Credit Transactions
Atty. Niedo
2nd Semester, AY 2018-2019
Chapter 1: LOAN
Loan distinguished from discounting a paper
People v. Concepcion
FACTS:
Concepcion, the president of PNB, authorized the extension of credit to a co-
partnership where his wife was a partner. This special authorization was in view
of the memorandum order limiting the discretional power of the local manager
to grant loans and discount negotiable documents. Credit was granted and 6
demand notes were the only security required. The notes and the interest were
eventually taken up.
As a member of the BOD, Concepcion was held guilty with violation of Act 2747
prohibiting the granting of loans, directly or indirectly, to any member of the BOD
nor to the agents of banks.
The defendant avers the following:
1. The documents of record do not prove that authority to make a loan
was given, but only show concession of credit
2. The Insular Auditor opined that the prohibition referred to loans only
and not on discounts and the defendant relied on this.
The Insular Auditor ruled that the demand notes were not discount paper
because interest was not deducted from the face of the notes and they were
single-name paper and not double-name paper.
ISSUE/S:
Whether the granting of credit was a loan - YES
HELD:
The judgment is affirmed.
RATIO DECIDENDI:
Credit - ability to borrow money by virtue of the confidence or trust reposed by
a lender that he will pay what he may promise.
Loan - delivery by one party and the receipt by the other party of a given sum
of money, upon an agreement, express or implied, to repay the sum loaned,
with or without interest.
The concession of a "credit" necessarily involves the granting of "loans" up to the
limit of the amount fixed in the "credit."
DISCOUNT LOAN
Interest is deducted in advance Interest is taken at the expiration of
credit
On double-name paper On single-name paper
The purpose of the Legislature in enacting section 35 of Act No. 2747 was to
erect a wall of safety against temptation for a director of the PNB. A loan to a
partnership of which the wife of a director is a member falls within the
prohibition.
BANKS AND BANKING; "CREDIT" AND "LOAN," DEFINED AND DISTINGUISHED.—The
"credit" of an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise.
A "loan" means the delivery by one party and the receipt by the other party of
a given sum of money, upon an agreement, express or implied, to repay the
sum loaned, with or without interest. The concession of a "credit" necessarily
involves the granting of "loans" up to the limit of the amount fixed in the "credit."
"LOAN" AND "DISCOUNT" DISTINGUISHED.—To discount a paper is a mode of
loaning money, with these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit; (2) a
discount is always on double-name paper; a loan is generally on singlename
paper.
SECTION 35 OF ACT No. 2747; PROHIBITION AGAINST INDIRECT LOANS.—The
purpose of the Legislature in enacting section 35 of Act No. 2747 was to erect a
wall of safety against temptation for a director of the Philippine National Bank.
The prohibition against indirect loans is a recognition of the familiar maxim that
no man may serve two masters—that where personal interest clashes with
fidelity to duty the latter almost always suffers.
A loan to a partnership of which the wife of a director is a member falls within
the prohibition in section 35 of Act No. 2747 against indirect loans.

Binding effect of accepted promise to lend
Saura Import and Export Co. v. DBP
FACTS:
A complaint was filed to assail the judgment requiring DBP to pay actual and
consequential damages to Saura for the non-disbursement of the loan
proceeds.
Saura applied for a loan from DBP premised on several conditions. When the
negotiations on the conditions came to a standstill, Saura requested DBP to
cancel the mortgage which was in view of the registration of a mortgage
contract over the same property in favor of Prudential Bank. The deed of
cancellation was executed by DBP and delivered to Saura himself. After almost
9 years, Saura commenced the present suit for damages alleging failure of DBP
to comply with its obligation to release the proceeds of the loan, thereby
preventing him of completing his contractual commitments.
ISSUE/S:
Whether there was a perfected contract of loan – YES
HELD:
The complaint is dismissed.
RATIO DECIDENDI:
Where an application for a loan of money was approved by resolution of the
defendant corporation and the corresponding mortgage was executed and
registered, there arises a perfected-consensual contract of loan. There was offer
and acceptance in this case but falls short of resolving the claim that defendant
failed to fulfill its obligation and that the plaintiff is entitled to recover damages.
Where after approval of his loan, the borrower, instead of insisting for its release,
asked that the mortgage given as security be cancelled and the creditor
acceded thereto, the action 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. The
subsequent conduct of Saura confirmed the desistance where he did not
protest any alleged breach of contract.
Obligations and Contracts; When contract of simple loan perfected.—Where an
application for a loan of money was approved by resolution of the defendant
corporation and the corresponding mortgage was executed and registered,
there arises a perfected-consensual contract of loan.
Extinguishment of obligations by mutual desistance.—Where after approval of
his loan, the borrower, instead of insisting for its release, asked that the mortgage
given as security be cancelled and the creditor acceded thereto, the action
taken by both parties was in the nature of mutual desistance—what Manresa
terms “mutuo disenso”—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.
BPI Investment Corporation v. CA
FACTS:
A petition was filed to assail the decision of CA holding that the private
respondents were not in default and the extrajudicial foreclosure by BPIIC was
premature.
The petitioner avers the following:
1. A contract of loan is a consensual contract and a loan contract is
perfected at the time the contract of mortgage is executed (March
31, 1981), hence, the amortization and interests on the loan should be
computed from said date.
2. While the documents showed that the loan was released only on
August 1982, the loan was actually released on March 31, 1981, when
BPIIC issued a cancellation of the mortgage on Roa’s loan.
3. The delay in the release of the loan was attributable to ALS as they
required to reduce Roa’s loan, which they were only able to do so in
August 1982.
The private respondent asserts the following:
1. A simple loan is perfected upon the delivery of the object of the
contract. In this case, even though the loan contract was signed on
March 1981, it was perfected only on September 1982 when the full
loan was released to private respondents
2. Even assuming that the loan was perfected on 1981, there was no
delay since a perfected loan agreement is a reciprocal obligation
where the obligation of each party is the consideration of the other
party. They did not incur in delay when they did not commence
paying the monthly amortization as it was only in 192 when petitioner
complied with its obligation under the contract.
ISSUE/S:
Whether a contract of loan is a consensual contract – NO
HELD:
The CA decision is affirmed with modification as to the award of damages.
RATIO DECIDENDI:
A loan contract is not a consensual contract but a real contract. It is perfected
only upon the delivery of the object of the contract. It is an accepted promise
to deliver something by way of simple loan.
A perfected consensual contract can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which
gives rise to obligations only on the part of the borrower.
A contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other; It is a basic
principle in reciprocal obligations that neither party incurs in delay, if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. In the present case, the loan contract between BPI, on
the one hand, and ALS and Litonjua, on the other, was perfected only on
September 13, 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly amortization, as
found by the Court of Appeals, private respondents’ obligation to pay
commenced only on October 13, 1982, a month after the perfection of the
contract.
BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the
amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which
an award of nominal damages should be given in recognition of their rights
which were violated by BPIIC.
A loan contract is not a consensual contract but a real contract, perfected only
upon the delivery of the object of the contract.—We agree with private
respondents. A loan contract is not a consensual contract but a real contract.
It is perfected only upon the delivery of the object of the contract. Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first clause of Article 1934, Civil
Code. It is an accepted promise to deliver something by way of simple loan.
While a perfected loan contract can give rise to an action for damages, said
contract does not constitute the real contract of loan which requires the delivery
of the object of the contract for its perfection and which gives rise to obligations
only on the part of the borrower.—In Saura Import and Export Co. Inc. vs.
Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan
of P500,000 with respondent bank. The latter approved the application through
a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was
not released. Later, petitioner instituted an action for damages. We recognized
in could have made the bank liable for not releasing the loan. However, since
the fault was attributable to petitioner therein, the court did not award it
damages. A perfected consensual contract, as shown above, can give rise to
an action for damages. However, said contract does not constitute the real
contract of loan which requires the delivery of the object of the contract for its
perfection and which gives rise to obligations only on the part of the borrower.
this case, a perfected consensual contract which under normal circumstances.
A contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other; It is a basic
principle in reciprocal obligations that neither party incurs in delay, if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.—We also agree with private respondents that a contract
of loan involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other. As averred by private
respondents, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after the supposed release of the loan.
It is a basic principle in reciprocal obligations that neither party incurs in delay, if
the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own obligation and
if the latter fails, default sets in. Consequently, petitioner could only demand for
the payment of the monthly amortization after September 13, 1982 for it was
only then when it complied with its obligation under the loan contract.
Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981.
Bonnevie v. CA
FACTS:
Bonnevie filed for the annulment of the Deed of Mortgage executed in favor of
PBCOM by spouses Lozano and the extrajudicial foreclosure.
Spouses Lozano are the owners of the property which they mortgaged to secure
the payment of the loan they were about to obtain from PBCOM. They then
executed a deed of sale with assumption of mortgage with Bonnevie in favor of
PBCOM while the loan proceeds was not yet received by them but Lim signed
the promissory note for that. Bonnevie then made payments to PBCOM and
assigned his rights to his brother. Subsequently, PBCOM foreclosed the
mortgage.
It was alleged by the petitioner that:
1. The Deed of Mortgage lacks consideration as the loan proceeds have
not yet been received
2. The mortgage was executed by one who was not the owner of the
mortgaged property.
3. The property was foreclosed not in compliance with the conditions
imposed.
On the other hand, the Bank raised the following:
1. The defendant has not given its consent on the sale of the mortgaged
property to the plaintiff
2. The law on contracts requires the bank’s consent before Lozano can
be released from his agreement with the bank and before it may be
substituted
3. The property remained in the name of Lozano
4. The mortgage was without consideration as the signing and delivery
of the promissory note and the disbursement of the proceeds are mere
implementation of the basic consensual contract of loan.
ISSUE/S:
Whether the foreclosure on the mortgage is validly executed – YES
HELD:
The decision of CA is affirmed.
RATIO DECIDENDI:
The mortgage deed was executed for and on condition of the loan granted to
the Lozano spouses. The fact that the latter did not collect from the respondent
Bank the consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract, the herein contract
of loan was 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.
The argument that the mortgage is null and void due to the subsequent
renewals of the original loan, using as security the property which was already
sold to Bonnevie failed to consider that the disposition of the mortgaged
property without written consent is prohibited and the vendee shall assume the
mortgage in terms and conditions it is constituted.
A mortgage contract does not become invalid by mere failure of debtor to get
the mortgage consideration on the date the mortgage was executed. A loan is
a consensual contract.—This contention is patently devoid of merit. From the
recitals of the mortgage deed itself, it is clearly seen that the mortgage deed
was executed for and on condition of the loan granted to the Lozano spouses.
The fact that the latter did not collect from the respondent Bank the
consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was
perfected at the sametime 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.
A mortgage is not rendered null and void by the use thereof as security in the
renewal of the original loan after the property mortgaged had already been sold
to another without the sale being registered.—This argument failed to consider
the provision of the contract of mortgage which prohibits the sale, disposition
of, mortgage and encumbrance of the mortgaged properties, without the
written consent of the mortgagee, as well as the additional proviso that if in spite
of said stipulation, the mortgaged property is sold, the vendee shall assume the
mortgage in the terms and conditions under which it is constituted. These
provisions are expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the
sale with assumption of mortgage. Coupled with the fact that the
sale/assignment was not registered so that the title remained in the name of the
Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses
could rightfully and validly mortgage the property. 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. (Roxas vs.
Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another
argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the fulfillment of the obligation for
whose security it was constituted. Finally, it can also be said that petitioners
voluntarily assumed the mortgage when they entered into the Deed of Sale with
Assumption of Mortgage. They are, therefore, estopped from impugning its
validity whether on the original loan or renewals thereof.
Creditor has no duty to notify buyer of mortgaged estate of the foreclosure
thereof where creditor not notified of said sale.—The lack of notice of the
foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a
party to the Deed of Sale with Assumption of Mortgage, it can validly claim that
it was not aware of the same and hence, it may not be obliged to notify
petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any
notice because as of May 14, 1968, he had transferred and assigned all his rights
and interests over the property in favor of intervenor Raoul Bonnevie and
respondent Bank was not likewise informed of the same. For the same reason,
Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not
require personal notice on the mortgagor.
Central Bank of the Philippines v. CA
FACTS:
The bank approved the loan application of Tolentino for the amount of P80,000
and executed a real estate mortgage over a 100-hectare land. However, a
mere P17,000 was partially released and advance interest for the whole amount
was deducted. After being informed that there was no fund available yet, the
pre-deducted interest was refunded to Tolentino.
The Monetary Board, after finding that the bank was suffering liquidity problems
issued a resolution prohibiting it from making new loans and investments.
In view of the nonpayment of the P17,000 and interest, the bank filed an extra-
judicial foreclosure of the real estate mortgage covering the land. Tolentino
then filed a petition for specific performance on the delivery of the balance of
the loan and rescission of the real estate mortgage.
ISSUE/S:
Whether the action for specific performance shall prosper – NO
Whether Tolentino is liable to pay the P17,000 covered by the promissory note –
YES
Whether the real estate mortgage may be foreclosed – NOT WHOLLY
HELD:
Tolentino is ordered to pay P17,000 plus interest
If he fails to pay, his real estate mortgage covering 21.25 hectares shall be
foreclosed
The real estate mortgage covering the remaining area is declared
unenforceable and released to Tolentino.
RATIO DECIDENDI:
When Island Savings Bank and Tolentino entered into an P80,000.00 loan
agreement, they undertook reciprocal obligations. In reciprocal obligations, the
obligation or promise of each party is the consideration for that of the other.
and when one party has performed or is ready and willing to perform his part of
the contract, the other party who has not performed or is not ready and willing
to perform incurs in delay. the Bank's delay in furnishing the entire loan started
when the Monetary Board of the Central Bank issued Resolution No. 967, which
prohibited Island Savings Bank from doing further business. However, this cannot
interrupt the default of Island Savings Bank in releasing the P63,000 balance as
it is not a new loan but a loan agreement previously contracted. The mere
pecuniary inability to fulfill an engagement does not discharge the obligation
of the contract, nor does it constitute any defense to a decree of specific
performance.
The fact that Tolentino demanded and accepted the refund of the pre-
deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan
covering a 6-month period cannot be taken as a waiver of his right to collect
the P63,000.00 balance. The receipt by Tolentino of the pre-deducted interest
was an exercise of his right to it, which right exist independently of his right to
demand the completion of the P80,000.00 loan.
Rescission is the only alternative remedy left. WE rule, however, that rescission is
only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in
default only insofar as such amount is concerned.
Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P80,000.00 loan, the real estate mortgage of 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.
The rule of indivisibility of mortgage is inapplicable to the case at bar since it
presupposes several heirs of the debtor or creditor.
Banks; Obligations; Loans; Where a bank approved a loan for P80,000.00 but was
able to deliver only P1 7,000.00, it is in default for P63,000.00 to the borrower.—
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00
loan agreement on April 28, 1965, they undertook reciprocal obligations. In
reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda.
de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed
or is ready and willing to perform his part of the contract, the other party who
has not performed or is not ready and willing to perform incurs in delay (Art. 1169
of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to furnish the ?80,000.00
loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28,
1965, he signified his willingness to pay the P80,000.00 loan. From such date, the
obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus,
the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted
for a period of 3 years or when the Monetary Board of the Central Bank issued
Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from
doing further business. Such prohibition made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power
of the Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
The fact that the creditor is insolvent or was stopped by the Central Bank from
granting further loans is no defense to its fulfillment to extend the loan applied
for and approved by it to the full amount.—The Monetary Board Resolution No.
1049 issued on August 13, 1965 cannot interrupt the default of Island Savings
Bank in complying with its obligation of releasing the P63,000.00 balance
because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the obligation
of the contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And,
the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment
of an obligation but instead it is taken as a breach of the contract by him (Vol.
17A, 1974 ed., CJS p. 650).
Acceptance of refund of excess pre-deducted interest for a supposed loan of
P80,000.00 does not constitute a waiver of right to collect the P63,000.00
unreleased balance of the P80,000.00 loans. —The fact that Sulpicio M. Tolentino
demanded and accepted the refund of the pre-deducted interest amounting
to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged interest
for a nonexisting debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-
deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the exercise of the
other.
The bank must not rely on representations by its borrowers of the value of their
collaterals. The bank shall bear the risk in case of over-valuation.—The mere
reliance by bank officials and employees on their customer's representation
regarding the loan collateral being offered as loan security is a patent non-
performance of this responsibility. If ever, bank officials and employees totally
rely on the representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to be over-
valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on
objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting
proof on the alleged over-valuation because of their failure to raise the same in
their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses
and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue before the
Supreme Court.
Due to CB prohibition, release of the entire loan cannot be granted; only
rescission of the loan agreement to the extent of the unreleased loan balance
can be granted by the courts.—Rescission is the only alternative remedy left. WE
rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00
loan, because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far as the
partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan.
A bank borrower who did not pay the partial loan release as per the terms of the
promissory note signed by him is in default to that extent even if the entire loan
cannot be released anymore.—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.
Mortgages; Where only P 17,000.00 of the approved P80,000.00 loan was
released, the real estate mortgage thereon can be foreclosed only to the extent
of 21.25%.—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.
Rule of indivisibility of a mortgage under Art. 2089, NCC does not apply where
bank released only part of the approved mortgage loan.—The rule of
indivisibility, of a real estate mortgage provided for by Article 2089 of the Civil
Code is inapplicable to the facts of this case. x x x The rule of indivisibility of the
mortgage as outlined by Article 2089 above-quoted presupposes several heirs
of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply.
Commodatum essentially gratuitous
Republic v. Bagtas
FACTS:
Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls for breeding purposes subject to a breeding fee of
10% of the book value of the bulls. Upon expiry, the borrower asked for renewal
for another year but was only granted for one bull. He then offered to buy the
bulls at a value with a deduction on the yearly depreciation but he failed to pay
the same or return them. After some time, the two bulls were returned to the
Bureau but the third bull died from gunshot wounds inflicted during a Huk raid.
The appellant contends that the contract was commodatum and that the
appellee retained the ownership of the bull should it suffer loss due to force
majeure.
ISSUE/S:
Whether Bagtas is liable to pay the dead bull
HELD:
Yes. The writ of execution appealed from is set aside.
RATIO DECIDENDI:
The loan of the 3 bulls for breeding purposes subject to the payment of breeding
fee, if considered a compensation, the contract should be a lease of the bulls.
It could not be a contract of commodatum, because the latter is essentially
gratuitous. The lessee would be subject to the responsibilities of a possessor in
bad faith, because she had continued possession of the bull after the possession
of the bull after the expiry of the contract.
Even if the contract be commodatum, the appellant is still liable because a
bailee in a contract of commodatum is liable even if it should be through
fortuitous event:
1. If he keeps it longer than the period stipulated
2. 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
Loan of bulls for breeding purposes; Nature of contract affected by payment of
fee.—The loan by the Bureau of Animal Industry to the defendant of three bulls
for breeding purposes for a period of one year, later on renewed for another as
regards one bull, was subject to the payment by the borrower of breeding fee
of 10% of the book value of the bulls. If the breeding fee be considered a
compensation, the contract would be a lease of the bulls; it could not be a
contract of commodatum, because that contract is essentially gratuitous.
Proceedings for administration and settlement of estate of the deceased;
Enforcement of money judgments.—Where special proceedings for the
administration and settlement of the estate of the deceased have been
instituted, the money judgment rendered in favor of a party cannot be enforced
by means of a writ of execution, but must be presented to the probate court for
payment by the administrator appointed by the court.
Pajuyo v Court of Appeals
Pajuyo purchased the rights over a property from Pedro Perez. Thereafter, he
constructed a house and he and his family lived there. Later, Pajuyo agreed to
let Guevarra live in the house for free provided that Guevarra maintain
cleanliness and orderliness of the house. They also agreed that Guevarra should
leave upon demand. But when Pajuyo later told Guevarra that he needed the
house, Guevarra refused, hence an ejectment case was filed.
Supreme Court held that the contract is not a 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.”
Pari Delicto; One of the exceptions to the application of the pari delicto
principle is where its application would violate wellestablished public policy.—
Articles 1411 and 1412 of the Civil Code embody the principle of pari delicto.
We explained the principle of pari delicto in these words: The rule of pari delicto
is expressed in the maxims ‘ex dolo malo non eritur actio’ and ‘in pari delicto
potior est condition defedentis.’ The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them. The application of the pari
elicto principle is not absolute, as there are exceptions to its application. One of
these exceptions is where the application of the pari delicto rule would violate
well-established public policy.
Squatting; The application of the principle of pari delicto to a case of ejectment
between squatters is fraught with danger; Courts must resolve the issue of
possession even if the parties to the ejectment suit are squatters—courts should
not leave squatters to their own devices in cases involving recovery of
possession.—Clearly, the application of the principle of pari delicto to a case of
ejectment between squatters is fraught with danger. To shut out relief to
squatters on the ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter from possession of the lot
that the latter had illegally occupied, emboldened by the knowledge that the
courts would leave them where they are. Nothing would then stand in the way
of the ousted squatter from re-claiming his prior possession at all cost. Petty
warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent. Even the owner who has title
over the disputed property cannot take the law into his own hands to regain
possession of his property. The owner must go to court. Courts must resolve the
issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law restrains property
owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to
dispossess fellow squatters or violently retake possession of properties usurped
from them. Courts should not leave squatters to their own devices in cases
involving recovery of possession.
Contracts; Commodatum; Precarium; Words and Phrases; 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.
Contracts; Human Relations; Squatting; There must be honor even between
squatters.—Guevarra turned his back on the Kasunduan on the sole ground that
like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter
into a contract involving the land they illegally occupy. Guevarra insists that the
contract is void. Guevarra should know that there must be honor even between
squatters. Guevarra freely entered Guevarra freely entered into the Kasunduan.
Guevarra cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.
Producers Bank v Court of Appeals
FACTS:
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor
and friend Angeles Sanchez to help her friend and townmate, Col. Arturo
Doronilla, in incorporating his business, the Sterela Marketing and Services
(“Sterela” for brevity). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account of Sterela for
purposes of its incorporation. She assured private respondent that he could
withdraw his money from said account within a month’s time. With this, Mrs.
Vivies, Sanchez and a certain Estrella Dumagpi, secretary of Doronilla, went to
the bank to open an account with Mrs. Vives and Sanchez as signatories. A
passbook was then issued to Mrs. Vives. Subsequently, private respondent
learned that part of the money was withdrawn without presentment of the
passbook as it was his wife got hold of such. Mrs. Vives could not also withdraw
said remaining amount because it had to answer for some postdated checks
issued by Doronilla who opened a current account for Sterela and authorized
the bank to debit savings.
Private respondent referred the matter to a lawyer, who made a written
demand upon Doronilla for the return of his client’s money. Doronilla issued
another check for P212,000.00 in private respondent’s favor but the check was
again dishonored for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez,
Dumagpi and petitioner. The RTC ruled in favor of the private respondent which
was also affirmed in toto by the CA. Hence this petition.
ISSUE: WHETHER THE TRANSACTION BETWEEN THE DORONILLA AND RESPONDENT
VIVES WAS ONE OF SIMPLE LOAN.
HELD: NO.
A circumspect examination of the records reveals that the transaction between
them was a commodatum. Article 1933 of the Civil Code distinguishes between
the two kinds of loans in this wise:
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.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
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 only for purposes of exhibition, or when
the intention of the parties is to lend consumable goods and to have the very
same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of
doubt, the contemporaneous and subsequent acts of the parties shall be
considered in such determination.
Loan; Distinguished from Commodatum; Article 1933 of the Civil Code
distinguishes between the two kinds of loans.—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.
Meaning of fungible things
Republic v. Grijaldo
FACTS:
Jose Grijaldo obtained five crop loans from the branch office of the Bank of
Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate
of 6% per annum, compounded quarterly. These loans are evidenced by five
promissory notes executed by the appellant in favor of the Bank. All notes
without due dates, but because the loans were crop loans it was considered
that the loans were due one year after they were incurred. To secure the
payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land known as Hacienda Campugas. By virtue of “Trading
with the Enemy Act” the assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States which were subsequently
transferred to the Republic of the Philippines. Grijaldo failed to pay the crop
loans despite the extra-judicial demand of the Government of the Philippines.
He argued that the Government has no cause of action, that because the loans
were secured by a chattel mortgage on the standing crops on a land owned
by him and those crops were lost or destroyed through enemy action his
obligation to pay the loans was thereby extinguished.
ISSUE:
Whether or not Grijaldo’s obligation to pay the crop loans had extinguished due
to the crops that were lost or destroyed through enemy action.
HELD/RATIO: NO.
The obligation of the Grijaldo under the five 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 five loans, with interest.
The chattel mortgage on the crops growing on appellant's land simply stood as
a security for the fulfillment of appellant's obligation covered by the five
promissory notes, and 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. The court ordered the estate of Grijaldo to answer for the
settlement of the crop loans.
Obligations and contracts; Crop loans obtained from the Bank of Taiwan, Ltd.;
Right of Philippine Government to collect the loans.—In 1943, appellant
obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch,
evidenced by promissory notes. To secure payment of the loans, appellant
executed a chattel mortgage over the standing crops on his land. After the war,
the Republic of the Philippines brought the present action to collect from
appellant the unpaid account. Held: It is true that the Bank of Taiwan, Ltd. was
the original creditor and the transaction between the appellant and the Bank
of Taiwan was a private contract of loans. However, pursuant to the Trading with
the Enemy Act, as amended, and Executive Order No. 9095 of the United States;
and under Vesting Order No. P-4, dated January 21, 1946, the properties of the
Bank of Taiwan, Ltd., were vested in the United States Government. Pursuant,
further, to the Philippine Property Act of 1946 and Transfer Agreements dated
July 20, 1954 and June 15, 1957, between the United States Government and
the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were
transferred to and vested in the Republic of the Philippines. The successive
transfers of the rights over the loans in question from the Bank of Taiwan, Ltd. to
the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the
Philippines the successor of the rights, title and interests in said loans, thereby
creating a privity of contract between the appellee and the appellant.
Destruction of crop through enemy action; Effect on the obligation.—Appellant
maintains, in support of his contention that the appellee has no cause of action,
that because the loans were secured by a chattel mortgage on the standing
crops on the land owned by him and those crops were lost or destroyed through
enemy action his obligation to pay the loans was thereby extinguished. Held:
This argument is untenable. The obligation of the appellant under the promissory
notes was not to deliver a determinate thing. namely, the crops to be harvested
from his land, but to pay a generic thing—the amount of money representing
the total sum of his loans, with interest. The chattel mortgage on the crops simply
stood as a security for the fulfillment of appellant's obligation covered by the,
promissory notes, and the loss of the crops did not 'extinguish his obligation to
pay, because the ac count could still be paid from other sources aside from the
mortgaged crops.
Prescription of actions; Prescription does not run against the government.— The
complaint in the present case was brought by the Republic of the Philippines
not as a nominal party but in the exercise of its sovereign functions, to protect
the interests of the State ever a public property. This Court has held that the
statute of limitations does not run against the right of action of the Government
of the Philippines (Government of the Philippine Islands vs. Monte de Piedad,
etc., 35 Phil. 738-751).
Effect of moratorium laws.— Moreover, the running of the period of prescription .
of the action to collect the loan from the appellant was interrupted by the
moratorium laws (Executive Orders Nos. 25, dated November 18. 1944; Executive
Order No. 32, dated March 10, 1945; and Republic Act No. 432, approved on
July 26, 1948). Computed accordingly, the prescriptive period was suspended
for 8 years and 6 months. Hence, appellee's action had not yet prescribed.
Payment in Japanese war notes; Application of Ballantyne scale of values.—
Contracts stipulating for payments presumably in Japanese war notes may be
enforced after the liberation to the extent of the just obligation of the
contracting parties and, as said notes have become worthless, in order that
justice may be done and the party entitled to be paid can recover their actual
value in Philippine Currency, what the debtor or defendant bank should return
or pay is the value of the Japanese military notes in relation to the peso in
Philippine Currency obtaining on the date when and at the place where the
obligation was incurred unless the parties had agreed otherwise. (Hilado vs. De
la Costa L-150 April 30. 1049, 46 Off. Gaz. 5472.)
Effect of retention or adverse claim by bailee
Catholic Vicar Apostolic of the Mt. Province v. Court of Appeals
FACTS:
Catholic Vicar Apostolic was ordered to return and surrender 2 lots to the
plaintiffs.
The subject lots, being the sites of the Catholic Church building, convents, high
school building, school gymnasium, school dormitories, social hall, stonewalls.
The heirs of the plaintiffs assert ownership and title on the subject lots.
ISSUE/S:
Whether Catholic Vicar Apostolic was the rightful owner of the subject lots
HELD:
No. The petition was denied for lack of merit.
RATIO DECIDENDI:
The 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 the 2 lots, it had been in
possession in concept of an owner only for 11 years. Ordinary acquisitive
prescription requires 10 years with just title. Extraordinary acquisitive prescription
requires 30 years.
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.
Civil Law; Credit Transactions; Commodatum; Property; Adverse Possession;
Adverse Claim; Acquisitive Prescription; When petitioner borrowed the house of
private respondents’ predecessors, and petitioner was allowed its free use,
private respondents became bailors in commodatum, and petitioner, the
bailee.—Private respondents were able to prove that their predecessors’ house
was borrowed by petitioner Vicar after the church and the convent were
destroyed. They never asked for the return of the house, but when they allowed
its free use, they became bailors in commodatum and the petitioner the bailee.
The bailees’ failure to return the subject matter of commodatum to the bailor
did not mean adverse possession on the part of the borrower. The bailee held
in trust the property subject matter of commodatum. The adverse claim of
petitioner came only in 1951 when it declared the lots for taxation purposes. The
action of petitioner Vicar by such adverse claim could not ripen into title by way
of ordinary acquisitive prescription because of the absence of just title.
Case when contract is precarium
Quintos and Ansaldo v. Beck
FACTS:
An action was brought to compel the defendant to return to her certain
furniture which she lent him for his use. 3 gas heaters and 4 electric lamps were
found in the possession of the Sheriff. The defendant was a tenant of the plaintiff,
the latter granting the use of the furniture gratuitously subject to the condition
that the defendant would return them to the plaintiff upon the latter’s demand.
Thereafter, the plaintiff required the defendant to return all the furniture
transferred to him for his use. The defendant declined to make deliver of all of
them.
ISSUE/S:
Whether the defendant should return the furniture
HELD:
Yes. The defendant is ordered to return and deliver to the plaintiff.
RATIO DECIDENDI:
The contract entered into between the parties is one of commodatum,
because under it the plaintiff gratuitous 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 latter's
demand.
The obligation voluntarily assumed by the defendant to return the furniture upon
the plaintiff's demand, means that he should return all of them to the plaintiff at
the latter's residence or house. The defendant did not comply with this
obligation when he merely placed them at the disposal of the plaintiff, retaining
for his benefit the three gas heaters and the four electric lamps.
COMMODATUM; OBLIGATION OF THE PARTIES.—The contract entered into
between the parties is one of commodatum, 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 latter's demand (Clause 7 of the
contract, Exhibit "A"; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation
when he merely placed them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four electric lamps.
EXPENSES FOR DEPOSIT OF FURNITURE.—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.
VALUE OF FURNITURE.—As to the value of the furniture. we do not believe that
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. Should the defendant fail to deliver some of the
furniture, the value thereof should be later determined by the trial Court through
evidence which the parties may desire to present.
Liability for interest even in the absence of stipulation
Cortes v. Venturanza
FACTS: The remaining balance of Debtor’s indebtedness to Creditor is
P576,573.90 with an agreed interest at the rate of6% per annum from January 1,
1959, secured by Real Estate Mortgage on Debtor’s land. Then Debtor
defaulted. So,Creditor filed a suit for foreclosure of mortgage on December 12,
1962.
ISSUE: How much interest is payable?
HELD: The interest at 6% per annum from January 1, 1959 to December 12, 1962
is P136,482.13. This is to be added tothe principal amount, thus making a total of
P713,056.03 which shall earn legal interest at 6% (now 12%) per annumfrom
December 12, 1962 until fully paid. Such interest is not due by stipulation but by
the mandate of the law, i.e.,Article 2212
Contracts; Filing of complaint not premature effects of default had already
arisen from non-payment of contractual obligations.—With respect to the first
issues— whether the complaint was filed prematurely—there is no dispute that
plaintiffs filed their complaint on December 12, 1962; that under the terms of the
contract, x x x, the defendants were given until January 1, 1962 within which to
pay their obligation; and that January 1, 1962 had passed without the
defendants having paid to the plaintiffs the sum of P576,573.90 and the
corresponding interest thereon notwithstanding repeated demands for
payment made upon and duly received by them x x x. Therefore, when plaintiffs
filed the complaint on December 12, 1962, the effects of default as against the
defendants had already arisen. Besides no less than the defendants
Venturanzas themselves admitted in their brief that they were delayed in the
payment of the balance of their obligation to the plaintiffs.
Admission of a party in delay in the payment of an obligation means that
obligation had already become due and demandable; Failure to pay unjustified
when cause of delay is not force majeure nor an Act of God.—One cannot
admit being delayed in the payment of his obligation unless he believes that his
obligation is already due and demandable. Stated otherwise, there is no delay
if the obligation is not yet due. The alleged cause of their default in paying the
balance of the price, is not force majeure nor an act of God. Hence, their failure
to pay is not justified.
If intention of the parties is that the consummation of the contract, Deed of Sale
with Purchase Money Mortgage should be dependent on the ability of the buyer
collect the purchase price on their two haciendas, the intention should have
been clearly stated in the contract; When deed of sale specifies with a period it
is an obligation with a definite period case at bar. —x x x A careful reading of
the Deed of Sale with Purchase Money Mortgage, Exhibit B, reveals the
conspicuous absence of any provision making the consummation of the said
contract dependent on the ability of defendants Venturanzas to collect the
purchase price of their two haciendas. If this were the intention of the parties,
they should have clearly tated it in the contract. x x x The deed of sale with
purchase money mortgage clearly indicates that the balance of P576,573.90
shall be paid by the defendants, jointly and severally, within three (3) years from
January 1, 1959, with interest at the rate of 6% per annum, until fully paid. On
January 1, 1962, the defendants failed and refused to pay their obligation. This
is a clear case of an obligation with a definite period ex die, hich
period was incidentally established for the benefit of the defendants. The
evidence presented by the plaintiffs to substantiate these facts approaches
moral certainty, not merely preponderance of evidence. x x x x x x
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith; Deed of sale did
not contravene limitations of freedom of contract.—Furthermore, according to
Article 1159 of the New Civil Code, obligations arising from contracts have the
force of law between the contracting parties, and should be complied with in
good faith. The deed does not show on its face that any of the limitations of the
freedom of contract under Article 1306 of the same Code, such as law, morals,
good customs, public order, or public policy, exists. On the contrary, the terms
of said exhibit are so clear and leave no doubt with respect to the intention of
the contracting parties. Hence, the literal meaning of its stipulations shall control.
This is so because the intention of the parties is clearly manifested and they are
presumed to know the consequences of their voluntary acts. x x x.
Since the period of payment of the mortgage on the land had become due, and
no payment therefor had been received, foreclosure of mortgage would be
proper.—We, therefore, see no reason to overturn the finding of the court a quo
that the defendants are indebted to the plaintiffs on the mortgage constituted
by them over the 33 parcels of land in question since the period for payment of
the obligation had become due and, therefore, plaintiffs are entitled to a
foreclosure of the said mortgage.
Novation; Concept and nature of novation as a mode of extinguishing
obligations.—According to Manresa, novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting the person of the debtor, or by subrogating a third
person to the rights of the creditor. Unlike other modes of extinction of
obligations, novation is a juridical act with a dula function—it extinguishes an
obligation and creates a new one in lieu of the old. x x x Under the provision on
Novations, there are two forms of novation by substituting the person of the
debtor, and they are: (1) expromision and (2) delegacion. In the former, the
initiative for the change does not come from the debtor and may even be
made without his knowledge, since it consists in a third person assuming the
obligation. As such, it logically requires the consent of the third person and the
creditor. In the latter, the debtor offers and the creditor accepts a third person
who consents to the substitution and assumes the obligation x x x. In these two
modes of substitution, the consent of the creditor is an indispensable
requirement.
While the documents of sale of the property between defendants and cross-
defendants might have created a judicial relation as between them, it cannot
however affect the relation of said defendants and plaintiffs since the latter as
creditors are not privies to said agreement and they have not given their consent
to the substitution of the person of the debtor; Reasons for requirement.—x x x
suffice it to state that while the Agreement and Deed of Sale of Undivided Share
in Real Estate x x x, might have created a juridical relation as between
defendants Venturanzas and Oledans, it cannot however affect the relation
between them on one hand, and the plaintiffs, on the other, since the latter are
not privies to the said agreement, and this kind of novation cannot be made
without the consent of the plaintiffs.
One reason for the requirement of the creditor’s consent to such substitution is
obvious. Substitution of one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the financial inability or insolvency of
the new debtor; hence, the creditor should agree to accept the substitution in
order that it may be binding on him. x x x In the case at bar, the agreement x x
relied upon by the defendants Oledas dows not show on its face that the
plaintiffs intervened in, much less gave their consent to, the substitution; as a
matter of fact, plaintiff Cortes vehemently denied having consented to the
transfer of rights from the Oledans to the Venturanzas alone. Res inter alios acta
alteri nocere non debet x x x There is thus a complete absence of animus
novandi, whether express or implied, on the part of the creditors —the Corteses.
Tolentino and Manio vs. Gonzalez Sy Chiam
Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three
installments. Tolentino defaulted on the balance so the owner sent a letter of
demand to him. To pay, Tolentino applied for loan from Gonzalez on condition
that he would execute a pacto de retro sale on the property in favor of
Gonzalez. Upon maturation of loan, Tolentino defaulted so Gonzalez is
demanding recovery of the land. Tolentino contends that the pacto de retro
sale is a mortgage and not an absolute sale.
The Supreme Court held that upon its terms, the deed of pacto de retro sale is
an absolute sale with right of repurchase and not a mortgage. Thus, Gonzalez is
the owner of the land and Tolentino is only holding it as a tenant by virtue of a
contract of lease.
**LOAN: A contract of loan 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. It has been defined as an advancement 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. The moment the contract is
completed, the money, goods or chattels given cease to be the property of the
former owner and become 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
become the sole property of the obligor.
RENTAL CONTRACTS; USURY.—A contract for the lease of property is not a "loan."
Under the Usury Law the defense of usury cannot be based thereon. The Usury
Law in this jurisdiction prohibits a certain rate of interest on "loans." A contract of
"loan" is a 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 credit to another,
with a promise to repay, but not a promise to return the same thing. In a con-
tract 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 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.
RENTS, CONTRACT OF ; DEFINED.—A contract of "rent" may be defined as the
compensation either in money, provisions, chattels or labor, received by the
owner of the soil or the property rented, f rom the occupant thereof.
LOAN, CONTRACT OF; DEFINED.—A contract of "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. It has been
defined as an advancement 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. The moment the contract is
completed, the money, goods or chattels given cease to be the property of the
former owner and become 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
become the sole property of the obligor. A contract of "loan" differs materially
and essentially from a contract of "rent."
USURY; DEFINED.—Usury may be defined as contracting for or receiving
something in excess of the amount allowed by law for the loan or forbearance
of money, goods or chattels. It is the taking of more interest for the use of money,
goods or chattels or credits than the law allows. Usury has been regarded with
abhorrence from the earliest times.
Chapter 2: SIMPLE LOAN OR MUTUUM
Garcia v Thio
FACTS
Respondent Thio received from petitioner Garcia two crossed checks which
amount to US$100,000 and US$500,000, respectively, payable to the order of
Marilou Santiago. According to petitioner, respondent failed to pay the
principal amounts of the loans when they fell due and so she filed a complaint
for sum of money and damages with the RTC. Respondent denied that she
contracted the two loans and countered that it was Marilou Satiago to whom
petitioner lent the money. She claimed she was merely asked y petitioner to give
the checks to Santiago. She issued the checks for P76,000 and P20,000 not as
payment of interest but to accommodate petitioner’s request that respondent
use her own checks instead of Santiago’s.
RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no
contract of loan between the parties.
ISSUE
(1) Whether or not there was a contract of loan between petitioner and
respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?
HELD
(1) The Court held in the affirmative. A loan is a real contract, not
consensual, and as such I perfected only upon the delivery of the
object of the contract. Upon delivery of the contract of loan (in this
case the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or loan
proceeds and is bound to pay the creditor an equal amount. It is
undisputed that the checks were delivered to respondent.
(2) However, the checks were crossed and payable not to the order of
the respondent but to the order of a certain Marilou Santiago. Delivery
is the act by which the res or substance is thereof placed within the
actual or constructive possession or control of another. Although
respondent did not physically receive the proceeds of the checks,
these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amount to Santiago.
Petition granted; judgment and resolution reversed and set aside.
Contracts; A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract.—A loan is a real contract,
not consensual, and as such is perfected only upon the delivery of the object of
the contract.
Upon delivery of the object of the contract of loan (in this case the money
received by the debtor when the checks were encashed) the debtor acquires
ownership of such money or loan proceeds and is bound to pay the creditor an
equal amount.—Upon delivery of the object of the contract of loan (in this case
the money received by the debtor when the checks were encashed) the
Delivery is the act by which the res or substance thereof is placed debtor
acquires ownership of such money or loan proceeds and is bound to pay the
creditor an equal amount.
within the actual or constructive possession or control of another.—Delivery is the
act by which the res or substance thereof is placed within the actual or
constructive possession or control of another. Although respondent did not
physically receive the proceeds of the checks, these instruments were placed
in her control and possession under an arrangement whereby she actually re-
lent the amounts to Santiago.
Loans; Interests; Article 1956 of the Civil Code provides that “no interest shall be
due unless it has been expressly stipulated in writing.”— We do not, however,
agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the
interest payable except for the verbal agreement that the loans would earn 3%
and 4% interest per month. Article 1956 of the Civil Code provides that “[n]o
interest shall be due unless it has been expressly stipulated in writing.”
While there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code.—Be that as it may, while there can be no
stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil
Code. It is well-settled that: When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
Development Bank of the Philippines v Guarina Agricultural and Realty
Development Corporation
FACTS:
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976. Guariña Corporation executed a promissory note
that would be due on November 3, 1988. On October 5, 1976, Guariña
Corporation executed a real estate mortgage over several real properties in
favor of DBP as security for the repayment of the loan. On May 17, 1977, Guariña
Corporation executed a chattel mortgage over the personal properties existing
at the resort complex and those yet to be acquired out of the proceeds of the
loan, also to secure the performance of the obligation. Prior to the release of
the loan, DBP required Guariña Corporation to put up a cash equity of
P1,470,951.00 for the construction of the buildings and other improvements on
the resort complex.
The loan was released in several installments, and Guariña Corporation used the
proceeds to defray the cost of additional improvements in the resort complex.
In all, the amount released totaled P3,003,617.49, from which DBP withheld
P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the loan, but
DBP refused. Instead, DBP directly paid some suppliers of Guariña Corporation
over the latter’s objection. DBP found upon inspection of the resort project, its
developments and improvements that Guariña Corporation had not
completed the construction works. In a letter dated February 27, 1978, and a
telegram dated June 9, 1978, DBP thus demanded that Guariña
Corporation expedite the completion of the project, and warned that it would
initiate foreclosure proceedings should Guariña Corporation not do so.
Unsatisfied with the non-action and objection of Guariña Corporation, DBP
initiated extrajudicial foreclosure proceedings
ISSUE:
Whether or not Guarina was in delay in performing its obligation making DBP’s
action to foreclose the mortgage proper.
HELD:
NO. The Court held that the foreclosure of a mortgage prior to the mortgagor’s
default on the principal obligation is premature, and should be undone for
being void and ineffectual. The mortgagee who has been meanwhile given
possession of the mortgaged property by virtue of a writ of possession issued to
it as the purchaser at the foreclosure sale may be required to restore the
possession of the property to the mortgagor and to pay reasonable rent for the
use of the property during the intervening period.
The agreement between DBP and Guariña Corporation was a loan. Under the
law, a loan requires the delivery of money or any other consumable object by
one party to another who acquires ownership thereof, on the condition that the
same amount or quality shall be paid. Loan is a reciprocal obligation, as it arises
from the same cause where one party is the creditor, and the other the debtor.
The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous.
This means that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.
The loan agreement between the parties is a reciprocal obligation. Appellant in
the instant case bound itself to grant appellee the loan amount of P3,387,000.00
condition on appellee’s payment of the amount when it falls due.
The appellant did not release the total amount of the approved loan. Appellant
therefore could not have made a demand for payment of the loan since it had
yet to fulfil its own obligation. Moreover, the fact that appellee was not yet in
default rendered the foreclosure proceedings premature and improper.
By its failure to release the proceeds of the loan in their entirety, DBP had no right
yet to exact on Guariña Corporation the latter’s compliance with its own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan
does not perform its obligation, the other party cannot be obliged to perform
what is expected of it while the other’s obligation remains unfulfilled. In other
words, the latter party does not incur delay.
Contracts; Loans; Under the law, a loan requires the delivery of money or any
other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid.—The
agreement between DBP and Guariña Corporation was a loan. Under the law,
a loan requires the delivery of money or any other consumable object by one
party to another who acquires ownership thereof, on the condition that the
same amount or quality shall be paid. Loan is a reciprocal obligation, as it arises
from the same cause where one party is the creditor, and the other the debtor.
The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous.
This means that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.
Mortgages; By its nature, a mortgage remains an accessory contract dependent
on the principal obligation, such that enforcement of the mortgage contract will
depend on whether or not there has been a violation of the principal
obligation.—DBP’s actuations were legally unfounded. It is true that loans are
often secured by a mortgage constituted on real or personal property to protect
the creditor’s interest in case of the default of the debtor. By its nature, however,
a mortgage remains an accessory contract dependent on the principal
obligation, such that enforcement of the mortgage contract will depend on
whether or not there has been a violation of the principal obligation. While a
creditor and a debtor could regulate the order in which they should comply
with their reciprocal obligations, it is presupposed that in a loan the lender
should perform its obligation — the release of the full loan amount — before it
could demand that the borrower repay the loaned amount. In other words,
Guariña Corporation would not incur in delay before DBP fully performed its
reciprocal obligation.
Central Bank v Court of Appeals 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:
 Whether or not Tolentino’s can collect from the bank for damages
 Whether or not the mortgagor is liable to pay the amount covered by the
promissory note
 Whether or not the real estate mortgage can be foreclosed
Held:
(1) Whether or not Tolentino’s can collect from the bank for damagesThe 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 should 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.
Obligations; Loans; Where a bank approved a loan for P80,000.00 but was able
to deliver only P1 7,000.00, it is in default for P63,000.00 to the borrower.—When
Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In
reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda.
de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed
or is ready and willing to perform his part of the contract, the other party who
has not performed or is not ready and willing to perform incurs in delay (Art. 1169
of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to furnish the ?80,000.00
loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28,
1965, he signified his willingness to pay the P80,000.00 loan. From such date, the
obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus,
the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted
for a period of 3 years or when the Monetary Board of the Central Bank issued
Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from
doing further business. Such prohibition made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power
of the Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
The fact that the creditor is insolvent or was stopped by the Central Bank from
granting further loans is no defense to its fulfillment to extend the loan applied
for and approved by it to the full amount.—The Monetary Board Resolution No.
1049 issued on August 13, 1965 cannot interrupt the default of Island Savings
Bank in complying with its obligation of releasing the P63,000.00 balance
because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the obligation
of the contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And,
the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment
of an obligation but instead it is taken as a breach of the contract by him.
Acceptance of refund of excess pre-deducted interest for a supposed loan of
P80,000.00 does not constitute a waiver of right to collect the P63,000.00
unreleased balance of the P80,000.00 loans. —The fact that Sulpicio M. Tolentino
demanded and accepted the refund of the pre-deducted interest amounting
to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged interest
for a nonexisting debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-
deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the exercise of the
other.
A bank borrower who did not pay the partial loan release as per the terms of the
promissory note signed by him is in default to that extent even if the entire loan
cannot be released anymore.—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.
Mortgages; Where only P 17,000.00 of the approved P80,000.00 loan was
released, the real estate mortgage thereon can be foreclosed only to the extent
of 21.25%.—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.
Rule of indivisibility of a mortgage under Art. 2089, NCC does not apply where
bank released only part of the approved mortgage loan.—The rule of
indivisibility, of a real estate mortgage provided for by Article 2089 of the Civil
Code is inapplicable to the facts of this case. x x x The rule of indivisibility of the
mortgage as outlined by Article 2089 above-quoted presupposes several heirs
of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply.
YONG CHAN KIM vs .PEOPLE
In commodatum, the bailor retains the ownership of the thing loaned, while in
simpleloan, ownership passes to the borrower.
Facts:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture
Departmentof the Southeast Asian Fisheries Development Center (SEAFDEC)
with head station at Tigbauan,Province of Iloilo. As Head of the Economics Unit
of the Research Division, he conducted prawnsurveys which required him to
travel to various selected provinces in the country where there arepotentials for
prawn culture.On 15 June 1982, petitioner was issued Travel Order No. 2222
which covered his travels todifferent places in Luzon from 16 June to 21 July 1982,
a period of thirty five (35) days, where hereceived P6,438.00 as cash advance
to defray his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268,
requiringhim to travel from the Head Station at Tigbauan, Iloilo to Roxas City from
30 June to 4 July 1982,a period of five (5) days, where petitioner received a cash
advance of P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation,
submittingTravel Expense Reports to the Accounting Section. When the Travel
Expense Reports wereaudited, it was discovered that there was an overlap of
four (4) days (30 June to 3 July 1982) inthe two (2) travel orders for which
petitioner collected per diems twice.Petitioner was required to comment on the
internal auditor's report regarding the allegedanomalous claim for per diems. In
his reply, petitioner denied the alleged anomaly, claiming thathe made make-
up trips to compensate for the trips he failed to undertake under T.O.
2222because he was recalled to the head office and given another
assignment.
Issue:
Was petitioner under obligation to return the same money (cash advance),
which he hadreceived?
Held:
No. Excutive Order No. 10, dated 12 February 1980 provides as follows:
"B. Cash Advance for Travel
"4. All cash advances must be liquidated within 30 days after date of projected
return of the person. Otherwise, corresponding salary deduction shall be made
immediately following the expiration day."
Liquidation simply means the settling of indebtedness. An employee, such as
herein petitioner, who liquidates a cash advance is in fact paying back his debt
in the form of a loan of money advanced to him by his employer, as per diems
and allowances. Similarly, as stated in the assailed, decision of the lower court,
if the amount of the cash advance he received is less than the amount he spent
for actual travel x x x he has the right to demand reimbursement from his
employer the amount he spent coming from his personal funds ."In other words,
the money advanced by either party is actually a loan to the other.
Fiduciary relationship between the complainant and the accused is an essential
element of estafa by misappropriation or conversion.—The ruling of the trial
judge that ownership of the cash advanced to the petitioner by private
respondent was not transferred to the latter is erroneous. Ownership of the
money was transferred to the petitioner. x x x Since ownership of the money
(cash advance) was ransferred to petitioner, no fiduciary relationship was
created. Absent this fiduciary relationship between petitioner and private
respondent, which is an essential element of the crime of estafa by
misappropriation or conversion, petitioner could not have committed estafa.
Consolidated Bank and Trust Corporation v. CA,
G.R. No. 114286, April 19, 2001
FACTS:
Respondents Continental Cement Corporation (Corporation) and Gregory T.
Lim obtained, frompetitioner Consolidated Bank and Trust Corporation, Letter of
Credit No. DOM-23277 in the amount ofP 1,068,150.00. The letter of credit was
used to purchase around five hundred thousand liters of bunkerfuel oil from
Petrophil Corporation, which the latter delivered directly to respondent
Corporation in itsBulacan plant. In relation to the same transaction, a trust
receipt for the amount of P 1,001,520.93 wasexecuted by respondent
Corporation, with respondent Lim as signatory. Claiming that respondents failed
to turn over the goods covered by the trust receipt or theproceeds
thereof , petitioner filed a complaint for sum of money with application for
preliminaryattachment. In answer to the complaint, respondents averred that
the transaction between them wasa simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did nottake into
account payments already made by them. Respondent Lim also denied any
personal liability inthe subject transactions.The trial court dismissed the
Complaint. Both parties appealed to the Court of Appeals, whichpartially
modified the Decision by deleting the jaward of attorney's fees in favor of
respondents and,instead, ordering respondent Corporation to pay petitioner
P37,469.22 as and for attorney's fees andlitigation expenses.
ISSUE:
Whether the transaction was a trust receipt transaction?
RULING:
NO.The Supreme Court held that petitioner failed to convince them that the
transaction is really atrust receipt transaction instead of merely a simple loan, as
found by the lower court and the CA.As held in Colinares v. Court of Appeals,
which appears to be foursquare with the facts obtainingin the case at bar,
inasmuch as the debtor received the goods subject of the trust receipt before
thetrust receipt itself was entered into, the transaction in question was a simple
loan and not a trustreceipt agreement. Prior to the date of execution of the
trust receipt, ownership over the goods wasalready transferred to the debtor.
This situation is inconsistent with what normally obtains in a puretrust receipt
transaction, wherein the goods belong in ownership to the bank and are only
released tothe importer in trust after the loan is granted
Loans; Banks and Banking; Letters of Credit; Interest Rates; Compensation; It
would be onerous to compute interest and other charges on the face value of
the letter of credit which a bank issued, without first crediting or setting off the
marginal deposit which the borrower paid to it— compensation is proper and
should take effect by operation of law because the requisites in Article 1279 of
the Civil Code are present and should extinguish both debts to the concurrent
amount.—Petitioner’s contention that the marginal deposit made by
respondent Corporation should not be deducted outright from the amount of
the letter of credit is untenable.
Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to
sustain petitioner on this score would be to countenance a clear case of unjust
enrichment, for while a marginal deposit earns no interest in favor of the debtor-
depositor, the bank is not only able to use the same for its own purposes, interest-
free, but is also able to earn interest on the money loaned to respondent
Corporation. Indeed, it would be onerous to compute interest and other
charges on the face value of the letter of credit which the petitioner issued,
without first crediting or setting off the marginal deposit which the respondent
Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are
present and should extinguish both debts to the concurrent amount.
Floating Rates of Interest; Trust Receipts Law; A stipulation for a floating rate of
interest in a letter of credit in which there is no reference rate set either by it or
by the Central Bank, leaving the determination thereof to the sole will and
control of the lender bank is invalid; While it may be acceptable, for practical
reasons given the fluctuating economic conditions, for banks to stipulate that
interest rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference rate upon
which to peg such variable interest rates.—Neither do we find error when the
lower court and the Court of Appeals set aside as invalid the floating rate of
interest exhorted by petitioner to be applicable. The pertinent provision in the
trust receipt agreement of the parties fixing the interest rate states: I, WE jointly
and severally agree to any increase or decrease in the interest rate which may
occur after July 1, 1981, when the Central Bank floated the interest rate, and to
pay additionally the penalty of 1% per month until the amount/s or installment/s
due and unpaid under the trust receipt on the reverse side hereof is/are fully
paid. We agree with respondent Court of Appeals that the foregoing stipulation
is invalid, there being no reference rate set either by it or by the Central Bank,
leaving the determination thereof at the sole will and control of petitioner. While
it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and
instead be made dependent upon prevailing market conditions, there should
always be a reference rate upon which to peg such variable interest rates.
Trust Receipts Law; Where the debtor received the goods subject of the trust
receipt before the trust receipt itself was entered into, the transaction in question
is a simple loan and not a trust receipt agreement.— The recent case of
Colinares v. Court of Appeals appears to be foursquare with the facts obtaining
in the case at bar. There, we found that inasmuch as the debtor received the
goods subject of the trust receipt before the trust receipt itself was entered into,
the transaction in question was a simple loan and not a trust receipt agreement.
Prior to the date of execution of the trust receipt, ownership over the goods was
already transferred to the debtor. This situation is inconsistent with what normally
obtains in a pure trust receipt transaction, wherein the goods belong in
ownership to the bank and are only released to the importer in trust after the
loan is granted. In the case at bar, as in Colinares, the delivery to respondent
Corporation of the goods subject of the trust receipt occurred long before the
trust receipt itself was executed. More specifically, delivery of the bunker fuel oil
to respondent Corporation’s Bulacan plant commenced on July 7, 1982 and
was completed by July 19, 1982. Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982. On the other hand, the
subject trust receipt was only executed nearly two months after full delivery of
the oil was made to respondent Corporation, or on September 2, 1982.
Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal
amount of P681,075.93 negates any badge of dishonesty, abuse of confidence
or mishandling of funds on the part of the borrower, which are the gravamen of
a trust receipt violation.—Respondent Corporation cannot be said to have been
dishonest in its dealings with petitioner. Neither has it been shown that it has
evaded payment of its obligations. Indeed, it continually endeavored to meet
the same, as shown by the various receipts issued by petitioner acknowledging
payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a
loan with a principal amount of only P681,075.93 negates any badge of
dishonesty, abuse of confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a trust receipt violation.
Furthermore, respondent Corporation is not an importer which acquired the
bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to
respondent Corporation to which the oil was directly delivered long before the
trust receipt was executed.
Colinares v CA G.R. No. 90828. September 5, 2000
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.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were
contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan
de Oro City to renovate the latter’s convent at Camaman-an, Cagayan de Oro
City. Colinares applied for a commercial letter of credit with the Philippine
Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of
CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover
the full invoice value of the goods. Petitioners signed a pro-forma trust receipt as
security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the
loan. After the initial payment, the spouses defaulted. PBC wrote to Petitioners
demanding that the amount be paid within seven days from notice. Instead of
complying with PBC’s demand, Veloso confessed that they lost P19,195.83 in the
Carmelite Monastery Project and requested for a grace period of until 15 June
1980 to settle the account. Colinares proposed that the terms of payment of
the loan be modified P2,000 on or before 3 December 1980, and P1,000 per
month . Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4
December 1980, and thereafter P500 on 11 February 1981, 16 March 1981, and
20 April 1981. 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 the violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 of the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as
per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and
petitioner Colinares signed the documents without reading the fine print, only
learning of the trust receipt implication much later. When he brought this to the
attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere
formality. 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.
Issue: Whether or not the transaction of Colinares falls within the ambit of the
Law on Trust Receipt
Held: Colinares 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. There are two
possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty
to deliver it (entregarla) to the owner of the merchandise sold. The second is
covered by the provision which refers to merchandise received under the
obligation to “return” it (devolvera) to the owner. Failure of the entrustee to turn
over the proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in accordance with
the terms of the trust receipt shall be punishable as estafa under Article 315 (1)
of the Revised Penal Code, without need of proving intent to defraud.
Criminal Law; Trust Receipts Law (P.D. 115); Words and Phrases; “Trust Receipt
Transaction,” Defined.—Section 4, P.D. No. 115, the Trust Receipts Law, defines a
trust receipt transaction as any transaction by and between a person referred
to as the entruster, and another person referred to as the entrustee, whereby
the entruster who owns or holds absolute title or security interest over certain
specified goods, documents or instruments, releases the same to the possession
of the entrustee upon the latter’s execution and delivery to the entruster of a
signed document called a “trust receipt” wherein the entrustee binds himself to
hold the designated goods, documents or instruments with the obligation to turn
over to the entruster the proceeds thereof to the extent of the amount owing to
the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt.
Estafa; Failure of the entrustee to turn over the proceeds of the sale of the goods,
covered by the trust receipt to the entruster or to return said goods if they were
not disposed of in accordance with the terms of the trust receipt is punishable
as estafa.—There are two possible situations in a trust receipt transaction. The
first is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it (devolvera) to the
owner. Failure of the entrustee to turn over the proceeds of the sale of the
goods, covered by the trust receipt to the entruster or to return said goods if they
were not disposed of in accordance with the terms of the trust receipt shall be
punishable as estafa under Article 315 (1) of the Revised Penal Code, without
need of proving intent to defraud.
In a pure trust receipt transaction, the 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; 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.—
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.
The Trust Receipts Law does not seek to enforce the 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.— 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 mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in the situation of the accused—they
employed no artifice in dealing with the bank and never did they evade
payment of their obligation nor attempt to abscond.—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.
The fact that the accused are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt and at no time
did the title pass to the bank 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.— 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.
Banks and Banking; Contracts; Contracts of Adhesion; 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.—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 of Desistance.
PEOPLE VS. PUIG
Facts:
Respondents were conspiring, confederating, and helping one another, with
grave abuse of confidence, being the Cashier and Bookkeeper of the Rural
Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of
the management of the Bank and with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry away the sum of P15,000.00,
Philippine Currency, to the damage and prejudice of the said bank in the
aforesaid amount.
However, the trial court did not find the existence of probable cause because
(1) the element of ‘taking without the consent of the owners’ was missing on the
ground that it is the depositors-clients, and not the Bank, which filed the
complaint in these cases, who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest; and (2) the Informations
are bereft of the phrase alleging "dependence, guardianship or vigilance
between the respondents and the offended party that would have created a
high degree of confidence between them which the respondents could have
abused.".
Issue:
Whether or not the 112 informations for qualified theft sufficiently allege the
element of taking without the consent of the owner, and the qualifying
circumstance of grave abuse of confidence.
Held:
Yes.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency
of the Informations and, therefore, because of this defect, there is no basis for
the existence of probable cause which will justify the issuance of the warrant of
arrest. Petitioner assails the dismissal contending that the Informations for
Qualified Theft sufficiently state facts which constitute (a) the qualifying
circumstance of grave abuse of confidence; and (b) the element of taking, with
intent to gain and without the consent of the owner, which is the Bank.
The RTC Judge based his conclusion that there was no probable cause simply
on the insufficiency of the allegations in the Informations concerning the facts
constitutive of the elements of the offense charged.
The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as
appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
Court has consistently considered the allegations in the Information that such
employees acted with grave abuse of confidence, to the damage and
prejudice of the Bank, without particularly referring to it as owner of the money
deposits, as sufficient to make out a case of Qualified Theft In a long line of cases
involving Qualified Theft, this Court has firmly established the nature of possession
by the Bank of the money deposits therein, and the duties being performed by
its employees who have custody of the money or have come into possession of
it. The Court has consistently considered the allegations in the Information that
such employees acted with grave abuse of confidence, to the damage and
prejudice of the Bank, without particularly referring to it as owner of the money
deposits, as sufficient to make out a case of Qualified Theft.
Banks, where monies are deposited, are considered the owners thereof; The
relationship between banks and depositors has been held to be that of creditor
and debtor.—It is beyond doubt that tellers, Cashiers, Bookkeepers and other
employees of a Bank who come into possession of the monies deposited therein
enjoy the confidence reposed in them by their employer. Banks, on the other
hand, where monies are deposited, are considered the owners thereof. This is
very clear not only from the express provisions of the law, but from established
jurisprudence. The relationship between banks and depositors has been held to
be that of creditor and debtor.
When the defendant, with grave abuse of confidence, removed the money and
appropriated it to his own use without the consent of the Bank, there was taking
as contemplated in the crime of Qualified Theft.—People v. Locson, 57 Phil. 325
(1932), in addition to People v. Sison, described the nature of possession by the
Bank. The money in this case was in the possession of the defendant as receiving
teller of the bank, and the possession of the defendant was the possession of
the Bank. The Court held therein that when the defendant, with grave abuse of
confidence, removed the money and appropriated it to his own use without the
consent of the Bank, there was taking as contemplated in the crime of Qualified
Theft.
Banks and Banking; Criminal Law; Qualified Theft; The Bank acquires ownership
of the money deposited by its clients; and the employee of the Bank, who are
entrusted with the possession of money of the Bank due to the confidence
reposed in them, occupy positions of confidence.—In summary, the Bank
acquires ownership of the money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of money of the Bank due to
the confidence reposed in them, occupy positions of confidence. The
Informations, therefore, sufficiently allege all the essential elements constituting
the crime of Qualified Theft.
BPI FAMILY BANK VS. FRANCO
FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-
FB. Soon thereafter, FMIC also opened a timedeposit account with the same
branch of BPI-FBOn August 31, 1989, Franco opened three accounts, namely, a
current, savings, and time deposit, with BPI-FB. The total amountof P2,000,000.00
used to open these accounts is traceable to a check issued by Tevesteco
allegedly in consideration of Franco’s introduction of Eladio Teves, to Jaime
Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for
theP2,000,000.00 check was part of the P80,000,000.00 debited by BPI-
FB from FMIC’s time deposit account and credited toTevesteco’s current
account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.
It appears, however, that the signatures of FMIC’s officers on the Authority to
Debit were forged. BPI-FB, debited Franco’s savings and current accounts for
the amounts remaining therein. In the meantime, two checks drawn by Franco
against his BPI-FB current account were dishonored and stamped with a
notation “account under garnishment.” Apparently, Franco’s current account
was garnished by virtue of an Order ofNotably, the dishonored checks were
issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt
ofnotice that his accounts were under garnishment. It was only on May 15, 1990,
that Franco was impleaded in the Makati case.Immediately, upon receipt of
such copy, Franco filed a Motion to Discharge Attachment. On May 17, 1990,
Franco pre-terminatedhis time deposit account.BPI-FB deducted the amount of
P63,189.00 from the remaining balance of the time deposit account
representingadvance interest paid to him. Consequently, in light of BPI-FB’s
refusal to heed Franco’s demands to unfreeze his accounts andrelease his
deposits therein, Franco filed on June 4, 1990 with the Manila RTC the subject
suit.
ISSUE: WON Respondent had better right to the deposits in the subject accounts
which are part of the proceeds of a forgedAuthority to Debit
HELD: NOThere is no doubt that BPI-FB owns the deposited monies in the
accounts of Franco, but not as a legal consequence of
its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB
conveniently forgets that the deposit of money inbanks is governed by the Civil
Code provisions on simple loan or mutuum. As there is a debtor-creditor
relationship between a bank and its depositor, BPI-FB ultimately acquired
ownership of Franco’s deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand. Although
BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from
demanding payment of BPI-FB’s obligation by drawing checks against his
current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account,
he had everyright as creditor to expect that those checks would be honored by
BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts
of Franco based on its mere suspicionthat the funds therein were proceeds of
the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or
anybank for that matter, the right to take whatever action it pleases on deposits
which it supposes are derived from shadytransactions, would open the
floodgates of public distrust in the banking industry.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to
know the signatures of its customers. Having failed to detect the forgery in
the Authority to Debit and in the process inadvertently facilitate the FMIC-
Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the
other payees of checks issued by Tevesteco, or prevent withdrawals fromtheir
respective accounts without the appropriate court writ or a favorable final
judgment.
Mercantile Law; Banking Laws; Money as a Medium of Exchange; Money, which
had passed through various transactions in the general course of banking
business, even if of traceable origin, bears no earmarks of peculiar ownership.—
It bears emphasizing that money bears no earmarks of peculiar ownership, and
this characteristic is all the more manifest in the instant case which involves
money in a banking transaction gone awry. Its primary function is to pass from
hand to hand as a medium of exchange, without other evidence of its title.
Money, which had passed through various transactions in the general course of
banking business, even if of traceable origin, bears no earmarks of peculiar
ownership.
Nature of a Bank; As a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
the relationship.—In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever directs. A blunder on the part of the bank, such as the
dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal
litigation. The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. x x x.
REPUBLIC vs. Grijaldo
Art 1953: A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
FACTS: Jose Grijaldo obtained five crop loans from the branch office of the Bank
of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the
rate of 6% per annum, compounded quarterly. These loans are evidenced by
five promissory notes executed by the appellant in favor of the Bank. All notes
without due dates, but because the loans were crop loans it was considered
that the loans were due one year after they were incurred. To secure the
payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land known as Hacienda Campugas.
By virtue of “Trading with the Enemy Act” the assets in the Philippines of the Bank
of Taiwan, Ltd. were vested in the Government of the United States which were
subsequently transferred to the Republic of the Philippines. Grijaldo failed to pay
the crop loans despite the extra-judicial demand of the Government of the
Philippines. He argued that the Government has no cause of action, that
because the loans were secured by a chattel mortgage on the standing crops
on a land owned by him and those crops were lost or destroyed through enemy
action his obligation to pay the loans was thereby extinguished.
ISSUE: Whether or not Grijaldo’s obligation to pay the crop loans had
extinguished due to the crops that were lost or destroyed through enemy action.
HELD/RATIO: NO. The obligation of the Grijaldo under the five 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 five loans, with interest.
The chattel mortgage on the crops growing on appellant's land simply stood as
a security for the fulfillment of appellant's obligation covered by the five
promissory notes, and 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. The court ordered the estate of Grijaldo to answer for the
settlement of the crop loans.
Obligations and contracts; Crop loans obtained from the Bank of Taiwan, Ltd.;
Right of Philippine Government to collect the loans.—In 1943, appellant
obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch,
evidenced by promissory notes. To secure payment of the loans, appellant
executed a chattel mortgage over the standing crops on his land. After the war,
the Republic of the Philippines brought the present action to collect from
appellant the unpaid account. Held: It is true that the Bank of Taiwan, Ltd. was
the original creditor and the transaction between the appellant and the Bank
of Taiwan was a private contract of loans.
However, pursuant to the Trading with the Enemy Act, as amended, and
Executive Order No. 9095 of the United States; and under Vesting Order No. P-4,
dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., were vested
in the United States Government. Pursuant, further, to the Philippine Property Act
of 1946 and Transfer Agreements dated July 20, 1954 and June 15, 1957,
between the United States Government and the Republic of the Philippines, the
assets of the Bank of Taiwan, Ltd. Were transferred to and vested in the Republic
of the Philippines. The successive transfers of the rights over the loans in question
from the Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the Philippines,
made the Republic of the Philippines the successor of the rights, title and
interests in said loans, thereby creating a privity of contract between the
appellee and the appellant.
Destruction of crop through enemy action; Effect on the obligation.—Appellant
maintains, in support of his contention that the appellee has no cause of action,
that because the loans were secured by a chattel mortgage on the standing
crops on the land owned by him and those crops were lost or destroyed through
enemy action his obligation to pay the loans was thereby extinguished. Held:
This argument is untenable. The obligation of the appellant under the promissory
notes was not to deliver a determinate thing. namely, the crops to be harvested
from his land, but to pay a generic thing—the amount of money representing
the total sum of his loans, with interest. The chattel mortgage on the crops simply
stood as a security for the fulfillment of appellant's obligation covered by the,
promissory notes, and 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.
Prescription of actions; Prescription does not run against the government.— The
complaint in the present case was brought by the Republic of the Philippines
not as a nominal party but in the exercise of its sovereign functions, to protect
the interests of the State ever a public property. This Court has held that the
statute of limitations does not run against the right of action of the Government
of the Philippines (Government of the Philippine Islands vs. Monte de Piedad,
etc., 35 Phil. 738-751).
Effect of moratorium laws.—Moreover, the running of the period of prescription .
of the action to collect the loan from the appellant was interrupted by the
moratorium laws (Executive Orders Nos. 25, dated November 18. 1944; Executive
Order No. 32, dated March 10, 1945; and Republic Act No. 432, approved on
July 26, 1948). Computed accordingly, the prescriptive period was suspended
for 8 years and 6 months. Hence, appellee's action had not yet prescribed.
Payment in Japanese war notes; Application of Ballantyne scale of values.—
Contracts stipulating for payments presumably in Japanese war notes may be
enforced after the liberation to the extent of the just obligation of the
contracting parties and, as said notes have become worthless, in order that
justice may be done and the party entitled to be paid can recover their actual
value in Philippine Currency, what the debtor or defendant bank should return
or pay is the value of the Japanese military notes in relation to the peso in
Philippine Currency obtaining on the date when and at the place where the
obligation was incurred unless the parties had agreed otherwise. (Hilado vs. De
la Costa L-150 April 30. 1049, 46 Off. Gaz. 5472.)
DE LA PAZ V L & J DEVELOPMENT COMPANY
734 SCRA 364 (2014)
FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money
worth Php 350,000 to L & J Development Corporation, a property developer
represented by Atty. Esteban Salonga as its president and general manager.
The loan was executed without any security and no maturity date. It was
however agreed between the parties that the loan will have a 6% monthly
interest (amounting to Php 21,000). So far, L&J paid a total of Php 576,000
already – including interest charges from December 2000 to August 2003.
L&J later failed to make payments due to financial difficulties in the business.
Rolando then filed a collection case with the MTC and alleged as of January
2005, L&J still owes him Php 772,000 inclusive of monthly interests.
L&J (represented by Atty. Salonga) did not deny that they did incurred a debt
from Rolando, and admitted that they failed to pay due to a fortuitous event
(financial difficulties). They also contended that the 6% monthly interest is
unconscionable and that their total payment of Php 576,000 should be applied
to the principal loan which only amounts to Php 350,000.
Rolando also contends that Atty. Salonga tricked him to execute the said loan
plus interest without reducing the agreement in writing. He also said that the 6%
interest rate was at the suggestion and insistence of L&J.
The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate
as valid since L&J complied to it as evidenced by the payment they made from
December 2000 to August 2003. L&J is now estopped to impugn said interest
rate.
The MTC also reduced the legal interest rate to 12% per annum on the remaining
loan for reasons of equity. They did not grant the prayer of moral damages to
Rolando since there was no bad faith on the part of L&J.
L&J appealed the decision to the RTC – contending once again that the 6%
interest rate is unconscionable, and that their previous payment which totaled
Php 576,000 should be used to set off the principal loan of Php 350,000. RTC
however affirmed the decision of the MTC. L&J appealed to the CA.
CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced
in a written agreement and hence, it should not be considered due. CA ruled
that the loan was already paid, and that Rolando should return the excess Php
226,000 with interest of 12% per annum. The case has now reached the Supreme
Court.
ISSUE: Whether or not the unwritten 6% interest agreement should be honored.
HELD: No. The Supreme Court held that, as provided under the Civil Code, an
agreement regarding loan interests should be stipulated in writing. Even if the
6% monthly rate was done in writing, it will still be void for being unconscionable
and contrary to morals and public policy – for at this time, an interest rate of 3%
and higher is considered excessive and exorbitant.
Furthermore, the lack of maturity date puts the total interest to a whooping 72%
per annum which the Supreme Court considered to be “definitely outrageous
and inordinate.” The Supreme Court affirmed CA’s ruling, but as to Rolando’s
obligation to pay the excess Php 226,000, the interest rate was reduced from
12% to 6% per annum.
Interest Rates; Jurisprudence holds that for interest to be due and payable, two
conditions must concur: a) express stipulation for the payment of interest; and
b) the agreement to pay interest is reduced in writing.—Under Article 1956 of the
Civil Code, no interest shall be due unless it has been expressly stipulated in
writing. Jurisprudence on the matter also holds that for interest to be due and
payable, two conditions must concur: a) express stipulation for the payment of
interest; and b) the agreement to pay interest is reduced in writing.
Usury Law; At present, usury has been legally nonexistent in view of the
suspension of the Usury Law by Central Bank Circular No. 905 S. 1982. Even so,
not all interest rates levied upon loans are permitted by the courts as they have
the power to equitably reduce unreasonable interest rates.—Indeed at present,
usury has been legally nonexistent in view of the suspension of the Usury Law by
Central Bank Circular No. 905 S.1982. Even so, not all interest rates levied upon
loans are permitted by the courts as they have the power to equitably reduce
unreasonable interest rates. In Trade & Investment Development Corporation of
the Philippines v. Roblett Industrial Construction Corporation, 490 SCRA 1 (2006),
we said: While the Court recognizes the right of the parties to enter into contracts
and who are expected to comply with their terms and obligations, this rule is not
absolute. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. In exercising this
vested power to determine what is iniquitous and unconscionable, the Court
must consider the circumstances of each case. What may be iniquitous and
unconscionable in one case, may be just in another.
Central Bank Circular No. 799; Pursuant to Central Bank Circular No. 799 S. 2013
which took effect on July 1, 2013, the interest imposed by the Court of Appeals
(CA) must be accordingly modified. The P226,000.00 which Rolando is ordered
to pay L&J shall earn an interest of 6% per annum from the finality of this
Decision.—Pursuant to Central Bank Circular No. 799 S. 2013 which took effect
on July 1, 2013, the interest imposed by the CA must be accordingly modified.
The P226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6%
per annum from the finality of this Decision.
Relucio vs. Brillante-Garfin
G.R. No. 76518. July 13, 1990.
FACTS:
Private respondent Zeida B. Brillante-Garfin filed a complaint for specific
performance with damages against petitioner Irene P. Relucio, to compel the
latter to execute, in compliance with the Contract to Buy and Sell, a final deed
of sale in favor of the former over two (2) residential subdivision lots in the
Mariano Village Subdivision, Naga City. Private respondent alleged that the lots,
which have a total contract price of P10,800.00, have already been paid for, as
she had already paid P200.00 as down payment, and had subsequently
completed payment of 128 equal monthly installments of P89.45 each
amounting to P11,450.00; that as the law allows the charging of interest only as
monetary interest or as compensatory interest, none of which have obtained in
her case, as she had never incurred in delay in the payment of installments due,
the stipulated interest of six percent (6%) per annum on the outstanding balance
is null and void; and that the amount of 650.00 representing overpayment be
returned to her. Petitioner alleged that private respondent is obliged to pay
interest on the installment payments of the unpaid outstanding balance even if
paid on their "due dates" per schedule of payments; that private respondent
had actually been in arrears in the amount of P4,269.40, representing such
interest as of June 1979, which therefore entitled petitioner to cancel the
contract in question.
ISSUE: Whether or not petitioner has the right to rescind the contract for private
respondent's continued refusal to pay the monthly installments on the contract
price
HELD: No. Vendor and vendee are legally free to stipulate for the payment of
either the cash price of a subdivision lot or its installment price. Should the
vendee opt to purchase a subdivision lot via the installment payment system,
he is in effect paying interest on the cash price, whether the fact and rate of
such interest payment is disclosed in the contract or not. The contract for the
purchase and sale of a piece of land on the installment payment system in the
case at bar is not only quite lawful; it also reflects a very wide spread usage or
custom in our present day commercial life.
Despite private respondent's failure to fully pay the stipulated price of the two
lots in question, petitioner, however, could not validly rescind the contract not
being lawfully entitled to do so. Petitioner failed to rebut private respondents'
allegations that the former had failed to introduce required improvements in the
subdivision.
Vendor and vendee are legally free to stipulate for the payment of either the
cash price of a subdivision lot or its installment price.—Vendor and vendee are
legally free to stipulate for the payment of either the cash price of a subdivision
lot or its installment price. Should the vendee opt to purchase a subdivision lot
via the installment payment system, he is in effect paying interest on the cash
price, whether the fact and rate of such interest payment is disclosed in the
contract or not. The contract for the purchase and sale of a piece of land on
the installment payment system in the case at bar is not only quite lawful; it also
reflects a very wide spread usage or custom in our present day commercial life.
Presidential Decree No. 957; The law vests upon the buyer the option to demand
reimbursement of the total amount paid or to wait for further development of the
subdivision.—In this respect, the trial court was correct in holding that petitioner
could not rescind the contract. As the law vests upon the buyer the option to
demand reimbursement of the total amount paid, or to wait for further
development of the subdivision, private respondent who opted for the latter
alternative by waiting for the proper development of the site, may not be
ousted from the subdivision.
State Investment House, Inc. vs. Court of Appeals
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 discharge a simple contract of
payment of money will discharge the instrument. Correlating Article 1231 of the
Civil Code which enumerates the modes of extinguishing obligation, none of
those modes outlined therein is applicable in the instant case. Thus, Moulic may
not unilaterally discharge herself from her liability by mere expediency of
withdrawing her funds from the drawee bank. She is thus liable as she has no
legal basis to excuse herself from liability on her check to a holder in due course.
Moreover, the fact that the petitioner failed to give notice of dishonor is of no
moment. The need for such notice is not absolute; there are exceptions
provided by Sec 114 of NIL.
Civil Law; Damages; The appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum of money is the
payment of penalty interest at the rate agreed upon.––It must be stressed in this
connection that under Article 2209 of the Civil Code x x x the appropriate
measure for damages in case of delay in discharging an obligation consisting
of the payment of a sum of money, is the payment of penalty interest at the rate
agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular
monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum.
Fact that respondent Aquino spouses were not in default did not mean that they
were relieved from the payment not only of penalty or compensatory interest of
24% per annum but also of regular or monetary interest of 17% per annum.––The
fact that the respondent Aquino spouses were not in default did not mean that
they, as a matter of law were relieved from the payment not only of penalty or
compensatory interest at the rate of twenty-four percent (24%) per annum but
also of regular or monetary interest of seventeen percent (17%) per annum. The
regular or monetary interest continued to accrue under the terms of the relevant
promissory note until actual payment is effected. The payment of egular 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.
Payment; Consignation; Conditions to be complied with by debtor desirous of
being released from his obligation.––Where the creditor unjustly refuses to
accept payment, the debtor desirous of being released from his obligation must
comply with two (2) conditions: (a) tender of payment; and (b) consignation of
the sum due. Tender of payment must be accompanied or followed by
consignation in order that the effects of payment may be produced. Thus, in
Llamas v. Abaya, the Supreme Court stressed that a written tender of payment
alone, without consignation in court of the sum due, does not suspend the
accruing of regular or monetary interest.
Respondent spouses Aquino failed to consign in Court in amount due at the time
of the maturity of Account No. IF-82-0904-AA.––In the instant case, respondent
spouses Aquino, while they are properly regarded as having made a written
tender of payment to petitioner State, failed to consign in court the amount due
at the time of the maturity of Account No. IF-82-0904-AA. It follows that their
obligation to pay principal-cum-regular or monetary interest under the terms
and conditions of Account No. IF-82-0904-AA was not extinguished by such
tender of payment alone.
Eastern Shipping Lines, Inc. vs. Court of Appeals
G.R. No. 97412. July 12, 1994
FACTS: Eastern Shipping Lines [Eastern] is a common carrier engaged in
transportation of goods. It was supposed to deliver goods to the consignee
wherein the latter’s goods was covered by marine insurance policy by
Mercantile Insurance Company, Inc. [Mercantile]. The goods upon reaching the
consignee were damaged and thus claimed benefits from Mercantile which
made the latter be subrogated to the case at bar. Mercantile filed damage
against Eastern which was granted by the lower court with the imposition of 12%
interest. Eastern contends that neither the contract was explicit in imposing the
rate of interest, thus, at most, the interest after the judgment should have only
been 6%.
ISSUE: Whether the imposition of 12% interest by the lower court was justified.
HELD: No. In deciding the case, the Court laid down principle with regard to the
imposition of interest for the payment of damages, to wit: “When the obligation
is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been
stipulated in writing [Art 1956 NCC]. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. When an obligation, not constituting
a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged. When the judgment of
the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
Damages; Interest Rates; Rules of thumb for future guidance in the award of
damages and interest rates.—The ostensible discord is not difficult to explain. The
factual circumstances may have called for different applications, guided by the
rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way
of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
When an obligation is breached, the contravenor can be held liable for
damages.—When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on “Damages” of the
Civil Code govern in determining the measure of recoverable damages.
Interests in the Concept of Actual and Compensatory Damages; In a loan or
forbearance of money, the interest due should be that stipulated in writing, and
in the absence thereof, the rate shall be 12% per annum.—With regard
particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows: 1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
In case of other obligations, the interest on the amount of damages may be
imposed at the discretion of the court at the rate of 6% per annum.—When an
obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion
of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.—When the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
New Sampaguita Builders Construction, Inc. (NSBCI) vs. Philippine National Bank
G.R. No. 148753. July 30, 2004
Sampaguita loaned money from PNB. PNB unilaterally increased rates of interest
in the loan w/o informing Sampaguita. PNB claimed they were authorized to do
it as there was a clause in the agreement that they may do so. Besides, Usury
law was no longer in force
The SC ruled on the negative. PNB cannot do so; it will violate mutuality of
contracts under 1308. Besides, SC may intervene when amount of interest is
unconscionable.
Facts:
Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos,
mortgaging the properties of Sampaguita’s president and chairman of the
board. Sampaguita also executed several promissory notes due on different
dates (payment dates). The first promissory note had 19.5% interest rate. The 2nd
and 3rd had 21.5%. a uniform clause therein permitted PNB to increase the rate
“within the limits allowed by law at any time depending on whatever policy it
may adopt in the future x x x,” without even giving prior notice to petitioners.
There was also a clause in the promissory note that stated that if the same is not
paid 2 years after release then it shall be converted to a medium term loan –
and the interest rate for such loan would apply.
Later on, Sampaguita defaulted on its payments and failed to comply with
obligations on promissory notes. Sampaguita thus requested for a 90 day
extension to pay the loan. Again they defaulted, so they asked for loan
restructuring. It partly paid the loan and promised to pay the balance later on.
AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged
properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so
they filed a case in court asking sampaguita to pay for deficiency.
RTC found that Sampaguita was automatically entitled to the debt relief
package of PNB and ruled that the latter had no cause of action against the
former. CA reversed, saying Sampaguita was not entitled, thus ordered them to
pay the deficiency – Appeal = Went to SC. Sampaguita claims the loan was
bloated so they don’t really owe PNB anymore, but it just overcharged them!
Issue:
Whether PNB could unilaterally increase interest rates: NO
Held:
Sampaguita’s accessory duty to pay interest did not give PNB unrestrained
freedom to charge any rate other than that which was agreed upon. No
interest shall be due, unless expressly stipulated in writing. It would be the zenith
of farcicality to specify and agree upon rates that could be subsequently
upgraded at whim by only one party to the agreement.
The “unilateral determination and imposition” of increased rates is “violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.”
One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties’ essential equality.
Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving respondent an unbridled
right to adjust the interest independently and upwardly would completely take
away from petitioners the “right to assent to an important modification in their
agreement” and would also negate the element of mutuality in their contracts.
The clause cited earlier made the fulfillment of the contracts “dependent
exclusively upon the uncontrolled will” of respondent and was therefore void.
Besides, the pro forma promissory notes have the character of a contract
d’adhésion, “where the parties do not bargain on equal footing, the weaker
party’s [the debtor’s] participation being reduced to the alternative ‘to take it
or leave it.’”
Circular that lifted the ceiling of interest rates of usury law did not authorize either
party to unilaterally raise the interest rate without the other’s consent.
The interest ranging from 26 percent to 35 percent in the statements of account
-- “must be equitably reduced for being iniquitous, unconscionable and
exorbitant.” Rates found to be iniquitous or unconscionable are void, as if it
there were no express contract thereon. Above all, it is undoubtedly against
public policy to charge excessively for the use of money.
It cannot be argued that assent to the increases can be implied either from the
June 18, 1991 request of petitioners for loan restructuring or from their lack of
response to the statements of account sent by respondent. Such request does
not indicate any agreement to an interest increase; there can be no implied
waiver of a right when there is no clear, unequivocal and decisive act showing
such purpose. Besides, the statements were not letters of information sent to
secure their conformity; and even if we were to presume these as an offer, there
was no acceptance. No one receiving a proposal to modify a loan contract,
especially interest -- a vital component -- is “obliged to answer the proposal.”
Besides, PNB did not comply with its own stipulation that should the loan not be
paid 2 years after release of money then it shall be converted to a medium term
loan.
*Court applied 12% interest rate instead for being a forbearance of money
(there were some pieces of evidence presented by PNB in court that
sampaguita objected to. Lower courts overruled the objections but SC said the
objections were correct and the evidence should not have been admitted. i.e.
contract wasn’t signed by the parties, a part of the contract wasn’t properly
annexed/no reference was made in the main contract.)
In addition to the preceding discussion, it is then useless to labor the point that
the increase in rates violates the impairment clause of the Constitution, because
the sole purpose of this provision is to safeguard the integrity of valid contractual
agreements against unwarranted interference by the State in the form of laws.
Private individuals’ intrusions on interest rates is governed by statutory
enactments like the Civil Code.
Obligations and Contracts; Loans; Promissory Notes; Interest Rates; Escalation
Clauses; Principle of Mutuality of Contracts; A borrower’s accessory duty to pay
interest does not give the lender unrestrained freedom to charge any rate other
than that which was agreed upon—it would be the zenith of farcicality to specify
and agree upon rates that could be subsequently upgraded at whim by only
one party to the agreement; The “unilateral determination and imposition” of
increased rate is violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.—In each drawdown, the Promissory Notes
specified the interest rate to be charged: 19.5 percent in the first, and 21.5
percent in the second and again in the third. However, a uniform clause therein
permitted respondent to increase the rate “within the limits allowed by law at
any time depending on whatever policy it may adopt in the future x x x,” without
even giving prior notice to petitioners. The Court holds that petitioners’
accessory duty to pay interest did not give respondent unrestrained freedom to
charge any rate other than that which was agreed upon. No interest shall be
due, unless expressly stipulated in writing. It would be the zenith of farcicality to
specify and agree upon rates that could be subsequently upgraded at whim
by only one party to the agreement. The “unilateral determination and
imposition”of increased rates is “violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code.” One-sided impositions do
not have the force of law between the parties, because such impositions are
not based on the parties’ essential equality.
Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving the lender an unbridled right
to adjust the interest independently and upwardly would completely take away
from the borrower the “right to assent to an important modification in their
agreement” and would also negate the element of mutuality in their contracts.—
Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving respondent an unbridled
right to adjust the interest independently and upwardly would completely take
away from petitioners the “right to assent to an important modification in their
agreement” and would also negate the element of mutuality in their contracts.
The clause cited earlier made the fulfillment of the contracts “dependent
exclusively upon the uncontrolled will” of respondent and was therefore void.
Besides, the pro forma promissory notes have the character of a contract
d’adhésion, “where the parties do not bargain on equal footing, the weaker
party’s [the debtor’s] participation being reduced to the alternative ‘to take it
or leave it.’ ”
Usury Law; While the Usury Law ceiling on interest rates was lifted by Central Bank
Circular No. 905, nothing in the said Circular grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets. —“While the Usury Law ceiling on
interest rates was lifted by [Central Bank] Circular No. 905, nothing in the said
Circular grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their
assets.” In fact, we have declared nearly ten years ago that neither this Circular
nor PD 1684, which further amended the Usury Law, “authorized either party to
unilaterally raise the interest rate without the other’s consent.”
Rates found to be iniquitous or unconscionable are void, as if there were no
express contract thereon.—A similar case eight years ago pointed out to the
same respondent (PNB) that borrowing signified a capital transfusion from
lending institutions to businesses and industries and was done for the purpose of
stimulating their growth; yet respondent’s continued “unilateral and lopsided
policy” of increasing interest rates “without the prior assent” of the borrower not
only defeats this purpose, but also deviates from this pronouncement. Although
such increases are not usurious, since the “Usury Law is now legally inexistent”—
the interest ranging from 26 percent to 35 percent in the statements of
account—“must be equitably reduced for being iniquitous, unconscionable
and exorbitant.” Rates found to be iniquitous or unconscionable are void, as if
it there were no express contract thereon. Above all, it is undoubtedly against
public policy to charge excessively for the use of money.
A borrower’s request for restructuring does not indicate any agreement to an
interest increase—there can be no implied waiver of a right when there is no
clear, unequivocal and decisive act showing such purpose; No one receiving a
proposal to modify a loan contract, especially interest—a vital component—is
obliged to answer the proposal.—It cannot be argued that assent to the
increases can be implied either from the June 18, 1991 request of petitioners for
loan restructuring or from their lack of response to the statements of account
sent by respondent. Such request does not indicate any agreement to an
interest increase; there can be no implied waiver of a right when there is no
clear, unequivocal and decisive act showing such purpose. Besides, the
statements were not letters of information sent to secure their conformity; and
even if we were to presume these as an offer, there was no acceptance. No
one receiving a proposal to modify a loan contract, especially interest—a vital
component—is “obliged to answer the proposal.”
Where the disclosure statements, as well as the credit agreements, do not
provide for any increase in the specified interest rates, none would be
permitted.—In sum, the three disclosure statements, as well as the two credit
agreements considered by this Court, did not provide for any increase in the
specified interest rates. Thus, none would now be permitted. When cross-
examined, Julia Ang-Lopez, Finance Account Analyst II of PNB, Dagupan
Branch, even testified that the bases for computing such rates were those sent
by the head office from time to time, and not those indicated in the notes or
disclosure statements.
Disclosure Statements; Truth in Lending Act; The effect, when the borrower is not
clearly informed of the Disclosure Statements—prior to the consummation of the
availment or drawdown—is that the lender will have no right to collect upon
such charge or increases thereof, even if stipulated in the Notes; The time is now
ripe to give teeth to the often ignored forty-one-year old “Truth in Lending Act”
and thus transform it from a snivelling paper tiger to a growling financial
watchdog of hapless borrowers.—No penalty charges or increases thereof
appear either in the Disclosure Statements or in any of the clauses in the second
and the third Credit Agreements earlier discussed. While a standard penalty
charge of 6 percent per annum has been imposed on the amounts stated in all
three Promissory Notes still remaining unpaid or unrenewed when they fell due,
there is no stipulation therein that would justify any increase in that charges. The
effect, therefore, when the borrower is not clearly informed of the Disclosure
Statements—prior to the consummation of the availment or drawdown—is that
the lender will have no right to collect upon such charge or increases thereof,
even if stipulated in the Notes. The time is now ripe to give teeth to the often
ignored forty-oneyear old “Truth in Lending Act” and thus transform it from a
snivelling paper tiger to a growling financial watchdog of hapless borrowers.
Damages; Liquidated damages intended as penalty shall be equitably reduced
to zilch where iniquitous or unconscionable.—We have earlier said that the
Notes are contracts of adhesion; although not invalid per se, any apparent
ambiguity in the loan contracts—taken as a whole—shall be strictly construed
against respondent who caused it. Worse, in the statements of account, the
penalty rate has again been unilaterally increased by respondent to 36 percent
without petitioners’ consent. As a result of its move, such liquidated damages
intended as a penalty shall be equitably reduced by the Court to zilch for being
iniquitous or unconscionable.
Castelo vs. Court of Appeals
G.R. No. 96372. May 22, 1995
FACTS
On 15 October 1982, petitioners Antonio Castelo, Bernabe Banson, Lourdes
Banson and Pompeyo Depante entered into a contract denominated as a
"Deed of Conditional Sale" with private respondent Milagros Dela Rosa involving
a parcel of land. The agreed price of the land was P269,408.00. Upon signing
the contract, private respondent paid petitioners P106,000.00 leaving a balance
of P163,408.00. The Deed of Conditional Sale also stipulated that:
"xxx xxx xxx
b.)The balance of P163,408.00 to be paid on or before December 31, 1982
without interest and penalty charges;
c.)Should the said balance [remain unpaid] by the VENDEE, the VENDORS
hereby agree to give the VENDEE a grace period of SIX (6) months or up to June
30, 1983 to pay said balance provided that interest at the rate of 12% per annum
shall be charged and 1% penalty charge a month shall be imposed on the
remaining diminishing balance.
Private respondent Dela Rosa was unable to pay the remaining balance.
Petitioners filed an action for specific performance with damages. RTC rendered
the decision ordering the rescission of the Deed of Conditional Sale. Petitioners
went on Certiorari to CA. They claimed that rescission of the contract was only
an alternative relief available under the Civil Code, while they in their complaint
before the RTC, had asked for specific performance with damages.CA reversed
the RTC decision. Writ of execution was issued. Private respondent Dela Rosa
was required to pay petitioners a total of P197,723.68. Petitioners filed a motion
for reconsideration and a separate motion for alias writ of execution
contending that the sum of P197,723.68 was erroneous. They argued that the
obligation of private respondent was to pay (a) interest at the rate of twelve
percent (12%) per annum plus (b) one percent (1%) penalty charge per month,
from default, i.e, from 1 January 1983; that the amount to be paid by the
Defendant should be P398,814.88 instead and not P197,723.68 or a difference
of P201,091.20.
RTC denied the motion. Further contends that the phrase "to pay interest" found
in the dispositive portion of the CA’s November 21, 1986 decision did not refer
to the stipulation in the "Deed of Conditional Sale" but rather to the legal rate of
interest imposed by the CA which started to run from 12 February 1987, the date
of entry of judgment.
Petitioner filed on certiorari to CA. CA dismissed it. But stated that the part of the
dispositive portion, ordering the "defendant . . . to pay the balance of the
conditional sale in the amount of P163,408.00, to pay interest . . . ." Being a "new"
judgment or decision, the computation of the "interest" on the balance of the
conditional sale should commence from the date of its ENTRY on February 12,
1987, when the decision became FINAL and EXECUTORY.
ISSUE
What is the correct interpretation of the phrase "to pay interest" set out in the
dispositive portion of the CA decision?
HELD
The established doctrine is that when the dispositive portion of a judgment,
which has become final and executory, contains a clerical error or an ambiguity
arising from an inadvertent omission, such error or ambiguity may be clarified by
reference to the body of the decision itself.
SC believe and so hold that the phrase “to pay interest,” found in the dispositive
portion of the CA decision must, under applicable law, refer to the interest
stipulated by the parties in the Deed of Conditional Sale which they had entered
into on 15 October 1982. SC note, in the first place, that the phrase “to pay
interest” comes close upon the heels of the preceding phrase "to comply with
her obligation under the conditional sale to pay the balance — of P163,408.00."
A strong inference thus arises that the "interest" required to be paid is the interest
stipulated as part of the “obligation [of private respondent dela Rosa] under the
conditional sale [agreement] to pay the balance of [the purchase price of the
land.
In the computation for the amount to be paid, The question is whether, during
the period of 1 January 1983 up to 30 June 1983, 12% interest per annum plus 1%
penalty charge a month was payable "on the remaining diminishing
balance;" or whether during the period from 1 January 1983 to 30 June
1983, only 12% per annum interest was payable while the 1% per month penalty
charge would in addition begin to accrue on any balance remaining unpaid as
of 1 July 1983.
SC believed the parties intended the latter view. The interpretation SC adopted
is also supported by the principle that in case of ambiguity in contract
language, that interpretation which establishes a less onerous transmission of
rights or imposition of lesser burdens which permits greater reciprocity between
the parties, is to be adopted (Art. 1378).
WHEREFORE, the writ of certiorari is hereby GRANTED.
“xxx xx xx
(2)ordering the defendant to comply with her obligation under the conditional
sale to pay the balance of the conditional sale in the amount of P163,408.00, to
pay interest on the amount of the balance remaining unpaid during the period
from 1 January 1983 to 30 June 1983 at the rate of 12% per annum; and, from 1
July 1983 until full payment of the amount due, to pay interest at the rate of 12%
per annum plus another 12% per annum (i.e., 1% penalty charge per month), or
a total of 24% per annum, on the balance remaining unpaid; and
(3)in default thereof, the rescission of the "Deed of Conditional Sale" is the
alternative."
Art. 2209 of the Civil Code; Interests; Damages; The appropriate measure for
damages in case of delay in discharging an obligation consisting of a payment
of a sum of money is the payment of penalty interest.—Under Article 2209, the
appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum of money is the payment of penalty interest
at the rate agreed upon in the contract of the parties. In the absence of a
stipulation of a particular rate of penalty interest, payment of additional interest
at a rate equal to the regular or monetary interest, becomes due and payable.
Finally, if no regular interest had been agreed upon by the contracting parties,
then the damages payable will consist of payment of legal interest which is six
percent (6%) or, in the case of loans or forbearances of money, twelve percent
(12%) per annum.
The “obligation consisting in the payment of a sum of money” referred to in
Article 2209 is not confined to a loan or forbearance of money.—The contention
of private respondent that Article 2209 of the Civil Code is not applicable in this
case because the interest referred to therein is given as compensation for the
use of money, not for the incurring of delay as in the instant case, need not
detain us for long. Article 2209 governs transactions involving the payment of
indemnity in the concept of damages arising from delay in the discharge of
obligations consisting of the payment of a sum of money. The “obligation
consisting in the payment of a sum of money” referred to in Article 2209 is not
confined to a loan or forbearance of money.
Contracts; In case of ambiguity in contract language, that interpretation which
establishes a less onerous transmission of rights or imposition of lesser burdens
which permits greater reciprocity between the parties, is to be adopted.—The
interpretation we adopt is also supported by the principle that in case of
ambiguity in contract language, that interpretation which establishes a less
onerous transmission of rights or imposition of lesser burdens which permits
greater reciprocity between the parties, is to be adopted.
Nacar vs. Gallery Frames
G.R. No. 189871. August 13, 2013
Facts:
Nacar was constructively dismissed by Gallery Frames at the NLRC. A decision
favoring Nacar was made by the NLRC on October 15, 1998. Respondents
appealed the decision but was denied at the NLRC. At the CA, the ruling of the
NLRC was upheld. Upon relief at the SC, the respondents’ petition was denied.
However, on November 5, 2002, petitioner asked for re-computation of his
backwages from his dismissal on 1997 up to the decision of the SC on May 27,
2002. An increase of backwages was later awarded to Nacar. Respondents filed
a motion to quash. After a final computation, and in lieu of the Monetary Board
Resolution No. 796 that took effect on July 1, 2013, the computation of awards
provided to Nacar were as follows: Interest of twelve percent (12%) per annum
of the total monetary awards, computed from May 27, 2002 to June 30, 2013
and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
Issue:
Whether the computation of the LA on October 15, 1998’s decision be applied
on Nacar’s backwages. –NO.
Held:
The SC ruled that since the finality of the decision was on May 27, 2002,
backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R.
No. 151332 became final and executory shall be applied. Likewise, since there
is an 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 40 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. Thus, interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013 and six
percent (6%) per annum from
July 1, 2013 until their full satisfaction shall be applied.
Doctrine: The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the absence
of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982: Section 1. The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest, shall be six percent (6%) per
annum. Section 2. In view of the above, Subsection X305.1 36 of the Manual of
Regulations for Banks and Sections 4305Q.1, 37 4305S.3 38 and 4303P.1 39 of the
Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013. This rule does apply retroactively.
Interest Rates; 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 vs. Court of Appeals, 234 SCRA 78 (1994), 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 BSPMB Circular No. 799 — but will now be six percent (6%) per
annum effective July 1, 2013.—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, Inc. v.
Court of Appeals, 234 SCRA 78 (1994) 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.
Monetary Board; The Bangko Sentral ng PilipinasMonetary Board may prescribe
the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions.—In the recent case of
Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board, 688 SCRA 530 (2013), this Court affirmed the authority of the
BSPMB to set interest rates and to issue and enforce Circulars when it ruled that
“the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.”
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing; In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.—When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the NCC.
.
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum.—When an obligation,
not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, shall be 6% per annum from such finality
until its satisfaction.—When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
DE CORTES V VENTURANZA
79 SCRA 709 (1977)
Facts:
The plaintiffs sold and delivered to the defendants all the thirty-three (33) parcels
of land with all the improvements thereon for the total sum of P716,573.90 where
the defendants agreed to pay jointly and severally the plaintiffs the sum of
P100,000.00 upon the signing and execution of a deed of sale and P40,000.00
on January 1, 1959 thereby leaving a balance of P576,573.90 which the
defendants agreed and bound themselves to pay plaintiffs jointly and severally
within three (3) years from January 1, 1959 with interest thereon at the rate of 6%
per annum.
They agreed and bound themselves to secure the payment of the said balance
of P576,573.90 with a first mortgage. Thereafter, the defendants have already
paid the plaintiffs the total sum of P140,000.00 that of the unpaid balance owing
to plaintiffs, P169,484.24 pertain(ing)s to plaintiff Felix Cortes and P407,089.66
pertains to plaintiff Noel J. Cortes.
Issue:
How much is the interest is payable?
Held:
The judgment is hereby rendered in favor of plaintiffs and against the
defendants, ordering the latter jointly and severally to pay to the former or to
deposit with the clerk of court the sum of P576,573.90 with interest thereon at the
stipulated rate of 6% per annum until fully paid, within 90 days from notice
hereof. In default of such payment the mortgaged property will be sold at
public auction to realize the mortgage indebtedness and costs, in accordance
with law.
Hence, for the period from January 1, 1959 to December 12, 1962, the date of
the filing of the complaint, plaintiffs are entitled to collect from the defendants,
by way of interest at six percent per annum, the sum of P136,482.13. Applying
the Article 2212 of the New Civil Code, which provides: “Interest due shall earn
legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.”, this amount of P136,482.13 should be added to
the principal of P576,573.90, making a total of P713,056.03, which shall earn legal
interest stipulated at six percent per annum from December 13, 1962 until fully
paid. Such interest is not due to stipulation; rather it is due to the mandate of the
law hereinbefore quoted.
Ligutan vs. Court of Appeals
G.R. No. 138677. February 12, 2002
Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in
the amount of P120,000.00 from respondent Security Bank and Trust Company.
Petitioners executed a promissory note binding themselves, jointly and severally,
with an interest of 15.189% per annum upon maturity and to pay a penalty of
5% every month on the outstanding principal and interest in case of default and
also a 10% attorney’s fees if the matter were indorsed to a lawyer for collection.
The obligation matured, the petitioners were not able to settle the obligation;
The bank gave an extension, still the same happened. Since the petitioners still
defaulted, the former filed a complaint for recovery of the due amount.
Issue: Whether the interest and penalty charge imposed by private respondent
bank on petitioners’ loan are manifestly exorbitant, iniquitous and
unconscionable?
Held: The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof on the existence and on the measure of damages caused
by the breach. Although a court may not at liberty ignore the freedom of the
parties to agree on such terms and conditions as they see fit that contravene
neither law nor morals, good customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous
or unconscionable or if the principal obligation has been partly or irregularly
complied with.
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution would depend on such factors as,
but not necessarily confined to, the type, extent and purpose of the penalty,
the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like,
the application of which, by and large, is addressed to the sound discretion of
the court.
The CA exercised good judgment in reducing the stipulated penalty interest
from 5% to 3% a month. It was also been held that the 15.189% per annum
stipulated interest and the 10% attorney’s is reasonable and not excessive. The
interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank's existence.
Penalty Clauses; Words and Phrases; A penalty clause, expressly recognized by
law, is an accessory undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation; Although a court may not at liberty
ignore the freedom of the parties to agree on such terms and conditions as they
see fit that contravene neither law nor morals, good customs, public order or
public policy, a stipulated penalty, nevertheless, may be equitably reduced by
the courts if it is iniquitous or unconscionable or if the principal obligation has
been partly or irregularly complied with.—A penalty clause, expressly
recognized by law, is an accessory undertaking to assume greater liability on
the part of an obligor in case of breach of an obligation. It functions to
strengthen the coercive force of the obligation and to provide, in effect, for
what could be the liquidated damages resulting from such a breach. The
obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by
the breach. Although a court may not at liberty ignore the freedom of the
parties to agree on such terms and conditions as they see fit that contravene
neither law nor morals, good customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous
or unconscionable or if the principal obligation has been partly or irregularly
complied with.
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective.—The question of whether a penalty is
reasonable or iniquitous can be partly subjective and partly objective. Its
resolution would depend on such factors as, but not necessarily confined to, the
type, extent and purpose of the penalty, the nature of the obligation, the mode
of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large,
is addressed to the sound discretion of the court. In Rizal Commercial Banking
Corp. vs. Court of Appeals, just an example, the Court has tempered the penalty
charges after taking into account the debtor’s pitiful situation and its offer to
settle the entire obligation with the creditor bank. The stipulated penalty might
likewise be reduced when a partial or irregular performance is made by the
debtor. The stipulated penalty might even be deleted such as when there has
been substantial performance in good faith by the obligor, when the penalty
clause itself suffers from fatal infirmity, or when exceptional circumstances so
exist as to warrant it.
Interests; The essence or rationale for the payment of interest, quite often
referred to as cost of money, is not exactly the same as that of a surcharge or a
penalty, and a penalty stipulation is not necessarily preclusive of interest, if there
is an agreement to that effect, the two being distinct concepts which may
separately be demanded; What may justify a court in not allowing the creditor
to impose full surcharges and penalties, despite an express stipulation therefor
in a valid agreement, may not equally justify the non-payment or reduction of
interest.—Anent the stipulated interest of 15.189% per annum, petitioners, for the
first time, question its reasonableness and prays that the Court reduce the
amount. This contention is a fresh issue that has not been raised and ventilated
before the courts below. In any event, the interest stipulation, on its face, does
not appear as being that excessive. The essence or rationale for the payment
of interest, quite often referred to as cost of money, is not exactly the same as
that of a surcharge or a penalty. A penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect, the two being
distinct concepts which may separately be demanded. What may justify a court
in not allowing the creditor to impose full surcharges and penalties, despite an
express stipulation therefor in a valid agreement, may not equally justify the non-
payment or reduction of interest. Indeed, the interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the
core of a bank’s existence.
Philippine National Bank vs. Court of Appeals
G.R. No. 107569. November 8, 1994
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting
on the part of the one who contracts, his act has no more efficacy than if it had
been done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any binding effect.
FACTS:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered
enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund
(CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty Thousand
(P50,000.00) Pesos, as evidenced by a Credit Agreement. Under the Promissory
Note covering the loan, the loan was to be amortized over a period of three (3)
years to end on March 29, 1985, at twelve (12%) percent interest annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage and
a Chattel Mortgage. The agreement herewith authorized the PNB to raise the
rate of interest, at any time without notice, beyond the stipulated rate of 12%
but only "within the limits allowed by law." During the term of the agreement,
PNB on several occasion imposed interest rate of 25% per annum to 30% to 42%
on Private Respondents plus a penalty of 6% per annum on past dues."
Private respondents filed a suit for specific performance against petitioner PNB
and the NACIDA. The trial court dismissed private respondents' complaint.
The Court of Appeals reversed the dismissal with respect to petitioner bank, and
disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed
grave error when it ruled (1) that the increase in interest rates are unauthorized.
ISSUE:
Can a creditor raise the legal interest based on a certain clause in the contract
and without consent from the debtor
HELD:
No. We cannot countenance petitioner bank's posturing that the escalation
clause at bench gives it unbridled right to unilaterally upwardly adjust the
interest on private respondents' loan. That would completely take away from
private respondents the right to assent to an important modification in their
agreement, and would negate the element of mutuality in contracts.
In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held —
. . . The unilateral action of the PNB in increasing the interest rate on the private
respondent's loan violated the mutuality of contracts ordained in Article 1308 of
the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. In order that obligations
arising from contracts may have the force or law between the parties, there
must be mutuality between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void . .
. . Hence, even assuming that the loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality essential
in contracts. It would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on equal footing, the
weaker party's (the debtor) participation being reduced to the alternative "to
take it or leave it" . . . . Such a contract is a veritable
trap for the weaker party whom the courts of justice must protect against abuse
and imposition.
Civil Law; Contracts; P.D. No. 1684 and C.B. Circular No. 905 did not authorize
either party to unilaterally raise the interest rate without the other’s consent.—
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods or credits. In fine, they
can agree to adjust, upward or downward, the interest previously stipulated.
However, contrary to the stubborn insistence of petitioner bank, the said law
and circular did not authorize either party to unilaterally raise the interest rate
without the other’s consent.
No one receiving a proposal to change a contract to which he is a party, is
obliged to answer the proposal, and his silence per se cannot be construed as
an acceptance.—Private respondents are not also estopped from assailing the
unilateral increases in interest rate made by petitioner bank. No one receiving
a proposal to change a contract to which he is a party, is obliged to answer the
proposal, and his silenceper se cannot be construed as an acceptance. In the
case at bench, the circumstances do not show that private respondents
implicitly agreed to the proposed increases in interest rate which by any
standard were too sudden and too stiff.
Solid Bank Corporation vs. Permanent Homes, Incorporated
G.R. No. 171925. July 23, 2010
FACTS: The records disclose that PERMANENT HOMES is a real estate
development company, and to finance its housing project known as the
“Buena Vida Townhome” located within Merville Subdivision, Parañaque City, it
applied and was subsequently granted by SOLIDBANK with an “Omnibus Line”
credit facility in the total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY
NINE MILLION as time loan for a term of up to three hundred sixty (360) days, with
interest thereon at prevailing market rates, and subject to monthly repricing. The
remaining ONE MILLION was available for domestic bills purchase.
To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three(3)
townhouse units within the Buena Vida project in Parañaque. At the time,
however, the instant complaint was filed against SOLIDBANK, a total of thirty six
(36) townhouse units were mortgaged with said bank. Of the 60 million available
to PERMANENT HOMES, it availed of a total of 41.5 million pesos covered by
three(3) promissory notes. There was a standing agreement by the parties that
any increase or decrease in interest rates shall be subject to the mutual
agreement of the parties.
For the three loan availments that PERMANENT HOMES obtained, the herein
respondent argued that SOLIDBANK unilaterally and arbitrarily accelerated the
interest rates without any declared basis of such increases, of which PERMANENT
HOMES had not agreed to, or at the very least, been informed of.
On July 5, 2002, the trial court promulgated its Decision in favor of Solidbank.
Permanent then filed an appeal before the appellate court which was granted,
in which reversed and set aside the assailed decision dated July 5, 2002. Hence,
the present petition.

ISSUES:
(1) Whether the Honorable Court of Appeals was correct in ruling that the
increases in the interest rates on Permanent’s loans are void for having been
unilaterally imposed without basis.
(2) Whether the Honorable Court of Appeals was correct in ordering the parties
to enter into an express agreement regarding the applicable interest rates on
Permanent’s loan availments subsequent to the initial thirty-day (30) period.
Held:
(1) Yes. Although interest rates are no longer subject to a ceiling, the lender still
does not have an unbridled license to impose increased interest rates. The
lender and the borrower should agree on the imposed rate, and such imposed
rate should be in writing of which was not provided by petitioner.
(2) Yes. In order that obligations arising from contracts may have the force of
law between the parties, there must be mutuality between the parties based on
their essential quality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties is void. There was no showing that either Solidbank or
Permanent coerced each other to enter into the loan agreements. The terms of
the Omnibus Line Agreement and the promissory notes were mutually and freely
agreed upon by the parties.
Usury Law; Interest Rates; The Usury Law had been rendered legally ineffective
by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the
Central Bank, and later by Central Bank Circular No. 905 which took effect on 1
January 1983; These circulars removed the ceiling on interest rates for secured
and unsecured loans regardless of maturity; the effect of these circulars is to
allow the parties to agree on any interest that may be charged on a loan, the
virtual repeal of the Usury Law is within the range of judicial notice which courts
are bound to take into account.—The Usury Law had been rendered legally
ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank Circular No. 905 which took
effect on 1 January 1983. These circulars removed the ceiling on interest rates
for secured and unsecured loans regardless of maturity. The effect of these
circulars is to allow the parties to agree on any interest that may be charged on
a loan. The virtual repeal of the Usury Law is within the range of judicial notice
which courts are bound to take into account. Although interest rates are no
longer subject to a ceiling, the lender still does not have an unbridled license to
impose increased interest rates. The lender and the borrower should agree on
the imposed rate, and such imposed rate should be in writing.
Silos vs. Philippine National Bank
G.R. No. 181045. July 2, 2014.
Summary:
Sps. Silos obtained a revolving credit line from PNB, secured by a mortgage. The
interest rate was initially agreed upon at 19.5% but a Supplement to the Credit
Agreement provided that the Bank may modify the interest rate in the Loan
depending on whatever policy the Bank may adopt in the future, including
without limitation, the shifting from the floating interest rate system to the fixed
interest rate system, or vice versa. The spouses were able to pay the interests on
the loan up until their last promissory note which covered the principal amount.
Because of this their properties were foreclosed and sold by auction to PNB. The
spouses filed a petition to annul the foreclosure sale and for the accounting of
PNB’s credit. The RTC dismissed their petition. The CA affirmed. The SC annulled
and set aside the CA decision
Doctrine: n loan agreements, it cannot be denied that the rate of interest is a
principal condition, if not the most important component. Thus, any
modification thereof must be mutually agreed upon; otherwise, it has no binding
effect.
Moreover, the Court cannot consider a stipulation granting a party the option
to prepay the loan if said party is not agreeable to the arbitrary interest rates
imposed. Premium may not be placed upon a stipulation in a contract which
grants one party the right to choose whether to continue with or withdraw from
the agreement if it discovers that what the other party has been doing all along
is improper or illegal.
Issue:
Whether the interest rate provision in the credit agreement and the amendment
to the same is null and void for leaving the interest at the sole and unilateral
determination of the bank. YES
What interest rate should be applied to the loan? 19.5% asto the 1st promissory
note and 12% as to all the other notes
Held:
1. The unilateral action of the PNB in increasing the interest rate on the private
respondent’s loan violated the mutuality of contracts ordained in Article
1308 of the Civil Code :Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based
on their essential equality. A contract containing a condition which makes
its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void.
Hence, even assuming that the . . . loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality essential
in contracts. It would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on equal footing, the
weaker party’s (the debtor) participation being reduced to the alternative “to
take it or leave it” . . . . Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and imposition.
Article 1956 also provides that “No interest shall be due unless it has been
expressly stipulated in writing.” What has been “stipulated in writing” from a
perusal of interest rate provision of the credit agreement signed between the
parties is that petitioners were bound merely to pay 21% interest, subject to a
possible escalation or de-escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by law; and 3) upon
agreement. Escalation clauses are not basically wrong or legally objectionable
so long as they are not solely potestative but based on reasonable and valid
grounds
2. With regard to interest, the Court finds that since the escalation clause is
annulled, the principal amount of the loan is subject to the original or
stipulated rate of interest, and upon maturity, the amount due shall be
subject to legal interest at he rate of 12% per annum. This is the uniform
ruling adopted in previous cases. Thus, the parties’ original agreement
stipulated the payment of 19.5% interest; however, this rate was intended
to apply only to the first promissory note which expired on November 21,
1989 and was paid by petitioners; it was not intended to apply to the whole
duration of the loan. Subsequent higher interest rates have been declared
illegal; but because only the rates are found to be improper, the obligation
to pay interest subsists, the same to be fixed at the legal rate of 12% per
annum. However, the 12% interest shall apply only until June 30, 2013.
Starting July 1, 2013, the prevailing rate of interest shall be 6% per annum
pursuant to our ruling in Nacar v. Gallery Frames and Bangko Sentral ng
Pilipinas-Monetary Board Circular No. 799
Delos Santos vs. Metropolitan Bank and Trust Company
G.R. No. 153852. October 24, 2012
Facts:
From December 9, 1996 until March 20, 1998, the petitioners took out several
loans totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds
of which they would use in constructing a hotel on their 305-square-meter parcel
of land located in Davao City and covered by Transfer Certificate of Title No. I-
218079 of the Registry of Deeds of Davao City.
They executed various promissory notes covering the loans, and constituted a
mortgage over their parcel of land to secure the performance of their
obligation. The stipulated interest rates were 15.75% per annum for the long term
loans (maturing on December 9, 2006) and 22.204% per annum for a short term
loan of P4,400,000.00 (maturing on March 12, 1999). The interest rates were fixed
for the first year, subject to escalation or de-escalation in certain events without
advance notice to them.
The loan agreements further stipulated that the entire amount of the loans
would become due and demandable upon default in the payment of any
installment, interest or other charges.
On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the
real estate mortgage after the petitioners defaulted in their installment
payments. The petitioners were notified of the foreclosure and of the forced sale
being scheduled on March 7, 2000. The notice of the sale stated that the total
amount of the obligation was P16,414,801.36 as of October 26, 1999. On April 4,
2000, prior to the scheduled foreclosure sale (i.e., the original date of March 7,
2000 having been meanwhile reset to April 6, 2000), the petitioners filed in the
RTC a complaint (later amended) for damages, fixing of interest rate, and
application of excess payments (with prayer for a writ of preliminary injunction).
They alleged therein that Metrobank had no right to foreclose the mortgage
because they were not in default of their obligations; that Metrobank had
imposed interest rates (i.e., 15.75% per annum for two long-term loans and
22.204% per annum for the short term loan) on three of their loans that were
different from the rate of 14.75% per annum agreed upon;
that Metrobank had increased the interest rates on some of their loans without
any basis by invoking the escalation clause written in the loan agreement; that
they had paid P2,561,557.87 instead of only P1,802,867.00 based on the
stipulated interest rates, resulting in their excess payment of P758,690.87 as
interest, which should then be applied to their accrued obligation; that they had
requested the reduction of the escalated interest rates on several occasions
because of its damaging effect on their hotel business, but Metrobank had
denied their request; and that they were not yet in default because the long-
term loans would become due and demandable on December 9, 2006 yet and
they had been paying interest on the short-term loan in advance.
Issue: Is the escalation clause valid?
Held: Yes. escalation clauses like those affecting the petitioners were not void
per se, and that an increase in the interest rate pursuant to such clauses were
not necessarily void. In Philippine National Bank v. Rocamora, Court has said:
Escalation clauses are valid and do not contravene public policy. These clauses
are common in credit agreements as means of maintaining fiscal stability and
retaining the value of money on long-term contracts. To avoid any resulting one-
sided situation that escalation clauses may bring, we required in Banco Filipino
the inclusion in the parties’ agreement of a de-escalation clause that would
authorize a reduction in the interest rates corresponding to downward changes
made by law or by the Monetary Board.
The validity of escalation clauses notwithstanding, we cautioned that these
clauses do not give creditors the unbridled right to adjust interest rates
unilaterally. As we said in the same Banco Filipino case, any increase in the rate
of interest made pursuant to an escalation clause must be the result of an
agreement between the parties. The minds of all the parties must meet on the
proposed modification as this modification affects an important aspect of the
agreement. There can be no contract in the true sense in the absence of the
element of an agreement, i.e., the parties’ mutual consent. Thus, any change
must be mutually agreed upon, otherwise, the change carries no binding effect.
A stipulation on the validity or compliance with the contract that is left solely to
the will of one of the parties is void; the stipulation goes against the principle of
mutuality of contract under Article 1308 of the Civil Code.
Medel v CA and Cruz
299 SCRA 481; GR No. 131622, November 27, 1998
Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00,
payable in 2 months and executed a promissory note. Plaintiff gave only the
amount of P47, 000.00 to the borrowers and retained P3, 000.00 as advance
interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the amount of P90,
000.00, payable in 2 months, at 6% interest per month. They executed a
promissory note to evidence the loan and received only P84, 000.00 out of the
proceeds of the loan.
For the third time, Defendants secured from Plaintiff another loan in the amount
of P300, 000.00, maturing in 1 month, and secured by a real estate mortgage.
They executed a promissory note in favor of the Plaintiff. However, only the sum
of P275, 000.00, was given to them out of the proceeds of the loan.
Upon maturity of the three promissory notes, Defendants failed to pay the
indebtedness.
Defendants consolidated all their previous unpaid loans totalling P440, 000.00,
and sought from Plaintiff another loan in the amount of P60, 000.00, bringing their
indebtedness to a total of P50,000.00. They executed another promissory note in
favor of Plaintiff to pay the sum of P500, 000.00 with a 5.5% interest per month
plus 2% service charge per annum, with an additional amount of 1% per month
as penalty charges.
On maturity of the loan, the Defendants failed to pay the indebtedness which
prompt the Plaintiffs to file with the RTC a complaint for collection of the full
amount of the loan including interests and other charges.
Declaring that the due execution and genuineness of the four promissory notes
has been duly proved, the RTC ruled that although the Usury Law had been
repealed, the interest charged on the loans was unconscionable and “revolting
to the conscience” and ordered the payment of the amount of the first 3 loans
with a 12% interest per annum and 1% per month as penalty.
On appeal, Plaintiff-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants on the ground that
the Usury Law has become legally inexistent with the promulgation by the
Central Bank in 1982 of Circular No. 905, the lender and the borrower could
agree on any interest that may be charged on the loan, and ordered the
Defendants to pay the Plaintiffs the sum of P500,000, plus 5.5% per month interest
and 2& service charge per annum , and 1% per month as penalty charges.
Defendants filed the present case via petition for review on certiorari.
Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of
P500, 000.00 is usurious.
Held: No.
A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is
excessive, iniquitous, unconscionable and exorbitant, but it cannot be
considered “usurious” because Central Bank Circular No. 905 has expressly
removed the interest ceilings prescribed by the Usury Law and that the Usury
Law is now “legally inexistent.”
Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another
law.
Jurisprudence provides that CB Circular did not repeal nor in a way amend the
Usury Law but simply suspended the latter’s effectivity (Security Bank and Trust
Co vs RTC). Usury has been legally non-existent in our jurisdiction. Interest can
now be charged as lender and borrower may agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular
905, nothing in the said circular could possibly be read as granting carte
blanche authority to lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a hemorrhaging of their assets (Almeda vs.
CA, 256 SCRA 292 [1996]).
Usury Law; Interest Rates; A stipulated rate of interest at 5.5% per month on a
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant; The
Usury Law is now “legally inexistent.”—We agree with petitioners that the
stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive,
iniquitous, unconscionable and exorbitant. However, we can not consider the
rate “usurious” because this Court has consistently held that Circular No. 905 of
the Central Bank, adopted on December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law and that the Usury Law is now
“legally inexistent.”
C.B. Circular No. 905 “did not repeal nor in any way amend the Usury Law but
simply suspended the latter’s effectivity.”—In Security Bank and Trust Company
vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No.
905 “did not repeal nor in any way amend the Usury Law but simply suspended
the latter’s effectivity.” Indeed, we have held that “a Central Bank Circular can
not repeal a law. Only a law can repeal another law.” In the recent case of
Florendo vs. Court of Appeals, the Court reiterated the ruling that “by virtue of
CB Circular No. 905, the Usury Law has been rendered ineffective.” “Usury has
been legally non-existent in our jurisdiction. Interest can now be charged as
lender and borrower may agree upon.”
The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable.—We find the
interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable, and, hence, contrary to
morals (“contra bonos mores”), if not against the law. The stipulation is void. The
courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable.
RELUCIO vs. BRILLANTE-GARFIN
G.R. NO. 76518, JULY 13, 1990
FACTS: Private respondent Zeida B. Brillante-Garfin filed a complaint for specific
performance with damages against petitioner Irene P. Relucio, to compel the
latter to execute, in compliance with the Contract to Buy and Sell, a final deed
of sale in favor of the former over two (2) residential subdivision lots in the
Mariano Village Subdivision, Naga City. Private respondent alleged that the lots,
which have a total contract price of P10,800.00, have already been paid for, as
she had already paid P200.00 as down payment, and had subsequently
completed payment of 128 equal monthly installments of P89.45 each
amounting to P11,450.00; that as the law allows the charging of interest only as
monetary interest or as compensatory interest, none of which have obtained in
her case, as she had never incurred in delay in the payment of installments due,
the stipulated interest of six percent (6%) per annum on the outstanding balance
is null and void; and that the amount of 650.00 representing overpayment be
returned to her. Petitioner alleged that private respondent is obliged to pay
interest on the installment payments of the unpaid outstanding balance even if
paid on their "due dates" per schedule of payments; that private respondent
had actually been in arrears in the amount of P4,269.40, representing such
interest as of June 1979, which therefore entitled petitioner to cancel the
contract in question.
ISSUE: Whether or not petitioner has the right to rescind the contract for private
respondent's continued refusal to pay the monthly installments on the contract
price
HELD: No. Vendor and vendee are legally free to stipulate for the payment of
either the cash price of a subdivision lot or its installment price. Should the
vendee opt to purchase a subdivision lot via the installment payment system,
he is in effect paying interest on the cash price, whether the fact and rate of
such interest payment is disclosed in the contract or not. The contract for the
purchase and sale of a piece of land on the installment payment system in the
case at bar is not only quite lawful; it also reflects a very wide spread usage or
custom in our present day commercial life. Despite private respondent's failure
to fully pay the stipulated price of the two lots in question, petitioner, however,
could not validly rescind the contract not being lawfully entitled to do so.
Petitioner failed to rebut private respondents' allegations that the former had
failed to introduce required improvements in the subdivision.
Civil Law; Sale; Vendor and vendee are legally free to stipulate for the payment
of either the cash price of a subdivision lot or its installment price. —Vendor and
vendee are legally free to stipulate for the payment of either the cash price of
a subdivision lot or its installment price. Should the vendee opt to purchase a
subdivision lot via the installment payment system, he is in effect paying interest
on the cash price, whether the fact and rate of such interest payment is
disclosed in the contract or not. The contract for the purchase and sale of a
piece of land on the installment payment system in the case at bar is not only
quite lawful; it also reflects a very wide spread usage or custom in our present
day commercial life.
Presidential Decree No. 957; The law vests upon the buyer the option to demand
reimbursement of the total amount paid or to wait for further development of the
subdivision.—In this respect, the trial court was correct in holding that petitioner
could not rescind the contract. As the law vests upon the buyer the option to
demand reimbursement of the total amount paid, or to wait for further
development of the subdivision, private respondent who opted for the latter
alternative by waiting for the proper development of the site, may not be
ousted from the subdivision.

Philippine National Bank vs. Court of Appeals
G.R. No. 88880. April 30, 1991
DOCTRINE:
Removal of Usury Law Ceiling on interest rates does not authorize banks to
unilaterally and successively increase interest rates.
FACTS:
Ambrosio Padilla, private respondents, was granted by petitioner Philippine
National Bank, a credit line, secured by a real estate mortgage, for a term of 2
years, with 18% interest per annum.
Private respondent executed in favor of the PNB a Credit Agreement, 2
promissory notes in the amount of P900,000.00 each, and a Real Estate
Mortgage Contract. Stipulations in the Promissory Note authorizes PNB to
increase the stipulated 18% interest per annum "within the limits allowed by law
at any time depending on whatever policy it [PNB] may adopt in the future;
Provided, that, the interest rate on this note shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by
the Monetary Board." Padilla requested to the increase in the rate of interest
from 18% be fixed at 21% or 24% but was denied by PNB.
ISSUE:
Whether PNB, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated
therein at will and as often as it pleased.
HELD: No.
Central Bank Circular No. 905, Series of 1982 removed the Usury law ceiling on
interest rates, however, it did not authorize the PNB, or any bank for that matter,
to unilaterally and successively increase the agreed interest rates from 18% to
48% within a span of four (4) months, in violation of P.D. 116 which limits such
changes to "once every twelve months."
Increase of interest rate; The increases imposed by PNB contravene Art. 1956 of
the Civil Code.—PNB’s successive increases of the interest rate on the private
respondent’s loan, over the latter’s protest, were arbitrary as they violated an
express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms
“may be amended only by an instrument in writing signed by the party to be
bound as burdened by such
amendment.” The increases imposed by PNB also contravene Art. 1956 of the
Civil Code which provides that “no interest shall be due unless it has been
expressly stipulated in writing.”
Estoppel to question excessive rates
Asian Cathay Finance and Leasing Corporation vs. Gravador
FACTS:
On October 22, 1999, petitioner Asain Cathay Finance and Leasing Corporation
(ACFLC) extended a loan of Eight Hundred Thousand Pesos (₱800,000.00) to
respondent Cesario Gravador, with respondents Norma de Vera and Emma
Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly
installments of ₱24,000.00 each. To secure the loan, respondent Cesario
executed real estate mortgage over his property in Sta. Maria, Bulacan,
covered by Transfer Certificate of Title No. T-29234.
Respondents paid the initial installment due in November 1999. However, they
were unable to pay the subsequent ones. Consequently, on February 1, 2000,
respondents received a letter demanding payment of ₱1,871,480.00 within five
(5) days from receipt thereof. Respondents requested for an additional period
to settle their account, but ACFLC denied the request. Petitioner filed a petition
for extrajudicial foreclosure of mortgage with the Office of the Deputy Sherrif of
Malolos, Bulacan.
ISSUE: Whether the Honorable Court of Appeals erred in invalidating the
interest rates imposed on the respondents’ loan, and the waiver of the right of
redemption.
RULING: No. The imposition of an unconscionable rate of interest on a money
debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoilation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support on law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which
may justify such imposition as righteous and as one that may be sustained within
the sphere of public or private morals.
Settled is the rule that for a waiver to be valid and effective, it must, in the first
place, be couched in clear and unequivocal terms which will leave no doubt
as to the intention of a party to give up a right or benefit which legally pertains
to him. Additonally, the intention to waive a right or an advantage must be
shown clearlly and convincingly. Unfortunately, ACFLC failed to convince us
that respondents waived their right of redemption voluntarily.
Loans; Interests; Interest rates, whenever unconscionable, may be equitably
reduced or even invalidated.—It is true that parties to a loan agreement have
a wide latitude to stipulate on any interest rate in view of Central Bank Circular
No. 905, series of 1982, which suspended the Usury Law ceiling on interest rate
effective January 1, 1983. However, interest rates, whenever unconscionable,
may be equitably reduced or even invalidated. In several cases, this Court had
declared as null and void stipulations on interest and charges that were found
excessive, iniquitous and unconscionable. Records show that the amount of
loan obtained by respondents on October 22, 1999 was P800,000.00.
Respondents paid the installment for November 1999, but failed to pay the
subsequent ones. On February 1, 2000, ACFLC demanded payment of
P1,871,480.00. In a span of three months, respondents’ obligation ballooned by
more than P1,000,000.00. ACFLC failed to show any computation on how much
interest was imposed and on the penalties charged. Thus, we fully agree with
the CA that the amount claimed by ACFLC is unconscionable.
Usury Law; Stipulations authorizing the imposition of iniquitous or unconscionable
interest are contrary to morals, if not against the law; The nullity of the stipulation
on the usurious interest does not however, affect the lender’s right to recover the
principal of the loan, nor would it affect the terms of the real estate mortgage.—
Stipulations authorizing the imposition of iniquitous or unconscionable interest
are contrary to morals, if not against the law. Under Article 1409 of the Civil
Code, these contracts are inexistent and void from the beginning. They cannot
be ratified nor the right to set up their illegality as a defense be waived. The
nullity of the stipulation on the usurious interest does not, however, affect the
lender’s right to recover the principal of the loan. Nor would it affect the terms
of the real estate mortgage. The right to foreclose the mortgage remains with
the creditors, and said right can be exercised upon the failure of the debtors to
pay the debt due. The debt due is to be considered without the stipulation of
the excessive interest. A legal interest of 12% per annum will be added in place
of the excessive interest formerly imposed. The nullification by the CA of the
interest rate and the penalty charge and the consequent imposition of an
interest rate of 12% and penalty charge of 1% per month cannot, therefore, be
considered a reversible error.
Chapter III: Usury Law
Rono v Gomez
On October 5, 1944, Cristobal Roño received as a loan from Jose L. Gomez
P4,000.00 in Japanese fiat money (mickey mouse money). The contract of loan
is under the condition that said loan will not earn interest and that it will be paid
in the currency then prevailing one year after the execution of the contract.
After a year, a collection suit was filed by respondent Gomez against petitioner
Rono to collect the latter’s debt. Subsequently, the trial court ruled in favor of
Gomez. The court ordered Rono to pay the respondent an amount of P4,000.00
in Philippine currency which was then the prevailing currency at the time of
payment. Contending such decision, Rono insists that the contract taken in
favor of respondent is contrary to law, public order and good morals since his
loan then of P4,000.00 “mickey mouse” money is equivalent only to P100.00 of
the Philippine currency which is the prevailing currency at the time of payment.
CONTENTION OF THE PETITIONER: Roño asserts that the decision of the trial court
ruling in favor of respondent is contrary to the Usury law, because on the basis
of calculations by Government experts he only received the equivalent of P100
Philippine pesos and now he is required to give four thousand pesos or interest
greatly in excess of the lawful rates.
CONTENTION OF THE RESPONDENT: That both parties agreed that the loaned
amount of P4,000.00 mickey mouse money be paid in “the currency prevailing
by the end of one year.” The civil code supports such agreement when it says
"obligations arising from contracts shall have the force of law between the
contracting parties and must be performed in accordance with their
stipulations" (Article 1091).
Issue: Whether the contract is legal and obligatory.
RESOLUTION OF SC:
Yes. The SC ruled that that the contract between the parties is an aleatoty
contract. The eventual gain of Gomez is not “interest” within the meaning of the
Usury law. In the first place, Rono is not paying an interest. Such is evidenced by
the fact that in his promissory note, he indicated that the money loaned “will
not earn any interest.”
Furthermore, both parties clearly agreed at the time of the execution of the
contract that the loaned money (P4,000.00 “mickey mouse) will be paid in “the
currency prevailing by the end of the stipulated period of one year.”
The devaluation of the Mickey mouse money is due to an event unforseable by
any man; that the increased intrinsic value and purchasing power of the current
money is consequence of an event (change of currency) which at the time of
the contract neither party knew would certainly happen within the period of
one year. However, both parties subjected their rights and obligations to that
contingency. Thus, the contract in question is legal and obligatory and is not
subject to the operation of the Usury law.
In the first place, the Court of Appeals found that he voluntarily agreed to sign
and signed the document without having been misled as to its contents and "in
so far as knowledge of war events was concerned" both parties were on "equal
footing." In the second place although on October 5, 1944 it was possible to
surmise the impending American invasion, the date of victory or liberation was
anybody's guess. In the third place there was the possibility that upon re-
occupation the Philippine Government would not invalidate the Japanese
currency, which after all had been forced upon the people in exchange for
valuable goods and property. The odds were about even when Roño and
Gomez played their bargaining game. There was no overreaching, nor unfair
advantage.
Again Roño alleges it is immoral and against public order for man to obtain four
thousand pesos in return for an investment of forty pesos (his estimate of the
value of the Japanese money he borrowed). According to his line of reasoning
it would be immoral for the home owner to recover ten thousand pesos
(P10,000), when his house is burned, because he invested only about one
hundred pesos for the insurance policy. And when the holder of a sweepstakes
ticket who paid only four pesos luckily obtains the first prize of one hundred
thousand pesos or over, the whole business is immoral or against public order. In
this connection we should explain that this decision does not cover situations
where borrowers of Japanese fiat currency promised to repay "the same
amount" or promised to return the same number of pesos "in Philippines cur
rency" or "in the currency prevailing after the war." There may be room for
argument when those litigations come up for adjudication. All we say here and
now is that the contract in question is legal and obligatory.
A minor point concerns the personality of the plaintiff, the wife of Jose L. Gomez.
We opine with the Court of Appeals that the matter may involve a defect in
procedure which does not amount to prejudicial error.
ObliCon; Validity of Agreement of Loan in Japanese Fiat Money made during
enemy occupation; payment to be paid one year after the date with currency
then prevailing - on October 5, 1944, received as a loan four thousand pesos in
Japanese fiat money from G and agreed to pay said debt one year after date
in the currency then pre vailing by signing a promissory note of the following
tenor: "For value received, I promise to pay one year after date the sum of four
thousand pesos (P4,000), to Jose L. Gomez. It is agreed that this will not earn any
interest and the pay ment will be made in currency that will be prevailing by the
end of the stipulated period of one year." On October 15, 1945, i. e. after the
liberation R was sued for the payment of the aforesaid debt. Held: R must pay
4,000 pesos in Philippine currency. He may not discharge his debt by paying only
the equivalent of the Japanese currency he had received in 1944. The contract
is the law between the parties.
Sunga-Chan vs. Court of Appeals
Facts:
Lamberto Chua & Jacinto Sunga formed a partnership to engage in the
marketing of liquefied petroleum gas under the name Shellite Gas Appliance
Center (Shellite). When Jacinto died, his widow petitioner Cecilia Sunga and
daughter Lilibeth Sunga-Chan continued with the business without Chua’s
consent. Since Chua’s demands for accounting and winding up were
unheeded, he filed a complaint for Winding Up of a Partnership Affairs,
Accounting, Appraisal & Recovery of Shares & Damages with Writ of Preliminary
Attachment with the RTC of Zamboanga.
The RTC ruled in his favor and the same was upheld by the CA. Chua then asked
the trial court to commission a CPA to undertake accounting work but later
moved to withdraw and asked for the admission of an accounting report by
CPA Cheryl A. Gahuman. The petitioners submitted their own CPA accounting
report which limited Chua’s entitlement from the winding up of partnership to
P3,154,736.65 only but the RTC rejected it and approved the new computation
claims of Chua.
Issue:
Whether or not RTC can impose interest on a final judgment of unliquidated
claims.
Held: Petitioners are partly correct.
As may be recalled, the trial court admitted and approved Chua’s
computation of claims amounting to PhP 8,733,644.75, but rejected that of
petitioners, who came up with the figure of only PhP 3,154,736.65. We highlight
the substantial differences in the accounting reports on the following items, to
wit: (1) the aggregate amount of the partnership assets bearing on the 50%
share of Chua thereon; (2) interests added on Chua’s share of the assets; (3)
amount of profits from 1988 through May 30, 1992, net of alleged payments
made to Chua; and (4) interests added on the amount entered as profits.
Forbearance is described as a contractual obligation of a lender or creditor to
refrain, during a given period of time, from requiring the borrower or debtor to
repay the loan or debt then due and payable.
1. When an obligation is breached, the contravenor can be held liable for
damages.
2. Regarding award of interest in the concept if actual & compensatory
damages, the rate of interest, as well as accrual thereof is imposed as
follows:
a. Obligation(payment of a sum of money) – interest due should be
stipulated in writing. Interest due shall itself earn legal interest from the
 time it is judicially demanded. Absence of stipulation, rate shall be 12%
p.a. to be computed from default.
b. Obligation(not loans or forbearance of money) – is breached, interest
on the amount of damages awarded may be imposed at discretion
of court at the rate 6% p.a. No interest on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty
c. Judgment(award sum of money) becomes final & executor, rate of
legal interest shall be 12% p.a.
Guided by the foregoing rules, the award to Chua of the amount representing
earned but unremitted profits must earn interest at 6% p.a. the total monthly
profits inclusive of the add on 6% shall earn 12% p.a.
We agree with petitioners that Chua’s share & interest on partnership assets
partake of an unliquidated claim and shall not earn interest until reasonably
determined. Considering Chua’s computation of claim was submitted only Oct.
15, 2002, no interest in his favor can be added to his share of the partnership
assets.
The obligation of petitioners is Solidary because of the impossibility of quantifying
how much of the partnership assets or profits was misappropriated by each
petitioner.
The levying and selling at public auction of the property of petitioner Sunga –
Chan to answer for the obligation of petitioners is also proper since an absolute
community property may be held liable for the obligations contracted by either
spouse.
Obligations and Contracts; Interests; Words and Phrases; The legal interest at
12% per annum under Central Bank (CB) Circular No. 416 shall be adjudged only
in cases involving the loan or forbearance of money, and for transactions
involving payment of indemnities in the concept of damages arising from
default in the performance of obligations in general and/or for money judgment
not involving a loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest; The term
“forbearance,” within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the loan or debt then due
and payable.—In Reformina v. Tomol, Jr., 139 SCRA 260 (1985), the Court held
that the legal interest at 12% per annum under Central Bank (CB) Circular No.
416 shall be adjudged only in cases involving the loan or forbearance of money.
And for transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in general
and/or for money judgment not involving a loan or forbearance of money,
goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing
a yearly 6% interest. Art. 2209 pertinently provides: Art. 2209. If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum. The term “forbearance,” within
the context of usury law, has been described as a contractual obligation of a
lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.
Rivero vs. Rabe
Facts:
The defendant administrator, Domingo Ragaza, is hereby granted ninety days
from this date to pay or deposit in the office of the clerk of this Court of First
Instance all the amounts mentioned above, and upon failure so to do, this court
shall order the sale of the property described in the complaint, in accordance
with the law. So ordered." In support of his appeal, the appellant assigns the
following alleged errors as committed by the trial court, to wit:
 The lower court erred in ordering defendant to pay ten per cent interest,
instead of six per cent per annum to the plaintiff, in accordance with the
law and the agreement.
 The trial court erred in ordering the defendant to pay the plaintiff one
hundred and fifty pesos as attorney's fee, and to defray the costs,
 The trial court erred in denying the motion for a new trial."
The following relevant facts are required to decide all the questions of fact and
of law raised in this appeal:
On the 9th of April, 1919, Inocente Rabe obtained a thousand peso loan from
the late Salvador Rivero, payable within the year, with interest at the rate fixed
by Act No. 2655, giving by way of security four parcels of land belonging to
himself, two of them in the barrio of Cabuloan, municipality of Santa Catalina,
one in the barrio of Nalasin, and the other in Bantaoay, municipality of San
Vicente, IIocos Sur, all of them being registered pursuant to the Mortgage Law
in the register of deeds of said province. Inocente Rabe, the defendant, offered
to pay 10 per cent interest, and his heirs after his death still held out the offer, to
Salvador Rivero, the plaintiff, and after his death, to his widow, but it was rejected
and a demand was made for 12 per centum.
Issue:
Which among the several rates of interest fixed in the Act did the parties agreed
on.
Held:
The contract between the parties was a loan secured by a mortgage of real
estate, the ownership whereof had been duly registered; therefore, when in the
deed, the defendantappellant stated that the loan should earn the interest
fixed by Act No. 2655, he could not have had in mind anything else than section
2, of said Act No. 2655, quoted above, for that alone fixed the maximum interest
chargeable on loans secured by a mortgage, namely, 12 per cent per annum.
The question, then, to be determined is, what is the rate agreed upon by the
parties, which is not to exceed 12 per cent per annum?
Section 1 of the law under discussion, quoted above, fixes 6 per centum as the
rate of interest to be charged when the rate is not expressly stipulated. Six per
cent per annum certainly is favorable to the defendant-appellant, who
maintains that is the rate he must pay;
but article 1288 of the Civil Code which also enunciates a rule for the
interpretation of contracts, in case of ambiguity or obscurity in the terms used,
provides: "ART. 1288. Obscure terms of a contract shall not be so construed as
to favor the party who occasioned the obscurity." This rule has been applied by
this court in H. E. Heacock Co. vs. Macondray & Co. (42 Phil., 205), and in Rubio
vs. Villanueva (45 Phil., 842). Ambiguity or obscurity in a contract must be
construed against the party causing it, and inasmuch as it is the
defendantappellant who executed the contract in question, and who is
therefore responsible for the ambiguity respecting the rate of interest, said
ambiguity must be construed against him.
Article 1282 of the Civil Code provides as follows:
"ART. 1282. In order to judge as to the intention of the contracting parties,
attention must be paid principally to their conduct at the time of making the
contract and subsequently thereto."
The defendant Inocente Rabe, and his heirs after his death, offered to pay the
plaintiff Salvador Rivero, and his widow after his death, 10 per cent interest. This
subsequent act also indicates that the rate of interest agreed upon by and
between the parties is that fixed in section 2, Act No. 2655.
MORTGAGE CONTRACT; INTEREST.—Since the contract between the parties was
a loan secured by a mortgage on real property and the defendant having
stated in the contract that the loan would bear interest at the rate fixed by Act
No. 2655, said defendant could only have in mind the provision of section 2 of
said Act, fixing the maximum interest which may be collected upon loans
secured by a mortgage at 12 per cent per annum; and in accordance with
article 1288 of the Civil Code, and the repeated rulings of this court, the
interpretation of obscure clauses in a contract should not favor the party who
occasioned the obscurity, who in the present case was the said defendant.
Phil. American Accident Insurance Company, Inc. vs. Flores
FACTS: Respondent Judge Flores rendered a judgment in favor of the
Respondent Navalta asking Petitioner Phil-Am Accident Incurance Company
Inc. to pay the former the amount of P75,000.00 with legal interest from Oct.
1968, as attorney’s fees and the cost of the suit. Petitioner paid respondent the
principal amount with legal interest at 6% per annum from Oct 1968 to Apr. 30
1978 (in accordance with Art. 2209 of the CC which provides: “If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum." – This appears to be the basis for
the awarding interest at the legal rate from Oct. 1968, although the debt was
judicially demanded only on July 6 1970) and attorney’s fees and the cost of the
suit. Later on, Respondent advised the petitioner that payment was not in fun
satisfaction of the judgment because he has to pay compound interest or
additional sum of P10, 375.77. The respondent secured a writ if execution upon
the refusal of the petitioner to pay the additional sum claimed; which was
affirmed by the Judge. Hence this review.
ISSUE: Whether or not the petitioner is obligated to pay compound interest under
the judgment.
HELD: The questioned Order cannot be sustained. The judgment which was
sought to be executed ordered the payment of simple "legal interest" only. It
said nothing about the payment of compound interest. Accordingly, when the
respondent judge ordered the payment of compound interest he went beyond
the confines of his own judgment which had been affirmed by the Court of
Appeals and which had become final.
Private Respondent invokes Sec. 5 of the Usury Law which reads in part as
follows: “In computing the interest on any obligation, promissory note or other
instrument or contract, compound interest shall not be reckoned, except by
agreement, or in default thereof, whenever the debt is judicially claimed in
which case it shall draw sic per centum per annum interest xxx as well as Art.
2212 of the Civil Code which stipulates: “Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent
upon this point.” Both legal provisions are inapplicable for they contemplate the
presence of stipulated or conventional interest which had accrued when
demand was judicially made.
In this case, no interest had been stipulated by the parties. In other words, there
was no accrued conventional interest which could further earn interest upon
judicial demand. Wherefore, decision was set aside.
Doctrine: Both Art. 2212 of the Civil code and Section 5 of the Usury Law refer to
stipulated or conventional interest and does not apply where no interest was
stipulated by the parties. Private respondent invokes Sec. 5 of the Usury Law
which reads in part as follows: “In computing the interest on any obligation,
promissory note or other instrument or contract, compound interest shall not be
reckoned, except by agreement, or, in default thereof, whenever the debt is
judicially claimed in which last case it shall draw six per centum per annum
interest x x x” as well as Art. 2212 of the Civil Code which stipulates: “Interest due
shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.” Both legal provisions are in applicable
for they contemplate the presence of stipulated or conventional interest which
had accrued when demand was judicially made. (Sunico vs. Ramirez, 14 Phil.
500 [1909]; Salvador vs. Palencia, 25 Phil. 661 [19131; Bachrach vs. Golingco, 39
Phil. 912 [1919]; Robinson vs. Sackermann, 46 Phil. 539 [1924]; Philippine
Engineering Co. vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs. Mabalacat
Sugar Co., 54 Phil. 916 [1930]. In this case no interest had been stipulated by the
parties. In other words, there was no accrued conventional interest which could
further earn interest upon judicial demand.
Banco Filipino Savings & Mortgage Bank vs. Navarro
Navarro’s loan secured with a mortgage from Banco Filipino had an escalation
clause BASED ON CIRCULAR 494 OF THE CENTRAL BANK providing as follows:
I/We hereby authorize Banco Filipino to correspondingly increase the interest
rate stipulated in this contract without advance notice to me/us in the event
law should be enacted increasing the lawful rates of interest that may be
charged on this particular kind of loan.
On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the
BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from
12% to 17% per annum effective on March 1, 1976.
Contending that CIRCULAR No. 494 is not the law contemplated in the
Escalation Clause of the promissory note, the BORROWER filed suit against
BANCO FILIPINO for "Declaratory Relief" and pray that the escalation clause be
null and void.
BANCO FILIPINO maintained that the Escalation Clause signed by the
BORROWER authorized it to increase the interest rate once a law was passed
increasing the rate of interest and that its authority to increase was provided for
by CIRCULAR No. 494.
In its judgment, respondent Court nullified the Escalation Clause and ordered
BANCO FILIPINO to desist from enforcing the increased rate of interest on the
BORROWER's loan. It reasoned out that P.D. No. 116 does not expressly grant the
Central Bank authority to maximize interest rates with retroactive effect and that
BANCO FILIPINO cannot legally impose a higher rate of interest before the
expiration of the 15-year period in which the loan is to be paid other than the
12% per annum in force at the time of the execution of the loan.
THUS, THIS CASE.
ISSUE
What should be resolved is whether BANCO FILIPINO can increase the interest
rate on the LOAN from 12% to 17% per annum under the Escalation Clause..
RULING; the court may not increase the interest rate on the loan. Although the
stipulation of the parties is very clear that the interest rate may be increased “in
the event a law should be enacted increasing the lawful rate that maybe
charged on this loan” Circular 494 is not strictly a statute or law but an
administrative order that has the effect of law.
The difference between a law an administrative regulation is recognized in the
monetary Board guidelines where under provides that for a loan’s interest to be
subject to the increase provided under Circular 494, there must be an
ESCALATION clause allowing the increase “ in the event that any law or Central
bank regulation is promulgated increasing the max interest for loans. “The
guidelines thus presupposes that a central bank regulation is not within the term
“any law”.
For the escalation clause to be valid; it must specifically provide as follows;
1. There can be an increase in interest IF INCREASED by law or by the
MONETARY BOARD
2. For the stipulation to be valid, it must include a provision for reduction of the
stipulated interest “in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board.
While PD no 1684 is not to be given retroactive effect, te absence of De-
escalation clause in the Escalation Clause in question provides another reason
why it should not be given effect because of its one –sidedness in favor of the
lender.
The escalation clause specifically stipulated that the increase in interest was to
be “ on this particular kind of loan”’ meaning one secured by registered real
estate mortgage
COURT RULES THAT WHILE AN ESCALATION CLAUSE LIKE THE ONE IN THIS CASE
CAN ORDINARILY BE HELD VALID, NEVERTHELESS PETITIONER BANCO FILIPINO
CANNOT RELY THEREON TO RAISE THE INTEREST ON THE BORROWERS LOAN FROM
12% TO 17% PER ANNUM BECAUSE CIRCULAR NO. 494 OF THE MONETARY BOARD
WAS NOT THE “LAW” CONTEMPLATED BY THE PARTIES, NOR SHOULD SAID
CIRCULAR BE HELD AS APPLICABLE TO LOANS SEECURED BY REGISTERED REAL
ESTATE IN THE ABSENCE OF ANY SUCH SPECIFIC INDICATION AND IN
CONTRAVENTION OF THE POLICY BEHIND THE USURY LAW
Contracts; Banking Laws; A contract which embodies an Escalation Clause
authorizing automatic increase in interest rates in the event a law increasing the
lawful rates of interest that may be charged, does not include a Central Bank
Circular, which, altho', having the face and effect of law, is not strictly a statute
or a law.—The Escalation Clause reads as follows: "I/We hereby authorize Banco
Filipino to correspondingly increase the interest rate stipulated in this contract
without advance notice to me/us in the event a law increasing the lawful rates
of interest that may be charged on this particular kind of loan." (Paragraphing
and italics supplied) It is clear from the stipulation between the parties that the
interest rate may be increased "in the event a law should be enacted increasing
the lawful rate of interest that may be charged on this particular kind of loan."
The Escalation Clause was dependent on an increase of rate made by "law"
alone. CIRCULAR No. 494, although it has the effect of law, is not a law.
"Although a circular duly issued is not strictly a statute or a law, it has, however,
the force and effect of law." (Italics supplied). "An administrative regulation
adopted pursuant to law has the force and effect of law." "That administrative
rules and regulations have the force of law can no longer be questioned." The
distinction between a law and an administrative regulation is recognized in the
Monetary Board guidelines quoted in the letter to the BORROWER of Ms. Paderes
of September 24, 1976 (supra). According to the guidelines, for a loan's interest
to be subject to the increases provided in CIRCULAR No. 494, there must be an
Escalation Clause allowing the increase "in the event that any law or Central
Bank regulation is promulgated increasing the maximum interest rate for loans."
The guidelines thus presuppose that a Central Bank regulation is not within the
term "any law." The distinction is again recognized by P.D. No. 1684,
promulgated on March 17, 1980, adding section 7-a to the Usury Law, providing
that parties to an agreement pertaining to a loan could stipulate that the rate
of interest agreed upon may be increased in the event that the applicable
maximum rate of interest is increased "by law or by the Monetary Board." To
quote: "Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance
of money, goods or credits may stipulate that the rate of interest agreed upon
may be increased in the event that the applicable maximum rate of interest is
increased by law or by the Monetary Board: Provided, That such stipulation shall
be valid only if there is also a stipulation in the agreement that the rate of interest
agreed upon shall be reduced in the event that the applicable maximum rate
of interest is reduced by law or by the Monetary Board; Provided, further, That
the adjustment in the rate of interest agreed upon shall take effect on or after
the effectivity of the increase or decrease in the maximum rate of interest."
Escalation Clause to be valid must include de-escalation clause. —There can
be an increase in interest if increased by law or by the Monetary Board; and in
order for such stipulation to be valid, it must include a provision for reduction of
the stipulated interest "in the event that the applicable maximum rate of interest
is reduced by law or by the Monetary Board."
Chapter IV: Deposit
CHAN vs. MACEDA, 402 SCRA 352 (2003)
FACTS:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3
million loan from the Development Bank of the Philippines for the construction
of his New Gran Hotel Project in Tacloban City. Thereafter, on September 29,
1976, respondent entered into a building construction contract with Moreman
Builders Co., Inc., (Moreman). They agreed that the construction would be
finished not later than December 22, 1977.
Respondent purchased various construction materials and equipment in
Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily
Chan, herein petitioners. The deposit was free of charge. Unfortunately,
Moreman failed to finish the construction of the hotel at the stipulated time.
Hence, on February 1, 1978, respondent filed with the then Court of First Instance
(CFI, now Regional Trial Court), Branch 39, Manila, an action for rescission and
damages against Moreman, docketed as Civil Case No. 113498.
Meanwhile, during the pendency of the case, respondent ordered petitioners
to return to him the construction materials and equipment which Moreman
deposited in their warehouse. Petitioners, however, told them that Moreman
withdrew those construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the Regional Trial Court,
Branch 160, Pasig City, an action for damages with an application for a writ of
preliminary attachment against petitioners,7 docketed as Civil Case No. 53044.
ISSUES:
1. Has respondent presented proof that the construction materials and
equipment were actually in petitioners' warehouse when he asked that the
same be turned over to him? NO
2. If so, does respondent have the right to demand the release of the said
materials and equipment or claim for damages? NO
HELD:
Under Article 1311 of the Civil Code, contracts are binding upon the parties (and
their assigns and heirs) who execute them. When there is no privity of contract,
there is likewise no obligation or liability to speak about and thus no cause of
action arises. Specifically, in an action against the depositary, the burden is on
the plaintiff to prove the bailment or deposit and the performance of conditions
precedent to the right of action. A depositary is obliged to return the thing to
the depositor, or to his heirs or successors, or to the person who may have been
designated in the contract.
In the present case, the record is bereft of any contract of deposit, oral or
written, between petitioners and respondent. If at all, it was only between
petitioners and Moreman. And granting arguendo that there was indeed a
contract of deposit between petitioners and Moreman, it is still incumbent upon
respondent to prove its existence and that it was executed in his favor. However,
respondent miserably failed to do so. The only pieces of evidence respondent
presented to prove the contract of deposit were the delivery receipts.
Significantly, they are unsigned and not duly received or authenticated by
either Moreman, petitioners or respondent or any of their authorized
representatives. Hence, those delivery receipts have no probative value at all.
While our laws grant a person the remedial right to prosecute or institute a civil
action against another for the enforcement or protection of a right, or the
prevention or redress of a wrong, every cause of action ex-contractu must be
founded upon a contract, oral or written, express or implied.
Moreover, respondent also failed to prove that there were construction
materials and equipment in petitioners' warehouse at the time he made a
demand for their return.
Considering that respondent failed to prove (1) the existence of any contract
of deposit between him and petitioners, nor between the latter and Moreman
in his favor, and (2) that there were construction materials in petitioners'
warehouse at the time of respondent's demand to return the same, we hold that
petitioners have no corresponding obligation or liability to respondent with
respect to those construction materials.
Anent the issue of damages, petitioners are still not liable because, as expressly
provided for in Article 2199 of the Civil Code, actual or compensatory damages
cannot be presumed, but must be proved with reasonable degree of certainty.
A court cannot rely on speculations, conjectures, or guesswork as to the fact
and amount of damages, but must depend upon competent proof that they
have been suffered by the injured party and on the best obtainable evidence
of the actual amount thereof. It must point out specific facts which could afford
a basis for measuring whatever compensatory or actual damages are borne.
Considering our findings that there was no contract of deposit between
petitioners and respondent or Moreman and that actually there were no more
construction materials or equipment in petitioners' warehouse when respondent
made a demand for their return, we hold that he has no right whatsoever to
claim for damages.
Civil Law; Obligations and Contracts; Deposits; In an action against the
depositary, the burden is on the plaintiff to prove the bailment or deposit and
the performance of conditions precedent to the right of action; A depositary is
obliged to return the thing to the depositor, or to his heirs or successors, or to the
person who may have been designated in the contract. —Under Article 1311 of
the Civil Code, contracts are binding upon the parties (and their assigns and
heirs) who execute them. When there is no privity of contract, there is likewise
no obligation or liability to speak about and thus no cause of action arises.
Specifically, in an action against the depositary, the burden is on the plaintiff to
prove the bailment or deposit and the performance of conditions precedent to
the right of action. A depositary is obliged to return the thing to the depositor, or
to his heirs or successors, or to the person who may have been designated in
the contract.
US vs. IGPUARA, 27 Phil 619 (1913)
Facts:
The defendant herein is charged with the crime of estafa, for having swindled
Juana Montilla and Eugenio Veraguth out of P2,498 Philippine currency, which
he had taken on deposit from the former to be at the latter's disposal. The
document setting forth the obligation reads:
"We hold at the disposal of Eugenio Veraguth the sum of two thousand four
hundred and ninety-eight pesos P2,498), the balance from Juana Montilla's
sugar. — Iloilo, June 26, 1911. — Jose Igpuara, for Ramirez & Co."
CFI’s ruling:
 sentenced the defendant to two years of presidio correccional,
 to pay Juana Montilla P2,498 Philippine currency,
 and in case of insolvency to subsidiary imprisonment at P2.50 per day,
not to exceed one-third of the principal penalty, and the costs.
The defendant appealed the CFI’s decision. He argued that Juana Montilla's
agent voluntarily accepted the sum of P2,498 in an instrument payable on
demand, and as no attempt was made to cash it until August 23, 1911, he could
indorse and negotiate it like any other commercial instrument. There is no doubt
that if Veraguth accepted the receipt for P2,498 it was because at that time he
agreed with the defendant to consider the operation of sale on commission
closed, leaving the collection of said sum until later, which sum remained as a
loan payable upon presentation of the receipt.
Issue:
WON the defendant is guilty of misappropriating the deposit under his custody.
Held:
It is erroneous to assert that the certificate of deposit in question is negotiable
like any other commercial instrument; First, because every commercial
instruments payable to order are negotiable. Hence, this instrument not being
to order but to bearer, it is not negotiable.
It is also erroneous to assert that the sum of money set forth in said certificate is,
according to it, in the defendant's possession as a loan. In a loan the lender
transmits to the borrower the use of the thing lent, while in a deposit the use of
the thing is not transmitted, but merely possession for its custody or safe-keeping.
In order that the depositary may use or dispose of the things deposited, the
depositor's consent is required, and then:
"The rights and obligations of the depositary and of the depositor shall cease,
and the rules and provisions applicable to commercial loans, commission, or
contract which took the place of the deposit shall be observed." (Art. 309, Code
of Commerce.)
The defendant has shown no authorization whatsoever or the consent of the
depositary for using or disposing of the P2,498, which the certificate
acknowledges, or any contract entered into with the depositor to convert the
deposit into a loan, commission, or other contract.
That demand was not made for restitution of the sum deposited, which could
have been claimed on the same or the next day after the certificate was
signed, does not operate against the depositor, or signify anything except the
intention not to press it. Failure to claim at once or delay for some time in
demanding restitution of the thing deposited, which was immediately due, does
not imply such permission to use the thing deposited as would convert the
deposit into a loan.
Article 408 of the Code of Commerce of 1829, previous to the one now in force,
provided:
"The depositary of an amount of money cannot use the amount, and if he
makes use of it, he shall be responsible for all damages that may accrue and
shall respond to the depositor for the legal interest on the amount."
Whereupon the commentators say:
"In this case the deposit becomes in fact a loan, as a just punishment imposed
upon him who abuses the sacred nature of a deposit and as a means of
preventing the desire of gain from leading him into speculations that may be
disastrous to the depositor, who is much better secured while the deposit exists
that when he only has a personal action for recovery.
In a decision of an appeal, the principle was laid down that: "Since he commits
the crime of estafa under article 548 of the Penal Code of Spain who to
another's detriment appropriates to himself or abstracts money or goods
received on commission for delivery, the court rightly applied this article to the
appellant, who, to the manifest detriment of the owner or owners of the
securities, since he has not restored them, willfully and wrongfully disposed of
them by appropriating them to himself or at least diverting them from the
purpose to which he was charged to devote them."
It is unquestionable that in no sense did the P2,498 which he willfully and
wrongfully disposed of to the detriment of his principal, Juana Montilla, and of
the depositor, Eugenio Veraguth, belong to the defendant.
Likewise erroneous is the construction apparently attempted to be given to two
decisions of this Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U.
S. vs.Morales and Morco, 15 Phil. Rep., 236) as implying that what
constitutes estafa is not the disposal of money deposited, but denial of having
received same.
In this connection it was held that failure to return the thing deposited was not
sufficient, but that it was necessary to prove that the depositary had
appropriated it to himself or diverted the deposit to his own or another's benefit.
He was accused of refusing to restore, and it was held that the code does not
penalize refusal to restore but denial of having received. So much for the crime
of omission; now with reference to the crime of commission, it was not held in
that decision that appropriation or diversion of the thing deposited would not
constitute the crime of estafa.
In the second of said decisions, the accused "kept none of the proceeds of the
sales. Those, such as they were, he turned over the owner;" and there being no
proof of the appropriation, the agent could not be found guilty of the crime
of estafa.
Being in accord with law and the merits of the case, the judgment appealed
from is affirmed, with costs.
"ESTAFA"; MISAPPROPRIATION OF DEPOSIT BY AGENT.— The balance of a
commission account remaining in possession of the agent at the principal's
disposal acquires at once the character of a deposit which the former must
return or restore to the latter at any time it is demanded, nor can he lawfully
dispose of it without incurring criminal responsibility for appropriating or diverting
to his own use another's property.
It could only become his as a loan, if so expressly agreed by its owner, who
would then be obligated not to demand it until the expiration of the legal or
stipulated period for a loan. ID.; ID.; He undoubtedly commits the crime of estafa
who, having in his possession a certain amount of another's money on deposit
at its owner's disposal, appropriates or diverts it to his own use, with manifest
damage to its owner, for he has not restored it and has so acted willfully and
wrongfully in abuse of the confidence reposed in him.
BPI vs IAC, 164 SCRA 630 (1988)
FACTS:
The original parties to the case were Zshornack and Commercial Bank and Trust
Company of the Phils (Comtrust). In 1980, BPI absorbed Comtrust through a
merger and was substituted as party to the case.
Zshornack and his wife maintained in Comtrust a dollar savings account and a
peso current account. On Dec 8, 1975, Zshornack delivered to the bank $3000
for safekeeping. When he requested the return of the money, Comtrust
explained that the sum was disposed of in this manner: US$2,000.00 was sold on
December 29, 1975 and the peso proceeds amounting to P14,920.00 were
deposited to Zshornack's current account per deposit slip accomplished by
Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso
proceeds amounting to P8,350.00 were deposited to his current account per
deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's
current account at prevailing conversion rates, BPI now posits another ground
to defeat private respondent's claim. It now argues that the contract embodied
in the document is the contract of depositum (as defined in Article 1962, New
Civil Code), which banks do not enter into. The bank alleges that Garcia
exceeded his powers when he entered into the transaction. Hence, it is claimed,
the bank cannot be liable under the contract, and the obligation is purely
personal to Garcia.
ISSUE:
WON the contract between petitioner and respondent bank is a deposit YES
HELD:
The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the bank to safely keep the
dollars and to return it to Zshornack at a later time, Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil
Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the principal purpose
of the contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was
foreign exchange. Hence, the transaction was covered by Central Bank
Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions,
promulgated on December 9, 1949, which was in force at the time the parties
entered into the transaction involved in this case. Under the said circular,
safekeeping of the greenbacks without selling them to Central Bank within 1
business day from receipt, is a transaction which is not authorized.
As earlier stated, the document and the subsequent acts of the parties show
that they intended the bank to safekeep the foreign exchange, and return it
later to Zshornack, who alleged in his complaint that he is a Philippine resident.
The parties did not intended to sell the US dollars to the Central Bank within one
business day from receipt. Otherwise, the contract of depositum would never
have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the
Central Bank within one business day from receipt, is a transaction which is not
authorized by CB Circular No. 20, it must be considered as one which falls under
the general class of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a
cause of action against the other. "When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no cause of action
against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on
behalf of the State to prosecute the parties for violating the law.
Therefore, Zshornack cannot recover under this cause of action.
Banking Laws; Central Bank Laws; Foreign Exchange Transactions; CB Circular
No. 281; Sec. 6 of CB Circular No. 281 requires that all receipts of foreign
exchange by any resident person shall be sold to authorized Central Bank
agents within one business day following the receipt of said foreign exchange.—
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No.
281, Regulations on Foreign Exchange, promulgated on November 26, 1969 by
limiting its coverage to Philippine residents only. Section 6 provides:” SEC. 6. All
receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the
recipients within one business day following the receipt of such foreign
exchange. Any resident person, firm, company or corporation residing or
located within the Philippines, who acquires foreign exchange shall not, unless
authorized by the Central Bank, dispose of such foreign exchange in whole or in
part, nor receive less than its full value, nor delay taking ownership thereof
except as such delay is customary; Provided, That, within one business day upon
taking ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange to the
authorized agents of the Central Bank. As earlier stated, the document and the
subsequent acts of the parties show that they intended the bank to safekeep
the foreign exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not intend to sell the US
dollars to the Central Bank within one business day from receipt. Otherwise, the
contract of depositum would never have been entered into at all. Since the
mere safekeeping of the greenbacks, without selling them to the Central Bank
within one business day from receipt, is a transaction which is not authorized by
CB Circular No. 20, it must be considered as one which falls under the general
class of prohibited transactions.
Civil Law; Obligations and Contracts; Contract of Deposit; The contract between
Zshornack and the bank, as to the $3,000.00, was a contract of deposit defined
under Art. 1962 of the New Civil Code.—The document which embodies the
contract states that the US$3,000.00 was received by the bank for safekeeping.
The subsequent acts of the parties also show that the intent of the parties was
really for the bank to safely keep the dollars and to return it to Zshornack at a
later time. Thus, Zshornack demanded the return of the money on May 10, 1976,
or over five months later. The above arrangement is that contract defined under
Article 1962, New Civil Code, which reads: Art. 1962. A deposit is constituted from
the moment a person receives a thing belonging to another, with the obligation
of safely keeping it and for returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit but
some other contract.
Void Contracts; The contract between the parties being void, affords neither of
the parties a cause of action against each other.— Hence, pursuant to Article 5
of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a
cause of action against the other. “When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no cause of action
against each other . . .” [Art. 1411, New Civil Code.] The only remedy is one on
behalf of the State to prosecute the parties for violating the law.
TRIPLE-V FOOD SERVICES INC. vs. FILIPINO MERCHANTS INSURANCE COMPANY,
GR. No. 160554, February 21, 2005
FACTS:
Mary Jo-Anne De Asis dined at petitioner's Kamayan Restaurant. De Asis was
using a Mitsubishi Galant Super Saloon Model 1995 issued by her employer
Crispa Textile Inc.. On said date, De Asis availed of the valet parking service of
petitioner and entrusted her car key to petitioner's valet counter. Afterwards, a
certain Madridano, valet attendant, noticed that the car was not in its parking
slot and its key no longer in the box where valet attendants usually keep the
keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa
filed a claim against its insurer, herein respondent Filipino Merchants Insurance
Company, Inc. Having indemnified Crispa for the loss of the subject vehicle,
FMICI, as subrogee to Crispa's rights, filed
with the RTC at Makati City an action for damages against petitioner Triple-V
Food Services, Inc. Petitioner claimed that the complaint failed to adduce facts
to support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle. Besides, when De Asis availed
the free parking stab which contained a waiver of petitioner’s liability in case of
loss, she had thereby waived her rights.
ISSUE:
Whether or not petitioner Triple-V Food Services, Inc. is liable for the loss.
HELD:
The Supreme Court ruled in the affirmative. In a contract of deposit, a person
receives an object belonging to another with the obligation of safely keeping it
and returning the same. A deposit may be constituted even without any
consideration. It is not necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for safekeeping and to return it
later to the depositor. Petitioner cannot evade liability by arguing that neither a
contract of deposit nor that of insurance, guaranty or surety for the loss of the
car was constituted when De Asis availed of its free valet parking service.
THE ROMAN CATHOLIC BISHOP OF JARO vs. GREGORIO DE LA PEÑA
FACTS :
The plaintiff is the trustee of a charitable bequest made for the construction of
a leper hospital and that father Agustin de la Peña was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had
on hand as such trustee the sum of P6,641, collected by him for the charitable
purposes aforesaid. In the same year he deposited in his personal account
P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Peña was arrested by the military
authorities as a political prisoner, and while thus detained made an order on
said bank in favor of the United States Army officer under whose charge he then
was for the sum thus deposited in said bank. The arrest of Father De la Peña and
the confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds thus deposited
had been collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order, was confiscated
and turned over to the Government.
While there is considerable dispute in the case over the question whether the
P6,641 of trust funds was included in the P19,000 deposited as aforesaid,
nevertheless, a careful examination of the case leads us to the conclusion that
said trust funds were a part of the funds deposited and which were removed
and confiscated by the military authorities of the United States.
ISSUE :
Whether or not Father de la Peña is liable for the loss of the money under his
trust?
RULING :
The court, therefore, finds and declares that the money which is the subject
matter of this action was deposited by Father De la Peña in the Hongkong and
Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from
the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Peña was not responsible for its loss.
Father De la Peña's liability is determined by those portions of the Civil Code
which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father of a family"
(art. 1094), it also provides, following the principle of the Roman law, major casus
est, cui humana infirmitas resistere non potest, that "no one shall be liable for
events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la
Peña did not thereby assume an obligation different from that under which he
would have lain if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. If the had been forcibly taken
from his pocket or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed the trust
fund in the bank in his personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all hazards.
TRUST FUNDS; LIABILITY OF TRUSTEE.—One who, having in his possession trust funds,
deposits them in his personal account in a bank and mixes them with his own
funds, does not thereby assume an obligation different from that under which
he would have lain if such deposit had not been made; nor does he thereby
become liable to repay the money at all hazards; and where such funds are
taken from the bank by fuerza mayor, he is relieved from responsibility in relation
thereto.
ENGLISH AND AMERICAN LAW OF TRUSTS NOT APPLICABLE.—That branch of the
law, known in England and America as the law of trusts, has no counterpart in
the Roman law and none under the Spanish law.
KUCHINSKY, Appellant, v. EMPIRE LOUNGE, INC., Respondent.
Action by plaintiff, Thomas J. Kuchinsky, against defendant, Empire Lounge, Inc.,
to recover damages for the wrongful taking of plaintiff's overcoat, gloves, and
keys, while plaintiff was a customer in defendant's cocktail lounge.
Plaintiff's complaint alleged two causes of action. The allegation of the first
cause of action was that on January 5, 1963, while plaintiff was on defendant's
premises as an invitee plaintiff delivered to defendant for safekeeping his
overcoat, gloves, and keys, to be safely kept and redelivered to plaintiff on
demand; that defendant received such property upon such conditions; and
that defendant failed to deliver back said property to plaintiff on demand
because the same had been lost through the negligence and carelessness of
defendant's employees. The second cause of action alleged that plaintiff's
overcoat, gloves, and keys had been wrongfully taken while plaintiff was a
business invitee of defendant and that such wrongful taking was due to the
negligence of defendant; and defendant's negligence consisted of the
following:
(1) It failed to control and manage the conduct of its patrons therein;
(2) It failed to adequately protect the interests of its business invitees;
(3) It failed to exercise that degree of care imposed upon it as a business invitor.
The defendant's answer denied the allegations of bailment set forth in the first
cause of action of plaintiff's complaint, and also denied all allegations of
negligence contained in both the first and second causes of action.
The action was tried to the court without a jury. The county court in addition to
filing a memorandum decision also made and filed findings of fact and
conclusions of law. Such findings of fact are as follows:
"Findings of Fact.
" First. That the plaintiff, his wife and another couple were in the Defendant's
establishment on the morning of January 6, 1963 at or about 3:00 A. M.
" Second. That there was only one waitress working on the morning in question.
" Third. That the Plaintiff and his party passed the coat tree as they took their
seats and that it was twenty feet from where they sat and in view of at least one
of the parties as they were seated.
" Fourth. That when the lounge closed at about 3:30 A. M. the Plaintiff went to
the tree to get his coat and found that it was not there.
" Fifth. That the Plaintiff was at complete liberty to retreive [sic] his coat from the
tree without requesting such from the waitress.
" Sixth. That no signs were posted on the premises warning the invitees to watch
their coat or stating that the management would not be responsible for losses.
" Seventh. That the Defendant had no employees whose duties were exclusively
to safeguard or protect the garments of the patrons or whose duties included
the protecting or safeguarding of the garments of the patrons as part of their
duties.
" Eighth. That the only facility Defendant provided for the patrons to leave their
garments were coat trees in the bar area about five feet from the entrance to
the premises."
The conclusions of law determined that no bailment had been established and
that there was no negligence on the part of defendant and judgment was
directed dismissing the complaint upon its merits.
Judgment was entered December 29, 1964, which dismissed the complaint on
the merits together with costs. Plaintiff has appealed.
CURRIE, C. J.
In the absence of a transcript our review is limited to the question of whether the
pleadings, decision, findings, and conclusions sustain the judgment. Estate of
Reynolds (1964), 24 Wis.2d 370, 374, 129 N.W.2d 251.
Appellant plaintiff has raised no issue on this appeal with respect to the trial
court's determination that no bailment existed. Thus the issue before us is
whether, under the facts as found by the trial court, defendant cocktail-lounge
operator, was negligent as a matter of law.
A case very much in point is Montgomery v. Ladjing (1899), 30 Misc. 92, 61 N.Y.
Supp. 840. There the plaintiff entered the restaurant kept by the defendant with
a party of friends; he removed his overcoat and hung it on a hook affixed to a
post near the table at which he seated himself; the attention of neither the
defendant nor of any of his employees was called to the coat in any way; and
fifteen minutes later the coat was missing. The court held that the plaintiff had
wholly failed to show failure on the part of the defendant to exercise ordinary
care, and declared ( 30 Misc. at p. 96):
"The rule to be deduced from all these cases, therefore, is: That, before a
restaurant keeper will be held liable for the loss of an overcoat of a customer
while such customer takes a meal or refreshments, it must appear either that the
overcoat was placed in the physical custody of the keeper of the restaurant or
his servants, in which case there is actual bailment, or that the overcoat was
necessarily laid aside under circumstances showing at least notice of the fact
and of such necessity to the keeper of the restaurant or his servants, in which
case there is an implied bailment or constructive custody, or that the loss
occurred by reason of the insufficiency of the general supervision exercised by
the keeper of the restaurant for the protection of the property of customers
temporarily laid aside."
In National Fire Ins. Co. v. Commodore Hotel (1961), 259 Minn. 349, 107 N.W.2d
708, the plaintiff was a guest at a luncheon held at the defendant's hotel. She
hung her mink jacket in an unattended cloakroom on the main floor across from
the lobby desk. After the luncheon and ensuing card party the plaintiff went to
the cloakroom to retrieve her jacket and discovered it was gone. The court held
that no negligence had been established against the defendant and stated
( 259 Minn. at pp. 353, 354):
". . . In any event, we do not feel that it is incumbent upon a hotel or restaurant
owner to keep an attendant in charge of a free cloakroom for luncheon or
dinner guests or otherwise face liability for loss of articles placed therein. The
maintenance of such rooms without attendants is a common practice, and
where the proprietor has not accepted control and custody of articles placed
therein, no duty rests upon him to exercise any special degree of care with
respect thereto.
"Likewise, failure to post a warning disclaiming responsibility would not seem to
constitute negligence when, as here, a guest is aware that a cloakroom is
unattended, adjacent to the lobby, and accessible to anyone, and has used it
under similar circumstances on many prior occasions. The absence of such
warning signs does not appear to have been material in a number of decisions
absolving proprietors from liability, although when posted they appear to be
regarded as an added factor in establishing such nonliability."
See also annotation, "Liability for loss of hat, coat or other property deposited by
customer in place of business," 1 A.L.R.2d 802.
Under the foregoing authorities we conclude not only do the findings of fact
and conclusions of law support the judgment, but also that these findings would
not support a judgment in favor of plaintiff.
Defendant has requested the imposition of double costs against plaintiff
because of alleged flagrant violation of our rules. The most serious of these rule
infractions was plaintiff's failure to print in its appendix the trial court's
memorandum decision, findings of fact, conclusions of law, and judgment. If it
were not for the fact that plaintiff's counsel has been less than a year in practice
and this is his first supreme court appeal we would grant the request for double
costs. It is incumbent even upon the neophyte lawyer to familiarize himself with
the rules of practice of this court set forth in ch. 251, Stats., before drafting his
brief and appendix. By the Court. — Judgment affirmed.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. vs. THE HONORABLE COURT OF
APPEALS
FACTS :
Is the contractual relation between a commercial bank and another party in a
contract of rent of a safety deposit box with respect to its contents placed by
the latter one of bailor and bailee or one of lessor and lessee?
Petitioner (through its President, Sergio Aguirre) and the spouses Ramon and
Paula Pugao entered into an agreement whereby the former purchased from
the latter two (2) parcels of land. P75,725.00 was paid as downpayment while
the balance was covered by three (3) postdated checks and based on the
agreement the titles to the lots shall be transferred to the petitioner upon full
payment of the purchase price and that the owner's copies of the certificates
of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall
be deposited in a safety deposit box of any bank. The same could be withdrawn
only upon the joint signatures of a representative of the petitioner and the
Pugaos upon full payment of the purchase price. Petitioner, through Sergio
Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private
respondent Security Bank and Trust Company, a domestic banking corporation
hereinafter referred to as the respondent Bank. For this purpose, both signed a
contract of lease stating that the nank is not depositary of the contents of the
safe neither the possession nor control of the same and assumes absolutely no
liability in connection therewith.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner
the two (2) lots at a price of P225.00 per square meter which, as petitioner
alleged in its complaint, translates to a profit of P100.00 per square meter or a
total of P280,500.00 for the entire property. Mrs. Ramos demanded the
execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then
proceeded to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened in the
presence of the Bank's representative, the box yielded no such certificates.
Hence, the latter filed on 1 September 1980 a complaint 2 for damages against
the respondent Bank with the Court of First Instance. In its answer with
counterclaim, respondent bank alleges that the petitioner has no cause of
action because of the provisions stated in the contract of lease.
The trial court rendered a decision adverse to the petitioner. The unfavorable
verdict is based on the trial court's conclusion that under paragraphs 13 and 14
of the contract of lease, the Bank has no liability for the loss of the certificates of
title. The court declared that the said provisions are binding on the parties.
ISSUE :
the contractual relation between a commercial bank and another party in a
contract of rent of a safety deposit box with respect to its contents placed by
the latter one of bailor and bailee or one of lessor and lessee?
RULING:
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between a
bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire
and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question
might be more properly characterized as that of landlord and tenant, or lessor
and lessee. It has also been suggested that it should be characterized as that
of licensor and licensee. The relation between a bank, safe-deposit company,
or storage company, and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written, in whole or in part.
But there is apparently no jurisdiction in which any rule other than that
applicable to bailments governs questions of the liability and rights of the parties
in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)
It is not correct to assert that the Bank has neither the possession nor control of
the contents of the box since in fact, the safety deposit box itself is located in its
premises and is under its absolute control; moreover, the respondent Bank keeps
the guard key to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting and using this guard
key. Clearly then, to the extent above stated, the foregoing conditions in the
contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a
safe-deposit company, the parties, since the relation is a contractual one, may
by special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for
loss of the contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an attempt to
do so, it will be held ineffective for the purpose. Although it has been held that
the lessor of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that such a lessor
may limits its liability to some extent by agreement or stipulation. 30 (citations
omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that
is, that the petition should be dismissed, but on grounds quite different from
those relied upon by the Court of Appeals. In the instant case, the respondent
Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be
based on or proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the agreement between
the petitioner and the Pugaos to the effect that the certificates of title were
withdrawable from the safety deposit box only upon both parties' joint
signatures, and that no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the respondent Bank.
This in turn flows from this Court's determination that the contract involved was
one of deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of them could ask the
Bank for access to the safety deposit box and, with the use of such key and the
Bank's own guard key, could open the said box, without the other renter being
present.
Civil Law; Deposit; Commercial Law; Banks and Banking; A contract for the rent
of a safety deposit box is not an ordinary contract of lease but a special kind of
deposit.—We agree with the petitioner's contention that the contract for the
rent of the safety deposit box is not an ordinary contract of lease as defined in
Article 1643 of the Civil Code. However, We do not fully subscribe to its view that
the same is a contract of deposit that is to be strictly governed by the provisions
in the Civil Code on deposit; the contract in the case at bar is a special kind of
deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety
deposit box Was not given to the joint renters.
Primary function of banking institutions authorized to rent out safety deposit box,
within the parameters of contract of deposit in accord with General Banking
Act which adopts prevailing rule in American jurisprudence.—In the context of
our laws which authorize banking institutions to rent out safety deposit boxes, it
is clear that in this jurisdiction, the prevailing rule in the United States has been
adopted. Section 72 of the General Banking Act pertinently provides: xxx Note
that the primary function is still found within the parameters of a contract of
deposit. i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function.\
Any stipulation exempting depository from liability for loss of thing deposited on
account of fraud, negligence or delay considered void for being contrary to law
and public policy.—The depositary's responsibility for the safekeeping of the
objects deposited in the case at bar is governed by Title I, Book IV of the Civil
Code. Accordingly the depositary would be liable if, in perform: ng its obligation,
it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed. Hence,
any stipulation exempting ng the depositary from any liability arising from the
loss of the thing deposited on account of fraud, negligence or delay would be
void for being contrary to law and public policy. Same; Same; Same; Same;
Liability of lessor in contract of lease of safety deposit box can be limited by
stipulation but any stipulation for exemption shall be held ineffective.—With
respect to property deposited in a safe-deposit box by a customer of a safe
deposit company, the parties, since the relation is a contractual one, may by
special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. xxx The company, in renting safe-deposit boxes,
cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract
may be construed as an attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a safe-deposit box cannot
limit its liability for loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limit its liability to some extent by
agreement or stipulation.
Bank's exoneration from liability not by virtue of characterization of impugned
contract as a contract of lease but by reason of the absence of proof as to its
knowledge about existing\agreement between the other parties, as well as,
that the loss of certificates not attributable to its negligence or fraud.—In the
instant case, the respondent Bank's exoneration cannot, contrary to the holding
of the Court of Appeals, be based on or proceed from a characterization of the
impugned contract as a contract of lease, but rather on the fact that no
competent proof was presented to show that respondent Bank was aware of
the agreement between the petitioner and the Pugaos to the effect that the
certificates of title were withdrawable from the safety deposit box only upon
both parties' joint signatures, and that no evidence was submitted to reveal that
the loss of the certificates of title was due to the fraud or negligence of the
respondent Bank. This in turn flows from this Court's determination that the
contract involved was one of deposit.
SIA vs CA, 222 SCRA 24 (1993)
Doctrine:
Contract of the use of a safety deposit box of a bank is not a deposit but a lease
under Sec 72, A of General Banking Act. Accordingly, it should have lost no
time in notifying the petitioner in order that the box could have been opened to
retrieve the stamps, thus saving the same from further deterioration and loss. The
bank’s negligence aggravated the injury or damage to the stamp collection..
Facts: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust
Co. (Security Bank) at its Binondo Branch wherein he placed his collection of
stamps. The said safety deposit box leased by the plaintiff was at the bottom or
at the lowest level of the safety deposit boxes of the defendant bank. During
the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank’s premises, seeped into the safety deposit box leased by the
plaintiff and caused, according damage to his stamps collection. Security Bank
rejected the plaintiff’s claim for compensation for his damaged stamps
collection.
Sia, thereafter, instituted an action for damages against the defendant bank.
Security Bank contended that its contract with the Sia over safety deposit box
was one of lease and not of deposit and, therefore, governed by the lease
agreement which should be the applicable law; the destruction of the plaintiff’s
stamps collection was due to a calamity beyond obligation on its part to notify
the plaintiff about the floodwaters that inundated its premises at Binondo
branch which allegedly seeped into the safety deposit box leased to the
plaintiff. The trial court rendered in favor of plaintiff Sia and ordered Sia to pay
damages.
Issue:
Whether or not the Bank is liable for negligence.

Held:
Contract of the use of a safety deposit box of a bank is not a deposit but a lease.
Section 72 of the General Banking Act [R.A. 337, as amended] pertinently
provides: In addition to the operations specifically authorized elsewhere in this
Act, banking institutions other than building and loan associations may perform
the following services (a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty of negligence. The
bank’s negligenceaggravated the injury or damage to the stamp collection.
SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where the safe deposit box was located. In view thereof, it
should have lost no time in notifying the petitioner in order that the box could
have been opened to retrieve the stamps, thus saving the same from further
deterioration and loss. In this respect, it failed to exercise the reasonable care
and prudence expected of a good father of a family, thereby becoming a
party to the aggravation of the injury or loss. Accordingly, the aforementioned
fourth characteristic of a fortuitous event is absent. Article 1170 of the Civil Code,
which reads “Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages” is applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the lease agreement which are
meant to exempt SBTC from any liability for damage, loss or destruction of the
contents of the safety deposit box which may arise from its own agents’ fraud,
negligence or delay must be stricken down for being contrary to law and public
policy.
Civil Law; Deposit; Contract for the use of safety deposit box is a special kind of
deposit and the relationship between the parties thereto, with respect to the
contents of the box, is that of a bailor and bailee, the bailment being for hire and
mutual benefit.—In the recent case of CA Agro-Industrial Development Corp.
vs. Court of Appeals, this Court explicitly rejected the contention that a contract
for the use of a safety deposit box is a contract of lease governed by Title VII,
Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a
contract of deposit to be strictly governed by the Civil Code provision on
deposit; it is, as We declared, a special kind of deposit. The prevailing rule in
American jurisprudence—that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of
a bailor and bailee, the bailment being for hire and mutual benefit has been
adopted in this jurisdiction.
Conditions in a “Lease Agreement” covering a safety deposit box which exempt
the bank from any liability for damage, loss or destruction of the contents thereof
arising from its own or its agent’s fraud, negligence or delay are considered null
and void, for being contrary to law and public policy.—Assayed in the light of
Our aforementioned pronouncements in CA Agro-Industrial Development
Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13
of the “Lease Agreement” covering the safety deposit box in question (Exhibits
“A” and “1”) must be stricken down for being contrary to law and public policy
as they are meant to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which may arise from its
own or its agents’ fraud, negligence or delay. Accordingly, SBTC cannot take
refuge under the said conditions.
Although flooding could be considered a fortuitous event, failure of the bank to
give notice to the renter of such fact makes it liable for damages, its negligence
caused to aggravate injury or damage to the renter; Case at bar.—
Unfortunately, however, the public respondent failed to consider that in the
instant case, as correctly held by the trial court, SBTC was guilty of negligence.
The facts constituting negligence are enumerated in the petition and have
been summarized in this ponencia. SBTC’s negligence aggravated the injury or
damage to the petitioner which resulted from the loss or destruction of the
stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew
that the floodwaters inundated the room where Safe Deposit Box No. 54 was
located. In view thereof, it should have lost no time in notifying the petitioner in
order that the box could have been opened to retrieve the stamps, thus saving
the same from further deterioration and loss. In this respect, it failed to exercise
the reasonable care and prudence expected of a good father of a family,
thereby becoming a party to the aggravation of the injury or loss. Accordingly,
the aforementioned fourth characteristic of a fortuitous event is absent x x x The
destruction or loss of the stamp collection which was, in the language of the trial
court, the “product of 27 years of patience and diligence” caused the
petitioner pecuniary loss; hence, he must be compensated therefor.
ANGEL JAVELLANA vs. JOSE LIM, ET AL.
FACTS:
Angel Javellana filed a complaint on the 30th of October, 1906 against Jose Lim
and Ceferino Domingo Lim. It was then alleged that on the 26th of May, 1897,
Lim executed and subscribed a document, in favor of Javellana, reading as
follows:
We have received from Angel Javellana, as a deposit without interest, the sum
of two thousand six hundred and eighty-six cents of pesos fuertes, which we will
return to the said gentleman, jointly and severally, on the 20th of January, 1898.
— Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed: Ceferino Domingo Lim.
It was also alleged that, when the obligation became due, Lim begged
Javellana for an extension of time for the payment thereof, building themselves
to pay interest at the rate of 15 per cent on the amount of their indebtedness,
to which Javellana acceded; that on the 15th of May, 1902, the debtors paid
on account of interest due the sum of P1,000 pesos, with the exception of either
capital or interest, had thereby been subjected to loss and damages.
Lim answered that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not, however,
as payment of interest on the amount stated in the foregoing document, but on
account of the principal, and denied that there had been any agreement as
to an extension of the time for payment and the payment of interest at the rate
of 15 per cent per annum.
ISSUE:
WON the contract is a deposit. NO, it was a contract of loan.
HELD:
The document of indebtedness inserted in the complaint states that the
Javellana left on deposit with Lim a given sum of money which they were jointly
and severally obliged to return on a certain date fixed in the document; but
that, nevertheless, when the document written in the Visayan dialect and
followed by a translation into Spanish was executed, it was acknowledged, at
the date thereof, the 15th of November, 1902, that the amount deposited had
not yet been returned to Javellana. He was subjected to losses and damages
amounting to 830 pesos since the 20th of January, 1898, when the return was
again stipulated with the further agreement that the amount deposited should
bear interest at the rate of 15 per cent per annum from January 20. The 1,000
pesos paid to the depositor on the 15th of May, 1900, according to the receipt
issued by him to the debtors, would be included, and that the said rate of
interest would obtain until the debtors on the 20th of May, 1897, it is called a
deposit consisted, and they could have accomplished the return agreed upon
by the delivery of a sum equal to the one received by them.
For this reason it must be understood that the debtors were lawfully authorized
to make use of the amount deposited, which they have done, as subsequent
shown when asking for an extension of the time for the return thereof, inasmuch
as, acknowledging that they have subjected the letter, their creditor, to losses
and damages for not complying with what had been stipulated, and being
conscious that they had used, for their own profit and gain, the money that they
received apparently as a deposit, they engaged to pay interest to the creditor
from the date named until the time when the refund should be made. Such
conduct on the part of the debtors is unquestionable evidence that the
transaction entered into between the interested parties was not a deposit, but
a real contract of loan.
Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express
permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited, the
contract loses the character of a deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
Depository making use of the thing deposited: When on one of the latter days
of January, 1898, Jose Lim went to the office of the creditor asking for an
extension of one year, in view of the fact the money was scare, and because
neither himself nor the other defendant were able to return the amount
deposited, for which reason he agreed to pay interest at the rate of 15 per cent
per annum, it was because, as a matter of fact, he did not have in his possession
the amount deposited, he having made use of the same in his business and for
his own profit;
Express permission: Javellana, the creditor, by granting them the extension,
evidently confirmed the express permission previously given to use and dispose
of the amount stated as having been deposited, which, in accordance with the
loan, to all intents and purposes gratuitously, until the 20th of January, 1898, and
from that dated with interest at 15 per cent per annum until its full payment,
deducting from the total amount of interest the sum of 1,000 pesos, in
accordance with the provisions of article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the document
executed in the presence of three witnesses on the 15th of November, 1902, by
Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the
said document has not been contested as false, either by a criminal or by a civil
proceeding, nor has any doubt been cast upon the authenticity of the
signatures of the witnesses who attested the execution of the same; and from
the evidence in the case one is sufficiently convinced that the said Jose Lim was
perfectly aware of and authorized his joint codebtor to liquidate the interest, to
pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid
document No. 2. A true ratification of the original document of deposit was thus
made, and not the least proof is shown in the record that Jose Lim had ever
paid the whole or any part of the capital stated in the original document.
There was no renewal of the contract deposited converted into a loan,
because, as has already been stated, the defendants received said amount by
virtue of real loan contract under the name of a deposit, since the so-called
bailees were forthwith authorized to dispose of the amount deposited. This they
have done, as has been clearly shown.
CONTRACT; BAILMENT OR DEPOSIT; LOAN.—Where money, consisting of coins of
legal tender, is deposited with a person and the latter is authorized by the
depositor to use and dispose of the same, the agreement thus entered into
between the depositor and the depositary is not a contract of deposit, but a
loan.
SUBSEQUENT AGREEMENT AS TO INTEREST; NOVATION.—A subsequent
agreement between the parties as to interest on the amount said to have been
deposited, because the same could not be returned at the time fixed therefor,
does not constitute a renewal of an agreement of deposit, but is the best
evidence that the original contract entered into between the parties therein
was for a loan under the guise of a deposit.
MANUEL GARCIA GAVIERES vs. T.H. PARDO DE TAVERA
Art. 1978: When the depositary has permission to use the thing deposited, the
contract loses the concept of a deposit and becomes a loan or commodatum,
except where safekeeping is still the principal purpose of the contract.
Facts:
This is an appeal from a decision made by the Court of First of Tondo,
commenced on January 10, 1900 by Don Manuel Garcia Gavieres as Plaintiff
and successor in interest of the deceased Doña Ignacia de Gorricho against
Don Trinidad H. Pardo de Taverna as universal heir and successor of the
deceased Don Felix Pardo de Taverna.
The Plaintiff alleges that Doña Ignacia deposited with Don Trinidad the amount
of 3000 pesos in gold, as a deposit payable on two months’ notice in advance,
with interest at 6% per annum that was evidenced by an agreement signed by
the two parties on October 31, 1859. Don Manuel came before the court to seek
aid in recovering the balance of 1,423 pesos and 75 cents from the estate of
Don Trinidad.
The Defendant in answering the original complaint alleged that the document
which the complaint is based upon was not a contract of deposit but one for a
contract of loan. The defendant further presented evidence that showed that
the principal obligation was paid by Don Trinidad through his agent and that in
case of non-payment of the balance that any action is barred by prescription.
Issue:
WON the document presented by the plaintiff a contract of loan or that of a
deposit
Held/Ratio:
The Court Held that the contract was that of a contract of loan.
Although in the document in question a deposit is spoken of, nevertheless from
an examination of the entire document it clearly appears that the contract was
a loan and that such was the intention of the parties. The obligation of the
depositary to pay interest at the rate of 6 per cent to the depositor suffices to
cause the obligation to be considered as a loan and makes it likewise evident
that it was the intention of the parties that the depositary should have the right
to make use of the amount deposited, since it was stipulated that the amount
could be collected after notice of two months in advance. Such being the case,
the contract lost the character of a deposit and acquired that of a loan.
All personal actions, such as those which arise from a contract of loan, cease to
have legal effect after twenty years according to the former law and after
fifteen years according to the Civil Code now in force. The document dated
January 8, 1869, executed by Don Felix Garcia Gavieres, husband and legal
representative of Doña Ignacia Gorricho, acknowledges the receipt of 1,224
pesos from Don Manuel Darvin, representative of the deceased Don Felix Pardo
de Tavera. This sum is declared in the document was the balance due upon the
debt of 2,000 pesos. This was more or less the amount which remained as due
upon the original obligation after deducting the payment which was admitted
to have been made. In the absence of evidence disclosing that there were
other claims in favor of Gavieres it is reasonably to be supposed that this
payment was made to satisfy the balance due upon the original obligation.
He who by laches in the exercise of his rights has caused a failure of proof has
no right to complain if the court does not apply the strict rules of evidence which
are applicable in ordinary cases, and admits to a certain extent the
presumption to which the conduct of the interest party himself naturally gives
rise.
It is was the opinion of the court that the judgment of the Court of First Instance
should be affirmed, and it was so ordered, with costs of appeal taxed against
the appellant.
INTERPRETATION OF CONTRACTS; LOAN; DEPOSIT.—An instrument
acknowledging receipt of a sum of money as a deposit returnable two months
after notice with interest is evidence of a contract of loan and not of deposit.
EVIDENCE; LOAN; PAYMENT.—Where plaintiff's receipt for a sum of money, paid
by defendant in satisfaction of an unidentified balance, is introduced to prove
payment of an obligation sued upon, it will be regarded after a lapse of thirty
years a satisfaction of the obligation in question in the absence of showing of
other obligations between the parties.
—Laches in the commencement of an action causing a possible failure of proof
will prevent court from applying strict rules of evidence.
Baron v David
FACTS
PABLO RUNS A RICE MILL, PLAINTIFF PLACES RICE IN MILL, FIRE GUTS MILL, PALAY
GONE
Defendant Pablo David has been running a rice mill in Pampanga. One day a
fire occurred that destroyed the mill and its contents. Silvestra Baron, the plaintiff
in the first action, is an aunt of the defendant; while Guillermo Baron, the plaintiff
in the other action; is his uncle. In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the defendant's mill. During the
same period Guillermo Baron also placed palay in the mill.
PLAINTIFFS CLAIM PALAY WAS SOLD, DEFENDANT ARGUES IT WAS DEPOSIT AND
THAT THE FIRE RELIEVED HIM OF LIABILITY

Both plaintiffs claim that the palay delivered by them to defendant was sold to
defendant; while defendant claims that the palay was deposited subject to
future withdrawal by the depositors or subject to some future sale which was
never effected. He therefore supposes himself to be relieved from all
responsibility by virtue of the fire, already mentioned.
ISSUE:
WON the palay was a deposit or a sale (SALE)
WON defendants are liable to plaintiffs (YES)
HELD
PALAY WAS SOLD, LIABILITY NOT EXTINGUISHED BY FIRE. PLAINTIFF BOUND TO
ACCOUNT FOR IT
In view of the nature of the defendant's activities and the way in which the palay
was handled in the defendant's mill, it is quite certain that all of the plaintiffs'
palay, which was put in before June 1, 1920, been milled and disposed of long
prior to the fire of January 17, 1921.
Considering the fact that the defendant had thus milled and doubtless sold the
plaintiffs' palay prior to the date of the fire, it result that he is bound to account
for its value, and his liability was not extinguished by the occurrence of the fire.
EVEN IF DEPOSIT, USE OF THE THING BINDS DEFENDANT TO ACCOUNT FOR ITS
VALUE
Even supposing that the palay may have been delivered in the character of
deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if
it was understood that the defendant might mill the palay and he has in fact
appropriated it to his own use, he is of course bound to account for its value
Under art 1768 of the Civil Code when the depository has permission to make
use of the thing deposited, the contract loses the character of mere deposit
and becomes a loan or a commodatum; and of course by appropriating the
thing, the bailee becomes responsible for its value.
In this connection we wholly reject the defendant's pretense that the palay
delivered by the plaintiffs or any part of it was actually consumed in the fire of
January, 1921. Nor is the liability of the defendant in any wise affected by the
circumstance that, by a custom prevailing among rice millers in this country,
persons placing palay with them without special agreement as to price are at
liberty to withdraw it later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.
DEPOSIT; USE OF THING DEPOSITED; LIABILITY OF DEPOSITARY.—The owner of a
rice mill who, in conformity with custom prevailing in the trade, receives palay
and converts it into rice, selling the product for his own benefit, must account
for the palay to the owner at the price prevailing at the time demand is made.
DESTRUCTION OF RICE MILL BY FIRE.—The destruction of a rice mill, with its
contents, by fire after palay thus deposited has been milled and marketed does
not affect the liability of the miller.
ATTACHMENT; DAMAGES RESULTING FROM WRONGFUL ATTACHMENT.—A plaintiff
who, by means of a false affidavit, procures an attachment to be issued and
levied upon a rice mill belonging to his debtor is liable in damages for the loss of
profits resulting from the closure of the mill, as well as for compensation for the
loss occasioned to the good-will of the business in driving away customers.
DEPOSITION ; READING OF DEPOSITION IN COURT.— When a deposition as
presented at the trial and admitted by the court, it is competent evidence for
the party in whose behalf it was taken, although it may not have been actually
read when introduced in evidence.
Obejera v Iga Sy
Facts:
On December 13, 1941, plaintiffs and defendant sought refuge in the house of
Leon Villena, on account of the Japanese invasion of the Philippines. News
having spread that the Japanese were committing barbarous acts, plaintiffs
and defendant decided to hide their things and valuables in a dugout
belonging to Villena.
On February 18, 1942, it was discovered that their money and things had been
lost. The defendant reported the loss of her valuables causing the arrest and
investigation of Villena, two others and the plaintiff Engracio Obejera, who were
released shortly after, except Engracio Obejera who was released only on April
19, 1912 after he, with his wife, had consented to execute a transfer agreement
with the defendant which was annulled by the Court of First Instance in
Batangas on the ground of force and intimidation.
Issue:
Whether or not Obejera is civilly liable to the assets that were lost by Sy?
Held:
NO. Decision AFFIRMED
Ratio Decidendi:
The Supreme Court ruled that the alleged deposit cannot be believed and is
contrary to the ordinary course of nature and the ordinary habits of life. Even if
it was considered, any obligation or liability arising therefrom was extinguished
upon the loss. The evidence of record shows that the plaintiffs were not in any
way responsible for the loss of the defendant's money and jewelry. It necessarily
follows that the deed of transfer whereby the plaintiffs promised to transfer their
property cannot be held liable, is null and void for lack of cause or consideration
and lack of free consent.
DEPOSIT; EVIDENCE; DISPUTABLE PRESUMPTION; ORDINARY COURSE OF NATURE
AND ORDINARY HABITS OF LIFE; CASE AT BAR.—After a careful consideration of
the nine assignments of error and examination of the evidence of this case, the
contention of the defendant and appellant cannot be sustained. The alleged
deposit cannot be believed and is contrary to the ordinary course of nature and
the ordinary habits of life.
LOSS OF THING DEPOSITED; EXTINCTION OF LIABILITY.—Even if the defendant's
theory of deposit were sustained, any obligation arising" therefrom was
extinguished upon the loss, without the fault of the depositee and under
circumstances which at the time were inevitable.
CONTRACTS; NULLITY; LACK OF CAUSE OR CONSIDERATION.—The deed of
transfer dated April 19, 1942 (Exhibit Y), whereby the plaintiffs paid P500 to the
defendant and further promised to transfer their property under Transfer
Certificate of Title No. 666 in case they failed to return on December 31, 1942
the balance of the loss for which they cannot be held liable, is null and void for
lack of cause or consideration (article 1275, Civil Code).
DURESS AND INTIMIDATION.—Under the facts stated in the opinion, it was held
that there had been employed in this case irresistible force and intimidation to
coerce the plaintiffs into executing the document in question, rendering it,
therefore, null and void for lack of free consent (articles 1265, 1267, 1268, Civil
Code).
Central Bank of the Philippines vs. Citytrust Banking Corporation
Facts:
If the plaintiff’s negligence was only contributory, the immediate and proximate
cause of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.
The Citytrust Banking Corporation (Citytrust) gave Central Bank of the Philippines
a list of signatures of five of its officers authorized to sign checks and serve as
drawers and indorsers for its account, and also the list of the roving tellers
authorized to perform other transactions on its behalf, one of whom was
Rounceval Flores (Flores). Flores presented two checks to the Central Bank’s
Senior Teller Iluminada dela Cruz (Dela Cruz) and was subsequently approved.
Dela Cruz prepared the cash transfer slip where Flores should sign but instead
he sign as one Rosauro C. Cayabyab. This fact was missed by Dela Cruz. It was
given to Cash Department and the signatures were examined and later on paid
Flores for the checks. After one year and nine months, the Citytrust demanded
that the checks be cancelled and the funds taken out be returned because the
check was stolen before. Central Bank did not heed such call. Citytrust filed a
complaint to collect the sum of money with damages against Central Bank to
the Regional Trial Court (RTC). RTC found both parties negligent and held them
equally liable for the loss. Court of Appeals affirmed the decision.
ISSUE:
Whether or not Citytrust can collect sum of money as damages from the Central
Bank.
HELD:
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (R.A. 8791), which took effect on 13
June 2000, declares that the State recognizes the “fiduciary nature of banking
that requires high standards of integrity and performance.”
This fiduciary relationship means that the bank’s obligation to observe “high
standards of integrity and performance” is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family. Section
2 of R.A. 8791 prescribes the statutory diligence required from banks – that banks
must observe “high standards of integrity and performance” in servicing their
depositors. Citytrust’s failure to timely examine its account, cancel the checks
and notify petitioner of their alleged loss/theft should mitigate petitioner’s
liability, in accordance with Article 2179 of the Civil Code which provides that if
the plaintiff’s negligence was only contributory, the immediate and proximate
cause of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.
Banks and Banking; Fiduciary Nature of Banking; The bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship; The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a good father of a
family.—The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of Republic Act No. 8791 (“RA 8791”), which took effect
on 13 June 2000, declares that the State recognizes the “fiduciary nature of
banking that requires high standards of integrity and performance.” This new
provision in the general banking law, introduced in 2000, is a statutory affirmation
of Supreme Court decisions, starting with the 1990 case of Simex International v.
Court of Appeals, holding that “the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.” This fiduciary relationship means that the
bank’s obligation to observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family.
Petitioner’s liability to Citytrust mitigated on a 60-40- ratio.—Citytrust’s failure to
timely examine its account, cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioner’s liability, in accordance with Article
2179 of the Civil Code which provides that if the plaintiff’s negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant’s lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded. For had Citytrust timely discovered
the loss/theft and/or subsequent encashment, their proceeds or part thereof
could have been recovered. In line with the ruling in Consolidated Bank and
Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003), the Court deems it
proper to allocate the loss between petitioner and Citytrust on a 60-40 ratio.
VICENTE DELGADO vs. PEDRO BONNEVIE
FACTS:
DELGADO vs. BONNEVIE and ARANDEZ 23 PHIL 308 FACTS: Appellant Bonnevie
and Arandez formed a regular general partnership in Nueva Caceres, Ambos,
Camarines Sur which engaged in the business of threshing paddy/palay.
Vicente Delgado undertook to deliver to the appellants, 2003 and a half paddy.
The palays are to be cleaned and returned to him as rice with the agreement
of payment of 10 centimos for each cavan and to have it returned in the rice,
onehalf the amount received as palay. Delgado appeared in CFI on February
6, 1909, demanding the return of the 2003 and a half cavanes of palay. Prior to
the pendency of the trial, the partnership was already dissolved.
ISSUES:
1. W/N the nature of the obligation contracted by the appellants (Bonnevie &
Arandez) is a deposit or a hire of service.
2. W/N the right to demand the return of the things has prescription.
HELD:
1. The obligation of the appellants arose primarily out of deposit. While the
deposit was later converted into a contract of hire services, even after the hire
of service had been fulfilled, the object (rice) in every way remained as a
deposit in the possession of the appellants, for them to return to the depositor at
any time they might be required to do so and nothing has released them of this
obligation. Moreover, neither the dissolution of the partnership that united them,
nor the revolutionary movement of a political character that seems to have
occurred in 1898, nor the fact that they may at some time have lost possession
of the rice has released them from the obligation to return it. 2. Under the title of
deposit or hire of services, the possession of the appellants can in no way
amount to prescription, for the thing received on deposit or for hire of service
could not prescribe, since for every prescription of ownership, the possession
must be in the capacity of an owner, public, peaceful and uninterrupted (Civil
Code 1941). The appellants could not possess the rice in the capacity of owners,
taking for granted that the depositor or lessor never could have believed that
he had transferred to them ownership of the thing deposited or leased, but
merely the care of the thing on deposit and the use or profit thereof; which is
expressed in legal terms by saying that the possession of the depositary or of the
lessee is not adverse to that of the depositor or lessor, who continues to be the
owner of the thing which is merely held in trust by the depositary or lessee.
COMPANIA AGRICOLA VS. NEPOMUCENO
FACTS:
The registered partnerships, Mariano Velasco & Co., Mariano Velasco, Sons, &
Co., and Mariano Velasco & Co., Inc., were, on petition of the creditors,
declared insolvent by the Court of First Instance of Manila. Compania Agricola
de Ultramar filed a claim against one of the insolvents Mariano Velasco & Co.,
claiming the sum of P10,000, with the agreed interest thereon at the rate of 6
per cent per annum from April 5, 1918, until its full payment was a deposit with
said Mariano Velasco & Co. and asked the court to declare it a preferred claim.
The court rendered a decision declaring that the alleged deposit was a
preferred claim for the sum mentioned, with interest at 6 per cent per annum
from April 5, 1918, until paid. From this decision the assignee appealed.
The evidence presented by the claimant Compania Agricola de Ultramar
consisted of a receipt in writing, and the testimony of Jose Velasco who was
manager of Mariano Velasco & Co. at the time the note was executed.
Received from the "Compania Agricola de Ultramar" the sum of ten thousand
Philippine pesos as a deposit at the interest of six per cent annually, for the term
of three months from date.
ISSUE:
Whether the claim of the appellee should be considered a deposit and a
preferred claim.
RULING:
NO. The transaction involved was a loan and not a deposit.
Although in the document in question a deposit is spoken of, nevertheless from
an examination of the entire document it clearly appears that the contract was
a loan and that such was the intention of the parties. It is unnecessary to recur
to the cannons of interpretation to arrive at this conclusion. The obligation of the
depository to pay interest at the rate of 6 per cent to the depositor suffices to
cause the obligation to be considered as a loan and makes it likewise evident
that it was the intention of the parties that the depository should have the right
to make use of the amount deposited, since it was stipulated that the amount
could be collected after notice of two months in advance. Such being the case,
the contract lost the character of a deposit and acquired that of a loan. (Art.
1768, Civil Code.) [Gavieres vs. De Tavera]
Article 1767 of the Civil Code provides that —
 "The depository cannot make use of the thing deposited without the express
permission of the depositor."
"Otherwise he shall be liable for losses and damages."
Article 1768 also provides that —
"When the depository has permission to make use of the thing deposited, the
contract loses the character of a deposit and becomes a loan or bailment."
"The permission not be presumed, and its existence must be proven."
Moreover, it may be inferred that there was no renewal of the contract of
deposit which converted into a loan, because, as has already been stated, the
defendants received said amount by virtue of a real loan contract under the
name of a deposit, since the so-called bailees were forthwith authorized to
dispose of the amount deposited. This they have done, as has been clearly
shown.
The ten thousand pesos delivered by the appellee to Mariano Velasco & Co.
cannot be regarded as a technical deposit. But the appellee argues that it is at
least an "irregular deposit." This argument is, we think, sufficiently answered in the
case of Rogers vs. Smith, Bell & Co. (10 Phil., 319). There this court said:
. . . Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states
that there are three points of difference between a loan and an irregular
deposit. The first difference which he points out consists in the fact that in an
irregular deposit the only benefit is that which accrues to the depositor, while in
a loan the essential cause for the transaction is the necessity of the borrower.
Nor does the contract in question fulfill the third requisite indicated by
Manresa, which is, that in an irregular deposit, the depositor can demand the
return of the article at any time, while a lender is bound by the provisions of the
contract and cannot seek restitution until the time for payment, as provided in
the contract, has arisen. It is apparent from the terms of this documents that the
plaintiff could not demand his money at any time. He was bound to give notice
of his desire for its return and then to wait for six months before he could insist
upon payment.
In the present case the transaction in question was clearly not for the sole
benefit of the Compania Agricola de Ultramar; it was evidently for the benefit
of both parties. Neither could the alleged depositor demand payment until the
expiration of the term of three months.
For the reasons stated, the appealed judgment is reversed, and we hold that
the transaction in question must be regarded as a loan, without preference.
BPI VS CA, 232 SCRA 302 (1994)
BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND
TRUST CO.), petitioner,
vs. HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM,
respondents.
FACTS:
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim
(Lim), held one joint bank account with the Commercial Bank and Trust Co.
(CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands
(BPI). Sometime in March 1975, a joint checking account with Lim in the amount
of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the
account of Eastern and/or Lim.
Velasco died. At the time of his death, the outstanding balance of the account
stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking
executed by Lim one-half of this amount was provisionally released and
transferred to one of the bank accounts of Eastern with CBTC.
Thereafter, Eastern obtained a loan of P73,000.00 from CBTC as "Additional
Working Capital,". Eastern issued a negotiable promissory note for P73,000.00
payable on demand to the order of CBTC with interest at 14% per annum. The
note was signed by Lim. The loan is wholly/partly secured by the Hold-Out on a
1:1 on C/A No. 2310-001-42, which refers to the joint account of Velasco and Lim
with a balance of P331,261.44. In addition, Eastern and Lim, and CBTC signed
another document entitled "Holdout Agreement,"
On the other hand, a case for the settlement of Velasco's estate was filed. In the
said case, the whole balance of P331,261.44 in the aforesaid joint account of
Velasco and Lim was being claimed as part of Velasco's estate. The intestate
court granted motion of the heirs of Velasco to withdraw the balance and
authorized the heirs to divide among themselves the amount withdrawn.
CBTC was merged with BPI. BPI filed a complaint against Lim and Eastern
demanding payment of the promissory note for P73,000.00. Defendants Lim and
Eastern, in turn, filed a counterclaim against BPI for the return of the balance in
the disputed account subject of the Holdout Agreement and the interests
thereon after deducting the amount due on the promissory note.
RTC dismissed the complaint and CA affirmed the decision.
PETITIONER’s CONTENTION: BPI alleged that the Holdout Agreement in question
was subject to a suspensive condition stated therein, viz., that the "P331,261.44
shall become a security for respondent Lim's promissory note only if respondents'
Lim and Eastern Plywood Corporation's interests to that amount are established
as a result of a final and definitive judicial action or a settlement between and
among the contesting parties thereto." Hence, BPI asserts, the Court of Appeals
erred in affirming the trial court's decision dismissing the complaint on the ground
that it was the duty of CBTC to debit the account of the defendants to set off
the amount of P73,000.00 covered by the promissory note.
PRIV. RESPONDENT’s CONTENTION: Eastern and Lim dispute the "suspensive
condition" argument of the petitioner that they are rightful owners of the money
in question, the suspensive condition does not find any application in this case
and the bank had the duty to set off this deposit with the loan.
ISSUES:
1. WON BPI can demand payment of the loan of P73,000.00 despite the
existence of the Holdout Agreement? YES
2. WON BPI is still liable to the private respondents on the account subject of
the Holdout Agreement after its withdrawal by the heirs of Velasco? YES
HELD:
ISSUE 1:
It is clear in paragraph 02 of the “Holdout Agreement” that CBTC, or BPI as its
successor-in-interest, had every right to demand that Eastern and Lim settle their
liability under the promissory note. It cannot be compelled to retain and apply
the deposit in Lim and Velasco's joint account to the payment of the note. What
the agreement conferred on CBTC was a power, not a duty. Generally, a bank
is under no duty or obligation to make the application. To apply the deposit to
the payment of a loan is a privilege, a right of set-off which the bank has the
option to exercise.
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding
the agreement, CBTC was not in any way precluded from demanding payment
from Eastern and from instituting an action to recover payment of the loan.
What it provides is an alternative, not an exclusive, method of enforcing its claim
on the note. Its suit for the enforcement of the note was then in order and it was
error for the trial court to dismiss it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The
"suspensive condition" theory of the petitioner is, therefore, untenable.
ISSUE 2:
The Court of Appeals correctly decided on the counterclaim. The counterclaim
of Eastern and Lim for the return of the P331,261.44 was equivalent to a demand
that they be allowed to withdraw their deposit with the bank. Article 1980 of the
Civil Code expressly provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions
concerning simple loan."
In Serrano vs. Central Bank of the Philippines, we held that bank deposits are in
the nature of irregular deposits; they are really loans because they earn interest.
The relationship then between a depositor and a bank is one of creditor and
debtor. The deposit under the questioned account was an ordinary bank
deposit; hence, it was payable on demand of the depositor.
The account was proved and established to belong to Eastern even if it was
deposited in the names of Lim and Velasco. As the real creditor of the bank,
Eastern has the right to withdraw it or to demand payment thereof. BPI cannot
be relieved of its duty to pay Eastern simply because it already allowed the heirs
of Velasco to withdraw the whole balance of the account. The petitioner should
not have allowed such withdrawal because it had admitted in the Holdout
Agreement the questioned ownership of the money deposited in the
account. Moreover, the order of the court merely authorized the heirs of
Velasco to withdraw the account. BPI was not specifically ordered to release
the account to the said heirs; hence, it was under no judicial compulsion to do
so.
Because the ownership of the deposit remained undetermined, BPI, as the
debtor, had no right to pay to persons other than those in whose favor the
obligation was constituted or whose right or authority to receive payment is
indisputable. Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or negligence,
even if the debtor acted in utmost good faith and by mistake as to the person
of the creditor, or through error induced by fraud of a third person. The payment
then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish
its obligation to the true depositor, Eastern.
POLICY:
Bank deposits are in the nature of irregular deposits; they are really loans
because they earn interest. The relationship then between a depositor and a
bank is one of creditor and debtor.
Durban Apartments Corporation vs. Pioneer Insurance and Surety Corporation
FACTS: July 22, 2003, Pioneer Insurance and Surety Corp, by right of subrogation,
filed with the RTC of Makati a Complaint for Recovery of Damages against
Durban Apartments Corp. (or City Garden Hotel) and defendant before the
RTC, Vicente Justimbaste. Respondent averred that it is the insurer for loss and
damage of Jeffrey S. See’s 2001 Suzuki Grand Vitara in the amount of
P1,175,000.00. On April 30, 2002, See arrived and checked in at the City Garden
Hotel before midnight, and its parking attendant, Justimbaste got the key to said
Vitara from See to park it. On May 1, 2002, at about 1:00 am, See received a
phone call where the Hotel Chief Security Officer informed him that his Vitara
was carnapped while it was parked unattended at the parking area of
Equitable PCI Bank See went to see the Security Officer, thereafter reported the
incident to the Operations Division of the Makati City Police Anti-Carnapping
Unit, and a flash alarm was issued. The police investigated Hotel Security Officer,
Ernesto T. Horlador, Jr. and Justimbaste. See gave his Sinumpaang Salaysay to
the police investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame. it paid the P1,163,250.00 money claim of
See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for the loss of
the Vitara.
The Vitara was lost due to the negligence of Durban Apartments and
Justimbaste because it was discovered during the investigation that this was the
second time that a similar incident of carnapping happened in the valet parking
service and no necessary precautions were taken to prevent its repetition.
Durban Apartments was wanting in due diligence in the selection and
supervision of its employees particularly defendant Justimbaste. Both failed and when he handed over to Justimbaste the keys to his vehicle, which Justimbaste
refused to pay its valid, just, and lawful claim despite written demands. received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of See’s vehicle.
ISSUE: Is petitioner liable for the loss of See’s vehicle?

RULING: Yes.

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the
same. If the safekeeping of the thing delivered is not the principal purpose of
the contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, or to their employees,
of the effects brought by the guests and that, on the part of the latter, they take
the precautions which said hotel-keepers or their substitutes advised relative to
the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latter’s employee,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract
of deposit was perfected from See’s delivery, when he handed over to
Justimbaste the keys to his vehicle, which Justimbaste received with the
obligation of safely keeping and returning it. Ultimately, petitioner is liable for the
loss of See’s vehicle.

Contract of Deposit; Hotels and Inns; The contract of deposit was perfected when
the hotel guest handed over to the hotel’s parking attendant the keys to his
vehicle, which the latter received with the obligation of safely keeping and
returning it.—Article 1962, in relation to Article 1998, of the Civil Code defines a
contract of deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the
same. If the safekeeping of the thing delivered is not the principal purpose of
the contract, there is no deposit but some other contract. Art. 1998. The deposit
of effects made by travelers in hotels or inns shall also be regarded as necessary.
The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take the
precautions which said hotelkeepers or their substitutes advised relative to the
care and vigilance of their effects. Plainly, from the facts found by the lower
courts, the insured See deposited his vehicle for safekeeping with petitioner,
through the latter’s employee, Justimbaste. In turn, Justimbaste issued a claim
stub to See. Thus, the contract of deposit was perfected from See’s delivery,
Makati Shangri-La Hotel and Resort, Inc. vs. Harper unrestricted access to all hotel rooms on the pretense of being visitors of the
DOCTRINE: guests which is absurd.

Negligence – Article 2176 0f the New Civil Code provides “Whoever by act or
omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.”
The hotel business is imbued with public interest. Hotelkeepers are bound to
provide not only lodging for their guests but also security to their persons and
belongings to their guest. The twin duty constitutes the essence of the business
(Arts 2000-2001 New Civil Code).
Hotel owner is liable for civil damages to surviving heirs of hotel guest whom
strangers murder inside his hotel room.
FACTS:
Christian Harper was a Norweigian who came to Manila on a business trip. He
stayed at Makati Shangri-la Hotel, but he was murdered in his hotel room
[Specifically Room 1428. His ghost can be found there].
It was found that the muderer, a Caucasian male, was able to trespass into the
hotel room of the victim and was then able to murder and rob the victim. The
heirs of the victim blame the hotel's gross negligence in providing the most basic
security system of its guests.
The RTC held in favor of the heirs and ordered Shangri-la to pay damages. CA
affirmed.
ISSUE: WON Shangri-la Hotel is liable for damages.
Note: The decision of the CA was reproduced in the decision to which the SC
concurred. The CA discussed the test of negligence as:
“The test of negligence is objective. WE measure the act or omission of the
tortfeasor with a perspective as that of an ordinary reasonable person who is
similarly situated. The test, as applied to the extant case, is whether or not
[Shangri-la Hotel], under the attendant circumstances, used that reasonable
care and caution which an ordinary person would have used in the same
situation.”
Hotelkeepers; The hotel business is imbued with public interest. Catering to the
public, hotelkeepers are bound to provide not only lodging for their guests but
also security to the persons and belongings of their guests. The twin duty
constitutes the essence of the business.―The hotel business is imbued with public
interest. Catering to the public, hotelkeepers are bound to provide not only
lodging for their guests but also security to the persons and belongings of their
guests. The twin duty constitutes the essence of the business. Applying by
analogy Article 2000, Article 2001 and Article 2002 of the Civil Code (all of which
concerned the hotelkeepers’ degree of care and responsibility as to the
personal effects of their guests), we hold that there is much greater reason to
apply the same if not greater degree of care and responsibility when the lives
and personal safety of their guests are involved. Otherwise, the hotelkeepers
would simply stand idly by as strangers have unrestricted access to all the hotel
rooms on the pretense of being visitors of the guests, without being held liable
should anything untoward befall the unwary guests. That would be absurd,
something that no good law would ever envision.

HELD:
Yes. Shangri-la is liable due to its own negligence.

The testimony revealed that the management practice of the hotel prior to the
death of the victim was to deploy only one security or roving guard for every
three or four floors of the hotel, which is inadequate because the hotel is L-
shaped that rendered hallways not visible end to end. That there was a
recommendation to increase security to one guard per floor but this was not
followed. This omission is critical. The hotel business is imbued with public interest.
Hotelkeepers are bound to provide not only lodging for their guests but also
security to their persons and belongings to their guest. The twin duty constitutes
the essence of the business.

Therefore, the hotel has a greater degree of care and responsibility for its guests ,
otherwise the hotelkeepers would just stand idly by while strangers have
YHT Realty Corporation vs. Court of Appeals
Facts:
Respondent McLoughlin would always stay at Tropicana Hotel every time he is
here in thePhilippines and would rent a safety deposit box. The safety deposit
box could only be openedthrough the use of 2 keys, one of which is given to the
registered guest, and the other remaining in the possession of the management
of the hotel. McLoughlin allegedly placed the following in his safety deposit box
– 2 envelopes containing US Dollars, one envelope containing Australian Dollars,
Letters, credit cards, bankbooks and acheckbook.On 12 December 1987,
before leaving for a brief trip, McLoughlin took some items from the safety box
which includes the ff: envelope containing Five Thousand US Dollars
(US$5,000.00), the other envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards. The other items were left in
the deposit box. Upon arrival, he found out that a fewd ollars were missing and
the jewelry he bought was likewise missing. Eventually, he confronted Lainez and
Paiyam who admitted that Tan opened the safety deposit box with the key
assigned to him. McLoughlin went up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen McLouglin’s key and was able
to open the safety deposit box with the assistance of Lopez, Paiyam and Lainez.
Lopez also told McLoughlin that Tan stole the key assigned to McLouglin while
the latter was asleep. McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. Lopez refused to accept
responsibility relying on the conditions for renting the safety deposit box entitled
“Undertaking For the Use of Safety Deposit Box”
ISSUE
WON the “Undertaking for the Use of Safety Deposit Box” admittedly executed
by private respondent is null and void.
HELD
YES Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this case.
The hotel business like the common carrier’s business is imbued with public
interest. Catering to the public, hotelkeepers are bound to provide not only
lodging for hotel guests and security to their persons and belongings. The twin
duty constitutes the essence of the business. The law in turn does not allow such
duty to the public to be negated or diluted by any contrary stipulation in so-
called “undertakings” that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature. In an early case (De Los Santos v. Tan
Khey), CA ruled that to hold hotelkeepers or innkeeper liable for the effects of
their guests, it is not necessary that they be actually delivered to the innkeepers
or their employees. It is enough that such effects are within the hotel or inn. With
greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest’s knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case. Paragraphs (2)
and (4) of the “undertaking” manifestly contravene Article 2003, CC for they
allow Tropicana to be released from liability arising from any loss in the contents
and/or use of the safety deposit box for any cause whatsoever. Evidently, the
undertaking was intended to bar any claim against Tropicana for any loss of the
contents of the safety deposit box whether or not negligence was incurred by
Tropicana or its employees. The New Civil Code is explicit that the responsibility
of the hotel-keeper shall extend to loss of, or injury to, the personal property of
the guests even if caused by servants or employees of the keepers of hotels or
inns as well as by strangers, except as it may proceed from any force majeure.
Hotels and Inns; Deposits; Safety Deposit Boxes; Mere close companionship and
intimacy are not enough to warrant the conclusion that a hotel guest and his
companion are husband and wife—it is no excuse for the hotel to have allowed
the latter to open the safety deposit box of the former.—The management
contends, however, that McLoughlin, by his act, made its employees believe
that Tan was his spouse for she was always with him most of the time. The
evidence on record, however, is bereft of any showing that McLoughlin
introduced Tan to the management as his wife. Such an inference from the act
of McLoughlin will not exculpate the petitioners from liability in the absence of
any showing that he made the management believe that Tan was his wife or
was duly authorized to have access to the safety deposit box. Mere close
companionship and intimacy are not enough to warrant such conclusion
considering that what is involved in the instant case is the very safety of
McLoughlin’s deposit. If only petitioners exercised due diligence in taking care
of McLoughlin’s safety deposit box, they should have confronted him as to his
relationship with Tan considering that the latter had been observed opening
McLoughlin’s safety deposit box a number of times at the early hours of the
morning. Tan’s acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due
diligence required of them. Failure to do so warrants the conclusion that the
management had been remiss in complying with the obligations imposed upon
hotel-keepers under the law.
Quasi-Delicts; Torts; Where the loss of a hotel guest’s money was consummated
through the negligence of the hotel employee in allowing the companion of said
guest to open the safety deposit box without the guest’s consent, both the
assisting employees and the hotel owner and operator are solidarily liable.—
Under Article 1170 of the New Civil Code, those who, in the performance of their
obligations, are guilty of negligence, are liable for damages. As to who shall
bear the burden of paying damages, Article 2180, paragraph (4) of the same
Code provides that the owners and managers of an establishment or enterprise
are likewise responsible for damages caused by their employees in the service
of the branches in which the latter are employed or on the occasion of their
functions. Also, this Court has ruled that if an employee is found negligent, it is
presumed that the employer was negligent in selecting and/or supervising him
for it is hard for the victim to prove the negligence of such employer. Thus, given
the fact that the loss of McLoughlin’s money was consummated through the
negligence of Tropicana’s employees in allowing Tan to open the safety deposit
box without the guest’s consent, both the assisting employees and YHT Realty
Corporation itself, as owner and operator of Tropicana, should be held solidarily
liable pursuant to Article 2193.
Catering to the public, hotel-keepers are bound to provide not only lodging for
hotel guests but also security to their persons and belongings—a twin duty which
the law does not allow to be negated or diluted by any contrary stipulation in
so-called “undertakings” that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.—The issue of whether the
“Undertaking For The Use of Safety Deposit Box” executed by McLoughlin is
tainted with nullity presents a legal question appropriate for resolution in this
petition. Notably, both the trial court and the appellate court found the same
to be null and void. We find no reason to reverse their common conclusion.
Article 2003 is controlling, thus: Art. 2003. The hotel-keeper cannot free himself
from responsibility by posting notices to the effect that he is not liable for the
articles brought by the guest. Any stipulation between the hotel-keeper and the
guest whereby the responsibility of the former as set forth in Articles 1998 to 2001
is suppressed or diminished shall be void. Article 2003 was incorporated in the
New Civil Code as an expression of public policy precisely to apply to situations
such as that presented in this case. The hotel business like the common carrier’s
business is imbued with public interest. Catering to the public, hotelkeepers are
bound to provide not only lodging for hotel guests and security to their persons
and belongings. The twin duty constitutes the essence of the business. The law
in turn does not allow such duty to the public to be negated or diluted by any
contrary stipulation in so-called “undertakings” that ordinarily appear in
prepared forms imposed by hotel keepers on guests for their signature.
With greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest’s knowledge and consent from a
safety deposit box provided by the hotel itself.—In an early case, the Court of
Appeals through its then Presiding Justice (later Associate Justice of the Court)
Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the
effects of their guests, it is not necessary that they be actually delivered to the
innkeepers or their employees. It is enough that such effects are within the hotel
or inn. With greater reason should the liability of the hotelkeeper be enforced
when the missing items are taken without the guest’s knowledge and consent
from a safety deposit box provided by the hotel itself, as in this case.
Article 2002 of the Civil Code which exempts the hotel-keeper from liability if the
loss is due to the acts of his guest, his family, or visitors presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any
degree to the occurrence of the loss—a depositary is not responsible for the loss
of goods by theft, unless his actionable negligence contributes to the loss.—
Petitioners likewise anchor their defense on Article 2002 which exempts the
hotel-keeper from liability if the loss is due to the acts of his guest, his family, or
visitors. Even a cursory reading of the provision would lead us to reject
petitioners’ contention. The justification they raise would render nugatory the
public interest sought to be protected by the provision. What if the negligence
of the employer or its employees facilitated the consummation of a crime
committed by the registered guest’s relatives or visitor? Should the law
exculpate the hotel from liability since the loss was due to the act of the visitor
of the registered guest of the hotel?
Hence, this provision presupposes that the hotel-keeper is not guilty of
concurrent negligence or has not contributed in any degree to the occurrence
of the loss. A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.
The hotel was guilty of concurrent negligence in allowing the hotel guest’s
companion, who was not the registered guest, to open the safety deposit box
of the guest, even assuming that the latter was also guilty of negligence in
allowing another person to use his key—to rule otherwise would result in
undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the pretense
of being a family member or a visitor of the guest, to have access to the safety
deposit box without fear of any liability that will attach thereafter in case such
person turns out to be a complete stranger.—In the case at bar, the responsibility
of securing the safety deposit box was shared not only by the guest himself but
also by the management since two keys are necessary to open the safety
deposit box. Without the assistance of hotel employees, the loss would not have
occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan,
who was not the registered guest, to open the safety deposit box of McLoughlin,
even assuming that the latter was also guilty of negligence in allowing another
person to use his key. To rule otherwise would result in undermining the safety of
the safety deposit boxes in hotels for the management will be given imprimatur
to allow any person, under the pretense of being a family member or a visitor of
the guest, to have access to the safety deposit box without fear of any liability
that will attach thereafter in case such person turns out to be a complete
stranger. This will allow the hotel to evade responsibility for any liability incurred
by its employees in conspiracy with the guest’s relatives and visitors.
A tort liability can exist even if there are already contractual relations—the act
that breaks the contract may also be tort.—Petitioners contend that
McLoughlin’s case was mounted on the theory of contract, but the trial court
and the appellate court upheld the grant of the claims of the latter on the basis
of tort. There is nothing anomalous in how the lower courts decided the
controversy for this Court has pronounced a jurisprudential rule that tort liability
can exist even if there are already contractual relations. The act that breaks the
contract may also be tort.
Chapter V: Warehouse Receipts Law
ROMAN V. ASIA BANKING CORPORATION
FACTS: U. de Poli, for value received, issued a quedan convering the 576 bultos
of tobacco to the Asia Banking Corporation (claimant & appellant). It was
executed as a security for a loan. The aforesaid 576 butlos are part and parcel
of the 2, 766 bultos purchased by U. de Poli from Felisa Roman (claimant &
appellee).
The quedan was marked as Exhibit D which is a warehouse receipt issued by the
warehouse of U. de Poli for 576 bultos of tobacco. In the left margin of the face
of the receipt, U. de Poli certifies that he is the sole owner of the merchandise
therein described. The receipt is endorsed in blank; it is not marked”non-
negotiable” or “not negotiable”.
Since a sale was consummated between Roman and U. de Poli, Roman’s claim
is a vendor’s lien. The lower court ruled in favor of Roman on the theory that
since the transfer to Asia Banking Corp. (ASIA) was neither a pledge nor a
mortgage, but a security for a loan, the vendor’s lien of Roman should be
accorded preference over it.
However, if the warehouse receipt issued was non-negotiable, the vendor’s lien
of Roman cannot prevail against the rights of ASIA as indorsee of the receipt.
ISSUE: WON the quedan issued by U. de Poli in favor of ASIA. is negotiable,
despite failure to mark it as not negotiable?
HELD: YES. The warehouse receipt in question is negotiable. It recited that certain
merchandise deposited in the ware house “por orden” of the depositor instead
of “a la orden”, there was no other direct statement showing whether the goods
received are to be delivered to the bearer, to a specified person, or to a
specified order or his order. However, the use of “por orden” was merely a
clerical or grammatical error and that the receipt was negotiable.
As provided by the Warehouse Receipts Act, in case the warehouse man fails
to mark it as “non-negotiable”, a holder of the receipt who purchase if for value
supposing it to be negotiable may, at his option, treat such receipt as imposing
upon the warehouseman the same liabilities he would have incurred had the
receipt been negotiable. This appears to have given any warehouse receipt not
marked “non-negotiable” practically the same effect as a receipt which, by its
terms, is negotiable provided the holder of such unmarked receipt acquired it
for value supposing it to be negotiable, circumstances which admittedly exist in
the present case. Hence, the rights of the indorsee, ASIA, are superior to the
vendor’s lien.
WAREHOUSE RECEIPT; VENDOR'S LIEN.—A vendor's lien upon goods stored in a
public warehouse cannot prevail against the rights of a purchaser, mortgagee,
or pledgee, for value and in good faith to whom the negotiable warehouse
receipt for such goods has been indorsed.
INTERPRETATION.—A warehouse receipt like any other document must be
interpreted according to its evident intent.
.—A warehouse receipt recited that certain merchandise was deposited in the
warehouse "por orden" of the depositor instead of "a la orden." It was not
marked "non-negotiable" or "not negotiable" as required by statute for non-
negotiable warehouse receipts. Held: That the use of "por orden" was merely a
clerical or grammatical error and that the receipt was negotiable.
Bank of P.I. v. Herridge
FACTS:
The insolvent Umberto de Poli was for several years engaged on an extensive
scale in the exportation of Manila hemp, maguey and other products of the
country.
He was also a licensed public warehouseman, though most of the goods stored
in his warehouses appear to have been merchandise purchased by him for
exportation and deposited there by he himself.
In order to finance his commercial operations De Poli established credits with
some of the leading banking institutions doing business in Manila at that time,
among them the Hongkong & Shanghai Banking Corporation, the Bank of the
Philippine Islands, the Asia Banking Corporation, the Chartered Bank of India,
Australia and China, and the American Foreign Banking Corporation.
De Poli opened a current account credit with the bank against which he drew
his checks in payment of the products bought by him for exportation.
Upon the purchase, the products were stored in one of his warehouses and
warehouse receipts issued therefor which were endorsed by him to the bank as
security for the payment of his credit in the account current.
When the goods stored by the warehouse receipts were sold and shipped, the
warehouse receipt was exchanged for shipping papers, a draft was drawn in
favor of the bank and against the foreign purchaser, with bill of landing
attached, and the entire proceeds of the export sale were received by the
bank and credited to the current account of De Poli.
De Poli was declared insolvent by the Court of First Instance of Manila with
liabilities to the amount of several million pesos over and above his assets. An
assignee was elected by the creditors and the election was confirmed by the
court.
Among the property taken over the assignee was the merchandise stored in the
various warehouses of the insolvent. This merchandise consisted principally of
hemp, maguey and tobacco.
The various banks holding warehouse receipts issued by De Poli claim ownership
of this merchandise under their respective receipts, whereas the other creditors
of the insolvent maintain that the warehouse receipts are not negotiable, that
their endorsement to the present holders conveyed no title to the property, that
they cannot be regarded as pledges of the merchandise inasmuch as they are
not public documents and the possession of the merchandise was not delivered
to the claimants and that the claims of the holders of the receipts have no
preference over those of the ordinary unsecured creditors.law lib
ISSSUE:
Whether or not the warehouse receipts issued are negotiable?
HELD:
Yes, a warehouseman who deposited merchandise in his own warehouse,
issued a warehouse receipts therefore and thereafter negotiated the receipts
by endorsement. The receipt recites that the goods were deposited “por orden”
of the depositor, the warehouseman, but contained no statement that the
goods were to be delivered to the bearer of the receipts or to a specified
person. It is in the form of a warehouse receipts and was not mark
“nonnegotiable”.
Therefore the receipts was negotiable warehouse receipts and the words “por
orden” must be construed to mean “to the order”.
WRITTEN INSTRUMENTS; CONSTRUCTION.—Whenever possible, writings must be so
construed as to give effect to their general intent and so as to avoid absurdities.
WAREHOUSE RECEIPTS; CONSTRUCTION.—As instruments of credit, warehouse
receipts play an important role in modern commerce and the present day
tendency of the courts is towards a liberal construction of the law in favor of
bona fide holders of such receipts.
—A warehouseman deposited merchandise in his own warehouse, issued a
warehouse receipt therefor and thereafter negotiated the receipt by
endorsement. The receipt recites that the goods were deposited "por orden" of
the depositor, the warehouseman, but contained no statement that the goods
were to be delivered to the bearer of the receipt or to a specified person. It was
in the form of a negotiable warehouse receipt and was not marked
"nonnegotiable" or "not negotiable." Held: That, the receipt was a negotiable
warehouse receipt and that the words "por orden" must be construed to mean
"to the order."
CHATTEL MORTGAGE; NOVATION.—A chattel mortgage was taken by a bank
upon the goods previously transferred to the same bank by warehouse receipt.
Held: That, under the circumstances of the case, the chattel mortgage did not
work a novation of the warehouse contract between the parties and that the
bank might still insist on the rights acquired by it under the warehouse receipt.
National Bank vs. Producers' Warehouse Association
Facts:
In May 1916 PWA and PFPC entered into a written contract, wherein PFPC would
act as the general manager of the business of PWA, and that PFPC would
exercise a general and complete supervision over the management of the
business of PWA, subject to the control of PWA’s board of directors. It is further
agreed that PWA has an annual salary of P7,500 for its services as general
manager, and that its local agents will also be paid P300 per month for their
services. The agreement also provides that it shall remain in force and effect ten
years from date, with the right of the Produce Company to renew it for a further
period of one to ten years at its option.
On November and December 1918, PWA issued seven (7)
negotiable quedans to PFPC for 15,699.34 piculs of Copra, in and by which,
subject to the terms and conditions therein stated, it agreed to deliver that
amount of copra to the Produce Company or its order.
Said terms and
conditions also includes the following:
That PWA will deliver the packages noted therein upon the surrender of the
warrant to PWA
> No transfer of interest/ownership will be recognized unless
registered in the books of PWA
The words “negotiable warrant” were printed in red ink in the quedan, viz: "This
warrant is of no value unless signed by an officer of the association," and were
signed “PWA by Mr. Wicks, Treasurer, and by R. Torres, Warehouseman."
Each receipt was also numbered, and stated the number of the warehouse
and where situated and recited that storage charges were at the rate of P0.04
per picul per month, and that the insurance rate was 1/3% per month of the
declared value.
PFPC then arranged for overdraft with PNB (bank) for P1M and to secure it, the
subject quedans were endorsed in blank and delivered by PFPC to PNB as a
collateral security. The latter then became the owner and holder thereof.
Without making a tender of any charges, PNB REQUESTED THE DELIVERY OF THE
COPRA DESCRIBED IN THE QUEDANS, and, for its failure to do so, commenced an
action to recover its value alleged to be P240k+, with interest at the rate of 6 %
per annum. In good faith, PNB purchased these quedans, as such PNB
requested the defendant to register the quedans in the name of PNB, and to
deliver to it the 14,587.19 piculs of copra, and, upon that date, that it had
offered to satisfy any lien that defendant might have, to surrender the receipts
with such indorsement that it might require, and the receipt therefor, when the
goods were delivered, if such signature is requested by the defendant.
However, PWA refused to comply despite repeated requests of PNB, stating that
it could not be delivered since the goods mentioned are not in the warehouse.
PWF further stated that the quedans were invalid and wrongfully issued.
ISSUE: Whether the quedans were validly negotiated to PNB?
HELD:
The Court ruled in the affirmative racitionating that the quedans have legal
force and effect as they were duly EXECUTED by Wicks, as TREASURER and Torres
as WAREHOUSEMAN, for and in behalf of the defendant.

That it were POSSESSION WAS DELIVERED to PNBas  COLLATERAL SECURITY for the
overdraft of PFPC and ENDORSED IN BLANK and PHYSICAL POSSESSION WAS
DELIVERED to PNB as  COLLATERAL SECURITY for the overdraft of PFPC and that
the quedans were in NEGOTIABLE FORM.
Consequently, PWA was estopped to claim or assert that PNB did not comply
with any condition precedent. In this kind of action, a person has no legal right
to deny the existence of Quedans on which it is based, and then claim that the
plaintiff has not complied with the provisions of the instrument.
Estoppel, to assert.—In an action to recover the value of the property, the
defendant, having alleged that the quedans were invalid and wrongfully issued,
and that the copra therein described was not in its warehouse, is estopped to
claim or assert that the plaintiff did not comply with conditions precedent.

Cannot deny existence of Quedans and Plead their provisions.—In an action to
recover the value of the property de scribed in quedans which were duly issued,
the defendant has no legal right to deny the existence of the quedans, and
then claim that the plaintiff has not complied with their provisions."
In an action to recover personal property or its value, tender of charges and
liens is not necessary where defendant claims that the property is not in
existence or in its possession.—Where by the provisions of the quedans the
property was to be delivered upon the payment of certain charges, it is not
necessary to tender such charges where the other party denies liability, is not
willing to perform its part, or to deliver the property.
Consolidated Terminals, Inc. vs. Artex Dev. Co., Inc.
Facts: Consolidated Terminals Inc (CTI) operated a customs warehouse in
Manila. It received 193 bales of high density compressed raw cotton worth P99k.
It was understood that CTI would keep the cotton on behalf of Luzon Brokerage
until the consignee Paramount Textile had opened the corresponding letter of
credit in favor of Adolph Hanslik Cotton. By virtue of forged permits, Artex was
able to obtain the bales of cotton and paid P15k.
Issue: W/N CTI as warehouseman was entitled to the possession of the bales of
cotton?
Ruling: No. CTI had no cause of action. It was not the owner of the cotton. It was
not a real party of interest in the case. CTI was not sued for damages by the real
party in interest.
Warehouse Receipts law; A warehouseman has no cause of action for
repossession and damages against a person to whom it delivered deposited
articles on the basis of an alleged falsified delivery permit where the real parties
interested in the questioned articles have not yet sued the warehouseman for
damages on account of said wrong delivery.—CTI in this appeal contends that,
as warehouseman, it was entitled to the possession (should be repossession) of
the bales of cotton; that Artex acted wrongfully in depriving CTI of the possession
of the merchandise because Artex presented a falsified delivery permit, and
that Artex should pay damages to CTI. The only statutory rule cited by CTI is
section 10 of the Warehouse Receipts Law which provides that
“where a warehouseman delivers the goods to one who is not in fact lawfully
entitled to the possession of them, the warehouseman shall be liable as for
conversion to all having a right of property or possession in the goods x x x”.
We hold that CTI’s appeal has no merit. Its amended complaint does not clearly
show that, as warehouseman, it has a cause of action for damages against
Artex. The real parties interested in the bales of cotton were Luzon Brokerage
Corporation as depositor, Paramount Textile Mills, Inc. as consignee, Adolph
Hanslik Cotton as shipper and the Commissioners of Customs and Internal
Revenue with respect to the duties and taxes. These parties have not sued CTI
for damages or for recovery of the bales of cotton or the corresponding taxes
and duties.
LUA KIAN v. MANILA RAILROAD COMPANY and MANILA PORT SERVICEG.R.
No. L-23033 January 5, 1967
FACTS
Manila Port Service as a subsidiary of defendant Manila Railroad Company
operated the arrastre service at the Port of Manila under and pursuant to the
Management Contract entered into by and between the Bureau of Customs
and defendant Manila Port Service.
Lua Kian imported 2,000 cases of Carnation Milk from the Carnation
Company of San Francisco, California, and shipped on Board SS "GOLDEN
BEAR" per Bill of Lading No. 17.Out of the aforesaid shipment of 2,000 cases
of Carnation Milk per Bill of Lading No. 17, only 1,829 cases marked `LUA
KIAN 1458' were discharged from the vessel SS `GOLDEN BEAR' and received
by Manila Port Service per pertinent tally sheets issued by the said carrying
vessel.
Discharged from the same vessel on the same date unto the custody of Manila
Port Service were 3,171 cases of Carnation Milk marked "CEBU UNITED 4860-
PH-MANILA" consigned to Cebu United Enterprises, per Bill of Lading No. 18.
Manila Port Service delivered to the plaintiff thru its broker, Ildefonso Tionloc,
Inc. 1,913 cases of Carnation Milk marked "LUA KIAN 1458" per pertinent gate
passes and broker's delivery receipts.
Lua Kian as consignee thereof filed a claim for short-delivery against Manila Port
Service, and Manila Port Service paid Lua Kian plaintiff herein, P750.00 in
settlement of its claim.
CFI: ruled that 1,829 cases marked Lua Kian (171 cases less than the 2,000
cases indicated in the bill of lading and 3,171 cases marked "Cebu United"
(171 cases over the 3,000 cases in the bill of lading were discharged to the
Manila Port Service.on Considering that Lua Kian and Cebu United
Enterprises were the only consignees of the shipment of 5,000 cases of
"Carnation" milk, it found that of the 3,171 cases marked "Cebu United", 171
should have been delivered to Lua Kian. Inasmuch as the defendant Manila
Port Service actually delivered 1,913 cases to plaintiff, which is only 87 cases
short of 2,000 cases as per bill of lading the former was ordered to pay
Lua Kian the sum of P1,183.11 representing such shortage of 87 cases, with
legal interest from the date of the suit, plus P500 as attorney's fees.
Defendants appealed to the Supreme Court and contend that they should
not be made to answer for the undelivered cases of milk, insisting that
Manila Port Service was bound to deliver only 1,829 cases to Lua Kian and
that it had there before in fact over-delivered to the latter.
ISSUE: Whether defendant Manila Port Service is liable for the undelivered
cases of “Carnation” milk to petitioner due to improper marking. Yes.
RATIO: The bill of lading in favor of Cebu United Enterprises indicated that
only 3,000 cases were due to said consignee, although 3,171 cases were marked
in its favor. Lua Kianwhose bill of lading on the other hand indicated that it
should receive 171 cases more.•The legal relationship between an arrastre
operator and the consignee is akin to that of a depositor and
warehouseman. As custodian of the goods discharged from the vessel, it was
defendant arrastre operator's duty, like that of any ordinary depositary, to
take good care of the goods and to turn them over to the party entitled to their
possession.oThe said defendant should have withheld delivery because of
the discrepancy between the bill of lading and the markings and
conducted its own investigation, not unlike that under Section 18 of the
Warehouse Receipts Law, or called upon the parties, to interplead, such as
in a case under Section 17 of the same law, in order to determine the rightful
owner of the goods.oIt is true that Section 12 of the Management Contract
exempts the arrastre operator from responsibility for misdelivery or non-
delivery due to improper or insufficient marking.•It cannot however excuse
the defendant from liability in this case because the bill of lading showed
that only 3,000 cases were consigned to Cebu United Enterprises. The fact
that the excess of 171 cases were marked for Cebu United Enterprises and
that the consignment to Lua Kian was 171 cases less than the 2,000 in the
bill of lading, should have been sufficient reason for the defendant Manila
Port Service to withhold the goods pending determination of their rightful
ownership.•With respect to the attorney's fees awarded below, this Court
notices that the same is about 50% of the litigated amount of P1,183.11.
Attorney’s fees was decreased to P300.00.
Arrastre service; Nature of relationship of arrastre operator and consignee.—The
legal relationship between an arrastre operator and the consignee is akin to
that of a depositor and warehouseman (Northern Motors, Inc. vs. Prince Line, L-
13884, February 29, 1960). As custodian of the goods discharged from the vessel,
it is the duty of the arrastre operator to take good care of the goods and turn
them over to the party entitled to their possession (Macondray & Co., Inc. vs.
Delgado Brothers, Inc., L-13118, April 28, 1960),
Duty of arrastre operator to follow procedure in Warehouse Receipts Law in case
there is a, conflict between markings on goods and the bills of lading.—Where
the arrastre operator received into its custody a shipment of 5,000 cases of milk,
of which 3,171 cases were marked for Cebu United Enterprises, as consignee,
and 1,829 cases were marked for “1. Lua Kian, but, according to the bills of
lading in its possession, Cebu United Enterprises was entitled only to 3,000 cases
and Lua Kian was entitled to 2,000 cases, the arrastre operator should have
withheld delivery because of this discrepancy between the markings and the
bill of lading conducted its own investigation, similar to that required under
Section 18 of the Warehouse Receipts Law, or called upon the two consignees
to interplead, as in the case under Section 17 of the same law, in order to
determine the rightful owner of the milk. In delivering to Lua Kian only 1,913 cases
or 87 cases short, the arrastre operator became liable for the shortage of 87
cases, but without prejudice to its action for recovery of the excess cases
delivered to Cebu United Enterprises.
Felisa Roman, appellee v. Asia Banking Corporation, appellant
GR. No. 17825 June 26, 1922
Facts: Subject 576 tobacco leaf bales were part of the 2,777 bales purchased
by Umberto de Poli from appellee, Roman. Months after, involuntary insolvency
proceeding against U. De Poli was instituted. Poli issued a quedan to Asia
Banking Corporation (ABC) covering said 576 bultos for value. Roman notified
ABC of her contention for her vendor’s lien in proceedings. CFI found for Roman.
CFI Basis: Transfer to ABC was for security of a loan hence vendor’s lien has better
right.
Issues: 1. Whether or not warehouse receipt negotiable. 2. Whether or not
vendor’s lien superior over mortgagee.
Held: YES, warehouse receipt is negotiable. Although it contained no direct
statement showing whether goods received to be delivered to bearer/specified
person/specified person or his order, nevertheless it is negotiable because: 1. It
is evident that deposit, as evidenced by receipt here, was intended to be made
subject to the ORDER of depositor and Poli was the authorized person to indorse
it; 2. Indorsement in blank and delivery to ABC was made on the same date as
issuance of Warehouse receipt; and, 3. Warehouse receipt not marked “Non-
negotiable” or “Not negotiable” General Rule: If warehouseman fails to indicate
“Non-negotiable” on face of warehouse receipt, holder in good faith and for
value, at his election, treat it as negotiable imposing upon warehouseman same
liabilities as if it were one. Exception: When marked “non-negotiable” on its face
by warehouseman issuing it. Doctrine: A warehouse receipt like any other
document must be interpreted according to its evident intent. NO, Doctrine: A
vendor's lien upon goods stored in a public warehouse cannot prevail against
the rights of a purchaser, mortgagee, or pledgee, for value and in good faith to
whom the negotiable warehouse receipt for such goods has been indorsed.
Here, CFI failed to consider Section 49 of Act No. 2137: “Where a negotiable
receipt has been issued for goods, no seller's lien or right of stoppage in transitu
shall defeat the rights of any purchaser for value in good faith to whom such
receipt has been negotiated, whether such negotiation be prior or subsequent
to the notification to the warehouseman who issued such receipt of the seller's
claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be
obliged to deliver or justified in delivering the goods to an unpaid' seller unless
the receipt is first surrendered for cancellation.” Art. 58, same Act: “Purchase”
includes Mortgagee and Pledgee. Hence, CFI order reversed.
Siy Cong Bieng & Co. vs. Hongkong & Shanghai Bank
Facts:
Plaintiff is a corporation engaged in business generally, and that the Defendant
HSBC is a foreign bank authorized to engage in the banking business in the
Philippines.
On June 25, 1926, Otto Ranft called the office of the Plaintiff to purchase hemp
(abaca), and he was offered the bales of hemp as described in the contested
negotiable quedans.
The parties agreed to the aforesaid price, and on the same date the quedans,
together with the covering invoice, were sent to Ranft by the Plaintiff, without
having been paid for the hemp, but the Plaintiff's understanding was that the
payment would be made against the same quedans, and it appear that in
previous transaction of the same kind between the bank and the Plaintiff,
quedans were paid one or two days after their delivery to them. Immediately
these Quedans were pledged by Otto Ranft to the Defendant HSBC to secure
the payment of his preexisting debts to the latter.
The baled hemp covered by these warehouse receipts was worth P31,635; 6
receipts were endorsed in blank by the Plaintiff and Otto Ranft, and 2 were
endorsed in blank, by Otto Ranft alone
On the evening of the said delivery date, Otto Ranft died suddenly at his house
in the City of Manila.
When the Plaintiff found out, it immediately demanded the return of the
quedans, or the payment of the value, but was told that the quedans had been
sent to the herein Defendant as soon as they were received by Ranft.
Shortly thereafter the Plaintiff filed a claim for the aforesaid sum of P31,645 in the
intestate proceedings of the estate of the deceased Otto Ranft, which on an
appeal from the decision of the committee on claims, was allowed by the CFI
Manila.
In the meantime, demand had been made by the Plaintiff on the Defendant
bank for the return of the quedans, or their value, which demand was refused
by the bank on the ground that it was a holder of the quedans in due course.
ISSUE
Whether or not the Quedans endorsed in blank gave the HSBC rightful and valid
title to the goods?
HELD
YES. SC ruled in favour of Defendant HSBC.
It may be noted,
first, that the quedans in question were negotiable in form;
second, that they were pledged by Otto Ranft to the Defendant
bank to secure the payment of his preexisting debts to said bank;
third, that such of the quedans as were issued in the name of the
Plaintiff were duly endorsed in blank by the Plaintiff and by Otto
Ranft;
and fourth, that the two remaining quedans which were duly
endorsed in blank by him.
The bank had a perfect right to act as it did, and its action is in accordance
with sections 47, 38, and 40 of the Warehouse Receipts Act
However, the pertinent provision regarding the rights the Defendant bank
acquired over the aforesaid quedans after indorsement and delivery to it
by Ranft, is found in section 41 of the Warehouse Receipts Act (Act No.
2137):
SEC. 41. Rights of person to whom a receipt has been negotiated.
— A person to whom a negotiable receipt has been duly
negotiated acquires thereby:
Such title to the goods as the person negotiating the receipt to him had or
had ability to convey to a purchaser in good faith for value, and also such
title to the goods as the depositor of person to whose order the goods were
to be delivered by the terms of the receipt had or had ability to convey to
a purchaser in good faith for value, and. . . .
Therefore, the bank is not responsible for the loss; the negotiable quedans
were duly negotiated to the bank and as far as the record shows, there has
been no fraud on the part of the Defendant.
Moreover, Plaintiff is estopped to deny that the bank had a valid title to the
quedans for the reason that the Plaintiff had voluntarily clothed Ranft with
all the attributes of ownership and upon which the Defendant bank relied.
Subsequently, Plaintiff in this case has suffered the loss of the quedans, but
as far as the court sees it, there is now no remedy available to the Plaintiff
equitable estoppel place the loss upon him whose misplaced confidence
has made the wrong possible as ruled in National Safe Deposit vs. Hibbs (a
US case)
NEGOTIABLE WAREHOUSE RECEIPTS; ENDORSED IN BLANK.—Plaintiff sold certain
quantity of hemp to one by the name of Otto Ranft by quedans and sent the
quedans, together with the covering invoice, to Ranft, without having been
paid for, but plaintiff's understanding was that the payment would be made
against the quedans. Ranft on the same day turned over the quedans to the
defendant bank to secure payment of his preexisting debts. Ranft died on the
evening of the day the quedans were delivered to the bank. Plaintiff brought
this action to recover the quedans or their values. Held: Taking into consideration
that thequedans were negotiable in form and duly endorsed in blank by the
plaintiff and by Otto Ranft, it follows that on delivery of the quedans to the bank,
they were no longer the property of the indorser unless he liquidated his debts
with the bank.

AUTHORITY TO NEGOTIATE.—The bank had a perfect right to accept the

quedans in security of preexisting debts without investigation of the authority of
the person negotiating them. (Sections 47, 38 and 40 of the Warehouse Receipts
Act No. 2137.)

ESTOPPEL TO DENY VALID TITLE.— Since plaintiff had voluntarily clothed the
person who negotiated the quedans with all the attributes of ownership and
upon which the bank relied, it is estopped to deny that the bank had a valid
title to the quedans.