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PEOPLE VS. CONCEPCION

FACTS:
Venancio Concepcion, President of the Philippine National Bank (PNB) authorized an
extension of credit in favour of Puno y Concepcion, S. en C. in the amount of
P300,000, the only security required consisting of 6 demand notes. However there was
a memorandum order limiting the discretional power of the local manager to grant
loans & discount negotiable documents to P5000, w/c in certain cases could be
increased to P10000.
Venacio Concepcion was charged for violating Sec. 35 of Act No. 2747 w/c states 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.
ISSUE:
(a) Was the granting of a credit of P300,000 to the copartnership Puno y Concepcion,
S. en C. by Venancio Concepcion a loan w/in the meaning of Sec. 35 of Act 2747?
(b) Was the granting of a credit of P300,000 to the copartnership Puno y Concepcion,
S. en C. by Venancio Concepcion a loan or a discount?
(c) Was the granting of a credit of P300,000 to the copartnership Puno y Concepcion,
S. en C. by Venancio Concepcion an indirect loan w/in the meaning of Sec. 35 of Act
2747?
RULING:
(a) YES. Concepcions counsel was correct in arguing that the document of records do
not prove that authority to make a loan was given, but only show the concession of a
credit.
The credit of an individual means his ability to borrow money by virtue of the
confidence/trust reposed by a lender that he will pay what he may promise. A loan
means the delivery by one party & the receipt by the other party of a given sum of
money, upon an agreement, express or implied, to repay the sum loaned, w/ or w/o
interest.
The concession of a credit necessarily involves the granting of loans up to the limit of
the amount fixed in the credit.
(b) It was a LOAN. In a discount, interest is deducted in advance, while in a loan,
interest is taken at the expiration of a credit. A discount is always on double-name
paper, while a loan is generally on single-name paper.
The demand notes signed by the firm Puno y Concepcion, S. en C. were not discount
paper but were mere evidences of indebtedness, because: (i) interest was not
deducted from the face of the notes, but was paid when the notes fell due; and (ii)
they were single-name and not double-name paper.
(c) YES. A loan to a partnership of w/c the wife of a director of a bank is a member is
an indirect loan to such director. The wife of Concepcion held one-half of the capital of
this partnership. The purpose of the Legislature is to erect a wall of safety against
temptation for a director of bank. No man may serve 2 masters that where personal
interests clashes w/ fidelity to duty the latter almost always suffers. If, therefore, it is
shown that the husband is financially interested in the success or failure of his wifes

SIENNA A. FLORES

business venture, a loan to a partnership of w/c the wife of the director is a member,
falls w/in the prohibition.
DE LOS SANTOS VS. JARRA
FACTS:
De los Santos brought suit against Jarra, the administratrix of the estate of Jiminea,
alleging that Jiminea borrowed & obtained from him (de los Santos) 10 1st class
carabaos to be used at the animal-power mill of his hacienda w/o recompense or
remuneration for the use thereof, under the sole condition that they should be returned
to the owner as when the work at the mill was terminated; that Jiminea did not return
the carabaos despite De los Santos claim for their return after the work at the mill was
finished.
Jarra admitted that Jiminea asked De los Santos for the loan of 10 carabaos, but
alleged that Jiminea only obtained 3 2nd class carabaos, w/c were subsequently sold to
him by the owner, Santos.
ISSUE:
W/N Jarra, as administratrix of the estate of Jiminea, must return the 10 1st class
carabaos loaned to the late Jiminea, or their present value.
RULING:
YES. Several witnesses testified that Santos sent the 10 Carabaos requested by
Jiminea, and that the latter received them in the presence of said persons. 4 died of
rinderpest w/c is why the judgment appealed from only deals w/ 6 surviving carabaos.
The transfer of large cattle is still made by means of official documents issued by local
authorities. These constitute the title of ownership of the carabao acquired. Not only
should the purchaser be provided w/ a new certificate or credential, but the old
documents ought to be on filed in the municipality, or they should have been delivered
to the new purchaser. In the case at bar, Jarra presented neither the new certificate or
credential nor the old credential on w/c should be stated the name of the previous
owner.
The carabaos loaned or given on commodatum to the deceased Jiminea were 10 in
number, that they, or at any rate the 6 surviving ones, have not been returned to the
owner thereof, de los Santos. As the 6 carabaos were not the property of the deceased
nor of any of his descendants, it is the duty of the administratrix of the estate to return
them or to indemnify the owner for their value.
The obligations and rights w/c arise from the commodatum pass to the heirs of both
contracting parties, unless the loan has been made in consideration for the person of
the bailee, in w/c case his heirs shall not have the right to continue using the thing
loaned.
The obligation of the bailee or of his successors to return either the thing loaned or its
value, is sustained by the supreme tribunal of Spain. It is the imperative duty of the
bailee to return the thing to its owner, or to pay him damages if through the fault of
the bailee the thing should have been lost or injured.

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SAURA IMPORT & EXPORT CO., INC. VS DBP

FACTS:
Saura applied to the Rehabilitation Finance Corp. (RFC), before its conversion into DBP,
for an industrial loan of P500,000 to be used as follows:

P250,000 construction of a factory building for the manufacture of jute sacks

P240,900 to pay the balance of the purchase price of the jute mill machinery
& equipment
P9,100 additional working capital

RFC passed Resolution No. (RN) 145 & approved the loan application to be secured by
a 1st mortgage on the factory buildings to be constructed on the site, and the
machinery & equipment to be installed. One of the terms laid down was that the
proceeds of the loan shall be utilized for the purposes indicated in its application (see
above). After Saura was notified of RN 145, it requested a modification of its terms.
RFC then approved RN 736 wherein members of its Board of Governors were to reexamine all the aspects of this approved loan, w/ special reference as to the
advisability of financing this particular project based on present conditions
RFC passed RN 3989 reducing the loan granted to Saura from P500,000 to P300,000.
China Engineers Ltd. (CEL) & other co-signors of the promissory note wrote RFC that
their company no longer wishes to avail of the loan & considered the same cancelled as
far as it was concerned. However, Saura wrote to RFC requesting that the loan of
P500,000 be granted. This was approved by RFC through RN 9083 upon knowledge
that CEL is now willing to sign the promissory notes jointly w/ the borrowercorporation. However, RN 9083 indicated that the Dept. of Agriculture & Natural
Resources (DANR) shall certify that the raw materials needed by Saura to carry out its
operation are available in the immediate vicinity.
Such certification by DANR was required as the intention of the approval of the loan is
to develop the manufacture of sacks on the basis of locally available raw materials.
Saura however stated that accdg. to a special study made by the Bureau of Forestry,
kenaf will not be available in sufficient quantity this year or probably even next year,
but that they were import jute materials instead. This was not in line w/ the principle of
RFC in approving the loan. Hence, Saura requested RFC to cancel the mortgage.
9 years after the mortgage in favour of RFC was cancelled, the latter filed a suit for
damages alleging failure of RFC to comply w/ its obligation to release the proceeds of
the loan applied for & approved.
ISSUE:
(a) W/N there was a perfected consensual contract of loan.
(b) W/N RSF is guilty of breach of the contract of loan.
RULING:
(a) YES. There was undoubtedly offer & acceptance in this case: the application of
Saura for a loan of P500,000 was approved by resolution of the RFC, and the
corresponding mortgage was executed & registered.
(b) NO. RSF entertained the contract of loan of application of Saura on the assumption
that the factory to be constructed would utilize locally grown raw materials, principally

SIENNA A. FLORES

kenaf. Saura realized that it could not meet the conditions required by RSF, so it wrote
a letter stating that the local jute will not be available in sufficient quantity this year or
probably next year, and asking that out of the loan agreed upon the sum of
P67,586.09 be released for raw materials and labor. This was a deviation from the
terms laid down in RN 145 & embodied in the mortgage contract, implying a diversion
of the part of the proceeds of the loan to purposes other than those agreed upon.
Saura was in no position to comply w/ RFCs conditions. Hence, Saura asked that the
mortgage be cancelled. The action taken by both parties in the nature of mutual
desistance w/c is a mode of extinguishing obligations. Since mutual agreement can
create a contract, mutual disagreement by the parties can cause its extinguishment.
Sauras request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latters non-compliance.
NAGUIAT VS. CA
FACTS:
Queano applied w/ Naguiat for a loan in the amount of P200,000 w/c Naguiat granted.
Naguiat indorsed to Queano 2 checks worth P95,000 each. To secure the loan, Queano:

executed a Deed of Real Estate Mortgage in favor of Naguiat, and this was
notarized on the same day
issued to Naguiat a promissory note for the amount of P200,000 w/ interest
at 12% per annum, payable on Sept. 11, 1980
issued a Security Bank & Trust Company (SBTC) check for the amount of
P200,000 & payable to the order of Naguiat

When Naguiat presented such checks on its maturity date, the SBTC check was
dishonored for insufficiency of funds. Queano received a letter from Naguiats lawyer,
demanding settlement of the loan. Hence, Queano & Ruebenfeldt met w/ Naguiat, and
Queano told Naguiat that she didnt receive the proceeds of the loan, adding that the
checks were retained by Ruebenfeldt who was Naguiats agent.
Naguiat applied for the extrajudicial foreclosure of the mortgage. Queano then filed a
case seeking for the annulment of the mortgage deed.
ISSUE:
W/N Queano had actually received the loan proceeds w/c were supposed to be covered
by the 2 checks Naguiat had issued or indorsed.
RULING:
NO. No evidence was submitted by Naguiat that the checks she issued or endorsed
were actually encashed or deposited. There mere issuance of the checks did not result
in the perfection of the contract of loan. The Civil Code provides that the delivery of
bills of exchange & mercantile documents such as checks shall produce the effect of
payment only when they have been cashed. It is only after the checks have produced
the effect of payment that the contract of loan may be deemed perfected.
A loan contract is a real contract, not consensual, and is perfected only upon the
delivery of the object of the contract. In this case, the objects of the contract are the
proceeds w/c Queano would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat.

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The lender did not remit and the borrower did not receive the proceeds of the loan.
Hence, it follows that the mortgage w/c is supposed to secure the loan is null & void.
The consideration of the mortgage contract is the same as that of the principal contact
from w/c it receives life, and w/o w/c it cannot exist as an independent contract. A
mortgage contract being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.
GARCIA VS. THIO
FACTS:
Thio received a crossed check from Garcia in the amount of $100,000 payable to the
order of Marilou Santiago. 4 months later, Thio received another crossed check from
Garcia in the amount of P500,000, also payable to the order of Marilou Santiago.
Garcia filed a complaint for sue of money and damages. She contends that although
Thio paid the stipulated monthly interest for both loans, the latter failed to pay the
principal amounts ($100,000 and P500,000) when they fell due. For both loans, no
promissory note was executed since they were close friends.
Thio denied that she contracted the 2 loans w/ Garcia & countered that it was Marilou
Santiago to whom Garcia lent the money. She claimed that she was merely asked by
Garcia to give the crossed checks to Santiago.
ISSUE:
W/N there was a contract of loan between Garcia and Thio.
RULING:
YES. A loan is a real contract, no consensual, and is perfected only upon the delivery of
the object of the contract. Upon such delivery, the debtor acquires ownership of such
money or loan proceeds & is bound to pay the creditor an equal amount.
It is undisputed that the checks were delivered to Thio. Delivery is the act by which the
res or substance thereof is placed win the actual or constructive possession/control of
another. Although Thio did not physically receive the proceeds of the check these
instruments were placed in her control & possession under an arrangement whereby
she actually re-lent the amounts to Santiago.
CHAPTER 1: COMMODATUM
SECTION 1 - Nature of Commodatum
REPUBLIC VS. BALAGTAS
FACTS:
Jose Bagtas borrowed from the Republic of the Phil. through the Bureau of Animal
industry 3 bulls for breeding purposes subject to a govt charge of breeding fee of 10%
of the book value of the bulls.

Book value of a Red Sindhi:

P1176.46

Book value of a Bhagnari:

P1329.56

Book value of a Sahiniwal:

P744.46

SIENNA A. FLORES

When the contract expired, Jose asked for a renewal for another period of 1 year. The
Sec. of Agriculture & Natural Resources approved the renewal of only 1 bull & asked for
the return of the other 2. Jose wrote to the Dir. of Animal Industry expressing his
desire to buy the 3 bulls at a value w/ a deduction of yearly depreciation. Jose received
a reply stating that the book value of the 3 bulls couldnt be reduced & that they either
be returned or their book value be paid. Jose failed to do either.
The trial court ordered Bagtas to pay the total value of the 3 bulls and the breeding
fees w/ interest on both sums. The Republic moved for a writ of execution, and
Felicidad Bagtas, the surviving spouse of Jose & administratrix of his estate, was
notified.
Felicidad alleged that the 2 bulls were already returned to the
Industry, and that the 3rd bull died from gunshot wound inflicted
Felicidad contends that the contract was commodatum and that, for
Republic retained ownership or title to the bull it should suffer
majeure.

Bureau of Animal
during a Huk raid.
that reason, as the
loss due to force

ISSUE:
W/N the contract was a commodatum.
RULING:
NO. A contract is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under Art. 1671 of the
Civil Code, the lessee would be subject to the responsibilities of the possessor in bad
faith, because she had continued possession of the bull after the expiry of the contract.
And even if the contract was a commodatum, Art. 1942 of the Civil Code states 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

if the thing loaned has been delivered w/ appraisal of its value, unless there is
a stipulation exempting the bailee from responsibility in case of a fortuitous
event
Bagtas kept and used the bull beyond the period stipulated, and that was when it was
killed during a Huk raid. Also, when the bulls were delivered to Jose, each had an
appraised value. It also was not stipulated that in case of loss of the bull due to a
fortuitous event, Jose would be exempt from liability.
PRODUCERS BANK VS. CA
FACTS:
Sanchez asked Vives to help her friend Doronilla in incorporating his business, Sterela
Marketing & Service (Sterela). Sanchez asked Vives to deposit in a bank a certain
amount of money & assured him that he could withdraw his money from the account
w/in a months time. Vives issued a P200,000 check in favour of Sterela. Vives asked
his wife to accompany Doronilla & Sanchez in opening a savings account in the name of
Sterela at Producers Bank of the Philippines (Bank). However, Doronilla didnt come &
sent Dumagpi, his secretary, instead. The 3 had an authorization letter from Doronilla
authorizing Sanchez & her companions, in coordination with Mr. Atienza to open a
savings account for Sterela. The authorized signatories were Mrs. Vives & Sanchez.

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Vives later on learned that Sterela was no long holding office in the address previously
given to him. He went to the bank & learned that only P90k remained in the savings
account. Atienza, the asst. manager, told them that Mrs. Vives couldnt withdraw the
amount because it had to answer for some postdated checks issued by Doronilla.
Apparently, Doronilla opened a current account for Sterela & authorized the bank to
debit the savings account for the amounts necessary to cover overdrawings in the
current account.
Vives received a letter from Doronilla assuring him that his money would be returned to
him. Doronilla issued a postdated check for P212k in favour of Vives. The check was
dishonoured for insufficiency of funds. This happened thrice. Vives filed an action for
recovery of sum of money. The RTC held that Doronilla, Dumagpi & Producers Bank
were solidarily liable to Vives.
Banks Position: The transaction between Doronilla & Vives was a simple loan since all
elements of a mutuum are present. What was delivered to Doronilla was money, a
consumable thing; and that the transaction was onerous as Doronilla was obliged to pay
interest (P12k more than the amount).

Vives Position: the transaction was an accommodation since he didnt actually part w/ his
ownership of his P200k & even asked his wife to deposit the amount in the account of Sterela
so that a certification can be issued to the effect that Sterela had sufficient funds for
purposes of its incorporation.

ISSUE:
Whether the transaction between Doronilla and Vives was one of simple loan or
accommodation.
RULING:
The transaction between Doronilla & Vives was a commodatum & not a mutuum. Art.
19331 of the Civil Code seems to imply that if the subject of a contract is a consumable,
(e.g. money), the contract would be a mutuum. However there are instances where a
commodatum may have for its object a consumable thing. Art. 1936 of the Civil Code
states that Consumable goods may be the subject of commodatum if the purpose of
the contract is not the consumption of the object, as when it is merely for exhibition.
Thus if consumable goods are loaned for purposes of exhibition, or when the intention
of the parties is to lend consumable goods & have the very same goods returned at the
end of the period agreed upon, the loan is commodatum & not mutuum.
Vives agreed to deposit his money in the savings account for the purpose of making it
appear that said firm had sufficient capitalization for incorporation, w/ the promise that
the amount shall be returned w/in 30 days. Vives merely accommodated Doronilla by
lending his money w/o consideration as favour to his good friend Sanchez.
The additional P12K that Doronilla attempted to return to Vives, allegedly representing
interest on the mutuum, didnt convert the transaction from a commodatum to a
By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter
may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower

SIENNA A. FLORES

mutuum. Such was not the intent of the parties. The additional P12K corresponds to
the fruits of the lending of the P200K. Art. 1935 states that the bailee in commodatum
acquires the use of the thing loaned but not its fruits.
SECTION 2 - Obligations of the Bailee
MINA VS. PASCUAL
FACTS:
Francisco Fontanilla & Andres Fontanilla were brothers. Francisco acquired a lot during
his lifetime. W/ the consent of Francisco, Andres erected a warehouse on the said lot.
They both have passed away. Mina et al. are the heirs of Francisco, while Pascual et al.
are the heirs of Andres.
Pascual petitioned for authorization to sell 6/7 of the of the warehouse, of 14 by 11
meters, together w/ its lot. Mina opposed the petition because it included the lot
occupied by the warehouse, w/c they claimed was their exclusive property.
The trial court ordered the sail of the warehouse & the lot on w/c it is built. It was sold
to Cu Joco. Mina requested that court decide the ownership of the lot. The lower court
held that it belonged to the owner of the warehouse. Upon appeal, the judgement was
reversed. Mina then sought to have the sale of the lot declared null & void.
ISSUE:
(a) W/N the sale of the lot was null and void.
(b) W/N there was a commodatum between the parties.
RULING:
(a) YES. Pascual agrees that Mina has the ownership, & they themselves only the use,
of the said lot. The nullity of the sale is evident. He who has only the use of a thing
cannot validly sell the thing itself. The effect of the sale being a transfer of the
ownership of the thing, 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 1 who isnt its owner is
null and void. Pascual was never the owner of the lot sold. One cannot convey to
another what he has never had himself. What Pascual had in their possession was the
ownership of the 6/7 of the of the warehouse & the use of the lot occupied by this
building. This, and nothing more, could Cu Joco acquire at the sale.
(b) No. Neither Andres nor his successors paid any consideration or price for the use of
the lot occupied by the said building. Perhaps then, both parties have denominated that
use a commodatum.
But an essential feature of the commodatum is that the use of the thing belonging to
another shall be for a certain period. Francisco didnt fix any definite period of time
during w/c Andres could use the lot where the latter erected a warehouse. Hence for
the past 30 years, the lot has been used by Andres & his successors in interest.
QUINTOS VS. BECK
FACTS:

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Beck was a tenant of Quintos & occupied the latters house. There was a novation of
their contract of lease, and Quintos gratuitously granted Beck the use of some of her
furniture, subject to the condition that Beck should return them upon her demand.
Quintos sold the property to the Lopez spouses & notified Beck that he had 60 days to
vacate the house. She also required Beck to return all the furniture transferred to him
for his use. Beck said that he couldnt give up the 3 gas heaters & 4 electric lamps
because he would use them until the expiration of the lease. Before vacating the
house, Beck deposited w/ the Sheriff all of Quintos furniture.
ISSUE:
W/N Beck complied w/ his obligation to return the furniture upon Quintos request.
RULING:
NO. The contract entered into between the parties is one of commodatum whereby
Quintos gratuitously granted the use of the furniture to Beck, reserving for herself the
ownership thereof. By this contract, Beck bound himself to return the furniture to
Quintos upon the latters demand.
The obligation voluntarily assumed by Beck to return the furniture upon Quintos
demand, means the he should return all of them to Quintos at the latters house. The
defendant didnt comply w/ his obligation when he merely placed them at the disposal
of Quintos, retaining for his benefit the 3 gas heaters & 4 electric lamps.
PAJUYO VS. CA
FACTS:
Pajuyo paid Perez P400 for the rights over a lot in Payatas. Pajuyo constructed a house
made of light materials on the lot & he & his family lived there for 6 years. Pajoya then
executed a Kasunduan/agreement w/ Guevarra. Pajuyo allowed Guevarra to live in the
house for free provided that Guevarra would maintain the cleanliness & orderliness of
the house. Guevarra promised that the would voluntarily vacate the premises on
Pajuyos demand.
9 years later Pajuyo informed Guevarra of his need of the house & demanded that
Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case against
Guevarra. However, the latter claimed that Pajuyo had no valid title/right of possession
over the lot where the house stands because the lot is w/in the 150 hectares set aside
for socialized housing. Guevarra insisted that he nor Pajuyo has valid title to the lot.
ISSUE:
W/N the Kasunduan entered into by the parties was in fact a commodatum, instead of
a Contract of Lease as found by the MTC.
RULING:
NO. 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 & retain it. An
essential feature of a commodatum is that it is gratuitous.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was
not essentially gratuitous. While the Kasunduan didnt 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.

SIENNA A. FLORES

Even assuming that the relationship between Pajuyo & 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 involved the obligation to
deliver or return the thing received.
CHAPTER 2: SIMPLE LOAN OR MUTUUM
REPUBLIC VS. GRIJALDO
FACTS:
Grijaldo obtained 5 loans from the Bank of Taiwan (Bank), evidenced by 5 promissory
notes Grijaldo executed in favour or the Bank. All notes were w/o due dates, but
because the loans were crop loans, it was considered that the loans were due 1 year
after they were incurred. Grijaldo executed a chattel mortgage on the standing crops
on his land to secure the payment of said loans.
By virtue of the Trading w/ the Enemy Act, the assets of the Bank were vested in the
Govt of the US, w/c then were subsequently transferred to the Republic of the
Philippines under a Transfer Agreement. These assets were placed under the
administration of the Board of Liquidators (BOL).
The Republic, represented by the Chairman of the BOL, made a written extrajudicial
demand upon Grijaldo for the payment of the loans, but the latter failed to pay.
Grijaldos position: Because the loans were secured by a chattel mortgage on the
standing crops on a land owned by him, and these crops were lost/destroyed through
enemy action, his obligation to pay the loans was extinguished.
ISSUE:
W/N Grijaldos obligation to pay the loans was extinguished.
RULING:
NO. The obligation of Grijaldo under the 5 promissory notes was not to deliver a
determinate thing, namely the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing the amount of money representing the total sum of the 5 loans, w/
interest.
The transaction between Grijaldo and the Bank was a series of 5 contracts of simple
loans of sums of money. By a contract of loan, one of the parties delivers to another,
money or other consumable thing upon the condition that the same amount of the
same kind and quality shall be paid. The obligation of Grijaldo is to pay the value of the
5 loans, that is, to deliver a sum of money an obligation to deliver a generic thing.
And in an obligation to deliver a generic thing, the loss/destruction of anything of the
same kind doesnt extinguish the obligation.
The chattel mortgage on the crops simply stood as a security for the fulfilment of
Grijaldos obligation, and the loss of the crops didnt extinguish his obligation to pay

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because the loans could still be paid from other sources aside from the mortgaged
crops.

parties have not chosen to agree upon. Article 1755 of the Civil Code provides that
Interest shall be paid only when it has been expressly stipulated.

TAN VS. VALDEHUEZA

The mortgagee of granted to the mortgagor, on the same date of the execution of the
deed of mortgage, an extension of 1 year from the date of maturity w/in w/c to make
payment, w/o making any mention of any interest w/c the mortgagor should pay
during the additional period. This indicates that the true intention of the parties was
that no interest should be aid during the period of grace.

FACTS:
Valdehueza owned a parcel of land that was sold at a public auction to Lucia Tan.
Valdehueza failed to redeem the land w/in 1 year so an Absolute Deed of Sale was
executed in favour of Tan. Valdehueza also executed 2 documents of Deed of Pacto de
Retro in favour of Tan involving 2 portions of a parcel of land one was registered, the
other was not. However, Valdehueza remained in possession of the land & also paid the
land taxes.
Tan filed a case against Valdehueza, seeking to enjoin the latter from entering the land
& gathering the nuts therein. The trial court declared Tan to be the owner of the land &
ordered Valdehueza to pay Tan P1200 w/ 6% legal interest. As regards the land
covered by the deed of pacto de retro w/ wasnt registered, Valdehueza was ordered to
pay Tan P300 w/ 6% legal interest.
The trial court treated the registered deed of pacto de retro as an equitable mortgage
but considered the unregistered deed of pacto de retro as a mere case of simple loan,
secured by the property thus sold under pacto de retro, on the ground that no suit lies
to foreclose an unregistered mortgage.
Valdehuezas position: They remained in possession of the land & gave the proceeds of
the harvest to Tan. Thus, they would suffer double prejudice if they are to pay legal
interest on the amounts stated in the pacto de retro contracts.
ISSUE:
W/N Valdehueza should pay legal interest on the amounts stated.
RULING:
No. The imposition of legal interest on the amounts subject of the equitable mortgages,
P1200 and P300, is w/o legal basis, for no interest shall be due unless it has been
expressly stipulated in writing. Furthermore, Tan did not pray for such interest.
JARDENIL VS. SOLAS
FACTS:
(facts were not provided)
ISSUE:
Is Solas bound to pay the stipulated interest only up to the date of maturity as fixed in
the promissory note, or up to the date payment is effected?
RULING:
Solas has agreed to pay interest only up to the date of maturity. As the contract is
silent as to whether after that date, in the event of non-payment, the debtor would
continue to pay interest, we cannot, in law, indulge in any presumption as to such
interest; otherwise, we would be imposing upon the debtor an obligation that the

SIENNA A. FLORES

When a party sues on a written contract & no attempt is made to show any vice
therein, he cannot be allowed to lay any claim more that what its clear stipulations
accord. His omissions cannot by the courts be arbitrarily supplied by what their own
notions of justice or equity may dictate.
FRIAS VS. SAN DIEGO-SISON
FACTS:
Frias owns a house and lot w/c she acquired from Island Masters Realty and
Development Corporation (IMRDC). Frias and San Diego-Sison entered into a
Memorandum of Agreement over the property w/ the following terms:

For and in consideration of P3M, San Diego-Sison has 6 months w/in w/c to
notify Frias of her intention to purchase the land & its improvements for P6.4M

Upon notice to Frias of intention to purchase the property, San Diego-Sison

has 6 months to pay the balance of P3.4M

If on the 6th month San Diego-Sison decides not to purchase the property,
Frias has 6 months to pay the P3M, provided that the said amount shall earn
compounded bank interest for the last 6 months only. The P3M given by San
Diego-Sison shall be treated as a loan & the property shall be treated as the
security for the mortgage
Frias received from San Diego-Sison P2M in cash & P1M in post-dated check w/c turned
out to be stale. However, San Diego-Sison decided not to purchase the property &
notified Frias. He also reminded Frias that the P2M received is considered a loan,
payable in 6 months. Frias failed to pay the P2M, so San Diego-Sison filed a complaint
for sum of money.
The RTC ruled ordered Frias to pay San Diego-Sison P2M plus interest beginning Dec.
7, 1991 until fully paid. The CA affirmed. Frias contends that the interest should be
charged for the 6 months only and no more.
ISSUE:
W/N the compounded bank interest should be limited to 6 months as contained in the
Memorandum Agreement.
RULING:
No. The agreement that the amount given shall bear compounded interest fro the last 6
months only (referring to the 2nd 6 month period) does not mean that interest will no
longer be charged after the 2nd 6 month period. Such stipulation was made on the
logical & reasonable expectation that such amount would be paid w/in the date
stipulated. The monetary interest for the last 6 months continued to accrue until actual
payment of the loaned amount.

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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. For a debtor to
continue in possession of the principal of the loan & continue to use the same after
maturity of the loan w/o payment of the monetary interest, would constitute unjust
enrichment on the part of the debtor at the expense of the creditor.
ARWOOD INDUSTRIES VS. DM CONSUNJI
FACTS:
Arwood Industries (owner) and DM Consunji (contractor) entered into a Civil, Structural
and Architectural Works Agreement (Agreement) for the construction of Arwoods
Westwood Condominium for P20.8M. Despite the completion of the condominium
project, the amount of P962,434.78 remained unpaid by Arwood. DM filed a complaint
for the recovery of the balance of the contract price.
The RTC ordered Arwood to pay the balance w/ interest at 2% per month up to time of
payment, w/c the CA affirmed.
Arwood position: Although the Agreement contained a provision w/ regard to the
interest, said provision doesnt apply to the claim of DM but refers to the monthly
progressive billings.
ISSUE:
W/N the imposition of 2% per month interest on the balance was correct.
RULING:
YES. Upon the fulfilment by DM of its obligation to complete the construction project,
Arwood has the duty to pay for DMs services. However, petitioner refused to pay the
balance of the contract price. From the moment DM completed the construction of the
condominium project and Arwood refused to pay in full, there was a delay on the part
of the latter.
Delay in the performance of an obligation is looked upon w/ disfavour, because when a
party to a contract incurs delay, the other party who performs his part of the contract
suffers damages and damages take in the form of interest. Accordingly, the
appropriate measures of damages in this case is the payment of interest at the rate
agreed upon, w/c is 2% interest for every month of delay.
Since the Agreement stands as the law between the parties, this Court cannot ignore
the existence of such provision providing for a penalty for every months delay. Arwood
cannot impugn the Agreement for w/c it willingly gave its consent.
ROYAL SHIRT VS. CO BON TIC
FACTS:
MTC: It was a contract of sale on consignment. It ordered Co Bon Tic (Co) to pay Royal
Shirt Factory (RSF) P628 w/ legal interest from the date of the filing of the complaint,
and to return to RSF the 143 pairs of shoes still unsold.

SIENNA A. FLORES

RTC: It was an outright sale at P7/pair of shoes, sales tax included. On the basis of the
order slip, Co had 9 days from delivery of the shoes to make his choice of the 2
alternatives either to consider the sale as one on consignment, sell as may shoes as
he could at any price, pay for them at P8/per & at the end of 9 days return the shoes
unsold to RSF, OR consider the sale of the 350 shoes as absolute at P7; and since Co
didnt return any of the shoes, he mustve chosen the 2nd alternative.
ISSUE:
(a) Whether it was an outright sale or a sale merely on consignment.
(b) W/N Co is liable to pay the RSF P1422 w/ 12% interest per annum.
RULING:
(a) It was an OUTRIGHT SALE. Co obviously accepted the straight sale to him on credit
of the whole 350 pairs of shoes for P2450 and made partial payments on account
thereof. In making partial payments, he made no mention whatsoever of the # of
shoes sold by him & the number of shoes remaining unsold, w/c he shouldve done had
the sale been on the consignment basis. On the other hand, he merely mentioned the
balance of the purchase price after deducting the several partial payments made by
him.
(b) NO. This rate of interest appears in printed form as terms & conditions. However,
this was not signed by Co. We do not think it is fair for Co to be bound also by the
printed terms of the conditions of sale w/c he did not even sign. The order slip likewise
didnt provide for a rate of interest. Because of the absence of stipulation as to the rate
of interest, he would be paying only the legal rate of 6% per annum. Hence, he should
only pay 6% interest on the amount due him from the date of the filing of the
complaint.
THE OVERSEAS BANK OF MANILA VS. CORDERO
FACTS:
Cordero opened a 1-year time deposit w/ the Overseas Bank of Manila (Bank) in the
amount of P80k w/ interest rate of 6% per annum. Due to its distressed financial
condition, the Bank was unable to pay Cordero.
Banks position: the suit filed by Cordero for recovery of his time deposit is barred or
abated by the state of insolvency of the Bank as found by the Monetary Board of the
Central Bank of the Philippines
Supervening events rendering the case moot & academic: Cordero received P10,000,
then P73,840.
ISSUE:
W/N Cordero is entitled to interest on his time deposit during the period that the Bank
was closed.
RULING:
NO. What enables a bank to pay stipulated interest on money deposited w/ it is that
thru the other aspects of its operations, it is able to generate funds to cover the
payment of such interest. Unless a bank can lend money, engage in international
transactions, acquire the foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities, from w/c it can derive

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income, it is inconceivable how it can carry on as a depository obligated t pay

stipulated interest. The obligation to pay interest on the deposit ceases the moment the
operation of the bank is completely suspended by the duly constituted authority, the
Central Bank.

LTM & Lirags position: They deny the existence of any obligation on their part to
redeem the preferred stocks, on the ground that SSS became & is still a preferred
stockholder of the corporation so that redemption of the shares purchased depended
upon the financial ability of LTM.

RAMOS VS. CENTRAL BANK

SSS position: The purchase agreement is a debt instrument, imposing upon LTM and
Lirag the obligation to pay the amount owed, and creating between them the relation of
creditor and debtor, not that of stockholder and a corporation

Central Bank filed a motion for reconsideration of the SCs resolution w/c applied the
Tapia ruling that the bank is not liable for interest on the Central Bank loans &
advances during the period of its closure. In the Tapia Ruling, the SC held that the
obligation to pay interest on the deposit ceases the moment the operation of the bank
is completely suspended by the duly constituted authority, the Central Bank. The same
formula exempts Ramos from the payment of interest to its depositors during the
whole period of factual stoppage of its operations by orders of the Central Bank. This is
applicable and must be followed in respect to all other obligations of Ramos w/c
couldnt be paid during the period of its actual complete closure.
Lazaro, Govt Corporate Counsel & general counsel of the COMBANK, confirmed that
GSIS has acquired ownership of the outstanding capital stock of COMBANK. He urges
resolution of the issue of whether the Tapia ruling is reaffirmed by the SC in
subsequent cases, because if in the positive, COMBANK is not liable for interest on CB
loans and advances during the period of its closure.
Central Bank & COMBANK seek a clarificatory ruling from the SC on the applicability of
the Tapia ruling to the case at bar w/ both parties agreeing to abide by any clarificatory
ruling w/c the SC may render on the matter.
The Chief Justice concurred in the result on the ground that Central Banks arbitrary
and improvident exercise of its asserted power in the premise is violative of due
process.
LIRAG VS. SSS
FACTS:
SSS and Lirag Textile Mills (LTM) and Basilio Lirag (Lirag) entered into a Purchase
Agreement in w/c SSS agreed to purchase from LTM preferred shares of stock worth
P1M. SSS paid LTM P0.5M for w/c LTM issued to SSS 5000 preferred shares. The
Purchase Agreement provides for the repurchase by LTM of the shares of stock at
regular intervals of 1 year. LTM also obligated itself to pay on the P1M Preferred Shares
cumulative dividends of 8% thereon per annum out of the net profits and earned
surplus of LTM

The RTC ruled that the purchase agreement was a debt instrument, and held LTM and
Lirag solidarily liable for P1M plus legal interest until the amount is fully paid, and
P200K representing the 8% per annum dividends on the preferred shares plus legal
interest until the said amount is fully paid.
ISSUE:
(a) W/N the Purchase Agreement entered into by SSS and Lirag is a debt instrument.
(b) W/N LTM & Lirag are liable to pay 8% cumulative dividends.
RULING:
(a) YES. Its terms and conditions unmistakably show that the parties intended the
repurchase of the preferred shares on the respective scheduled dates to be an absolute
obligation w/c doesnt depend upon the financial ability of LTM. In fact, a surety was
even required to see to it that the obligation is fulfilled in the event of the principal
debtors inability to do so. The unconditional undertaking of LTM to redeem the
preferred shares at the specified dates constitutes a debt w/c is defined as an
obligation to pay money at some fixed future time or at a time w/c becomes definite &
fixed by acts of either party & w/c expressly or impliedly agree to perform in the
contract.
(b) YES. The dividends stipulated by the parties served evidently as interests. The
amount thereof was fixed at 8% per annum & wasnt made to depend on or to fluctuate
w/ the amount of profits or surplus realized, a clear indication that the parties intended
to give a sure & fixed earnings on the principal loan. The fact that the dividends were
supposed to be paid out of net profits and earned surplus, of w/c there were none,
does not excuse LTM and Lirag from the payment thereof. Since this involves sums of
money w/c are overdue, they are bound to earn legal interest from the time of
demand, in this case, judicial, i.e., the time of filing of the action.

To guarantee the redemption of the stocks purchased by SSS, Lirag signed the
Purchase Agreement not only as the president of LTM, but also as surety, so that if LTM
fails to perform any of its obligations Lirag shall immediately pay SSS the amounts.
LTM failed to redeem the certificates of stock, & has not paid dividends in the amounts
& w/in the period set forth. For failure of Lirag to comply w/ the terms of the Purchase
Agreement, SSS filed an action for specific performance.

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