of accommodations such
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as overdrafts, letters of credit, acceptances and bills of exchange, essential condition that if the principal obligation becomes due and the
releases of import shipments on Trust Receipts, etc., this mortgage debtor defaults, then the property encumbered can be alienated for the
shall also stand as security for the payment of the said promissory note payment of the obligation,[7] but that should the obligation be duly paid,
or notes and/or accommodations without the necessity of executing a then the contract is automatically extinguished proceeding from the
new contract and this mortgage shall have the same force and effect accessory character[8] of the agreement. As the law so puts it, once the
as if the said promissory note or notes and/or accommodations were obligation is complied with, then the contract of security
existing on the date thereof. This mortgage shall also stand as security becomes, ipso facto, null and void.
for said obligations and any and all other obligations of the A Chattel Mortgage, however, can only cover obligations existing at the
MORTGAGOR to the MORTGAGEE of whatever kind and nature, time the mortgage is constituted. Although a promise expressed in a
whether such obligations have been contracted before, during or after chattel mortgage to include debts that are yet to be contracted can be
the constitution of this mortgage a binding commitment that can be compelled upon, the security itself,
The Loan of P3M was paid. Petitioner Obtained another loan of P2.7M however, does not come into existence or arise until after a chattel
and was also paid. mortgage agreement covering the newly contracted debt is executed
10 and 11 January 1984, the bank again obtained loan of P1M in 4 either by concluding a fresh chattel mortgage or by amending the old
promissory notes of 250K each. But Due to financial constraints, the contract conformably with the form prescribed by the Chattel Mortgage
loan was not settled at maturity. Law.
Bank applied for extrajudicial foreclosure of chattel mortgage. Acme Since the 1978 chattel mortgage had ceased to exist coincidentally with
filed action for injunction however RTCultimately dismissed complaint the full payment of the P3,000,000.00 loan,] there no longer was any
and ordered foreclosure saying Acme was bound by stipulations. chattel mortgage that could cover the new loans that were concluded
CA dismissed appeal and affirmed RTC. thereafter.
Issue:
Whether or not a clause in the chattel mortgage that purports to likewise a. Nature and Extent of Guaranty (Arts. 2047-2057)
extend its coverage to obligations yet to be contracted or incurred?
Held: Nature and Extent of Guaranty
No.
Contracts of security are either personal or real. In contracts of personal Article 2047. By guaranty a person, called the guarantor, binds himself
security, such as a guaranty or a suretyship, the faithful performance to the creditor to fulfill the obligation of the principal debtor in case the
of the obligation by the principal debtor is secured by latter should fail to do so.
the personal commitment of another (the guarantor or surety). In
contracts of real security, such as a pledge, a mortgage or an If a person binds himself solidarily with the principal debtor, the
antichresis, that fulfillment is secured by an encumbrance of property - provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
in pledge, the placing of movable property in the possession of the In such case the contract is called a suretyship. (1822a)
creditor; in chattel mortgage, by the execution of the corresponding
deed substantially in the form prescribed by law; in real estate Article 2048. A guaranty is gratuitous, unless there is a stipulation to
mortgage, by the execution of a public instrument encumbering the real the contrary. (n)
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
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Article 2049. A married woman may guarantee an obligation without provided with respect to the latter, that the guarantor shall only be liable
the husband's consent, but shall not thereby bind the conjugal for those costs incurred after he has been judicially required to pay.
partnership, except in cases provided by law. (n) (1827a)

Article 2050. If a guaranty is entered into without the knowledge or Article 2056. One who is obliged to furnish a guarantor shall present a
consent, or against the will of the principal debtor, the provisions of person who possesses integrity, capacity to bind himself, and sufficient
articles 1236 and 1237 shall apply. (n) property to answer for the obligation which he guarantees. The
guarantor shall be subject to the jurisdiction of the court of the place
Article 2051. A guaranty may be conventional, legal or judicial, where this obligation is to be complied with. (1828a)
gratuitous, or by onerous title.
Article 2057. If the guarantor should be convicted in first instance of a
It may also be constituted, not only in favor of the principal debtor, but crime involving dishonesty or should become insolvent, the creditor
also in favor of the other guarantor, with the latter's consent, or without may demand another who has all the qualifications required in the
his knowledge, or even over his objection. (1823) preceding article. The case is excepted where the creditor has required
and stipulated that a specified person should be the guarantor. (1829a)
Article 2052. A guaranty cannot exist without a valid obligation.
40. Aglibot vs. Santia
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also A guaranty agreement is a promise to answer for the debt
guarantee a natural obligation. (1824a) or default of another, the law clearly requires that it, or some note
or memorandum thereof, be in writing. Otherwise, it would be
Article 2053. A guaranty may also be given as security for future debts, unenforceable unless ratified, although it does not have to appear
the amount of which is not yet known; there can be no claim against the in a public document.
guarantor until the debt is liquidated. A conditional obligation may also Article 2055 of the Civil Code provides that a guaranty is
be secured. (1825a) not presumed, but must be express, and cannot extend to more
than what is stipulated therein.
Article 2054. A guarantor may bind himself for less, but not for more
than the principal debtor, both as regards the amount and the onerous Facts:
nature of the conditions. Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00
to Pacific Lending & Capital Corporation (PLCC), through its Manager,
petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
Should he have bound himself for more, his obligations shall be
promissory note. Allegedly as a guaranty for the payment of the note,
reduced to the limits of that of the debtor. (1826)
Aglibot issued and delivered to Santia eleven (11) post-dated personal
checks drawn from her own account maintained at Metrobank. Upon
Article 2055. A guaranty is not presumed; it must be express and presentment of the checks for payment, they were dishonored by the
cannot extend to more than what is stipulated therein. bank for having been drawn against insufficient funds or closed
account. Santia thus demanded payment from PLCC and Aglibot of the
If it be simple or indefinite, it shall compromise not only the principal face value of the checks, but neither of them heeded his demand.
obligation, but also all its accessories, including the judicial costs, Consequently, eleven (11) Informations for violation of B.P. 22 were
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filed before the MTCC. 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
MTCC acquitted Aglibot. On appeal, the RTC rendered a decision writing. Otherwise, it would be unenforceable unless ratified,
absolving Aglibot and dismissing the civil aspect of the case on the although under Article 1358 of the Civil Code, a contract of guaranty
ground of failure to fulfill a condition precedent of exhausting all means does not have to appear in a public document. Contracts are
to collect from the principal debtor. generally obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present,
On appeal, the Court of Appeals ruled that the RTC erred when it and the Statute of Frauds simply provides the method by which the
dismissed the civil aspect of the case. Hence, the CA ruled that Aglibot contracts enumerated in Article 1403(2) may be proved, but it does
is personally liable for the loan. not declare them invalid just because they are not reduced to writing.
Thus, the form required under the Statute is for convenience or
Thus, Aglibot filed before the SC arguing that she was merely a evidentiary purposes only.
guarantor of the obligation and therefore, entitled to the benefit of On the other hand, Article 2055 of the Civil Code also provides
excussion under Article of the 2058 of the Civil Code. She further that a guaranty is not presumed, but must be express, and
posited that she is not personally liable on the checks since she merely cannot extend to more than what is stipulated therein. This is the
contracted the loan in behalf of PLCC. obvious rationale why a contract of guarantee is unenforceable
ISSUE: unless made in writing or evidenced by some writing.

I. Whether or not Aglibot is entitled to the benefit of excussion? 41. Prudential Guarantee and Assurance Inc. vs. Anscor Land, Inc
-TITO
RULING: No. Aglibot cannot invoke the benefit of excussion.
630 SCRA 368, G.R. No. 177240 September 8, 2010
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 Facts:
debt. Thus, the creditor may hold the guarantor liable only after On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a
judgment has been obtained against the principal debtor and the latter Construction Contract for the construction of an 8-unit townhouse
is unable to pay, for obviously the exhaustion of the principals (project). Under the contract, KRDC was to build and complete the
property the benefit of which the guarantor claims cannot even begin project within 275 continuous calendar days from the date of receipt of
to take place before judgment has been obtained. This rule is
a notice to proceed for the consideration of P18,800,000.00.
contained in Article 2062 of the Civil Code, which provides that the
action brought by the creditor must be filed against the principal As part of its undertaking, KRDC submitted a surety bond
debtor alone, except in some instances mentioned in Article 2059 amounting to P4,500,000.00 to secure the reimbursement of the down
when the action may be brought against both the guarantor and the payment paid by ALI in case of failure to finish the project and a
principal debtor. performance bond amounting to P4,700,000.00 to guarantee the
supply of labor, materials, tools, equipment, and necessary supervision
The Court must, however, reject Aglibots claim as a mere guarantor of to complete the project. The said bonds were issued in favor of ALI by
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. herein petitioner PGAI.
Under the above provision, concerning a guaranty agreement, which
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KRDC then received a notice to proceed on November 24, A guarantee or a surety contract under Article 2047 of the
1999. On October 16, 2000 or 325 days after KRDC received the notice Civil Code of the Philippines is an accessory contract because it
to proceed, and 50 days beyond the contract date of completion, ALI is dependent for its existence upon the principal obligation
sent PGAI a letter notifying the latter that the contract with KRDC was guaranteed by it; As regards the first requirement, the Performance
terminated due to very serious delays. The letter also informed PGAI Bond issued by the petitioner was meant to guarantee the supply of
that ALI may be making claims against the said bonds. labor, materials, tools, equipment, and necessary supervision to
KRDC, through a letter on October 20, 2000, asked ALI to complete the project. A guarantee or a surety contract under Article
reconsider its decision to terminate the contract and requested that it 2047 of the Civil Code of the Philippines is an accessory contract
be allowed to continue with the project. On October 27, 2000, ALI because it is dependent for its existence upon the principal obligation
replied with regrets that it stands by its earlier decision to terminate the guaranteed by it. In fact, the primary and only reason behind the
construction contract. acquisition of the performance bond by KRDC was to guarantee to ALI
Through a letter dated November 29, 2001, or exactly one (1) that the construction project would proceed in accordance with the
year after the expiration date in the performance bond, ALI reiterated contract terms and conditions. In effect, the performance bond
its claim against the performance bond issued by PGAI amounting becomes liable for the completion of the construction project in the
to P3,852,800.84. PGAI however did not respond to the letter. event KRDC fails in its contractual undertaking.
On February 7, 2002, ALI commenced arbitration proceedings In practice, a performance bond is usually a condition or a
against KRDC and PGAI in the CIAC. PGAI answered with cross-claim necessary component of construction contracts. Because of the
contending that it was not a party to the construction contract and that performance bond, the construction contract between ALI and KRDC is
the claim of ALI against the bonds was filed beyond the expiration guaranteed to be performed even if KRDC fails in its obligation. In
period. practice, a performance bond is usually a condition or a necessary
On September 2, 2002, the CIAC rendered judgment awarding component of construction contracts. In the case at bar, the
a total of P7,552,632.74 to ALI and a total of P1,292,487.81 to performance bond was so connected with the construction contract that
KRDC. CIAC also allowed the offsetting of the awards to both parties the former was agreed by the parties to be a condition for the latter to
which resulted to a net amount due to ALI of P6,260,144.93 to be paid push through and at the same time, the former is reliant on the latter for
by KRDC. Meanwhile, the CIAC found PGAI liable for the its existence as an accessory contract.
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:

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PART III #s 42-55 (incomplete) payment of Maynilads obligations to MWSS. Due to devaluation of the peso
and other business reversals of Maynilad, MWSS filed a notice of early
#42 ANTONIO
termination of the concession contract. Upon certification of the non
Metropolitan Waterworks and Sewerage System V. Hon. Reynaldo B. performance of Maynilad obligation, the MWSS moved to collect from
Daway G.R. No. 160732. June 21, 2004 Citicorp on the standby letters of credit issued. Maynilad filed for corporate
rehabilitation. Judge Daway stayed the payment of the letter of credit by
Citicorp pursuant to Sec 6 (b) of Rule 4 of the Interim Rules on Corporate
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply Rehabilitation.
to the the standby letter of credit issued by the bank as the former prohibition
is on the enforcement of claims against guarantors or sureties of the debtors Issue:
whose obligations are not solidary with the debtor.
Whether or not the payment of the standby of letter of credit can be stayed by
The concept of guarantee vis--vis the concept of an irrevocable letter of credit filing of a petition for rehabilitation
are inconsistent with each other. The guarantee theory destroys the
independence of the banks responsibility from the contract upon which it was
opened and the nature of both contracts is mutually in conflict with each other. Held:
A Standby Letter of Credit is not a guaranty because under a Standby Letter No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not
of Credit, the bank undertakes a primary obligation. On the other hand, a apply to the the standby letter of credit issued by the bank as the former
guarantor undertakes a collateral obligation which arises only upon the prohibition is on the enforcement of claims against guarantors or sureties of
debtors default. A Standby Letter of Credit is a primary obligation and not an the debtors whose obligations are not solidary with the debtor.
accessory contract.
The participating banks obligation under the letter of credit are solidary with
respondent Maynilad in that it is a primary, direct, definite and an absolute
Facts: undertaking to pay and is not conditioned on the prior exhaustion of the debtors
assets. These are the same characteristics of a surety or solidary obligor. And
Maynilad obtained a 20-year concession to manage, repair, refurbish, and
being solidary, the claims against them can be pursued separately from and
upgrade existing Metropolitan Waterworks and Sewerage System (MWSS)
independently of the rehabilitation case.
water delivery and sewerage services in Metro Manilas west zone. Maynilad,
under the concession agreement undertook to pay concession fees and Issuing banks under the letters of credit are not equivalent to guarantors. The
itsforeign loans. To secure its obligations, Maynilad was required under concept of guarantee vis--vis the concept of an irrevocable letter of credit are
Section 9 of the concession contract to put up a bond, bank guarantee or other inconsistent with each other. The guarantee theory destroys the independence
security acceptable to MWSS. Pursuant to this requirement, Maynilad of the banks responsibility from the contract upon which it was opened and
arranged on for a three-year facility with a number of foreign banks led by the nature of both contracts is mutually in conflict with each other. In contracts
Citicorp Intl for the issuance of an irrevocable standby letter of credit (SLC) of guarantee, the guarantors obligation is merely collateral and it arises only
in the amount of $ 120 million in favor of MWSS for the full and prompt upon the default of the person primarily liable. On the other hand, in an

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irrevocable letter of credit, the bank undertakes a primary obligation. We have (5) If it may be presumed that an execution on the property
also defined a letter of credit as an engagement by a bank or other person made of the principal debtor would not result in the satisfaction
at the request of a customer that the issuer shall honor drafts or other demands of the obligation. (1831a)
of payment upon compliance with the conditions specified in the credit.
Art. 2060. In order that the guarantor may make use of the
A Standby Letter of Credit is not a guaranty because under a Standby Letter
benefit of exclusion, he must set it up against the creditor
of Credit, the bank undertakes a primary obligation. On the other hand, a
upon the latters demand for payment from him, and point
guarantor undertakes a collateral obligation which arises only upon the
debtors default. A Standby Letter of Credit is a primary obligation and not an out to the creditor available property of the debtor within
accessory contract. Philippine territory, sufficient to cover the amount of the
debt. (1832)

#43- ANTIOJO Art. 2061. The guarantor having fulfilled all the conditions
required in the preceding article, the creditor who is
b.) EFFECTS OF GUARANTY
negligent in exhausting the property pointed out shall suffer
b.1) EFFECTS OF GUARANTY BETWEEN GUARANTOR AND the loss, to the extent of said property, for the insolvency of
CREDITOR the debtor resulting from such negligence. (1833a)

Art. 2058. The guarantor cannot be compelled to pay the Art. 2062. In every action by the creditor, which must be
creditor unless the latter has exhausted all the property of against the principal debtor alone, except in the cases
the debtor, and has resorted to all the legal remedies mentioned in Article 2059, the former shall ask the court to
against the debtor. (1830a) notify the guarantor of the action. The guarantor may
appear so that he may, if he so desire, set up such
Art. 2059. The excussion shall not take place: 52efences as are granted him by law. The benefit of
excussion mentioned in Article 2058 shall always be
(1) If the guarantor has expressly renounced it;
unimpaired, even if judgment should be rendered against
(2) If he has bound himself solidarily with the debtor; the principal debtor and the guarantor in case of
appearance by the latter. (1834a)
(3) In case of insolvency of the debtor;
Art. 2063. A compromise between the creditor and the
(4) When he has absconded, or cannot be sued within the principal debtor benefits the guarantor but does not
Philippines unless he has left a manager or representative; prejudice him. That which is entered into between the
guarantor and the creditor benefits but does not prejudice
the principal debtor. (1835a)

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Art. 2064. The guarantor of a guarantor shall enjoy the Art. 2067. The guarantor who pays is subrogated by virtue
benefit of excussion, both with respect to the guarantor and thereof to all the rights which the creditor had against the
to the principal debtor. (1836) debtor.

Art. 2065. Should there be several guarantors of only one If the guarantor has compromised with the creditor, he
debtor and for the same debt, the obligation to answer for cannot demand of the debtor more than what he has really
the same is divided among all. The creditor cannot claim paid. (1839)
from the guarantors except the shares which they are
respectively bound to pay, unless solidarity has been Art. 2068. If the guarantor should pay without notifying the
debtor, the latter may enforce against him all the defenses
expressly stipulated.
which he could have set up against the creditor at the time
The benefit of division against the co-guarantors ceases in the payment was made. (1840)
the same cases and for the same reasons as the benefit of
Art. 2069. If the debt was for a period and the guarantor
excussion against the principal debtor. (1837)
paid it before it became due, he cannot demand
reimbursement of the debtor until the expiration of the
period unless the payment has been ratified by the debtor.
b.2) EFFECTS OF GUARANTY BETWEEN DEBTOR AND GUARANTOR
(1841a)
Art. 2066. The guarantor who pays for a debtor must be
Art. 2070. If the guarantor has paid without notifying the
indemnified by the latter. debtor, and the latter not being aware of the payment,
The indemnity comprises: repeats the payment, the former has no remedy whatever
against the debtor, but only against the creditor.
(1) The total amount of the debt; Nevertheless, in case of a gratuitous guaranty, if the
guarantor was prevented by a fortuitous event from
(2) The legal interests thereon from the time the payment
advising the debtor of the payment, and the creditor
was made known to the debtor, even though it did not earn
becomes insolvent, the debtor shall reimburse the
interest for the creditor;
guarantor for the amount paid. (1842a)
(3) The expenses incurred by the guarantor after having
Art. 2071. The guarantor, even before having paid, may
notified the debtor that payment had been demanded of
proceed against the principal debtor:
him;
(1) When he is sued for the payment;
(4) Damages, if they are due. (1838a)

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(2) In case of insolvency of the principal debtor; G.R. No. 185945 : December 5, 2012 687 SCRA 283

(3) When the debtor has bound himself to relieve him from
FACTS:
the guaranty within a specified period, and this period has
expired; Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to
(4) When the debt has become demandable, by reason of Pacific Lending & Capital Corporation (PLCC), through its Manager,
the expiration of the period for payment; petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
promissory note. Allegedly as a guaranty for the payment of the note,
(5) After the lapse of ten years, when the principal Aglibot issued and delivered to Santia eleven (11) post-dated personal
obligation has no fixed period for its maturity, unless it be of checks drawn from her own account maintained at Metrobank. Upon
such nature that it cannot be extinguished except within a presentment of the checks for payment, they were dishonored by the bank
period longer than ten years; for having been drawn against insufficient funds or closed account. Santia
thus demanded payment from PLCC and Aglibot of the face value of the
(6) If there are reasonable grounds to fear that the principal
checks, but neither of them heeded his demand. Consequently, eleven (11)
debtor intends to abscond;
Informations for violation of B.P. 22 were filed before the MTCC.
(7) If the principal debtor is in imminent danger of
becoming insolvent. MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving
Aglibot and dismissing the civil aspect of the case on the ground of failure to
In all these cases, the action of the guarantor is to obtain fulfill a condition precedent of exhausting all means to collect from the
release from the guaranty, or to demand a security that principal debtor.
shall protect him from any proceedings by the creditor and
from the danger of insolvency of the debtor. (1834a) On appeal, the Court of Appeals ruled that the RTC erred when it dismissed
the civil aspect of the case. Hence, the CA ruled that Aglibot is personally
Art. 2072. If one, at the request of another, becomes a
liable for the loan.
guarantor for the debt of a third person who is not present,
the guarantor who satisfies the debt may sue either the
Thus, Aglibot filed this instant petition for certiorari. She argued that she
person so requesting or the debtor for reimbursement. (n)
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
FIDELIZA J. AGLIBOT vs. INGERSOL L. SANTIA contracted the loan in behalf of PLCC.

ISSUES:
Page 54 of 82
CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
declare them invalid just because they are not reduced to writing. Thus, the
1. Whether or not Aglibot is entitled to the benefit of excussion? form required under the Statute is for convenience or evidentiary purposes
only.
HELD:
On the other hand, Article 2055 of the Civil Code also provides that a
Aglibot cannot invoke the benefit of excussion. 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
It is settled that the liability of the guarantor is only subsidiary, and all the of guarantee is unenforceable unless made in writing or evidenced by some
properties of the principal debtor, the PLCC in this case, must first be
writing.
exhausted before the guarantor may be held answerable for the debt.
Thus, the creditor may hold the guarantor liable only after judgment has #44 CAMASO
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 DESTILERIA LIMTUACO & CO. vs. IAC, 29 Jan. 1998
been obtained. This rule is contained in Article 2062 of the Civil Code, By: JC Camaso
which provides that the action brought by the creditor must be filed against
the principal debtor alone, except in some instances mentioned in Article FACTS:
2059 when the action may be brought against both the guarantor and the
principal debtor. Jesus Crodua was appointed senior sales agent of Destileria Limtuaco &
Co., Inc, for Samar and Leyte (and later, also of Cebu). The "Senior
Salesman Agency Contract", dated April 4, 1980, required Jesus Crodua to
The Court must, however, reject Aglibots claim as a mere guarantor of the
put up a first mortgage or a surety bond to guarantee or assure faithful
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2) compliance with his duties and responsibilities thereunder in an amount
of the Civil Code, embodying the Statute of Frauds. Under the above of not less than P200,000.00. To guarantee the faithful settlement of
provision, concerning a guaranty agreement, which is a promise to answer accounts of the Sales-Agent with the Company, as well as to answer for
for the debt or default of another, the law clearly requires that it, or some any loss, if any, of merchandise or property consigned to and under the
custody of the Sales-Agent and to insure compliance with all the other
note or memorandum thereof, be in writing. Otherwise, it would be
obligations assumed by the Sales-Agent under and by virtue of this
unenforceable unless ratified, although under Article 1358 of the Civil Code, agreement, the Sales-Agent shall execute or cause to be executed in favor
a contract of guaranty does not have to appear in a public document. of the company a first mortgage for not less than P200,000.00 on real
estate or estates acceptable to the Company. Two (2) separate deeds of
Contracts are generally obligatory in whatever form they may have been first mortgage were executed by his relatives. The first was executed by
entered into, provided all the essential requisites for their validity are Estrella Crodua married to Nicolas Crodua, over real property. The
present, and the Statute of Frauds simply provides the method by which the second, by Elsie Crodua-Ceniza, married to Joel Ceniza, over land. Both
contracts enumerated in Article 1403(2) may be proved, but it does not
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
deeds were entitled, "Deed of Real Estate Mortgage." Each deed referred (Re joint and solidary obligations; ARTS. 1207-1222) In such case the
to and quoted verbatim the provision of the agency contract. contract is called a suretyship.

Limtuaco, terminate Jesus Crodua's agency agreement, allegedly upon A real estate mortgage, on the other hand, according to the same Code, is
discovery of a shortage in his accounts in the sum of P170,380.58. To a contract embodied in a public instrument recorded in the Registry of
enforce payment of this liability, which Limtuaco claimed had not been Property, by which the owner of an immovable (or an alienable real right
satisfied by Jesus Crodua despite demands, the former filed in November, imposed upon immovables) directly and immediately subjects it, whoever
1984 a complaint for foreclosure of real estate mortgage with the the possessor may be, to the fulfillment of the obligation for whose
Regional Trial Court at Quezon City 5 against Jesus Crodua, and the security it was constituted. 15 "It is a contract in which the debtor
mortgagors. guarantees to the creditor the fulfillment of a principal obligation,
subjecting for the faithful compliance therewith a real property in case of
The Trial court dismissed the complaint. Both the first and motion for non-fulfillment of said obligation at the time stipulated."
consideration were denied. The petition for certiorari was likewise
denied by the Appellate Court, hence the appeal was made. Article 2089, that where several things are given by way of mortgage or
pledge, the parties may agree that "each one of them guarantees only a
determinate portion of the credit"-utilized that solitary word, "guarantee"
as basis for declaring the deeds to be contracts of guaranty instead of
mortgage and construed them as granting to the mortgagors the benefit
ISSUE: of excussion under Article 2058 of the Civil Code.

WON the private respondents, Spouses Nicolas and Estrella Crodua, and
Spouses Joel and Elsie Joel Ceniza, were liable as mortgagors and not as #45 CASTRO, A N/A ( ERRATUM , NO number 45 , sorry)
guarantors?

HELD: #46 CASTRO, JL

Yes. The existence of a mortgage negates the benefit of excussion. It was


indeed a patent error on the part of the Trial Court to hold the deeds of
real estate mortgage as contracts of guaranty, giving to the mortgagors #47 - DE LOS REYES
the benefit of excussion. A mortgage is clearly and completely different
PEOPLE VS. DICK ONG 204 SCRA 942 (1991)
from a guaranty.

According to Article 2047 of the Civil Code, By guaranty a person, called


the guarantor, binds himself to the creditor to fulfill the obligation of the Facts:Accused Dick Ong, one of the depositors of the Home Savings Bank
principal debtor in case the latter should fail to do so. and Trust Company (HSBTC)opened a savings account with HSBTC with an
initial deposit of P22.14 in cash and P10,000.00 in check.Ong was allowed to
If a person binds himself solidarity with the principal debtor, the withdraw from his savings account with the Bank the sum of
provisions of Section 4, Chapter 3, Title 1 of this Book shall be observed.
P5,000.00,without his check undergoing the usual and reglementary
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
clearance. The withdrawal slip was signed and approved by Lino Morfe, then other past transactions. If ever, he, indeed acted fraudulently, he could not
the Branch Manager, and accused Lucila Talabis, the Branch have done so without the active cooperation of the Banks employees. Since
Cashier.Subsequently, Ong deposited eleven checks in his savings account Talabis and Villaran were declared innocent of the crimes charged against
with the Bank and against which he made withdrawals against its amount. them, the same should be said for the Ong.Thus, Ong cannot be held
Again, the withdrawal of the amount by Ong was made before said checks criminally liablea gainst the Bank. He can only be held civilly liable as the
were cleared and the Bank had collected their amounts and with the Bank incurred damages.
approval of Talabis. However, when the Bank presented the eleven checks
issued, deposited and against which Ong made withdrawals against its
amounts, to their respective drawee banks for payment, they were all Guingona vs. City Fiscal
dishonored for lack or insufficiency of funds. Because of this, the Bank filed
a criminal action for Facts:

Estafa against Ong, and the Banks officer in charge. From March 1979 to March 1981, Clement David made several investments
with the National Savings and Loan Association. On March 21, 1981, the
Villaran and Talabis.T alabis testified that the approval of the withdrawals of bank was placed under receivership by the Bangko Sentral. Upon Davids
Ong against his uncleared checks was in accordance with the instruction of request, petitioners Guingona and Martin issued a joint promissory note,
their then bank manager and that it is a kind of accommodation given to absorbing the obligations of the bank. On July 17, 1981, they divided the
Ong and also a common practice of the Bank.RTC ruled Ong as guilty for the indebtedness. David filed a complaint for estafa and violation of Central
crime of estafa but acquitted Villarin and Talabis as their guilt were not Bank Circular No. 364 and related regulations regarding foreign exchange
proven beyond reasonable doubt. CA affirmed RTCs decisions. transactions before the Office of the City Fiscal of Manila. Petitioners filed a
complaint to enjoin the public respondents to proceed with the preliminary
investigation on the ground that the petitioners obligation is civil in nature.
Issue: Whether or not bank deposits are to be treated as loans.
Issue:

Whether the contract between NSLA and David is a contract of deposit or a


Held: Yes. The Supreme Court held that bank deposits are in the nature of contract of loan.
irregular deposits.Bank deposits are really loans because they earn interest.
Whether fixed, savings, orcurrent, all bank deposits are to be treated as
loans and are to be covered by the law on loans. Held:
In the present case, however, the prosecution failed to prove that Ong had When private respondent David invested his money and savings deposits
knowledge with respect to the checks he indorsed.Moreover, it has also with the aforesaid bank, the contract that was perfected was a contract of
been proven that it was the Bank which granted him a drawn against simple loan or mutuum and not a contract of deposit. Hence, the
uncollected deposit (DAUD) privilege without need of any pretensions on his relationship between the private respondent and the Nation Savings and
part. The privilege this privilege was not only for the subject checks, but for Loan Association is that of creditor and debtor; consequently, the

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
ownership of the amount deposited was transmitted to the Bank upon the still be a civil liability on the part of petitioners Guingona and Martin to pay
perfection of the contract and it can make use of the amount deposited for the assumed obligation.
its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount
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 #48 DINGLASAN
only give rise to civil liability over which the public respondents have no
jurisdiction. SECTION 3. - Effects of Guaranty as Between Co-Guarantors

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 Art. 2073. When there are two or more guarantors of the same debtor and
paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any for the same debt, the one among them who has paid may demand of
incipient criminal liability was deemed avoided, because when the aforesaid each of the others the share which is proportionally owing from him.
bank was placed under receivership by the Central Bank, petitioners If any of the guarantors should be insolvent, his share shall be borne by
Guingona and Martin assumed the obligation of the bank to private the others, including the payer, in the same proportion.
respondent David, thereby resulting in the novation of the original
contractual obligation arising from deposit into a contract of loan and The provisions of this article shall not be applicable, unless the payment
converting the original trust relation between the bank and private has been made by virtue of a judicial demand or unless the principal
respondent David into an ordinary debtor-creditor relation between the debtor is insolvent. (1844a)
petitioners and private respondent. Consequently, the failure of the bank or
Art. 2074. In the case of the preceding article, the co-guarantors may set
petitioners Guingona and Martin to pay the deposits of private respondent
up against the one who paid, the same defenses which would have
would not constitute a breach of trust but would merely be a failure to pay
pertained to the principal debtor against the creditor, and which are not
the obligation as a debtor. Moreover, while it is true that novation does not
purely personal to the debtor. (1845)
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 Art. 2075. A sub-guarantor, in case of the insolvency of the guarantor for
court. In the case at bar, there is no dispute that petitioners Guingona and whom he bound himself, is responsible to the co-guarantors in the same
Martin executed a promissory note on June 17, 1981 assuming the terms as the guarantor. (1846)
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
CHAPTER 3
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 EXTINGUISHMENT OF GUARANTY
aforestated, any incipient criminal liability would be avoided but there will

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
Art. 2083. If the person bound to give a bond in the cases of the preceding
Art. 2076. The obligation of the guarantor is extinguished at the same time article, should not be able to do so, a pledge or mortgage considered
as that of the debtor, and for the same causes as all other obligations. sufficient to cover his obligation shall be admitted in lieu thereof. (1855)
(1847)
Art. 2084. A judicial bondsman cannot demand the exhaustion of the
Art. 2077. If the creditor voluntarily accepts immovable or other property property of the principal debtor.
in payment of the debt, even if he should afterwards lose the same
A sub-surety in the same case, cannot demand the exhaustion of the
through eviction, the guarantor is released. (1849)
property of the debtor of the surety.
Art. 2078. A release made by the creditor in favor of one of the
Continuing Bond
guarantors, without the consent of the others, benefits all to the extent of
the share of the guarantor to whom it has been granted. (1850) A continuing bond as where there is no fixed expiration date, may
be cancelled only by an oblige, by insurance commissioner, and by the
Art. 2079. An extension granted to the debtor by the creditor without the
court.
consent of the guarantor extinguishes the guaranty. The mere failure on
the part of the creditor to demand payment after the debt has become
due does not of itself constitute any extention of time referred to herein.
(1851a) COUNTRY BANKERS INSURANCE CORPORATION VS ANTONIO LAGMAN
GR NO 165487; July 13, 2011
Art. 2080. The guarantors, even though they be solidary, are released from PEREZ J:
their obligation whenever by some act of the creditor they cannot be
subrogated to the rights, mortgages, and preference of the latter. (1852) FACTS:
Nelson Santos (Santos) applied for a license with the National Food
Art. 2081. The guarantor may set up against the creditor all the defenses Authority (NFA) to engage in the business of storing not more than 30,000
which pertain to the principal debtor and are inherent in the debt; but not sacks of palay valued at P5,250,000.00 in his warehouse at Barangay
those that are personal to the debtor. (1853) Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded
Warehouse Act, as amended, the approval for said license was conditioned
upon posting of a cash bond, a bond secured by real estate, or a bond signed
CHAPTER 4 by a duly authorized bonding company, the amount of which shall be fixed by
the NFA Administrator at not less than thirty-three and one third percent (33
LEGAL AND JUDICIAL BONDS
1/3%) of the market value of the maximum quantity of rice to be received.

Art. 2082. The bondsman who is to be offered in virtue of a provision of Accordingly, Country Bankers Insurance Corporation (Country
law or of a judicial order shall have the qualifications prescribed in Article Bankers) issued Warehouse Bond No. 03304for P1,749,825.00 on 5
2056 and in special laws. (1854a) November 1989 and Warehouse Bond No. 02355[for P749,925.00 on 13
December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman).
Santos was the bond principal, Lagman was the surety and the Republic of

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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
the Philippines, through the NFA was the obligee. In consideration of these ISSUE:
issuances, corresponding Indemnity Agreements were executed by Santos, as Whether the 1989 Bonds have expired and the 1990 Bond novates the 1989
bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Bonds.
Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves
jointly and severally liable to Country Bankers for any damages, prejudice, HELD:
losses, costs, payments, advances and expenses of whatever kind and nature, NO. The Court of Appeals held that the 1989 bonds were effective only for
including attorneys fees and legal costs, which it may sustain as a one (1) year, as evidenced by the receipts on the payment of premiums
consequence of the said bond; to reimburse Country Bankers of whatever
amount it may pay or cause to be paid or become liable to pay thereunder; RATIO:
and to pay interest at the rate of 12% per annum computed and compounded The official receipts in question serve as proof of payment of the premium for
monthly, as well as to pay attorneys fees of 20% of the amount due it. one year on each surety bond. It does not, however, automatically mean that
the surety bond is effective for only one (1) year. In fact, the effectivity of the
Santos then secured a loan using his warehouse receipts as bond is not wholly dependent on the payment of premium. Section 177 of
collateral. When the loan matured, Santos defaulted in his payment. The the Insurance Code expresses:
sacks of palay covered by the warehouse receipts were no longer found in Sec. 177. The surety is entitled to payment of the premium as soon as the
the bonded warehouse. By virtue of the surety bonds, Country Bankers was contract of suretyship or bond is perfected and delivered to the obligor. No
compelled to pay P1,166,750.37. contract of suretyship or bonding shall be valid and binding unless and until
the premium therefor has been paid, except where the obligee has accepted
Consequently, Country Bankers filed a complaint for a sum of the bond, in which case the bond becomes valid and enforceable irrespective
money docketed as Civil Case No. 95-73048 before the Regional Trial Court of whether or not the premium has been paid by the obligor to the
(RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were surety:Provided, That if the contract of suretyship or bond is not accepted by,
valid only for 1 year from the date of their issuance, as evidenced by receipts; or filed with the obligee, the surety shall collect only reasonable amount, not
that the bonds were never renewed and revived by payment of premiums; exceeding fifty per centum of the premium due thereon as service fee plus
that on 5 November 1990, Country Bankers issued Warehouse Bond No. the cost of stamps or other taxes imposed for the issuance of the contract or
03515 (1990 Bond) which was also valid for one year and that no Indemnity bond: Provided, however, That if the non-acceptance of the bond be due to
Agreement was executed for the purpose; and that the 1990 Bond the fault or negligence of the surety, no such service fee, stamps or taxes shall
supersedes, cancels, and renders no force and effect the 1989 Bonds. be collected.

The bond principals, Santos and Ban Lee Lim, were not served with summons
because they could no longer be found. The case was eventually dismissed #49 GALICINAO
against them without prejudice. The other co-signor, Reguine, was declared Country Bankers Insurance Corporation vs Lugmay
in default for failure to file her answer.
Facts
On 21 September 1998, the trial court rendered judgment declaring Reguine
and Lagman jointly and severally liable to pay Country Bankers the amount of Santos (Santos) applied for a license with the National Food Authority
P2,400,499.87. CA reversed the decision of RTC (NFA) to engage in the business of storing sacks of palay. the
approval for said license was conditioned upon posting of a cash
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
bond, a bond secured by real estate, or a bond signed by a duly #50 - MOGELLO
authorized bonding company.
#51 - PALILEO
Accordingly, Country Bankers issued him Warehouse Bonds on 1989
through its agent, Antonio Lagman. In consideration of these
issuances, corresponding Indemnity Agreements were executed #52 PAVICO
where Lagman bound himself to be liable to Country Bankers for any
damages it may sustain as a consequence of the said bond. Santos Pledge
then secured a loan using his warehouse receipts as collateral, but
when the loan matured, Santos defaulted in his payment, and Country Kinds of Pledge
Bankers was compelled to pay by virtue of the surety bonds.
a) Conventional or voluntary
Country Bankers filed a complaint against Lagman with the RTC. In b) Legal
his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 Conventional
year from the date of their issuance, and that the 1990 Bond
supersedes, cancels, and renders no force and effect the 1989 1) Requisites.
Bonds.
Article 2085 The following requisites are essential to the
Issue
contracts of pledge and mortgage:
Whether the 1990 Bond cancels the 1989 Bonds.
(1) That they be constituted to secure the fulfillment of a
Held
principal obligation;
No. The Bonds in this case are continuing. A continuing bond, as in
this case where there is no fixed expiration date, may be cancelled (2) That the pledgor or mortgagor be the absolute owner of
only by the obligee, which is the NFA, by the Insurance the thing pledged or mortgaged;
Commissioner, and by the court.
(3) That the persons constituting the pledge or mortgage have
By law and by the specific contract involved in this case, the effectivity the free disposal of their property, and in the absence
of the bond required for the obtention of a license to engage in the thereof, that they be legally authorized for the purpose.
business of receiving rice for storage is determined not alone by the
payment of premiums but principally by the Administrator of the NFA.
From beginning to end, the Administrators brief is the enabling or Article 2093 in addition to the requisites prescribed in Article
disabling document. The surety bonds in question cannot be 2085, it is necessary, in order to constitute the contract of
unilaterally cancelled by Lagman. pledge, that the thing pledged be placed in the possession of
the creditor, or of a third person by common agreement.

El Banco Espanol-Filipiino vs. Peterson(Sheriff), 7 hil 409


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Facts: Issue: Whether or Not there is a valid contract of pledge.

the Spanish-Filipino Bank and Francisco Reyes, the former, loaned to If so, the bank's claim had preference over the claim of a third person
the latter the sum of P141,702, Philippine currency; that on the same not secured, as was the bank's, by a pledge, with reference to the
date Francisco Reyes was already indebted to the bank in the sum of property pledged to the extent of its value, and therefore such
P84,415.38, Philippine currency, which, added to the amount of the property could not have been legally levied upon by the sheriff at the
loan, made a total of P226,117.38, Philippine currency, received by request of the defendant, Juan Garcia. (Arts. 1921, 1922, Civil Code.)
the said Reyes as a loan from the plaintiff bank, the entire sum at an
annual interest of 8 per cent; that to secure the payment of these two Ruling : Yes, there was a valid pledge.
sums and the interest thereon, the debtor, Francisco Reyes, by a
The contract in question complies with all the requisites provided in
public instrument executed before a notary on the aforesaid date article 1857 of the Civil Code, such as that the property was pledged
mortgaged in favor of the plaintiff bank several pieces of property to secure a debt, the date of the execution, the terms of the pledge,
belonging to him, and pledged to the said bank part of his personal and the property pledged, all of which appears in a public document,
property, specifying the proportion on which the said real and
and the property pledged was placed in the hands of a third person by
personal property thus mortgaged and pledged in favor of the plaintiff common consent of the debtor and creditor, under the supervision of
corporation would be respectively liable for the payment of the debt; an agent of the bank. (Arts. 1863, 1865, 1866, 1869, 1871, Civil
that the property pledged by the debtor to the bank included a stock or Code.)
merchandise, consisting of wines, liquors, canned goods, and other
similar articles valued at P90,591.75. That in the aforesaid deed of The contract in question was, therefore, a perfect contract of pledge
pledge it was agreed by and between the bank and the debtor, Reyes, under articles 1857 and 1863 of the Civil Code, it having been
that the goods should be delivered to Ramon Garcia y Planas for conclusively shown that the pledgee took charge and possession of
safe-keeping, the debtor having actually turned over to the said the goods pledged through a depository and a special agent
Garcia y Planas the goods in question by delivering to him the keys of appointed by it, each of whom had a duplicate key to the warehouse
the warehouse in which they were kept. wherein the said goods were stored, and that the pledgee, itself,
received and collected the proceeds of the goods as they were sold.
An isolated case was filed by Garcia against Reyes and Agtarat which
was ruled in favor of Garcia. And acting upon such judgment Peterson The fact that the said goods continued in the warehouse which was
formerly rented by the pledgor, Reyes, does not affect the validity and
( sheriff ) levied the properties in the warehouse.
legality of the pledge, it having been demonstrated that after the
Despite repeated demands and the existence of the contract of pledge had been agreed upon, and after the depository appointed
with the common consent of the parties had taken possession of the
pledge, the sheriff and Garcia did not return the valuables or its said property, the owner, the pledgor, could no longer dispose of the
equivalent. same, the pledgee being the only one authorized to do so through the
depositary and special agent who represented it, the symbolical
Hence this Recourse. transfer of the goods by means of the delivery of the keys to the
warehouse where the goods were stored being sufficient to show that
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
the depositary appointed by the common consent of the parties was
legally placed in possession of the goods. #53 RIEGO

53
Requisites of a Conventional Pledge
Betita v. Ganzon, 49 Phil 97

This action is brought to recover the possession of four carabaos with 1. Object
damages in the sum of P200. a. Art. 2094. All movables which are within commerce may
be pledged, provided they are susceptible of
Facts: On May 15, 1924, the defendant Alejo de la Flor recovered a possession. (1864)
judgment against Tiburcia Buhayan for the sum of P140 with costs. b. Art. 2095. Incorporeal rights, evidenced by negotiable
Under this judgment the defendant Ganzon, as sheriff levied instruments, bills of lading, shares of stock, bonds,
execution on the carabaos in question which were found in the warehouse receipts and similar documents may also be
possession of one Simon Jacinto but registered in the name of pledged. The instrument proving the right pledged shall
Tiburcia Buhayan. The plaintiff herein, Eulogio Betita, presented a be delivered to the creditor, and if negotiable, must be
third party claim (terceria) alleging that the carabaos had been indorsed. (n)
mortgaged to him and as evidence thereof presented a document
dated May 6, 1924, but the sheriff proceeded with the sale of the 2. Form
animals at public auction where they were purchased by the a. Art. 2096. A pledge shall not take effect against third
defendant Clemente Perdena for the sum of P200, and this action persons if a description of the thing pledged and the date
was thereupon brought. of the pledge do not appear in a public instrument.
(1865a)
Issue: Whether or Not there is a contract of pledge. 3. Extent of Pledge
a. Art. 2102. If the pledge earns or produces fruits, income,
Ruling: None.
dividends, or interests, the creditor shall compensate
It is, of course, evident that the delivery of possession referred to in what he receives with those which are owing him; but if
article 1863 implies a change in the actual possession of the property none are owing him, or insofar as the amount may
pledged and that a mere symbolic delivery is not sufficient. In the exceed that which is due, he shall apply it to the
present case the animals in question were in the possession of principal. Unless there is a stipulation to the contrary, the
Tiburcia Buhayan and Simon Jacinto before the alleged pledge was pledge shall extend to the interest and earnings of the
entered into and apparently remained with them until the execution right pledged.
was levied, and there was no actual delivery of possession to the
plaintiff himself. There was therefore in reality no change in In case of a pledge of animals, their offspring shall
possession. pertain to the pledgor or owner of animals pledged, but

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shall be subject to the pledge, if there is no stipulation to the fault of the pledgee, the pledgor may demand the
the contrary. (1868a) return of the thing, upon offering another thing in pledge,
4. Rights of the debtor/pledgor provided the latter is of the same kind as the former and
a. Art. 2097. With the consent of the pledgee, the thing not of inferior quality, and without prejudice to the right
pledged may be alienated by the pledgor or owner, of the pledgee under the provisions of the following
subject to the pledge. The ownership of the thing article.
pledged is transmitted to the vendee or transferee as
soon as the pledgee consents to the alienation, but the The pledgee is bound to advise the pledgor, without
latter shall continue in possession. (n) delay, of any danger to the thing pledged. (n)
b. Art. 2103. Unless the thing pledged is expropriated, the 5. Obligation of the debtor/pledgor
debtor continues to be the owner thereof. a. Art. 2105. The debtor cannot ask for the return of the
thing pledged against the will of the creditor, unless and
Nevertheless, the creditor may bring the actions which until he has paid the debt and its interest, with expenses
pertain to the owner of the thing pledged in order to in a proper case. (1871)
recover it from, or defend it against a third person. b. Art. 1951. The bailor who, knowing the flaws of the thing
(1869) loaned, does not advise the bailee of the same, shall be
liable to the latter for the damages which he may suffer
c. Art. 2104. The creditor cannot use the thing pledged, by reason thereof. (1752)
without the authority of the owner, and if he should do c. Art. 1201. The choice shall produce no effect except
so, or should misuse the thing in any other way, the from the time it has been communicated. (1133)
owner may ask that it be judicially or extrajudicially 6. Rights of the creditor/pledge
deposited. When the preservation of the thing pledged a. Art. 2098. The contract of pledge gives a right to the
requires its use, it must be used by the creditor but only creditor to retain the thing in his possession or in that of
for that purpose. (1870a) a third person to whom it has been delivered, until the
d. Art. 2105. The debtor cannot ask for the return of the debt is paid. (1866a)
thing pledged against the will of the creditor, unless and b. Art. 2099. The creditor shall take care of the thing
until he has paid the debt and its interest, with expenses pledged with the diligence of a good father of a family;
in a proper case. (1871) he has a right to the reimbursement of the expenses
e. Art. 2106. If through the negligence or wilful act of the made for its preservation, and is liable for its loss or
pledgee, the thing pledged is in danger of being lost or deterioration, in conformity with the provisions of this
impaired, the pledgor may require that it be deposited Code. (1867)
with a third person. (n) c. Art. 2103. Unless the thing pledged is expropriated, the
f. Art. 2107. If there are reasonable grounds to fear the debtor continues to be the owner thereof.
destruction or impairment of the thing pledged, without
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
Nevertheless, the creditor may bring the actions which debtor and the owner of the thing pledged in a proper
pertain to the owner of the thing pledged in order to case, stating the amount for which the public sale is to
recover it from, or defend it against a third person. be held. If at the first auction the thing is not sold, a
(1869) second one with the same formalities shall be held; and
d. Art. 2104. The creditor cannot use the thing pledged, if at the second auction there is no sale either, the
without the authority of the owner, and if he should do creditor may appropriate the thing pledged. In this case
so, or should misuse the thing in any other way, the he shall be obliged to give an acquittance for his entire
owner may ask that it be judicially or extrajudicially claim. (1872a)
deposited. When the preservation of the thing pledged 7. Obligation of the creditor/pledge
requires its use, it must be used by the creditor but only a. I cannot read the articles included here, the copy I have
for that purpose. (1870a) is not photocopied correctly in its entirety.
e. Art. 2108. If, without the fault of the pledgee, there is
danger of destruction, impairment, or diminution in value
of the thing pledged, he may cause the same to be sold Legal Pledge Examples
at a public sale. The proceeds of the auction shall be a
security for the principal obligation in the same manner a. Art. 546. Necessary expenses shall be refunded to every
as the thing originally pledged. (n) possessor; but only the possessor in good faith may retain the
f. Art. 2109. If the creditor is deceived on the substance or thing until he has been reimbursed therefor.
quality of the thing pledged, he may either claim another
thing in its stead, or demand immediate payment of the Useful expenses shall be refunded only to the possessor in
principal obligation. (n) good faith with the same right of retention, the person who has
g. Art. 2118. If a credit which has been pledged becomes defeated him in the possession having the option of refunding
due before it is redeemed, the pledgee may collect and the amount of the expenses or of paying the increase in value
receive the amount due. He shall apply the same to the which the thing may have acquired by reason thereof. (453a)
payment of his claim, and deliver the surplus, should b. Art. 1731. He who has executed work upon a movable has a
there be any, to the pledgor. (n) right to retain it by way of pledge until he is paid. (1600)
h. Art. 2087. It is also of the essence of these contracts that c. Art. 1994. The depositary may retain the thing in pledge until the
when the principal obligation becomes due, the things in full payment of what may be due him by reason of the deposit.
which the pledge or mortgage consists may be alienated (1780)
for the payment to the creditor. (1858)
i. Art. 2112. The creditor to whom the credit has not been
satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall be
made at a public auction, and with notification to the
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Ocampo vs. LBP unable to establish clearly and precisely how Landbank committed
591 SCRA 562, 03 July 2009 the alleged fraud. She failed to lay down the deception through
FACTS: insidious words or machinations or misrepresentations made by
Petitioners secured a loan of 10,000,000 from the Land Bank of the Landbank so that she signed the blank form. Granting for the sake
Philippines. As a security, they executed promissory notes. Also, at the of argument that there was fraud, such contract was merely voidable
maturity of the said loan, 80% of it including the interest will be paid by where an action should have been instituted within 4 years from
Quedan Financing Program for Grain Stocks of the Quedan and Rural discovery, i.e. when the REM was registered with the Register of
Credit Guarantee Corporation6 (Quedancor). Due to this circumstance, Deeds
the defendants asked the petitioner to add another security for the
remaining 20%. Thus, they executed a Real Estate Mortgage. The essence of a contract of mortgage indebtedness is that a property
has been identified or set apart from the mass of the property of the
Upon default in payment, the subject estate was foreclosed and was debtor-mortgagor as security for the payment of money or the fulfillment
auctioned. Thus, the petitioners want to declare the extrajudicial of an obligation to answer the amount of indebtedness, in case of
foreclosure null and void on the grounds that there is forgery. default of payment. In the case before Us, the loan amount was
established. It was also admitted that 80% was guaranteed by
ISSUE: Whether or not the foreclosure is null and void. Quedancor, while the remaining 20%, by the Deed of Real Estate
HELD: Mortgage. Finally, the records show that Ocampo and Tan obtained the
No, the foreclosure is not null and void. loan from the Land Bank and it was the latter which released the loan
proceeds.
There is no forgery. Ocampo and Tan failed to present any evidence
to disprove the genuineness or authenticity of their signatures. In fact,
#54 SANTILLANA
Ocampo admitted in her direct examination that such signature was
hers, although she claimed that she was made to sign a blank form De Agatep vs Rodriguez, Lim
(printed form with blanks yet to be filled up). Moreover, the bank
Facts:
personnel who were also signatories to the deed confirmed their
appearances despite her testimony that she cannot say for certain The case arose from a dispute involving a parcel of land located at
if she appeared before the notary public. It is well-settled that a Zinundungan, Lasam, Cagayan. The subject property was previously
document acknowledged before a notary public is a public document owned by herein respondent Natalia Aguinaldo Vda. de Lim. On July
that enjoys the presumption of regularity. It is a prima facie evidence 18, 1975, Lim mortgaged the lot to the Philippine National Bank
of the truth of the facts stated therein and a conclusive presumption (PNB), Tuguegarao Branch, to secure a loan ofP30,000.00. The
of its existence and due execution. The real issue is fraud and not mortgage contract was duly annotated on the TCT. Lim was not able
to pay her loan prompting PNB to foreclose the property. On April 13,
forgery. Ocampo claimed that she was led to believe by Landbank that
1983, the subject parcel of land was sold at public auction to PNB as
the form she signed was to process her PhP5M loan application
the highest bidder. Lim failed to redeem the property. After the
and not to secure the subject 20% of the loan. However, Ocampo was
expiration of the one-year redemption period allowaed by law, PNB
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
consolidated its ownership over the disputed land and acquired the 3. Yes. It bears to reiterate the undisputed fact, in the instant
TCT, issued in its name. case, that Lim mortgaged the subject property to PNB prior to
selling the same to petitioner's husband. Settled is the rule that
Meanwhile, on August 18, 1976, while the mortgage was still in effect,
a mortgage is an accessory contract intended to secure the
Lim sold the subject property to herein petitioner's husband, Isaac
performance of the principal obligation. One of its
Agatep (Agatep), for a sum of P18,000.00. However, the sale was not
characteristics is that it is inseparable from the property. It
registered. Neither did Lim deliver the title to petitioner or her
adheres to the property regardless of who its owner may
husband. Nonetheless, Agatep took possession of the same. Agatep
subsequently be.
died in 1978, while his heirs, including herein petitioner, continued to
possess the property.
#55 - TITO
In July 1992, the subject lot was included among PNB's acquired
assets for sale. Later on, an invitation to bid was duly published. On Ong vs ROBAN LENDING CORPORATION Case Digest
April 20, 1993, the disputed parcel of land was sold to herein
respondent Roberta L. Rodriguez (Rodriguez), who is the daughter of In a true dacion en pago, the assignment of the property
respondent Lim. Subsequently a TCT in the name of PNB, was extinguishes the monetary debt.
canceled and a new title was issued in the name of Rodriguez.
FACTS: On various dates, petitioner Spouses Wilfredo N. Ong and
RTC ruled that Lim enriched herself at the expense of petitioner and Edna Sheila Paguio-Ong obtained several loans from respondent
her husband by benefiting from the proceeds of the sale but failing to Roban Lending Corporation in the total amount of P4, 000,000. These
deliver the object of such sale. CA assailed the decision. loans were secured by real estate mortgage on Spouses Ongs parcel
of lands.
Issue:
Later Spouses Ong and Roban executed several agreements - an
1. WoN the subject property was considered delivered. amendment to the amended Real Estate Mortgage which consolidated
2. WoN the petitioner and her husband is bound by the mortgage that their loans amounting to P5, 916,117.50; dacion in payment wherein
was still attached to the property. spouses Ong assigned their mortgaged properties to Roban to settle
their total obligation and Memorandum of Agreement (MOA) in which
Ruling: the dacion in payment agreement will be automatically enforced in case
spouses Ong fail to pay within one year from the execution of the
1. Yes. Paragraph 1, Article 1498 of the New Civil Code provides: agreement.
When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the Spouses Ong filed a complaint before Regional Trial Court of Tarlac
City to declare the mortgage contract, dacion in payment agreement,
object of the contract, if from the deed the contrary does not appear or
and MOA void. Spouses Ong allege that the dacion in payment
cannot clearly be inferred. Under the aforementioned article, the mere agreement is pactum commissorium, and therefore void. In its Answer
execution of the deed of sale in a public document is equivalent to the with counterclaim, Roban alleged that the dacion in payment
delivery of the property. agreement is valid because it is a special form of payment recognized
under Article 1245 of the Civil Code. RTC ruled in favor of Roban,
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
finding that there was no pactum commissorium. The Court of Appeals in Payment, petitioners had to execute a promissory note for P5, 916,
upheld the RTC decision. 117.50 which they were to pay within one year

ISSUE: Whether or not the dacion in payment agreement entered into


by Spouses Ong and Roban constitutes pactum commissorium #56 ANTONIO

HELD: The Court finds that the Memorandum of Agreement and SPOUSES FERNANDO AND ANGELINA EDRALIN,
Dacion in Payment constitute pactum commissorium, which is Petitioners, v. PHILIPPINE VETERANS BANK, Respondent.
prohibited under Article 2088 of the Civil Code which provides that the
creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and FACTS:
void Veterans Bank granted petitioner spouses Fernando and
Angelina Edralin (Edralins) a loan in the amount of
The elements of pactum commissorium, which enables the
mortgagee to acquire ownership of the mortgaged property P270,000.00.As security thereof, petitioners executed aReal
without the need of any foreclosure proceedings, are: (1) there Estate Mortgage (REM)in favor of Veterans Bank over a real
should be a property mortgaged by way of security for the property situated in Paraqueand registered in the name of
payment of the principal obligation, and (2) there should be a petitioner Fernando Edralin. he Edralins failed to pay their
stipulation for automatic appropriation by the creditor of the thing obligation to Veterans Bank.Thus,on June 28, 1983, Veterans
mortgaged in case of non-payment of the principal obligation Bank filed a Petition for Extrajudicial Foreclosure. Veterans
within the stipulated period.
Bank emerged as the highest bidder at the said foreclosure sale
Here, Memorandum of Agreement and the Dacion in Payment contain and was issued the correspondingCertificate of Sale. Upon the
no provisions for foreclosure proceedings nor redemption. Under the Edralins failure to redeem the property during the one-year
Memorandum of Agreement, the failure by the petitioners to pay their period provided under Act No. 3135, Veterans Bank acquired
debt within the one-year period gives respondent the right to enforce absolute ownership of the subject property.Consequently,
the Dacion in Payment transferring to it ownership of the properties Veterans Bank caused the consolidation of ownership of the
covered by TCT No. 297840. Respondent, in effect, automatically subject property in its name.
acquires ownership of the properties upon Spouses Ong's failure to pay
their debt within the stipulated period. Despite the foregoing, the Edralins failed to vacate and
surrender possession of the subject property to Veterans Bank.
In a true dacion en pago, the assignment of the property extinguishes Veterans Bank filed an ex-parte petition for issuance of a writ of
the monetary debt. possession. The trial court found no merit in the Veterans Banks
application. It explained that, under paragraph (d) of the REM,
Here, the alienation of the properties was by way of security, and not
by way of satisfying the debt. The Dacion in Payment did not extinguish the Veterans Bank agreed to take possession of the Edralins
Spouses Ong's obligation to Roban. On the contrary, under the property without any judicial intervention. The court held that
Memorandum of Agreement executed on the same day as the Dacion granting the writ of possession to the Veterans Bank will violate
the contractual agreement of the parties. It also held that,
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
assuming the contract allowed for the issuance of a writ of (1) there should be a property mortgaged by way of security for
possession, Veterans Banks right to seek possession had the payment of the principal obligation, and (2) there should be
already prescribed. Upon denial of a motion for reconsideration, a stipulation for automatic appropriation by the creditor of the
Veterans Bank to file a Petition for Mandamus with Prayer for thing mortgaged in case of non-payment of the principal
Issuance of a Preliminary Mandatory Injunction before the CA, obligation within the stipulated period. The second element is
which was granted, thus this petition for review by the Edralins. missing here. That Veterans Bank went through all the stages of
ISSUES: extrajudicial foreclosure indicates that there was no pactum
commissorium.
1. Whether or not mandamus is the proper remedy
2. Whether or not Veterans Bank is entitled to a writ of In addition, the purchasers right to request for the issuance of
possession the writ of possession of the land never prescribes, as already
established by jurisprudence. The right to possess a property
HELD: merely follows the right of ownership, and it would be illogical to
First issue: According to Section 7 of Act No. 3135, as amended hold that a person having ownership of a parcel ofland is barred
by Act No. 4118, during the period of redemption, the from seeking possession thereof.
mortgagee is entitled to a writ of possession upon depositing the DENIED.
approved bond.When the redemption period expires without the
mortgagor exercising his right of redemption, the mortgagor is
deemed to have lost all interest over the foreclosed property, 57. ANTONIO
and the purchaser acquires absolute ownership of the property. HEIRS OF ESPIRITU VS. SPOUSES LANDRITO
With the consolidated title, the purchaser becomes entitled to a
writ of possession and the trial court has the ministerial duty to Facts:
issue such writ of possession. Thus, the remedy of mandamus
In December, 1997, the private respondents obtained a loan
lies to compel the performance of this ministerial duty.
from petitioner Anchor Savings Bank, now Equicom Savings
Second issue: Petitioners argue that Veterans Bank is not Bank in the amount of P3,000,000.00. The Promissory Note and
entitled to a writ of possession because it failed to properly Disclosure Statement imposed a monthly 5% late-payment
consolidate its title over the subject property, and that the deed charge, 25% attorneys fees, and 25% liquidated damages in
of sale issued by the bank in its own favour constitutes a case of unpaid installments on the part of private respondent
pactum commissorium. They also argue that the period for filing Maalac, the loan payable in three instalments of two
for a petition for the issuance of a writ of possession has P146,640.00 and the third instalment of P3,011,167.74 payable
prescribed. on December 26, 1997. Only the first check payment however
The elements of pactum commissorium, which enable the was honoured and the respondents defaulted in the payment of
mortgagee to acquire ownership of the mortgaged their obligation, which to date amounted to P3,012,252.32.
propertywithout the need of any foreclosure proceedings, are: Subsequently, however, the respondents received a Second

Page 69 of 82
CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
Notice of Judicial Sale for the satisfaction of the obligation, payment of interest. While the Disclosure Statement and
which now stood at P4,577,269.42, excluding penalties, Promissory Note did not provide for a specific interest rate, still,
charges, attorneys fees and costs of foreclosure. Thus, the the parties agreed to the payment of interest rate, thus there
petitioner foreclosed the property; during the auction sale it was no unilateral imposition of interest rate. Further, the defect
emerged as the highest bidder and a Certificate of Sale was in the Second Notice of Extrajudicial Sale cannot affect the
issued in its favour. Respondents tried to settle the loan but was validity of the foreclosure sale. Based on case law, petitioner
informed that they now owe the bank the amount of argues that discrepancies between the Notice of Foreclosure
P12,525,673.44. Sale and the actual indebtedness of the mortgagor will not result
As the private respondents failed to redeem the property, in the annulment of the foreclosure sale as long as the
ownership of the same was consolidated in favour of the bank. objectives of the notice are attained.
The private respondents then filed a Complaint for the
Annulment of Extrajudicial Foreclosure of Mortgaged Properties, Issue:
Auction Sale, Certificate of Sale and Damages arguing that the
foreclosure sale should be nullified since the amount demanded Whether the imposition of usurious interest rates on a loan
in the Notice of Extrajudicial Sale was exorbitant and excessive; obligation secured by a real estate mortgage will result in the
instead of P4,577,269.42, it should only be P3,825,907.16 if the invalidity of the subsequent foreclosure sale of the mortgage.
balance of the loan is computed with interest at the rate of 3% Held:
reckoned from the date of last payment. The RTC dismissed the The petition lacks merit.
complaint. On appeal, the CA reversed the RTC judgment,
It is jurisprudential axiom that a foreclosure sale arising from a
holding that the loan agreement embodied in the Promissory
usurious mortgage cannot be given legal effect.1 Relevantly,
Note and Disclosure Statement failed to stipulate a rate of
in Heirs of Zoilo Espiritu v. Sps. Landrito,2 we struck down a
interest. There was no written agreement to prove that
foreclosure sale where the amount declared as mortgage
respondents agreed to the interest rate of 30.33% per annum.
indebtedness involved excessive, unreasonable, and
The bank erred in unilaterally imposing the interest rate, which
unconscionable interest charges. In no uncertain terms, we
is excessive, unconscionable, iniquitous and blatantly contrary
ruled that a mortgagor cannot be legally compelled to pay for a
to morals. Thus, the imposition of the unlawful interest nullified
grossly inflated loan:
the foreclosure sale arising therefrom, without prejudice to the
right of the mortgagee to institute another foreclosure Since the Spouses Landrito, the debtors in this case, were not
proceedings upon default of the obligor. The CA imposed a given an opportunity to settle their debt, at the correct amount
legal interest of 12%. and without the iniquitous interest imposed, no foreclosure
proceedings may be instituted. A judgment ordering a
Petitioner argues in its petition for review on certiorari that the
foreclosure sale is conditioned upon a finding on the correct
CA erred in its mistaken belief that the failure to stipulate a rate
amount of the unpaid obligation and the failure of the debtor to
of interest was equivalent to the failure to provide for the
pay the said amount. In this case, it has not yet been shown that
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
the Spouses Landrito had already failed to pay the correct 58. ANTIOJO
amount of the debt and, therefore, a foreclosure sale cannot be
conducted in order to answer for the unpaid debt. The ADVOCATES FOR TRUTH IN LENDING INC vs. BANGKO
foreclosure sale conducted upon their failure to pay P874,125 in SENTRAL MONEY BOARD
1990 should be nullified since the amount demanded as the
outstanding loan was overstated; consequently it has not been 688 SCRA 530 January 15, 2013
shown that the mortgagors the Spouses Landrito, have failed FACTS:
to pay their outstanding obligation. Moreover, if the proceeds of
the sale together with its reasonable rates of interest were "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit,
applied to the obligation, only a small part of its original loans non-stock corporation organized to engage in pro bono
would actually remain outstanding, but because of the concerns and activities relating to money lending issues. It was
unconscionable interest rates, the larger part corresponded to
incorporated on July 9, 2010, and a month later, it filed this
said excessive and iniquitous interest.3
petition, joined by its founder and president, Eduardo B.
Recently, in Castro v. Tan4, we affirmed the above doctrinal Olaguer, suing as a taxpayer and a citizen.
pronouncements as we also nullified a foreclosure proceeding
where the amount demanded as outstanding loan was clearly PETITIONERS ARGUMENTS
overstated due to exorbitant interest rates.
In the case at bar, the unlawful interest charge which led to the To justify their skipping the hierarchy of courts, petitioners
demand for P4,577,269.42 as stated in the Notice of contend the transcendental importance of their Petition:
Extrajudicial Sale resulted in the invalidity of the subsequent
foreclosure sale held on June 1, 1999. The private respondents
cannot be obliged to pay an inflated or overstated mortgage
indebtedness on account of excessive interest charges without
offending the basic tenets of due process and equity.
The argument of the petitioner that defects in the Notice of Sale
cannot affect the validity of the foreclosure sale cannot be given
credence. In relying on a long litany of cases, the petitioner
failed to realize that the issue in those cases was the validity of
the Notice of Sale per se. Meanwhile, in the present case, the
issue is the validity of the foreclosure sale in view of the
presence of usurious interest charges.

Page 71 of 82
CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
a) CB-MB statutory or constitutional authority to prescribe HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST
the maximum rates of interest for all kinds of credit transactions RATES
and forbearance of money, goods or credit beyond the limits 1. R.A. No. 265, which created the Central Bank on June 15,
prescribed in the Usury Law; 1948, empowered the CB-MB to set the maximum interest
rates which banks may charge for all types of loans and
b) If so, whether the CB-MB exceeded its authority when it other credit operations.
issued CB Circular No. 905, which removed all interest ceilings 2. The Usury Law was amended by P.D.1684, giving the CB-
and thus suspended Act No. 2655 as regards usurious interest MB authority to prescribe different maximum rates of
rates; interest which may be imposed for a loan or renewal thereof
or the forbearance of any money, goods or credits, provided
c) Whether under R.A. No. 7653, the new BSP-MB may that the changes are effected gradually and announced in
continue to enforce CB Circular No. 905. advance. Section 1-a of Act No. 2655 now reads:
3. In its Resolution No. 2224 dated December 3, 1982, the
Petitioners contend that under Section 1-a of Act No. CB-MB issued CB Circular No. 905, Series of 1982, effective on
2655, as amended by P.D. No. 1684, the CB-MB January 1, 1983. It removed the ceilings on interest rates on
was authorized only to prescribe or set the maximum rates loans or forbearance of any money, goods or credits:
Sec. 1. The rate of interest, including commissions, premiums,
of interest for a loan or renewal thereof or for the
fees and other charges, on a loan or forbearance of any money,
forbearance of any money, goods or credits, and to change goods, or credits, regardless of maturity and whether secured or
such rates whenever warranted by prevailing economic and unsecured, that may be charged or collected by any person,
social conditions, the changes to be effected gradually and on whether natural or juridical, shall not be subject to any
scheduled dates; that nothing in P.D. No. 1684 authorized the ceiling prescribed under or pursuant to the Usury Law, as
CB-MB to lift or suspend the limits of interest on all credit amended.
transactions, when it issued CB Circular No. 905. They further 4. R.A. No. 7653 establishing the BSP replaced the CB:
insist that under Section 109 of R.A. No. 265, the authority of Sec. 135. Repealing Clause. Except as may be provided for in
Sections 46 and 132 of this Act, Republic Act No. 265, as
the CB-MB was clearlyonly to fix the banks maximum rates
amended, the provisions of any other law, special charters, rule
of interest, but always within the limits prescribed by the or regulation issued pursuant to said Republic Act No. 265, as
Usury Law. amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree
CB Circular No. 905, which was promulgated without the No. 1792 is likewise repealed.
benefit of any prior public hearing, is void because it violated Note: R.A. 7653 the law that created BSP to replace CB Note:
NCC 5 which provides that "Acts executed against the this law did not retain the same provision as that of Section 109
provisions of mandatory or prohibitory laws shall be void, except in RA 265.
when the law itself authorizes their validity."
Page 72 of 82
CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
weeks after the issuance of CB Circular No. 905, the deprivation of property repulsive to the common sense of
benchmark 91-day Treasury bills shot up to 40% PA, as a man.
result. The banks followed suit and re-priced their loans to rates
which were even higher than those of the "Jobo" bills. They are struck down for being contrary to morals, if not
against the law, therefore deemed inexistent and void ab
CB Circular No. 905 is also unconstitutional in light of the initio. However this nullity does not affect the lenders right
Bill of Rights, which commands that "no person shall be to recover the principal of the loan nor affect the other
deprived of life, liberty or property without due process of law, terms thereof.
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 59. CAMASO
clause in Section 135 of R.A. No. 7653, the BSP-MB has Blanket mortgage clause
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
Mother Hubbard, Anaconda, Blanket or Dragnet Clause (taken
and continue enforcing CB Circular No. 905.
from Common Used Clauses in Law and Contracts, by Mauricio
HELD: Ulep, 743 SCRA 726)

- CB-MB merely suspended the effectivity of the Usury Law


when it issued CB Circular No. 905.
MOTHER HUBBARD, ANACONDA, BLANKET
- BSP-MB has authority to enforce CB Circular No. 905. OR DRAGNET CLAUSE It is a provision in a
mortgage in which the mortgagor gives security for
TOPIC RELATED TO THE SUBJECT: past and future advances as well as present
The lifting of the ceilings for interest rates does not authorize indebtedness. A type of mortgage provision that
stipulations charging excessive, unconscionable, and iniquitous attempts to make the mortgaged real estate security
interest. for other usually unspecified debts that the mortgagor
may already or in the future owe to the mortgagee.
In Castro v. Tan, the Court held that the imposition of (Blacks Law Dictionary, Sixth Edition, p. 494. See
unconscionable interest is immoral and unjust. It is also Union Bank of the Philippines v. Court of
tantamount to a repugnant spoliation and an iniquitous Appeals, 471 SCRA 751 [2005]; Cuyco v. Cuyco, 487
Page 73 of 82
CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
SCRA 693 [2006]; Premiere Development Bank v. Union Bank instituted foreclosure proceedings on DRIs
Central Surety & Insurance Company, Inc., 579 properties. On September 20, 1996, DRIs properties were
SCRA 359 [2009]; Banate v. Philippine Countryside auctioned where Union Bank was declared the highest bidder.
Rural Bank [Liloan, Cebu], Inc., 625 SCRA 21 [2010])
On February 26, 1997, DRI filed a supplemental complaint
seeking to declare the public sale as null. It claimed that its
liability is only P3 million which was the liability incurred by
It operates as a convenience and accommodation JMTC under its first agreement with Union Bank. However,
to the borrowers as it makes available additional Union Bank alleged that DRI was liable to JMTCs total
funds without their having to execute additional outstanding obligations, regardless of whether it was incurred
security documents, thereby saving time, travel, loan during or subsequent to the first agreement.
closing costs, costs of extra legal services, recording
fees, et cetera. (Traders Royal Bank v. Castaares, RTC ruled in favor of UBP. The CA reversed the decision. While
636 SCRA 519 [2010]. See also Ramos v. Philippine it upheld Union Banks right to foreclose, it found that DRIs
National Bank, 662 SCRA 479 [2011]; Philippine mortgage liability is pegged at P3 million and which was later
Charity Sweepstakes Office [PCSO] v. New Dagupan amended and increased to P8.61 million. It ruled that DRI could
Metro Gas Corporation, 676 SCRA 156 [2012]) not be held liable for more than P8.61 million even if JMTC
availed more than this amount.
Such clauses are carefully scrutinized and strictly
construed. (Philippine Bank of Communications v. ISSUE: whether the Court of Appeals erred in holding that
Court of Appeals, 253 SCRA 241 [1996]) the liability of DRI is limited only to P8.61 million

60. CASTRO, A. HELD: YES.

UBP vs CA The provisions of the contract of mortgage clearly show the


parties intent to constitute DRIs real estate properties as
FACTS: continuing securities, liable for the current as well as the future
DRossa Incorporated (DRI) agreed to mortgage its parcels of obligations of JMTC. Indeed, a mortgage liability is usually
land in favor of Union Bank of the Philippines (Union Bank) as limited to the amount mentioned in the contract, but where the
security for the credit facility of Josephine Marine Trading intent of the contracting parties is manifest that the
Corporation (JMTC). JMTC availed P3 million from the credit mortgage property shall also answer for future loans or
line. Subsequently, Union Bank increased the credit facility of advancements, the same is valid and binding between the
JMTC to P27 million. Upon JMTCs failure to pay its obligation, parties. In this case, DRI expressly agreed to secure all the
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obligations of JMTC, whether presently owing or subsequently also those that may be incurred after the execution of the
incurred. Thus, its liability is not limited to P8.61 million only. mortgage contract. DRI also actively participated in facilitating
the increase of JMTCs credit facility.
In Prudential Bank v. Don A. Alviar and Georgia B. Alviar, we
referred to this provision as blanket mortgage clause or dragnet Likewise, the evidence presented during the proceedings
clause. Thus: in the trial court reveal that DRI acknowledged and consented to
the renewal and increase of the credit facilities of JMTC.[17]
A blanket mortgage clause, also known as a dragnet Thus, by agreeing to secure JMTCs future loans or
clause in American jurisprudence, is one which is specifically advancements with its real properties, DRI is estopped from
phrased to subsume all debts of past or future origins. questioning the foreclosure proceedings conducted upon the
Such clauses are carefully scrutinized and strictly construed. failure of JMTC to pay its obligations to Union Bank.
Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not 61. CASTRO, J
be known or anticipated at the time, and they avoid the
expense and inconvenience of executing a new security on
each new transaction. A dragnet clause operates as a 62. Delos Reyes
convenience and accommodation to the borrowers as it
makes available additional funds without their having to Cuyco vs Cuyco
execute additional security documents, thereby saving
Facts:
time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera. Indeed, it has been settled Petitioners, spouses Adelina and Feliciano Cuyco, obtained a
in a long line of decisions that mortgages given to secure future loan in the amount of P1.5M from respondents, spouses Renato
advancements are valid and legal contracts, and the amounts and Filipina Cuyco, payable within one year at 18% interest per
named as consideration in said contracts do not limit the annum, and secured by a Real Estate Mortgage. Subsequently,
amount for which the mortgage may stand as security if from the petitioners obtained additional loans from the respondents in the
four corners of the instrument the intent to secure future and aggregate amount of P1,250,000.00. Petitioners made
other indebtedness can be gathered. payments amounting to P291,700.00, but failed to settle their
outstanding loan obligations. Respondents filed a case against
Even if DRI is considered as an accommodation
petitioner, they alleged that petitioners loans were secured by
mortgagor only, its liability would still exceed P8.61 million. It is
the real estate mortgage and that their indebtedness already
well to note that DRI, through its President, Rose D. Teodoro,
amounted to P6.9M , inclusive of the18% interest compounded
agreed to secure not only the present obligations of JMTC but
monthly; and that petitioners refusal to settle the same entitles
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the respondents to foreclose the real estate mortgage and sell There is no stipulation that the mortgaged realty shall also
the property to settle the obligations of the petitioners. The RTC secure future loans and advancements. Even if the parties
rendered judgment in favor of the respondents. Petitioners intended the additional loans of P150,000.00 obtained on May
appealed to the CA reiterating their previous claim that only the 30, 1992, P150,000.00 obtained on July 1, 1992,
amount of P1.5M (initial loan) was secured by the real estate andP500,00.00 obtained on September 5, 1992 to be secured
mortgage.CA held that by express intention of the parties, the by the same real estate mortgage, as shown in the
real estate mortgage secured the original P1.5M loan and the acknowledgement receipts, it is not sufficient in law to bind the
subsequent loans of P150,000.00and P500,000.00 obtained on realty for it was not made substantially in the form prescribed by
July 1, 1992 and September 5, 1992, respectively. As regards law
the loans obtained on May 31, 1992, October 29, 1992 and
January 13,1993 in the amounts of P150,000.00, P200,000.00 64. DINGLASAN
and P250,000.00, respectively, the appellate tribunal held that Traders Royal Bank vs Norberto Castaares and Milagros
the parties never intended the same to be secured by the real Castaares
estate mortgage.
G.R. No. 172020 (Dec. 6m, 2010)
Issue:
FACTS
Whether the subsequent loans should be covered by the
mortgage absent any agreement by the parties. Spouses Castanares are exporters of shell crafts and
handicrafts. To sustain their business, they obtained loans and
Ruling: credit accommodations from Traders Royal Bank, mortgaging
Held: their real estates (REMs). As evidenced by a promissory note,
petitioner released only the amount of P35,000.00 although the
No. While a real estate mortgage may exceptionally secure mortgage deeds indicated the principal amounts asP 86,000.00
future loans or advancements, these future debts must be andP 60,000.00. Respondents were further granted additional
sufficiently described in the mortgage contract. An obligation is funds on various dates under promissory notes they executed in
not secured by a mortgage unless it comes fairly within the favor of the petitioner.
terms of the mortgage contract. A dragnet clause operates as Petitioner transferred the amount of P1,150.00 from
a convenience and accommodation to the borrowers as it respondents current account to their savings account. The loans
makes available additional funds without their having to execute began to mature and the letters of credit against which the
additional security documents, thereby saving time, travel, loan packing advances were granted started to expire. Petitioner,
closing costs, costs of extra legal services, recording fees, etc. without notifying the respondents, applied to the payment of
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
respondents outstanding obligations the sum of P30,930.49 conventional compensation is not limited to obligations which
which was remitted to the respondents thru telegraphic transfer are not yet due. The only requirements for conventional
from AMROBANK, Amsterdam. compensation are (1) that each of the parties can fully dispose
of the credit he seeks to compensate, and (2) that they agree to
For failure of the respondents to pay their outstanding loans with the extinguishment of their mutual credits. Consequently, no
petitioner, the latter proceeded with the extrajudicial foreclosure error was committed by the trial court in holding that petitioner
of the real estate mortgages. Thereafter, a Certificate of Sale validly applied, by way of compensation, the $4,220.00
covering all the mortgaged properties was issued by in favor of telegraphic transfer remitted by respondents foreign client
petitioner as the lone bidder. through the petitioner.
Petitioner instituted a Civil Case for deficiency judgment, 65. GALICINAO
claiming that after applying the proceeds of foreclosure sale to
the total unpaid obligations of respondents (P200,397.78), Republic Planters Bank vs. Sarmiento
respondents were still indebted to petitioner for the sum
ofP83,397.68. Respondents filed a Civil Case for the recovery of A blanket mortgage clause, also known as a dragnet clause in
the sum debited from their savings account passbook and the American jurisprudence, is one that is specifically phrased to
equivalent amount of telegraphic transfer, and in addition, the subsume all debts of past or future origins. Such clauses are
damage suffered by the respondents from letters of credit left carefully scrutinized and strictly construed. Mortgages of this
un-negotiated. character enable the parties to provide continuous dealings, the
The RTC consolidated the cases and ruled in favor of the nature or extent of which may not be known or anticipated at the
petitioner but was overturned by the CA. time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A dragnet
ISSUE clause operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their
Whether or not the payment of $4,220.00 by the Bank by way of having to execute additional security documents, thereby saving
compensation is valid. time, travel, loan closing costs, costs of extra legal services,
HELD recording fees, etc

Yes. Agreements for compensation of debts or any obligations Facts


when the parties are mutually creditors and debtors are allowed
On March 13, 1979, the respondents executed a
under Art. 1282 of the Civil Code even though not all the legal promissory note of P80,000 with Maybank. The payment
requisites for legal compensation are present. Voluntary or was secured with a mortgage over two properties they
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
executed at an earlier date. On 8 April 1980, Vivencio, Issue
for himself and as attorney-in-fact of the other
respondents executed another promissory note in the Whether the deposits made by respondents constituted a
amount of P100,000. In the same month, the valid tender of payment of the redemption price.
respondents amended the mortgage for a bigger Held
consideration of P100,000.
No. At the time of the foreclosure sale of the mortgaged
Vivencio was the owner of V. Sarmiento Rattan Furniture,
property, the outstanding obligation arising from the
a sole proprietorship engaged in export business. He
export bills transactions had already amounted to more
incurred loan obligations from Maybank on various
than P1 million. In accordance with Section 78 of the
occasions by of export advances.
General Banking Act, as amended, then governing the
On 3 September 1988, Vivencio and another respondent
foreclosure of the mortgaged property, redemption may
executed a suretyship agreement to be solidarily liable
only be made by paying the amount due under the
with V. Sarmiento Rattan Furniture for the payment of
mortgage deed within one year from the sale of the
P100,000 and all obligations inured or would incur from
property. Since respondents failed to satisfy the full
Maybank. However, the respondents defaulted In the
amount of the indebtedness to Maybank, the latter was
payment of the export advances so Maybank instituted
justified in refusing to grant respondents demand for
the foreclosure of the mortgage on 9 November 1982.
redemption of the foreclosed property.
Maybank won the property with a bid of P254k.
On 21 July 1983, the sister of one of the respondents
66. MOGELLO
purchased a managers check from Maybank in the
amount of P3OOk. one of the respondents also 67. PALILEO
deposited P12k. Bat Maybank treated the total amount of
P312k as a deposit and did not the respondent's request #67 Blanket mortgage clause
for cerficate of redemption releasing the foreclosed
property. A blanket mortgage clause, also known as a dragnet clause in
on 12 November 1997, Maybank sold the property to American jurisprudence, is one which is specifically phrased to
Philmay which sold the same to Fabra. subsume all debts of past or future origins. Such clauses are
The respondents filed a case against Maybank, Philmay, carefully scrutinized and strictly construed. Mortgages of this
and Fabra to redeem the property. character enable the parties to provide continuous dealings, the
RTC ruled in favor of the respondents because they were nature or extent of which may not be known or anticipated at the
able to pay the redemption price of P312k within the time, and they avoid the expense and inconvenience of
redemption period. the CA affirmed the RTC's decision. executing a new security on each new transaction. A dragnet
clause operates as a convenience and accommodation to the
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
borrowers as it makes available additional funds without their foreclosure proceedings. In petition for extrajudicial foreclosure,
having to execute additional security documents, thereby saving respondent bank sought the satisfaction solely of the first loan
time, travel, loan closing costs, costs of extra legal services, although the second loan had also become due. At the public
recording fees, et cetera. Indeed, it has been settled in a long auction, respondent bank offered the winning bid
line of decisions that mortgages given to secure future of P142,000.00, which did not include the second loan.
advancements are valid and legal contracts, and the amounts Petitioners then exercised the right of redemption as
named as consideration in said contracts do not limit the successors-in-interest of the judgment debtor. Stepping into the
amount for which the mortgage may stand as security if from the shoes of spouses Co, petitioners tendered the amount
four corners of the instrument the intent to secure future and of P155,769.50, based on the computation made by the Office
other indebtedness can be gathered. (Prudential Bank v. Alviar) of the Provincial Sheriff. Respondent bank objected to the non-
inclusion of the second loan. It also claimed that the applicable
68. PAVICO interest rate should be the rate fixed in the mortgage, which was
Failure to include in the foreclosure the second loan/dragnet 24% per annum plus 3% service charge per annum and 18%
clause penalty per annum. However, the Provincial Sheriff insisted that
the interest rate should only be 12% per annum. Respondent
68. Tecklo vs. Rural Bank of Pamplona bank then sought annulment of the redemption, injunction, and
damages in the Regional Trial Court. RTC ruled that the interest
Facts: Spouses Co obtained a loan from Respondent bank in
rate must be 24% but ruled against the inclusion of the second
the amount of P100,000.00 secured by a Real Estate mortgage
loan in the redemption price. The CA, Affirmed the RTC
of a residential lot owned by the former. One of the stipulations
Decision with the assailed modification the CA included the
in the mortgage contract was that the mortgaged property would
second in the redemption price.
also answer for the future loans of the mortgagor. Pursuant to
this provision, spouses Co obtained a second loan from Issue: Whether or Not the second loan must be included as
respondent bank in the amount of P150,000.00. ruled by the CA, even if it was not included in respondent banks
application for extrajudicial foreclosure.
Petitioners, spouses Benedict and Maricel Dy Tecklo,
meanwhile instituted an action for collection of sum of money Ruling: No, the second loan is not included.
against spouses Co. In the said case, petitioners obtained a writ
of attachment on the mortgaged property of spouses Co. For its failure to include the second loan in its application for
extrajudicial foreclosure as well as in its bid at the public auction
When the two loans remained unpaid after becoming due and
demandable, respondent bank instituted extrajudicial sale, respondent bank is deemed to have waived its lien on the
mortgaged property with respect to the second loan. Of course,
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
respondent bank may still collect the unpaid second loan, and not be separately annotated on the said TCT in order to bind
third parties. Tad-Y v. Philippine National Bank
the interest thereon, in an ordinary collection suit before the
right to collect prescribes. 69. RIEGO

Mendoza vs. Court of Appeals


After the foreclosure of the mortgaged property, the mortgage is
GR No. 116710. 25 June 2001
extinguished and the purchaser at auction sale acquires the
property free from such mortgage. Any deficiency amount after FACTS:
foreclosure cannot constitute a continuing lien on the foreclosed
property, but must be collected by the mortgagee-creditor in an Respondent was granted by respondent Philippine National
ordinary action for collection. In this case, the second loan from Bank (PNB) credit line and Letter of Credit/Trust Receipt
the same mortgage deed is in the nature of a deficiency amount (LC/TR) line. As security for the credit accommodations and for
those which may thereinafter be granted, petitioner mortgaged
after foreclosure.
to respondent PNB some of his properties. Petitioner later
requested for loan restructuring and issued promissory notes,
NOTE: A blanket mortgage clause, which makes available which he failed to comply. Respondent PNB extra-judicially
future loans without need of executing another set of security foreclosed the real and chattel mortgages, and the mortgaged
documents, has long been recognized in our jurisprudence. It is properties were sold at public auction to respondent PNB, as
meant to save time, loan closing charges, additional legal highest bidder. Petitioner filed a case in the RTC contending
services, recording fees, and other costs. A blanket mortgage that foreclosure is illegal invoking promissory estoppel, and
clause is designed to lower the cost of loans to borrowers, at the secured favorable judgment. The decision of RTC was reversed
same time making the business of lending more profitable to by the Court of Appeals.
banks. Settled is the rule that mortgages securing future loans
are valid and legal contracts. ISSUE: Whether or not the foreclosure of petitioners real estate
and chattel mortgages were legal and valid as opposed to
The rule is that a mortgage contract containing a provision that
promissory estoppel.
future loans (dragnet clause) would also be secured by the
mortgage. This Court ruled that since the mortgage contract
HELD:
containing the blanket mortgage clause was already annotated
on the TCT of the mortgaged property, subsequent loans need
YES. First, there was no promissory estoppel as the promise (of
respondent bank) must be plain and unambiguous and
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CREDIT TRANSACTIONS JD-B ATTY. IGNACIO
sufficiently specific. Second, there was no meeting of the minds Kauffman learned about this on October 29, 1997 and returned
leading to another contract, hence loan was not restructured. to the Philippines on November 9, 1997. She and Pares went to
Third, promissory notes petitioner issued were valid. Fourth, the Register of Deeds and found out that the lot had been
mortgaged to Rosana Erea on August 1, 1997 It appeared that
stipulation in the mortgage, extending its scope and effect to
a Vida Dana F. Querrer had signed the Real Estate Mortgage
after-acquired property is valid and binding after the correct and as owner-mortgagor, together with Jennifer V. Ramirez, Victors
valid process of extra-judicial foreclosure. Finally, record daughter, as attorney-in-fact
showed that petitioner did not even attempt to tender any
redemption price during the one-year redemption period. On March 12, 1998, Kauffman filed a complaint against Erea,
Bernal and Jennifer Ramirez for Nullification of Deed of Real
Estate Mortgage and Damages with prayer for a Temporary
70 & 71, SANTILLANA Restraining Order and Preliminary Mandatory Injunction

72. TITO Erea interposed the defense of being a mortgagee in good faith.
She likewise interposed a cross-claim against Bernal and
. Erena vs Querrer- Kaufman Jennifer Ramirez for the refund of theP250,000.00 she loaned
492 scra 298 to Vida Dana Querrer.

Facts: Petitioner avers that respondent failed to prove that she is the
Sometime in February 1997, as she was going to the United owner of the property, and points out that the documentary
States, Kauffman entrusted her minor daughter, Vida Rose, to evidence shows that the negotiator over the property is Vida
her live-in partner, Eduardo Victor. She also entrusted the key to Dana Querrer and not Vida Dana Querrer-Kaufffman. There is
her house to Victor. She went back to the Philippines to get her thus no factual basis for the CAs finding that the Real Estate
daughter on May 13, 1997, and again left for the U.S. on the Mortgage was a forged deed. Considering that respondent, as
same day. Later on, Victor also left for the U.S. and entrusted the plaintiff below, failed to adduce clear and convincing
the house and the key thereto to his sister, Mira Bernal. evidence that the signature on the Real Estate Mortgage is a
forgery, the signature over the printed name in the said
On October 25, 1997, Kauffman asked her sister, Evelyn Pares, document must be the genuine signature of Vida Dana Querrer,
to get the house from Bernal so that the property could be sold. the registered owner of the property. Even assuming that
Pares did as she was told. Kauffman then sent the key to the respondent was the lawful owner of the property and the
safety deposit box to Pares, but Pares did not receive it. signature in the Real Estate Mortgage is a forgery, petitioner
Kauffman then asked Pares to hire a professional locksmith who insists that she is a mortgagee in good faith
could open the safe. When the safe was broken open, however,
Pares discovered that the owners duplicate title and the tax Issue: WON the doctrine of mortgagee in good faith applied in
declarations, including pieces of jewelry were missing. this case

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Held: suspicion, has no obligation to undertake further investigation.
The doctrine of mortgagee in good faith does not apply to a Hence, even if the mortgagor is not the rightful owner of, or
situation where the title is still in the name of the rightful does not have a valid title to, the mortgaged property, the
owner and the mortgagor is a different person pretending mortgagee in good faith is nonetheless entitled to protection.
to be the owner. In such a case, the mortgagee is not an This doctrine presupposes, however, that the mortgagor, who is
innocent mortgagee for value and the registered owner will not the rightful owner of the property, has already succeeded in
generally not lose his title. obtaining a Torrens title over the property in his name and that,
One of the essential requisites of a mortgage contract is that the after obtaining the said title, he succeeds in mortgaging the
mortgagor must be the absolute owner of the thing property to another who relies on what appears on the said title.
mortgaged. A mortgage is, thus, invalid if the mortgagor is not The innocent purchaser (mortgagee in this case) for value
the property owner. In this case, the trial court and the CA are protected by law is one who purchases a titled land by virtue of
one in finding that based on the evidence on record the owner a deed executed by the registered owner himself, not by a
of the property is respondent who was not the one who forged deed, as the law expressly states. Such is not the
mortgaged the same to the petitioner. situation of petitioner, who has been the victim of impostors
Indeed, a mortgagee has a right to rely in good faith on the pretending to be the registered owners but who are not said
certificate of title of the mortgagor of the property given as owners.
security and in the absence of any sign that might arouse

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