LOAN 4. The repeal of Act No. 2747 by Act No.

4. The repeal of Act No. 2747 by Act No. 2938 did not absolve Jarra contested the claim, asserting that Jimenea obtained only
Concepcion from prosecution for actions committed under the three second-class carabaos, which were later sold to him by de los
Art. 1933: By the contract of loan, one of the parties previous Act, as established in precedents. Santos. The trial court found that ten carabaos were indeed
delivers to another, either something not consumable so 5. The penal sanctions in section 35 of Act No. 2747 extend to delivered for use at Jimenea’s hacienda and only three were
that the latter may use the same for a certain time and individuals within the bank, including directors, who partake in alleged to have been purchased by him from de los Santos. As
return it, in which case the contract is called a prohibited acts. there was no convincing evidence of sale or transfer, the court
commodatum; or money or other consumable thing, upon 6. Good faith was not considered a valid legal defense given the ruled that the carabaos were not sold but merely loaned and
the condition that the same amount of the same kind and public policy purpose of the prohibition; the crime was in the act tasked Jarra, as the administratrix, to return the surviving six
quality shall be paid, in which case the contract is simply itself regardless of intent. carabaos or their value at PHP 120 each, totaling PHP 720 plus
called a loan or mutuum. costs.
Doctrine:
Commodatum is essentially gratuitous. The doctrine established includes an expansive interpretation of Jarra appealed to the Supreme Court when a motion for a new trial
“loan” under banking laws, extending not only to direct was denied by the lower court.
Simple loan may be gratuitous or with a stipulation to pay transactions but also to indirect extensions of credit where there is
interest. a financial interest through family relations. It also underscores Issues:
In commodatum the bailor retains the ownership of the that the repeal of a statute after the commission of prohibited acts 1. Whether Magdaleno Jimenea only received three carabaos from
thing loaned, while in simple loan, ownership passes to the does not automatically negate accountability under said statute. Felix de los Santos and subsequently purchased them.
borrower. And, that “good faith” is not an exculpatory defense for statutory 2. Whether the proof that Jimenea only received three carabaos
offenses where the law aims to prevent a conflict of interest to and that their transfer was executed is sufficient.
Case 1 - People v. Concepcion, 44 Phil 126 (1922) protect public interest. 3. Whether the administratrix of an estate is obliged to return the
property loaned to the deceased or compensate for its value.
Venancio Concepcion, in his role as President of the Philippine Class Notes: 4. The relevance of the decision of the commissioners regarding
National Bank (PNB), authorized a substantial extension of credit – “Loan” vs. “credit” – A “loan” involves an agreement to repay the the rejected claim for the return of the carabaos and if it should
amounting to P300,000 to the firm “Puno y Concepcion, S. en C.” borrowed sum, whereas “credit” is the ability to borrow based on affect the right of ownership.
between April 10, 1919, and May 7, 1919. This credit extension trust.
was noteworthy because it far surpassed the P5,000-P10,000 loan – “Loan” vs. “discount” – A discount handles double-name paper Court’s Decision:
limit he had previously set for discretionary loans by bank with interest deducted in advance, while a loan generally deals 1. The court found that Jimenea had indeed requested ten
managers in a memorandum dated May 17, 1918. The credit was with single-name paper with interest paid upon due. carabaos, supported by letters he sent to de los Santos. Moreover,
granted based on six demand notes, without any additional – Indirect loan – Financial interest of a director through family there was no convincing documentary evidence of the alleged sale
collateral, all of which were settled by the partnership by July 17, (spousal) relations falls under indirect loan prohibitions. to Jimenea.
1919. – Impact of repeal – The repeal of a statute does not erase criminal 2. As per the law, the transfer of large cattle should be
acts committed under it before its repeal. made through official documents, which were neither
The capital of “Puno y Concepcion, S. en C.” was P100,000, – Scope of penal sanctions – Prohibitions made to a corporation in a presented nor reported as lost. Hence, it was concluded
partially contributed by Concepcion’s family members and General statute extend to its directors and officers individually. that no sale took place.
Venancio Concepcion’s wife. Upon these events unfolding, – Good faith – Not a defense in statutory crimes aimed at 3. The court held that, since the carabaos were loaned and non-
Concepcion was charged with a violation of section 35 of Act No. protecting public interest by curtailing conflict of interests. returnable, Jarra, as the administratrix, must return them or
2747. The Cagayan Court of First Instance found him guilty, compensate their owner for their value.
sentencing him to imprisonment, fine, with subsidiary Case 2 - De los Santos v. Jarra. 15 Phil 147 (1910) 4. The Court decided that the rejection by the commissioners does
imprisonment for insolvency, and the payment of costs. not impede de los Santos’s claim to ownership and that the claim
Facts: In late 1901, Felix de los Santos lent ten first-class carabaos for exclusion of non-inherited property must be resolved in an
Court’s Decision: to Magdaleno Jimenea to be used in Jimenea’s hacienda mill for the ordinary action.
1. The extension of credit was deemed a loan. The court season of 1901-2 without any remuneration, with the condition
made a distinction between “credit” and “loan” and concluded that that they would be returned post-harvest. Jimenea, however, failed Doctrine: The rulings establish reiteration of the doctrines relating
granting a credit implies providing loans up to the amount of credit to return the carabaos, and upon his death on October 28, 1904, to the contract of commodatum, including the essential nature of
specified. Agustina Jarra was appointed as the administratrix of his estate. De the contract, the obligations and rights of the bailee, and the
2. The Supreme Court rejected the defense’s distinction between a los Santos presented his claim for the return or value of the liability for indemnification in case of loss or damage. The Supreme
“loan” and “discount,” ruling the granted credit was indeed a loan carabaos to the estate commissioners within the prescribed period, Court also clarified procedural aspects concerning the rights of
and not a discount based on the characteristics of the transaction. but his claim was rejected. Consequently, de los Santos initiated a claimants outside of estate settlement proceedings.
3. Granting the credit was an indirect loan; the court determined lawsuit on September 1, 1906, demanding the return of the
that financial interest by virtue of marital connections was covered carabaos or their current value, plus costs. Class Notes:
by the prohibition.
– Commodatum: It is a gratuitous contract in which one party Natural Resources regarding the availability of local raw materials. – A consensual contract is perfected by the meeting of the minds –
delivers something to another for use and the latter must return Saura, Inc. responded, revealing its reliance on imported raw offer and acceptance.
the identical thing. materials instead. – The non-fulfillment of conditions required by one party may lead
– Ownership in commodatum: The bailor retains ownership, the to the collapse of negotiations.
bailee has use but not fruits if any compensation is involved, it Negotiations stalled, and on June 17, 1955, Saura, Inc. requested – Subsequent and consistent conduct by a party can indicate
ceases to be commodatum. the cancellation of the registered mortgage. The RFC complied, acquiescence to the cancellation of a contract.
– Indemnification for loss/damage: If the bailee fails to return the and the cancellation was executed to facilitate a separate
thing loaned due to fault or negligence, they are liable to indemnify mortgage with the Prudential Bank and Trust Co. Relevant Provisions:
the owner (Civil Code, Articles 1740, 1741, 1101). – Civil Code of the Philippines, Article 1934: Reflects on the
– Challenges to estate commissioners’ decisions: The rejection of Nine years after the cancellation of the mortgage, Saura, Inc. filed principle that an accepted promise to deliver something is binding,
claims by estate commissioners does not prevent a direct court a lawsuit against the DBP, claiming damages for the non-release of but the contract is not perfected until the delivery of the object.
action to recover property or its value when it does not form part of the loan proceeds.
the deceased’s estate. Case 4 - Naguiat v. CA, 412 SCRA 591 (2003)
Issues:
Art. 1934: An accepted promise to deliver something by 1. Whether the plaintiff’s cause of action had been waived, Facts:
way of commodatum or simple loan is binding upon parties, abandoned, or prescribed. Aurora Queaño (Queaño) applied for a loan from Celestina Naguiat
but the commodatum or simple loan itself shall not be 2. Whether there was a perfected contract between Saura, Inc. and (Naguiat) in the amount of P200,000.00. To this end, on August 11,
perfected until the delivery of the object of the contract. DBP/RFC. 1980, Naguiat issued and endorsed two checks totaling
3. Assuming a perfected contract existed, whether Saura Inc. P190,000.00 to Queaño and executed a Real Estate Mortgage on
Case 3 - Saura Import v. DBP, 44 SCRA 445 (1972) complied with the terms of the contract. the same date to secure the loan. Queaño issued a promissory
note and a postdated check of P200,000.00 to Naguiat. The
Facts: Court’s Decision: postdated check, upon maturity, was dishonored for insufficiency
In July 1953, Saura Import and Export Co., Inc. (Saura, Inc.) applied The Supreme Court held that although a perfected of funds and Queaño requested a stop payment arguing she never
for an industrial loan of P500,000.00 from the Rehabilitation consensual contract existed, characterized by the accepted received the proceeds, as the checks remained with Ruby
Finance Corporation (RFC), which later became the Development promise to deliver the loan amount upon the execution of Ruebenfeldt, allegedly Naguiat’s agent.
Bank of the Philippines (DBP). The loan was to be used for building the mortgage, there was mutual desistance by both parties
a factory for jute sack manufacturing in Davao, paying off impacting the contract’s existence. The conditions set forth Naguiat sought extrajudicial foreclosure, but Queaño filed for
machinery and equipment, and providing additional working by RFC for the release of the loan, reflecting the intent and cancellation of the Real Estate Mortgage in Pasay City RTC on
capital. basis of the approval to use local raw materials, were never August 11, 1981, claiming she never received the loan proceeds.
met by Saura, Inc. Instead, Saura, Inc. sought to divert part The court enjoined the foreclosure sale and eventually voided the
The RFC approved the loan application contingent on various of the loan for purposes not originally agreed upon. The mortgage. Naguiat appealed the RTC decision to the Court of
terms, including securing the loan with a first mortgage and impasse in negotiations and the eventual mutual Appeals, which affirmed the RTC’s decision. Naguiat then filed a
specified co-signers for the promissory note. Saura, Inc. requested cancellation of the mortgage underscored a mutual Petition for Review to the Supreme Court.
modifications to these terms, leading RFC to reconsider the loan withdrawal from the contract. Subsequent conduct by Saura,
under Resolution No. 736. Inc., including not protesting against any breach and requesting a Issues:
separate loan years later, indicated the agreement’s 1. Whether the presumption of validity of a notarized mortgage
Despite Saura, Inc.’s acceptance and signing of the loan extinguishment. As a result, the Supreme Court reversed the trial deed as a public document has been rebutted.
documents, the RFC board decided to reduce the loan to court’s decision, dismissed the complaint, and ruled that no 2. Whether Check payments effected the delivery of the loan
P300,000.00 and required further conditions such as the damages were due to Saura, Inc.. proceeds for the purpose of perfecting the loan contract.
availability of local raw materials, as specified in Resolution No. 3. Whether Ruebenfeldt’s representations could be admitted
3989. Doctrine: against Naguiat on the basis of agency.
Mutual desistance (“mutuo disenso”) is a legal principle that serves
China Engineers, Ltd., one of the co-signers, eventually withdrew as a mode of extinguishing obligations. It is based on the concept Court’s Decision:
from the loan agreement, leading Saura, Inc. to challenge the that mutual agreement can create a contract, and mutual The Supreme Court denied Naguiat’s petition and affirmed the
loan’s cancellation and assuring RFC that China Engineers, Ltd. disagreement by the parties can also dissolve it. decision of the RTC and the Court of Appeals. It held that, contrary
would reinstate their signature if the original loan amount was to Naguiat’s assertions, the presumption of truthfulness in the
released. Class Notes: public document (mortgage deed) can be defeated by clear and
Essential Concepts: convincing evidence, which in this case was the absence of
On December 17, 1954, RFC restored the loan amount to – Mutual desistance is a method by which contracts are consideration, as the loan proceeds were never received by
P500,000.00 under Resolution No. 9083 with the further extinguished. Queaño.
requirement of a certification by the Department of Agriculture and
Delivery of checks did not result in the consummation of the loan The RTC ruled in favor of Garcia, finding that a loan had been
contract since the Civil Code stipulates that checks have to be granted to Thio and ordering the repayment of the sum plus **Bailee – receiver
cashed to produce the effect of payment. With no evidence interest and damages. Thio appealed to the CA, which reversed the **Bailor - owner
presented to show that the checks were actually encashed or RTC’s decision, concluding no contract of loan existed between
credited to Queaño’s account, the loan contract remained Garcia and Thio. Garcia then sought review from the Supreme Art. 1935: The bailee in commodatum acquires the used of
unrealized, rendering the mortgage void for lack of consideration. Court. the thing loaned but not its fruits; if any compensation is to
be paid by him who acquires the use, the contract ceases
Concerning Ruebenfeldt’s role, the Court held that sufficient Issues: The principal issues were whether there had indeed been a to be a commodatum.
evidence demonstrated an agency relationship between Naguiat loan contract between Garcia and Thio and whether Thio was liable
and Ruebenfeldt – either actual or ostensible. Additionally, the to repay the principal sums and agreed-upon interest. Art. 1942: The bailee is liable for the loss of the thing, even
evidence showed that the loan proceeds were not transferred to if it should be through a fortuitous event:
Queaño, thus Ruebenfeldt’s acts and declarations, as Naguiat’s Court’s Decision: The Supreme Court ruled in favor of Garcia,
agent, bound Naguiat. holding that while physical receipt of loan proceeds was not (1) If he devotes the thing to any purpose different from
executed, delivery in the form of control and possession of the that for which it has been loaned;
Doctrine: proceeds through checks was sufficient to constitute Thio as a
The doctrine established by the case centers on the principle that borrower. The SC reinstated the RTC’s finding that Thio was liable (2) If he keeps it longer than the period stipulated, or after
the presumption of truthfulness attached to a notarized document for the principal amounts. Regarding interest payments, the SC the accomplishment of the use for which the commodatum
is rebuttable, and that a real contract of loan and its accessory held that the absence of a written agreement precluded has been constituted;
contract, the mortgage, are perfected only upon the delivery of the enforcement of the claimed rates of 3% and 4% per month.
object of the contract, which in a loan contract means the delivery However, the Court applied legal interest pursuant to Article 2209 (3) If the thing loaned has been delivered with appraisal of
of the loan proceeds. of the Civil Code, setting it at 12% per annum from the date of its value, unless there is a stipulation exemption the bailee
judicial demand. Actual damages and attorney’s fees awards were from responsibility in case of a fortuitous event;
Class Notes: deleted due to a lack of factual basis provided by the RTC.
1. A Real Estate Mortgage contract secures the fulfillment of a (4) If he lends or leases the thing to a third person, who is
principal obligation. Doctrine: A loan is a real contract which requires the delivery of the not a member of his household;
2. Delivery of checks is not equivalent to delivery of loan proceeds object of the contract for perfection. Interest payments must be
unless the checks are cashed (Art. 1249, Civil Code). expressly stipulated in writing to be due. In the absence of such (5) If, being able to save either the thing borrowed or his
3. The presumption of regularity in a public document can be stipulation, legal interest applies. Crossing a check has specific own thing, he chose to save the latter.
rebutted by clear and convincing evidence. legal implications regarding the negotiability and deposit
4. Agency by estoppel (Art. 1873, Civil Code): Individuals are requirements. Case 6 - Republic v. Bagtas, 6 SCRA 262 (1962)
bound by the acts of another who appeared with their authority
unless they corrected the assumption. Class Notes: Facts:
– Real contracts such as loans require delivery of the object On May 8, 1948, Jose V. Bagtas borrowed three bulls from the
Case 5 - Thio v. Garcia, 518 SCRA 433 (2007) (money or fungible things) to perfect the contract. Republic of the Philippines through the Bureau of Animal Industry –
– For interest to be due, there must be a stipulation in writing a Red Sindhi, a Bhagnari, and a Sahiniwal – for a one-year period
Facts: explicitly stating the agreed-upon interest (Civil Code, Art. 1956). ending on May 7, 1949, for breeding purposes. This loan was
The case revolves around two loans allegedly made by petitioner – Legal interest may be applied in the absence of a written subject to a 10% breeding fee based on the book value of the bulls.
Carolyn M. Garcia to respondent Rica Marie S. Thio. According to agreement about interest rates (Civil Code, Art. 2209). Upon the expiration of the contract, a request for renewal was
Garcia, two crossed checks one dated February 24, 1995, and – A crossed check implies it may not be encashed but only made by Bagtas, which was partially honored, with the extension
another June 29, 1995, were issued in favor of a third party, deposited, and it can only be negotiated once to a party holding a granted for one bull and the other two requested to be returned.
Marilou Santiago, at Thio’s instruction. The checks were valued at bank account.
US$100,000 and P500,000, respectively. Monthly interest Bagtas expressed an intention to purchase the three bulls but
payments were made by Thio to Garcia for a period following the failed to pay or return them, prompting the government to file an
issuance of the checks, but Thio failed to repay the principal COMMODATUM - something not consumable so that the action demanding the return of the bulls or payment for their
amounts upon maturity of the loans. Garcia filed a complaint to latter may use the same for a certain time and return it, in value, along with unpaid breeding fees, interests, and costs. Jose V.
recover the amounts due, plus damages, to which Thio responded which case the contract is called a commodatum; Bagtas defended the non-return of the bulls due to the peace
by denying the existence of a loan agreement and claiming that situation in Cagayan Valley and depreciation issues pending appeal
the checks were issued for Santiago who, she intimated, was the MUTUUM - or money or other consumable thing, upon the with administrative authorities.
actual borrower. condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply Bagtas passed away on October 23, 1951, and the case continued
called a loan or mutuum. against his estate managed by his widow, Felicidad M. Bagtas. Two
of the bulls were returned, but the third was claimed to have been the stipulated period, or if the thing has been delivered which was only for showing capitalization required for Sterela’s
killed during a Huk raid. The government obtained a writ of with appraisal of its value (Art. 1942, Civil Code). incorporation and not for consumption by Doronilla.
execution against the estate, to which Felicidad M. Bagtas filed for – The death of a debtor does not extinguish civil actions relating to 2. Producers Bank, through Atienza, breached their standard
a quashing. Her motion was denied, leading to an appeal to the the estate; proper notifications and substitution are required for banking procedures which facilitated Doronilla’s unauthorized
Supreme Court. continuance (Section 17, Rule 3, Rules of Court). withdrawals, thus Bank is liable for Atienza’s actions.
– Enforcement of a money judgment against a debtor’s estate 3. The transaction was an accommodation, and Vives had control
Issues: must follow the process of presenting the claim to the probate over his money, making the bank jointly liable as it allowed
1. Whether or not the appellant (administratrix of the estate of Jose court, not through writ of execution. unauthorized withdrawals.
V. Bagtas) is liable for the third bull that was allegedly killed by a 4. Under Article 2180 of the Civil Code, Producers Bank is
fortuitous event (Huk raid). responsible for the wrongful acts of its employees acting within the
2. Whether or not the appellant is liable for the value of the Art. 1936: Consumable goods may be the subject of scope of their duties, making it solidarily liable with Doronilla for
returned bulls. commodatum if the purpose of the contract is not the damages.
3. Whether or not the death of the borrower extinguished the civil consumption of the object, as when it is merely for
action against him, or if and how it could continue against his exhibition. Doctrine:
estate. – In contracts, parties’ intentions are the primary consideration in
4. The appropriate procedure to enforce the money judgment Case 7 - Producers Bank v. CA, 397 SCRA 651 (2003) determining the contract’s nature; subsequent acts may clarify
against the deceased debtor’s estate. intent when in doubt.
Facts: – Consumable goods can be commodatum if the purpose is not
Court’s Decision: In 1979, Franklin Vives was approached by Angeles Sanchez to consumption.
1. The Supreme Court held that Felicidad M. Bagtas, as the help Col. Arturo Doronilla incorporate Sterela Marketing and – An employer is solidarily liable for wrongful acts of employees
administratrix of the estate, was liable for the third bull (Sahiniwal) Services by depositing P200,000 in Sterela’s bank account to show performed within the scope of assigned tasks.
that was not returned because the loan’s period had long expired sufficient capitalization for incorporation. Vives’s wife, Inocencia,
when the bull was killed, and there was an appraisal of its value. A opened the account at the Buendia branch of Producers Bank with Class Notes:
contract of commodatum rendered the bailee liable for the loss of herself and Sanchez as signatories. Instead, Doronilla obtained a – Commodatum vs. Mutuum: Determine whether property is
the thing due to fortuitous events if retained longer than the period loan from the bank against Sterela’s account, withdrew funds, and consumed and if ownership is transferred (commodatum: no,
stipulated. issued postdated checks which were dishonored. When Vives mutuum: yes).
2. She was not held liable for the two bulls returned. learned of this, his efforts to recover the funds were futile, as even – Employer Liability under Article 2180: Employee’s wrongful act
3. The Supreme Court ruled that the death of Jose V. Bagtas did not a check from Doronilla to Vives bounced. should be within the scope of assigned tasks for employer’s
extinguish the civil liability, and that the continued prosecution liability.
against his estate was proper. Counsel’s failure to notify the court Vives filed criminal and civil actions against Doronilla, Sanchez, – Actual, moral, and exemplary damages, plus attorney’s fees and
of the defendant’s death and subsequent probate proceedings was Dumagpi, and Producers Bank. Sanchez died during trial, and the costs, can be awarded when the bank breaches procedures and
improper. RTC of Pasig ruled against Doronilla, Dumagpi, and Producers Bank, causes loss through employee’s actions.
4. The Court concluded that the money judgment could not be holding them jointly liable for the principal amount, damages,
enforced through writ of execution but must be presented to the attorney’s fees, and costs. The decision was affirmed by the Court Art. 1942: - SAME WITH CASE 6
probate court administering the estate of Jose V. Bagtas. of Appeals. Case 8 - Republic v. Bagtas, 6 SCRA 262 (1962)

Doctrine: Issues:
The Court established that in a contract of commodatum, 1. Whether the transaction between Vives and Doronilla was a Art. 1947: The bailor may demand the thing at will, and the
the bailee is liable for the loss of the thing, even if through simple loan or a commodatum. contractual relation is called a precarium, in the following
fortuitous events, if retained past the stipulated period or 2. Whether Producers Bank’s manager, Rufo Atienza, is liable for cases:
without exemption for liability in case of fortuitous events collusion, thus binding the bank for his acts.
in the presence of an appraisal of its value (Art. 1942, Civil 3. Whether the transaction was an accommodation and Vives (1) If neither the duration of the contract nor the use to
Code). Additionally, the civil action does not extinguish retained control over his money. which the thing loaned should be devoted, has been
with the death of the debtor but continues against his 4. The applicability of employer liability for the actions of an stipulated; or
estate. employee, as expounded in Saludares vs. Martinez.
(2) If the use of the thing is merely tolerated by the owner.
Class Notes: Court’s Decision:
– Commodatum is essentially gratuitous; if compensation is The Supreme Court denied the petition, holding that: Case 9 - Quintos v. Beck, 69 Phil 108 (1939)
involved, it may be a lease. 1. The transaction was a commodatum, not a mutuum (simple
– Bailee’s liability in commodatum: responsible for loss of loan), as Vives retained ownership over the deposited money, Facts
the thing even in fortuitous events if retained longer than
Margarita Quintos (plaintiff) lent furniture to Beck (defendant), who associated expenses to be borne by him. Beck was also ordered to Facts:
was then her tenant in Manila, Philippines, under a renewed lease pay the costs in both instances. In June 1979, petitioner Colito T. Pajuyo paid Pedro Perez P400 for
agreement on January 14, 1936. This lease specified that Beck the rights over a 250-square meter lot in Payatas, Quezon City.
could use the furniture gratuitously but must return them to Doctrine Pajuyo constructed a house on the lot and lived there with his
Quintos upon demand. Subsequently, Quintos sold the property This case reaffirms the principles of commodatum, a contract family until December 1985. On December 8, 1985, Pajuyo and
housing the furniture to Maria Lopez and Rosario Lopez, who where one party grants the use of goods to another party free of respondent Eddie Guevarra executed a “Kasunduan,” where Pajuyo
notified Beck on September 14, 1936, giving him sixty days to charge, retaining ownership, and imposing an obligation for the allowed Guevarra to live in the house rent-free on the condition he
vacate based on a lease clause. bailee to return the goods upon the bailor’s demand. In this case, maintain it and vacate upon Pajuyo’s demand. In 1994, Pajuyo
the Court reinforced the bailee’s responsibility to return all the needed the house and requested Guevarra to vacate, but Guevarra
Quintos demanded the return of the furniture. Beck responded, goods to the bailor’s residence and not merely to make them refused.
inviting Quintos to collect the items, except for three gas heaters available for collection.
and four electric lamps which he intended to use until lease Pajuyo filed an ejectment case against Guevarra. Guevarra claimed
expiration on November 15, 1936. Quintos refused to accept this Class Notes Pajuyo had no rights since the lot was for socialized housing and
conditional offer and sought the complete return of the furniture by – Commodatum: A contract wherein one party gratuitously grants neither of them had title. The Metropolitan Trial Court (MTC)
the agreed date. Prior to lease expiration, Beck placed the furniture the use of non-consumable items to another, with the obligation to decided for Pajuyo, concluding that Guevarra’s continued
with the Sheriff of Manila, where they remained in custody. return the item after the use. possession was illegal upon demand to vacate. Guevarra’s appeal
– Obligation to Return: The bailee must return all items to the to the Regional Trial Court (RTC) was denied as the RTC found no
A legal dispute ensued, culminating in a trial at the Court of First bailor’s residence, not simply make them available for collection. reversible error and affirmed MTC’s decision en toto.
Instance of Manila which issued a mixed judgment, partially – Breach of Contract: The party who fails to fulfill the contract
favorable to both parties but without a clear resolution on costs without valid reason bears the costs of litigation. Guevarra’s subsequent appeal to the Court of Appeals (CA) was
and liabilities. Quintos appealed the decision to the Supreme Court delayed but ultimately allowed, and the CA reversed RTC’s
of the Philippines. Civil Code provisions relevant to this case include: decision, holding both Pajuyo and Guevarra as squatters, deciding
– Article 1933: Definition of commodatum. the Kasunduan was a commodatum, not a lease.
Issues – Article 1935: Obligations of bailee in commodatum.
1. Did Beck fulfill his obligation to return the furniture upon – Article 1248: Action for fulfillment of an obligation. Issues:
Quintos’s demand in accordance with the contract of Whether the Kasunduan between Pajuyo and Guevarra is a lease or
commodatum? The contract entered into between the parties is one of commodatum.
2. Is Quintos obliged to bear the expenses for the furniture’s commodatum, because under it the plaintiff gratuitously granted
deposit with the Sheriff? the use of the furniture to the defendant, reserving for herself the Court’s Decision:
3. Should Quintos be awarded the value of the furniture should ownership thereof; by this contract the defendant bound himself to The Supreme Court (SC) granted Pajuyo’s petition, reversed the
Beck fail to return them? return the furniture to the plaintiff, upon the latter’s demand CA’s decision, and reinstated the RTC ruling with modifications.
4. Who should bear the costs of litigation? (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and
1741 of the Civil Code). The obligation voluntarily assumed by the KASUNDUAN IS NOT COMMODATUM.
Court’s Decision defendant to return the furniture upon the plaintiff’s demand,
1. The Court found Beck did not fulfill his obligation as he offered to means that he should return all of them to the plaintiff at the In a contract of commodatum, one of the parties delivers to
return the furniture except for certain items he retained for latter’s residence or house. The defendant did not comply with this another something not consumable so that the latter may use the
personal use. The obligation to return entailed delivering all the obligation when he merely placed them at the disposal of the same for a certain time and return it.
furniture to Quintos’s residence. plaintiff, retaining for his benefit the three gas heaters and the four
2. Quintos was not obliged to bear the deposit expenses. Beck, as electric lamps. The provisions of article 1169 of the Civil Code  An essential feature of commodatum is that it is gratuitous.
the bailee, had no right to deposit the furniture unilaterally or cited by counsel for the parties are not squarely applicable. The  Another feature of commodatum is that the use of the
expect Quintos to accept an incomplete offer of return. trial court, therefore, erred when it came to the legal conclusion thing belonging to another is for a certain period. Thus,
3. Quintos was not entitled to the furniture’s value without that the plaintiff failed to comply with her obligation to get the the bailor cannot demand the return of the thing loaned
presenting further evidence, as Beck had not agreed to the furniture when they were offered to her. until after expiration of the period stipulated, or after
valuation presented by Quintos. accomplishment of the use for which the commodatum is
4. The costs of litigation were adjudged against Beck, as Quintos COMMUDATUM constituted.
was deemed the prevailing party due to Beck’s breach of the  If the bailor should have urgent need of the thing, he may
contract of commodatum. Case 10 - Pajuyo v. CA, 430 SCRA 492 (2004) demand its return for temporary use.
 If the use of the thing is merely tolerated by the bailor, he
The Supreme Court modified the appealed judgment, ordering Title: Colito T. Pajuyo vs. Court of Appeals and Eddie Guevarra can demand the return of the thing at will, in which case
Beck to return all the furniture to Quintos’s house, with all (2004) the contractual relation is called a precarium. Under the
Civil Code, precarium is a kind of commodatum.
 bound to pay to the creditor an equal amount of the same generic thing the amount of money representing the total
The Kasunduan reveals that the accommodation accorded by kind and quality. (1753a) sum of the five loans, with interest.
Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him to Case 11 - Republic v. Grijaldo, 122 Phil 1020; 15 SCRA 681 The transaction between the appellant and the Bank of Taiwan, Ltd.
maintain the property in good condition. The imposition of this (1965) was a series of five contracts of simple loan of sums of money.
obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from Facts: “By a contract of (simple) loan, one of the parties delivers to
that of a commodatum. Case law on ejectment has treated another . . . money or other consumable thing upon the condition
relationship based on tolerance as one that is akin to a landlord- In 1943, during the Japanese occupation in the Philippines, Jose that the same amount of the same kind and quality shall be paid.”
tenant relationship where the withdrawal of permission would Grijaldo secured five crop loans from the Bacolod City branch of (Article 1933, Civil Code.)
result in the termination of the lease. The tenant’s withholding of the Bank of Taiwan, Ltd., amounting to a total of P1,281.97 with a
the property would then be unlawful. This is settled jurisprudence. 6% interest rate, compounded quarterly. To secure these loans, The obligation of the appellant under the five promissory notes
Grijaldo executed a chattel mortgage on the standing crops on his evidencing the loans in question is to pay the value thereof; that is,
Even assuming that the relationship between Pajuyo and Guevarra land, Hacienda Cambugsa in Hinigaran, Negros Occidental. to deliver a sum of money—a clear case of an obligation to deliver
is one of commodatum, Guevarra as bailee would still have the a generic thing. Article 1263 of the Civil Code provides:
duty to turn over possession of the property to Pajuyo, the bailor. Following World War II, under the Trading with the Enemy Act as
The obligation to deliver or to return the thing received attaches to amended by Vesting Order No. P-4 dated January 21, 1946, assets “In an obligation to deliver a generic thing, the loss or destruction
contracts for safekeeping, or contracts of commission, of the Bank of Taiwan, Ltd. in the Philippines were vested in the of anything of the same kind does not extinguish the obligation”.
administration and commodatum.[70] These contracts certainly U.S. Government which were later transferred to the Republic of
involve the obligation to deliver or return the thing received. the Philippines under the Philippine Property Act of 1946 through a The chattel mortgage on the crops growing on appellant’s land
Transfer Agreement dated July 20, 1954. simply stood as a security for the fulfillment of appellant’s
Guevarra turned his back on the Kasunduan on the sole ground obligation covered by the five promissory notes, and the loss of the
that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed On September 29, 1954, the Republic of the Philippines, crops did not extinguish his obligation to pay, because the account
out, cannot enter into a contract involving the land they illegally represented by the Chairman of the Board of Liquidators, could still be paid from other sources aside from the mortgaged
occupy. Guevarra insists that the contract is void. demanded payment from Grijaldo for the outstanding loans, which crops.
had escalated to P2,377.23 as of December 31, 1959, due to
Guevarra should know that there must be honor even between accumulated interest. Art. 1956: No interest shall be due unless it has been
squatters. Guevarra freely entered into the Kasunduan. Guevarra expressly stipulated in writing.
cannot now impugn the Kasunduan after he had benefited from it. After Grijaldo failed to pay the demanded amount, the Republic
The Kasunduan binds Guevarra. filed a complaint in the Justice of the Peace Court of Hinigaran, In pacto de retro the ownership of the property sold is
Negros Occidental, on January 17, 1961. The case was dismissed immediately transferred to the vendee a retro, subject only
The Kasunduan is not void for purposes of determining who on the ground of prescription, but the Republic of the Philippines to the repurchase by the vendor a retro within the
between Pajuyo and Guevarra has a right to physical possession of appealed to the Court of First Instance of Negros Occidental, which stipulated period.
the contested property. The Kasunduan is the undeniable evidence ruled in favor of the Republic. Grijaldo appealed directly to the
of Guevarra’s recognition of Pajuyo’s better right of physical Supreme Court, where he died during the pendency of the appeal, Case 12 - Tan v. Valdehueza, 66 SCRA 61 (1975)
possession. Guevarra is clearly a possessor in bad faith. The leading to his heirs being substituted as appellants.
absence of a contract would not yield a different result, as there Lucia Tan, the plaintiff, filed a case against Arador and Rediculo
would still be an implied promise to vacate. Grijaldo's contention that the Republic has no cause of action, that Valdehueza for: (a) declaration of ownership and recovery of
because the loans were secured by a chattel mortgage on the possession of a parcel of land (first cause of action), and (b)
standing crops on a land owned by him and those crops were lost consolidation of ownership of two portions of another parcel of land
The Kasunduan, which required Guevarra to maintain the or destroyed through enemy action his obligation to pay the loans sold to her under deeds of pacto de retro (second cause of action).
premises, entailed an obligation and rent, it was therefore was thereby extinguished.
a lease rather than a commodatum. The case proceeded from the Court of First Instance of Misamis
HELD: The terms of the promissory notes and the chattel Occidental to the Supreme Court due to legal questions. Both
mortgage that the Grijaldo's executed in favor of the Bank parties admitted the facts concerning the land’s identity, auction
of Taiwan, Ltd. do not support his claim. sale, and pacto de retro. The contested land from the first cause
SIMPLE LOAN OR MUTUUM was acquired by Tan at an auction. The deeds of pacto de retro for
The obligation of the appellant under the five promissory notes the second cause of action were executed by the Valdehuezas but
Article 1953. A person who receives a loan of money or any was not to deliver a determinate thing; namely, the crops to be differed in registration; the deed mentioned in Annex D was not
other fungible thing acquires the ownership thereof, and is harvested from his land, or the value of the crops that would be registered, while the one in Annex E was.
harvested from his land. Rather, his obligation was to pay a
The court then imposed legal interest on both properties Annex D secured by a mortgage on a parcel of land owned by Solas. – Importance of Contractual Interpretation: A contract is to be
and Annex E. According to the mortgage agreement, Solas agreed to repay the interpreted based on the literal meaning of its language, and only
loan with an annual interest rate of 12% by March 31, 1934. Upon when the language is contrary to the parties’ intent should the
Valdehueza's contention: That the lower court erred in making a the failure to repay by the agreed date, an extra-judicial demand intent prevail.
finding on the second cause of action that the transactions for payment was made by Jardenil after a grace period of one year, – Legal Interest Due from Default: Legal interest is applicable on
between the parties were simple loan, instead, it should be on April 1, 1935, seeking payment of the principal plus the the principal and accrued interest from the date of default or
declared as equitable mortgage. stipulated interest. When Solas failed to make the payment, demand.
Jardenil initiated legal action for the foreclosure of the mortgage.
Issue: The propriety of imposing legal interest on the The lower court found in favor of Solas, interpreting the contract to
amounts pertaining to the equitable mortgages. mean that interest was owed only up until the original date of Case 14 - Frias v. San Diego-Sison, 520 SCRA 244 (2007)
maturity, March 31, 1934. Jardenil appealed the decision to the
HELD: Supreme Court of the Philippines, raising the issue of whether Bobie Rose V. Frias, the petitioner, acquired a property from Island
interest is owed only up to the maturity date as explicitly stated in Masters Realty and Development Corporation by a Deed of Sale
the trial court made a mistake in how it treated two different types the contract, or whether interest continues to accrue until the dated November 16, 1990. The property, located in Muntinlupa,
of agreements regarding the sale of land. One agreement was actual date of payment. Metro Manila, was discussed in a Memorandum of Agreement
registered, meaning it was officially recorded, while the other was between Frias and Flora San Diego-Sison, the respondent, on
not. Issues: December 7, 1990. Under the agreement, San Diego-Sison paid
The sole legal issue for the Supreme Court’s determination was Frias PHP 3,000,000 with the option to purchase the property
The court considered the registered agreement as an "equitable whether Solas is obligated to pay the stipulated interest only up to within six months for PHP 6,400,000. The agreement also detailed
mortgage," which means it saw the transaction as a loan secured the date of maturity, March 31, 1934, as provided in the mortgage conditions regarding the payment of the PHP 3,000,000, its
by the property sold. However, it viewed the unregistered contract, or up to the actual date of payment. consideration as a loan, and stipulations on interest payments
agreement as a simple loan, not directly tied to the land. depending on the property’s sale or non-sale within certain
Court’s Decision: periods.
The problem was that the judge relied on old laws and court
decisions, ignoring newer laws that said registration wasn't always The Supreme Court, in its decision, affirmed the lower court’s San Diego-Sison decided not to purchase the property and
necessary for a mortgage to be valid. ruling but slightly modified it. It held that based on the express informed Frias through a letter, considering the PHP 3,000,000 paid
stipulation of the parties in the mortgage contract, Solas is as a loan. Subsequent disputes and a series of legal maneuvers
Since the Valdehuezas continued to use the land and pay taxes on obligated to pay the stipulated interest only up to the maturity ensued, including issues regarding a lost title and allegations of
it, the court should have seen both agreements as mortgages, date, March 31, 1934. The Court reasoned that since the contract fraud. On April 1, 1993, San Diego-Sison filed a complaint against
even though one wasn't officially recorded. This means the did not specify any obligation to pay interest beyond the maturity Frias for the sum of money with preliminary attachment, leading to
Valdehuezas were seen as having a financial interest in the land, date in the event of non-payment, and because interest is due only a court case that was eventually appealed to the Court of Appeals
whether it was registered or not, because they continued to treat it when expressly stipulated (citing Article 1755 of the Civil Code), (CA).
as their own. Solas cannot be presumed to owe interest beyond that date.
However, the Court awarded legal interest on the principal and the Frias contends that the interest, whether at 32% per annum
The imposition of legal interest on the amounts subject of accrued interest from April 1, 1935, the day after the grace period awarded by the trial court or at 25% per annum as modified by the
the equitable mortgages, P1,200 and P300, respectively, is ended, until full payment, based on extra-judicial demands made CA which should run from June 7, 1991 until fully paid, is contrary
without legal basis, for, by Jardenil. to the parties’ Memorandum of Agreement; that the agreement
provides that if respondent would decide not to purchase the
“No interest shall be due unless it has been expressly Doctrine: property, petitioner has the period of another six months to pay
stipulated in writing.” (Article 1956, new Civil Code) The Supreme Court reiterates the doctrine that interest is due only the loan with compounded bank interest for the last six months
when it is expressly stipulated in a contract, and contracts must be only; that the CA’s ruling that a loan always bears interest
Furthermore, the plaintiff did not pray for such interest; interpreted according to their clear and explicit terms as intended otherwise it is not a loan is contrary to Art. 1956 of the New Civil
her thesis was a consolidation of ownership, which was by the contracting parties, without presuming obligations not Code which provides that no interest shall be due unless it has
properly rejected, the contracts being equitable chosen by the parties. been expressly stipulated in writing
mortgages.
Class Notes: HELD:
Case 13 - Jardenil v. Solas, 73 Phil 626 (1942) – Essential Elements of a Contract: Express stipulation, clear terms,
and mutual consent. The Supreme Court upheld the CA’s decision, adjusting the
Facts: – Application of Article 1755 of the Civil Code: Interest on a loan is compounded interest rate to 25% per annum from June 7,
In November 1932, Gil Jardenil, the plaintiff, extended a loan of due only if expressly agreed upon. 1991, until fully paid. The Court ruled that the interest
₱2,400 to Hefti Solas, the defendant, under a promissory note provision should be interpreted in light of the whole
agreement, allowing for the continued accrual of interest ISSUE: Whether the imposition of a 2% monthly interest on that prioritizing Cordero’s claim would unfairly disadvantage other
after the initial six months since the principal loan amount the unpaid amount is appropriate. creditors. The trial court dismissed the bank’s defense, and its
remained unpaid. 2. Whether the term “monthly progress billings” as used in decision was affirmed by the Court of Appeals. The case reached
the contract applied to the outstanding balance demanded the Supreme Court via a petition for review on certiorari by the
The agreement that the amount given shall bear by Consunji. Overseas Bank of Manila.
compounded bank interest for the last six months only, i.e.,
referring to the second six-month period, does not mean RULING: **Issues**: Whether Cordero is entitled to interest on his
that interest will no longer be charged after the second six- The Supreme Court denied the petition and affirmed the CA’s time deposit during the period of the bank’s closure and to
month period since such stipulation was made on the decision. It held that the agreement between the parties attorney’s fees.
logical and reasonable expectation that such amount would constituted the law between them, thereby upholding the 2%
be paid within the date stipulated. Considering that monthly interest as a valid penalty for delay in payment. The Court **Court’s Decision**:
petitioner failed to pay the amount given which under the clarified that “monthly progress billings” referred to portions of the The Supreme Court found that:
Memorandum of Agreement shall be considered as a loan, contract price payable based on project completion stages, 1. The claim by Vicente Cordero was satisfactorily settled outside
the monetary interest for the last six months continued to applicable to the unpaid balance. The Court also highlighted that of court through the acknowledgment of receiving payments
accrue until actual payment of the loaned amount. the agreement provision for interest in cases of delay was totaling his principal amount plus interest and issuing a quitclaim
stipulated for the benefit of Consunji, the contractor. Thus, even to the Commercial Bank of Manila (successor of the Overseas Bank
The payment of regular interest constitutes the price or cost of the without a specific stipulation or in case of ambiguity, interest is of Manila).
use of money and thus, until the principal sum due is returned to recoverable under Article 2209 of the Civil Code by default. 2. Cordero was not entitled to interest for the period during
the creditor, regular interest continues to accrue since the debtor which the bank was closed, aligning with precedent that
continues to use such principal amount. It has been held that for a ### Doctrine: banks unable to operate cannot fulfill such obligations.
debtor to continue in possession of the principal of the loan and to In contractual obligations, the terms agreed upon by the parties 3. Cordero could not claim attorney’s fees since the bank’s inability
continue to use the same after maturity of the loan without serve as the law between them. When a party defaults on such to pay was not due to dishonest refusal but due to regulatory
payment of the monetary interest, would constitute unjust obligations, the aggrieved party is entitled to damages in the form restrictions.
enrichment on the part of the debtor at the expense of the creditor. of stipulated interest, or in its absence, legal interest as provided
by law. **Doctrine**:
Petitioner and respondent stipulated that the loaned amount shall The case reiterates the doctrine that a bank’s obligation to
earn compounded bank interests, and per the certification issued ### Class Notes: pay interest on deposits ceases when its operations are
by Prudential Bank, the interest rate for loans in 1991 ranged from – **Contract Law:** The terms of a written agreement between entirely suspended by the Central Bank or any duly
25% to 32% per annum. The CA reduced the interest rate to 25% parties cannot be contradicted by evidence of prior, constituted authority. This principle is grounded in the
instead of the 32% awarded by the trial court which petitioner no contemporaneous, or subsequent oral agreements (Parol Evidence inability to generate income under such circumstances and
longer assailed Rule). is treated equivalently to force majeure for reasons of
– **Damages for Delay:** When delay occurs in fulfilling a equity.
monetary obligation, the aggrieved party is entitled to interest as
Case 15 - Arwood Industries v. DM Consunji 394 SCRA 11 damages, either stipulated in the agreement or, absent such **Class Notes**:
(2002) stipulation, as provided by law (Article 2209, Civil Code). – Essential elements to consider in cases of bank insolvency
– **Interpretation Favoring Stipulator:** Contract clauses include the regulatory framework governing banking operations,
Arwood Industries, Inc. (Arwood) and D.M. Consunji, Inc. (Consunji) specifically stipulated for one party’s benefit are interpreted in impact of insolvency on contractual obligations particularly
entered into an agreement on February 6, 1989, for the favor of that party. payment of interest, and legal restrictions on disbursements by
construction of the Westwood Condominium. The contract price insolvent entities.
totaled P20,800,000.00. After project completion, Arwood failed to – Key statutory provisions are found in Section 85 of the Republic
pay P962,434.78. Consunji filed a complaint on August 13, 1993, Case 16 - Overseas v. Cordero, 113 SCRA 303 Act No. 337 (General Banking Act) regarding the prohibition of
seeking the unpaid amount with interest, attorney’s fees, payment disbursements following a declaration of insolvency.
exemplary damages, and costs of suit. The Regional Trial Court Vicente Cordero opened a one-year time deposit with the Overseas – In applying these provisions, it is critical to differentiate between
(RTC) ruled in favor of Consunji, imposing a 2% per month interest Bank of Manila on July 20, 1967, worth P80,000.00, maturing on the obligation to return the principal amount deposited and the
among other payments. Arwood appealed to the Court of Appeals July 20, 1968, at a 6% annual interest rate. When the bank became obligation to pay interest, with the latter contingent upon the
(CA), contesting the interest imposition. The CA upheld the RTC’s financially distressed and was unable to pay Cordero’s time deposit bank’s operational ability to generate income.
decision but removed the attorney’s fees award. Arwood appealed plus interest, Cordero took legal action in the Court of First
to the Supreme Court, arguing the lack of basis for the 2% monthly Instance of Manila. The bank defended its inability to pay by citing Case 17 - Ramos v. Central Bank, 137 SCRA 685
interest and misapplication of the contract terms regarding its insolvency status as determined by the Monetary Board, leading
“monthly progress billings.” to the suspension of its operations and the prohibition against This case originated from the forcible closure of the Overseas Bank
disbursement of its funds as per banking laws. The bank argued of Manila (OBM, later renamed Commercial Bank of Manila or
COMBANK) by the Central Bank of the Philippines on August 2, – **Central Bank’s Role**: Acts not as an ordinary creditor but as Petitioner Basilio L. Lirag is precluded from denying his
1968. Following its closure, OBM sought a rehabilitation plan, which the government’s monetary authority, tasked with the supervision liability under the Purchase Agreement. After his firm
eventually led to its reopening on January 8, 1981. The Central and sustainability of the banking sector. representation to “pay immediately to the VENDEE the
Bank and OBM entered into various agreements regarding the – **Government Institutions’ Involvement**: Decisions regarding amounts then outstanding” evidencing his commitment as
rehabilitation and repayment of loans and advances, with specific liabilities and interest payments during bank closure periods can SURETY, he is estopped from denying the same. His
terms relating to the payment of interests. The legality of applying have broad implications that affect other government institutions signature in the agreement carries with it the official
interests on Central Bank loans and advances during the closure (e.g., GSIS). imprimatur as petitioner corporation’s president, in his
period became contentious, leading to appeals for clarificatory personal capacity as majority stockholder, as surety and as
rulings based on the precedent Tapia ruling (105 SCRA 49, June 11, Case 18 -Lirag v. SSS, 153 SCRA 338 solidary obligor. The essence of his obligation as surety is
1981), which held that a bank under forced closure by the Central to pay immediately without qualification whatsoever if
Bank is not liable to pay interest to depositors for the closure This legal dispute originated from a Purchase Agreement dated petitioner corporation does not pay. To have another
period. Pertinent motions and petitions were filed and argued September 4, 1961, between Lirag Textile Mills, Inc. (hereinafter interpretation of petitioner Lirag’s liability as surety would
extensively up to the Supreme Court, involving intervenor Lirag), represented by Basilio L. Lirag, and the Social Security violate the integrity of the Purchase Agreement as well as
Commercial Bank of Manila and Government Corporate Counsel System (SSS), wherein SSS agreed to purchase preferred shares the clear and unmistakable intent of the parties to the
Manuel M. Lazaro, representing COMBANK. worth P1 million from Lirag under specific conditions. Following the same.
agreement, SSS disbursed payments amounting to P1 million for
**Issues:** The main legal issue raised was whether COMBANK 10,000 preferred shares. The agreement mandated that Lirag Art. 1957: Contracts and stipulations, under any cloak or
was liable for the payment of interest on loans and would repurchase these shares in annual installments beginning device whatever, intended to circumvent the laws against
advances from the Central Bank during the period of its the fourth year since their issuance. To ensure compliance, Basilio usury shall be void. The borrower may recover in
closure from August 2, 1968, to January 8, 1981, applying L. Lirag also acted as a surety. However, Lirag failed to repurchase accordance with the laws on usury.
the Tapia ruling. the shares and pay the agreed dividends.
Case 19 - Angel Jose Warehousing v. Chelda Enterprises. 23
**Court’s Decision:** The Supreme Court resolved to deny with SSS initiated legal action for specific performance and damages in SCRA 119 (1968).
finality the Central Bank’s motion for reconsideration, upholding its the Court of First Instance of Rizal, Quezon City (Civil Case No. Q-
initial resolution that, following the Tapia ruling, COMBANK is not 12275), demanding payment of the principal amount (P1 million), On May 29, 1964, Angel Jose Warehousing Co., Inc. filed a lawsuit
liable for interest on Central Bank loans and advances dividends amounting to P220,000, among other damages. Lirag in the Court of First Instance of Manila against Chelda Enterprises
during the closure period. The Court found no cogent contested, arguing that the agreement’s fulfillment was contingent and David Syjueco, seeking the recovery of unpaid loans totaling
argument sufficient to reconsider its stance. This decision upon the company’s financial capacity, which had been severely P20,880.00, plus legal interests from the date of the complaint,
highlighted the unique role of the Central Bank not merely compromised due to various adversities including unrestrained and attorney’s fees amounting to P5,000.00. The company claimed
as an ordinary creditor but as the monetary authority smuggling, financial scarcities, labor disputes, and a catastrophic that post-dated checks issued by the defendants to settle the
charged with the banking system’s supervision and fire. account were dishonored. They also alleged that the defendants
preservation. Significant development noted was the GSIS’s had either disposed of or were planning to dispose of their
acquisition of 99.93% of COMBANK, emphasizing the resolution’s Issue: Respondent judge erred in sentencing petitioners to properties to defraud their creditors, leading to a request for a
implication on government institutions beyond the direct parties. pay interest from the time of filing the complaint up to the preliminary attachment.
time of full payment both on the P1,000,000.00 invested by
**Doctrine:** The doctrine established in this case reiterates respondent SSS in petitioner’s corporation and on the The defendants responded by admitting to obtaining four loans
the Tapia ruling, emphasizing that the obligation to pay P220,000.00 which the SSS claims as dividends due on its amounting to P26,500.00 in total, of which P5,620.00 had already
interest ceases when a bank’s operations are fully investments been repaid, leaving the said balance. However, they contended
suspended by the Central Bank. It underlines the that the plaintiff deducted usurious interest rates from the loans,
consistency in applying this principle across different RULING: The pronouncement of the lower court for the thus arguing that the plaintiff’s action was without cause and
obligations of the bank that could not be met during its payment of interests on both the unredeemed shares and barred under the law. A counterclaim for P2,000.00 in attorney’s
complete closure period. unpaid dividends is also in order. Per stipulation of facts, fees was also lodged against the plaintiff.
petitioners did not deny the fact of non-payment of
**Class Notes:** dividends nor their failure to purchase the preferred After a series of legal proceedings, the trial court, on November 10,
shares. 1965, ruled in favor of the plaintiff but acknowledged the
– **Tapia Ruling Reference**: When a banking institution is forcibly deduction of usurious interests from the loans, hence adjusting the
closed by the Central Bank, it is not liable for the payment of Since these involve sums of money which are overdue, they dues. Discontented, the defendants appealed directly to the
interest on deposits or other obligations during the period of are bound to earn legal interest from the time of demand, Supreme Court, raising critical legal questions.
cessation. in this case, judicial, i.e., the time of filing the action.
### Issues:
1. Can a creditor recover the principal amount of a loan in a attorney’s fees, insurance payments, and incidental relief. The case Jesus T. David, the petitioner, seeking the execution of a decision
situation where usurious interest was charged? also involved Siuliong & Co., Inc. as a defendant due to its third by the Regional Trial Court of Manila, Branch 27 (Civil Case No.
mortgage on the property and its surety status for Mabalacat 94781) dated October 31, 1979, as amended on June 20, 1980.
### Court’s Decision: Sugar Company, and the Philippine National Bank, as it held the This decision ordered the defendant, Valentin Afable Jr., to pay
On the principal recovery, the Supreme Court held that a contract second mortgage. Mabalacat Sugar Company’s failure to meet the David a sum of P66,500.00 with legal interest dating back to
of loan with usurious interest is valid concerning the principal but payment deadlines lead to this legal action, seeking foreclosure of January 4, 1966, attorney’s fees of P5,000.00, plus costs.
void as to the usurious interest. Drawing from existing statutory the mortgage securing the debt.
laws and prior jurisprudential doctrines, it clarified that the illegal Afable’s appeal to the Court of Appeals and then to the Supreme
terms pertaining to the usurious interest do not invalidate the The trial proceeded after the defendants filed their respective Court did not succeed, with both higher courts affirming the lower
entire contract, particularly the agreement on the principal loan answers. The court ruled in favor of Cu Unjieng e Hijos, ordering court’s decision. Accordingly, entries of judgment were made.
amount. Thus, the creditor can recover the principal amount Mabalacat Sugar Company to pay the debt with interest, insurance
without the usurious interest. premiums, attorney’s fees, and costs of the suit. Mabalacat Upon remand for final execution, the Sheriff conducted a public
appealed to the Supreme Court, arguing against the trial court’s auction, reporting a total judgment amount of P270,940.52 based
decisions concerning the action’s premature initiation, the on simple interest. David, however, contended this amount should
### Doctrine: computation of interest, the attorney’s fees, and the court’s denial be P3,027,238.50 based on compound interest. This disagreement
The case reinforced the doctrine that in a loan agreement where of Mabalacat’s request to amend its answer. led to the Sheriff withholding the Certificate of Sale for the
usurious interest is charged, the agreement regarding the principal auctioned properties due to the excess in David’s bid.
amount remains valid and enforceable, whereas the stipulation ISSUE: The propriety of the interest charges applied by Cu
concerning the usurious interest is deemed void. Furthermore, the Unjieng e Hijos. Subsequent motions by David requested the respondent Judge to
recovery of attorney’s fees requires a clear basis that falls within order the Sheriff to issue a Certificate of Sale reflecting David’s bid
the exceptions provided by law, failing which such claims are HELD: The Court clarified that while parties may stipulate amount. This was denied by the Judge based on a computation of
unfounded. compound interest, it cannot be charged upon interest simple legal interest per prevailing rules and an established
without such stipulation. The Court disagreed with the trial Supreme Court precedent which held that compound interest could
### Class Notes: court’s interpretation that allowed for the accumulation of only apply if stipulated interest had accrued upon judicial demand.
– **Principal vs. Accessory Obligations**: In contracts with usurious compound interest on monthly interest, reducing the
interest, the principal obligation (repayment of the loan amount) is principal owed by P1,136.12. David’s motion for reconsideration was denied, leading him to
separate and enforceable independently from the accessory elevate the matter to the Court of Appeals through a petition for
obligation (payment of interest), which can be deemed void if The Supreme Court reaffirmed the principle that, in the certiorari, prohibition, and mandamus. The appellate court
found usurious. absence of an express stipulation, interest cannot be dismissed his petition, maintaining that without stipulated interest,
– **Article 1411, NCC**: Applies the rule of in pari delicto in compounded, and payments made under an unlawful rate only simple legal interest could apply, affirming the trial court’s
contracts nullified by illegal cause or object, but exceptions apply, of interest are not binding. computation method.
enabling recovery under specific conditions.
– **Usury Law vs. Civil Code**: The Civil Code and the Usury Law But where interest is improperly charged, at an unlawful rate, the ISSUE:
coexist, with the latter providing mechanisms for the recovery of mere voluntary payment of it to the creditor by the debtor is not 1. Whether the Court of Appeals erred in finding that
excess interest paid, while the former allows for the enforceability binding. Such payment, in the case before us, was usurious, being Article 2212 of the Civil Code applies solely when parties
of the principal debt agreement. in excess of 12 per cent which is allowed to be charged, under have agreed to compounded interest.
– **Article 2208, NCC**: Stipulates the conditions under which section 2 of the Usury Law, when a debt is secured by mortgage 2. Whether there was confusion between legal (as opposed
attorney’s fees may be awarded, emphasizing the necessity of a upon real property. The Exhibit 1 therefore adds no support to the to consensual) interest and between the interest on the
stipulation or fitting within particular exceptions. contention of the plaintiff that interest upon interest can be principal amount versus interest on the interest.
accumulated in the manner adopted by the creditor in this case. 3. The applicability of Article 2212 of the Civil Code in the
Art. 1959: Without prejudice to the provisions of Article The point here ruled is in exact conformity with the decision of this absence of an agreement on compound interest.
2212, interest due and unpaid shall not earn interest. court in Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 4. Whether the decision of the Court of Appeals was
However, the contracting parties may by stipulation 912), where this court held that interest cannot be allowed in the contrary to law by not applying compound interest.
capitalize the interest due and unpaid, which as added absence of stipulation, or in default thereof, except when the debt
principal, shall earn new interest. is judicially claimed; and when the debt is judicially claimed, the ### Court’s Decision:
interest upon the interest can only be computed at the rate of 6 The Supreme Court upheld the decision of the Court of
Case 20 - Cu-Unjieng v. Mabalacat, 54 Phil. 976 (1929) per cent per annum. Appeals, stating that compound interest applies only in the
presence of stipulated interest which had accrued upon
Cu Unjieng e Hijos initiated a lawsuit in the Court of First Instance judicial demand. Since no interest was previously
of Pampanga seeking to recover from Mabalacat Sugar Company Case 21 - David v. CA, 316 SCRA 710 (1999) stipulated between the parties, and the decision and
an indebtedness exceeding P163,000, along with interest, subsequent amendment of the trial court only mentioned
simple legal interest, the computation of interest as simple property as opposed to the RTC’s adoption of the commissioners’ valuation of Php 130.00 per and their loan restructured into a long-term loan by PNB’s officer Antoninus
rather than compound was affirmed. sq m. Yuvienco, and furthermore, that PNB failed to comply with the notice requirements
2. The period over which the 12% interest on unpaid just compensation should accrue. under Act No. 3135. PNB countered that the loan from Benito Tan, which the
Additionally, the Court found that alterations made to the Spouses Manalo claimed was meant for restructuring their debt, had been duly
final judgment by the respondent judge were justifiable **Court’s Decision:**
The Supreme Court affirmed the CA’s rulings with modifications. It held that the just credited to their account without any restructuring agreement. After the Regional
based on supervening circumstances, specifically the
effectivity of Central Bank Circular No. 416, which modified compensation for Apo’s property should indeed be Php 130.00 per sq m, considering the Trial Court (RTC) favored PNB, holding that the Spouses Manalo could not dispute
the legal interest rates. This circular represented a legal property’s potential and its location near Tagum City. The Court also ruled that LBP is liable to the bank’s right to foreclose given their prior agreement during pre-trial, the case
context that warranted the modification of the judgment pay legal interest of 12% per annum from the time of the taking in 1996 until June 30, 2013, was taken to the Court of Appeals. The CA partially modified the decision,
for its execution to be fair and equitable. and thereafter, 6% per annum until full payment. This decision was rooted in the principle that recognizing faults in PNB’s imposition of interest rates but upholding the
just compensation must be real, substantial, full, and ample.
foreclosure’s legality.
### Doctrine:
Thus, LBP is liable to pay legal interest of 12% counted from December 9, 1996, the time of
This case reaffirms the principle that compound interest can Issues: The legal issues revolved around: (i) the validity of the interest rates
the taking until June 30, 2013.[59] Thereafter, or beginning July 1, 2013 until fully paid, the
only be awarded if there is stipulated interest that has imposed and their increases by PNB, especially in the light of them being
just compensation shall earn 6% legal interest in accordance with Bangko Sentral ng Pilipinas
accrued upon judicial demand. Additionally, it unilaterally determined by the bank, and (ii) whether these unilateral actions by
Monetary Board Circular No. 799, Series of 2013
demonstrates the Judiciary’s capacity to modify final and
PNB breached the principle of mutuality of contracts under Article 1308 of the Civil
executory decisions to account for supervening legal and **Doctrine:**
factual circumstances to ensure justice and equity. Code.
The Supreme Court reiterated the doctrine that the determination of just compensation is a
judicial function, emphasizing the factors set by Section 17 of R.A. No. 6657 and the pertinent Court’s Decision: The Supreme Court affirmed the CA’s decision, with modifications
### Class Notes: DAR Administrative Orders. It highlighted that just compensation encompasses not only the
– **Compound Interest**: Requires an initial stipulation of interest regarding the interest rates to be applied. The Court held that PNB unilaterally
correct determination of the amount to be paid but also its payment within a reasonable time
and its accrual upon judicial demand (based on Article 2212 of the determining interest rates was contrary to the principle of mutuality of contracts.
from the taking of the property.
Civil Code). Therefore, the varied interest rates imposed by PNB were declared null and void.
– **Execution of Judgment**: Adjustments to the execution of a **Class Notes:** Instead, an interest rate of 12% per annum, computed from the Spouses Manalo’s
final and executory judgment are permissible to accommodate 1. **Just Compensation:** Defined as the full and fair equivalent of the property taken from default, was fixed. It further directed the recomputation of the Spouses Manalo’s
supervening circumstances that render the original terms unjust or its owner by the expropriator, fixed at the time of the actual taking by the government. indebtedness and ordered any excess in the foreclosure sale to be refunded, with
inequitable. 2. **Legal Interest:** Applicable from the time of property taking until full payment, 12% per
the said amount to accrue interest calculated from the CA decision.
– **Legal Interest Rates**: These can be modified by laws or annum until June 30, 2013, and 6% thereafter, as compensation for the owner’s opportunity
circulars, which can affect the execution of judgments concerning loss. Doctrine: The Supreme Court reiterated that unilateral determinations and
interest computations 3. **Judicial Determination of Just Compensation:** A principle that the determination of just
impositions of increased rates are violative of the mutuality principle in contracts.
compensation involves a judicial determination, taking into account factors such as the land’s
Additionally, it touched upon the applicability of Monetary Board Circular No. 799,
acquisition cost, current value, nature, actual use and income, among others prescribed under
Section 17 of R.A. No. 6657. adjusting the legal interest rate on judgments.
Apo Fruits Corporation vs. The Land Bank of the Philippines and Department of Agrarian 4. **Legal Statutes/Provisions:** Section 17 of R.A. No. 6657 (Comprehensive Agrarian
Reform Class Notes:
Reform Law of 1988) and pertinent DAR Administrative Orders guide the determination of just
compensation. – Principle of Mutuality of Contracts (Article 1308, Civil Code): Contracts must bind
**Facts:** 5. **Doctrine of Prompt Payment:** Underlines that compensation must be paid in a manner both parties equally, and their validity or compliance cannot be left to the will of
The case involves a property owned by Apo Fruits Corporation (Apo), a 115.2179-hectare land that is both timely and fair to be considered just. one party.
in San Isidro, Tagum City. Apo voluntarily offered to sell this land for the government’s
– Contracts of Adhesion: Any ambiguity in a contract prepared by one party will be
Comprehensive Agrarian Reform Program (CARP) on October 12, 1995. After a valuation
construed against the preparer.
process that Apo found unsatisfactory, the Department of Agrarian Reform (DAR) and the
Land Bank of the Philippines (LBP) proceeded with land acquisition despite Apo’s objections. Philippine National Bank vs. Spouses Enrique Manalo & Rosalinda Jacinto, et al. – Legal Interest Rates as per Monetary Board Circular No. 799: Adjusts the legal
This led Apo to file a complaint for determination of just compensation first with the DAR interest rate for loans, forbearance of money, goods, or credits, and judgments to
Adjudication Board (DARAB), which remained unresolved for almost six years, and Facts: This case involves the Philippine National Bank (PNB) and Spouses Enrique 6% per annum unless a different rate is stipulated.
subsequently with the Regional Trial Court (RTC) as a Special Agrarian Court (SAC). The RTC Manalo and Rosalinda Jacinto, along with their children Arnold, Arnel, Anthony, and
ruled in favor of Apo, ordering a just compensation significantly higher than the initial Arma Manalo. The core of the dispute is a series of loans that the Spouses Manalo Solidbank Corporation vs. Permanent Homes, Incorporated: A Case of Unilateral
valuation by LBP. Dissatisfied with the RTC’s decision, both LBP and DAR filed separate took from PNB, secured by real estate mortgages, which were allegedly subject to Interest Rate Adjustments
petitions for review with the Court of Appeals (CA), leading to a partial modification of the unilateral and arbitrary interest rate increases by PNB. Despite partial repayments,
RTC’s decision. Subsequently, both parties appealed to the Supreme Court. **Facts:**
PNB declared the Spouses Manalo in default and initiated foreclosure proceedings,
Permanent Homes Incorporated (Permanent) is a real estate company that secured
**Issues:** eventually acquiring the mortgaged properties. The Spouses Manalo, challenging
a loan from Solidbank Corporation (Solidbank) amounting to SIXTY MILLION PESOS
1. The correctness of the CA’s finding of Php 103.33 per sq m as just compensation for Apo’s the foreclosure, alleged they were led to believe their account would be updated
to finance its Buena Vida Townhomes project in Parañaque City. This loan was **Doctrine:** The Defendants argued that the Deed of Assignment fulfilled their payment
secured through an “Omnibus Line” credit facility, comprising mainly a time loan 1. Mutuality of Contracts – Obligations arising from contracts have the force of law obligations and that the Bank should directly collect from the Philippine Fisheries
with interest rates subject to monthly repricing according to prevailing market between the parties and must be mutually agreed upon. Unilateral decisions by Commission, which succeeded the Emergency Employment Administration and was
rates. Over time, thirty-six townhouse units were mortgaged to Solidbank as one party without the other’s consent are void. allegedly responsible for non-payment due to contract fulfillment failure.
security for the loan, from which Permanent availed a total of 41.5 million pesos 2. Written Notice Requirement – Any adjustment in interest rates based on
covered by three promissory notes. agreements allowing for repricing must be communicated through written notice to Upon procedural reviews and an appeal filed by the Defendants challenging the
take effect. trial court’s decision favoring the Bank, the case was eventually elevated to the
Contrary to the stated provisions allowing Solidbank to unilaterally adjust interest Supreme Court after the Court of Appeals recognized it involved pure legal
rates, there was a standing agreement that any interest rate changes would require **Class Notes:** questions.
mutual agreement. Despite this, Solidbank significantly increased interest rates – **Mutuality of Contracts:** Essential for the validity of agreements, particularly
multiple times without Permanent’s agreement. Feeling coerced and fearing the in loan agreements involving interest rate adjustments. ### Issues:
loss of its credit facility amid its project development, Permanent did not – **Interest Rate Adjustment Clauses:** Must specify conditions including mutual 1. Whether the Deed of Assignment effectively settled the indebtedness under the
immediately challenge these increases. This led to Permanent filing a case against agreement, written notice, and the borrower’s right to prepay. promissory notes.
Solidbank, seeking to annul the interest rate increases for violating the principle of – **Legal Compliance:** Adjustments in interest rates and other significant loan 2. Whether the Bank was obligated to exhaust all legal remedies against the
mutuality of contracts, among other reliefs. terms must adhere to the principle of transparency and fairness, ensuring Philippine Fisheries Commission before proceeding against the Defendants.
borrowers are duly informed. ### Court’s Decision:
Solidbank defended its actions by insisting on the provisions in the Omnibus Credit
Line and promissory notes that allegedly allowed it to adjust interest rates The Supreme Court dismissed the appeal, affirming the trial court’s decision in
unilaterally. These developments culminated in a decision by the trial court favor of the Bank. It held that:
dismissing Permanent’s complaint, which was subsequently reversed by the The Manila Banking Corporation vs. Anastacio Teodoro, Jr., and Grace Anna 1. The Deed of Assignment was not a payment mechanism for the obligations
appellate court. The appellate court’s decision was then challenged by Solidbank in Teodoro articulated in the promissory notes. It was intended as collateral security for
the Supreme Court. current and future loans, not as a settlement of existing debts.
### Facts: 2. The Defendants remained primarily liable to the Bank, and the assignment of
**Issues:** The Manila Banking Corporation (the Bank) filed a civil case against Anastacio receivables did not relieve them of this liability. Moreover, the Bank was not
1. The legality of unilateral interest rate adjustments by Solidbank without mutual Teodoro, Jr., Grace Anna Teodoro, and Anastacio Teodoro, Sr. (collectively, the required to exhaust legal remedies against the Philippine Fisheries Commission
agreement with Permanent. Defendants) to collect on unpaid balances from three promissory notes executed in before pursuing the Defendants.
2. The necessity of entering into a new express agreement regarding interest rates the Bank’s favor. Despite repeated demands, the Teodoros failed to fulfill their
subsequent to the initial thirty-day period as decreed by the appellate court. obligations, leading to the litigation of Civil Case No. 78178 at the Court of First ### Doctrine:
3. Entitlement of Permanent to attorney’s fees as ruled by the appellate court. Instance of Manila, Branch XVII. Anastacio Teodoro, Sr.’s death during the This case affirms that an assignment of receivables executed as a security for loans
proceedings resulted in his dismissal from the case, directing the focus on the does not extinguish the debtors’ obligations under separate promissory notes
**Court’s Decision:** junior Teodoros. unless explicitly stated. Additionally, a creditor is not obliged to exhaust all legal
The Supreme Court partially granted the petition, setting aside the appellate court’s remedies against a third party before collecting from the principal debtors.
decisions and agreeing with the trial court, albeit with modifications. The core On April 25, 1966, per Promissory Note No. 11487, the Defendants, collectively
finding was that the promissory notes did legitimately allow Solidbank to adjust with Teodoro Sr., promised P10,420.00 payable in 120 days with a 12% annual ### Class Notes:
interest rates subject to certain conditions: mutual agreement of the parties, interest. By September 30, 1969, their debt had escalated to P15,137.11 due to – **Assignment of Credit**: Transfer of ownership of a credit from the assignor to
written notice to Permanent, and an option for Permanent to prepay the loan upon accrued interest and service charges. On May 3 and June 20, 1966, Teodoro Jr. and the assignee. Character and effects depend on the agreement’s nature (sale,
disagreement with the new rates. Sr. further executed Promissory Notes Nos. 11515 and 11699 for P8,000.00 and donation, guaranty, etc.).
P1,000.00, respectively, under similar terms. A partial payment was made on the – **Promissory Notes**: Written promises to pay specified amounts under agreed
The Court underscored, however, that while Solidbank’s rate adjustments were May 3 promissory note, leaving an unpaid balance of P8,934.74 by the same date in terms. Non-payment can lead to legal action for collection.
within legal boundaries, they were required to provide Permanent with written 1969. – **Legal Doctrine on Debt Collection**: Creditors may directly pursue principal
notice as a condition for these adjustments. The Court observed that Solidbank debtors without needing to exhaust remedies against third parties unless specified
failed to provide timely written notices, sometimes advising new rates verbally or In a related transaction on January 24, 1964, Teodoro Jr. executed a Deed of otherwise.
sending late billing statements, which violated the agreed procedure. Hence, the Assignment of Receivables to the Bank involving receivables from the Emergency
Court decided that Solidbank’s computation of interest due from Permanent should Employment Administration amounting to P44,635.00, intended as collateral for
be based on the dates when Permanent actually received written notice of the rate loans and credit accommodations extended by the Bank.
adjustments.