I. INTRODUCTION Mortgage Law.
Refusal on the part of the borrower to execute the agreement so as to
ACME VS CA
FACTS: Petitioner Chua Pac, the president and general manager of co-petitioner
Acme executed a chattel mortgage in favor of private respondent Producers Bank as
a security for a loan of P3,000,000. A provision in the chattel mortgage agreement
was to this effect:
"In case the MORTGAGOR executes subsequent promissory note or notes either as
a renewal of the former note, as an extension thereof, or as a new loan, or is given
any other kind of accommodations such as overdrafts, letters of credit, acceptances
and bills of exchange, releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of the said promissory note or
notes and/or accommodations without the necessity of executing a new contract and
this mortgage shall have the same force and effect as if the said promissory note or
notes and/or accommodations were existing on the date thereof. This mortgage shall
also stand as security for said obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the constitution of this
mortgage."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional
loan totalling P2,700,000.00 which was also duly paid. Another loan was again
extended (P1,000,000.00) covered by four promissory notes for P250,000.00 each,
but went unsettled prompting the bank to apply for an extrajudicial foreclosure with
the Sheriff.
ISSUE: Would it be valid and effective to have a clause in a chattel mortgage that
purports to likewise extend its coverage to obligations yet to be contracted or
incurred?
HELD: No. While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are accurately
described, a chattel mortgage, however, can only cover obligations existing at the
time the mortgage is constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding commitment
that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel mortgage or by
amending the old contract conformably with the form prescribed by the Chattel
cover the after-incurred obligation can constitute an act of default on the part of the
borrower of the financing agreement whereon the promise is written but, of course,
the remedy of foreclosure can only cover the debts extant at the time of constitution
and during the life of the chattel mortgage sought to be foreclosed.
NAVOA VS CA
FACTS: On December 1977 Teresita Domdoma and Eduardo Domdoma filed a
case with the RTC for collection of various sums of money based on loans given by
them to Olivia Navoa. They cased was dismissed on the ground that there was no
cause of action and that the Domdoma’s do not have no capacity to sue. They
appealed to the C.A. and was granted a favourable decision.
There were 6 instances in which the Domdoma’s gave Olivia Navoa a loan. The first
instance is when Teresita gave Olivia a diamond ring valued at 15,000.00 which was
secured by a PCIB check under the condition that if the ring was not returned within
15 days from August 15, 1977 the ring is considered sold. Teresita attempted to
deposit the check on November 1977 but the check was not honoured for lack of
funds. After this instance, there were other loans of various amounts that were
extended by Teresita to Olivia, loans which were secured by PCIB checks, which
were all dated to 1 month after the loan. All these checks were not honoured under
the same reason as the first loan.
ISSUE: Was the decision of the RTC to dismiss the case due to having no cause of
action valid?
- NO, A cause of action is the fact or combination of facts which affords a party a
right to judicial interference in his behalf.
- For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15
days after August 15, 1977, and even then, Olivia Navoa failed to pay the price for
the ring when the payment was due (check issued was not honoured. Thus it is
confirmed that Teresita’s right under the agreement was violated.
- As for the other loans extended by Teresita to Olivia, they were all secured by
PCIB checks. It can be inferred that since the checks were all dated to 1 month after
the loan, it follows that the loans are then payable 1 month after they were
contracted, and also these checks were dishonoured by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks that were issued as
payment for their obligations. Art 1169 of the Civil Code is explicit: those obliged to
deliver or to do something incur in delay from the time the obligee judicially or
extra-judicially demands from them the fulfilment of the obligations, the continuing
refusal of Olivia and Ernesto Navoa to comply with the demand of payment shows
the existence of a cause of action.
HELD: The petition is DENIED and the decision of the C.A. remanding the case to
the RTC for trial on the merits is affirmed.
Obligations and Contracts terms:
Security- A means of ensuring the enforcement of an obligation or of protecting
some interest in property. It may be personal or property security.
Cause of Action- is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right
in favour of the plaintiff by whatever means and under whatever law it arises or
created, (b) an obligation on the part of the defendant to respect and not to violate
such right; and, (c) an act or omission on the part of the defendant constituting a
violation of the plaintiff’s right or breach of the obligation of the defendant to the
plaintiff.
II. LOAN
PEOPLE V. CONCEPCION
FACTS: Defendant authorized an extension of credit in favor of Concepcion, a co-
partnership. Defendant’s wife was a director of this co-partnership. Defendant
was found guilty of violating Sec. 35 of Act No. 2747 which says that “The National
Bank shall not, directly or indirectly, grant loans to any of the members of the Board
of Directors of the bank nor to agents of the branch banks.” This Section was
in effect in 1919 but was repealed in Act No. 2938 approved on January 30, 1921.
ISSUE: W/N Defendant can be convicted of violating Sections of Act No. 2747,
which were repealed by Act No. 2938.
HELD: In the interpretation and construction, the primary rule is to ascertain and
give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act
No. 2747 provides a punishment for any person who shall violate any provisions of
the Act. Defendant contends that the repeal of these Sections by Act No. 2938 has
served to take away basis for criminal prosecution. The Court holds that where an
act of the Legislature which penalizes an offense repeals a former act which
penalized the same offense, such repeal does not have the
effect of thereafter depriving the Courts of jurisdiction to try, convict and sentence
offenders charged with violations of the old law.
REPUBLIC VS PNB
Failure to make such presentment will discharge the drawer from liability or to the
extent of the loss caused by the delay.
FACTS: The Republic of the Philippines filed on September 25, 1957 before the
Court of First Instance of Manila a complaint for escheat of certain unclaimed bank
deposits balances under the provisions of Act No. 3936 against several banks, among
them the First National City Bank of New York. It Is alleged that pursuant to Section
2 of said Act defendant banks forwarded to the Treasurer of the Philippines a
statement under oath of their respective managing officials of all the credits and
deposits held by them in favor of persons known to be dead or who have not made
further deposits or withdrawals during the period of 10 years or more. Wherefore, it
is prayed that said credits and deposits be escheated to the Republic of the Philippines
by ordering defendant banks to deposit them to its credit with the Treasurer of the
Philippines.
In its answer-the-First National City Bank of New York claims that, while it admits
that various savings deposits, pre-war inactive accounts, and sundry accounts
contained in its report submitted to the Treasurer of the Philippines pursuant to Act
No. 3936, totalling more than P100,000.00, which remained dormant for totalling
more than 10 years or more, are subject to escheat, however, it has inadvertently
included in said report, certain items an which, properly speaking, are not credits or
deposits within the contemplation of Act No. 3936. Hence, it prayed that said items
be not included In the claim of plaintiff.
After hearing the court a quo rendered judgment holding that cashier's or manager's
checks and demand drafts as those which defendant wants excluded from the
complaint come within the purview of Act No. 3936, but not the telegraphic transfer
payment orders which are of different category. Consequently, the complaint was
dismissed with regard to the latter. But, after a motion to reconsider was filed by
defendant, the court a quo changed its view and held that even said demand drafts do
not come within the purview of said Act and so amended its decision accordingly.
Plaintiff has appealed.
Section 1. Act No. 3936, provides:
"SECTION 1. 'Unclaimed balances' within the meaning of this Act shall include
credits or deposits of moneys' bullion s security or other evidence of indebtedness of,
any kind, and interest thereon with banks, as hereinafter defined, in favor or any
person unheard from for a period of ten years or more. Such unclaimed balances,
together with the increase and proceeds thereof, shall be deposited with the Insular
Treasurer , to the credit of the Government of the Philippine Islands to be used as the
Philippine Legislature may direct."
It would appear that the terms "unclaimed balances" that are subject to escheat include
credits or deposits of money, or other evidence of indebtedness of any kind, with
banks, in favor of any person unheard from for a period of 10 years or more. And as
correctly stated by the trial court, the term "credit" in its usual meaning is a sum
credited on the books of a company to a person who appears, to be entitled to. it. It
presupposes a creditor-debtor, relationship, and may be said to imply ability, by
reason of property or estates, to make a promised payment (In Re Ford, 14 F. 2d 848,
849) . It is the correlative to debt or indebtedness, and that which is due to any person
as distinguished from that which he owes (Mountain Motor Car Co. vs. Solof, 124 S
.E., 824, 825; Eric vs. Walsh, 61 Atl. 2d 1, 4; See also Libby vs. Hopkins, 104 U.S.
303, 309; Prudential Insurance Co. of America vs. Nelson, 101 F. 2d, 441, 443; Barnes
vs. Treat, 7 Mass. 271, 274). The same is true with the term "deposits" in banks where
the relationship created between the depositor and the bank is that of creditor and
debtor (Article 1980, Civil Code; Gullas vs. National Bank, 62 Phil., 519; Gopoco
Grocery, et al. vs. Pacific Coast Biscuit Co., e.t al., 65 Phil., 443).
The questions that now arise are: Do demand drafts and telegraphic orders come
within the meaning of the term "credits" or "deposits" employed in the law? Can their
import be considered as a sum credited on the books of the bank to a person who
appears to be entitled to it? Do they create a creditor-debtor relationship between the
drawee and the payee?
The answer to these questions require a digression oil the legal meaning of said
banking terminologies.
To begin with, we may say that a demand draft is a bill of exchange payable on
demand (Arnd vs. Aylesworth, 145 Iowa 185; Ward vs. City.Trust Company, 102
N.Y.S. 50; Bank of Republic vs. Republic State Bank, 42 S.W. 2d, 27). Considered as
a bill of exchange, a draft is said to bes like the former, an open letter of request from,
and an order by, one person on another to pay a sum of money therein mentioned to a
third person, on demand or at a future time therein specified (13 Words and Phrases,
371) . As a matter of fact, the term "draft" is often used and is the common term, for
all bills of exchange. And the words "draft" and "bill of exchange" are used
indiscriminately (Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811;
Hinnemann. vs. Rosenback, 39 N.Y. 98, 100, 101; Wilson vs. Buchenau, 43 Supp.
272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable Instrument
Law (Act No. 2031) does not operate as an assignment of funds in the hands of the
drawee who is not liable on the instrument until he accepts it. This is the clear import
of Section 127. It says: "A bill of exchange of itself, does not operate as an assignment
of the funds in the hands of the drawee available for the payment thereon and the
drawee is not liable, on the bill unless and until he accepts the same." In other words,
in order that a drawee may be liable op the draft and then become obligated to the
payee it is necessary that he first accepts the same. In fact, our law requires that with
regard to drafts or bills of exchange there is need that they be presented either for
acceptance or for payment within a reasonable time after their issuance or after their
last negotiation thereof as the case maybe (Section 71, Act 2031). Failure to make
such presentment will discharge the drawer from liability or to the extant of the loss
caused by the delay (Section 186, Ibid.).
Since it is admitted that the demand drafts herein in- volved have not been presented
either for acceptance or for payment, the inevitable consequence is that the appellee
bank never had any chance of accepting :or rejecting them. Verily, appellee bank
never became a debtor of the payee concerned and as such the aforesaid drafts cannot
be considered as credits subject to escheat within the meaning of the law.
But a demand draft Is very different from a cashier's or manager's check, contrary to
appellant's pretense for it has been held that the latter is a primary obligation of the
bank which issues It and constitutes its written promise to pay upon demand. Thus, a
cashier's check has been clearly characterized In Re Bank of the United States, 277
N.Y.S. 96, 100, as follows:
"A cashier's check issued by a bank, however, is not an ordinary draft.The latter is a
bill of exchange payable on demaid. It is an order upon a third party purporting to be
drawn upon a deposit of funds. Drinkall vs. Movious State Bank, 11 N.D. 10, 88 N.W.
724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State vs. Tyler County State Bank (Tex.
Com. App.) 277 S.W 625, 42 A.L.R. 1347. A cashier's check is of a very different
character. It is the primary obligation of the bank which assues it (Nissenbaum vs.
State, 38 Ga. App. 253, 143 S.E. 776) and constitutes its written promise to pay upon
demand (Steinmetz vs. Schultz, 59 S.D. 603, 241 N.W. 734). * * *"
The following definitions cited by appellant also confirm this view:
"A cashier's check is a check of the bank's cashier on his or another bank. It is in effect
a bill of exchange drawn by a bank on itself and accepted in advance by the act of its
issuance" (10 C. J. S. 409).
"A cashier's check issued a depositor is fche substantial on request of equivalent of a
certified check and the deposit represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount" (Lummus Cotton Gin Co.
vs. Walker 70 So. 715, 201Ala. 189).
"A cashier's check, being merely a bill of exchange drawn by a bank on itself, and
accepted in advance by the jact of its issuance, is not subject to countermanaby the
payee after indorsement, and has thessame legal effects as a certificate of deposit or a
certified check" (Walker vs. Sellers, 77 So. 715, 201 Ala. 189).
A demand draft is not therefore of the same category as a cashier's check which should
come within the purview of the law.
The case, however, is different with regard to a telegraphic payment order. It is said
that as the transaction is for the establishment of a telegraphic or cable transfer, the
agreement to remit creates a contractual obligation and has been termed a purchase
and sale transaction (9 C. J. S. 368). The purchaser of a telegraphic transfer upon
making payment completes the transaction insofar as he is concerned, though insofar
as the remitting bank is concerned the contract is executory until the credit is
established (Ibid). We agree with the following comment of the Solicitor General:
"This Is so because the drawer bank was already paid the value of the telegraphic
transfer payment order1. In the particular cases under consideration it appears that the
books of the defendant bank that the amounts represented by the telegraphic payment
orders appear in the names of the respective payees. If the latter choose to demand
payment ok their telegraphic transfers at the time the same was (were) received by the
defendant bank, there could be no question that this bank would have to pay them.
Now, the question is, if the payees decide to have their money remain for; sometime
in the defendant bank, can the latter maintain'that the ownership of said telegraphic
payment orders is now with the drawer bank? The latter, was already paid the value
of the telegraphic payment orders otherwise it would not have transmitted the same to
the defendant bank. Hence, it is absurd to say that the drawer banks are still the owners
of said telegraphic payment orders."
Wherefore, the decision of the trial court is hereby modified in the sense that the items
specifically referred to and listed under paragraph 3 of appellee bank's answer
representing telegraphic transfer payment orders should be escheated in favor of the
Republic of the Philippines. No costs.
MINA VS PASCUAL
FACTS: Francisco Fontanilla and Andres Fontanilla were brothers. Francisco
Fontanilla acquired during his lifetime, on March 12,1874, a lot in the center of the
town of Laoag, the capital of the Province of Ilocos Norte, the property having been
awarded to him through its purchase at a public auction held by the alcalde mayor of
that province. The lot has a frontage of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on
a part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs,
Alejandra Mina et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children
of Ruperta Pascual were recognized likewise without discussion, though it is not
said how, and consequently are entitled to the said building, or rather, as Ruperta
Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging,
as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first
one-half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that
the plaintiffs and the defendants are virtually, to all appearance, the owners of the
warehouse; while the plaintiffs are undoubtedly the owners of the part of the lot
occupied by that building, as well also as of the remainder thereof.
This was the state of affairs when, on May 6, 1909, Ruperta Pascual, as the guardian
of her minor children, the herein defendants, petitioned the Court of First Instance of
Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the
warehouse, of 14 by 11 meters, together with its lot." The plaintiffs that is,
Alexandra Mina et al. opposed the petition of Ruperta Pascual for the reason that the
latter had included therein the lot occupied by the warehouse, which they claimed
was their exclusive property. All this action was taken in a special proceeding in
re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court,
through motion, to decide the question of the ownership of the lot before it pass
upon the petition for the sale of the warehouse. But the court, before determining
the matter of the ownership of the lot occupied by the warehouse, ordered the sale of
this building, saying :
"While the trial continues with respect to the ownership of the lot, the court orders the
sale at public auction of the said warehouse and of the lot on which it is built, with the
present boundaries of the land and condition of the building, at a price of not less than
P2,890 Philippine currency * * *."
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the
other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot,
and the court decided it by holding that this land belonged to the owner of the
warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and
held that the appellants were the owners of the lot in question.[1]
When the judgment became final and executory, a writ of execution issued and the
plaintiffs were given possession of the lot; but soon thereafter the trial court annulled
this possession for the reason that it affected Cu Joco, who had not been a party to
the suit in which that writ was served. It was then that the plaintiffs commenced the
present action for the purpose of having the sale of the said lot declared null and
void and of no force and effect.
An agreement was had as to the facts, the ninth paragraph of which is as follows:
"9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the
Supreme Court which found for them by holding that they are the owners of the lot in
question, although there existed and still exists a commodatum by virtue of which the
guardianship (meaning the defendants) had and has the use, and the plaintiffs the
ownership, of the property, with no finding concerning the decree of the lower court
that ordered the sale."
The obvious purport of the clause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme
Court and that, while finding the plaintiffs to be the owners of the lot, we recognized
in principle the existence of a commodatum under which the defendants held the
lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is
that, notwithstanding the finding made by the Supreme Court that the plaintiffs were
the owners, these former and the defendants agree that there existed, and still exists,
a commodatum, etc. But such an agreement would not affect the truth of the
contents of the decision of this court, and the opinions held by the litigants in regard
to this point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in
our previous decision to require our making any finding in regard thereto, for, with
or without that decree, the Supreme Court had to decide the ownership of the lot
consistently with its titles and not in accordance with the judicial acts or proceedings
had prior to the setting up of the issue in respect to the ownership of the property
that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendants agree that the
plaintiffs have the ownership, and they themselves only the use, of the said lot. On
this premise, the nullity of the sale of the lot is in all respects quite evident,
whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of
the sale being a transfer of the ownership of the thing, it is evident that he who has
only the mere use of the thing cannot transfer its ownership. The sale of a thing
effected by one who is not its owner is null and void. The defendants never were the
owners of the lot sold. The sale of it by them is necessarily null and void. One
cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
"I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the
authorization conferred upon me on the 31st of July, 1909, by the Court of First
Instance of Ilocos Norte, proceeded with the sale at public auction of the six-sevenths
part of the one-half of the warehouse constructed of rubble stone, etc.
"Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction
all the land and all the rights, title, interest, and ownership in the said property to Cu
Joco, who was the highest bidder, etc.
"Therefore, * * * I cede and deliver forever to the said purchaser, Cu Joco, his heirs
and assigns, all the interest, ownership and inheritance rights and others that, as the
guardian of the said minors, I have and may have in the said property, etc."
The purchaser could not acquire anything more than the interest that might be held
by a person to whom realty in possession of the vendor might be sold, for at a
judicial auction nothing else is disposed of. What the minor children of Ruperta
Pascual had in their possession was the ownership of the six-sevenths part of one-
half of the warehouse and the use of the lot occupied by this building. This, and
nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of
the lot; neither the other half, nor the remaining one-seventh of the said first half, of
the warehouse. Consequently, the sale made to him of this one-seventh of one-half
and the entire other half of the building was null and void, and likewise with still
more reason the sale of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale
and what it was that he purchased. There is nothing that can justify the acquisition
by the purchaser of the warehouse of the ownership of the lot that this building
occupies, since the minors represented by Ruperta Pascual never were the owners of
the said lot, nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the
requested annulment of the sale, and that the plaintiffs were entitled to the P600
deposited with the clerk of the court as the value of the lot in question. The
defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the
complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be
compelled to accept the price set on the lot by expert appraisers, not even though the
plaintiffs be considered as coowners of the warehouse. It would be much indeed
that, on the ground of coownership, they should have to abide by and tolerate the
sale of the said building, which point this court does not decide as it is not a question
submitted to us for decision, but, as regards the sale of the lot, it is in all respects
impossible to hold that the plaintiffs must abide by it and tolerate it, and this
conclusion is based on the fact that they did not give their consent (art. 1261, Civil
Code), and only the contracting parties who have given it are obliged to comply (art.
1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the
sale of the lot; but subsequently the plaintiffs, through motion, asked for an
amendment of their complaint in the sense that the action should be deemed to be
one for the recovery of possession of a lot and for the annulment of its sale. The
plaintiffs' petition was opposed by the defendants' attorney, but was allowed by the
court; therefore the complaint seeks, after the judicial annulment of the sale of the
lot, to have the defendants sentenced immediately to deliver the same to the
plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme
Court in the previous suit, wherein it was held that the ownership of the lot lay in the
plaintiffs, and for this reason steps were taken to give possession thereof to the
defendants; but, as the purchaser Cu Joco was not a party to that suit, the present
action is strictly one for recovery against Cu Joco to compel him, once the sale has
been annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the
previous suit, that Andres Fontanilla, the defendants' predecessor in interest,
erected the warehouse on the lot, some thirty years ago, with the explicit
consent of his brother Francisco Fontanilla, the plaintiffs' predecessor in
interest.
2. That it also appears to be an admitted fact that the plaintiffs and the
defendants are the coowners of the warehouse.
3. That it is a fact explicity admitted in the agreement, that neither Andres
Fontanilla nor his successors paid any consideration or price whatever for
the use of the lot occupied by the said building; whence it is, perhaps, that
both parties have denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the
sentencing of the defendants to deliver the lot to the plaintiffs does not follow as a
necessary corollary of the judicial declaration of ownership made in the previous
suit, nor of that of the nullity of the sale of the lot, made in the present case.
The defendants do not hold lawful possession of the lot in question.
But, although both litigating parties may have agreed in their idea of the
commodatum, on account of its not being, as indeed it is not, a question of fact but
of law, yet that denomination given by them to the use of the lot granted by
Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts
are not to be interpreted in conformity with the name that the parties thereto agree to
give them, but must be construed, duly considering their constitutive elements, as
they are defined and denominated by law.
"By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during a certain period and return it to
the former, in which case it is called commodatum * * * " (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing
belonging to another shall be for a certain period. Francisco Fontanilla did not fix
any definite period of time during which Andres Fontanilla could have the use of the
lot whereon the latter was to erect a stone warehouse of considerable value, and so it
is that for the past thirty years the lot has been used by both Andres and his
successors in interest. The present contention of the plaintiffs that Cu Joco, now in
possession of the lot, should pay rent for it at the rate of P5 a month, would destroy
the theory of the commodatum sustained by them, since, according to the second
paragraph of the aforecited article 1740, "commodatum is essentially gratuitous,"
and, if what the plaintiffs themselves aver on page 7 of their brief is to be believed, it
never entered Francisco's mind to limit the period during which his brother Andres
was to have the use of the lot, because he expected that the warehouse would
eventually fall into the hands of his son, Fructuoso Fontanilla, called the adopted son
of Andres, which did not come to pass for the reason that Fructuoso died before his
uncle Andres. With that expectation in view, it appears more likely that Francisco
intended to allow his brother Andres a surface right; but this right supposes the
payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's
ground, the question should be decided in accordance with the statutes that, thirty
years ago, governed accessions to real estate, and which were Laws 41 and 42, title
28, of ,the third Partida, nearly identical with the provisions of articles 361 and 362
of the Civil Code. So, then, pursuant to article 361, the owner of the land on which
a building is erected in good faith has a right to appropriate such edifice to himself,
after payment of the indemnity prescribed in articles 453 and 454, or to oblige the
builder to pay him the value of the land. Such, and no other, is the right to which the
plaintiffs are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which
was made by Ruperta Pascual, in representation of her minor children, to Cu Joco,
and to maintain the latter in the use of the lot until the plaintiffs shall choose one or
the other of the two rights granted them by article 361 of the Civil Code.
The judgment appealed from is reversed and the sale of the lot in question is held to
be null and void and of no force or effect. No special finding is made as to the costs
of both instances.
SPS ABELLA VS SPS ABELLA
FACTS: This resolves a Petition for Review on Certiorari under Rule 45 of the
Rules of Court praying that judgment be rendered reversing and setting aside the
September 30, 2010 Decision[1] and the January 4, 2011 Resolution[2] of the Court of
Appeals Nineteenth Division in CA-G.R. CV No. 01388. The Petition also prays
that respondents Spouses Romeo and Annie Abella be ordered to pay petitioners
Spouses Salvador and Alma Abella 2.5% monthly interest plus the remaining
balance of the amount loaned.
The assailed September 30, 2010 Decision of the Court of Appeals reversed and set indebtedness was subject to interest. Thus, the trial court concluded that respondents
aside the December 28, 2005 Decision[3] of the Regional Trial Court, Branch 8, obtained a simple loan, although they later invested its proceeds in a lending
Kalibo, Aklan in Civil Case No. 6627. It directed petitioners to pay respondents enterprise.[13] The Regional Trial Court adjudged respondents solidarity liable to
P148,500.00 (plus interest), which was the amount respondents supposedly petitioners. The dispositive portion of its Decision reads:
overpaid. The assailed January 4, 2011 Resolution of the Court of Appeals denied
petitioners' Motion for Reconsideration.
WHEREFORE, premises considered, judgment is hereby rendered:
The Regional Trial Court's December 28, 2005 Decision ordered respondents to pay
petitioners the supposedly unpaid loan balance of P300,000.00 plus the allegedly
stipulated interest rate of 30% per annum, as well as litigation expenses and 1. Ordering the defendants jointly and severally to pay the plaintiffs the sum
attorney's fees.[4] of P300,000.00 with interest at the rate of 30% per annum from the time the
complaint was filed on July 31, 2002 until fully paid;
On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a
Complaint[5] for sum of money and damages with prayer for preliminary attachment 2. Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as
against respondents Spouses Romeo and Annie Abella before the Regional Trial reimbursement for litigation expenses, and another sum of P5,000.00 as
Court, Branch 8, Kalibo, Aklan. The case was docketed as Civil Case No. 6627. [6] attorney's fees.
In their Complaint, petitioners alleged that respondents obtained a loan from them in
the amount of P500,000.00. The loan was evidenced by an acknowledgment receipt For lack of legal basis, plaintiffs' claim for moral and exemplary damages has to be
dated March 22, 1999 and was payable within one (1) year. Petitioners added that denied, and for lack of merit the counter-claim is ordered dismissed.[14]
respondents were able to pay a total of P200,000.00—P100,000.00 paid on two
In the Order dated March 13, 2006,[15] the Regional Trial Court denied respondents'
separate occasions—leaving an unpaid balance of P300,000.00.[7]
Motion for Reconsideration.
In their Answer[8] (with counterclaim and motion to dismiss), respondents alleged
On respondents' appeal, the Court of Appeals ruled that while respondents had
that the amount involved did not pertain to a loan they obtained from petitioners but
indeed entered into a simple loan with petitioners, respondents were no longer liable
was part of the capital for a joint venture involving the lending of money.[9]
to pay the outstanding amount of P300,000.00.[16]
Specifically, respondents claimed that they were approached by petitioners, who
The Court of Appeals reasoned that the loan could not have earned interest, whether
proposed that if respondents were to "undertake the management of whatever money
as contractually stipulated interest or as interest in the concept of actual or
[petitioners] would give them, [petitioners] would get 2.5% a month with a 2.5%
compensatory damages. As to the loan's not having earned stipulated interest, the
service fee to [respondents]."[10] The 2.5% that each party would be receiving
Court of Appeals anchored its ruling on Article 1956 of the Civil Code, which
represented their sharing of the 5% interest that the joint venture was supposedly
requires interest to be stipulated in writing for it to be due.[17] The Court of Appeals
going to charge against its debtors. Respondents further alleged that the one year
noted that while the acknowledgement receipt showed that interest was to be
averred by petitioners was not a deadline for payment but the term within which
charged, no particular interest rate was specified.[18] Thus, at the time respondents
they were to return the money placed by petitioners should the joint venture prove to
were making interest payments of 2.5% per month, these interest payments were
be not lucrative. Moreover, they claimed that the entire amount of P500,000.00 was
invalid for not being properly stipulated by the parties. As to the loan's not having
disposed of in accordance with their agreed terms and conditions and that petitioners
earned interest in the concept of actual or compensatory damages, the Court of
terminated the joint venture, prompting them to collect from the joint venture's
Appeals, citing Eusebio-Calderon v. People,[19] noted that interest in the concept of
borrowers. They were, however, able to collect only to the extent of P200,000.00;
actual or compensatory damages accrues only from the time that demand (whether
hence, the P300,000.00 balance remained unpaid.[11]
judicial or extrajudicial) is made. It reasoned that since respondents received
petitioners' demand letter only on July 12, 2002, any interest in the concept of actual
In the Decision[12] dated December 28, 2005, the Regional Trial Court ruled in favor
or compensatory damages due should be reckoned only from then. Thus, the
of petitioners. It noted that the terms of the acknowledgment receipt executed by
payments for the 2.5% monthly interest made after the perfection of the loan in 1999
respondents clearly showed that: (a) respondents were indebted to the extent of
but before the demand was made in 2002 were invalid.[20]
P500,000.00; (b) this indebtedness was to be paid within one (1) year; and (c) the

Since petitioners' charging of interest was invalid, the Court of Appeals reasoned
that all payments respondents made by way of interest should be deemed payments
for the principal amount of P500,000.00.[21]
The Court of Appeals further noted that respondents made a total payment of
P648,500.00, which, as against the principal amount of P500,000.00, entailed an
overpayment of P148,500.00. Applying the principle of solutio indebiti, the Court of
Appeals concluded that petitioners were liable to reimburse respondents for the
overpaid amount of P148,500.00.[22] The dispositive portion of the assailed Court of
Appeals Decision reads:
WHEREFORE, the Decision of the Regional Trial Court is
hereby REVERSED and SET ASIDE, and a new one issued, finding that the
Spouses Salvador and Alma Abella are DIRECTED to jointly and severally pay
Spouses Romeo and Annie Abella the amount of P148,500.00, with interest of 6%
interest (sic) per annum to be computed upon receipt of this decision, until full
satisfaction thereof. Upon finality of this judgment, an interest as the rate of 12% per
annum, instead of 6%, shall be imposed on the amount due, until full payment
thereof.[23]
In the Resolution[24] dated January 4, 2011, the Court of Appeals denied petitioners'
Motion for Reconsideration.
Aggrieved, petitioners filed the present appeal[25] where they claim that the Court of
Appeals erred in completely striking off interest despite the parties' written
agreement stipulating it, as well as in ordering them to reimburse and pay interest to
respondents.
In support of their contentions, petitioners cite Article 1371 of the Civil
Code,[26] which calls for the consideration of the contracting parties'
contemporaneous and subsequent acts in determining their true intention. Petitioners
insist that respondents' consistent payment of interest in the year following the
perfection of the loan showed that interest at 2.5% per month was properly agreed
upon despite its not having been expressly stated in the acknowledgment receipt.
They add that during the proceedings before the Regional Trial Court, respondents
admitted that interest was due on the loan.[27]
In their Comment,[28] respondents reiterate the Court of Appeals' findings that no
interest rate was ever stipulated by the parties and that interest was not due and
demandable at the time they were making interest payments.[29]
In their Reply,[30] petitioners argue that even though no interest rate was stipulated in
the acknowledgment receipt, the case fell under the exception to the Parol Evidence
Rule. They also argue that there exists convincing and sufficiently credible evidence
to supplement the imperfection of the acknowledgment receipt. [31]
ISSUES: First, whether interest accrued on respondents' loan from petitioners, If so,
at what rate?
Second, whether petitioners are liable to reimburse respondents for the Litter's
supposed excess payments and for interest.
I
As noted by the Court of Appeals and the Regional Trial Court, respondents entered
into a simple loan or mutuum, rather than a joint venture, with petitioners.
Respondents' claims, as articulated in their testimonies before the trial court, cannot
prevail over the clear terms of the document attesting to the relation of the parties.
"If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control."[32]
Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a
contractual relation is one of simple loan or mutuum:
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and
return it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality. (Emphasis supplied)
On March 22, 1999, respondents executed an acknowledgment receipt to petitioners,
which states:
Batan, Aklan
March 22, 1999
This is to acknowledge receipt of the Amount of Five Hundred Thousand
(P500,000.00) Pesos from Mrs. Alma R. Abella, payable within one (1) year from
date hereof with interest.
Annie C. Abella (sgd.) Romeo M. Abella (sgd.)[33]
(Emphasis supplied)
The text of the acknowledgment receipt is uncomplicated and straightforward. It
attests to: first, respondents' receipt of the sum of P500,000.00 from petitioner Alma
Abella; second, respondents' duty to pay tack this amount within one (1) year from
March 22, 1999; and third, respondents' duty to pay interest. Consistent with what
typifies a simple loan, petitioners delivered to respondents with the corresponding
condition lat respondents shall pay the same amount to petitioners within one (1)
year.
II
Although we have settled the nature of the contractual relation between petitioners
and respondents, controversy persists over respondents' duty to pay conventional
interest, i.e., interest as the cost of borrowing money.[34]
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be
due unless it has been expressly stipulated in writing."
On the matter of interest, the text of the acknowledgment receipt is simple, plain,
and unequivocal. It attests to the contracting parties' intent to subject to interest the
loan extended by petitioners to respondents. The controversy, however, stems from
the acknowledgment receipt's failure to state the exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written instrument fails
to specify a rate. In Spouses Toring v. Spouses Olan,[35] this court clarified the effect
of Article 1956 of the Civil Code and noted that the legal rate of interest (then at
12%) is to apply: "In a loan or forbearance of money, according to the Civil Code,
the interest due should be that stipulated in writing, and in the absence thereof, the
rate shall be 12% per annum."[36]
Spouses Toring cites and restates (practically verbatim) what this court settled
in Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61:
"In a loan or forbearance of money, the interest due should be that stipulated in
writing, and in the absence thereof the rate shall be 12% per annum."[37]
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which,
in turn, stated:[38]
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.[39] (Emphasis supplied)
The rule is not only definite; it is cast in mandatory language. From Eastern
Shipping to Security Bank to Spouses Toring, jurisprudence has repeatedly used the
word "shall," a term that has long been settled to denote something imperative or
operating to impose a duty.[40]Thus, the rule leaves no room for alternatives or
otherwise does not allow for discretion. It requires the application of the legal rate of
interest.
Our intervening Decision in Nacar v. Gallery Frames[41] recognized that the legal
rate of interest has been reduced to 6% per annum:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in
its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of
Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of
2013, effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum — as reflected in the case of Eastern
Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799 — but will
now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%)
per annum shall be the prevailing rate of interest when applicable. [42] (Emphasis
supplied, citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 and
Nacar retain the definite and mandatory framing of the rule articulated in Eastern
Shipping, Security Bank, and Spouses Toring. Nacar even restates Eastern Shipping:
To recapitulate and for future guidance, the guidelines laid down in the case
of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No.
799, as follows:
....
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a Joan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code. [43] (Emphasis
supplied, citations omitted)
Thus, it remains that where interest was stipulated in writing by the debtor and
creditor in a simple loan or mutuum, but no exact interest rate was mentioned, the
legal rate of interest shall apply. At present, this is 6% per annum, subject to Nacar's
qualification on prospective application.
Applying this, the loan obtained by respondents from petitioners is deemed subjected
to conventional interest at the rate of 12% per annum, the legal rate of interest at the
time the parties executed their agreement. Moreover, should conventional interest
still be due as of July 1, 2013, the rate of 12% per annum shall persist as the rate
of conventional interest.
This is so because interest in this respect is used as a surrogate for the parties' intent,
as expressed as of the time of the execution of their contract. In this sense, the legal
rate of interest is an affirmation of the contracting parties' intent; that is, by their
contract's silence on a specific rate, the then prevailing legal rate of interest shall be
the cost of borrowing money. This rate, which by their contract the parties have
settled on, is deemed to persist regardless of shifts in the legal rate of interest. Stated
otherwise, the legal rate of interest, when applied as conventional interest, shall
always be the legal rate at the time the agreement was executed and shall not be
susceptible to shifts in rate.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or
30% per annum. They argue that the acknowledgment receipt fails to show the
complete and accurate intention of the contracting parties. They rely on Article 1371
of the Civil Code, which provides that the contemporaneous and subsequent acts of
the contracting parties shall be considered should there be a need to ascertain their
intent.[44] In addition, they claim that this case falls under the exceptions to the Parol
Evidence Rule, as spelled out in Rule 130, Section 9 of the Revised Rules on
Evidence.[45]
It is a basic precept in legal interpretation and construction that a rule or provision
that treats a subject with specificity prevails over a rule or provision that treats a
subject in general terms.[46]
The rule spelled out in Security Bank and Spouses Toring is anchored on Article
1956 of the Civil Code and specifically governs simple loans or mutuum. Mutuum is
a type of nominate contract that is specifically recognized by the Civil Code and for
which the Civil Code provides a specific set of governing rules: Articles 1953 to
1961. In contrast, Article 11371 is among the Civil Code provisions generally
dealing with contracts. As this case particularly involves a simple loan, the specific
rule spelled out in Security Bank and Spouses Toring finds preferential application
as against Article 1371.
Contrary to petitioners' assertions, there is no room for entertaining extraneous (or
parol) evidence. In Spouses Bonifacio and Lucia Paras v. Kimwa Construction and
Development Corporation,[47] we spelled out the requisites for the admission of
parol evidence:
In sum, two (2) things must be established for parol evidence to be admitted: first, that
the existence of any of the four (4) exceptions has been put in issue in a party's
pleading or has not been objected to by the adverse party; and second, that the parol
evidence sought to be presented serves to form the basis of the conclusion proposed
by the presenting party.[48]
The issue of admitting parol evidence is a matter that is proper to the trial, not the
appellate, stage of a case. Petitioners raised the issue of applying the exceptions to
the Parol Evidence Rule only in the Reply they filed before this court. This is the last
pleading that either of the parties has filed in the entire string of proceedings
culminating in this Decision. It is, therefore, too late for petitioners to harp on this
rule. In any case, what is at issue is not admission of evidence per se, but the
appreciation given to the evidence adduced by the parties. In the Petition they filed
before this court, petitioners themselves acknowledged that checks supposedly
attesting to payment of monthly interest at the rate of 2.5% were admitted by the
trial court (and marked as Exhibits "2," "3," "4," "5," "6," "7," and "8").[49] What
petitioners have an issue with is not the admission of these pieces of evidence but
how these have not been appreciated in a manner consistent with the conclusions
they advance.
Even if it can be shown that the parties have agreed to monthly interest at the rate of
2.5%, this is unconscionable. As emphasized in Castro v. Tan,[50] the willingness of
the parties to enter into a relation involving an unconscionable interest rate is
inconsequential to the validity of the stipulated rate:
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained within the sphere of public
or private morals.[51]
The imposition of an unconscionable interest rate is void ab initio for being
"contrary to morals, and the law."[52]
In determining whether the rate of interest is unconscionable, the mechanical
application of pre-established floors would be wanting. The lowest rates that have
previously been considered unconscionable need not be an impenetrable minimum.
What is more crucial is a consideration of the parties' contexts. Moreover, interest
rates must be appreciated in light of the fundamental nature of interest as
compensation to the creditor for money lent to another, which he or she could
otherwise have used for his or her own purposes at the time it was lent. It is not the
default vehicle for predatory gain. As such, interest need only be reasonable. It
ought not be a supine mechanism for the creditor's unjust enrichment at the expense
of another.
Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest.
Compounded at this rate, respondents' obligation would have more than doubled—
increased to 219.7% of the principal—by the end of the third year after which the
loan was contracted if the entire principal remained unpaid. By the end of the ninth
year, it would have multiplied more than tenfold (or increased to 1,060.45%). In
2015, this would have multiplied by more than 66 times (or increased to 6,654.17%).
Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay
more than P33 million. This is grossly unfair, especially since up to the fourth year
from when the loan was obtained, respondents had been assiduously delivering
payment. This reduces their best efforts to satisfy their obligation into a protracted
servicing of a rapacious loan.
The legal rate of interest is the presumptive reasonable compensation for borrowed
money. While parties are free to deviate from this, any deviation must be reasonable
and fair. Any deviation that is far-removed is suspect. Thus, in cases where
stipulated interest is more than twice the prevailing legal rate of interest, it is for the
creditor to prove that this rate is required by prevailing market conditions. Here,
petitioners have articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence,
prevents the application of any interest rate other than that specifically provided for
by the parties in their loan document or, in lieu of it, the legal rate. Here, as the
contracting parties failed to make a specific stipulation, the legal rate must apply.
Moreover, the rate that petitioners adverted to is unconscionable. The conventional
interest due on the principal amount loaned by respondents from petitioners is held
to be 12% per annum.
III
Apart from respondents' liability for conventional interest at the rate of 12% per
annum, outstanding conventional interest—if any is due from respondents—shall
itself earn legal interest from the time judicial demand was made by petitioners, i.e.,
on July 31, 2002, when they filed their Complaint. This is consistent with Article
2212 of the Civil Code, which provides:
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the
time it is judicially demanded."[53]
Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,[54] the
interest due on conventional interest shall be at the rate of 12% per annum from July
31, 2002 to June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at the
rate of 6% per annum.
IV
Proceeding from these premises, we find that respondents made an overpayment in
the amount of P3,379.17.
As acknowledged by petitioner Salvador Abella, respondents paid a total of
P200,000.00, which was charged against the principal amount of P500,000.00. The
first payment of P100,000.00 was made on June 30, 2001, [55] while the second
payment of P100,000.00 was made on December 30, 2001.[56]
The Court of Appeals' September 30, 2010 Decision stated that respondents paid
P6,000.00 in March 1999.[57]
The Pre-Trial Order dated December 2, 2002,[58] stated that the parties admitted that
"from the time the principal sum of P500,000.00 was borrowed from [petitioners],
[respondents] ha[d] been religiously paying"[59] what was supposedly interest "at the
rate of 2.5% per month."[60]
From March 22, 1999 (after the loan was perfected) to June 22, 2001 (before
respondents' payment of P100,000.00 on June 30, 2001, which was deducted from
the principal amount of P500,000.00), the 2.5% monthly "interest" was pegged to
the principal amount of P500,000.00. These monthly interests, thus, amounted to
P12,500.00 per month. Considering that the period from March 1999 to June 2001
spanned twenty-seven (27) months, respondents paid a total of P337,500.00. [61]
From June 22, 2001 up to December 22, 2001 (before respondents' payment of
another P100,000.00 on December 30, 2001, which was deducted from the
remaining principal amount of P400,000.00), the 2.5% monthly "interest" was
pegged to the remaining principal amount of P400,000.00. These monthly interests,
thus, amounted to P10,000.00 per month. Considering that this period spanned six
(6) months, respondents paid a total of P60,000.00.[62]
From after December 22, 2001 up to June 2002 (when petitioners filed their
Complaint), the 2.5% monthly "interest" was pegged to the remaining principal
amount of P300,000.00. These monthly interests, thus, amounted to P7,500.00 per
month. Considering that this period spanned six (6) months, respondents paid a total
of P45,000.00.[63]
Applying these facts and the properly applicable interest rate (for conventional
interest, 12% per annum; for interest on conventional interest, 12% per annum from
July 31, 2002 up to June 30, 2013 and 6% per annum henceforth), the following
conclusions may be drawn:
By the end of the first year following the perfection of the loan, or as of March 21,
2000, P560,000.00 was due from respondents. This consisted cf the principal of
P500,000.00 and conventional interest of P60,000.00.
Within this first year, respondents made twelve (12) monthly payments totalling
P150,000.00 (P12,500.00 each from April 1999 to March 2000). This was in
addition to their initial payment of P6,000.00 in March 999.
Application of payments must be in accordance with Article 1253 of the Civil Code,
which reads:
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed
to have been made until the interests have been covered.
Thus, the payments respondents made must first be reckoned as interest payments.
Thereafter, any excess payments shall be charged against the principal. As
respondents paid a total of P156,000.00 within the first year, the conventional
interest of P60,000.00 must be deemed fully paid and the remaining amount that
respondents paid (i.e., P96,000.00) is to be charged against the principal. This yields
a balance of P404,000.00.
By the end of the second year following the perfection of the loan, or as of March
21, 2001, P452,480.00 was due from respondents. This consisted of the outstanding
principal of P404,000.00 and conventional interest of P48,480.00.
Within this second year, respondents completed another round of twelve (12)
monthly payments totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of
P156,000.00 within the second year, the conventional interest of P48,480.00 must be
deemed fully paid and the remaining amount that respondents paid (i.e.,
P101,520.00) is to be charged against the principal. This yields a balance of
P302,480.00.
By the end of the third year following the perfection of the loan, or as of March 21,
2002, P338,777.60 was due from respondents. This consists of he outstanding
principal of P302,480.00 and conventional interest of P36,297.60.
Within this third year, respondents paid a total of P320,000.00, as follows:
Between March 22, 2001 and June 30, 2001, respondents completed three (3)
(a)
monthly payments of P12,500.00 each, totaling P37,500.00.
On June 30, 2001, respondents paid P100,000.00, which was charged as principal
(b)
payment.
Between June 30, 2001 and December 30, 2001, respondents delivered monthly
payments of P10,000.00 each. At this point, the monthly payments no longer
(c) amounted to P12,500.00 each because the supposed monthly interest payments
were pegged to the supposedly remaining principal of P400,000.00. Thus, during
this period, they paid a total of six (6) monthly payments totaling P60,000.00.
On December 30, 2001, respondents paid P100,000.00, which, like the June 30,
(d)
2001 payment, was charged against the principal.
From the end of December 2002 to the end of February 2002, respondents
(e) delivered monthly payments of P7,500.00 each. At this point, the supposed
monthly interest payments were now pegged to the supposedly remaining
 principal of P300,000.00. Thus, during this period, they delivered three (3)
monthly payments totaling P22,500.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of
P320,000.00 within the third year, the conventional interest of P36,927.50 must be
deemed fully paid and the remaining amount that respondents paid (i.e.,
P283,702.40) is to be charged against the principal. This yields a balance of
P18,777.60.
By the end of the fourth year following the perfection of the loan, or as of March 21,
2003, P21,203.51 would have been due from respondents. This consists of: (a) the
outstanding principal of P18,777.60, (b) conventional interest of P2,253.31, and (c)
interest due on conventional interest starting from July 31, 2002, the date of judicial
demand, in the amount of P172.60. The last (i.e., interest on interest) must be pro-
rated. There were only 233 days from July 31, 2002 (the date of judicial demand) to
March 21, 2003 (the end of the fourth year); this left 63.83% of the fourth year,
within which interest on interest might have accrued. Thus, the full annual interest
on interest of 12% per annum could not have been completed, and only the
proportional amount of 7.66% per annum may be properly imposed for the
remainder of the fourth year.
From the end of March 2002 to June 2002, respondents delivered three (3) more
monthly payments of P7,500.00 each. Thus, during this period, they delivered three
(3) monthly payments totalling P22,500.00.
At this rate, however, payment would have been completed by respondents even
before the end of the fourth year. Thus, for precision, it is more appropriate to
reckon the amounts due as against payments made on monthly, rather than an
annual, basis.
By April 21, 2002, P18,965.38 (i.e., remaining principal of P18,777.60 plus pro-
rated monthly conventional interest at 1%, amounting to P187.78) would have been
due from respondents. Deducting the monthly payment of P7,500.00 for the
preceding month in a manner consistent with Article 1253 of the Civil Code would
yield a balance of P11,465.38.
By May 21, 2002, P11,580.03 (i.e., remaining principal of P11,465.38 plus pro-rated
monthly conventional interest at 1%, amounting to P114.65) would have been due
from respondents. Deducting the monthly payment of P7,500.00 for the preceding
month in a manner consistent with Article 1253 of the Civil Code would yield a
balance of P4,080.03.
By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus pro-rated
monthly conventional interest at 1%, amounting to P40.80) would have been due
from respondents. Deducting the monthly payment of P7,500.00 for the preceding
month in a manner consistent with Article 1253 of the Civil Code would yield a
negative balance of P3,379.17.
Thus, by June 21, 2002, respondents had not only fully paid the principal and all the
conventional interest that had accrued on their loan. By this date, they also overpaid
P3,379.17. Moreover, while hypothetically, interest on conventional interest would
not have run from July 31, 2002, no such interest accrued since there was no longer
any conventional interest due from respondents by then.
V
As respondents made an overpayment, the principle of solutio indebiti as provided
by Article 2154 of the Civil Code[64] applies. Article 2154 reads:
Article 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
In Moreno-Lentfer v. Wolff,[65] this court explained the application of solutio
indebiti:
The quasi-contract of solutio indebiti harks back to the ancient principle that no one
shall enrich himself unjustly at the expense of another. It applies where (1) a payment
is made when there exists no binding relation between the payor, who has no duty to
pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.[66]
As respondents had already fully paid the principal and all conventional interest that
had accrued, they were no longer obliged to make further payments. Any further
payment they made was only because of a mistaken impression that they were still
due. Accordingly, petitioners are now bound by a quasi-contractual obligation to
return any and all excess payments delivered by respondents.
Nacar provides that "[w]hen an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum."[67] This applies
to obligations arising from quasi-contracts such as solutio indebiti.
Further, Article 2159 of the Civil Code provides:
Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if
a sum of money is involved, or shall be liable for fruits received or which should have
been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from any
cause, and for damages to the person who delivered the thing, until it is recovered.
Consistent however, with our finding that the excess payment made by respondents
were borne out of a mere mistake that it was due, we find it in the better interest of
equity to no longer hold petitioners liable for interest arising from their quasi-
contractual obligation.
Nevertheless, Nacar also provides:
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.[68]
Thus, interest at the rate of 6% per annum may be properly imposed on the total
judgment award. This shall be reckoned from the finality of this Decision until its
full satisfaction.
CATHOLIC VICAR APOSTOLIC VS CA
FACTS: The whole controversy started when the herein petitioner filed an
application for registration of lands 1, 2, 3 and 4 in La Trinidad, Benguet on
September 5, 1962. The heirs of Juan Valdez and the heirs of Egmidio Octaviano
filed an opposition on lots 2 and 3, respectively. On November 17, 1965, the land
registration court confirmed the registrable title of the petitioner. On May 9, 1977,
the Court of Appeals reversed the decision and dismissed the Vicar’s application.
The heirs filed a motion for reconsideration, praying that the lots be ordered
registered under their names. The Court of Appeals denied the motion for lack of
sufficient merit. Both parties then came before the Supreme Court. The Supreme
Court, in a minute resolution, denied both petitions. The heirs filed the instant cases
for the recovery and possession of the lots.
Respondents argue that the petitioner is barred from setting up the defense of
ownership or long and continuous possession by the prior judgment of the Court of
Appeals under the principle of res judicata. Petitioner contends that the principle is
not applicable because the dispositive portion of the judgment merely dismissed the
application for registration.
ISSUES: (1) Whether the decision of the Court of Appeals constitute res judicata
and therefore bars the petitioner from alleging ownership over the lots; (2) Whether
the petitioner has acquired the lots through acquisitive prescription
HELD: (1) The 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 respondents were possessors of Lots 2 and 3,
with claim of ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it repudiated the trust by
declaring the properties in its name for taxation purposes. When petitioner applied
for registration of Lots 2 and 3 in 1962, it had been in possession in concept of
owner only for eleven years. Ordinary acquisitive prescription requires possession
for ten years, but always with just title. Extraordinary acquisitive prescription
requires 30 years. On the above findings of facts supported by evidence and
evaluated by the Court of Appeals, affirmed by this Court, We see no error in
respondent appellate court's ruling that said findings are res judicata between the
parties. They can no longer be altered by presentation of evidence because those
issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous
determination of issues without end.
(2) Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed. They
never asked for the return of the house, but when they allowed its free use, they
became bailors in commodatum and the petitioner the bailee. The bailees' failure to
return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum. The adverse claim of petitioner came only in 1951 when it
declared the lots for taxation purposes. The action of petitioner Vicar by such
adverse claim could not ripen into title by way of ordinary acquisitive prescription
because of the absence of just title.
MOTION FOR RECONSIDERATION
ISSUE: Who is entitled to the possession and ownership of the land?
HELD: Pursuant to the said decision in CA-G.R. No. 38830-R, the two lots in
question remained part of the public lands. This is the only logical conclusion when
the appellate court found that neither the petitioner nor private respondents are
entitled to confirmation of imperfect title over said lots. Hence, the Court finds the
contention of petitioner to be well taken in that the trial court and the appellate court
have no lawful basis in ordering petitioner to return and surrender possession of said
lots to private respondents. Said property being a public land its disposition is
subject to the provision of the Public Land Act, as amended.
Article 555 of the Civil Code provides as follows:
Art. 555. A possessor may lose his possession:
(4) By the possession of another, subject to the provisions of Article 537, if the new
possession has lasted longer than one year.But the real right of possession is not lost
till after the lapse of ten years.
It is clear that the real right of possession of private respondents over the property
was lost or no longer exists after the lapse of 10 years that petitioner had been in
adverse possession thereof. Thus, the action for recover of possession of said
property filed by private respondents against petitioner must fail. The Court,
therefore, finds that the trial court and the Court of Appeals erred in declaring the
private respondents to be entitled to the possession thereof. Much less can they
pretend to be owners thereof. Said lots are part of the public domain.
QUINTOS VS BECK
The plaintiff brought this action to compel the defendant to return to her certain
furniture which she lent him for his use. She appealed from the judgment of the
Court of First Instance of Manila which ordered that the defendant return to her the
three gas heaters and the four electric lamps found in the possession of the Sheriff of
said city, that she call for the other furniture from the said Sheriff of Manila at her
own expense, and that the fees which the Sheriff may charge for the deposit of the
furniture be paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on
M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez
and Rosario Lopez and on September 14, 1936, these three notified the defendant of
the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the defendant to
return all the furniture transferred to him for his use. The defendant answered that
she may call for them in the house where they are found. On November 5, 1936, the
defendant, through another person, wrote to the plaintiff reiterating that she may call
for the furniture in the ground floor of the house. On the 7th of the same month, the
defendant wrote another letter to the plaintiff informing her that he could not give up
the three gas heaters and the four electric lamps because he would use them until the
15th of the same month when the lease is due to expire. The plaintiff refused to get
the furniture in view of the fact that the defendant had declined to make delivery of
all of them. On November 15th, before vacating the house, the defendant deposited
with the Sheriff all the furniture belonging to the plaintiff and they are now on
deposit in the warehouse situated at No. 1521, Rizal Avenue in the custody of the
said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay one-half of the expenses claimed by the Sheriff
for the deposit of the furniture; in ruling that both parties should pay their respective
legal expenses or the costs; and in denying the motions for reconsideration and new
trial. To dispose of the case, it is only necessary to decide whether the defendant
complied with his obligation to return the furniture upon the plaintiff's demand;
whether the latter is bound to bear the deposit fees thereof, and whether she is
entitled to the costs of litigation.
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 the furniture to the plaintiff, upon the latter's demand (clause 7 of
the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation when
he merely placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four electric lamps. The provisions of article 1169 of the
Civil Code cited by counsel for the parties are not squarely applicable. The trial
court, therefore, erred when it came to the legal conclusion that the plaintiff failed to
comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to bear the
expenses occasioned by the deposit of the furniture at the defendant's 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.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the
furniture, because under paragraph 6 of the stipulation of facts, the defendant has
neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be later
determined by the trial Court through evidence which the parties may desire to
present.
The costs in both instances should be borne by the defendant because the plaintiff is
the prevailing party (section 487 of the Code of Civil Procedure). The defendant
was the one who breached the contract of commodatum, and without any reason he
refused to return and deliver all the furniture upon the plaintiff's demand. In these
circumstances, it is just and equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and
deliver to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which
may be occasioned by the delivery to and deposit of the furniture with the Sheriff
shall be for the account of the defendant. The defendant shall pay the costs in both
instances. So ordered.
III. MUTUUM
CEBU FINANCIAL VS CA AND ALEGRE
FACTS: Vicente Alegre invested with Cebu International Finance Corporation
(CIFC) P500,000 in cash. CIFC issued promissory note which covered private
respondent’s placement. CIFC issued BPI Check No. 513397 (the Check) in favor of
private respondent as proceeds of his matured investment. Mrs. Alegre deposited the
Check with RCBC but BPI dishonoured it, annotating therein that the “Check is
subject of an investigation”. BPI took possession of the Check pending investigation
of several counterfeit checks drawn against CIFC’s checking account. Private
respondent demanded from CIFC that he be paid in cash but the latter refused.
Private respondent Alegre filed a case for recovery of a sum of money against CIFC.
CIFC asserts that since BPI accepted the instrument, the bank became primarily
liable for the payment of the Check. When BPI offset the value of the Check against
the losses from the forged cheks allegedly committed by private respondent, the
Check was deemed paid.
ISSUE: Whether or not petitioner CIFC is discharged from the liability of paying
the value of the Check.
HELD: The Court held in the negative. In a money market transaction, the investor
is a lender who loans his money to a borrower through a middleman or dealer. A
check is not legal tender, and therefore cannot constitute valid tender of payment.
Since a negotiable instrument is only substitute for money and not money, the
delivery of such an instrument does not by itself, operate as payment. Mere delivery
of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is
actually realized. (Article 1249). Petition denied.
TOLENTINO VS. GONZALEZ SY CHIAM
Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three
installments. Tolentino defaulted on the balance so the owner sent a letter of demand
to him. To pay, Tolentino applied for loan from Gonzalez on condition that he would
execute a pacto de retro sale on the property in favor of Gonzalez. Upon maturation
of loan, Tolentino defaulted so Gonzalez is demanding recovery of the land.
Tolentino contends that the pacto de retro sale is a mortgage and not an absolute
sale.
The Supreme Court held that upon its terms, the deed of pacto de retro sale is an
absolute sale with right of repurchase and not a mortgage. Thus, Gonzalez is the
owner of the land and Tolentino is only holding it as a tenant by virtue of a contract
of lease.
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are: Is the contract in question a
pacto de retro or a mortgage? Under a pacto de retro, when the vendor becomes a
tenant of the purchaser and agrees to pay a certain amount per month as rent, may
such rent render such a contract usurious when the amount paid as rent, computed
upon the purchase price, amounts to a higher rate of interest upon said amount than
that allowed by law?
(a) May the contract in the present case may be modified by parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the
Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon,
situated in the municipality of Tarlac of the Province of Tarlac for the price of
P25,000, promising to pay therefor in three installments. The first installment of
P2,000 was due on or before the 2d day of May, 1921; the second installment of
P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12
per cent interest was due and payable on or about the 30th day of November, 1922.
One of the conditions of that contract of purchase was that on failure of the
purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any
of the installments on the date agreed upon, the property bought would revert to the
original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were
paid so far as the record shows upon the due dates. The balance of P15,000 due on
said contract of purchase was paid on or about the 1st day of December, 1922, in the
manner which will be explained below. On the date when the balance of P15,000
with interest was paid, the vendor of said property had issued to the purchaser’s
transfer certificate of title to said property, No. 528.
COLINARES V CA
The ownership of the merchandise continues to be vested in the person who had
advanced payment until he has been paid in full, or if the merchandise has already
been sold, the proceeds of the sale should be turned over to him by the importer or
by his representative or successor in interest.
FACTS: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro
City to renovate the latter’s convent at Camaman-an, Cagayan de Oro City. Colinares
applied for a commercial letter of credit with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC
approved the letter of credit for P22,389.80 to cover the full invoice value of the
goods. Petitioners signed a pro-forma trust receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the
loan. After the initial payment, the spouses defaulted. PBC wrote to Petitioners
demanding that the amount be paid within seven days from notice. Instead of
complying with PBC’s demand, Veloso confessed that they lost P19,195.83 in the
Carmelite Monastery Project and requested for a grace period of until 15 June 1980
to settle the account. Colinares proposed that the terms of payment of the loan be
modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending
approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981.
Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel,
PBC continued to demand payment of the balance. On 14 January 1983, Petitioners
were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to
Article 315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner
Colinares signed the documents without reading the fine print, only learning of the
trust receipt implication much later. When he brought this to the attention of PBC, Mr.
Tuiza assured him that the trust receipt was a mere formality. The Trust Receipts Law
does not seek to enforce payment of the loan, rather it punishes the dishonesty and
abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of
money to the prejudice of PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging payment of
the loan.
ISSUE: Whether or not the transaction of Colinares falls within the ambit of the Law
on Trust Receipt
HELD: Colinares received the merchandise from CM Builders Centre on 30 October
1979. On that day, ownership over the merchandise was already transferred to
Petitioners who were to use the materials for their construction project. It was only a
day later, 31 October 1979, that they went to the bank to apply for a loan to pay for
the merchandise. This situation belies what normally obtains in a pure trust receipt
transaction where goods are owned by the bank and only released to the importer in
trust subsequent to the grant of the loan.
The bank acquires a “security interest” in the goods as holder of a security title for the
advances it had made to the entrustee. The ownership of the merchandise continues to
be vested in the person who had advanced payment until he has been paid in full, or
if the merchandise has already been sold, the proceeds of the sale should be turned
over to him by the importer or by his representative or successor in interest. To secure
that the bank shall be paid, it takes full title to the goods at the very beginning and
continues to hold that title as his indispensable security until the goods are sold and
the vendee is called upon to pay for them; hence, the importer has never owned the
goods and is not able to deliver possession. In a certain manner, trust receipts partake
of the nature of a conditional sale where the importer becomes absolute owner of the
imported merchandise as soon as he has paid its price. There are two possible
situations in a trust receipt transaction. The first is covered by the provision which
refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the
provision which refers to merchandise received under the obligation to “return” it
(devolvera) to the owner. Failure of the entrustee to turn over the proceeds of the sale
of the goods, covered by the trust receipt to the entruster or to return said goods if they
were not disposed of in accordance with the terms of the trust receipt shall be
punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of
proving intent to defraud.
REPUBLIC VS GRIJALDO
FACTS: appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan. These loans are evidenced by five promissory notes executed by
the appellant in favor of the Bank of Taiwan. To secure the payment of the loans the
appellant executed a chattel mortgage on the standing crops on his land. the assets in
the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the
United States. Pursuant to the Philippine Property Act of 1946 of the United States,
these assets, including the loans in question, were subsequently transferred to the
Republic of the Philippines by the Government of the United States under Transfer
Agreement dated July 20, 1954. the appellee, Republic of the Philippines,
represented by the Chairman of the Board of Liquidators, made a written
extrajudicial demand upon the appellant for the payment of the account in question.
the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question
the court a quo rendered a decision ordering the appellant to pay the appellee the
sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per
annum compounded quarterly
ISSUE: In the present appeal the appellant contends: (1) that the appellee has no
cause of action against the appellant; (2) that if the appellee has a cause of action at
all, that action had prescribed; and (3) that the lower court erred in ordering the
appellant to pay the amount of P2,377.23.
HELD: This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the
original creditor and the transaction between the appellant and the Bank of Taiwan
was a private contract of loan.
The successive transfer of the rights over the loans in question from the Bank of
Taiwan, Ltd. to the United States Government, and from the United States
Government to the government of the Republic of the Philippines, made the
Republic of the Philippines the successor of the rights, title and interest in said loans,
thereby creating a privity of contract between the appellee and the appellant.
The word "privy" denotes the idea of succession ... hence an assignee of a credit, and
one subrogated to it, etc. will be privies
The United States of America acting as a belligerent sovereign power seized the
assets of the Bank of Taiwan, Ltd. which belonged to an enemy country.
the Republic of the Philippines had thereby become a privy to the original contracts
of loan between the Bank of Taiwan, Ltd. and the appellant.
the loans were secured by a chattel mortgage on the standing crops on a land owned
by him and these crops were lost or destroyed through enemy action his obligation
to pay the loans was thereby extinguished. This argument is untenable. The terms of
the promissory notes and the chattel mortgage that the appellant executed in favor of
the Bank of Taiwan, Ltd. do not support the claim of appellant
The obligation of the appellant under the five promissory notes was not to deliver a
determinate thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing — the amount of money representing the total sum of the five loans,
with interest.
of simple loan of sums of money. "By a contract of (simple) loan, one of the parties
delivers to another ... money or other consumable thing upon the condition that the
same amount of the same kind and quality shall be paid."
In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a
security for the fulfillment of appellant's obligation covered by the five promissory
notes, and the loss of the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the mortgaged crops.
This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as
of December 31, 1959, plus interest rate of 6% per annum compounded quarterly
from the date of the filing of the complaint. the decision appealed from is affirmed,
with costs against the appellant. his estate must answer in the execution of the
judgment in the present case.
 JOSUE SONCUYA vs JUAN AZARRAGA
This case is now before us on appeal from the Court of First Instance of Capiz. After
trial, the plaintiff filed a second amended complaint, which the lower court at first
refused to consider, but later on admitted after it was convinced that the allowance
thereof was proper in order to make the allegations conform to the established facts.
This was done without the defendants interposing any exception, notwithstanding
that they had previously opposed the admission of the amendment. They not
afterwards and not now, in their brief on appeal, question the aforesaid amendment.
It appears from the allegations of the complaint thus amended that the plaintiff has
four causes of action. Under the first cause he seeks to recover from the defendants
the sum of P118,635.68 as damages, which he alleges to have been caused by the
defendants in fraudulently depriving him of the possession of four parcels of land
with a total area of 296 hectares, 58 ares and 92 centares, which they, with
knowledge that said real properties belonged to him exclusively, registered in their
names in the registry of property and mortgaged in favor of "Hijos de I. de la Rama"
to pay a certain obligation which they had contracted with the Panay Municipal
Cadastre. Under the second cause, plaintiff seeks to recover P6,080 as the supposed
value of the heads of cattle belonging to him, which the tenants of the defendants
had slaughtered. Under the third cause, he seeks payment of the sum of P5,575 as
the supposed value of 1,115 coconut trees which he had planted on the four parcels
of land in question. Under the fourth and last cause of action, plaintiff prays that the
defendants surnamed Azarraga, with the exception of Joaquin Azarraga, be ordered
to make up to 123 hectares, 13 ares and 99 centares the land which the latter had
sold to him, because plaintiff did not take possession of the land, except a portion
thereof, having an area of 72 hectares, 83 ares and 5 centares. In other words, the
defendants should deliver to the plaintiff an additional 50 hectares , 30 ares and 94
centares inasmuch as the participation of said Joaquin Azarraga in the estate left to
him and his brothers, his co-defendants herein, by their common grandfather, Juan
Azarraga y Galvez, which Joaquin Azarraga sold to plaintiff, had that area according
to the deed of partition, executed by all of them, and the plan of said estate which
was subsequently drawn up.
In their answer of February 26, 1931, the defendants Azarraga interposed a general
denial of each and all the allegations of the plaintiff's complaint, excepting those
relating the following special defenses; First, that the complaint does not allege facts
constituting causes of action; second, that the plaintiff and his predecessor in interest
were negligent in failing to inscribe in the office of the register of deeds the
supposed encumbrances in their favor over the lands in question, granting that said
encumbrances had ever existed; third, that the plaintiff knew and was personally
informed that the lands aforesaid would be surveyed at their instance and inscribed
in their names as their own property, but that he did nothing to defend or protect his
rights either during the pendency of the proceedings for the registration of the lands
in question or during the period prescribed by law after the issuance of a decree and
title, within which the validity of the same may be assailed; fourth, that at the time
of filing their application for registration as well as of the issuance of the decree
ordering the inscription in their names in the registry of property of the lands in
question, they were the sole owners of the same, and that admitting for the sake of
argument the theory of the plaintiff that he had a right to said lands, it was nothing
more than an expectation that he would be someday their owner; fifth, that the
plaintiff had no right to apply for or obtain from the court a writ of preliminary
injunction, wherefore, that obtained was illegal; and sixth, that the right of action of
the plaintiff, if any, had prescribed.
STATE INVESTMENT HOUSE, INC. V. CA
FACTS: Private respondents Spouses Rafael & Refugia Aquino pledged certain
shares of stock to petitioner to secure a loan. Prior to the execution of such pledge,
respondents, agreed with the petitioner for the latter's purchase of receivables from
Spouses Jose and Marcelina Aquino. Respondent spouses paid their loan partly from
their own money and from the proceeds of a new loan secured by the same pledge.
Upon maturity of the new loan, petitioner demanded payment. Respondents
expressed willingness to pay requesting that upon payment the shares of stocks
pledged be released. Petitioner denied the request on the ground that the loan
extended to Jose & Marcelina had remained. Respondent sued the petitioner. The
trial judge ruled in their favor. During execution, the petitioner refused to accept
payment demanding that interests be paid.
ISSUE: Are the respondents liable for payment of interest even without mora? If
they are liable, on what rate should the interests be?
HELD: On the first issue, yes. The respondents may not be in default in view of
their expressed willingness to pay the same upon demand and the refusal of the
petitioner to accept. However, their tender of payment should have been properly
consigned with the court. On the second issue, since respondent spouses were held
not to have been in delay, they were properly liable only for the principal of the loan
and the stipulated regular or monetary interest of 17% per annum. They were not
liable for penalty or compensatory interest, fixed by the promissory note in Account
No. IF-82-0904-AA at two percent (2%) per month or twenty-four (24%) per
annum. It must be stressed that the appropriate measure for damages in case of delay
in discharging an obligation consisting of the payment of a sum or money, is the
payment of penalty interest at the rate agreed upon; and in the absence of a
stipulation of a particular rate of penalty interest, then the payment of additional
interest at a rate equal to the regular monetary interest; and if no regular interest had
been agreed upon, then payment of legal interest or six percent (6%)per annum.