REPUBLIC vs. BAGTAS

FACTS:Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls for a period of one year for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year and requested the return of the other two. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls and later reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. The Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later which Bagtas failed to pay or to return. An action against him was commenced, praying that he be ordered to return the three bulls loaned to him or to pay their book value with interests, and costs; and that other just and equitable relief be granted. Bagtas answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huks in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of the returning the bull or paying its value to the appellee.

ISSUE:Whether or not Bagtas is relieved from the duty of returning or paying for the value of the bull.

SC RULING:Bagtas is not relieved of his obligation. The loan by the appellee to the late defendant Bagtas of the three bulls for breeding purposes for a period of one year, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under the Civil Code, the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum still the appellant is liable, because the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the thing, even if it should be through a fortuitous event: xxx 2) If he keeps it longer than the period stipulated; 3) 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.

Effect of Adverse Possession for 11 years

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ

FACTS:The whole controversy started when the petitioner Catholic Vicar Apostolic of the Mountain

Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The respondent in this case appealed the decision of the land registration court to the then Court of Appeals. The Court of Appeals rendered its decision, reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3. VICAR then filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3. The Heirs of Juan Valdez and Pacita Valdez, on likewise filed with the Supreme Court a petition for review.

The Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolution. The Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision did not grant the Heirs of Octaviano any affirmative relief. The heirs of Octaviano and the Heirs of Valdez then filed their cases for recovery of possession.

In these two cases , the plaintiffs argue that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals

and affirmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent them from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals.

ISSUE:Whether or not the adverse possession of the petitioner of the subject lot for 11 years would

constitute as a valid acquisitive prescription of the lot?

SC RULING:Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the

trust by declaring the properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were in possession Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have become incontestable. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a long time ago.

Effect of Suspension of Possessory Rights for more than 50 years

REPUBLIC vs. CA

FACTS: Applicant Baloys’ claim is anchored on their possessory information title coupled with their continuous, adverse and public possession over the land in question. An examination of said title shows that the description and the area of the land stated therein substantially coincides with the land applied for and that said title had been regularly issued having been acquired by applicants’ predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on April 8, 1965. The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive order of the President of the U.S., the area was declared within the U.S. Naval Reservation.

ISSUE: Whether or not the possessory rights of Baloy are lost?

SC RULING: No. The finding of the respondent court that during the interim of 57 years from November 26, 1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or the heirs were merely suspended and not lost by prescription, is supported by a communication or letter No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of the Philippines with regard to the status of the land in question. Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successor-in-interest. One’s ownership of a thing may be lost by prescription by reason of another’s possession if such possession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navy’s occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

Cases:

If neither the duration of the contract nor the use of the thing loaned is stipulated

QUINTOS vs. BECK

FACTS:Beck was a tenant of Quintos and occupied the latter's house. Upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on notified the defendant of the conveyance, and asked him to vacate the premises. Also, Quintos required the defendant to return all the furniture transferred to him for them in the house where they were found.

Beck wrote a letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUE:         1. Whether the defendant complied with his obligation to return the furniture upon the plaintiff's

demand; 2. whether the latter is bound to bear the deposit fees thereof, 3. whether she is entitled to the costs of litigation.

SC RULING:The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand

Issue 1:YES, The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

Issue 2:NO, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

Issue 3:Yes, the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party. The defendant was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances

If the use of the thing is merely tolerated

CATHOLIC VICAR vs. CA

FACTS:Catholic Vicar Apostolic of the Mountain Province filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. The two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; petitioner had been in possession as owner for eleven years.

ISSUE:Whether or not Catholic Vicar acquired subject lots by way of ordinary acquisitive prescription.

SC RULING:There is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

Case:Effect of approval of loan application

SAURA IMPORT and EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE PHILIPPINES

FACTS:In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation

Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it. On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.the loan was suggested to be reduced from 500,000 to 300,00. In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you." Because of the conflict with regards to the negotiations within the DBP, Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.

Almost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof.

ISSUE:Whether or not the approval of the loan create an obligation on the part of DBP which it has to

fulfill in favor of Saura Inc.

SC Ruling:We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of

the Civil Code, which provides:ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.

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 basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955,

stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. As it is there was mutual desistance to the performance of the obligation.

Cases:Effect of failure to return

QUINTOS vs. BECK

FACTS:The plaintiff brought this action to compel the defendant to return her certain furniture which she

lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.          The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them.On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUE:Whether or not the defendant has the obligation to return the furniture upon demand of the

plaintiff?

SC RULING:The contract entered into between the parties is one of commadatum, because under it the

plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand. The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.

The defendant, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.          The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described.

CATHOLIC VICAR vs. CA

FACTS:Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for

registration of title over Lots 1, 2, 3, and 4 in Psu-194357 located in Benguet. Said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. However, the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. However, the Court of Appeals rendered its decision reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at

bar), the first lot being presently occupied by the convent and the second by the women's dormitory and the sister's convent.

ISSUE:Whether or not Vicar can validly claim the lands in question.

SC RULING:No, Vicar cannot validly acquire the lands especially on the ground of acquisitive prescription.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years.

DE LOS SANTOS vs. JARRA

The carabaos delivered to be used not being returned by the defendant upon demand, there is no doubt that she is under obligation to indemnify the owner thereof by paying him their value. Article 1101 of said code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subjected to indemnify for the losses and damages caused thereby.

The obligation of the bailee or of his successors to return either the thing loaned or its value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with precision the legal doctrine touching commodatum as follows:

Although it is true that in a contract of commodatum the bailor retains the ownership of the thing loaned, and at the expiration of the period, or after the use for which it was loaned has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him damages if through the fault of the bailee the thing should have been lost or injured, it is clear that where public securities are involved, the trial court, in deferring to the claim of the bailor that the amount loaned be returned him by the bailee in bonds of the same class as those which constituted the contract, thereby properly applies law 9 of title 11 of partida 5.

Cases:Mutuum vs. Commodatum

CHEE KIONG YAM vs. MALIK

FACTS:This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners

alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when: (a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima facie case against the latter; (b) he issued warrants of arrest against petitioners after making the above determination; and (c) he undertook to conduct trial on the merits of the charges which were docketed in his court as Criminal Cases No. M-111, M-183 and M-208.

In the three criminal cases the respondents charges the petitioner with estaffa through misappropriation, however in the face of the documents it state that the amount received was in the nature of a simple loan.

ISSUE:Whether or not the petitioners in this case can be charged of estaffa when the obligation is said

to be that of simple loan.

SC Ruling:We agree with the petitioners that the facts alleged in the three criminal complaints do not

constitute estafa through misappropriation. In order that a person can be convicted of estaffa, it must be proven that he has the obligation to

deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans.The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

Art. 1933. — By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other

consumable thing upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest.In commodatum the bailor retains the ownership of the thing loaned, while in simple loam ownership passes to the borrower.Art. 1953. — A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof. In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to nay his debt or to deny its existence.

We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, when he performed the questioned acts, He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender.

Thus the criminal complaints against petitioners are hereby declared null and void; respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest he had issued in connection therewith.

Mutuum vs. Lease

TOLENTINO vs. GONZALES SY CHIAM

FACTS:Sometime prior to the 28th day of November, 1922, the appellants (Tolentino and Manio)

purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon for the price of P25,000, promising to pay therefor in three installments. One of the conditions of that contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought would revert to the original owner. For the last installment, upon receiving the letter of the vendor of said property, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property.

ISSUE: May a tenant charge his landlord with a violation of the Usury Law upon the ground that the

amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest?

SC RULING: No. The value of money, goods or credits is easily ascertained while the amount of rent to be paid

for the use and occupation of the property may depend upon a thousand different conditions. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a thousand different conditions and may or may not have any direct reference to the value of the property rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or rural community. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country.

Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of receiving or taking usurious rates." It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind shall be returned with a compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It never means the return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the moment the contract is completed the money,

goods or chattels given cease to be the property of the former owner and becomes the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between the contractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other some nonconsumable thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning an equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum."

In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner of the property. During the period of redemption the vendor was a tenant of the purchaser. During the period of redemption the relation which existed between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655.

Mutuum vs. Estafa

LIWANAG vs. CAWhen there is no transfer of ownership, it is not a simple loan but estafa.

FACTS:Rosales constituted Liwanag and Tabligan as her agents in buying and selling cigarettes business. Under their agreement, Rosales would give the money needed to buy cigarettes while Liwanag and Tabligan would sell them, with corresponding 40% commission if the goods are sold; otherwise, the money would be returned to Rosales. Thus Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00. The two, after a few visits to Rosales to report on the progress of the transactions, never showed up to remit the proceeds of sale, nor returned the money advanced. Liwanag was charged with estafa, which she was convicted of. This was affirmed by CA, hence the petition.

SC RULING: Liwanag alleged the contract between her and Rosales was simple loan, hence there was no estafa. But the court held that the transaction cannot be considered loan since in a contract of loan, once money is received, ownership over the same is transferred. Being the owner, the borrower can dispose of it freely. Here, Liwanag could not dispose of the property freely as it was delivered to her for the single purpose of buying cigarettes, and if this was not possible then to return the money to Rosales. As there was no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art.315 par.1(b) of the RPC.

Case:Accepted promise to deliver something by way of simple loan

SAURA IMPORT and EXPORT CO., INC., vs. DEVELOPMENT BANK OF THE PHILIPPINES

FACTS:Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into

DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building for the manufacture of jute sacks; P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

After agreeing on the terms of the industrial loan, Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation. On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. which was willing to assume liability only to the extent of its stock subscription with Saura, Inc. sign as co-maker on the corresponding promissory notes.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10,

1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. But after the reexamination, there ensued several more circumstances that occurred that resulted to the prolonged the discharged of the loan. Afterwhich, the loan was again restored to the original amount of P500,000. Yet at one point, the negotiations between the two parties came to a standstill, and so Saura Inc. did not anymore pursue the matter. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.

On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC, as predecessor of the defendant DBP, to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

ISSUE: Whether or not the defendant bank is guilty of breach of contract of loan.

SC RULING:No. DBP is not guilty of breach of contract of loan. The Supreme Court held in this case that

although there was a perfected consensual contract between the parties, such that there was offer and acceptance: 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 basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. It was in line with such assumption that when RFC approved and restored the loan to the original amount of P500,000.00. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance, what Manresa terms "mutuo disenso," which is a mode of extinguishing obligations.

Clearly, the subsequent conduct of Saura Inc. requesting for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance confirms their desistance. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.

Cases:Payment in Currency Stipulated

RONO vs. GOMEZ

FACTS: Cristobal Roño received as a loan four thousand pesos in Japanese fiat money from Jose L.

Gomez. He informed the later that he would use the money to purchase a jitney; and he agreed to pay that debt one year after date in the currency then prevailing. After the liberation, Roño was sued for payment. His main defense was his liability should not exceed the equivalent of 4,000 pesos "mickey mouse" money — and could not be 4,000 pesos Philippine currency, because the contract would be void as contrary to law, public order and good morals.

ISSUE:Whether or not the contract is contrary to the Usury law, because on the basis of calculations by

Government experts Roño only received the equivalent of one hundred Philippine pesos and now he is required to disgorge four thousand pesos or interest greatly in excess of the lawful rates.

SC RULING:No, he is not paying interest. The contract says that the money received "will not earn any

interest." Furthermore, he received four thousand pesos; and he is required to pay four thousand pesos exactly. The increased intrinsic value and purchasing power of the current money is consequence of an event (change of currency) which at the time of the contract neither party knew would certainly happen within the period of one year. They both elected to subject their rights and obligations to that contingency. If within one year another kind of currency became legal tender, Gomez would probably get more for his money. If the same Japanese currency continued, he would get less, the value of Japanese money being then on the downgrade.

Stipulation not to pay while war is going on

NEPOMUCENO vs. NARCISO

FACTS:In 1938, plaintiff executed a mortgage in favor of defendant on a parcel of land to secure the payment of P24,000 in 7 years at 8% interest per year. By mutual agreement, the term was modified in 1943 by reducing the interest to 6% per year from December 1941 until the end of the war and by stipulating that the mortgagor shall not pay and release the mortgage while the war went on. In 1944, the plaintiff offered to pay which the defendant refused. Plaintiff filed this action to compel the defendant to accept his tender of payment. The trial court sustained the defense that payment was premature. Plaintiff appealed alleging that the provision for non-redemption during the war is against public policy and a restraint on the freedom of commerce.

ISSUE: Whether or not said provision is against public policy as to render said contract void.

SC RULING: There is nothing immoral or violative of public order in the questioned stipulation. The morgagee apparently did not want to have their pre-war credit paid with Japanese military notes, and the mortgagor voluntarily agreed not to do so in consideration of the reduction of the rate of interest. It was a perfectly equitable and valid transaction. Appellants were bound by said contract and appellees were not obliged to receive payment before it was due. Hence, the latter had reason not to accept the tender of payment made to them by the former. Judgment affirmed.

Liability for contractual interest after maturity of noteJARDENIL vs. SOLAS

FACTS:Salas issued a promissory note where it was clearly agreed that he will pay interest only up to the date of maturity, or until March 31, 1934, and that payment is extendable by one year but without mention of interest.

ISSUE:Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected?

SC RULING:As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period, indicates that the true intention of the parties was that no interest should be paid during the period of grace. Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule.As the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.

Increase in the prince when sale is on installment

MANILA TRADING vs. TAMARAW PLANTATION

FACTS:On August 23, 1920, the plaintiff sold to the defendant the goods mentioned in Exhibit A of the

defendant for P5,300, if paid in cash, but as it was not so paid, there was added to said amount the sum of P265, which is 5 per cent thereon, making a total of P5,565. The defendant paid the first six monthly installments provided in Exhibit A, plus P213.89 on account of the seventh installment, that is, a total of P2,996.39, and failed to pay the rest, namely, P2,568.61; wherefore said goods were on August 15, 1922, sold by the sheriff of Mindoro at public auction, as provided in Act No. 1508, the proceeds of the sale having amounted to P2,000, which were paid to the plaintiff.

On December 24, 1920, the plaintiff sold to the defendant the goods mentioned in Exhibit B for P2,550, if paid in cash. To said amount there was added the sum of P127.50, which is 5 per cent thereon, making a total of P1,877.50. The defendant paid P800 upon the delivery of the goods, but did not pay anything more afterwards; wherefore said goods were sold at public auction by the sheriff of Mindoro on August 15, 1922, for P1,000, as provided in Act No. 1508, said sum of P1,000 having been paid to the plaintiff.

The trial court, in view of said stipulation of facts, rendered judgment, sentencing the defendant to pay to the plaintiff company

ISSUE: Whether or not the increase of the price of an article sold on credit upon its cash sale value constitutes interest within the meaning of the Usury Law.

SC RULING:No. The instant case is of a chattel mortgage given to secure payment for the agricultural

implements sold by the plaintiff to the defendant. The transaction was carried out between the parties in good faith, and there is no proof that the contract of sale of agricultural effects, secured by a mortgage on the same goods, was executed as a loan of money. This being so, the parties may freely agree upon the price of the goods sold, and it cannot be said that the credit, greater than the cash, price, constitutes interest within the meaning of the Usury Law. The increase of the price, when the sale is on credit, serves not only to cover the expenses generally entailed by such transactions on credit, but also to encourage cash sales, so useful to commerce. It is up to the purchaser to decide which price he prefers in making the purchase. If he prefers to purchase for cash, he obtains a 5 per cent reduction of the price; if, on the contrary, he prefers to buy on credit, he cannot complain of the increase of the price demanded by the vendor.

"On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense." It is also established that: "A vendor mat well fix upon the property one price for cash and another for credit, and the mere fact that the credit price exceeds the costs price by a greater percentage than is permitted by the usury laws is a matter of concern to the parties but not to the courts, barring evidence of bad faith. If the parties have acted in good faith such a transaction is not a loan, and not usurious."

Attorney’s fees

ANDREAS vs. GREEN

FACTS: The defendant and appellant questions the clause in the promissory note sued on reading "and a further sum equal to 10 per cent of the total amount due as and for expenses of collection for attorney's fees whether actually incurred or not," as in contravention of the Usury Law.

SC RULING: Stipulations in negotiable instruments for the payment of collection and attorney's fees are not forbidden by lay in this jurisdiction. The lender may without violating the Usury Law provide in a note for an attorney's fee to cover the cost of collection. This has been definitely held in a long line of cases both here and elsewhere. The purpose of a stipulation in a note for reasonable attorney's fees is not to give the lender a larger compensation for the loan than the law allows, but is to safeguard the lender against future loss or damage by being compelled to retain counsel to institute judicial proceedings to collect his debt.

The only difference between the provision of the promissory note here complained of and the provision of the promissory notes in any of the above-cited cases is that the note before us contains these additional words: "whether actually incurred or not." But this clause is merely descriptive in nature — is in reality merely surplusage. The idea of the parties was to provide for a penalty to cover expenses of collection. That such expenses were actually incurred in this case is now before the appellate court for decision. Whether the creditor could enforce the penalty where expenses of collection and attorney's fees were not actually incurred, is questionable, but does not affect the result in this case.Judgment affirmed.

Penalty for Breach

SENTINEL INSURANCE CO. vs. CA

FACTS:Petitioner Sentinel Insurance Co., Inc., was the surety in a contract of suretyship with Nemesio Azcueta, Sr., who is doing business under the name and style of 'Malayan Trading both of them bound themselves, 'jointly and severally, to fully and religiously guarantee the compliance with the terms and stipulations of the credit line granted by private respondent Rose Industries, Inc., in favor of Nemesio Azcueta, Azcueta made various purchases of tires, batteries and tire tubes from the private respondent but failed to pay therefor, prompting Rose Industries to demand payment but because Azcueta failed to settle his accounts, the case was referred to the Insurance Commissioner who invited the attention of the petitioner on the matter and the latter cancelled the Suretyship Agreement with due notice to the private respondent.

Meanwhile, private respondent Rose Industries filed with the respondent court of Makati a complaint for collection of sum of money against herein petitioner and Azcueta.The decision having become final and executory, the prevailing party moved for its execution which respondent judge granted and pursuant thereto, a notice of attachment and levy was served upon the petitioner. On the same day.Contending that the order was issued with grave abuse of discretion, petitioner went to respondent court on a petition for certiorari and mandamus to compel the court below to clarify

its decision “to pay interest at 14% per annum on the principal obligation and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is fully paid.”

ISSUE:Whether or not respondent court should not have made an award for "damage dues" at such late stage of the proceeding since said dues were not the subject of the award made by the trial court.

SC RULING:To clarify an ambiguity or correct a clerical error in the judgment, the court may resort to the pleadings filed by the parties, the findings of fact and the conclusions of law expressed in the text or body of the decision. this was what respondent court did in resolving the original petition.

The findings made by respondent court did not actually nullify the judgment of the trial court. More specifically, the statement that the imposition of 2% interest every 45 days commencing from April 30, 1975 on top of the 14% per annum (as would be the impression from a superficial reading of the dispositive portion of the trial court's decision) would be usurious is a sound observation. It should, however, be stressed that such observation was on the theoretical assumption that the rate of 2% is being imposed as interest, not as damage dues which was the intendment of the trial court.

Damage dues in this case do not include and are not included in the computation of interest as the two are of different categories and are distinct claims which may be demanded separately, in the same manner that commissions, fines and penalties are excluded in the computation of interest where the loan or forbearance is not secured in whole or in part by real estate or an interest therein.While interest forms part of the consideration of the contract itself, damage dues (penalties, and so forth) are usually made payable only in case of default or non-performance of the contract. 11 Also, although interest is subject to the provisions of the Usury Law, there is no policy or provision in such law preventing the enforcement of damage dues although the effect may be to increase the sum payable beyond the prescribed ceiling rates.

The lower court's decision explicitly ordered petitioner to pay private respondent the amount of P198,602.41 as principal obligation including interest and damage dues, which is a clear and unequivocal indication of the lower court's intent to award both interest and damage dues.

Bank DepositsCases:

Nature of Bank Deposits

GOPOCO GROCERY vs. PACIFIC COAST BISCUIT

FACTS:The Mercantile Bank of China was declared in liquidation. Creditors and all those who had any claim against it were required to present the same before the Bank Commissioner within 90 days. Gopoco presented its claim.

ISSUE:What is the real nature of current account a savings deposit?

SC RULING:The current account and savings deposit have lost their character as deposits and are converted into simple commercial loans because in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes but precisely because of the authority deemed to have been granted to it by the depositors to enable him to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by Section 125 of the Corporation Law and the Banking Law. The deposits created a juridical relation of creditor and debtor. The back acquired ownership of the money deposited.

CENTRAL BANK OF THE PHIL. vs. MORFE

FACTS:On February 18, 1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The

Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions. Central Bank of the Philippines, then filed the corresponding petition for assistance and supervision in the Court of First Instance of Manila.

Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the spouses Job Elizes and Marcela P. Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits. In the judgment rendered, the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of P50, 584 plus accumulated interest.

In another case, spouses Augusta A. Padilla and Adelaida Padilla secured on April 14, 1972 a judgment against the Fidelity Savings Bank for the sums of P80,000 as the balance of their time deposits, plus interests, P70,000 as moral and exemplary damages and P9,600 as attorney's fees.

After the two judgments were rendered and upon motions of the Elizes and Padilla spouses but over the opposition of the Central Bank, the court directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments. From the said order, the Central Bank

appealed to this Court by certiorari. It contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank.

ISSUE: Whether or not a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank.

SC RULING:Section 29 of Republic Act No. 265 provides:

Whenever upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the Superintendent forthwith, in writing to

inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the

Philippines and shall take charge of its assets and proceeds according to law.xxx xxx xxx

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Office of the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

Section 30 of the same law also provides that:In case of liquidation of a banking institution, after payment of the costs of the

proceedings, including reasonable expenses and fees of the Central Bank to be allowed by the court, the Central Bank shall pay the debts of such institution, under the order of the court, in accordance with their legal priority.

The trial court or, to be exact, the liquidation court noted that there is no provision in the charter of the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which suspends or abates civil actions against an insolvent bank pending in courts other than the liquidation court. It reasoned out that, because such actions are not suspended, judgments against insolvent banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code. It further noted that, in contrast with the Central Act, section 18 of the Insolvency Law provides that upon the issuance by the court of an order declaring a person insolvent "all civil proceedings against the said insolvent shall be stayed." On the other hand, the Central Bank argues that after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets "for the equal benefit of all the creditors, including the depositors". The Central Bank cites the ruling that "the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise" it is also the stand of the Central Bank is that all depositors and creditors of the insolvent bank should file their actions with the liquidation court.

It cites the ruling that "a creditor of an insolvent state bank in the hands of a liquidator who recovered a judgment against it is not entitled to a preference for (by) the mere fact that he is a judgment creditor." It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits

The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors.

That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the Civil Code.

ARTICLE 2244. With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the order named:xxx xxx xxx

(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. xxx xxx xxx

We are of the opinion that such judgments cannot be considered preferred and that article 2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. The Rohr case supplies some illumination on the disposition of the instant case. The Supreme Court of Montana said:

The general principle of equity that the assets of an insolvent are to be distributed ratably among general creditors applies with full force to the distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is

not entitled to any preference or priority over other general creditors. xxx

The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business, and that ban would include the payment of time deposits, implies that suits for the payment of such deposits were prohibited.

The trial court's order which contains the Bank Liquidation Rules and Regulations, indicated that, in Step IV, the court directed the Central Bank, as liquidator, to submit a Project of Distribution which should include "a list of the preferred credits to be paid in full in the order of priorities established in Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code. It is important to note that Article 2244 was not mentioned. Therefore, there is no cogent reason why the Elizes and Padilla spouses should not adhere to the procedure outlined in the said rules and regulations.

Liability for failure to return savings deposit

GUINGONA vs. CITY FISCAL OF MANILA

FACTS:The instant petition seeks to prohibit public respondents from proceeding with the preliminary

investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of the charged, as well as the testimony of private respondent's principal witness and the evidence through said witness, showed that petitioners' obligation is civil in nature.

From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA General Manager; that on March 21, 1981 N LA was placed under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his sister; that on July 22, 1981 David received a report from the Central Bank that only P305,821.92 of those investments were entered in the records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the investments, at the same time violating Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00."

At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).

But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on the part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and (b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were not record

ISSUE:Whether or not the petitioner in this case is properly charge of estaffa through misappropriation

of funds deposited in NSLA making them subject to the jurisdiction of the respondent’s investigation.

SC Ruling:There is merit in the contention of the petitioners that their liability is civil in nature and

therefore, public respondents have no jurisdiction over the charge of estaffa.It must be pointed out that when private respondent David invested his money on nine. and

savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan.

In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that:

Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in making time deposits that earn

interests will respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the deposit (Emphasis supplied).

Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction.

Cases:Effect if balance of commission retained by agent

US vs. Igpuara

FACTS:The defendant therein is charged with the crime of estafa, for having swindled Juana Montilla and

Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from the former to be at the latter's disposal.

The defendant received P2,498 is a fact proven. The defendant drew up a document declaring that they remained in his possession, which he could not have said had he not received them. They remained in his possession, surely in no other sense than to take care of them, for they remained has no other purpose. They remained in the defendant's possession at the disposal of Veraguth; but on August 23 of the same year Veraguth demanded for him through a notarial instrument restitution of them, and to date he has not restored them. ISSUE:

Whether or not the contract between the defendant and Montilla and Veraguth are that of deposit.

SC RULING:It is erroneous to assert that the certificate of deposit in question is negotiable like any other

commercial instrument: First, because every commercial instrument is not negotiable; and second, because only instruments payable to order are negotiable. Hence, this instrument not being to order but to bearer, it is not negotiable.

It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in the defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody or safe-keeping. In order that the depositary may use or dispose of the things deposited, the depositor's consent is required, and then:

The rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to commercial loans, commission, or contract which took the place of the deposit shall be observed. (Art. 309, Code of Commerce.) The defendant has shown no authorization whatsoever or the consent of the depositary for using

or disposing of the P2,498, which the certificate acknowledges, or any contract entered into with the depositor to convert the deposit into a loan, commission, or other contract.

That demand was not made for restitution of the sum deposited, which could have been claimed on the same or the next day after the certificate was signed, does not operate against the depositor, or signify anything except the intention not to press it. Failure to claim at once or delay for sometime in demanding restitution of the things deposited, which was immediately due, does not imply such permission to use the thing deposited as would convert the deposit into a loan. Article 408 of the Code of Commerce of 1829, previous to the one now in force, provided:

The depositary of an amount of money cannot use the amount, and if he makes use of it, he shall be responsible for all damages that may accrue and shall respond to the depositor for the legal interest on the amount.

Thus the defendant is liable.

Effect if foreign currency deposited is sold by bank

BPI vs. IAC

[The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate merger, and was substituted as party to the case.]

FACTS:

Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and a peso current account. The complaint filed with the trial court alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as greenbacks) for safekeeping, and that the agreement was embodied in a document, a copy of which was attached to and made part of the complaint. The document reads:

Makati Cable Address: Philippines "COMTRUST"

COMMERCIAL BANK AND TRUST COMPANYof the Philippines

Quezon City Branch

December 8, 1975 MR. RIZALDY T. ZSHORNACK &/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam: We acknowledged (sic) having received from you today the sum of US DOLLARS:

THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

Received by: (Sgd.) VIRGILIO V. GARCIA

It was also alleged in the complaint that despite demands, the bank refused to return the money. In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current

account at prevailing conversion rates. It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and due execution of the above instrument. During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976, COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 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 sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It now argues that the contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia.

ISSUE:Whether or not the contract in question is a contract of depositum.

SC RULING:It was a contract of depositum.In this case, no sworn answer denying the due execution of the document in question, or

questioning the authority of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the bank is deemed to have admitted not only Garcia's authority, but also the bank's power, to enter into the contract in question.

The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also 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.

That arrangement is that contract 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.

It bears to take note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the time the parties entered into the transaction involved in this case. The circular provides:

As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended 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.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against the other. The only remedy is one on behalf of the State to prosecute the parties for violating the law. We thus rule that Zshornack cannot recover.

Nature of rental of safety deposit box

CA Agro-Industrial Devt. Corp. vs. CA

FACTS:Petitioner and Spouses Pugao entered into agreement for a sale of land. They deposited the certificates of title in a safety deposit box in SBTC so that it will be given to petitioner upon full payment. The safety deposit box has a guard key for the bank and 2 keys for petitioner and the Pugaos. Ramos wanted to buy the land so she wanted to inspect the certificate of title, but upon opening by petitioner and Spouses Pugao, the certificates of title were not there anymore. Because the reconstitution of title took time, Ramos withdrew her offer to purchase. So petitioner filed a case against the bank. But it was dismissed by the RTC and the CA because they said it was covered by their contractual agreement that the bank is not responsible for the loss and that it is a contract of lease. The position of petitioner is that it is a contract of deposit.

ISSUE:Is the contractual relation between a commercial bank and another party in 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?

SC RULING:In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act pertinently provides:Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.xxx xxx xxxThe banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . . Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Civil Code, the parties thereto 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. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.

With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in rentingsafe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limits its liability to some extent by agreement or stipulation.

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision of public respondent Court of Appeals must be modified.

Effects of agreement to extend payment of money deposited and to pay interest

Javellana vs. Lim

FACTS:The defendants executed and subscribed a document in favor of the plaintiff reading as follows:

We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and severally, on the 20th of January, 1898. — Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed: Ceferino Domingo Lim.

When the obligation became due, the defendants begged the plaintiff for an extension of time for one year for the payment thereof, and binding themselves to pay interest at the rate of 15 per cent per annum to which the plaintiff acceded;

ISSUE:Whether the contract is a lease or a deposit.

SC RULING:The contract entered by the parties was a loan of money with interest.It must be understood that the debtors were lawfully authorized to make use of the

amount deposited, which they have done, as subsequent shown when asking for an extension of the time for the return thereof. Acknowledging that they were not able to comply with what had been stipulated, they engaged to pay interest to the creditor. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan.

Because defendant was not able to return the amount deposited, he agreed to pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his possession the amount deposited. By granting them the extension, evidently confirmed the express permission previously given to use and dispose of the amount stated as having been deposited, which, in accordance with the loan. As a matter of course, be inferred that there was no renewal of the contract deposited converted into a loan, because, as has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit.

Cases:Deposit with interest

Compania Agricola vs. Nepomoceno

FACTS:It appears from the record that on March 17, 1927, the registered partnerships, Mariano Velasco

& Co., Mariano Velasco, Sons, & Co., and Mariano Velasco & Co., Inc., were, on petition of the creditors, declared insolvent by the Court of First Instance of Manila.

On the 16th day of April, 1927, the Compania Agricola de Ultramar filed a claim against one of the insolvents Mariano Velasco & Co., claiming the sum of P10,000, with the agreed interest thereon at the rate of 6 per cent per annum from April 5, 1918, until its full payment was a deposit with said Mariano Velasco & Co. and asked the court to declare it a preferred claim.

The assignee of the insolvency answered the claim by interposing a general denial. The claim was thereupon referred by the court to a Commissioner to receive the evidence, and on September 23, 1929, the court rendered a decision declaring that the alleged deposit was a preferred claim for the sum mentioned, with interest at 6 per cent per annum from April 5, 1918, until paid.

ISSUE:Whether or not the contract entered into by Compania Agricola with Mariano Velasco & Co. is that

of loan or a deposit.

SC Ruling:In our opinion the court below erred in finding that the claim of the appellee should be considered

a deposit and a preferred claim. In the case of Gavieres vs. De Tavera (1 Phil., 17), very similar to the present case, this court held that the transaction therein involved was a loan and not a deposit, the court held;

Although in the document in question a deposit is spoken of, nevertheless from an examination of the entire document it clearly appears that the contract was a loan and that such was the intention of the parties. It is unnecessary to recur to the cannons of interpretation to arrive at this conclusion. The obligation of the depository to pay interest at the rate of 6 per cent to the depositor suffices to cause the obligation to be considered as a loan and makes it likewise evident that it was the intention of the parties that the depository should have the right to make use of the amount deposited, since it was stipulated that the amount could be collected after notice of two months in advance. Such being the case, the contract lost the character of a deposit and acquired that of a loan. (Art. 1768, Civil Code.)Article 1767 of the Civil Code provides that —

          "The depository cannot make use of the thing deposited without the express

permission of the depositor."          "Otherwise he shall be liable for losses and damages."

          Article 1768 also provides that —          "When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment."          "The permission not be presumed, and its existence must be proven."

The two cases quoted are sufficient to show that the ten thousand pesos delivered by the appellee to Mariano Velasco & Co. cannot de regarded as a technical deposit. But the appellee argues that it is at least an "irregular deposit."

Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states that there are three points of difference between a loan and an irregular deposit. The first difference which he points out consists in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in a loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit.

In the present case the transaction in question was clearly not for the sole benefit of the Compania Agricola de Ultramar; it was evidently for the benefit of both parties. Neither could the alleged depositor demand payment until the expiration of the term of three months.

For the reasons stated, the appealed judgment is reversed, and we hold that the transaction in question must be regarded as a loan.

Deposit of palay with permission to mill

Baron vs. David

FACTS:These two actions were instituted in the CFI of Pampanga by the plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the defendant in the year 1920.Both the plaintiffs claim that the palay which was delivered by them to the defendant was sold to the defendant; while the defendant, on the other hand, claims that the palay was deposited subject to future withdrawal by the depositors or subject to some future sale which was never effected. He therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17, 1921 which allegedly burned the palay.

SC RULING:It should be stated that the palay in question was placed by the plaintiffs in the defendant’s mill with the understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively running during the entire season, and as palay was daily coming in from many customers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs’ palay segregated. In fact the defendant admits that the plaintiffs’ palay was mixed with that of others.In view of the nature of the defendant’s activities and the way in which the palay was handled in the defendant’s mill, it is quite certain that all of the plaintiffs’ palay, which was put in before June 1, 1920, had been milled and disposed of long prior to the fire of January 17, 1921.Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs’ palay prior to the date of the fire, it results that he is bound to account for its value, and his liability was not extinguished by the occurrence of the fire. Even supposing that the palay may have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs’ election, nevertheless if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course bound to account for its value.Under Article 1768 (Art 1978, NCC)of the Civil Code, when the depositary has permission to make use of the thing deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum; and of course by appropriating the thing, the bailee becomes responsible for its value. In this connection we wholly reject the defendant’s pretense that the palay delivered by the plaintiffs or any part of it was actually consumed in the fire of January 1921.

Cases:Commingling of Funds; Obligation for money taken by force majeure

Roman Catholic Bishop of Jaro vs. de la Pena

FACTS:Appeal from the judgment of the Court of First Instance of Iloilo.The plaintiff, the Roman Catholic Bishop of Jaro, is the trustee of a charitable donation made for

the construction of a leper hospital. Father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. Gregorio de la Peña is the administrator of the estate of Father De la Peña.

In the year 1898 the books of Father De la Peña, as trustee, showed that he had on hand as such trustee the sum of P6,641.00, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal account P19, 000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la Peña was arrested by the military authorities as a political prisoner, and while detained, there was an order on said bank in favor of the United States Army officer for the sum deposited in said bank. The money was taken from the bank by the military

authorities by virtue of such order, was confiscated and turned over to the Government. The trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States.

ISSUE: Whether or not Father de la Peña is responsible for the loss of the money.

SC RULING:NO. Father de la Peña is not responsible for the loss of the money as it was taken by force

majeure. Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.) By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards.

There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility by reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not responsible for its loss.

Right of bank to apply a deposit to the debt of the depositor

Associated Bank (now Westmont Bank) vs. Tan

While banks are granted by law the right to debit the value of a dishonored check from a depositor’s account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly.

FACTS:Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the

Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45, because he has issued several checks to his business partners.

However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City.

In his [C]omplaint, [respondent] maintained that he had sufficient funds to pay the subject checks and alleged that his suppliers decreased in number for lack of trust.

By way of affirmative defense, petitioner averred that respondent had no cause of action against it and argued that it has all the right to debit the account of the respondent by reason of the dishonor of the check deposited by the respondent which was withdrawn by him prior to its clearing

ISSUE # 1:Whether or not the petitioner, which is acting as a collecting bank, has the right to debit the

account of its client for a check deposit which was dishonored by the drawee bank.

SC RULING:A bank generally has a right of setoff over the deposits therein for the payment of any

withdrawals on the part of a depositor. The right of a collecting bank to debit a client’s account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 127810 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present,as follows:

"(1) That each one of the obligors be bound principally, and that he be at the same time a

principal creditor of the other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3) That the two debts be due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."

ISSUE #2:Whether or not the right to set off has been properly exercised by the Bank.

SC RULING:No, the bank did not properly exercise the right accorded to it.

It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money;21 and its value can properly be transferred to a depositor’s account only after the check has been cleared by the drawee bank.22

Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositor’s account; or infuse value to that account only after the drawee bank shall have paid such amount.23 Before the check shall have been cleared for deposit, the collecting bank can only "assume" at its own risk -- as herein petitioner did -- that the check would be cleared and paid out.

Further, the reservation made by the bank that it assumes no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its possession, the Bank reserves the right to charge back to the Depositor’s account any amounts previously credited whether or not the deposited item is returned, this reservation is not enough to insulate the bank from any liability. It is indeed arguable that "in signing the deposit slip, the depositor does so only to identify himself and not to agree to the conditions set forth at the back of the deposit slip."

Moreover, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondent’s agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank is that of principal and agent. As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. The manager of the bank’s Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under her control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that respondent "was not officially informed about the debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 x x x.Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the withdrawal and the subsequent debiting without notice. Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent of the debiting of his account.

Liability for failure to return bank deposit

Guingona vs. City Fiscal of Manila

FACTS:From March 20, 1979 to March 1981, Clement David invested with the Nation Savings and Loan Association P1,145,436.20 on time deposits, P13,531.94 on savings deposits(jointly with his sister, Denise Kuhne), US $10,000.00 on time deposit, US $15,000.00 under a receipt and guarantee of payment and US $50,000.00 under a receipt dated June 8,1980 (all jointly with Denise Kuhne).David was allegedly introduced into making said investments by Robert Marshall, an Australian national, who was allegedly a close associate of petitioner Teofisto Guingona, Jr., then NSLA President, petitioner Antonio Martin then NSLA Executive Vice-President and petitioner Teresita Santos, then NSLA General Manager.On March 21, 1981 NSLA was placed under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his sister.

SC RULING:It must be pointed out that when private respondent David invested his money on time and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit.Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals.While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction.Considering that the liability of the petitioners is purely civil in nature and that there is no clear showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners.Consequently, public respondents City Fiscal should be restrained from further proceeding with the

criminal case for to allow the case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper administration of justice.

When bank officials may be guilty of estafa

Guingona vs. City Fiscal of Manila, July 18, 1985, Motion for Reconsideration - However, if the bank entered in its records or books the amount of only P305,821.92 out of the deposits of P1,145,546, the bank officials may be guilty of estafa through misappropriation.

FACTS:Respondent Clement David filed a motion for the reconsideration of this Court’s decision. He contends that this Court failed to consider that the petitioners entered in the records and books of the Nation Savings and Loan Association only P305,821.92 out of his deposits in the amount of P1,145,546.20, P15,531.93 and $75,000 and that they admitted that they did not deliver the difference when they assumed in their personal capacities the obligation to pay him.He argues that the petitioners committed estafa through misappropriation.

SC RULING:The prohibition petition should be dismissed.The petitioners have no cause of action for prohibition because the City Fiscal has jurisdiction to conduct the preliminary investigation. It has not been finished. The filing of this petition is premature. The case does not fall within any of the exceptions when prohibition lies to stop the preliminary investigation.

Obligation if sale did not materialize

Compania Maritima vs. CAFACTS:

Fernando A. Froilan purchased from the Shipping Administration a boat for the sum of P200,000.00, with a down payment of P50,000.00. To secure payment of the unpaid balance of the purchase price, a mortgage was constituted on the vessel in favor of the Shipping Administration. Froilan incurred a series of defaults notwithstanding reconsiderations granted, so much so that. The General Manager of the Shipping Administration directed its officers to take immediate possession of the vessel. However, the boat was, not only actually repossessed, but the title thereto was registered again in the name of the Shipping Administration, re-transferring the ownership thereof to the government.

On the other hand, Pan Oriental, offered to charter the vessel for a monthly rent of P3,000.00 which the government accepted Pan Oriental's offer on the condition that the latter shall cause the repair of the vessel advancing the cost. In accordance with this charter contract, the vessel was delivered to the possession of Pan Oriental.

In the meantime, Froilan tried to explain his failure to comply with the obligations he assumed and asked that he be given another extension to file the necessary bond. The Shipping Administration denied his petition for reconsideration.

The Shipping Administration and Pan Oriental formalized the charter agreement and signed a bareboat contract with option to purchase.

The formal bareboat charter with option to purchase in favor of the Pan Oriental was returned to the General Manager of the Shipping Administration without action because of a Cabinet resolution restoring Froilan to his rights to said boat. But Froilan again failed to comply with these conditions. This led to the authorization by the Cabinet, that the charter contract with Pan Oriental will continue. The Cabinet yet again resolved to restore Froilan to his rights under the original contract of sale.

Pan Oriental protested to this restoration of Froilan's rights under the contract of sale. Pan Oriental refused to surrender possession of the vessel. The court ordered the seizure of the vessel from Pan Oriental and its delivery to the plaintiff.

The Republic of the Philippines was allowed to intervene in the proceeding, also prayed for the possession of the vessel in order that the chattel mortgage constituted thereon may be foreclosed. Defendant Pan Oriental resisted said intervention, claiming to have its right of retention, in view of the expenses it had incurred for the repair of the said vessel.

Subsequently, Compañia Maritima, as purchaser of the vessel from Froilan, was allowed to intervene in the proceedings (RTC). The lower court rendered a decision upholding Froilan's and Compañia Maritima's right to the ownership and possession of the ship. ISSUE:

Who has a better right to the ship?SC RULING:

Neither Froilan nor the Pan Oriental holds a valid contract over the vessel. However, since the intervenor Shipping Administration, representing the government practically ratified its proposed contract with Froilan by receiving the full consideration of the sale to the latter, for which reason the complaint in intervention was dismissed as to Froilan, and since Pan Oriental has no capacity to question this actuation of the Shipping Administration because it had no valid contract in its favor, the of the lower court adjudicating the vessel to Froilan and its successor Maritima, must be sustained.

Nevertheless, under the already adverted to, Pan Oriental cannot be considered as in bad faith until after the institution of the case. However, since it is not disputed that said made useful and necessary expenses on the vessel, appellant is entitled to the refund of such expenses with the light to retain the vessel until he has been reimbursed therefor (Art. 546, Civil Code).

For clarity, this court ordered to be paid by MARITIMA and the REPUBLIC, jointly and severally, to

PAN-ORIENTAL are: (a) the sum of P6,937.72 a month from February 3, 1951, the date of PAN-ORIENTAL's dispossession, in the concept of damages for the deprivation of its right to retain the vessel.RULING ON THE TOPIC (Obligation when sale did not materialize)There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate Court was but just and proper. As this Court found, that sum was tendered to REPUBLIC "which together with its (PAN-ORIENTAL's) alleged expenses already made on the vessel, cover 25% of the cost of the vessel, as provided in the option granted in the bareboat contract (Exhibit "C"). This amount was accepted by the Administration as deposit ...." Since the purchase did not eventually materialize for reasons attributable to REPUBLIC, it is but just that the deposit be returned. It is futile to allege that PAN-ORIENTAL did not plead for the return of that amount since its prayer included other reliefs as may be just under the premises. Courts may issue such orders of restitution as justice and equity may warrant.