I. SHORT TITLE: NAVOA V. CA. TOPIC: Security IV.
to Olivia Navoa 15 days after August 15, 1977, and even then, Olivia
STATEMENT OF FACTS: Domdoma 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 honored
for lack of funds. After this instance, there were other loans, totaling
of 6 loans, of various amounts that were extended by Teresita to
Olivia, These loans were secured by PCIB checks, which were all
dated to 1 month after the loan. All these checks were not honored
under the same reason as the first loan. V.
STATEMENT OF THE CASE: RTC - On 17 December 1977
private respondents filed with the Regional Trial Court of Manila an
action against petitioners for collection of various sums of money
based on loans obtained by the latter. On 3 January 1978 petitioners
filed a motion to dismiss the complaint on the ground that the
complaint stated no cause of action and that plaintiffs had no
capacity to sue. The trial court dismissed the case and the motion to
reconsider the dismissal was denied.
CA - Private respondents appealed to the Court of Appeals which
modified the order of dismissal "by returning the records of this case
for trial on the merits,
VI. ISSUE: Was the decision of the RTC to dismiss the case due to
having no cause of action valid?
VII. RULING: 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
Navoa failed to pay the price for the ring when the payment was due
because of the check issued that was not honored. Thus it is
confirmed that Teresita’s right under the agreement was violated.
The other loans extended by Teresita to Olivia 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
dishonored 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. The continuing refusal of Olivia and Ernesto Navoa to
comply with the demand of payment shows the existence of a cause
of action. All the loans granted to petitioners are secured by
corresponding checks dated a month after each loan was obtained. In
this regard, the term security is defined as a means of ensuring the
enforcement of an obligation or of protecting some interest in
property. It may be personal, as when an individual becomes a surety
or a guarantor; or a property security, as when a mortgage, pledge,
charge, lien, or other device is used to have property held, out of
which the person to be made secure can be compensated for loss.
Security is something to answer for as a promissory note. That is
why a secured creditor is one who holds a security from his debtor
for payment of a debt. From the allegations in the complaint there is
no other fair inference than that the loans were payable one month
after they were contracted and the checks issued by petitioners were
drawn to answer for their debts to private respondents.
The trial court erred in dismissing the case on the ground of lack of
cause of action. Respondent Court of Appeals therefore is correct in
remanding the case to the trial court for the filing of an answer by
petitioners and to try the case on the merits.
 VIII. DISPOSITIVE PORTION: WHEREFORE, the petition is
DENIED. The judgment of the Court of Appeals dated 11 December
1980 remanding the case to the trial court for the filing of petitioners'
answer and thereafter for trial on the merits is AFFIRMED. Costs
against petitioners
Acme vs CA
FACTS:
Chua Pac, president and general manager of Acme Shoe, Rubber and
Plastic Corporation, executed a chattel mortgage in favor of
Producers Bank of the Philippines, as a security for a corporate loan
in the amount of P3M. The chattel mortgage contained a clause that
provided for the mortgage to stand as security for all other
obligations contracted before, during and after the constitution of the
mortgage.
The P3M was paid. Subsequently, the corporation obtained
additional financial accommodations totalling P2.7M. This was also
paid on the due date. Again, the bank extended another loan to the
corporation in the amount of P1M, covered by four promissory
notes. However, the corporation was unable to pay this at maturity.
Thereupon, the bank applied for an extra-judicial foreclosure of
mortgage.
For its part, the corporation filed an action for injunction with prayer
for damages. The lower court ultimately dismissed the case and
ordered the extra-judicial foreclosure of mortgage. Hence, this
appeal.
ISSUEs:
o W/N extra-judicial foreclosure of the chattel mortgage is proper
o If not proper, W/N the corporation is entitled to damages as a result
of the extra-judicial foreclosure
HELD:
Contracts of Security
Contracts of security are either personal or real. In contracts of
personal security, such as a guaranty or suretyship, the faithful
performance of the obligation by the principal debtor is secured by
the personal commitment of another (the guarantor or surety). In
contracts of real security, such as a pledge, a mortgage or an
antichresis, that fulfillment is secured by an encumbrance of property
-- in pledge, the placing of movable property in the possession of the
creditor; in chattel mortgage by the execution of the corresponding
and substantially in teh form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering the
real property covered thereby; and in antichresis, by a written
instrument granting to the creditor the right to receive the fruits of an
immovable property with the obligation to apply such fruits to the
payment of interest, if owing, and thereafter to the principal of his
credit -- upon the essential condition that if the obligation becomes
due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, but that should the
obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character of the
agreement. As the law so puts it, once the obligation is complied
with, then the contract of security becomes, ipso facto, null and void.
After-incurred Obligations
While a pledge, real estate mortgage, or antichresis may exceptionaly
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 covered
the newly contracted debt is executed either by concluding a fresh
chattel mortgage or by amending the old contract conformably with
the Chattel Mortgage Law. Refusal on the part of borrower to
execute the agreement so as to cover the after-incurred obligation
can constitute as an act of default on the part of the borrower of the
financing agreement wherein 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.
In the case at bar, the chattel mortgage was terminated when
payment for the P3M loan was made so there was no chattel
mortgage to even foreclose at the time the bank instituted the extra-
judicial foreclosure.
PEOPLE vs. CONCEPCION, 44 Phil. 126
FACTS: Venancio Concepcion, President of the Philippine National
Bank and a member of the Board thereof, authorized an extension of
credit in favor of "Puno y Concepcion, S. en C.” to the manager of
the Aparri branch of the Philippine National Bank. "Puno y
Concepcion, S. en C." was a co-partnership where Concepcion is a
partner. Subsequently, Concepcion was charged and found guilty in
the Court of First Instance of Cagayan with violation of section 35 of
Act No. 2747. Section 35 of Act No. 2747 provides 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. Counsel for the defense argue that the documents of
record do not prove that authority to make a loan was given, but only
show the concession of a credit. They averred that the granting of a
credit to the co-partnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, is
not a "loan" within the meaning of section 35 of Act No. 2747.
ISSUE: Whether or not the granting of a credit of P300,000 to the
co-partnership "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, a "loan"
within the meaning of section 35 of Act No. 2747.
HELD: The Supreme Court ruled in the affirmative. The "credit" of
an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may
promise. A "loan" means the delivery by one party and the receipt by
the other party of a given sum of money, upon an agreement, express
or implied, to repay the sum loaned, with or without interest. The
concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"
HERRERA VS. PETROPHIL
FACTS: On December 5, 1969, the plaintiff-appellant and ESSO
Standard Eastern. Inc., (later substituted by Petrophil Corporation)
entered into a "Lease Agreement" whereby the former leased to the
latter a portion of his property for a period of twenty (20) years from
said date, subject to the following conditions that the lessee shall pay
the lessor a rental of P2,930.20 per month provided that the latter is
paid 8 years advance rental discounted at 12% interest per annum a
total net amount of P130, 288.70 before registration of lease. On
December 31, 1969, pursuant to the said contract, the defendant-
appellee paid to the plaintfff-appellant advance rentals for the first
eight years, subtracting therefrom the amount of P101,010.73, the
amount it computed as constituting the interest or discount for the
first eight years, in the total sum P180,288.47. On August 20, 1970,
the defendant-appellee, explaining that there had been a mistake in
computation, paid to the appellant the additional sum of P2,182.70,
thereby reducing the deducted amount to only P98,828.03.
STATEMENT OF THE CASE: On October 14, 1974, the plaintiff-
appellant sued the defendant-appellee for the sum of P98,828.03,
with interest, claiming this had been illegally deducted from him in
violation of the Usury Law. He also prayed for moral damages and
attorney's fees. In its answer, the defendantappellee admitted the
factual allegations of the complaint but argued that the amount
deducted was not usurious interest but a given to it for paying the
rentals in advance for eight years. Judgment on the pleadings was
rendered for the defendant. Plaintiff-appellant now prays for a
reversal of that judgment, insisting that the lower court erred in the
computation of the interest collected out of the rentals paid for the
first eight years; that such interest was excessive and violative of the
Usury Law; and that he had neither agreed to nor accepted the
defendant-appellant's computation of the total amount to be deducted
for the eight years advance rentals. The thrust of the plaintiff-
appellant's position is set forth in paragraph 6 of his complaint,
which read: 6. The interest collected by defendant out of the rentals
for the first eight years was excessive and beyond that allowable by
law, because the total interest on the said amount is only P33,755.90
at P4,219.4880 per yearly rental; and considering that the interest
should be computed excluding the first year rental because at the
time the amount of P281, 199.20 was paid it was already due under
the lease contract hence no interest should be collected from the
rental for the first year, the amount of P29,536.42 only as the total
interest should have been deducted by defendant from the sum of
P281,299.20. The defendant maintains that the correct amount of the
discount is P98,828.03 and that the same is not excessive and above
that allowed by law. Hence, this appeal.
ISSUES: Whether or not the contract entered into by the parties is on
of loan or lease Whether or not the defendant violated the usury law
RULING: 1. As its title plainly indicates, the 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. The
provision for a discount is not unusual in lease contracts. As to its
validity, it is settled that the parties may establish such stipulations,
clauses, terms and condition as they may want to include; and as
long as such agreements are not contrary to law, morals, good
customs, public policy or public order, they shall have the force of
law between them 2. 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 "mutuodisenso"—
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
SHORT TITLE: Bonnevie vs. CA
FACTS: Jose M. Lozano and Josefa P. Lozano (Lozano spouses)
were the owners of the property which they mortgaged to secure
payment of the loan amounting to P75,000 from Philippine Bank of
Commerce (PBC). Thereafter, they executed in favor of Honesto
Bonnevie (Honesto) the Deed of Sale with Mortgage for and in
consideration of P100,000, P25,000 of which being payable to the
Lozano spouses upon execution of the document and the balance of
P75,000 being payable to PBC. Honesto made payments amounting
to P18, 944.22 only and subsequently assigned all his rights under
the Deed of Sale with Assumption of Mortgage to his brother,
intervenor Raoul Bonnevie (Raoul). Consequently, PBC applied for
the foreclosure of the mortgage and notice of sale was duly published
in accordance with the statutory requirements. Auction sale was
conducted and the property was sold to PBC for P84,387. Honesto
failed then to repurchase the property. Three years after, Honesto
filed a complaint against PBC for the annulment of the Deed of
Mortgage and the extrajudicial foreclosure on the following grounds:
1) lack of consideration; and 2) mortgage was executed by the one
who was not the owner of the mortgaged property. STATEMENT
OF THE CASE: The RTC and CA both dismissed the complaint
upholding the validity of the Deed of Mortgage and extrajudicial
foreclosure.
ISSUE: Whether or not the Deed of Mortgage and extrajudicial
foreclosure are valid.
RULING: Yes, the Deed of Mortgage and extrajudicial foreclosure
are valid. The ground of lack of consideration is devoid of merit
because when the contract of mortgage was executed, the contract of
loan was already perfected because of its consensual character. Also,
Honesto cannot validly claim that the Lozano spouses do not own
said property. Bonnevies did not secure the consent of PBC to the
sale with Assumption of Mortgage and that said sale was not
registered. As a result, the title remained in the name of the Lozano
spouses and therefore, could mortgage said property. PBC had every
right to rely on the certificate of title applying the Doctrine of
Innocent Purchaser of Value. Since the title remains with the
spouses, the Bonnevies need not be notified of the foreclosure sale as
they did not notify PBC of said sale with Assumption of Mortgage
and as such, do not have the right to redeem the property.
Central Bank vs CA
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, 116 SCRA 262
FACTS: On May 8, 1948, Jose Bagtas borrowed from the Bureau of
Animal Industry three bulls for one year for breeding purposes upon
payment of a breeding fee of 10% of the book value of the bulls.
After one year, the contract was renewed but only for one bull.
Bagtas offered to buy the bulls at book value less depreciation, but
the Bureau told him that he should either return the bulls or pay for
their book value. Bagtas failed to pay the book value, so the
Republic filed an action with the CFI Manila to order the return of
the bulls or the payment of the book value. Felicidad Bagtas, the
surviving spouse and administratrix of the decedent’s estate, said that
the two bulls have already been returned in 1952, and that the
remaining one died of gunshot during a Huk raid. It was established
that the two bulls were returned, thus, there is no more obligation on
the part of Bagtas. With regards the bull not returned, Felicidad
maintained that the obligation is extinguished since the contract is
that of a commodatum and that the loss through fortuitous event
should be borne by the owner.
ISSUE: Whether or not the contract entered into between Bagtas and
the Republic is that of commodatum making Bagtas not liable for the
death of the bull.
HELD: A contract of commodatum is essentially gratuitous. If the
breeding fee be considered compensation, then the contract would be
a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith
because she had continued possession of the bull after the expiry of
the contract. Even if the contract be commodatum, still Bagtas is
liable because article 1942 of the Civil Code provides that a bailee in
a contract of commodatum is liable for loss of the things even if it
should be through a fortuitous event if he keeps it longer than the
period stipulated or if the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event. The loan of
one bull was renewed for another period of one year but Bagtas kept
and used the bull more than one year where during a Huk raid it was
killed by stray bullets. Furthermore, when lent and delivered to the
deceased husband of Bagtas, the bulls had each an appraised book
value. 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.
I. SHORT TITLE: MINA vs. PASCUAL
FACTS • Francisco and Andres Fontanilla were brothers. Francisco,
during his lifetime, acquired a parcel of land in Laoag, Ilocos Norte
on which Andres built a warehouse, with the consent of the former. •
Upon Andres’ death, respondent Ruperta Pascual, as the
representative of her children, was considered to be entitled to the
warehouse built by Andres, more specifically, sixsevenths of one-
half of the warehouse. V.
STATEMENT OF THE CASE • On May 6, 1909, Ruperta filed a
petition before the Court of First Instance of Ilocos Norte asking for
authorization to sell six-sevenths of one-half of the warehouse
including the lot on which it was built. • The petition was opposed by
herein plaintiffs Alejandra Mina, et al. and they requested the court
to pass judgment on the ownership of the land. But before it rendered
judgment regarding the ownership of the land, the court ordered the
sale of the warehouse and the lot at a price of not less than P2,890.
The buyer was Cu Joco who is one of the defendants in this case. •
Thereafter, the court ruled that the land belonged to the warehouse
but this decision was later on reversed by the Supreme Court. Upon
finality of the decision, the plaintiffs were given possession of the lot
but it was then annulled because the Court held that the said decision
affected the rights of Cu Joco. • The present petition seeks to declare
the sale of the land null and void. The following was agreed upon by
the parties: “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 Loan 14 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.”
VI. ISSUE WON the agreement between Francisco and Andres
Fontanilla is that of a contract of commodatum.
VII. RULING NO. Although the parties have agreed upon the idea of
commodatum, “that denomination given by them to the use of the lot
granted” by Franciso to Andres is not applicable. Article 1740
provides that “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…” It is essential that the use of a thing
which belongs to another be for a certain period. In this case,
however, Francisco did not fix any period as to the length of time
within which Andres could use the lot where the latter built his
warehouse. Therefore, the question should be decided in accordance
with the laws on accessions to real estate then in effect. Laws 41 and
42, title 28, of the third Partida which is identical to the provisions of
article 361 and 362 of the Civil Code, the owner of the land on which
a building is constructed in good faith has a right to appropriate the
building to himself after payment of indemnity or to oblige the
builder to pay him the value of the land.