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TABLE OF CONTENTS

LOAN

1. Garcia v. Theo

2. Pantaleon v. American Express, Inc.

3. Producers Bank of the Phil. v. CA

4. Pajuyo v. CA

5. Republic v. Bagtas

6. BPI Family Bank v. Franco

7. Frias v. San Diego- Sison

8. Conception v. CA

9. Sps. Castro v. TAN

10. Siga-an v. Villanueva

11. Tan v. CA

12. Carpio vs. Chua Ng

13. PRISMA Construction v. Development Corp.

14. Sps. Silos v. PNB

DEPOSIT

1. BPI v. IAC

2. DURBAN Apartment v. PoineerInsuranceandSuretyCorp.

3. TRIPLE-V FoodServices v. FilipinoMerchantInsuranceCorp.

4. Lipat v. PacificBankingCorp.

5. CA-AgroIndustrialDevelopment Corp. v. CA

6. Ortiz v. Kayanan

7. YHT Realty Corp. v. CA

GUARANTY

1. Dio v. CA

2. Escao v. Ortigas

3. Tupaz v. CA

4. Palmarez v. CA

5. Phil. Blooming Mills v. CA

6. Bitanga v. Pyramid Construction Engineering Corp.

7. JN Development Corp. v. Philippine Exports and Foreign Loan Guaranty, Ltd.

8. Stronghold Insrance Company, Inc. v. Tokyo Construction Company, Ltd.

9. Ong v. Philippine Commercial International Bank

10. E. Zobel, Inc. v. CA

1

LOAN

CAROLYN M. GARCIA v. RICA MARIE S. THIO

GR No. 154878, 16 March 2007

FACTS:

Respondent Thio received from petitioner Garcia two crossed checks which amount to

US $100,000 and US $500,000, respectively, payable to the order of Marilou Santiago.

According to petitioner, respondent failed to pay the principal amounts of the loans when

they fell due and so she filed a complaint for sum of money and damages with the RTC.

Respondent denied that she contracted the two loans and countered that it was MarilouSatiago

to whom petitioner lent the money. She claimed she was merely asked the petitioner to give the

checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment of interest

but to accommodate petitioners request that respondent use her own checks instead of

Santiagos.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract

of loan between the parties.

ISSUES:

(1) Whether or not there was a contract of loan between petitioner and respondent.

(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?

RULING:

(1) The Court held in the affirmative. A loan is a real contract, not consensual, and as such is

perfected only upon the delivery of the object of the contract. Upon delivery of the contract of

loan (in this case the money received by the debtor when the checks were encashed) the debtor

acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal

amount. It is undisputed that the checks were delivered to respondent.

(2) However, the checks were crossed and payable not to the order of the respondent but to

the order of a certain Marilou Santiago. Delivery is the act by which the res or substance is

thereof placed within the actual or constructive possession or control of another. Although

respondent did not physically receive the proceeds of the checks, these instruments were

2

placed in her control and possession under an arrangement whereby she actually re-lent the

amount to Santiago.

Thus, such petition is granted.

3

POLO S. PANTALEON vs. AMERICAN EXPRESS INTERNATIONAL, INC., (AMEX)

G.R. No. 174269 May 8, 2009

FACTS:

Petitioner, lawyer Polo Pantaleon, with his family went on an escorted tour of Western

Europe. On the last day of the tour, the group arrived at the Coster Diamond House in which the

group agreed that the visit should end by 9:30 a.m. to allow enough time to take a guided city

tour of Amsterdam. While in the diamond house, Mrs.Pantaleon decided to buy a diamond and

also a pendant and a chain which totaled U.S. $13,826.00. Around 9:15 am, Pantaleon

presented his American Express credit card together with his passport to the Coster sales clerk.

The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge

purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.

At 9:40am, Pantaleon asked the store clerk to cancel the sale to avoid further delaying

the tour group. At around 10:00a.m, Coster decided to release the items even without AMEXs

approval of the purchase. Due to the delay, the city tour of Amsterdam was cancelled due to

lack of time. The spouses Pantaleon offered their apologies but were met by their tour mates

with stony silence and visible irritation. There were also two instances similar to the incident in

Amsterdam wherein Pantaleon purchased golf equipment using his AMEX card, but he ended

up barrowing money after more than 30 minutes of non-approval. The other incident is when

Pantaleon used the card to purchase childrens shoes at a store in Boston, and it took 20

minutes before it was approved.

In Manila, Pantaleon sent a letter demanding an apology for the for AMEXs refusal to

provide credit authorization for the said purchases. AMEX refused to apologize stating that the

delay in authorizing the purchase from Coster was attributable to the circumstance that the

charged purchase of US $13,826.00 was out of the usual charge purchase pattern established.

Pantaleon filed an action for damages in the RTC which he won. In the CA the RTC decision

was reversed, hence this petition.

ISSUE: Whether or not AMEX breached its contractual obligation

RULING:

4

YES. Notwithstanding the popular notion that credit card purchases are approved "within

seconds," there really is no strict, legally determinative point of demarcation on how long must it

take for a credit card company to approve or disapprove a customers purchase, much less one

specifically contracted upon by the parties. Yet this is one of those instances when "youd know

it when youd see it," and one hour appears to be an awfully long, patently unreasonable length

of time to approve or disapprove a credit card purchase

It is not disputed that AMEX has the right, if not the obligation, to verify whether the

credit it is extending upon on a particular purchase was indeed contracted by the cardholder,

and that the cardholder is within his means to make such transaction. The culpable failure of

AMEX is not the failure to timely approve petitioners purchase, but the more elemental failure to

timely act on the same, whether favorably or unfavorably. AMEX should have informed

Pantaleon the reason for the delay, and duly advised him that resolving the same could take

some time.

5

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK) vs. HON.

COURT OF APPEALS AND FRANKLIN VIVES

G.R. No. 115324. February 19, 2003

Callejo, Sr., J.

FACTS:

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and

friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating

his business, the Sterela Marketing and Services (Sterela). Specifically, Sanchez asked private

respondent to deposit in a bank a certain amount of money in the bank account of Sterela for

purposes of its incorporation. She assured private respondent that he could withdraw his

money from said account within a months time. With this, Mrs.Vivies, Sanchez and a certain

EstrellaDumagpi, secretary of Doronilla, went to the bank to open an account with Mrs.Vives

and Sanchez as signatories. A passbook was then issued to Mrs.Vives. Subsequently, private

respondent learned that part of the money was withdrawn without presentment of the passbook

as it was his wife got hold of such. Mrs.Vives could not also withdraw said remaining amount

because it had to answer for some postdated checks issued by Doronilla who opened a current

account for Sterela and authorized the bank to debit savings.

Private respondent referred the matter to a lawyer, who made a written demand upon

Doronilla for the return of his clients money. Doronilla issued another check for P212,000.00 in

private respondents favor but the check was again dishonored for insufficiency of funds.

Private respondent instituted an action for recovery of sum of money in the Regional

Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner.

The RTC ruled in favor of the private respondent which was also affirmed in toto by the CA.

Hence this petition.

ISSUE:

Whether or not the transaction between the Doronilla and respondent Vives was one of

a simple loan?

6

RULING:

No. A circumspect examination of the records reveals that the transaction between them

was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of

loans in this wise:

By the contract of loan, one of the parties delivers to another, either

something not consumable so that the latter may use the same for a certain time

and return it, in which case the contract is called a commodatum; or money or

other consumable thing, upon the condition that the same amount of the same

kind and quality shall be paid, in which case the contract is simply called a loan

or mutuum.

Commodatum is essentially gratuitous.

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

In commodatum, the bailor retains the ownership of the thing loaned,

while in simple loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a

consumable thing, such as money, the contract would be a mutuum. However, there are some

instances where a commodatum may have for its object a consumable thing. Article 1936 of the

Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the

contract is not the consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the

intention of the parties is to lend consumable goods and to have the very same goods returned

at the end of the period agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial

consideration in determining the actual character of a contract. In case of doubt, the

contemporaneous and subsequent acts of the parties shall be considered in such determination.

7

PAJUYO v. CA

GR No. 146364 June 3, 2004

FACTS:

Pajuyo, through a Kasunduan, entrusted a house, built on a lot not his own, to Guevara

for the latter's use provided he should return the same upon demand and with the condition that

Guevara should be responsible of the maintenance of the property. Upon demand Guevara

refused to return the property to Pajuyo. The petitioner then filed an ejectment case against

Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the appellate

court reversed the judgment of the lower court ruling that the contractual relationship of Pajuyo

and Guevara was that of a commodatum.

ISSUE: Whether the relationship of Pajuyo and Guevara that of a commodatum.

RULING:

No. An essential feature of commodatum is that it is gratuitous. Another feature of

commodatum is that the use of the thing belonging to another is for a certain period. If the use

of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in

which case the contractual relation is called a precarium.

Under the Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that

the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the

Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in

good condition. The imposition of this obligation makes the Kasunduan a contract different from

a commodatum. The effects of the Kasunduan are also different from that of a commodatum.

Case law on ejectment has treated relationship based on tolerance as one that is akin to a

landlord-tenant relationship where the withdrawal of permission would result in the termination

of the lease.

8

REPUBLIC v. BAGTAS

G.R. No. L-17474 October 25, 1962

FACTS:

Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for

breeding purposes subject to payment of breeding fee of 10% of book value of the bull. Upon

expiration, Bagtas asked for renewal. The renewal was granted only to one bull.

Bagtas offered to buy the bulls at its book value less depreciation but the Bureau

refused. The Bureau said that Bagtas should either return or buy it at book value. Bagtas proved

that he already returned two of the bulls, and the other bull died during a Huk raid, hence,

obligation was already extinguished. He claims that the contract is a commodatum hence, loss

through fortuitous event should be borne by the owner.

ISSUE: WON Bagtas is liable for the death of the bull.

RULING:

Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10%

charge. If this is considered compensation, then the case at bar is a lease. Lessee is liable as

possessor in bad faith because the period already lapsed.

Even if this is a commodatum, Bagtas is still liable because the fortuitous event

happened when he held the bull and the period stipulated already expired. He is liable because

the thing loaned was delivered with appraisal of value and there was no contrary stipulation

regarding his liability in case there is a fortuitous event.

9

BPI-Family Bank vs. Amado Franco and CA

GR No. 123498, November 23, 2007

FACTS:

TevestecoArrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current

account with BPI-FB. Soon thereafter, First Metro Investment Corporation (FMIC) also opened a

time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00,

Subsequently, Franco opened three accounts, namely, current, savings, and time deposit, with

BPI-FB. The total amount of P2,000,000.00 used to open Francos account is traceable to a

check issued by Tevesteco. In turn, the funding for the P2,000,000.00 check was part of the

P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to

Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs

officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were

forged. Unfortunately, Tevesteco had already effected several withdrawals from its current

account, including the P2,000,000.00 paid to Franco. BPI-FB in order to protect its interest

instructed Arangorin to debit Francos savings and current accounts for the amount remaining

therein. In the meantime, two checks drawn by Franco against his BPI-FB current account were

dishonored upon presentment for payment, and stamped with a notation account under

garnishment. Apparently, Francos current account was garnished by virtue of an Order of

Attachment.

Immediately, upon receipt of such notice Franco filed a Motion to Discharge Attachment

with the trial court and pre-terminated his time deposit account with BPI-FB. Consequently, in

light of BPI-FBs refusal to heed Francos demand, Franco filed a complaint praying for the

following reliefs: 1) the interest on the remaining balance of his current account, 2) the balance

on his savings account and 3) payment of damages.

The RTC rendered judgment in favour of Franco and against BPI-FB. On appeal the

Court of Appeals affirmed the trial court decision with modification.

ISSUE:

Whether or not Franco had a better right to the deposits in the subject accounts which

are part of the proceeds of a forged Authority to Debit.

10

RULING:

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but

not as a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos

account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the

Civil Code provisions on simple loan or mutuum. As there is a debtor-creditor relationship

between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos deposits,

but such ownership is coupled with a corresponding obligation to pay him an equal amount on

demand. Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from

demanding payment of BPI-FBs obligation by drawing checks against his current account, or

asking for the release of the funds in his savings account. Thus, when Franco issued checks

drawn against his current account, he had every right as creditor to expect that those checks

would be honored by BPI-FB as debtor.

11

BOBIE ROSE FRIAS v. FLORA SAN DIEGO-SISON

G.R. No. 155223. April 3, 2007

FACTS:

On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA

over Frias property with a consideration of 3 Million pesos. Sison has 6 months from the date of

contracts execution to notify Frias of her intention to purchase the property with the

improvements at 6.4M. Prior to this 6 month period, Frias may still offer the property to other

persons, provided that 3M shall be paid to Sison including interest based on prevailing

compounded bank interest plus amount of sale in excess of 7M [should the property be sold at a

price greater than 7M]. In case Frias has no other buyer within 6 months from the contracts

execution, no interest shall be charged by Sison on the 3M. In the event that on the 6th month,

Sison would decide not to purchase the property, Frias has 6 months to pay 3M (amount shall

earn compounded bank interest for the last 6 months only). 3M treated as a loan and the

property considered as the security for the mortgage.

Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M

(6.4M less 3M MOA consideration). Frias received from Sison 3M (2M in cash; 1M post-dated

check dated February 28, 1990, instead of 1991, which rendered the check stale). Frias gave

Sison the TCT and the Deed of Absolute Sale over the property. Sison decided not to purchase

the property, so she notified Frias through a letter dated March 20, 1991 [Frias received it only

on June 11, 1991],and Sison reminded Frias of their agreement that the 2M Sison paid should

be considered as a loan payable within 6 months. Frias failed to pay this amount.

Sison filed a complaint for sum of money with preliminary attachment. Sison averred that

Frias tried to deprive her of the security for the loan by making a false report of the loss of her

owners copy of TCT, executing an affidavit of loss and by filing a petition [1] for the issuance of

a new owners duplicate copy. RTC issued a writ of preliminary attachment upon the filing of a

2M bond.

RTC found that Frias was under obligation to pay Sison 2M with compounded interest

pursuant to their MOA. RTC ordered Frias to pay Sison:

1. 2M + 32% annual interest beginning December 7, 1991 until fully paid

12

2. 70k representing premiums paid by Sison on the attachment bond with legal interest

counted from the date of this decision until fully paid

3. 100k moral, corrective, exemplary damages [liable for moral damages because of Frias

fraudulent scheme]

4. 100k attorneys fees + cost of litigation

The CA affirmed RTC with modification32% reduced to 25%. CA said that there was no

basis for Frias to say that the interest should be charged for 6 months only. It said that a loan

always bears interest; otherwise, it is not a loan. The interest should commence on June 7,

1991 until fully paid, with compounded bank interest prevailing at the time [June 1991] the 2M

was considered as a loan (as certified by the bank).

ISSUE: WON compounded bank interest should be limited to 6 months as contained in the

MOA.

RULING:

No. CA committed no error in awarding an annual 25% interest on the 2M even beyond

the 6-month stipulated period. In this case, the phrase for the last six months only should be

taken in the context of the entire agreement.SC notes that the agreement speaks of two (2)

periods of 6 months each (see FACTSwords in bold & underline). No interest will be charged

for the 1st 6-month period while Sison was making up her mind, but only for the 2nd 6-month

period after Sison decided not to buy the property. There is nothing in the MOA that suggests

that interest will be charged for 6 months only even if it takes forever for Frias to pay the loan.

The payment of regular interest constitutes the price or cost of the use of money, and

until the principal sum due is returned to the creditor, regular interest continues to accrue since

the debtor continues to use such principal amount. For a debtor to continue in possession of the

principal of the loan and to continue to use the same after maturity of the loan without payment

of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense

of the creditor.

13

CONCEPTION v. COURT OF APPEALS

G.R. No. 122079. June 27, 1997

FACTS:

On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life

Savings and Trust Company) granted to the Concepcions a loan amounting to P1,400,000.00.

The Concepcions executed a promissory note and a real estate mortgage over their property.

Said loan carried an interest rate of 16% per annum payable in quarterly amortizations. The

promissory note provided that the Concepcions had authorized:

". . . the Bank to correspondingly increase the interest rate presently stipulated in this

transaction without advance notice to me/us

The bank unilaterally increased the interest rate from:

16% (Php 67, 830. 00); 21% (Php 77, 619. 72) on 17 February 1980; 30% (Php 104, 661. 10)

on October 17, 1984; and 38% (Php 123, 797. 05) on 17 November 1984.

Failing to pay the bank's President made a demand on the Concepcions for the total amount of

Php 393,878.81 but no payment was received. On 14 April 1986, the bank filed a petition for

extrajudicial foreclosure and subsequently won in a public bidding after which a new transfer

certificate of title was issued in its name. On 29 July 1987, the Concepcions filed an action for

the cancellation of the foreclosure sale, the declaration of nullity of title in favor of the bank, and

the declaration of nullity of the unilateral increases of the interest rates on their loan.

On 31 August 1992, the trial court found for the defendants, that the plaintiffs have no

cause of action either against defendant. On 15 September 1995, the appellate court affirmed

the trial court's decision.

ISSUE: Whether or not the bank is authorized to increase the stipulated rate without advance

notice to the plaintiffs?

RULING:

NO. The validity of "escalation" or "escalator" clauses in contracts, in general, was

upheld by the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro

and Del Valle:

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"Some contracts contain what is known as an 'escalator clause,' which is defined as one

in which the contract fixes a base price but contains a provision that in the event of specified

cost increases, the seller or contractor may raise the price up to a fixed percentage of the base.

However in Philippine National Bank vs. Court of Appeals:

"It is basic that there can be no contract in the true sense in the absence of the element

of agreement, or of mutual assent of the parties.

We cannot countenance petitioner bank's posturing that the escalation clause at bench

gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan.

That would completely take away from private respondents the right to assent to an important

modification in their agreement, and would negate the element of mutuality in contracts.

Hence in Philippine National Bank v. Court of Appeals, et al.:

A contract containing a condition which makes its fulfillment dependent exclusively upon

the uncontrolled will of one of the contracting parties, is void to increase the interest rate at

will during the term of the loan, that license would have been null and void for being violative of

the principle of mutuality essential in contracts.

Thus private respondent Home Savings Bank and Trust Company shall pay to

petitioners the excess the bid price it received from the foreclosed property in question over and

above the unpaid balance of the loan computed at the original interest rate.

15

Spouses Castro v Tan

G.R. No. 168940. November 24, 2009

FACTS:

Angelina de Leon Tan, and her husband Ruben Tan owned a residential lot. They entered into

an agreement, known as the KasulatanngSanglaanngLupa at Bahay, with the spouses Castro

to secure a loan of P30,000.00. Under the contract, they undertook to pay the mortgage debt

within 6 months with an interest of 5% per month, compounded monthly. When Ruben died,

Angelina undertook the responsibility of paying the loan. However she failed to pay the same

upon maturity. Thereafter, she offered to pay the spouses the principal amount plus a portion of

the interest but the spouses refused and demanded the payment of the accumulated sum. Later

on, the spouses caused the extrajudicial foreclosure of the real estate mortgage and emerged

as the only bidder in the auction sale. Tan failed to redeem the property, thus the title was

consolidated in favour of the spouses. A writ of possession was then issued followed by

ejectment of Angelina from her former property.

Angelina Tan, together with the other respondents filed a complaint for nullification of the

mortgage averring that the interest rate imposed on the principal amount is unconscionable.

ISSUE:

Whether the 5% monthly interest rate, compounded monthly is unconscionable, and should be

equitably reduced to the legal rate of 12% per annum

RULING:

Yes. While the Court agrees with the Sps. Castro that parties to a loan agreement have

wide latitude to stipulate on any interest rate in view of the Central Bank Circular which

suspended the Usury Law ceiling on interest, it is also worth stressing that interest rates

whenever unconscionable may still be declared illegal. There is nothing in said circular which

grants lenders carte blanche authority to raise interest rates to levels which will either enslave

their borrowers or lead to a haemorrhaging of their assets.The 5% monthly interest rate, or 60%

per annum, compounded monthly as stipulated in the Kasulatan is even higher than the 3%

monthly interest rate imposed in another case. Thus, the 5% monthly interest is excessive,

iniquitous, unconscionable and exorbitant, contrary to morals, and the law. The Kasulatan is

void ab initio for being violative of Article 1306 of the Civil Code. The legal interest of 12% per

annum should be imposed.

16

Siga-an v Villanueva

G.R. No. 173227. January 20, 2009

FACTS:

Alicia Villanueva, a businesswoman engaged in supplying office materials and

equipments to the Philippine Navy Office (PNO), received a loan of P 540,000.00 from

Sebastian Siga-an, a military officer and comptroller of the PNO. The loan was not written but

merely an oral agreement. There was no written agreement of the interest between the parties.

Villanueva issued two checks with a total worth of P700,000.00 in favor of Siga-an as payment

of the loan. These checks were encashed. The excess of P160,000.00 was for the payment of

the interest of the loan, unaware of the law on interest. Aside from issuing the said two checks,

Villanueva also paid the amount of P175,000.00 to Sig-an as additional interest. Villanueva was

compelled to pay this additional interest because Siga-an threatened to block or disapprove the

transaction of Villanueva with the PNO. Siga-an is alleging that Villanuava issued a promissory

note that provides that Villanueva is owing Siga-an capital and interest.

ISSUE: Whether or not there should be payment of interest?

RULING:

The promissory note was issued with intimidation from Siga-an. The promissory note

was made because of the fear of Villanueva from the threats of Siga-an. Furthermore, the law

expressly mandates as provided in Article 1956 of the Civil Code that there will be no interest

shall due unless it has been expressly stipulated in writing. Monetary interest is allowed only if:

(1) there was an express stipulation for the payment of interest; and (2) the agreement for the

payment of interest was reduced in writing. The concurrence of the two conditions is required for

the payment of monetary interest. However, if there was delay on payment, and even in the

absence of express stipulation, regarding payment of interest, the debtor is compelled to pay

compensatory interest which is different from the monetary interest in the case at bar. Thus, the

collection of interest without any stipulation in writing is prohibited by law. Villanueva is entitled

to reimbursement from the interest she paid to Siga-an.

17

Antonio Tan vs. Court of Appeals

GR No. 116285 (2001)

FACTS:

Antonio Tan (petitioner) obtained 2 loans, each for P2, 000,000 from Cultural Center of

the Philippines (CCP) evidenced by a promissory note in amount of P3, 411,421.32; payable in

5 installments. Petitioner defaulted but after a few partial payments he had the loans

restructured by respondent Cultural Center of the Philippines (CCP). Petitioner failed to pay any

installment on the said restructured loan. In a letter, petitioner requested and proposed to

respondent CCP a mode of paying the restructured loan a) 20% of the principal amount of the

loan upon the respondent giving its conformity to his proposal and b) the balance on the

principal obligation payable 36 monthly installments until fully paid. Petitioner requested for a

moratorium on his loan obligation until the following year allegedly due to a substantial

deduction in the volume of his business and on account of the peso devaluation. No favorable

response was made to said letters. Instead, CCP demanded full payment, within ten (10) days

from receipt of said letter P6, 088,735.03. CCP filed complaint for the collection of a sum of

money. Petitioner argues that there is no basis in law for the charging of interest on the

surcharges for the reason that the New Civil Code is devoid of any provision allowing the

imposition of interest on surcharges and there is no legal basis for the imposition of interest on

the penalty charge for the reason that the law only allows imposition of interest on monetary

interest but not the charging of interest on penalty, hence penalties should not earn interest.

ISSUE: Whether or not petitioner Tan is correct.

RULING:

Petition was denied. There are legal bases for the imposition of the interest on the

penalty and for charging of interest on surcharges. Art. 1226 provides In obligations with a

penal clause, the penalty shall substitute the indemnity for damages and the payment of

interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless,

damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the

fulfillment of the obligation. In the case at bar, the promissory note expressed the imposition of

both interest and penalties in case of default on the part of the petitioner in the payment of

the subject restructured loan. Moreover, Article 2209 provides If the obligation consists in the

payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there

18

being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the

absence of stipulation, the legal interest, which is six per cent per annum. In the case at bar,

the penalty charge of 2% per month began to accrue from the time of default by the

petitioner. The reckoning point is provided under Art. 2212: Interest due shall earn legal interest

from the time it is judicially demanded, although the obligation may be silent upon this point. In

the case at bar, the interest began to run on the penalty interest upon the filing of the complaint

in court by CCP. Therefore, petitioner is bound to pay the interest on the total amount of the

principal, the monetary interest and the penalty interest.

19

SPOUSES DAVID B. CARPO and RECHILDA S. CARPO

vs. ELEANOR CHUA and ELMA DY NG

G.R. Nos. 150773, September 30, 2005

TINGA, J.

FACTS:

On 18 July 1995, petitioners borrowed from Eleanor Chua and Elma Dy Ng the amount

of P175,000.00, payable within six (6) months with an interest rate of six percent (6%) per

month. To secure the payment of the loan, petitioners mortgaged their residential house and lot

situated at San Francisco, Magarao, Camarines Sur. Petitioners failed to pay the loan upon

demand. Consequently, the real estate mortgage was extrajudicially foreclosed and the

mortgaged property sold at a public auction. The house and lot was awarded to respondents,

who were the only bidders, for the amount of P367,457.80.

Upon failure of petitioners to exercise their right of redemption, a certificate of sale was

issued. The original TCT was cancelled and TCT No. 29338 was issued in the name of

respondents.

Despite the issuance of the TCT, petitioners continued to occupy the said house and lot,

prompting respondents to file a petition for writ of possession with the RTC. The court issued

an Orderfor the issuance of a writ of possession. On the other hand, petitioners filed a complaint

for annulment of real estate mortgage and the consequent foreclosure proceedings. Petitioners

consigned the amount of P257,197.26 with the RTC.

Meanwhile, a temporary restraining order was issued upon motion enjoining the

enforcement of the writ of possession. The RTC suspended the enforcement of the writ of

possession pending the final disposition of real estate mortgage and the consequent foreclosure

proceedings. Against this Order, respondents filed a petition for certiorari and mandamus

before the CA.

ISSUE:

1. Whether or not the agreed rate of interest of 6% per month or 72% per annum is so

excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and

void

20

2. Whether or not the invalidity of the stipulation on interest carries with it the invalidity of the

principal obligation

RULING:

1. Yes. It is apparent that the stipulated interest in the subject loan is excessive, iniquitous,

unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in

Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses,

terms and conditions as they may deem convenient, provided they are not contrary to law,

morals, good customs, public order, or public policy. In the ordinary course, the codal provision

may be invoked to annul the excessive stipulated interest.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By

the standards set in the above-cited cases, this stipulation is similarly invalid.

2. The principal obligation subsists despite the nullity of the stipulated interest. Hence, it is

clear and settled that the principal loan obligation still stands and remains valid. By the same

token, since the mortgage contract derives its vitality from the validity of the principal obligation,

the invalid stipulation on interest rate is similarly insufficient to render void the ancillary

mortgage contract.

21

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.

PANTALEON vs ARTHUR F. MENCHAVEZ

G.R. No. 160545; March 9, 2010

FACTS:

December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,

obtained a P1M loan from the respondent, with monthly interest of P40,000.00 payable for 6

months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the payment of

the loan, Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal

capacity and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to

completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding

balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the

unpaid balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of

P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest

was not provided in the promissory note. Pantaleon also denied that he made himself personally

liable and that he made representations that the loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a

loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a

6-month period. RTC ordered the petitioners to jointly and severally pay the respondent the

amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4%

monthly interest. CA favored respondent but noted that the interest of 4% per month, or 48%

per annum, was unreasonable and should be reduced to 12% per annum. MR denied hence

this petition.

ISSUE:

Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of

interest apply to the 6-month payment period only or until full payment of the loan?

22

RULING:

Obligations arising from contracts have the force of law between the contracting parties

and should be complied with in good faith. When the terms of a contract are clear and leave no

doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.

Courts have no authority to alter the contract by construction or to make a new contract for the

parties; a courts duty is confined to the interpretation of the contract the parties made for

themselves without regard to its wisdom or folly, as the court cannot supply material stipulations

or read into the contract words the contract does not contain. It is only when the contract is

vague and ambiguous that courts are permitted to resort to the interpretation of its terms to

determine the parties intent.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless

it has been expressly stipulated in writing. The payment of interest in loans or forbearance of

money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2)

the agreement for the payment of interest was reduced in writing. The concurrence of the two

conditions is required for the payment of interest at a stipulated rate. The collection of interest

without any stipulation in writing is prohibited by law.

The interest of P40,000.00 per month corresponds only to the six-month period of the

loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory

note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.

The facts show that the parties agreed to the payment of a specific sum of money of

P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-month

period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month was

ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since

it was not agreed upon.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month

for a period of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter,

interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners

23

during the pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be

deducted from the total amount due, computed as indicated above.

The case was remanded to the trial court for the actual computation of the total amount

due.

24

SPOUSES EDUARDO and LYDIA SILOS vs. PHILIPPINE NATIONAL BANK

G.R. No. 181045, July 2, 2014

Facts:

Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two

decades of operating a department store and buying and selling of ready-to-wear apparel.

Respondent Philippine National Bank (PNB) is a banking corporation organized and existing

under Philippine laws.

To secure a one-year revolving credit line of P150, 000.00 obtained from PNB,

petitioners constituted in August 1987 a Real Estate Mortgage over a 370-square meter lot in

Kalibo, Aklan covered by Transfer Certificate of Title No. (TCT) T-14250. In July 1988, the credit

line was increased to P1.8 million and the mortgage was correspondingly increased to P1.8

million. In July 1989, a Supplement to the Existing Real Estate Mortgage was executed to cover

the same credit line, which was increased to P2.5 million, and additional security was given in

the form of a 134-square meter lot covered by TCT T-16208. In addition, petitioners issued eight

Promissory Notes and signed a Credit Agreement. The eight Promissory Notes, on the other

hand, contained a stipulation granting PNB the right to increase or reduce interest rates "within

the limits allowed by law or by the Monetary Board. The Real Estate Mortgage agreement

provided the same right to increase or reduce interest rates "at any time depending on whatever

policy PNB may adopt in the future."

Petitioners religiously paid interest on the notes. In August 1991, an Amendment to

Credit Agreement was executed by the parties

Respondent regularly renewed the line from 1990 up to 1997, and petitioners made

good on the promissory notes, religiously paying the interests without objection or fail. But in

1997, petitioners faltered when the interest rates soared due to the Asian financial crisis.

Petitioners sole outstanding promissory note for P2.5 million executed in July 1997 and due

120 days later or on October 28, 1997 became past due, and despite repeated demands,

petitioners failed to make good on the note. Thus, PNB foreclosed on the mortgage, and on

January 14, 1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount of

P4,324,172.96.21 The sheriffs certificate of sale was registered on March 11, 1999.

On March 24, 2000, petitioners filed a civil case seeking annulment of the foreclosure

sale and an accounting of the PNB credit. Petitioners theorized that after the first promissory

note where they agreed to pay 19.5% interest, the succeeding stipulations for the payment of

interest in their loan agreements with PNB which allegedly left to the latter the sole will to

determine the interest rate became null and void. Petitioners added that because the interest

rates were fixed by respondent without their prior consent or agreement, these rates are void,

and as a result, petitioners should only be made liable for interest at the legal rate of 12%. They

claimed further that they overpaid interests on the credit, and concluded that due to this

overpayment of steep interest charges, their debt should now be deemed paid, and the

foreclosure and sale of TCTs T-14250 and T-16208 became unnecessary and wrongful. As for

25

the imposed penalty of P581,666.66, petitioners alleged that since the Real Estate Mortgage

and the Supplement thereto did not include penalties as part of the secured amount, the same

should be excluded from the foreclosure amount or bid price, even if such penalties are

provided for in the final Promissory Note.

On February 28, 2003, the trial court rendered judgment dismissing the Civil Case.

Petitioners appealed to the CA. The appeal was partly granted. Therefore decision of the

Regional Trial Court per Order dated June 4, 2003 was affirmed with modification.

Hence, this petition.

Issue: Whether or not the unilateral action of PNB in increasing rate violated the mutuality of

contracts under Article 1308 of the Civil Code.

Ruling:

Yes. The court held that the unilateral action of the PNB in increasing the interest rate on

the private respondents loan violated the mutuality of contracts ordained in Article 1308 of the

Civil Code:

Art. 1308. The contract must bind both contracting parties; its validity or compliance

cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force of law

between the parties, there must be mutuality between the parties based on their

essential equality. A contract containing a condition which makes its fulfillment

dependent exclusively upon the uncontrolled will of one of the contracting parties, is void

. . . . Hence, even assuming that the . . . loan agreement between the PNB and the

private respondent gave the PNB a license (although in fact there was none) to increase

the interest rate at will during the term of the loan, that license would have been null and

void for being violative of the principle of mutuality essential in contracts. It would have

invested the loan agreement with the character of a contract of adhesion, where the

parties do not bargain on equal footing, the weaker partys (the debtor) participation

being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable

trap for the weaker party whom the courts of justice must protect against abuse and

imposition.

The Court ruled on Spouses Almeda v. Court of Appeals, that the binding effect of any

agreement between parties to a contract is premised on two settled principles: (1) that any

obligation arising from contract has the force of law between the parties; and (2) that there must

be mutuality between the parties based on their essential equality. Any contract which appears

to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is

void. Any stipulation regarding the validity or compliance of the contract which is left solely to

the will of one of the parties, is likewise, invalid.

26

It is plainly obvious, therefore, from the undisputed facts of the case that respondent

bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates

on the loan without the prior assent of the latter. In fact, the manner of agreement is itself

explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be

due unless it has been expressly stipulated in writing." What has been "stipulated in writing"

from a perusal of interest rate provision of the credit agreement signed between the parties is

that petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-

escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the

limits allowed by law; and 3) upon agreement.

Indeed, the interest rate which appears to have been agreed upon by the parties to the

contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this

is in fact readily resolved by a careful reading of the credit agreement because the same plainly

uses the phrase "interest rate agreed upon," in reference to the original 21% interest rate.

27

DEPOSIT

Bank of the Philippine Island vs. Intermediate Appellate Court

G.R. No. L-66826, August 19, 1988

FACTS:

RizaldyZshornack and his wife, Shirley Gorospe, maintained in Commercial Bank and

Trust Company of the Philippines (COMTRUST), which was later on absorbed by the the Bank

of the Philippine Islands, a dollar savings account and a peso current account.

On December 8, 1975, Zshornack entrusted to COMTRUST, thru Virgilio Garcia,

assistant Branch Manager of COMTRUST , US $3,000.00 cash (greenbacks)

for safekeeping, and that the agreement was embodied in a document stating that COMTRUST

already received the said amount in his dollar account for safekeeping. However, when

Zshornack demanded the return of the amount, the bank refused to do so. COMTRUST averred

that the sum was disposed of in this manner: US$2,000.00 was sold and the peso proceeds

amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip

accomplished by Garcia; the remaining US$1,000.00 was also sold later and the peso proceeds

amounting to P8,350.00 were deposited to his current account per deposit slip also

accomplished by Garcia. Thus, the US$3,000.00 was properly credited to Zshornack's current

account at prevailing conversion rates.

ISSUE:

Whether or not the contract between the parties is one of a deposit

RULING:

It is a contract of deposit defined under Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing

belonging to another, with the obligation of safely keeping it and of returning the

same. If the safekeeping of the thing delivered is not the principal purpose of the

contract, there is no deposit but some other contract.

28

The document acknowledging the receipt of the money (greenbacks) by the bank for

safekeeping show that the intent of the parties was really for the bank to safely keep the dollars

and to return it to Zshornack at a later time, Thus, Zshornack demanded the return of the money

on May 10, 1976, or over five months later.

Nothing in the document states that the parties intend to sell the US dollars to the

Central Bank within one business day from receipt. Otherwise, the contract of depositum would

never have been entered into at all.

29

DURBAN APARTMENTS CORPORATION/CITY GARDEN HOTEL

vs. PIONEER INSURANCE AND SURETY CORPORATION

G.R. NO. 179419, January 12, 2011

NACHURA, J.:

FACTS:

On April 30, 2002, Jeffrey See arrived in a Suzuki Grand Vitara, and checked in at the

City Garden Hotel before midnight, and its parking attendant Vicente Justimbaste got the key to

said Vitara to park it, issuing See a valet parking customers claim stub. See was awakened by

a telephone call from the Hotel Chief Security Officer, Ernesto Horlador, Jr., informing him that

his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI

Bank, near City Garden Hotel. Forthwith, the incident was reported to the Makati City Police

Anti-Carnapping Unit, which conducted an investigation and found that a prior similar incident

happened in the Hotels valet parking service and that no necessary precautions were taken to

prevent its repetition. Thereafter, See recovered the amount of P1,163,250.00 from the car

insurer, Pioneer Insurance and Surety Corporation. Despite written demands by the latter to

Durban Apartments, no payment or reimbursement was made to the insurer. Hence, on July 22,

2003, Pioneer Insurance, by right of subrogation, filed a Complaint for Recovery of Damages

against Durban Apartments and Justimbaste, alleging that the latter was negligent in the

selection and supervision of its employee Justimbaste. During the pre-trial conference, both

Durban Apartments and Justimbaste, represented by Atty. Nestor Mejia, failed to file their pre-

trial brief, thus, they were declared in default and Pioneer Insurance was allowed to present its

evidence ex parte. The RTC of Makati City ruled in favor of Prioneer Insurance, ordering Durban

Apartments to pay the money claim with legal interest from July 22, 2003, plus attorneys fees

and costs of suit amounting to P120,000. This was affirmed by the CA, hence, this present

petition.

ISSUE: Whether or not Durban Apartments is liable to Pioneer Insurance for the loss of Sees

vehicle?

RULING:

The Court ruled in the affirmative. It is a rule that factual findings of the trial court,

especially when affirmed by the appellate court are accorded the highest degree of respect and

are considered conclusive between the parties. And that the petitioner was in default, thus,

30

correctly allowing the respondent to present evidence ex parte. On the merits of the case,

respondent Pioneer Insurance substantiated the allegations in its complaint, i.e., a contract of

necessary deposit existed between the insured Jeffrey See and petitioner Durban Apartments.

Article 1962, in relation to Article 1998 of the Civil Code defines a contract of deposit and a

necessary deposit made by persons in hotels or inns. Plainly, from the facts found by the lower

courts, the insured See depoisted his vehicle for safekeeping with petitioner through the latters

employee Justimbaste who in turn issued a claim stub to See. Thus, the contract of deposit was

perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle,

which Justimbaste received with the obligation of safely keeping and returning it. Therefore,

ultimately, petitioner is liable for the loss of Sees vehicle.

31

TRIPLE-V vs. FILIPINO MERCHANTS

G.R. No. 160544. February 21, 2005

FACTS:

On March 2, 1997 a certain Mary Jo-Anne De Asis dined at petitioner's Kamayan

Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super

Saloon Model 1995, assigned to her by her employer Crispa Textile Inc. On said date, De Asis

availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet

counter. A corresponding parking ticket was issued as receipt for the car. Few minutes later,

Madridano noticed that the car was not in its parking slot and its key no longer in the box where

valet attendants usually keep the keys of cars entrusted to them. The car was never recovered.

Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants

Insurance Company, Inc. (FMICI). Having indemnified Crispa in the amount of P669.500 for the

loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati

City an action for damages against petitioner Triple-V Food Services, Inc.

ISSUE: Whether or not there is a Depositary contract when the De asis entrusted the car to the

petitioner.

RULING:

In a contract of deposit, a person receives an object belonging to another with the

obligation of safely keeping it and returning the same.rA deposit may be constituted even

without any consideration. It is not necessary that the depositary receives a fee before it

becomes obligated to keep the item entrusted for safekeeping and to return it later to the

depositor. Specious is petitioner's insistence that the valet parking claim stub it issued to De

Asis contains a clear exclusion of its liability and operates as an explicit waiver by the customer

of any right to claim indemnity for any loss of or damage to the vehicle. The parking claim stub

embodying the terms and conditions of the parking, including that of relieving petitioner from any

loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by

the petitioner alone with no participation whatsoever on the part of the customers, like De Asis,

who merely adheres to the printed stipulations therein appearing. Petitioner must not be

allowed to use its parking claim stub's exclusionary stipulation as a shield from any

responsibility for any loss or damage to vehicles or to the valuables contained therein. Here, it is

evident that De Asis deposited the car in question with the petitioner as part of the latter's

enticement for customers by providing them a safe parking space within the vicinity of its

restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's

restaurant business because customers are thereby somehow assured that their vehicle are

safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject

car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully

expects the security of her car while at petitioner's premises/designated parking areas and its

safe return at the end of her visit at petitioner's restaurant.

32

Spouses Alfredo and EstelitaLipat vs. Pacific Banking Corporation

GR No. 142435, April 30, 2003

Justice Quisumbing

FACTS:

The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading"

(BET), a single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon

City. BET was engaged in the manufacture of garments for domestic and foreign consumption.

The Lipats also owned the "Mystical Fashions" in the United States, which sells goods imported

from the Philippines through BET. Mrs.Lipat designated her daughter, Teresita B. Lipat, to

manage BET in the Philippines while she was managing "Mystical Fashions" in the United

States. In order to facilitate the convenient operation of BET, EstelitaLipat executed on 14

December 1978, a special power of attorney appointing TeresitaLipat as her attorney-in-fact to

obtain loans and other credit accommodations from Pacific Banking Corporation (Pacific Bank).

She likewise authorized Teresita to execute mortgage contracts on properties owned or co-

owned by her as security for the obligations to be extended by Pacific Bank including any

extension or renewal thereof.

Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to

secure for and in behalf of her mother, Mrs.Lipat and BET, a loan from Pacific Bank amounting

to P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions"

in the United States. As security therefor, the Lipat spouses, as represented by Teresita,

executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao,

Quezon City. Said property was likewise made to secure other additional or new loans, etc. On

5 September 1979, BET was incorporated into a family corporation named Bela's Export

Corporation (BEC) in order to facilitate the management of the business. BEC was engaged in

the business of manufacturing and exportation of all kinds of garments of whatever kind and

description and utilized the same machineries and equipment previously used by BET. Its

incorporators and directors included the Lipat spouses who owned a combined 300 shares out

of the 420 shares subscribed, TeresitaLipat who owned 20 shares, and other close relatives and

friends of the Lipats. EstelitaLipat was named president of BEC, while Teresita became the

vice-president and general manager. Eventually, the loan was later restructured in the name of

BEC and subsequent loans were obtained by BEC with the corresponding promissory notes

33

duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by

Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after

BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor

of Pacific Bank for additional finances. These transactions were all secured by the real estate

mortgage over the Lipats' property. The promissory notes, export bills, and trust receipt

eventually became due and demandable. Unfortunately, BEC defaulted in its payments. After

receipt of Pacific Bank's demand letters, EstelitaLipat went to the office of the bank's liquidator

and asked for additional time to enable her to personally settle BEC's obligations. The bank

acceded to her request but Estelita failed to fulfill her promise. Consequently, the real estate

mortgage was foreclosed and after compliance with the requirements of the law the mortgaged

property was sold at public auction. On 31 January 1989, a certificate of sale was issued to

respondent Eugenio D. Trinidad as the highest bidder.

On 28 November 1989, the spouses Lipat filed before the Quezon City RTC a complaint

for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale

issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged,

among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of

Teresita as they were executed without the requisite board resolution of the Board of Directors

of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the

same were the corporation's sole obligation, it having a personality distinct and separate from

spouses Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific

Bank was specifically limited to Mrs.Lipat's sole use and benefit and that the real estate

mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only. In their

respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot

evade payments of the value of the promissory notes, trust receipt, and export bills with their

property because they and the BEC are one and the same, the latter being a family corporation.

Trinidad further claimed that he was a buyer in good faith and for value and that the Lipat

spouses are estopped from denying BEC's existence after holding themselves out as a

corporation. After trial on the merits, the RTC dismissed the complaint. The Lipats timely

appealed the RTC decision to the Court of Appeals in CA-G.R. CV 41536. Said appeal,

however, was dismissed by the appellate court for lack of merit. The Lipats then moved for

reconsideration, but this was denied by the appellate court in its Resolution of 23 February

2000. The Lipat spouses filed the petition for review on certiorari.

34

ISSUE:

Whether BEC and BET are separate business entities, and thus the Lipt spouses can

isolate themselves behind the corporate personality of BEC.

RULING:

When the corporation is the mere alter ego or business conduit of a person, the separate

personality of the corporation may be disregarded. This is commonly referred to as the

"instrumentality rule" or the alter ego doctrine, which the courts have applied in disregarding the

separate juridical personality of corporations. As held in one case, where one corporation is so

organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality

or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be

disregarded. The control necessary to invoke the rule is not majority or even complete stock

control but such domination of finances, policies and practices that the controlled corporation

has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its

principal. The evidence on record shows BET and BEC are not separate business entities. (1)

Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC,

respectively; (2) both firms were managed by their daughter, Teresita, 19 years of age; (3) both

firms were engaged in the garment business, supplying products to "Mystical Fashion," a U.S.

firm established by EstelitaLipat; (4) both firms held office in the same building owned by the

Lipats; (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the

business operations of the BEC were so merged with those of Mrs.Lipat such that they were

practically indistinguishable; (7) the corporate funds were held by EstelitaLipat and the

corporation itself had no visible assets; (8) the board of directors of BEC was composed of the

Burgos and Lipat family members; (9) Estelita had full control over the activities of and decided

business matters of the corporation; and that (10) EstelitaLipat had benefited from the loans

secured from Pacific Bank to finance her business abroad and from the export bills secured by

BEC for the account of "Mystical Fashion." It could not have been coincidental that BET and

BEC are so intertwined with each other in terms of ownership, business purpose, and

management.

Apparently, BET and BEC are one and the same and the latter is a conduit of and

merely succeeded the former. The spouses' attempt to isolate themselves from and hide behind

the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what

35

the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. BEC

is a mere continuation and successor of BET, and the Lipat spouses cannot evade their

obligations in the mortgage contract secured under the name of BEC on the pretext that it was

signed for the benefit and under the name of BET.

36

CA-Agro Industrial Development Corporation v. Court of Appeals

G.R. No. 90027. March 3, 1993

Davide, JR., J:

FACTS:

Petitioner and the spouses Ramon and Paula Pugao entered into an agreement

whereby the former purchased from the latter two (2) parcels of land. Among the terms and

conditions of the agreement were that the titles to the lots shall be transferred to the petitioner

upon full payment of the purchase price and that the owner's copies of the certificates of titles

thereto and that title shall be deposited shall be deposited in a safety deposit box of any bank.

Petitioner and the Pugaos then rented Safety Deposit Box of private respondent Security Bank

and Trust Company.Thereafter, a certain Mrs. Margarita Ramos offered to buy from the

petitioner the two (2) lots. Mrs. Ramos demanded the execution of a deed of sale which

necessarily entailed the production of the certificates of title. In view thereof, Aguirre,

accompanied by the Pugaos, then proceeded to the respondent Bank to open the safety deposit

box and get the certificates of title. However, when opened in the presence of the Bank's

representative, the box yielded no such certificates.

ISSUE: Whether or not the contractual relation between a commercial bank and another party is

one of a contract of rent of a safety deposit box with respect to its contents placed by the latter

one of bailor and bailee or one of lessor and lessee?

RULING:

The contract for the rent of the safety deposit box is not an ordinary contract of lease as

defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the

same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on

deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as

an ordinary contract of lease under Article 1643 because the full and absolute possession and

control of the safety deposit box was not given to the joint renters the petitioner and the

Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither

of the renters could open the box. On the other hand, the respondent Bank could not likewise

open the box without the renter's key. In this case, the said key had a duplicate which was

made so that both renters could have access to the box.

37

BARTOLOME ORTIZ v. HON. UNION C. KAYANAN, in his capacity as Judge of the Court

of First Instance of Quezon, Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN,

VICENTE FERRO, AND GREGORIO PAMISARAN

G.R. No.L-32974. July 30, 1979.

FACTS:

(1) The lot in controversy was formerly the subject of Homestead Application of Martin Dolorico

II, plaintiffs ward who died; that since then it was plaintiff who continued the cultivation and

possession of the property, without however filing any application to acquire title thereon;

(2) That in the Homestead Application, Martin Dolorico II named his uncle, Martin Dolorico I as

his heir and successor in interest, so that in 1951 Martin Dolorico I executed an affidavit

relinquishing his rights over the property in favor of defendants QuirinoComintan and Eleuterio

Zamora, his grandson and son-in-law, respectively, and requested the Director of Lands to

cancel the homestead application;

(3) That on the strength of the affidavit, Homestead Application was cancelled and thereafter,

defendants Comintan and Zamora filed their respective sales applications; that plaintiff filed his

protest on alleging that he should be given preference to purchase the lot inasmuch as he is the

actual occupant and has been in continuous possession of the same since 1931; and inspite of

plaintiffs opposition,

(4) Portion A of the property was sold at public auction wherein defendant Comintan was the

only bidder; that an investigation was conducted on plaintiffs protest by Assistant Public Lands

Inspector SerapionBauzon who submitted his report to the Regional Land Officer, and who in

turn rendered a decision, dismissing plaintiffs claim and giving due course to defendants sales

applications on the ground that the relinquishment of the homestead rights of Martin Dolorico I

in favor of Comintan and Zamora is proper, the former having been designated as successor in

interest of the original homestead applicant and that because plaintiff failed to participate in the

public auction, he is forever barred to claim the property;

(5) That plaintiff filed a motion for reconsideration of this decision which was denied by the

Director of Lands in his oreder dated June 10, 1959; that finally, on appeal to the Secretary of

Agriculture and Natural Resources, the decision rendered by the Regional Land Officer was

affirmed in toto.

(6) The CFI rendered judgment awarding one-half portion of the property in litigation in favor of

defendant QUIRINO COMINTAN, being the successful bidder in the public auction conducted

by the Bureau of Lands and hereby giving due course to the Sales Application of defendant

Eleuterio Zamora over the other half.

(7) The Appellate Court affirmed the decision of the trial court.

ISSUE:

38

Whether or not petitioner is still entitled to retain for his own exclusive benefit all the fruits of the

property for being a possessor in good faith.

RULING:

The Supreme Court held that even after his good faith ceases, the possessor in fact can

still retain the property, pursuant to Article 546 of the New Civil Code, until he has been fully

reimbursed for all the necessary and useful expenses made by him on the property. This right of

retention has been considered as one of the conglomerate of measures devised by the law for

the protection of the possessor in good faith. Its object is to guarantee the reimbursement of the

expenses, such as those for the preservation of the property, or for the enhancement of its utility

or productivity. It permits the actual possessor to remain in possession while he has not been

reimbursed by the person who defeated him in the possession for those necessary expenses

and useful improvements made by him on the thing possessed. The principal characteristic of

the right of retention is its accessory character. It is accessory to a principal obligation.

Considering that the right of the possessor to receive the fruits terminates when his good faith

ceases, it is necessary in order that this right to retain may be useful, to concede to the creditor

the right to secure reimbursement from the fruits of the property by utilizing its proceeds for the

payment of the interest as well as the principal of the debt while he remains in possession. This

right of retention of the property by the creditor, according to Scaevola, in the light of the

provisions of Article 502 of the Spanish Civil Code, is considered not a coercive measure to

oblige the debtor to pay, depriving him temporarily of the enjoyment of the fruits of his property,

but as a means of obtaining compensation for the debt.

39

YHT Realty, Lainez, Payamvs CA and McLoughlin

G.R. No. 126780. February 17, 2007

FACTS:

McLoughlin was an Australian businessman-philanthropist who met a certain Bhrunilda

Mata Tan and befriended him. Tan convinced McLoughlin to transfer from Sheraton Hotel and

stay at Tropicana Hotel during trips to thePhilippines. Petitioners Lainez, as manager, Payam

and Danilo Lopez, had the custody of the keys for the safety deposit boxes, were all employees

at Tropicana.

McLoughlin started staying at said Tropicana Hotel and registered therein from

December 1984 to 1987. On October 30, 1987, McLoughlin arrived from Australia and

registered with Tropicana. He rented safety deposit box which could only be opened through the

use of 2 keys, one of which is given to the registered guest, and the other remaining in the

possession of the management of the hotel.

When a registered guest wished to open his safety deposit box, he alone could

personally request the management who then would assign one of its employees to accompany

the guest and assist him in opening the safety deposit box with the two keys. When McLoughlin

went for a trip in Hong Kong and without checking out the hotel, he left some US and Australian

dollars in the safety deposit box.

Upon his return, he went back to Australia; there he noticed that some USD 5000 and

jewellery he bought from Hong Kong were missing. When he came back to the Philippines,

again registered and rented a safety deposit box with Tropicana, placing therein some USD

15000, AUD 10000 and some important documents. He requested to open the safety deposit

box, but he found out that USD 2000, and AUD 4500 were missing. He confronted Lainez and

Payam; they told him that Tan was able to open the safety deposit box. Tan admitted to the said

actuation and added that she was assisted by Lainez, Lopez and Payam. Lopez wrote a PN and

requested Tan to sign it, which the latter did. Despite the execution of the PN, McLoughlin

insisted that it must be the hotel who must assume responsibility for the loss he suffered.

However, Lopez refused to accept the responsibility relying on the conditions for renting the

deposit box, which held free and blameless Tropicana for any loss in the contents of the safety

deposit box.

ISSUE: WON a hotel may evade liability for the loss of items left with it for safekeeping by its

guests, by having these guests execute written waivers holding the establishment or its

40

employees free from blame for such loss in light of Article 2003 of the Civil Code which voids

such waivers?

RULING:

No. Petitioners were directed, jointly and severally, to pay private respondent.

Article 2003 provides that the hotel-keeper cannot free himself from responsibility by

posting notices to the effect that he is not liable for the articles brought by the guest. Any

stipulation between the hotel-keeper and the guest whereby the reasonability of the former as

set for the in articles 1998 to 2001 is suppressed or diminished shall be void. The hotel business

like the common carrier's business is imbued with public interest. Catering to the public,

hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons

and belongings. The twin duty constitutes the essence of the business. The law in turn does not

allow such duty to the public to be negated or diluted by any contrary stipulation in so-called

"undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests

for their signature.

In an early case, to hold hotel-keepers or innkeepers liable for the effects of their guests,

it is not necessary that they be actually delivered to the innkeepers or their employees. It is

enough that such effects are within the hotel or inn. With greater reason should the liability of

the hotelkeeper be enforced when the missing items are taken without the guests knowledge

and consent from a safety deposit box provided by the hotel itself.

The undertaking manifestly contravened Article 2003 of the Civil Code it allowed

Tropicana to be released from liability arising from any loss in the contents of the safety deposit

box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim against

Tropicana for any loss of the contents of the safety deposit box whether or not negligence was

incurred by Tropicana or its employees.

The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to

loss of, or injury to, the personal property of the guests even if caused by servants or employees

of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force

majeure. It is the loss through force majeure that may spare the hotel-keeper from liability. In the

case at bar, there is no showing that the act of the thief or robber was done with the use of arms

or through an irresistible force to qualify the same as force majeure.

41

GUARANTY

Dio vs. Court of Appeals (1992)

G.R. No. 89775. November 26, 1992

FACTS:

In 1977, UyTiam Enterprises and Freight Services (UTEFS), thru its representative

UyTiam, applied for and obtained credit accommodations from Metrobank in the sum of

Php700,000. This was secured by Continuing Suretyships separately executed by petitioners

Norberto Uy (who agreed to pay Php300,000) and Jacinto Dio (who bound himself liable up to

Php800,000). UyTiam paid the obligation under this letter of credit in 1977. UTEFS obtained

another credit accommodation in 1978, which was likewise settled before he applied and

obtained another in 1979 in the sum of Php815,600. This sum covered UTEFS purchase of

fertilizers from Planters Producst. Uy and Dio did not sign the application for this credit and

were not asked to execute suretyship or guarantee. UTEFS executed a trust receipt whereby it

agreed to deliver to Metrobank the goods in the event of non-sale, and if sold, the proceeds will

be delivered to Metrobank. However, UTEFS did not comply with its obligation. As a result,

Metrobank demanded payment from UTEFS and the sureties, Uy&Dio. The sureties refused to

pay on the ground that the obligation for which they executed the continuing suretyship

agreement has been paid. RTC ruled in favor of the petitioners, CA affirmed.

ISSUE: Whether or not the petitioners are liable for payment of the 1979 transaction under the

continuing suretyship agreement they executed in 1977. Assuming that they are, what is the

extent of their liability.

RULING:

The Supreme Court held that Uy&Dio are liable. The agreement they executed in

1977 is a continuing surety-ship, one which is not limited to a single transaction but which

contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.

The agreement that petitioners signed expressly provided that it is a continuing guaranty and

shall be in full force and effect until written notice to the bank that it has been revoked by the

surety. As to the 2nd issue, petitioners are only liable up to the maximum limit fixed in the

continuing suretyship agreements (Php800,000 for Dio and Php300,000 for Uy). The law is

clear that a guarantor may bind himself for less, but not for more than the principal debtor, both

42

as regards the amount and the onerous nature of the conditions (Art. 2054). CA decision

ordering petitioners to pay P2,397,883.68 which represents the amount due inclusive of interest

and charges, is modified.

43

Escano vs. Ortigas

G.R. no. 151953, June 29, 2007

FACTS:

On 28 April 1980, Private Development Corporation of the Philippines (PDCP) entered

into a loan agreement with Falcon Minerals, Inc., whereby PDCP agreed to make available and

lend to Falcon the amount of US$320,000.00, for specific purposes and subject to certain terms

and conditions. On the same day, three stockholders-officers of Falcon, namely: respondent

Rafael Ortigas, Jr., George A. Scholey and George T. Scholey executed an Assumption of

Solidary Liability whereby they agreed to assume in their individual capacity, solidary liability

with Falcon for the due and punctual payment of the loan contracted by Falcon with PDCP. In

the meantime, two separate guaranties were executed to guarantee the payment of the same

loan by other stockholders and officers of Falcon, acting in their personal and individual

capacities. One Guaranty was executed by petitioner Salvador Escao, while the other by

petitioner Mario M. Silos, Ricardo C. Silverio, Carlos L. Inductivo and Joaquin J. Rodriguez.

ISSUE:

Whether or not the obligation to repay is solidary

RULING:

When there is a concurrence of two or more creditors or of two or more debtors in one

and the same obligation, art. 1207 of the NCC states that among them, there is a solidary

liability only when the obligation expressly so states, or when the law or the nature of the

obligation requires solidarity. Art.1210 supplies further caution against the broad interpretation

of solidarity by providing the indivisibility of an obligation does not necessarily give rise to

solidarity. Nor does solidarity of itself imply indivisibility. This provision established that in the

case of concurrence of two or more creditors or of two or more debtors in one and the same

obligation, and in the absence of express and indubitable terms characterizing the obligation as

solidary, the presumption is that the obligation is only join. It thus becomes incumbent upon the

party alleging that the obligation is indeed solidary in character to prove such fact with a

preponderance of evidence. Note that art. 2047 itself specifically calls for the application of the

provision on joint and solidary obligation to surety-ship contracts. Art.1217 of the NCC thus

comes into play, recognizing the right of reimbursement from a co-debtor in favor of the one

44

who paid. However, a significant distinction still lies between a joint and several debtors, on one

hand, and a surety on the other hand. Solidarity signifies that the creditor can compel anyone of

the joint and several debtors or the surety alone to answer for entirety of the principal debt. The

difference lies in the respective faculties of the joint and several debtors and the surety to seek

reimbursement for the sums they paid out to the creditor.

45

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ v. THE COURT OF APPEALS and BANK

OF THE PHILIPPINE ISLANDS

G.R. No. 145578. November 18, 2005

CARPIO, J.:

FACTS:

Jose Tupaz and PetronilaTupaz were Vice-President for Operations and Vice-

President/Treasurer, respectively, of El Oro Corporation. El Oro Corporation had a contract with

the PH Army to supply the latter with survival bolos. To finance the purchases of the raw

materials for the bolos, the petitioners (on behalf of El Oro) applied with BPI for 2 commercial

letters of credit.

The letters of credit were in favor of El Oros suppliers, Tanchaoco Incorporated and

Maresco Corporation. BPI granted the application and issued the letters of credit for

P564,871.05 and P294,0