SUBJECT: CREDIT TRANSACTIONS (SECTRANS)

CASE NAME: SAURA IMPORT AND EXPORT CO., INC. V. DBP

CASE NUMBER: GR NO. L-24968
DECISION DATE: APRIL 27, 1972

FACTS:

In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of
P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill
machinery and equipment and as additional working capital. In Resolution No. 145, the loan application
was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and
equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. But then, later on,
was cancelled to make way for the registration of a mortgage contract over the same property in favor of
Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute
machinery. As security, Saura execute a trust receipt in favor of Prudential. Failure of Saura to pay said
obligation resulted into Prudential suing Saura.

After almost 9 years, Saura Inc, commenced an action against RFC (DBP), alleging failure on the latter to
comply with its obligations to release the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered into, in connection with its jute mill
project.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties and
that the RFC was guilty of breach thereof.

ISSUE/S:

WON there was a perfected consensual contract

RULING:

Yes. As recognized in Article 1934 of the Civil Code 1, there was an undoubted offer and acceptance in the
case. Saura Inc.s application for a loan was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. The defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.

When an application for a loan of money was approved by resolution of the respondent corporation and
the responding mortgage was executed and registered, there arises a perfected consensual contract.

It should be noted that DBP imposed two conditions (availability of raw materials and increased
production) when it restored the loan to the original amount of P500,000.00.

Saura Inc. was in no position to comply with DBPs conditions. Instead of doing so and insisting that the
loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled.The action thus taken
by both parties was in the nature of mutual desistance which is a mode of extinguishing obligations. It is a
concept that derives from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.

1ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the
contract.
SUBJECT: CREDIT TRANSACTIONS (SECTRANS)
CASE NAME: REPUBLIC V. JOSE BAGTAS
CASE NUMBER: GR NO. L-17474
DECISION DATE: OCTOBER 25, 1962

FACTS:

On 1948, Bagtas borrowed three bulls2 from the Republic thru the Bureau of Animal Industry for a period
of one year from May 8, 1948 to May 7, 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon expiration, borrower asked for a renewal for
another period of one year; Sec. of Agriculture approved of the renewal of only one bull and requested
the other two be returned. Borrower wrote to the Director of Animal Industry that he would pay the value
of the three bulls and showed his desire to buy them at a value with a deduction of yearly depreciation to
be approved by the Auditor General.

Director of Animal Industry advised the borrower that the book value of the bulls cant be reduced and
they either be returned or their book value shall be paid. However, borrower failed to pay the book value
of the three bulls or to even return them.

An action was commenced against the borrower for him to return the three bulls loaned to him or pay
their book value. The borrower answered that because of the bad peace and order situation in Cagayan
Valley and of the pending appeal he had taken to the Sec. of Agriculture and the President of the PH, he
could not return the animals nor pay their value.

On 1958, the surviving spouse of the borrower who was the administratrix of the borrowers estate filed a
motion alleging that the two bulls were returned to the Bureau and that the third one died from a gunshot
during the Huk raid.

ISSUE/S:

WON the contract is a commodatum and not a lease and that the estate should be liable for the loss due to
force majeure due to delay

RULING:

Yes. If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull
it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous. If the
breeding fee be considered a compensation, then the contract would be a lease of the bull. Under Article
1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable if he keeps it longer than the period stipulated

The estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not
been returned because it was killed while in the custody of the administratrix of his estate

2 A Red Sindi, book value of P1,176.46; Bhagnari, book value of P1,320.56; & Sahiniwal, book value of P744.46
SUBJECT: CREDIT TRANSACTIONS (SECTRANS)
CASE NAME: COLITO PAJUYO V. CA
CASE NUMBER: GR NO. 146364
DECISION DATE: JUNE 3, 2004

FACTS:

Pajuyo entrusted a house to Guevara for the latter's use provided he should return the same upon
demand and with the condition that Guevara should be responsible of the maintenance of the property.
Upon demand Guevara refused to return the property to Pajuyo. The petitioner then filed an ejectment
case against Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the
appellate court reversed the judgment of the lower court on the ground that both parties are illegal
settlers on the property thus have no legal right so that the Court should leave the present situation with
respect to possession of the property as it is, and ruling further that the contractual relationship of Pajuyo
and Guevara was that of a commodatum.

ISSUE/S:

WON the contractual relationship between Pajuyo and Guevara is that of commodatum

RULING:

No. The Court of Appeals theory that the Kasunduan is one of commodatum is devoid of merit.

In a contract of commodatum, one of the parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it. An essential feature of commodatum is that it
is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a
certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration
of the period stipulated, or after accomplishment of the use for which the commodatum is
constituted.

If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use
of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case
the contractual relation is called a precarium.

Under the Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that the
accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did
not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The
imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects
of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-tenant relationship where the
withdrawal of permission would result in the termination of the lease. The tenants withholding of the
property would then be unlawful.
SUBJECT: CREDIT TRANSACTIONS (SECTRANS)
CASE NAME: MARGARITA QUINTOS V. BECK
CASE NUMBER: GR NO. L-46240
DECISION DATE: NOVEMBER 3, 1939

FACTS:

Quintos and Beck entered into a contract of lease, whereby the latter occupied the formers house. On
January 14, 1936, the contract of lease was novated, wherein the petitioner gratuitously granted Beck the
use of furniture, subject to the condition that Beck should return the furniture back to Quintos upon
demand.

Thereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was notified of the conveyance
and given 60 days to vacate the premises. In addition, Quintos required Beck to return all the furniture.
Beck refused to return the 3 gas heaters and the 4 electric lamps since he would still use them until the
lease was due to expire. Quintos refused to get the furniture since Beck had declined to return all of them.
Beck deposited all the furniture belonging to Quintoss to the sheriff.

ISSUE/S:

WON Beck complied with his obligation of returning the furnitures ro Quintos when it deposited the
furniture to the sheriff

RULING:

The contract entered into between the parties is one of commodatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership
thereof; by this contract the defendant bound himself to return rhe furniture to the plaintiff, upon the
latters demand. The obligaiton voluntarily assumed by the defendant to return the furniture upon the
plaintiffs demand, means that he should return all of them to the plaintiff at the latters residence or
house. Defendant did not comply with his obligaiton when he merely placed them at the disposal of the
plaintiff, retaining for his benefir the three gas heaters and the four electric lamps.

As the defendant had voluntarily undertaken to return all the furniture to the plaintff, upon the latters
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendants behest. The latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
SUBJECT: CREDIT TRANSACTIONS (SECTRANS)
CASE NAME: ROLANDO DE LA PAZ V. L&J DEVELOPMENT COMPANY
CASE NUMBER: GR NO. 183360
DECISION DATE: SEPTEMBER 8, 2014

FACTS:

On December 2000, petitioner lent the respondent P350,000 without any security, no specified maturity
date and carried a 6% monthly interest rate. From December 2000 to August 2003, the respondent has
paid a total of P576,000 representing interest charges, to the petitioner.

Respondent then failed to pay despite the demands, which resulted to the petitioner filing a Complaint for
the Collection of Sum of Money with Damages. Petitioner alleged that the respondents debts amounted to
P772,000, inclusive of the monthly interest; that the respondent suggested the 6% interest rate and that
the latter tricked him into entering into the loan without it being in writing.

In the Answer by the respondent, they acknowledged the loan as a corporate debt, and claimed that the
failure to pay was due to a fortuitous event brought about by the economic crisis. Alleging further that the
6% monthly interest cannot be enforced since it is unconscionable and shocking to the morals.

ISSUE/S:

WON the principal loan is deemed paid is dependent on the validity of the monthly interest rate imposed

RULING:

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging
monetary interest.

Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly stipulated in
writing. Jurisprudence on the matter also holds that for interest to be due and payable, two conditions
must concur: a) express stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.

Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is
due. The collection of interest without any stipulation in writing is prohibited by law.

It may be raised that the respondent is estopped from questioning the interest rate considering that it has
been paying the petitioner interest at such rate for more than two and a half years. In fact, in its pleadings
before the MeTC and the RTC, respondent merely prayed for the reduction of interest from 6% monthly
to 1% monthly or 12% per annum.

However, in Ching v. Nicdao, the daily payments of the debtor to the lender were considered as
payment of the principal amount of the loan because Article 1956 was not complied with. This was
notwithstanding the debtors admission that the payments made were for the interests due. The
Court categorically stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law
or one that is against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is
unconscionable, regardless of who between the parties proposed the rate.
SUBJECT: CREDIT TRANSACTIONS (SECTRANS)
CASE NAME: DARIO NACAR V. GALLERY FRAMES
CASE NUMBER: GR NO. 189871
DECISION DATE: AUGUST 13, 2013

FACTS:

Petitioner filed a complaint for constructive dismissal before the NLRC against the respondents. On 1998,
the Labor Arbiter rendered a decision in favor of the petitioner and found that he was dismissed from
employment without a valid or just cause; and was also awarded back wages and separation pay instead
of reinstatement in the amount of P158,919.92.