CREDIT TRANSACTIONS

1. Common Provisions – NCC 1156, 1249, 1305, 1306, 1316, 1933 and 1934

2. Commodatum – NCC 1935-1952

Pajuyo v CA, 430 SCRA 492

An essential feature of commodatum is that it is gratuitous, while another feature is that the use of the
thing belonging to another is for a certain period; If the use of the thing is merely tolerated by the bailor,
he can demand the return of the thing at will, in which case the contractual relation is called a precarium;
Precarium is a kind of commodatum. —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 makesthe 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.

3. Simple Loan or Mutuum, NCC 1953-1955

Equitable v Ng Sheung Ngor, 541 SCRA 223

Escalation Clauses; Principle of Mutuality of Contracts; Escalation clauses are not void per se but one
“which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the agreement” is void—clauses
of that nature violate the principle of mutuality of contracts. —Escalation clauses are not void per se.
However, one “which grants the creditor an unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent to an important modification in the
agreement” is void. Clauses of that nature violate the principle of mutuality of contracts. Article 1308 of the
Civil Code holds that a contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them. For this reason, we have consistently held that a valid escalation clause
provides: 1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and 2. that the stipulated rate of interest will be reduced if the
applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause).

Where the escalation clause is annulled, the principal amount of the loan is subject to the original or
stipulated rate of interest. —With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank, 435 SCRA 565 (2004), we held that, because the escalation clause was
annulled, the principal amount of the loan was subject to the original or stipulated rate of interest. Upon
maturity, the amount due was subject to legal interest at the rate of 12% per annum.

“Extraordinary Inflation” and “Extraordinary Deflation,” Defined. —Extraordinary inflation exists when there
is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in
the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand,
involves an inverse situation.

Despite the devaluation of the peso, the Bangko Sentral ng Pilipinas (BSP) never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose out of a contract, the
parties did not agree to recognize the effects of extraordinary inflation (or deflation). —For extraordinary
inflation (or deflation) to affect an obligation, the following requisites must be proven: 1. that there was an
official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP); 2.
that the obligation was contractual in nature; and 3. that the parties expressly agreed to consider the
effects of the extraordinary inflation or deflation. Despite the devaluation of the peso, the BSP never
declared a situation of extraordinary inflation. Moreover, although the obligation in this instance arose out
of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation). The
RTC never mentioned that there was a such stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP
on the date of maturity. [Equitable PCI Bank vs. Ng Sheung Ngor, 541 SCRA 223(2007)]

Almeda v Bathala Marketing, 542 SCRA 470

Obligations and Contracts; Extraordinary Inflation or Deflation; Words and Phrases; Inflation, Defined;
Extraordinary Inflation, Defined. —Inflation has been defined as the sharp increase of money or credit, or
both, without a corresponding increase in business transaction. There is inflation when there is an
increase in the volume of money and credit relative to available goods, resulting in a substantial and
continuing rise in the general price level. In a number of cases, this Court had provided a discourse on
what constitutes extraordinary inflation, thus: Extraordinary inflation exists when there is a decrease or
increase in the purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.

The erosion of the value of the Philippine peso in the past three or four decades, starting in the mid
sixties, is characteristic of most currencies—while the Supreme Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that span of time, such downward trend of
the peso cannot be considered as the extraordinary phenomenon contemplated by Article 1250 of the
Civil Code; Absent an official pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, the effects of extraordinary inflation are not to be applied. —
The factual circumstances obtaining in the present case do not make out a case of extraordinary inflation
or devaluation as would justify the application of Article 1250 of the Civil Code. We would like to stress
that the erosion of the value of the Philippine peso in the past three or four decades, starting in the mid-
sixties, is characteristic of most currencies. And while the Court may take judicial notice of the decline in
the purchasing power of the Philippine currency in that span of time, such downward trend of the peso
cannot be considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil Code.
Furthermore, absent an official pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, the effects of extraordinary inflation are not to be applied.