PEOPLE VS CONCEPCION 44 Phil 126, Gr. No. L-19190, November 29, 1922

Facts: Venancio Concepcion, Pres. of the PNB and a member of the board thereof, authorized an extension of credit in favor of Puno Concepcion, by telegrams and a letter of confirmation to the manager of Aparri branch of the PNB. Puno was a co-partnership where Concepcion was a partner. Puno Concepcion – 300k Anacleto Concepcion – 5k Clara Concepcion – 5k Miguel Concepcion – 20k (administrator) Clemente Puno – 20k CFI Cagayan declared him guilty of violating Sec. 35 of Act. 2747 (1y & 6m imprisonment, 3k fine w/ subsidiary imprisonment costs) Act 2747 (Effective Feb. 20, 1918)◦ Sec 35: The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks. ◦ Sec. 49: Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment. ◦ These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.

Issue #1Was the granting of credit to the copartnership a loan within the

meaning of the provision?

Defense's Contention: Documents on the record do not prove that authirity to make a loan was given, but only the concession of credit.

Held:No. Defense is correct, for the exhibits in question speak of a

"credito" (credit) and not of a "prestamo" (loan). The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

Issue #2:Was the granting of credit to the co-partnership a loan or

discount?

Defense: The provision prohibits granting of a loan, not a discount.Background Facts: H. Parker Willis, President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions.

DISCOUNT LOAN

Interest deducted in advance Interest deducted at expiration of credit

Double-name paper Single-name paper

Held:Loan. In the last analysis, to discount a paper is only a mode of

loaning money. Interest on the demand notes signed by the copartnership was paid when notes fell due, and single-name paper.

Issue #3:Was the granting of credit to co-partnership an indirect loan

within meaning of the provision?

Held:Yes. A loan to a partnership of which a wife of a bank director is

a member, is an indirect loan to the director due to conjugal partnership.

Purpose of Provision: Erect a wall of safety against temptation for a bank director (protection of stockholders, depositors and creditors of the bank)

Issues #4: Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law? Held: Yes. The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually.

Issue #5: Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense? Held: No

GARCIA VS THIO Gr. No. 154878, March 16, 2007

Facts: Sometime in February 1995, respondent Rica Marie S.Thio received from petitioner Carolyn M. Garccia a crossed check in the amount of $100,000.00 payable to the order of Marilou Santiago. Thereafter, Carolyn received from Rica payments of the sum due. In June 1995, Rica received another check in the amount of P500,000.00 from Carolyn and payable to the order of Marilou. Payments were made by Rica representing interests. There was failure to pay the principal amount hence a complaint for sum of money with damages was filed by Carolyn. Rica contended that she had no obligation to petitioner as it was Marilou who was indebted as she was merely asked to deliver the checks to the latter and that the check payments she issued were merely intended to accommodate Marilou. The RTC ruled in favor of Carolyn but the CA reversed on the ground that there was no contract between Rica and Carolyn as there is nothing in the record that shows that respondent received money from petitioner and that the checks received by respondent, being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

Issue:Whether or not there was a contract of loan between petitioner

and respondent.

Held: The Court ruled in the affirmative.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. Art. 1934 of the Civil Code provides that “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 perfected until the delivery of the object of the contract.” Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. The Supreme Court agrees with petitioner that delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago. Hence, Rica is the debtor and not Marilou.

SAURA IMPORT & EXPORT VS DBP Gr. No. L-24968, April 27, 1972

Facts: In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill machinery and equipment and as additional working capital. In

Resolution No.145, the loan application was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and equipment to be installed. The mortgage was registered and documents for the promissory note were executed. But then, later on, was cancelled to make way for the registration of a mortgage contract over the same property in favor of Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to pay said obligation, Prudential sued Saura. After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the latter to comply with its obligations to release 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 ruled in favor of Saura, ruling that there was a perfected contract between the parties and that the RFC was guilty of breach thereof.

Issue: Whether or not there was a perfected contract between

the parties.

Held:YES. There was indeed a perfected consensual contract.

Article 1934 provides: 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 perfected until delivery of the object of the contract. There was undoubtedly offer and acceptance in the 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. The defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. When an application for a loan of money was approved by resolution of the respondent corporation and the responding mortgage was executed and registered, there arises a perfected consensual contract. However, it should be noted that RFC imposed two conditions (availability of raw materials and increased production) when it restored the loan to the original amount of P500,000.00. 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. The action thus taken by both parties was in the nature of mutual desistance which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.

Issue: Was there a real contract of loan which would warrant recovery of damages arising out of breach of such contract?

Held: There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the second issue and the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. The action thus taken by both parties—Saura's request for

cancellation and RFC's subsequent approval of such cancellation—was in the nature of mutual desistance — what Manresa terms "mutuo disenso"— which is a mode of extinguishing obligations. It is a concept derived from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. In view of such extinguishment, said perfected consensual contract to deliver did not constitute a real contract of loan.

BPI VS CA Gr. No. 133632, February 15, 2002

Facts: Frank Roa obtained a loan from Ayala Investment and Development Corporation (AIDC), for the construction of his house. Said house and lot were mortgaged to AIDC to secure the loan. Roa sold the properties to ALS and Litonjua, the latter paid in cash and assumed the balance of Roa’s indebtedness wit AIDC. AIDC was not willing to extend the old interest to private respondents and proposed a grant of new loan of P500,000 with higher interest to be applied to Roa’s debt, secured by the same property. Private respondents executed a mortgage deed containing the stipulation. The loan contract was signed on 31 March 1981 and was perfected on 13 September 1982, when the full loan was released to private respondents. BPIIC, AIDC’s predecessor, released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of Roa’s loan. BPIIC filed for foreclosure proceedings on the ground that private respondents failed to pay the mortgage indebtedness. Private respondents maintained that they should not be made to pay amortization before the actual release of the P500,000 loan. The suit was dismissed and affirmed by the CA. Petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization and interests on the loan should be computed from said date. Private respondents assert that based on Article 1934 of the Civil Code, a simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In this case, even though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982, when the full loan was released to private respondents. They submit that petitioner misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must be construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the contract of loan itself was only perfected upon the delivery of the full loan to private respondents on September 13, 1982.

Issue: Whether or not a contract of loan is a consensual contract.

Held: The Court held in the negative. A loan contract is not a

consensual contract but a real contract. It is perfected only upon delivery of the object of the contract. A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other; it is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply is a proper manner with what is incumbent upon him.

PANTALEON VS AMERICAN EXPRESS INT'L Gr. No. 174269, August 25, 2014

Facts: AMEX is a resident foreign corporation engaged in the business of providing credit services through the operation of a charge card system. Pantaleon has been an AMEX cardholder since 1980. Pantaleon went on a guided European tour . The tour group arrived in Amsterdam and planned to leave Coster by 9:30 a.m. at the latest. While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826.00 using their America Express credit card. It took AMEX a total of 78 minutes to approve Pantaleon’s purchase and to transmit the approval to the jewelry store. When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had to be in Belgium. Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card company with the Makati City RTC. RTC found AMEX guilty of delay. CA reversed the awards.

Issue/s:Whether or not AMEX had legal obligation to act upon

Pantaleon’s purchases within a specific period of time.Whether or not AMEX has a right to review a cardholder’s credit

card history.

Held:Nature of Credit Card Transactions

In the case of Harris Trust & Savings Bank v. McCray, The bank credit card system involves a tripartite relationship between the issuer bank, the cardholder, and merchants participating in the system. The issuer bank establishes an account on behalf of the person to whom the card is issued, and the two parties enter into an agreement which governs their relationship. This agreement provides that the bank will pay for cardholder’s account the amount of merchandise or services purchased through the use of the credit card and will also make cash loans available to the cardholder. It also states that the cardholder shall be liable to the bank for advances and payments made by the bank and that the cardholder’s obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by the cardholder with respect to any merchandise or service purchased. The merchants participating in the system agree to honor the bank’s credit cards. The bank irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant performs his undertakings such as checking the list of revoked cards before accepting the card. These slips are forwarded to the member bank which originally issued the card. The cardholder receives a statement from the bank periodically and may then decide whether to make payment to the bank in full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge.

Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan

agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the merchant or business establishment.

Credit card issuer – cardholder relationship The relationship between the credit card issuer and holder is a contractual one that is governed by the terms and conditions found in the card membership agreement. This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa. A card membership agreement is a contract of adhesion as its terms are prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms. This circumstance, however, does not render the agreement void; we have uniformly held that contracts of adhesion are “as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.” The only effect is that the terms of the contract are construed strictly against the party who drafted it.

Use of credit card a mere offer to enter into loan agreements Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement, we have to distinguish this contractual relationship from the creditor-debtor relationship which only arises after the credit card issuer has approved the cardholder’s purchase request. The first relates merely to an agreement providing for credit facility to the cardholder. The latter involves the actual credit on loan agreement involving three contracts, namely: the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; the loan agreement between the credit card issuer and the credit card holder; and the promise to pay between the credit card issuer and the merchant or business establishment. From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts. In keeping with Article 1319 of the Civil Code, which provides: Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. AMEX “reserve[s] the right to deny authorization for any requested Charge.” By so providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders.

AMEX not guilty of culpable delay Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a debtor guilty of culpable delay, states: Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx The three requisites for a

finding of default are: (a) that the obligation is demandable and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires the debtor’s performance. Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit card agreement, is not obligated to approve Pantaleon’s purchase request. Without a demandable obligation, there can be no finding of default. The use of a credit card to pay for a purchase is only an offer to the credit card company to enter a loan agreement with the credit card holder. Before the credit card issuer accepts this offer, no obligation relating to the loan agreement exists between them. On the other hand, a demand is defined as the “assertion of a legal right; xxx an asking with authority, claiming or challenging as due.” A demand presupposes the existence of an obligation between the parties.

AMEX’s obligation to act on the offer within a specific period of time Every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it will allow this charge, based on his past credit history. This right to review a card holder’s credit history, although not specifically set out in the card membership agreement, is a necessary implication of AMEX’s right to deny authorization for any requested charge. There is no provision in this agreement that obligates AMEX to act on all cardholder purchase requests within a specifically defined period of time. Thus, regardless of whether the obligation is worded was to “act in a matter of seconds” or to “act in timely dispatch,” the fact remains that no obligation exists on the part of AMEX to act within a specific period of time. AMEX is neither contractually bound nor legally obligated to act on its cardholders’ purchase requests within any specific period of time, much less a period of a “matter of seconds” that Pantaleon uses as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness and reasonableness

AMEX acted with good faithArticle 19. Every person must, in the exercise of his rights and in

the performance of his duties, act with justice, give everyone his due and observe honesty and good faith.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

Article 19 pervades the entire legal system and ensures that a person suffering damage in the course of another’s exercise of right or performance of duty, should find himself without relief. It sets the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do anything, even to the prejudice and disadvantage of another.

We give credence to AMEX’s claim that its review procedure was done to ensure Pantaleon’s own protection as a cardholder and to prevent the possibility that the credit card was being fraudulently used by a third person.

Pantaleon is not entitled to damages Because AMEX neither breached its contract with Pantaleon, nor

acted with culpable delay or the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

PRODUCERS BANK OF THE PHILIPPINES VS CA Gr. No. 115324, February 19, 2003

Facts: Franklin Vives, upon the request of Angeles Sanchez and relying on the assurance that he could withdraw his money within a month's time, issued a check in the amount of 200k in favor of Sterela marketing owed by Doronilla. Vives found out that Sterela cant be found on the address given to them so they went to PBP to verify if the money was still intact. They were informed that part of the amount had been withdrawn by Doronilla and that the latter instructed the bank to debit from the savings account the amount and deposit it in his current account. Vives filed an action for recovery of sum of money against Doronilla and PBP. RTC ruled in favor of Vives and CA affirmed. Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest. Hence, petitioner argues that it cannot be held liable because it is not privy to the transaction between the latter and Doronilla. Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation, since he did not actually part with the ownership of his P200,000.00 but retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given.

Issue/s:1. Whether or not the contract between Sanchez and Doronilla and Vives is a contract of commodatum.2. Whether or not the fact that there is an additional P 12,000 (allegedly representing interest) in the amount to be returned to Vives converts the transaction from commodatum to mutuum.3. Whether or not Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the transaction between Vives and Doronilla.

Held:1. Supreme Court held that the contract is commodatum. CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the subject of the contract is a consummable thing, such as money, the contract would be a mutuum. However, there are instances when a commodatum may have for its object a consummable thing. Such can be found in CC 1936 which states that “consummable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition”. Thus, if consumable goods are loaned only for purposes of exhibition or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is commodatum and not a mutuum. In this case, the intention of the parties was merely for exhibition. Vives agreed to deposit his money in Strela’s account specifically for purpose of making it appear that Strela had sufficient capitalization for incorporation, with the promise that the amount should be returned withing 30 days.2. No. CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not its fruits”. In this case, the additional P 12,000 corresponds to the fruits of the lending of the P 200,000.

3. Yes. Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted except upon the production of the passbook (recall in this case that the passbook was in the possession of the wife of Vives all along). Hence, this only proves to show that Atienza allowed the withdrawals because he was party to Doronilla’s scheme of defrauding Vives. By virtue of CC 2180, PNB, as employer, is held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. Atienza’s acts, in helpong Doronilla, a customer of the bank, were obviously done in furtherance of the business of the bank, even though in the process, Atienza violated some rules.

PAJUYO VS CA Gr. No. 146364, June 3, 2004

Facts: Pajuyo constructed a house made of light materials after paying 400php to Perez for the rights over a lot . His family lived in the house. On 1985, Pjuyo and private respondent Guevarra executed a Kasunduan or agreement. Pajuyo as the owner of the house, allowed Guevarra to live in the house for free provided that the latter would maintain the cleanliness and orderliness of the house. Guevarra promised tht he would voluntarily vacate the premises on Pajuyo's demand. In 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused.

Issue:Whether or not the contract entered into by Pajuyo and

Guevarra is a commodatum.

Held: No. It was a contract of Lease.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease. The tenant’s withholding of the property would then be unlawful. This is settled jurisprudence. Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum. These contracts certainly involve the obligation to deliver or return the thing received. TheKasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarra’s recognition of Pajuyo’s better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

REPUBLIC VS BAGTAS Gr. No. L-17474, October 25, 1962

Facts: On 1948, Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for one year for breeding purposes upon payment of a breeding fee of 10% of the book value of the bulls. After one year, the contract was renewed but only for one bull. Bagtas offered to buy the bulls at book value less depreciation, but the Bureau told him that he should either return the bulls or pay for their book value. Bagtas failed to pay the book value, so the Republic filed an action with the CFI Manila to order the return of the bulls or the payment of the book value. Felicidad Bagtas, the surviving spouse and administratrix of the decedent’s estate, said that the two bulls have already been returned in 1952, and that the remaining one died of gunshot during a Huk raid. It was established that the two bulls were returned, thus, there is no more obligation on the part of Bagtas. With regards the bull not returned, Felicidad maintained that the obligation is extinguished since the contract is that of a commodatum and that the loss through fortuitous event should be borne by the owner.

Issue: Whether or not the contract entered into between Bagtas

and the Republic is that of commodatum making Bagtas not liable for the death of the bull.

Held: A contract of commodatum is essentially gratuitous. If the breeding fee be considered compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith because she had continued possession of the bull after the expiry of the contract. Even if the contract be commodatum, still Bagtas is liable because article 1942 of the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the things even if it should be through a fortuitous event if he keeps it longer than the period stipulated or if the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event. The loan of one bull was renewed for another period of one year but Bagtas kept and used the bull more than one year where during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of Bagtas, the bulls had each an appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

PEOPLE VS PUIG AND PORRAS Gr. No. 173654-765, August 28, 2008

Facts: Private complainant Rural Bank of Pokotan filed a cases of qualified theft before the RTC againts Puig and Porras who were the cashier and bookkeeper of the private complainant. The respondents conspired and helped one another to steal and carry away the sum of 15k php of the bank without the consent of the owner. RTC dismissed the case due to insufficiency of the information. The element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and hence, are the real parties-in-interest .

Issue:WON the 112 information for qualified theft sufficiently allege the element of taking without the consent of the owner and the qualifying circumstance of grave abuse of discretion.

Held:Yes. The Court has held in a line of cases that where the informations merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, “of a relations by reason of dependence, guardianship, or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which respondents abused,” and without employing the word “owner” in lieu of the “Bank” were considered to have satisfied the test of sufficiency of allegations. Allegations in the information that such employees acted with grave abuse of confidence to the damage of the Bank, without particularly reffering to it as owner of the money deposits, as sufficient to make out a case of qualified theft. Depositors who place their money with the bank are considered creditors of the bank. Tellers, cashiers, bookkeepers and other employees of the bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks where monies are deposited, are considered the owners thereof. The relationship between the banks and depositors has been held to be that of creditor and debtor by virtue of Art. 1980 CC which provides that “fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans,” and Art. 1953 CC provides that “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.”

BPI VS FRANCO Gr. No. 123498, November 23, 2007

Facts: On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. First Metro Investment Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB. Subsequently, on

August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit, with BPI-FB. The total amount of 2m used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, who was looking for a conduit bank to facilitate Tevesteco’s business transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged. Unfortunately, Tevesteco had already effected several withdrawals from its current account amounting to 37m paid to Franco. Impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB instructed Jesus Arangorin to debit Franco’s savings and current accounts for the amounts remaining therein.However, Franco’s time deposit account could not be debited due to the capacity limitations of BPI-FB’s computer . 2 checks drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and stamped with a notation "account under garnishment." The dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts were under garnishment. Franco pre-terminated his time deposit account. BPI-FB deducted the amount of 63K from the remaining balance of the time deposit account representing advance interest paid to him. In light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits therein, the latter filed with the Manila RTC the subject suit . BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts. RTC judgement was rendred in favor of Franco.

Issue:WON BPI-FB can unilaterally freeze Franco's accounts and preclude him from withdrawing his deposits.

Held: No. The court ruled that BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages. The deposit of money in banks is governmed by the CC provisions on simple loan or mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco's deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor. Furthermore, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

FRIAS VS SAN DIEGO-SISON Gr. No. 155223, April 4, 2007

Facts: On 1990, Frias and San-Diego Sison entered into a MOA over Frias’property. MOA consideration is 3M. Sison has 6 months from the date of contract’s execution to notify Frias of her intention to purchase the property with the improvements at 6.4M. Prior to this 6 month period, Frias may still offer the property to other persons, provided that 3M shall be paid to Sison including interest based on prevailing compounded bank interest + amount of sale in excess of 7M [should the property be sold at a price greater than 7M]. In case Frias has no other buyer within 6 months from the contract’s execution, no interest shall be charged by Sison on the 3M. In the event that on the 6th month, Sison would decide not to purchase the property, Frias has 6 months to pay 3M (amount shall earncompounded bank interest for the last 6 months only) 3M treated as a loan and the property considered as the security for the mortgage. Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M (6.4M less 3M MOA consideration) Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28, 1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and the Deed of Absolute Sale over the property. Sison decided not to purchase the property, so she notified Frias through a letter dated March 20, 1991 [Frias

received it only on June 11, 1991], and Sison reminded Frias of their agreement that the 2M Sison paid should be considered as a loan payable within 6 months. Frias failed to pay this amount.

Sison filed a complaint for sum of money with preliminary attachment. Sison averred that Frias tried to deprive her of the security for the loan by making a false report of the loss of her owner’s copy of TCT, executing an affidavit of loss and by filing a petition for the issuance of a new owner’s duplicate copy. RTC issued a writ of preliminary attachment upon the filing of a 2M bond. RTC found that Frias was under obligation to pay Sison 2M with compounded interestpursuant to their MOA. RTC ordered Frias to pay Sison: 2M + 32% annual interest beginning December 7, 1991 until fully paid 70k representing premiums paid by Sison on the attachment bond with legal interest counted from the date of this decision until fully paid 100k moral, corrective, exemplary damages [liable for moral damages because of Frias’ fraudulent scheme] 100k attorney’s fees + cost of litigation CA affirmed RTC with modification—32% reduced to 25%. CA said that there was no basis for Frias to say that the interest should be charged for 6 months only. It said that a loan always bears interest; otherwise, it is not a loan. The interest should commence on June 7, 1991 until fully paid, with compounded bank interest prevailing at the time [June 1991] the 2M was considered as a loan (as certified by the bank).

Issue: WON compounded bank interest should be limited to 6 months as contained in the MOA.

Held: CA committed no error in awarding an annual 25% interest

on the 2M even beyond the 6-month stipulated period. In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. SC notes that the agreement speaks of two (2) periods of 6 months each. No interest will be charged for the 1st 6-month period

[while Sison was making up her mind], but only for the 2nd 6-month period after Sison decided not to buy the property. There is nothing in the MOA that suggests that interest will be charged for 6 months only even if it takes forever for Frias to pay the loan. The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. For a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense of the creditor.

The agreement stipulated in the MOA that the amount given shall bear compounded bank interest for the last six months only (referring to the second six-month period), does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Considering that the petitioner failed to pay the amount given which under the MOA shall be considered as a loan, the monetary interest for the last six months continued to accrue until the actual payment of the loaned amount. The payment of regular interest constitutes the price or cost of the money use and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.

The court finds no error committed by the CA in awarding a 25% interest per annum on the two-million peso loan even beyond the second six months stipulated period.

Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellant's (petitioner's) property. The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in which case interest will be charged "for the last six months only", referring to the second six-month period. This means that no interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months only". Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-appellant an eternity to pay the loan.

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since

the debtor continues to use such principal amount. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.

EASTERN SHIPPING LINE VS CA Gr. No. 97412, July 12, 1994

Facts: 2 fiber drums of riboflavin were shipped from Yokohama, Japan on board the vessel owned by Eastern Shipping Lines. When it arrives in Manila, it was put unto the custody of Metro Port Service, Inc. The latter excepted to one drum which is said to be in bad order and which damage was unknown to Eastern Shipping Lines. Later, Allied Brokerage Corporation received the shipment from Metro Port Service, Inc. With one drum damaged, Allied Brokerage Corporation made deliveries to the consignee's warehouse. The latter excepted to one drum that is damaged. Eastern Shipping Lines averred that due to the one drum that is damaged and due to the fault and negligence of Metro Port Service, Inc. and Allied Brokerage Corporation, the consignee suffered losses. The two failed and refused to pay the claims for damages. Consequently, Eastern Shipping Lines was compelled to pay the consignee being subrogated to all the rights of action of said consignee against Metro Port Service, Inc. and Allied Brokerage Corporation. Trial ensued and on appeal of the case, the appellate court affirmed the decision of the trial court ordering Metro Port Service and Allied Brokerage to pay Eastern Shipping Lines, jointly and severally, the amount of P19,032.95, with the present legal interest of 12% per annum from the date of filing of the complaints, until fully paid. Metro Port Service and Allied Brokerage opposed especially as to the payment of interest contending that the legal interest on an award for loss or damage should be 6% in view of Article 2209 of the Civil Code.

Issue:Whether or not the payment of legal interest on an award for loss or damage is twelve percent (12%) or six percent (6%).

Held: Article 2209 of the New Civil Code provides that if the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is 6 % per annum. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: When the obligation is breached, and it consists in the payment of a sum of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default under and subject to the

provisions of Article 1169 of the Civil Code. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

SIGA-AN VS VILLANUEVA Gr. No. 173227, January 20, 2009

Facts: Herein respondent Alicia Villanueva is engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) where herein Sebastian Siga-an works as a military officer and comptroller. Villanueva alleged that Siga-an offered to loan her the amount of P540,000.00. Having needed capital for her business transactions with the PNO, Villanueva accepted petitioner’s proposal. The loan agreement was not reduced in writing and there was no stipulation as to the payment of interest for the loan. Villanueva issued two checks worth P500,000.00 and P200,000.00. Siga-an wanted to apply the payment of P540,000.00 to the principal amount and the excess amount of P160,000.00 would be applied for the interest. He demanded from Villanueva to pay additional interest with a threat to block or disapprove her transactions with the PNO if she would not comply with his demand thus respondent paid additional amounts as interests for the loan. Villanueva asked Siga-an for receipt but petitioner refused to give as it was not necessary as there was mutual trust and confidence between them. The total amount paid by Villanueva totalled P1,200,000.00. When Villanueva was advised by her lawyer that she made an overpayment, she sent a demand letter to Siga-an asking for the return of the excess amount of P660,000.00. Siga-an just ignored Villanueva’s claim for reimbursement. Hence, Villanueva instituted a complaint for sum of money against herein petitioner Sebastian Siga-an. After trial of the case, the Trial Court ordered petitioner Siga-an to refund the excess amount to Villanueva pursuant to the principle of solutio indebiti. On appeal of the case, the appellate court affirmed the decision of the RTC. Petitioner filed a motion for reconsideration but this was denied. Hence, the instant petition.

Issue: Whether or not there was interest due to petitioner.

Held:There was no interest due to petitioner. Article 1956 of the

Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing.

Payment of monetary interest is allowed only if there was an express stipulation for the payment of interest; and the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest.

Thus, the collection of interest without any stipulation therefore in writing is prohibited by law. It appears that petitioner and respondent did not agree on the payment of interest for the loan.

Neither was there convincing proof of written agreement between the two regarding the payment of interest. Compensatory interest is not chargeable in the instant case because it was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest.

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti . Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another. The principle ofsolutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to return it.

LIGUTAN VS CA Gr. No. 138677, February 12, 2002

Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan from private respondent Security Bank and Trust Company. Petitioners executed a promissory note to pay the sum loaned with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. On maturity of the obligation, petitioners failed to settle the debt despite several demands from the bank. Consequently, the bank filed a complaint for recovery of the due amount. After trial of the case, the Trial court ruled in favour of the Bank, ordering petitioners to pay the respondent the sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 5% per month penalty charge among others. On appeal of the case, petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The Court of Appeals ruled that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice. But still, petitioners dispute the said decision.

Issue:Whether or not the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners’ loan obligation are exorbitant, iniquitous and unconscionable.

Held:The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. The essence or rationale for the payment of interest is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest. What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence. The Court of Appeals, exercising its good judgment in the instant case, has rightly reduced the penalty interest from 5% a month to 3% a month.

Issue #1:WON the penalty clause unconscionable.

Held:No. but reduced due to partial performance. SC agreed

with CA that it may be reduced due to partial performance and to allow petitioners to finally settle the obligation. (Art. 1229 CC)

Penalty Clause: Accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.

Function of Penalty Clause: To strenghten the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach.

Issue #2:

WON the 15% per annum interest unreasonable.

Held: No. The interest on its face is not excessive. The essence or

rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty.

A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded.

What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.

Issue #3:WON the execution of the mortgage novate the contract.

Held: Petitioners acknowledge that the real estate mortgage

contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank. Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other. An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one. When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a merecommodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis, or from a sale to one of loan; (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

UCPB VS SAMUEL & BELUSO Gr. No. 159912, August 17, 2007

Fact: Petition for Review on Certiorari declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB). UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land, as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to February 1998. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million. The spouses Beluso, however, failed to make any payment of the foregoing amounts. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City. Trial court declared in its judgment that: the interest rate used by [UCPB] void, the foreclosure and Sheriff’s Certificate of Sale void, UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosure, UCPB to pay [the spouses Beluso] the amount of 50K by way of attorney’s fees,UCPB to pay the costs of suit and Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant UCPB is not liable for attorney’s fees or the costs of suit.

Issue:WON interest rate stipulated was void.

Held: Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it violates the Truth in lending Act. The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the

principle of mutuality of contracts. In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes which is required in TRuth in Lending Act.

Issue #2:Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if declared amount by UCPB was excessive.

Held: Yes. Default commences upon judicial or extrajudicial demand. The excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed, thus: “There being no valid stipulation as to interest, the legal rate of interest shall be charged.” It seems that the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal.

Issue #3:Whether or not foreclosure was void.

Held:No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed.Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully entitled.

CARPO VS CHUA & DY NG Gr. No. 150773, September 30, 2005

Facts: Herein petitioner spouses David Carpo and Rechilda Carpo contracted a loan from Eleanor Chua and Elma Dy Ng for a certain sum of money payable within six (6) months with an interest rate of six percent (6%) per month secured by a mortgaged of the spouses Carpo of their residential house and lot. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was extrajudicially foreclosed, mortgaged property sold at a public auction, and the house and lot was awarded to respondents, who were the only bidders. Unable to exercise their right of redemption by petitioners, a certificate of sale was issued in the name of respondents. However, petitioners continued to occupy the said house and lot, thus respondents file a petition for writ of possession which was granted by the Trial Court. Petitioners filed a complaint for annulment of real estate mortgage and the consequent foreclosure proceedings claiming that the rate of interest stipulated in the principal loan agreement is clearly null and void for being excessive, iniquitous, unconscionable and exorbitant. Consequently, they also argue that the nullity of the agreed interest rate affects the validity of the real estate mortgage.

Issue:Whether or not the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and void.

Held:In a long line of cases, the Supreme Court has invalidated

similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set by jurisprudence, this stipulation is similarly invalid.

Issue #1: WON the invalidity of the stipulation on interest carries

with it the invalidity of the principal obligation.

Held:No. The invalidation of the interest rate is congruent with

the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. Art. 1420 CC allows the severance of the illegal terms of a divisible contract, thereby allowing the legal ones to be enforced.

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Art. 1350 CC) is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.

Issue #2:WON the ancillary mortgage contract is rendered void by

the invalid stipulation on interest rate.

Held: No. Since the principal obligation still stands and remains

valid and the mortgage contract derives its validity from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract.

Issue #3:WON the petitioners can still assail the validity of the

stipulated interest rates.

Held:No. Since an excessive stipulated interest rate may be void

for being contrary to public policy, an action to annul said interest rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary real estate mortgage.

Note that the general rule is that an action to annul an excessive stipulated (usurious) interest does not provide, for such interest rate is void for being contrary to public policy. However, in this case, since the petitioners assailed the validity of the interest rate only when the writ of possession was issued, the Court held that the petitioners slept on their rights.

SUNGA-CHAN VS CA Gr. No. 164401, June 25, 2008

Facts: Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net profit. After Jacinto’s death , his widow and married daughter, petitioner Sunga-Chan, continued with the business without Chua’s consent. Chua’s subsequent repeated demands for accounting and winding up went unheeded, prompting him to file a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment. RTC rendered judgement in favor of the petirioner. Then, issued a Resolution, rejecting the 3m accounting report petitioners submitted, while approving the 8m new computation of claims Chua submitted. CA affirmed the decision of the RTC explained that the imposition of the 12% interest for forbearance of credit or money was proper.

Issue #1:WON the payment of unreceived profits is 12% per annum

rate under CB Circular No. 416 or 6% per annum under Art. 2209 of the Civil Code .

Held: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general,"with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on the award of interest." Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit. Likewise, the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorney’s fee, and PhP 25,000 litigation fee shall earn 12% per annum from December 20, 2001 until fully paid.

Issue #2: WON the obligation of the petitioner is solidary.

Held: Yes. The complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages is clearly a suit to enforce a solidary or joint and several obligation on the part of petitioners. As it were, the continuance of the business and management of Shellite by petitioners against the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner ends and the liability of the other starts. In this kind of situation, the law itself imposes solidary obligation. Art. 1207 of the Civil Code thus provides: Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The duty of petitioners to remit to Chua his half interest and share of the total partnership assets proceeds from petitioners’ indivisible obligation to render an accounting and inventory of such assets. The need for the imposition of a solidary liability becomes all the more pronounced considering the impossibility of quantifying how much of the partnership assets or profits was misappropriated by each petitioner.