I. Introduction
Although a promise expressed in a chattel
A. Credit Transactions
B. Security
C. Bailment
Cases:
1. Acme vs. CA, G.R. No. 103576, August 22, 1996;
Acme Shoe vs CADate: August 22, 1996
Petitioners: Acme Shoe, Rubber and Plastic Corporation and Chua PacRespondents: CA, BPI
and Regional Sheriff of Caloocan City
Ponente: Vitug
Facts: -
Chua Pac, the president and general manager of Acme Shoe, Rubber & Plastic Corp.,
executed for and in behalf of the company, a chattel mortgage in favor of Producers Bank of
the Philippines. The mortgage stood by way of security for petitioner's corporate loan of
P3,000,000. A provision in the chattel mortgage agreement states that if the mortgagor of his
heirs, executors or administrators shall well and truly perform their full obligations, then the
mortgage shall be null and void. The mortgage shall also stand as security for the payment of
subsequent promissory notes, extensions or newloans that the mortgagor shall subsequently
execute, including any obligations of the mortgagor to the mortgagee, whether such
obligations have been contracted before, during or after the constitution of the mortgage.- In
due time, the loan of P3,000,000 was paid by the corporation. Subsequently, in 1981, it
obtained from the bank additional accommodations totalling P2,700,000. These borrowings
were also fully paid.- On January 1984, the bank yet again extended to the corporation a loan
of P1,000,000. covered by four promissory notes for P250,000 each. Due to financial
constraints, the loan was not settled at maturity. The bank applied for an extra judicial
foreclosure of the chattel mortgage, with the Sheriff of Caloocan City, prompting the
corporation tofile an action for injunction, with damages and a prayer for a writ of preliminary
injunction, before the RTC. The courtdismissed the complaint and ordered the foreclosure of
the chattel mortgage. It held the corporation was bound by thestipulations of the chattel
mortgage. The CA affirmed.
Issue: WON a clause in a chattel mortgage that purports to likewise extend its coverage to
obligations yet to becontracted or incurred is valid
Held: No
Ratio: - Contracts of security are either personal or real. In contracts of personal security, such
as a guaranty or asuretyship, the faithful performance of the obligation by the principal debt
or is secured by the personal commitment of another. In contracts of real security, the
property encumbered can be alienated for the payment of the obligation, but thatshould the
obligation be duly paid, then the contract is automatically extinguished proceeding from the
accessorycharacter of the agreement. As the law so puts it, once the obligation is complied
with, then the contract of securitybecomes, ipso facto, null and void.While a pledge, real estate
mortgage, or antichresis may exceptionally secure after-incurred obligations so long asthese
future debts are accurately described, a chattel mortgage, however, can only cover obligations
existing at the timethe mortgage is constituted.
mortgage to include debts that are yet to becontracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come intoexistence or arise until
after a chattel mortgage agreement covering the newly contracted debt is executed either
byconcluding a fresh chattel mortgage or by amending the old contract conformably with the
form prescribed by the ChattelMortgage Law. Refusal on the part of the borrower to execute
the agreement so as to cover the after-incurred obligationcan constitute an act of default on
the part of the borrower of the financing agreement whereon the promise is written but,of
course, the remedy of foreclosure can only cover the debts extant at the time of constitution
and during the life of thechattel mortgage sought to be foreclosed.- A chattel mortgage must
comply substantially with the form prescribed by the Chattel Mortgage Law itself. Oneof the
requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if
such an affidavit isnot appended to the agreement, the chattel mortgage would still be valid
between the parties (not against third personsacting in good faith , the fact, however, that the
statute has provided that the parties to the contract must execute an oathmakes it obvious
that the debt referred to in the law is a current, not an obligation that is yet merely
contemplated. In thechattel mortgage here involved, the only obligation specified in the
chattel mortgage contract was the P3,000,000 loanwhich the corporation later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligationautomatically
rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, vs.
Magallanes Press:
. . . A mortgage that contains a stipulation in regard to future advances in the credit will take
effect only from the date the same are made and notfrom the date of the mortgage.
- The significance of the ruling to the instant problem would be that since the 1978 chattel
mortgage had ceased toexist coincidentally with the full payment of the P3,000,000 loan, there
no longer was any chattel mortgage that couldcover the new loans that were concluded
thereafter.
2. Navoa vs. CA, G.R. No. 59255, December 29, 1995;
Facts:
On December 1977 Teresita Domdoma and Eduardo Domdoma filed a case with the RTC for
collection of various sums of money based on loans given by them to Olivia Navoa. They cased
was dismissed on the ground that there was no cause of action and that the Domdoma’s do
not have no capacity to sue. They appealed to the C.A. and was granted a favourable decision.
There were 6 instances in which the Domdoma’s gave Olivia Navoa a loan. The first instance is
when Teresita gave Olivia a diamond ring valued at 15,000.00 which was secured by a PCIB
check under the condition that if the ring was not returned within 15 days from August 15,
1977 the ring is considered sold. Teresita attempted to deposit the check on November 1977
but the check was not honoured for lack of funds. After this instance, there were other loans
of various amounts that were extended by Teresita to Olivia, loans which were secured by PCIB
checks, which were all dated to 1 month after the loan. All these checks were not honoured
under the same reason as the first loan.
Issue: Was the decision of the RTC to dismiss the case due to having no cause of action valid?
HELD: - NO, A cause of action is the fact or combination of facts which affords a party a right
to judicial interference in his behalf.
- For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15 days after
August 15, 1977, and even then, Olivia Navoa failed to pay the price for the ring when the
payment was due (check issued was not honoured. Thus it is confirmed that Teresita’s right
under the agreement was violated.
- As for the other loans extended by Teresita to Olivia, they were all secured by PCIB checks. It
can be inferred that since the checks were all dated to 1 month after the loan, it follows that
the loans are then payable 1 month after they were contracted, and also these checks were
dishonoured by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks that were issued as payment for
their obligations. Art 1169 of the Civil Code is explicit: those obliged to deliver or to do
something incur in delay from the time the obligee judicially or extra-judicially demands from
them the fulfilment of the obligations, the continuing refusal of Olivia and Ernesto Navoa to
comply with the demand of payment shows the existence of a cause of action.
Held:
The petition is DENIED and the decision of the C.A. remanding the case to the RTC for trial on
the merits is affirmed.
Obligations and Contracts terms:
Security- A means of ensuring the enforcement of an obligation or of protecting some interest
in property. It may be personal or property security.
Cause of Action- is the fact or combination of facts which affords a party a right to judicial
interference in his behalf. The requisites for a cause of action are: (a) a right in favour of the
plaintiff by whatever means and under whatever law it arises or created, (b) an obligation on
the part of the defendant to respect and not to violate such right; and, (c) an act or omission
on the part of the defendant constituting a violation of the plaintiff’s right or breach of the
obligation of the defendant to the plaintiff.
II. Loan
A. General Provisions
Cases:
1. People vs. Concepcion, 44 Phil 126 (1922).
FACTS:
Defendant authorized an extension of credit in favor of Puno Y Concepcion, S. en C,
a co-partnership. Defendant’s wife was a director of this co-partnership. Defendant was
found guilty of violating Sec. 35 of Act No. 2747 which says that “The National Bank shall not,
directly or indirectly, grant loans to any of the members of the Board of Directors of the bank
nor to agents of the branch banks.” This Section was in effect in 1919 but was repealed in Act
No. 2938 approved on January 30, 1921.
ISSUE:
W/N Defendant can be convicted of violating Sections of Act No. 2747, which were
repealed by Act No. 2938.
HELD:
In the interpretation and construction, the primary rule is to ascertain and give effect
to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act No. 2747 provides a
punishment for any person who shall violate any provisions of the Act. Defendant contends
that the repeal of these Sections by Act No. 2938 has served to take away basis for
criminal prosecution. The Court holds that where an act of the Legislature which penalizes an
offense repeals a former act which penalized the same offense, such repeal does not have
the effect of thereafter depriving the
Courts of jurisdiction to try, convict and sentence offenders charged with violations of the old
law.
2. Republic vs. PNB, G.R. No. L-16106, December 30, 1961;
FACTS:
Republic of the Philippines filed an escheat proceeding pursuant to RA 3936 over dormant
deposits or unclaimed balances in various banks including First National City Bank of New York.
In its answer the First National City Bank of New York claims that, while it admits that various
savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling more than
P100,000.00, which remained dormant for 10 years or more, are subject to escheat however,
it has inadvertently included in said report certain items amounting to P18,589.89 which,
properly speaking, are not credits or deposits within the contemplation of Act No. 3936. Hence,
it prayed that said items be not included in the claim of plaintiff.
Issue: Whether manager’s or cashier’s check, telegraphic transfers and demand drafts be
excluded as part of unclaimed balance or deposits to be escheated.
HELD:
Section 1, Act No. 3936, provides:
Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or deposits
of money, bullion, security or other evidence of indebtedness of any kind, and interest
thereon with banks, as hereinafter defined, in favor of any person unheard from for a period
of ten years or more. Such unclaimed balances, together with the increase and proceeds
thereof, shall be deposited with the Insular Treasure to the credit of the Government of the
Philippine Islands to be as the Philippine Legislature may direct.
xxx the term "credit" in its usual meaning is a sum credited on the books of a company to a
person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and
may be said to imply ability, by reason of property or estates, to make a promised payment. It
is the correlative to debt or indebtedness, and that which is due to any person, a distinguished
from that which he owes. The same is true with the term "deposits" in banks where the
relationship created between the depositor and the bank is that of creditor and debtor.
Demand Draft: No! not included.
xxx a demand draft is a bill of exchange payable on demand. Considered as a bill of exchange,
a draft is said to be, like the former, an open letter of request from, and an order by, one
person on another to pay a sum of money therein mentioned to a third person, on demand or
at a future time therein specified. As a matter of fact, the term "draft" is often used, and is the
common term, for all bills of exchange. And the words "draft" and "bill of exchange" are used
indiscriminately.
On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law
does not operate as an assignment of funds in the hands of the drawee who is not liable on
the instrument until he accepts it. "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon and the
drawee is not liable on the bill unless and until he accepts the same." Xxx
Since it is admitted that the demand drafts herein involved have not been presented either for
acceptance or for payment, the inevitable consequence is that the appellee bank never had
any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of
the payee concerned and as such the aforesaid drafts cannot be considered as credits subject
to escheat within the meaning of the law.
MANAGER’S or CASHIER’S CHECK: YES! Included.
XXX a cashier's or manager's check is a primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand.
A cashier's check issued by a bank is not an ordinary draft. Xxx A cashier's check is of a very
different character. It is the primary obligation of the bank which issues it and constitutes its
written promise to pay upon demand.
The following definitions cited by appellant also confirm this view:
A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of
exchange drawn by a bank on itself and accepted in advance by the act of issuance.
A cashier's check issued on request of a depositor is the substantial equivalent of a certified
check and the deposit represented by the check passes to the credit of the checkholder, who
is thereafter a depositor to that amount.
A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in
advance by the act of issuance, is not subject to countermand by the payee after indorsement,
and has the same legal effects as a certificate deposit or a certified check.
A demand draft is not therefore of the same category as a cashier's check which should come
within the purview of the law.
TELEGRAPHIC TRANSFER: Yes! included.
The case, however, is different with regard to telegraphic payment order. It is said that as the
transaction is for the establishment of a telegraphic or cable transfer the agreement to remit
creates a contractual obligation a has been termed a purchase and sale transaction. The
purchaser of a telegraphic transfer upon making payment completes the transaction insofar
as he is concerned, though insofar as the remitting bank is concerned the contract is
executory until the credit is established. We agree with the following comment the Solicitor
General: "This is so because the drawer bank was already paid the value of the telegraphic
transfer payment order. In the particular cases under consideration it appears in the books of
the defendant bank that the amounts represented by the telegraphic payment orders appear
in the names of the respective payees. If the latter choose to demand payment of their
telegraphic transfers at the time the same was (were) received by the defendant bank, there
could be no question that this bank would have to pay them. Now, the question is, if the payees
decide to have their money remain for sometime in the defendant bank, can the latter maintain
that the ownership of said telegraphic payment orders is now with the drawer bank? [NO] The
latter was already paid the value of the telegraphic payment orders otherwise it would not
have transmitted the same to the defendant bank. Hence, it is absurd to say that the drawer
banks are still the owners of said telegraphic payment orders."
3. Herrera vs. PETROPHIL, G.R. No. L-48349, December 29, 1986;
Facts: On December 5, 1969, a "Lease Agreement" was entered into by the plaintiff-appellant
and ESSO Standard Eastern. Inc., (substituted by Petrophil Corporation) for twenty (20) years
with a condition that monthly rentals should be paid and there should be advance payment of
rentals for the first eight years of the said contract. Pursuant to the said contract, defendant-
appellee paid the advance rentals for the first eight years, subtracting the amount of
P101,010.73, the amount it computed as constituting the interest or discount for the first eight
years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee, explained
that there had been a mistake in computation, paid to the appellant the additional sum of
P2,182.70, thereby reducing the deducted amount to only P98,828.03.
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of
P98,828.03, with interest, claiming this had been illegally deducted from him in violation of the
Usury Law. The defendant-appellee argued that the amount deducted was not usurious
interest but a given to it for paying the rentals in advance for eight years.
Issue: WON the defendant-appelle violated the usury law.
Ruling:
There is no usury in this case because no money was given by the defendant-appellee to the
plaintiff-appellant, nor did it allow him to use its money already in his possession. There was
neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the
defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor
had the right to determine, and any reduction thereof, by any amount, would not contravene
the Usury Law.
The difference between a discount and a loan or forbearance is that the former does not have
to be repaid. The loan or forbearance is subject to repayment and is therefore governed by
the laws on usury.
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to interest
allowed by law."
the elements of usury are (1) a loan, express or implied; (2) an understanding between the
parties that the money lent shall or may be returned; that for such loan a greater rate or
interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4)
a corrupt intent to take more than the legal rate for the use of money loaned. Unless these
four things concur in every transaction, it is safe to affirm that no case of usury can be declared.
4. Saura Import and Export Co., Inc. vs. DBP, G.R. 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. YES. There was
indeed a perfected consensual contract.
HELD:
·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.
5. Bonnevie vs. CA, G.R. No. L-49101, October 24, 1983
Facts:
 December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their
loan of P75K from Philippine Bank of Commerce (PBC) by mortgaging their
property
 December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie
where P75K is payable to PBC and P25K is payable to Spouses Lanzano.
 April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22
to PBC
 May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale
with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
 June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of
sale was published
 January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine
Bank of Commerce for the annulment of the Deed of Mortgage dated
December 6, 1966 as well as the extrajudicial foreclosure made on September
4, 1968.
 CFI: Dismissed the complaint with costs against the Bonnevies
 CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.
HELD: YES. CA affirmed
 A contract of loan being a consensual contract is perfected at the same time
the contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its execution.
 Respondent Bank had every right to rely on the certificate of title. It was not
bound to go behind the same to look for flaws in the mortgagor's title, the
doctrine of innocent purchaser for value being applicable to an innocent
mortgagee for value.
 Thru certificate of sale in favor of appellee was registered on September 2, 1968
and the one year redemption period expired on September 3, 1969. It was not
until September 29, 1969 that Honesto Bonnevie first wrote respondent and
offered to redeem the property.
 loan matured on December 26, 1967 so when respondent Bank applied for
foreclosure, the loan was already six months overdue. Payment of interest on
July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso
facto result in the renewal of the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest is necessary but also the
payment of interest for the proposed period of renewal as well. Besides,
whether or not a loan may be renewed does not solely depend on the debtor
but more so on the discretion of the bank.
6. Central Bank vs. CA, G.R. No. L-45710, October 3, 1985
Facts: Island Savings Bank, upon favorable recommendation of its legal department, approved
the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan,
executed on the same day a real estate mortgage over his 100-hectare land located in Cubo,
Las Nieves, Agusan. The loan called for a lump sum of P80,000, repayable in semi-annual
installments for 3 yrs, with 12% annual interest. After the agreement, a mere P17K partial
release of the loan was made by the bank and Tolentino and his wife signed a promissory note
for the P17,000 at 12% annual interest payable w/in 3 yrs. An advance interest was deducted
fr the partial release but this prededucted interest was refunded to Tolentino after being
informed that there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems,
prohibited the bank fr making new loans and investments. And after the bank failed to restore
its solvency, the Central Bank prohibited Island Savings Bank from doing business in the
Philippines. Island Savings Bank in view of the non-payment of the P17K filed an application
for foreclosure of the real estate mortgage. Tolentino filed petition for specific performance
or rescission and damages with preliminary injunction, alleging that since the bank failed to
deliver P63K, he is entitled to specific performance and if not, to rescind the real estate
mortgage.
Issues: 1) Whether or not Tolentino’s can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the
promissory note
3) Whether or not the real estate mortgage can be foreclosed
Held:
1) Whether or not Tolentino’s can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to
perform, the other party not ready nor willing incurs in delay. When Tolentino executed real
estate mortgage, he signified willingness to pay. That time, the bank’s obligation to furnish the
P80K loan accrued. Now, the Central Bank resolution made it impossible for the bank to furnish
the P63K balance. The prohibition on the bank to make new loans is irrelevant bec it did not
prohibit the bank fr releasing the balance of loans previously contracted. Insolvency of debtor
is not an excuse for non-fulfillment of obligation but is a breach of contract.
The bank’s asking for advance interest for the loan is improper considering that the total loan
hasn’t been released. A person can’t be charged interest for nonexisting debt. The alleged
discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials
should have been more responsible and the bank bears risk in case the collateral turned out
to be overvalued. Furthermore, this was not raised in the pleadings so this issue can’t be raised.
The bank was in default and Tolentino may choose bet specific performance or rescission w/
damages in either case. But considering that the bank is now prohibited fr doing business,
specific performance cannot be granted. Rescission is the only remedy left, but the rescission
shld only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of
the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved
party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the
date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of
the entire loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay. Since both parties were in default in the performance
of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the
real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient
to secure a P17,000.00 debt.
B. Commodatum
Nature
Obligations of the Bailee
Obligations of the Bailor
Cases:
1. Republic vs. Bagtas, G.R. No. L-17474, October 25, 1962
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.
2. Mina vs. Pascual, G.R. No. 8321, October 14, 1913
ALEJANDRA MINA, ET AL., vs. RUPERTA PASCUAL, ET AL.,
FACTS:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla
acquired a property during his lifetime having purchased a lot a public auction. Andres
Fontanilla, with the consent of his brother, Francisco, erected a warehouse on a part of the lot
of his brother.
When Franciso Fontanilla died, the herein plaintiffs, Alejandro Mina, et al., were
recognized without discussion as his heirs. On the other hand, when Andres Fontanilla died,
the children of Ruperta Pascual were recognized as his heirs without discussion and are
consequently entitled to the warehouse. The plaintiffs and the defendants are therefore,
virtually, to all appearance, the owners of the warehouse; while the plaintiffs are undoubtedly,
the owners of the part of the lot occupied by that building, as well as of the remainder thereof.
But on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the
herein defendants, petitioned the Court of First Instance of Ilocos Norte for authorization to
sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its
lot." The plaintiffs, that is Alejandra Mina, et al., opposed the petition of Ruperta Pascual for
the reason that the latter had included therein the lot occupied by the warehouse, which they
claimed was their exclusive property.
The plaintiffs thereofre requested the court to decide the question of ownership first
before the it passes upon the petition for the sale of the warehouse. However, the trial court
still ordered the sale of the warehouse. So, the warehouse, together with the lot on which it
stands, was sold to Cu Joco.
On appeal, commenced by the plaintiffs, the decision of the trial court was reversed.
But soon after a writ of execution was issued and the plaintiffs were given possession of the
lot, the trial court annulled this possession for the reason that it affected Cu Joco, who had not
been a party to the suit in which that writ was served. The plaintiffs now commenced this
present action for the purpose of having the sale of the said lot declared null and void and of
no force and effect.
ISSUE: Whether or not defendant Pascual is the owner of the property so as to give her the
right to sell the warehouse and the lot where it stands.
SC RULING:
No. Defendant Pascual has no right to sell the lot where the warehouse is standing.
What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs
have the ownership, and they themselves only the use, of the said lot. But while finding the
plaintiffs to be the owners of the lot, we recognized in principle the existence of a
commodatum under which the defendants held the lot.
An essential feature of the commodatum is the use of the thing belonging to another
shall for a certain period. Therefore, it is evident that he who has only the mere use of the
thing cannot transfer its ownership. The sale of a thing effected by one who is not its owner is
null and void. The defendants never were the owners of the lot sold. The sale of it by them is
necessarily null and void. On cannot convey to another what he has never had himself.
The purchaser could not acquire anything more than the interest that might be held
by a person to whom realty in possession of the vendor might be sold, for at a judicial auction
nothing else is disposed of. What the minor children of Ruperta Pascual had in their possession
was the ownership of the six-sevenths part of one-half of the warehouse and the use of the lot
occupied by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that
sale: not the ownership of the lot; neither the other half, nor the remaining one-seventh of the
said first half, of the warehouse.
The present contention, however, of the plaintiffs that Cu Joco, now in possession of
the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the
commodatum sustained by them, since, according to the second paragraph of the aforecited
article 1740, "commodatum is essentially gratuitous”.
Hence, as the facts show that a building was erected on another's ground, the
question should be decided in accordance with the statutes that, thirty years ago, governed
accessions to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly
identical with the provisions of articles 361 and 362 of the Civil Code. So, then, pursuant to
article 361, the owner of the land on which a building is erected in good faith has a right to
appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453
and 454, or to oblige the builder to pay him the value of the land. Such, and no other, is the
right to which the plaintiff are entitled.
For these reasons, it is only necessary to annul the sale of the said lot which was made
by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the
latter in the use of the lot until the plaintiffs shall choose one or the other of the two rights
granted them by article 361 of the Civil Code.
3. Spouses Abella v. Spouses Abella, G.R. No. 195166, July 8, 2015
FACTS: Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and
damages against respondents Spouses Romeo and Annie Abella wherein it was alleged that
respondents obtained a loan from them in the amount of P500K. The loan was evidenced by
an acknowledgment receipt dated March 22, 1999 and was payable within one (1) year.
Petitioners added that respondents were able to pay a total of P200K—P100K paid on two
separate occasions—leaving an unpaid balance of P300K.
In their Answer, respondents alleged that the amount involved did not pertain to a loan but
was part of the capital for a joint venture involving the lending of money when respondents
that they were approached by petitioners, who proposed that if respondents were to
"undertake the management of whatever money [petitioners] would give them, [petitioners]
would get 2.5% a month with a 2.5% service fee to [respondents]." Moreover, they claimed
that the entire amount of P500,000.00 was disposed of in accordance with their agreed terms
and conditions and that petitioners terminated the joint venture, prompting them to collect
from the joint venture's borrowers. They were, however, able to collect only to the extent of
P200,000.00; hence, the P300,000.00 balance remained unpaid.
The RTC ruled in favor of petitioners. On respondents' appeal, the Court of Appeals ruled that
while respondents had indeed entered into a simple loan with petitioners, respondents were
no longer liable to pay the outstanding amount of P300,000.00.
ISSUE1: What contract was entered into by the parties?
HELD1: Respondents entered into a simple loan or mutuum, rather than a joint venture, with
petitioners.
Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail
over the clear terms of the document attesting to the relation of the parties. "If the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.”
ISSUE2: Whether interest accrued on respondents' loan from petitioner and if in the
affirmative, at what rate?
HELD2: First issue - Guided by the decision in Nacar v. Gallery Frames: In the absence of an
express stipulation as to the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of
Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 — but will now be six percent
(6%) per annum effective July 1, 2013.
It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only
until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
4. Catholic Vicar Apostolic vs. CA, [G.R. No. 80294-95, September 21, 1988
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.
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.
5. Quintos vs. Beck, [G.R. No. 46240. November 3, 1939
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
C. Mutuum
Cases:
1.) Cebu International vs. CA, G.R. No. 123031, October 12, 1999;
Facts:
 December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of
P75K from Philippine Bank of Commerce (PBC) by mortgaging their property
 December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where
P75K is payable to PBC and P25K is payable to Spouses Lanzano.
 April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22 to PBC
 May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
 June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of sale was
published
 January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of
Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well
as the extrajudicial foreclosure made on September 4, 1968.
 CFI: Dismissed the complaint with costs against the Bonnevies
 CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.
HELD: YES. CA affirmed
 A contract of loan being a consensual contract is perfected at the same time the contract
of mortgage was executed. The promissory note executed on December 12, 1966 is only
an evidence of indebtedness and does not indicate lack of consideration of the mortgage
at the time of its execution.
 Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent
purchaser for value being applicable to an innocent mortgagee for value.
 Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the
one year redemption period expired on September 3, 1969. It was not until September
29, 1969 that Honesto Bonnevie first wrote respondent and offered to redeem the
property.
 loan matured on December 26, 1967 so when respondent Bank applied for foreclosure,
the loan was already six months overdue. Payment of interest on July 12, 1968 does not
make the earlier act of PBC inequitous nor does it ipso facto result in the renewal of the
loan. In order that a renewal of a loan may be effected, not only the payment of the
accrued interest is necessary but also the payment of interest for the proposed period of
renewal as well. Besides, whether or not a loan may be renewed does not solely depend
on the debtor but more so on the discretion of the bank.
2.) Tolentino vs. Gonzales, 50 Phil. 558 (1927);
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.
3.) Colinares vs. CA, G.R. No. 90828, September 5, 2000;
COLINARES v s . COURT OF APPEALS
FACTS:
In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite
Sisters of Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de
Oro City. On 30 October 1979, petitioners obtained various construction materials from CM
Builders Centre for the said
project. The following day, petitioners applied for a commercial letter of credit with the
Philippine Banking Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders
Centre. PBC approved the letter of credit to cover the full invoice value of the goods.
Petitioners signed the pro-forma trust receipt as security. The said loan was due on 29 January
1980. However, petitioners failed to pay the whole amount on its due date. Several demand
letters were sent to them. Petitioners proposed that the terms of payment of the loan shall be
modified. Pending approval of the said proposal, petitioners paid some amounts.
Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC
continued to demand payment of the balance. On 14 January 1983, petitioners were charged
with violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised
Penal Code.
During trial, petitioners insisted that the transaction was that of an ordinary loan.
Subsequently, the trial court convicted the petitioners for the offense charged.
On appeal, the Court of Appeals affirmed the conviction of petitioners and increased the
penalty imposed.
ISSUE: WON the true nature of the contract was an ordinary loan or a trust receipt agreement.
RULING: The transaction was an ordinary loan.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that
day, ownership over the merchandise was already transferred to Petitioners who were to use
the materials for their construction project. It was only a day later, 31 October 1979, that they
went to the bank to apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are
owned by the bank and only released to the importer in trust subsequent to the grant of the
loan. The bank acquires a "security interest" in the goods as holder of a security title for the
advances it had made to the entrustee.
The ownership of the merchandise continues to be vested in the person who had advanced
payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or
successor-in-interest. To secure that the bank shall be paid, it takes full title to the goods at
the very beginning and continues to hold that title as his indispensable security until the goods
are sold and the vendee is called upon to pay for them; hence, the importer has never owned
the goods and is not able to deliver possession. In a certain manner, trust receipts partake of
the nature of a conditional sale where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price.
Trust receipt transactions are intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase of merchandise,
and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.
The antecedent acts in a trust receipt transaction consist of the application and approval of
the letter of credit, the making of the marginal deposit and the effective importation of goods
through the efforts of the importer.
Petitioner Veloso's claim that they were made to believe that the transaction was a loan was
also not denied by PBC.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part
of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC.
Petitioners continually endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money
for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent
as a state of mind was not proved to be present in Petitioners' situation. Petitioners employed
no artifice in dealing with PBC and never did they evade payment of their obligation nor
attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their
obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders
Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which
should not be the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans
and place them under the threats of criminal prosecution should they be unable to pay it may
be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion
which borrowers have no option but to sign lest their loan be disapproved. The resort to this
scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to
misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money, as manifested by its Affidavit
ofDesistance.
4.) Republic vs. Grijaldo, G.R. No. L-20240, December 31, 1965;
Facts:
· Grijaldo obtained five loans from the Bank of Taiwan in the total sum of P1,281.97 with
interest at the rats of 6% per annum compounded quarterly. These were evidenced by five
promissory notes.
· These loans were crop loans and was considered to be due one year after they were
incurred.
· As a security for the payment of the loans, a chattel mortgage was executed on the
standing crops of his land.
· The assets in the Bank of Taiwan were vested in the US Gov’t which were subsequently
transferred to the Republic of the Philippines
· RP is now demanding the payment of the account.
· Justice of Peace dismisses the case on the ground of prescription. CA rendered a decision
ordering the appellant to pay the appellee
Defendant’s contentions:
1) The appellee has no cause of action against appellant since the transaction was with
Taiwan Bank.
2) That if the appellee has a cause of action at all, it had prescribed
3) The lower court erred in ordering the appellant to pay P2,377.23
Issue:
Can RP still collect from Grijaldo?
Held: Yes
Ratio: The obligation of the contract was not to deliver a determinate thing, it was a generic
thing – the amount of money representing the total sum of his loans. The destruction of
anything of the same kind does not extinguish the obligation. The loss of the crops did not
extinguish his obligation to pay because the account could still be paid from other sources
aside from the mortgaged crops. Also, prescription does not run against the State.
5.) Soncuya vs. Azarraga, G.R. No. 43579, June 14, 1938;
6.) State Investment vs. CA, G.R. No. 90676, June 19, 1991;
Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter,
Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell
the jewellry, she returned it to Victoriano before the maturity of the checks. However, the
checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic
withdrew her funds from the bank contesting that she incurred no obligation on the checks
because the jewellery was never sold and the checks are negotiated without her knowledge
and consent. Upon presentment of for payment, the checks were dishonoured for insufficiency
of funds.
Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure
or absence of consideration
Held:
Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence
shows that: on the faces of the post dated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano before the due dates; that it was
taken in good faith and for value; and there was no knowledge with regard that the checks
were issued as security and not for value. A prima facie presumption exists that a holder of a
negotiable instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose
for which they were issued and therefore is not a holder in due course.
No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic
failed to get back the possession of the checks as provided by paragraph c, intentional
cancellation of instrument is impossible. As provided by paragraph d, the acts which will delivery of the object of the contract. Necessarily, the delivery of the proceeds of the loan by
discharge a simple contract of payment of money will discharge the instrument. Correlating the lender to the borrower is indispensable to perfect the contract of loan. Once the proceeds
Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none have been delivered, the unilateral characteristic of the contract arises and the borrower is
of those modes outlined therein is applicable in the instant case.Thus, Moulic may not bound to pay the lender an amount equal to that received.
unilaterally discharge herself from her liability by mere expediency of withdrawing her funds Here, there were purported contracts of loan entered between Westmont and petitioners for
from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability the amounts of P2,429,500.00 and P4,000,000.00, respectively. The promissory notes
on her check to a holder in due course. Moreover, the fact that the petitioner failed to give evidencing such loans were denied by petitioners, thus, the genuineness and due execution of
notice of dishonor is of no moment. The need for such notice is not absolute; there are such documents were not admitted. Petitioners averred that they never received such loans
exceptions provided by Sec 114 of NIL. because the bank disapproved their applications and they had to acquire loans from other
persons. They presented a cashier's check, in the amount of P2,429,500.00, obtained from
7.) Osmeña-Jalandoni v. Encomienda, G.R. No. 205578, March 1, 2017 Chua, which showed that the latter personally provided the loan, and not the bank. As the
bank did not deliver the proceeds of the loan, petitioners stressed that there was no perfected
contract of loan. In addition, they doubt the reliability of the promissory notes as their original
8.) Spouses Sy v. Westmont Bank, G.R. No. 201074, October 19, 2016
copies were not presented before the RTC.
DOCTRINE
The Court finds that Westmont miserably failed to establish that it released and delivered the
A simple loan is a real contract and it shall not be perfected until the delivery of theobject of proceeds of the loans in the total amount of P6,429,500.00 to petitioners. Westmont could
the contract. have easily presented a receipt, a ledger, a loan release manifold, or a statement of loan
FACTS release to indubitably prove that the proceeds were actually released and received by
petitioners. During trial, Westmont committed to the RTC that it would submit as evidence a
 Spouses Sy, et al., doing business under the tradename of Moondrops General
loan manifold indicating the names of petitioners as recipients of the loans, but these
Merchandising (“Moondrops”), obtained a loan with Westmont Bank in the amount of
purported documents were never presented, identified or offered.
P2,429,500 evidenced by a Promissory Note No. GP-5280.
 They obtained another loan from Westmont Bank in the amount of As Westmont failed to prove that it had delivered the loan proceeds to respondents, then
P4,000,000evidenced by a Promissory Note No. GP-5285. there is no perfected contract of loan.
 A Continuing Suretyship Agreement was executed between Westmont and Sps. Sy, et al.
for the purpose of securing any future indebtedness of Moondrops.
 Westmont filed a complaint when Sps. Sy, et al. allegedly defaulted in the payment of
their loan obligations.
 Sps. Sy, et al., however, countered that Westmont, through its bank manager, Lao,
required them to sign blank forms of promissory notes and disclosure statements and
promised that he would notify them immediately regarding the status of their loan
application.
 The loan applications were disapproved but Lao offered to help them secure a loan
through a certain Chua, who lend them the amounts of P2,500,000 and P4,000,000,
which Sps. Sy, et al. accepted.
ISSUE
Whether or not there is a perfected contract of loan
HELD
NO.
Sps. Sy, et al., have shown the Court that their loan applications with Westmont were
disapproved.
On the other hand, Westmont failed to prove that it delivered the proceeds of the loan to
petitioners.
A simple loan or mutuum is a contract where one of the parties delivers to another, either
money or other consumable thing, upon the condition that the same amount of the same kind
and quality shall be paid. A simple loan is a real contract and it shall not be perfected until the