CRED TRANS DIGESTS SET 1 (CREDS TO ALL necessity of executing a new contract and these future debts are
future debts are accurately described,
AUTHORS)
ACME SHOE, RUBBER & PLASTIC
CORPORATION and CHUA PAC v. HON.
COURT OF APPEALS, BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY
(G.R. No. 103576 August 22, 1996)
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
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
a chattel mortgage, however, can only cover
obligations existing at the time the mortgage
is constituted. Although a promise expressed
in a chattel mortgage to include debts that
are yet to be contracted can be a binding
commitment that can be compelled upon,
the security itself, however, does not come
into existence or arise until after a chattel
mortgage agreement covering the newly
contracted debt is executed either by
concluding a fresh chattel mortgage or by
amending the old contract conformably with
the form prescribed by the Chattel Mortgage
Law. Refusal on the part of the borrower to
execute the agreement so as to 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.
OLIVIA NAVOA AND ERNESTO NAVOA v.
C.A., TERESITA DOMDOMA AND EDUARDO
DOMDOMA (GR NO 59255, 20 DECEMBER
1995)
Facts: On December 1977 Teresita Domdoma
and Eduardo Domdoma filed a case with the
RTC for collection of various sums of money
based on loans given by them to Olivia
Navoa. They cased was dismissed on the
ground that there was no cause of action and
that the Domdoma’s do not have no capacity
to sue. They appealed to the C.A. and was
granted a favourable decision.
There were 6 instances in which the
Domdoma’s gave Olivia Navoa a loan. The
first instance is when Teresita gave Olivia a
diamond ring valued at 15,000.00 which was
secured by a PCIB check under the condition
that if the ring was not returned within 15
days from August 15, 1977 the ring is
considered sold. Teresita attempted to
deposit the check on November 1977 but the
check was not honoured for lack of funds.
After this instance, there were other loans of
various amounts that were extended by
Teresita to Olivia, loans which were secured
by PCIB checks, which were all dated to 1
month after the loan. All these checks were
not honoured under the same reason as the
first loan.
Issue: Was the decision of the RTC to dismiss
the case due to having no cause of action
valid?
Held:
- NO, A cause of action is the fact or
combination of facts which affords a party a
right to judicial interference in his behalf.
- For the first loan it is a fact, that the ring
was considered sold to Olivia Navoa 15 days
after August 15, 1977, and even then, Olivia
Navoa failed to pay the price for the ring
when the payment was due (check issued
was not honoured. Thus it is confirmed that
Teresita’s right under the agreement was
violated.
- As for the other loans extended by Teresita
to Olivia, they were all secured by PCIB
checks. It can be inferred that since the
checks were all dated to 1 month after the
loan, it follows that the loans are then
payable 1 month after they were contracted,
and also these checks were dishonoured by
the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make
good the checks that were issued as payment
for their obligations. Art 1169 of the Civil
Code is explicit: those obliged to deliver or to
do something incur in delay from the time
the obligee judicially or extra-judicially
demands from them the fulfilment of the
obligations, the continuing refusal of Olivia
and Ernesto Navoa to comply with the
demand of payment shows the existence of a
cause of action.
The petition is DENIED and the decision of
the C.A. remanding the case to the RTC for
trial on the merits is affirmed.
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.
PEOPLE v. CONCEPCION (G.R. NO. 19190,
NOVEMBER 29, 1922)
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 OF THE PHILIPPINES v. PHILIPPINE
NATIONAL BANK, ET AL. (G.R. No. L-16106
December 30, 1961)
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 10 years or more, are
subject to escheat however, it has
inadvertently included in said report certain
items amounting to P18,589.89 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 is 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 which orders 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.lawphil.net
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed
balances" within the meaning of this
Act shall include credits or deposits
of money, bullion, security or other
evidence of indebtedness of any
kind, and interest thereon with
banks, as hereinafter defined, in
favor of 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
Treasure to the credit of the
Government of the Philippine Islands
to be as the Philippine Legislature
may direct.
It would appear that the term "unclaimed
balances" that are subject to escheat include
credits or deposits 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, a distinguished from that which he
owes (Mountain Motor 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. 915; Gopoco Grocery, et al. vs.
Pacific Coast Biscuit Co., et al., 65 Phil. 443).
The questions that now arise are: Do demand
draft 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 drawee and the
payee?
The answers to these questions require a
digression 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 be, 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.
Bechenau, 48 Supp. 272, 275). On the other
hand, a bill of exchange within the meaning
of our Negotiable Instruments 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 on 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 may be (Section 71, Act
2031). Failure to make such presentment will
discharge the drawer from liability or to the
extent of the loss caused by the delay
(Section 186, Ibid.)
Since it is admitted that the demand drafts
herein involved 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 cheek, 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 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 demand. It is an order
upon a third party purporting to drawn upon
a deposit of funds. Drinkall v. Movious State
Bank, 11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341,
95 Am. St. Rep. 693; State v. 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 issues it
(Nissenbaum v. State, 38 Ga. App. 253, S.E.
776) and constitutes its written promise to
pay upon demand (Steinmetz v. Schultz, 59
S.D. 603, 241 N.W. 734)....lawphil.net
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
issuance (10 C.J.S. 409).
A cashier's check issued on request
of a depositor is the substantial
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. v. Walker, 70 So. 754,
756, 195 Ala. 552).
A cashier's check, being merely a bill
of exchange drawn by a bank on
itself, and accepted in advance by
the act of issuance, is not subject to
countermand by the payee after
indorsement, and has the same legal
effects as a certificate deposit or a
certified check (Walker v. 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
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 a
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 the Solicitor
General: "This is so because the drawer bank
was already paid the value of the telegraphic
transfer payment order. In the particular
cases under consideration it appears in 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 of 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.
HERRERA v. PETRO PHIL CORP (146 SCRA
385)
FACTS: On December 5, 1969, Herrera and
ESSO Standard, (later substituted by
Petrophil Corp.,) entered into a lease
agreement, whereby the former leased to
the latter a portion of his property for a
period of 20yrs. subject to the condition that
monthly rentals should be paid and there
should be an advance payment of rentals for
the first eight years of the contract, to which
ESSO paid on December 31, 1969. However,
ESSO deducted the amount of 101, 010.73 as
interest or discount for the eight years
advance rental. On August 20, 1970, ESSO
informed Herrera that there had been a
mistake in the computation of the interest
and paid an additional sum of 2,182.70; thus,
it was reduced to 98, 828.03.
• As such, Herrera sued ESSO for the sum of
98, 828.03, with interest, claiming that this
had been illegally deducted to him in
violation of the Usury Law.
• ESSO argued that amount deducted was
not usurious interest but rather a discount
given to it for paying the rentals in advance.
Judgment on the pleadings was rendered in
favor of ESSO. Thus, the matter was elevated
to the SC for only questions of law was
involve.
ISSUE: W/N the contract between the
parties is one of loan or lease.
RULING:
• Contract between the parties is one of
lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT."
Nowhere in the contract is there any showing
that the parties intended a loan rather than a
lease. The provision for the payment of
rentals in advance cannot be construed as a
repayment of a loan because there was no
grant or forbearance of money as to
constitute an indebtedness on the part of the
lessor. On the contrary, the defendant-
appellee was discharging its obligation in
advance by paying the eight years rentals,
and it was for this advance payment that it
was getting a rebate or discount.
• There is no usury in this case because no
money was given by the defendant-appellee
to the plaintiff-appellant, nor did it allow him
to use its money already in his possession.
There was neither loan nor forbearance but a
mere discount which the plaintiff-appellant
allowed the defendant-appellee to deduct
from the total payments because they were
being made in advance for eight years. The
discount was in effect a reduction of the
rentals which the lessor had the right to
determine, and any reduction thereof, by any
amount, would not contravene the Usury
Law.
• The difference between a discount and a
loan or forbearance is that the former does
not have to be repaid. The loan or
forbearance is subject to repayment and is
therefore governed by the laws on usury. To
constitute usury, "there must be loan or
forbearance; the loan must be of money or
something circulating as money; it must be
repayable absolutely and in all events; and
something must be exacted for the use of the
money in excess of and in addition to interest
allowed by law."
• It has been held that the elements of usury
are (1) a loan, express or implied; (2) an
understanding between the parties that the
money lent shall or may be returned; that for
such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be
paid, as the case may be; and (4) a corrupt
intent to take more than the legal rate for
the use of money loaned. Unless these four
things concur in every transaction, it is safe
to affirm that no case of usury can be
declared.
SAURA IMPORT & EXPORT CO., INC v. DBP
(G.R. NO. L-24968 APRIL 27, 1972)
FACTS: Saura Inc. applied to the
Rehabilitation Finance Corp (before its
conversion to DBP) for a loan of 500k secured
by a first mortgage of the factory building to
finance for the construction of a jute mill
factory and purchase of factory implements.
RFC accepted and approved the loan
application subject to some conditions which
Saura admitted it could not comply with.
Without having received the amount being
loaned, and sensing that it could not at
anyway obtain the full amount of loan, Saura
Inc. then asked for cancellation of the
mortgage which RFC also approved. Nine
years after the cancellation of the mortgage,
Saura sued RFC for damages for its non-
fulfillment of obligations arguing that there
was indeed a perfected consensual contract
between them.
ISSUE: Was there a perfected consensual
contract? Was there a real contract of loan
which would warrant recovery of damages
arising out of breach of such contract?
HELD: On the first issue, yes, there was
indeed a perfected consensual contract, as
recognized in Article 1934 of the Civil Code.
There was undoubtedly offer and acceptance
in this case: the application of Saura, Inc. for
a loan of P500,000.00 was approved by
resolution of the defendant, and the
corresponding mortgage was executed and
registered. But this fact alone falls short of
resolving the second issue and the basic
claim that the defendant failed to fulfill its
obligation and the plaintiff is therefore
entitled to recover damages. The action thus
taken by both parties—Saura's request for
cancellation and RFC's subsequent approval
of such cancellation—was in the nature of
mutual desistance — what Manresa terms
"mutuo disenso"— which is a mode of
extinguishing obligations. It is a concept
derived from the principle that since mutual
agreement can create a contract, mutual
disagreement by the parties can cause its
extinguishment. In view of such
extinguishment, said perfected consensual
contract to deliver did not constitute a real
contract of loan.
BONNEVIE v. CA (GR NO. L-49101, OCTOBER
24, 1983)
Facts: Spouses Lozano mortgaged their
property to secure the payment of a loan
amounting to 75K with private respondent
Philippine Bank of Communication (PBCom).
The deed of mortgage was executed on 12-6-
66, but the loan proceeeds were received
only on 12-12-66. Two days after the
execution of the deed of mortgage, the
spouses sold the property to the petitioner
Bonnevie for and in consideration of 100k—
25K of which payable to the spouses and 75K
as payment to PBCom. Afterwhich, Bonnevie
defaulted payments to PBCom prompting the
latter to auction the property after Bonnivie
failed to settle despite subsequent demands,
in order to recover the amount loaned. The
latter now assails the validity of the
mortgage between Lozano and Pbcom
arguing that on the day the deed was
executed there was yet no principal
obligation to secure as the loan of
P75,000.00 was not received by the Lozano
spouses, so that in the absence of a principal
obligation, there is want of consideration in
the accessory contract, which consequently
impairs its validity and fatally affects its very
existence.
Issue: Was there a perfected contract of
loan?
Held: Yes. From the recitals of the mortgage
deed itself, it is clearly seen that the
mortgage deed was executed for and on
condition of the loan granted to the Lozano
spouses. The fact that the latter did not
collect from the respondent Bank the
consideration of the mortgage on the date it
was executed is immaterial. A contract of
loan being a consensual contract, the herein
contract of loan was perfected at the same
time the contract of mortgage was executed.
The promissory note executed on December
12, 1966 is only an evidence of indebtedness
and does not indicate lack of consideration of
the mortgage at the time of its execution.
CENTRAL BANK v. COURT OF APPEALS (G.R.
NO. L-45710, OCTOBER 3, 1985)
The bank’s asking for advance interest for the
loan is improper considering that the total
loan hasn’t been released. A person can’t be
charged interest for nonexisting debt. The
alleged discovery by the bank of
overvaluation of the loan collateral is not an
issue. Since Island Savings Bank failed to
furnish the P63,000.00 balance of the
P80,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable
to such extent.
Facts: Island Savings Bank, upon favorable
recommendation of its legal department,
approved the loan application for P80,000.00
of Sulpicio M. Tolentino, who, as a security
for the loan, executed on the same day a real
estate mortgage over his 100-hectare land
located in Cubo, Las Nieves, Agusan. The loan
called for a lump sum of P80,000, repayable
in semi-annual installments for 3 yrs, with
12% annual interest. After the agreement, a
mere P17K partial release of the loan was
made by the bank and Tolentino and his wife
signed a promissory note for the P17,000 at
12% annual interest payable w/in 3 yrs. An
advance interest was deducted fr the partial
release but this prededucted interest was
refunded to Tolentino after being informed
that there was no fund yet for the release of
the P63K balance.
Monetary Board of Central Bank, after
finding that bank was suffering liquidity
problems, prohibited the bank fr making new
loans and investments. And after the bank
failed to restore its solvency, the Central
Bank prohibited Island Savings Bank from
doing business in the Philippines. Island
Savings Bank in view of the non-payment of
the P17K filed an application for foreclosure
of the real estate mortgage. Tolentino filed
petition for specific performance or
rescission and damages with preliminary
injunction, alleging that since the bank failed
to deliver P63K, he is entitled to specific
performance and if not, to rescind the real
estate mortgage.
Issues:
1) Whether or not Tolentino’s can collect
from the bank for damages
2) Whether or not the mortgagor is liable to
pay the amount covered by the promissory
note
3) Whether or not the real estate mortgage
can be foreclosed
Held:
1) Whether or not Tolentino’s can collect
from the bank for damages
The loan agreement implied reciprocal
obligations. When one party is willing and
ready to perform, the other party not ready
nor willing incurs in delay. When Tolentino
executed real estate mortgage, he signified
willingness to pay. That time, the bank’s
obligation to furnish the P80K loan accrued.
Now, the Central Bank resolution made it
impossible for the bank to furnish the P63K
balance. The prohibition on the bank to make
new loans is irrelevant bec it did not prohibit
the bank fr releasing the balance of loans
previously contracted. Insolvency of debtor is
not an excuse for non-fulfillment of
obligation but is a breach of contract.
The bank’s asking for advance interest for
the loan is improper considering that the
total loan hasn’t been released. A person
can’t be charged interest for nonexisting
debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an
issue. The bank officials should have been
more responsible and the bank bears risk in
case the collateral turned out to be
overvalued. Furthermore, this was not raised
in the pleadings so this issue can’t be raised.
The bank was in default and Tolentino may
choose bet specific performance or rescission
w/ damages in either case. But considering
that the bank is now prohibited fr doing
business, specific performance cannot be
granted. Rescission is the only remedy left,
but the rescission shld only be for the P63K
balance.
2) Whether or not the mortgagor is liable to
pay the amount covered by the promissory
note
The promissory note gave rise to Sulpicio M.
Tolentino’s reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure
to pay the overdue amortizations under the
promissory note made him a party in default,
hence not entitled to rescission (Article 1191
of the Civil Code). If there is a right to rescind
the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank.
If Tolentino had not signed a promissory note
setting the date for payment of P17,000.00
within 3 years, he would be entitled to ask
for rescission of the entire loan because he
cannot possibly be in default as there was no
date for him to perform his reciprocal
obligation to pay. Since both parties were in
default in the performance of their
respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its
obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with
his obligation to pay his P17,000.00 debt
within 3 years as stipulated, they are both
liable for damages.
3) Whether or not the real estate mortgage
can be foreclosed
Since Island Savings Bank failed to furnish
the P63,000.00 balance of the P80,000.00
loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such
extent. P63,000.00 is 78.75% of P80,000.00,
hence the real estate mortgage covering 100
hectares is unenforceable to the extent of
78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a
P17,000.00 debt.
REPUBLIC v. BAGTAS (6 SCRA 262)
FACTS: Jose Bagtas borrowed from the
Bureau of Animal Industry three bulls for a
period of one year for breeding purposes
subject to a government charge of breeding
fee of 10% of the book value of the books.
Upon the expiration of the contract, Bagtas
asked for a renewal for another one year,
however, the Secretary of Agriculture and
Natural Resources approved only the
renewal for one bull and other two bulls be
returned. Bagtas then wrote a letter to the
Director of Animal Industry that he would
pay the value of the three bulls with a
deduction of yearly depreciation. The
Director advised him that the value cannot
be depreciated and asked Bagtas to either
return the bulls or pay their book value.
Bagtas neither paid nor returned the bulls.
The Republic then commenced an action
against Bagtas ordering him to return the
bulls or pay their book value. After hearing,
the Trial Court ruled in favor of the Republic,
as such, the Republic moved ex parte for a
writ of execution which the court granted.
Felicidad Bagtas, the surviving spouse and
administrator of Bagtas’ estate, returned the
two bulls and filed a motion to quash the
writ of execution since one bull cannot be
returned for it was killed by gunshot during a
Huk raid. The Court denied her motion
hence, this appeal certified by the Court of
Appeals because only questions of law are
raised.
ISSUE: WON the contract was
commodatum;thus, Bagtas be held liable for
its loss due to force majeure.
RULING:
• A contract of commodatum is essentially
gratuitous. Supreme Court held that Bagtas
was liable for the loss of the bull even though
it was caused by a fortuitous event.
• If the contract was one of lease, then the
10% breeding charge is compensation (rent)
for the use of the bull and Bagtas, as lessee,
is subject to the responsibilities of a
possessor. He is also in bad faith because he
continued to possess the bull even though
the term of the contract has already expired.
• If the contract was one of commodatum,
he is still liable because: (1) he kept the bull
longer than the period stipulated; and (2) the
thing loaned has been delivered with
appraisal of its value (10%). No stipulation
that in case of loss of the bull due to
fortuitous event the late husband of the
appellant would be exempt from liability.
• The original period of the loan was from 8
May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one
year to end on 8 May 1950. But the appellant
kept and used the bull until November 1953
when during a Huk raid it was killed by stray
bullets.
• Furthermore, when lent and delivered to
the deceased husband of the appellant the
bulls had each an appraised book value, to
with: the Sindhi, at P1,176.46, the Bhagnari
at P1,320.56 and the Sahiniwal at P744.46. It
was not stipulated that in case of loss of the
bull due to fortuitous event the late husband
of the appellant would be exempt from
liability.
ALEJANDRA MINA, ET AL., vs. RUPERTA
PASCUAL, ET AL. (G.R. No. L-8321
October 14, 1913)
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,
Alejandro 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 likes
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 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 Curt 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 Alejandra 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. 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 ad 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 cause "although
there existed and still exists a decree.
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
What is essentially pertinent to the case is
the fact that the defendant 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. On 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 his
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 coowner 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 by 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 plaintiff's
petition was opposed by the defendant's
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 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
recover 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 plaintiff's 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 explicitly 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 the 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 for a certain
period. Francisco Fontanilla did not fix any
definite period or 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 of 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 plaintiff
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.
SPOUSES SALVADOR ABELLA AND ALMA
ABELLA, Petitioners, vs. SPOUSES ROMEO
ABELLA AND ANNIE ABELLA, Respondents.
(G.R. No. 195166)
Facts: On July 31, 2002, petitioners Spouses
Salvador and Alma Abella filed a Complaint
for sum of money and damages with prayer
for preliminary attachment against
respondents Spouses Romeo and Annie
Abella before the Regional Trial Court,
Branch 8, Kalibo, Aklan. 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 dated March 22,
1999 and was payable within one (1) year.
Petitioners added that respondents were
able to pay a total of P200,000.00—
P100,000.00 paid on two separate
occasions—leaving an unpaid balance of
P300,000.00. In their Answer (with
counterclaim and motion to dismiss),
respondents alleged that the amount
involved did not pertain to a loan they
obtained from petitioners but was part of the
capital for a joint venture involving the
lending of money. In the Decision dated
December 28, 2005, the Regional Trial Court
ruled in favor of petitioners. It noted that the
terms of the acknowledgment receipt
executed by respondents clearly showed
that: (a) respondents were indebted to the
extent of P500,000.00; (b) this indebtedness
was to be paid within one (1) year; and (c)
the indebtedness was subject to interest.
Thus, the trial court concluded that
respondents obtained a simple loan,
although they later invested its proceeds in a
lending enterprise. The Regional Trial Court
adjudged respondents solidarily liable to
petitioners. The Court of Appeals noted that
while the acknowledgement receipt showed
that interest was to be charged, no particular
interest rate was specified. Thus, at the time
respondents were making interest payments
of 2.5% per month, these interest payments
were invalid for not being properly stipulated
by the parties.
Issue: Whether or not interest accrued on
respondents’ loan from petitioners. If so, at
what rate?
Held: Yes, interest accrued on respondents’
loan. Article 1956 of the Civil Code spells out
the basic rule that "no interest shall be due
unless it has been expressly stipulated in
writing." 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, 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."
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. 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 but will now be six percent
(6%) per annum effective July 1, 2013.
CATHOLIC VICAR APOSTOLIC OF THE MT.
PROCINCE v. CA (165 SCRA 511)
Doctrine: The bailees' failure to return the
subject matter of commodatum to the bailor
does not mean adverse possession on the
part of the borrower. The bailee held in trust
the property subject matter of
commodatum.
Facts: Catholic Vicar Apostolic of the
Mountain Province (VICAR for brevity) filed
an application for registration of title over
Lots 1, 2, 3, and 4, said Lots being the sites of
the Catholic Church building, convents, high
school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. The
Heirs of Juan Valdez and the Heirs of Egmidio
Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting
ownership and title thereto since their
predecessors' house was borrowed by
petitioner Vicar after the church and the
convent were destroyed.. After trial on the
merits, the land registration court
promulgated its Decision confirming the
registrable title of VICAR to Lots 1, 2, 3, and
4.
The Heirs of Juan Valdez appealed the
decision of the land registration court to the
then Court of Appeals, The Court of Appeals
reversed the decision. Thereupon, the VICAR
filed with the Supreme Court a petition for
review on certiorari of the decision of the
Court of Appeals dismissing his application
for registration of Lots 2 and 3.
Issue: Whether or not the failure to return
the subject matter of commodatum
constitutes an adverse possession on the
part of the owner
Held: No. 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.
Petitioner repudiated the trust by declaring
the properties in its name for taxation
purposes.
QUINTOS v. BECK (69 PHIL 108)
Facts: Quintos and Beck entered into a
contract of lease, whereby the latter
occupied the former’s house. On Jan 14,
1936, the contract of lease was novated,
wherein the Quintos gratuitouslygranted to
Beck the use of the furniture, subject to the
condition that Beck should return the
furnitures to Quintos upon demand.
Thereafter, Quintos sold the property to
Maria and Rosario Lopez. Beck was notified
of the conveyance and given him 60 days to
vacate the premises. In addition, Quintos
required Beck to return all the furniture.
Beck refused to return 3 gas heaters and 4
electric lamps since he would use them until
the lease was due to expire. Quintos refused
to get the furniture since Beck had declined
to return all of them. Beck deposited all the
furniture belonging to Quintos to the sheriff.
ISSUE: WON Beck complied with his
obligation of returning the furnitures to
Quintos when it deposited the furnitures to
the sheriff.
RULING: The contract entered into between
the parties is one of commodatum, because
under it the plaintiff gratuitously granted the
use of the furniture to the defendant,
reserving for herself the ownership thereof;
by this contract the defendant bound himself
to return 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. 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.
CEBU INTERNATIONAL FINANCE
CORPORATION v. COURT OF APPEALS (G.R.
NO. 123031 OCTOBER 12, 1999)
Doctrine: The prevailing jurisprudence is that
a mortgagee has a right to rely in good faith
on the certificate of title of the mortgagor to
the property given as security and in the
absence of any sign that might arouse
suspicion, has no obligation to undertake
further investigation.
Facts: Jacinto Dy executed a Special Power of
Attorney in favor of private respondent Ang
Tay, authorizing the latter to sell the cargo
vessel owned by Dy and christened LCT
“Asiatic.” Through a Deed of Absolute Sale,
Ang Tay sold the subject vessel to Robert Ong
(Ong). Ong paid the purchase price by issuing
three (3) checks However, since the payment
was not made in cash, it was specifically
stipulated in the deed of sale that the “LCT
Asiatic shall not be registered or transferred
to Robert Ong until complete payment.”
Thereafter, Ong obtained possession of the
subject vessel so he could begin deriving
economic benefits therefrom. He, likewise,
obtained copies of the unnotarized deed of
sale allegedly to be shown to the banks to
enable him to acquire a loan to replenish his
(Ong’s) capital. The aforequoted condition,
however, which was handwritten on the
original deed of sale does not appear on
Ong’s copies. Contrary to the
aforementioned agreements and without the
knowledge of Ang Tay, Ong had his copies of
the deed of sale (on which the
aforementioned prohibition does not appear)
notarized Ong presented the notarized deed
to the Philippine Coast Guard which
subsequently issued him a Certificate of
Ownership and a Certificate of Philippine
Register over the subject vessel. Ong also
succeeded in having the name of the vessel
changed to LCT “Orient Hope.”
Using the acquired vessel, Ong acquired a
loan from Cebu International Finance
Corporation to be paid in installments as
evidenced by a promissory note of even date.
As security for the loan, Ong executed a
chattel mortgage over the subject vessel,
which mortgage was registered with the
Philippine Coast Guard and annotated on the
Certificate of Ownership.
-Ong defaulted in the payment of the
monthly installments. Consequently, Cebu
International Finance Corporation sent him a
letter] demanding delivery of the mortgaged
vessel for foreclosure or in the alternative to
pay the balance pursuant to paragraph 11 of
the deed of chattel mortgage. Meanwhile,
the two checks paid by Ong to Ang Tay for
the Purchase of the subject vessel bounced.
Ang Tay’s search for the elusive Ong and all
attempts to confer with him proved to be
futile. A subsequent investigation and inquiry
with the Office of the Coast Guard revealed
that the subject vessel was already in the
name of Ong, in violation of the express
undertaking contained in the original deed of
sale. As a result thereof, Ang Tay and Jacinto
Dy filed a civil case for rescission and replevin
with damages against Ong and his wife.
Issue: Whether or not Cebu International
Finance Corporation can validly foreclose the
chattel mortgage
Held: The prevailing jurisprudence is that a
mortgagee has a right to rely in good faith on
the certificate of title of the mortgagor to the
property given as security and in the absence
of any sign that might arouse suspicion, has
no obligation to undertake further
investigation. Hence, even if the mortgagor is
not the rightful owner of or does not have a
valid title to the mortgaged property, the
mortgagee or transferee in good faith is
nonetheless entitled to protection. Although
this rule generally pertains to real property,
particularly registered land, it may also be
applied by analogy to personal property, in
this case specifically, since ship owners are,
likewise, required by law to register their
vessels with the Philippine Coast Guard.
The chattel mortgage constituted on a vessel
by the buyer who was able to register the
vessel in his name despite the agreement
with the seller that the vessel would not be
so registered until after full payment of the
price which do not appear in the buyer’s
copy of the deed of sale is VALID, for the
mortgagee has the right to rely in good faith
on the certificate of registration.
TOLENTINO v. GONZALEZ SY CHIAM (50 PHIL
558)
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.
**LOAN: A contract of loan signifies the
giving of a sum of money, goods or credits to
another, with a promise to repay, but not a
promise to return the same thing. It has been
defined as an advancement of money, goods,
or credits upon a contract or stipulation to
repay, not to return, the thing loaned at
some future day in accordance with the
terms of the contract. The moment the
contract is completed, the money, goods or
chattels given cease to be the property of the
former owner and become the property of
the obligor to be used according to his own
will, unless the contract itself expressly
provides for a special or specific use of the
same. At all events, the money, goods or
chattels, the moment the contract is
executed, cease to be the property of the
former owner and become the sole property
of the obligor.
Commodatum Defined
Art. 1933: By the contract of loan, one of the
parties delivers to another something not
consumable so that the latter may use the
same for a certain time and return it, in
which case the contract is called a
commodatum. xxx
- The bailee acquires the use of the thing
loaned but not its fruits (Art. 1935), EXCEPT if
the parties stipulate use of fruits (Art. 1940)
COLINARES v. CA (G.R. NO. 90828.
SEPTEMBER 5, 2000)
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 v. GRIJALDO (G.R. NO. L-20240.
DECEMBER 31, 1965.)
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.
FACTS: Jose Grijaldo obtained five crop loans
from the office of the Bank of Taiwan in
Bacolod City, in the total sum of Php 1281.97
with interest of 6% per annum, compounded
quarterly. These loans were evidenced by
five promissory notes by the appellant in
favor of the bank. All notes are without due
dates, but because the loans were crop loans
it was considered that the loans were due
one year after they were incurred. To secure
the payment of the loans the appellant
executed a chattel mortgage on the standing
crops on his land known as Hacienda
Campaguas.
By virtue of “Trading with the Enemy Act”,
the assets of the Bank of Taiwan Ltd. In the
Philippines were vested in the US
Government, which were subsequently
transferred to the Republic of the Philippines.
Grijaldo failed to pay the crop loans despite
the extra-judicial demand of the
Government. He argued that the
Government has no cause of action, that
because the loans were secured by a chattel
mortgage on the standing crops of the land
owned by him and those crops were lost or
destroyed by enemy action his obligation to
pay the loans was thereby extinguished.
ISSUE: Whether or not Grijaldo’s obligation
to pay the crop loans had extinguished due
to the crops that were lost or destroyed
through enemy action.
HELD/RATIO: NO. The obligation of Grijaldo
under the 5 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 5 loans,
with interest. The chattel mortgage of the
crops growing on appellant’s land simply
stood as a security for the fulfillment of
appellant’s obligation covered by the 5
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.
SONCUYA v. AZARRAGA
Facts: In the settlement of the state of Juan
Azarraga, the heirs listed Atty. Azarraga for
the amount of PhP 3,000 as fixed by the
court. The heirs agreed to pay by special
mortgage 4 parcels of land in Bay-ang, Capiz.
The Atty. was to be in possession of the lands
without payment of rent, until the full
amount of his fees is paid. After 5 years, if
the fees are not yet paid, the lands are to be
adjudicated to the Atty. and the latter is to
receive the amounts he received from the
heirs. If there is full payment after 5 years,
the lands will continue to be in possession of
the Atty. if he has kept livestock therein.
Before the end of 5 years, the Atty. sold his
rights to Soncuya. Soncuya replaced the Atty.
as the creditor of the heir, and granted an
extension of the period of payment, but with
and increase of the amount owed to
PhP7,000 and the addition of a 12% interest
pa. another extension was granted, with an
increase in the payment to PhP12,000, and
out of this, PhP 4,000 was paid to the Atty.
already. Joaquin Azarraga executed a deed in
favor of Soncuya grating to the latter his
share on the land for the amount of
PhP4,000.
Within the 5 year redemption period, there
will be a payment of 12% pa interest for the
1st term, and Php7,000 + Php 3,000
payment. The deed however remained
unregistered. Soncuya took possession of the
whole land and placed livestock thereon and
built sheephold and fences. Fruit bearing
trees were found, among which were
coconut trees which were planted by
Joaquin. Soncuya went to the house of
Joquin to seek for payment, and asked if the
land would be redeemed for PhP12,000. The
Azarragas were thereafter issued a TCT in
their names, which was known by Soncuya.
The CFI issued a writ of attachment in favor
of Soncuya, with PhP16,000 delivered by the
Atty. (part of the credit) for the purpose of
the business, Panay Municipal Cadastre Inc. a
writ of preliminary injunction was issued and
became final with respect to the PhP9,000
still owing.
Held: The contract between the Azarragas
and the Atty. was one of Antichresis, or a
pacto comisoro. It is also a simple loan
because Soncuya decided to collect and the
defendants decided to pay 12% pa interest. It
is only in the contract of loan where interest
may be demanded. A simple loan with
security does not affect 3rd persons because
it is not registered. The contract between
Soncuya and Joaquin is also a simple loan.
Soncuya was however negligent as he did not
protest the registration of the property in the
name of the Azarragas. The Azarragas cannot
claim damages for the coconut trees, as
there is no evidence to show that they were
damaged due to the livestock on the land.
Soncuya must be paid: by the Azarragas in
the amount of PhP2,700 + 12% pa interest,
and by Joaquin PhP 4,000 + 12% pa interest.
(Basically, the contract with the Atty. was
initially an antichresis, when it was
transferred in writing to Soncuya, it became
a contract of loan, due to the extension and
the imposition of 12% pa interest).
STATE INVESTMENT HOUSE INC. v. CA (GR
No. 101163; January 11, 1993)
Facts: Nora Moulic issued to Corazon
Victoriano, as security for pieces of jewellery
to be sold on commission, two postdated
checks in the amount of fifty thousand each.
Thereafter, Victoriano negotiated the checks
to State Investment House, Inc. When Moulic
failed to sell the jewellry, she returned it to
Victoriano before the maturity of the checks.
However, the checks cannot be retrieved as
they have been negotiated. Before the
maturity date Moulic withdrew her funds
from the bank contesting that she incurred
no obligation on the checks because the
jewellery was never sold and the checks are
negotiated without her knowledge and
consent. Upon presentment of for payment,
the checks were dishonoured for
insufficiency of funds.
Issues:
1. Whether or not State Investment House
inc. was a holder of the check in due course
2. Whether or not Moulic can set up against
the petitioner the defense that there was
failure or absence of consideration
Held:
Yes, Section 52 of the NIL provides what
constitutes a holder in due course. The
evidence shows that: on the faces of the post
dated checks were complete and regular;
that State Investment House Inc. bought the
checks from Victoriano before the due dates;
that it was taken in good faith and for value;
and there was no knowledge with regard
that the checks were issued as security and in due course. Moreover, the fact that the
not for value. A prima facie presumption petitioner failed to give notice of dishonor is
exists that a holder of a negotiable of no moment. The need for such notice is
instrument is a holder in due course. Moulic not absolute; there are exceptions provided
failed to prove the contrary. by Sec 114 of NIL.
No, Moulic can only invoke this defense
against the petitioner if it was a privy to the
purpose for which they were issued and
therefore is not a holder in due course.
No, Section 119 of NIL provides how an
instruments be discharged. Moulic can only
invoke paragraphs c and d as possible
grounds for the discharge of the instruments.
Since Moulic failed to get back the
possession of the checks as provided by
paragraph c, intentional cancellation of
instrument is impossible. As provided by
paragraph d, the acts which will discharge a
simple contract of payment of money will
discharge the instrument. Correlating Article
1231 of the Civil Code which enumerates the
modes of extinguishing obligation, none of
those modes outlined therein is applicable in
the instant case. Thus, Moulic may not
unilaterally discharge herself from her
liability by mere expediency of withdrawing
her funds from the drawee bank. She is thus
liable as she has no legal basis to excuse
herself from liability on her check to a holder