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ISSUE: Is the contractual relationship of Pajuyo

II - COMMODATUM and Guevara that of a commodatum?
HELD: We do not subscribe to the Court of Appeals
A. COLITO T. PAJUYO, petitioner, vs. COURT OF theory that the Kasunduan is one of commodatum.
APPEALS and EDDIE GUEVARRA, respondents.
[G.R. No. 146364. June 3, 2004] In a contract of commodatum, one of the parties
delivers to another something not consumable so that
CARPIO, J.: the latter may use the same for a certain time and
return it. An essential feature of commodatum is that it
FACTS Petitioner Colito T. Pajuyo (Pajuyo) paid  Pedro is gratuitous. Another feature of commodatum is that
Perez for the rights over a 250-square meter lot in Barrio the use of the thing belonging to another is for a certain
Payatas, Quezon City. Pajuyo then constructed a house period. Thus, the bailor cannot demand the return of the
made of light materials on the lot. Pajuyo and his family thing loaned until after expiration of the period
lived in the house from 1979 to 7 December 1985. stipulated, or after accomplishment of the use for which
On 8 December 1985, Pajuyo and private the commodatum is constituted. If the bailor should
respondent Eddie Guevarra (Guevarra) executed have urgent need of the thing, he may demand its
a Kasunduan or agreement. Pajuyo, as owner of the return for temporary use. If the use of the thing is
house, allowed Guevarra to live in the house for free merely tolerated by the bailor, he can demand the
provided Guevarra would maintain the cleanliness and return of the thing at will, in which case the contractual
orderliness of the house. Guevarra promised that he relation is called a precarium. Under the Civil
would voluntarily vacate the premises on Pajuyos Code, precarium is a kind of commodatum.
demand. The Kasunduan reveals that the accommodation
In September 1994, Pajuyo informed Guevarra of accorded by Pajuyo to Guevarra was not essentially
his need of the house and demanded that Guevarra gratuitous. While the Kasunduan did not require
vacate the house. Guevarra refused. Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this
Pajuyo filed an ejectment case against Guevarra. obligation makes the Kasunduan a contract different
The MTC ruled that the subject of the agreement from a commodatum. The effects of the Kasunduan are
between Pajuyo and Guevarra is the house and not the also different from that of a commodatum. Case law on
lot. Pajuyo is the owner of the house, and he allowed ejectment has treated relationship based on tolerance as
Guevarra to use the house only by tolerance. Thus, one that is akin to a landlord-tenant relationship where
Guevarras refusal to vacate the house on Pajuyos the withdrawal of permission would result in the
demand made Guevarras continued possession of the termination of the lease. The tenants withholding of the
house illegal. property would then be unlawful. This is settled
jurisprudence.
The RTC upheld the Kasunduan, which
established the landlord and tenant relationship between Even assuming that the relationship between
Pajuyo and Guevarra. The terms of Pajuyo and Guevarra is one of commodatum, Guevarra
the Kasunduan bound Guevarra to return possession of as bailee would still have the duty to turn over
the house on demand. possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received
The RTC rejected Guevarras claim of a better right attaches to contracts for safekeeping, or contracts of
under Proclamation No. 137, the Revised National commission, administration and commodatum. These
Government Center Housing Project Code of Policies and contracts certainly involve the obligation to deliver or
other pertinent laws. In an ejectment suit, the RTC has return the thing received.
no power to decide Guevarras rights under these
laws. The RTC declared that in an ejectment case, the B. PRODUCERS BANK OF THE PHILIPPINES (now
only issue for resolution is material or physical FIRST INTERNATIONAL BANK), petitioner,
possession, not ownership. vs. HON. COURT OF APPEALS AND FRANKLIN
VIVES, respondents. [G.R. No. 115324. February
The Court of Appeals reversed the MTC and RTC 19, 2003]
rulings, which held that the Kasunduan between Pajuyo
and Guevarra created a legal tie akin to that of a CALLEJO, SR., J.:
landlord and tenant relationship. The Court of Appeals FACTS: private respondent Franklin Vives was asked by
ruled that the Kasunduan is not a lease contract his neighbor and friend Angeles Sanchez to help her
but a commodatum because the agreement is not friend and townmate, Col. Arturo Doronilla, in
for a price certain. incorporating his business, the Sterela Marketing and
Services (Sterela for brevity). Specifically, Sanchez asked
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private respondent to deposit in a bank a certain amount his P200,000.00 and in fact asked his wife to deposit
of money in the bank account of Sterela for purposes of said amount in the account of Sterela so that a
its incorporation. Thereafter, private respondent issued a certification can be issued to the effect that Sterela had
check in the amount of Two Hundred Thousand Pesos sufficient funds for purposes of its incorporation but at
(P200,000.00) in favor of Sterela. Subsequently, private the same time, he retained some degree of control over
respondent learned that Sterela was no longer holding his money through his wife who was made a signatory
office in the address previously given to him. Alarmed, to the savings account and in whose possession the
he and his wife went to the Bank to verify if their money savings account passbook was given.
was still intact. The bank manager referred them to Mr. RTC rendered decision sentencing defendants Arturo J.
Rufo Atienza, the assistant manager, who informed Doronila, Estrella Dumagpi and Producers Bank of the
them that part of the money in Savings Account No. 10- Philippines to pay plaintiff Franklin Vives jointly and
1567 had been withdrawn by Doronilla, and that severally. Appellate court affirmed in toto the decision of
only P90,000.00 remained therein. He likewise told them the RTC.
that Mrs. Vives could not withdraw said remaining
amount because it had to answer for some postdated ISSUE ON THE TRANSACTION BETWEEN THE
checks issued by Doronilla. DORONILLA AND RESPONDENT VIVES WAS ONE OF
SIMPLE LOAN. NEGATIVE
According to Atienza, after Mrs. Vives and Sanchez
opened Savings Account No. 10-1567, Doronilla opened HELD No error was committed by the Court of
Current Account No. 10-0320 for Sterela and authorized Appeals when it ruled that the transaction between
the Bank to debit Savings Account No. 10-1567 for the private respondent and Doronilla was
amounts necessary to cover overdrawings in Current a commodatum and not a mutuum. A circumspect
Account No. 10-0320. In opening said current account, examination of the records reveals that the transaction
Sterela, through Doronilla, obtained a loan between them was a commodatum. Article 1933 of the
of P175,000.00 from the Bank. To cover payment Civil Code distinguishes between the two kinds of loans
thereof, Doronilla issued three postdated checks, all of in this wise:
which were dishonored. After written demand upon
Doronilla, the latter issued another check By the contract of loan, one of the parties delivers to
for P212,000.00 in private respondents favor but the another, either something not consumable so that the
check was again dishonored for insufficiency of funds. latter may use the same for a certain time and return it,
in which case the contract is called a commodatum; or
Private respondent instituted an action for recovery of money or other consumable thing, upon the condition
sum of money in the Regional Trial Court (RTC) in Pasig, that the same amount of the same kind and quality shall
Metro Manila against Doronilla, Sanchez, Dumagpi and be paid, in which case the contract is simply called a
petitioner.  loan or mutuum.

Petitioner contends that the transaction between Commodatum is essentially gratuitous.

private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are
Simple loan may be gratuitous or with a stipulation to
present: first, what was delivered by private respondent
pay interest.
to Doronilla was money, a consumable thing; and
second, the transaction was onerous as Doronilla was
obliged to pay interest, as evidenced by the check In commodatum, the bailor retains the ownership of the
issued by Doronilla in the amount of P212,000.00, thing loaned, while in simple loan, ownership passes to
or P12,000 more than what private respondent the borrower.
deposited in Sterelas bank account. Moreover, the fact
that private respondent sued his good friend Sanchez for The foregoing provision seems to imply that
his failure to recover his money from Doronilla shows if the subject of the contract is a consumable
that the transaction was not merely gratuitous but had a thing, such as money, the contract would be
business angle to it. Hence, petitioner argues that it a mutuum. However, there are some instances
cannot be held liable for the return of private where a commodatum may have for its object a
respondents P200,000.00 because it is not privy to the consumable thing. Article 1936 of the Civil Code
transaction between the latter and Doronilla. provides:
Consumable goods may be the subject of
Private respondent, on the other hand, argues commodatum if the purpose of the contract is
that the transaction between him and Doronilla is not the consumption of the object, as when it is
not a mutuum but an accommodation (sic), since merely for exhibition.
he did not actually part with the ownership of
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Thus, if consumable goods are loaned only for and supervision of Atienza.
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 C. Mina vs. Pascual
a commodatum and not a mutuum.
G.R. No. L-8321             October 14, 1913
As correctly pointed out by both the Court of Arellano
Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the FACTS:
savings account of Sterela specifically for the purpose of Francisco and Andres Fontanilla were brothers.
making it appear that said firm had sufficient Francisco acquired a lot in the center of Laoag which he
capitalization for incorporation, with the promise that the acquired through a public auction.
amount shall be returned within thirty (30) days. Andres, with the consent of Francisco, erected a
Private respondent merely accommodated warehouse on a part of the said lot.
Doronilla by lending his money without Herein plaintiffs are the heirs of Francisco while
consideration, as a favor to his good friend respondents are the heirs of Andres. Ruperta, the
Sanchez. It was however clear to the parties to guardian of her minor children, stated that they are
the transaction that the money would not be entitled to only six-sevenths of one half of the building
removed from Sterelas savings account and while, it is established, that the plaintiffs are the owners
would be returned to private respondent after of the part of the lot occupied by that building as well as
thirty (30) days. the remainder thereof.
Ruperta petitioned the CFI of Ilocos Norte for
Doronillas attempts to return to private respondent authorization to sell “the six-sevenths of the one-half of
the amount of P200,000.00 which the latter deposited in the warehouse, together with its lot. The plaintiffs
Sterelas account together with an additional P12,000.00, opposed the petition stating that the lot occupied by the
allegedly representing interest on the mutuum, did not warehouse was their exclusive property. They also
convert the transaction from a commodatum into requested the court to decide the question of ownership
a mutuum because such was not the intent of the of the lot.
parties and because the additional P12,000.00 CFI: ordered the sale of the building at public auction.
corresponds to the fruits of the lending of The warehouse and the lot was sold to Cu Joco.
the P200,000.00. Article 1935 of the Civil Code expressly On appeal, this Court reversed the judgment of the
states that [t]he bailee in commodatum acquires the use lower court and held that the plaintiffs were the owners
of the thing loaned but not its fruits. Hence, it was only of the lot in question.
proper for Doronilla to remit to private respondent the When the judgment became final and executory, a writ
interest accruing to the latters money deposited with of execution issued and the plaintiffs were given
petitioner. possession of the lot but soon thereafter, the trial court
Neither does the Court agree with petitioners annulled this possession because it affect Cu Joco who is
contention that it is not solidarily liable for the return of not a party to the suit.
private respondents money because it was not privy to ISSUE: WoN the contract was a commodatum
the transaction between Doronilla and private HELD: NO.
respondent. The nature of said transaction, that is, By the contract of loan, one of the parties
whether it is a mutuum or a commodatum, has no delivers to the other, either anything not
bearing on the question of petitioners liability for perishable, in order that the latter may use it
the return of private respondents money because during the certain period and return it to the
the factual circumstances of the case clearly former, in which case it is
show that petitioner, through its employee Mr. called commodatum . . . (art. 1740, Civil Code).
Atienza, was partly responsible for the loss of
private respondents money and is liable for its It is an essential feature of the commodatum that the
restitution. use of the thing belonging to another shall be for a
certain period. Francisco did not fix any period or time
The foregoing shows that the Court of Appeals during which Andres could have the use of the lot.
correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondents loss and is **question lang: dili ba siya precardium? =)
solidarily liable with Doronilla and Dumagpi for the
return of the P200,000.00 since it is clear that petitioner D. De los Santos vs. Jarra
failed to prove that it exercised due diligence to prevent
the unauthorized withdrawals from Sterelas savings G.R. No. L-8321             October 14, 1913
account, and that it was not negligent in the selection
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G.R. No. L-4150             February 10, 1910 bailee, in which case his heirs shall not have the
Torres right to continue using the thing loaned.

FACTS: The carabaos delivered to be used not being returned by

De los Santos brought suit against Jarra, the the defendant upon demand, there is no doubt that she
administratrix of the estate of Magdaleno Jimenea is under obligation to indemnify the owner thereof by
alleging that Jimenea borrows and obtained from the paying him their value.
plaintiff 10 first-class carabaos to be used at the animal
power-mill of his hacienda without recompense or E. REPUBLIC OF THE PHILIPPINES, plaintiff-
remuneration whatever for the use thereof, under the appellee, 
sole condition that they should be returned to the owner vs.
as soon as the work at the mill was terminated. JOSE V. BAGTAS, defendant, 
However, Jimenea did not return the carabaos even FELICIDAD M. BAGTAS, Administratrix of the
when the plaintiff demanded their return after the work Intestate Estate left by the late Jose V.
at the mill was finished. Bagtas, petitioner-appellant.
The plaintiff also presented his claim before the
commissioners of the estate of Jimenea but his claims
G.R. No. L-17474            October 25, 1962
were rejected.
Jarra said that it was true that the late Jimenea asked
the plaintiff to loan him 10 carabaos, but that he only FACTS: On 8 May 1948 Jose V. Bagtas borrowed from
obtained 3 second-class animals, which were afterwards the Republic of the Philippines through the Bureau of
transferred by sale by the plaintiff to Jimenea. Animal Industry three bulls: a Red Sindhi with a book
TC: sentenced Jarra to return to the plaintiff the value of P1,176.46, a Bhagnari, of P1,320.56 and a
remaining six second and third class carabaos or the Sahiniwal, of P744.46, for a period of one year from 8
value thereof. May 1948 to 7 May 1949 for breeding purposes subject
to a government charge of breeding fee of 10% of the
ISSUE: book value of the bulls. Upon the expiration on 7 May
WoN the contract is commodatum 1949 of the contract, the borrower asked for a renewal
for another period of one year. However, the Secretary
HELD: of Agriculture and Natural Resources approved a
YES. renewal thereof of only one bull for another year from 8
ART. 1740. By the contract of loan, one of the May 1949 to 7 May 1950 and requested the return of
parties delivers to the other, either anything not the other two. On 25 March 1950 Jose V. Bagtas wrote
perishable, in order that the latter may use it to the Director of Animal Industry that he would pay the
during a certain period and return it to the value of the three bulls. On 17 October 1950 he
former, in which case it is called commodatum, reiterated his desire to buy them at a value with a
or money or any other perishable thing, under deduction of yearly depreciation to be approved by the
the condition to return an equal amount of the Auditor General. On 19 October 1950 the Director of
same kind and quality, in which case it is merely Animal Industry advised him that the book value of the
called a loan. three bulls could not be reduced and that they either be
returned or their book value paid not later than 31
October 1950. Jose V. Bagtas failed to pay the book
Commodatum is essentially gratuitous.
value of the three bulls or to return them. So, on 20
December 1950 in the Court of First Instance of Manila
A simple loan may be gratuitous, or made under the Republic of the Philippines commenced an action
a stipulation to pay interest. against him praying that he be ordered to return the
three bulls loaned to him or to pay their book value in
ART. 1741. The bailee acquires retains the the total sum of P3,241.45 and the unpaid breeding fee
ownership of the thing loaned. The bailee in the sum of P199.62, both with interests, and costs;
acquires the use thereof, but not its fruits; if any and that other just and equitable relief be granted in
compensation is involved, to be paid by the (civil No. 12818).
person requiring the use, the agreement ceases
to be a commodatum. On 5 July 1951 Jose V. Bagtas, through counsel Navarro,
Rosete and Manalo, answered that because of the bad
ART. 1742. The obligations and rights which peace and order situation in Cagayan Valley, particularly
arise from the commodatum pass to the heirs of in the barrio of Baggao, and of the pending appeal he
both contracting parties, unless the loan has had taken to the Secretary of Agriculture and Natural
been in consideration for the person of the Resources and the President of the Philippines from the
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refusal by the Director of Animal Industry to deduct from Intal, Baggao, Cagayan, where the animal was kept, and
the book value of the bulls corresponding yearly that as such death was due to force majeure she is
depreciation of 8% from the date of acquisition, to relieved from the duty of returning the bull or paying its
which depreciation the Auditor General did not object, value to the appellee.
he could not return the animals nor pay their value and
prayed for the dismissal of the complaint. ISSUE: Whether or not appellant is exempt from liability
of returning the bull or paying its value
After hearing, on 30 July 1956 the trial court render
judgment — RULING: The contention is without merit. The loan by
the appellee to the late defendant Jose V. Bagtas of the
. . . sentencing the latter (defendant) to pay the three bulls for breeding purposes for a period of one
sum of P3,625.09 the total value of the three year from 8 May 1948 to 7 May 1949, later on renewed
bulls plus the breeding fees in the amount of for another year as regards one bull, was subject to the
P626.17 with interest on both sums of (at) the payment by the borrower of breeding fee of 10% of the
legal rate from the filing of this complaint and book value of the bulls. The appellant contends that the
costs. contract was commodatum and that, for that reason, as
the appellee retained ownership or title to the bull it
On 9 October 1958 the plaintiff moved ex parte for a should suffer its loss due to force majeure. A contract
writ of execution which the court granted on 18 October ofcommodatum is essentially gratuitous.1 If the breeding
and issued on 11 November 1958. On 2 December 1958 fee be considered a compensation, then the contract
granted an ex-parte motion filed by the plaintiff on would be a lease of the bull. Under article 1671 of the
November 1958 for the appointment of a special sheriff Civil Code the lessee would be subject to the
to serve the writ outside Manila. Of this order appointing responsibilities of a possessor in bad faith, because she
a special sheriff, on 6 December 1958, Felicidad M. had continued possession of the bull after the expiry of
Bagtas, the surviving spouse of the defendant Jose the contract. And even if the contract be commodatum,
Bagtas who died on 23 October 1951 and as still the appellant is liable, because article 1942 of the
administratrix of his estate, was notified. On 7 January Civil Code provides that a bailee in a contract
1959 she file a motion alleging that on 26 June 1952 the of commodatum —
two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that sometime in . . . is liable for loss of the things, even if it
November 1958 the third bull, the Sahiniwal, died from should be through a fortuitous event:
gunshot wound inflicted during a Huk raid on Hacienda
Felicidad Intal, and praying that the writ of execution be (2) If he keeps it longer than the period
quashed and that a writ of preliminary injunction be stipulated . . .
issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On (3) If the thing loaned has been delivered with
the same day, 6 February, the Court denied her motion. appraisal of its value, unless there is a
Hence, this appeal certified by the Court of Appeals to stipulation exempting the bailee from
this Court as stated at the beginning of this opinion. responsibility in case of a fortuitous event;

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son The original period of the loan was from 8 May 1948 to
of the appellant by the late defendant, returned the 7 May 1949. The loan of one bull was renewed for
Sindhi and Bhagnari bulls to Roman Remorin, another period of one year to end on 8 May 1950. But
Superintendent of the NVB Station, Bureau of Animal the appellant kept and used the bull until November
Industry, Bayombong, Nueva Vizcaya, as evidenced by a 1953 when during a Huk raid it was killed by stray
memorandum receipt signed by the latter (Exhibit 2). bullets. Furthermore, when lent and delivered to the
That is why in its objection of 31 January 1959 to the deceased husband of the appellant the bulls had each
appellant's motion to quash the writ of execution the an appraised book value, to with: the Sindhi, at
appellee prays "that another writ of execution in the P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal
sum of P859.53 be issued against the estate of at P744.46. It was not stipulated that in case of loss of
defendant deceased Jose V. Bagtas." She cannot be held the bull due to fortuitous event the late husband of the
liable for the two bulls which already had been returned appellant would be exempt from liability.
to and received by the appellee.
F. CATHOLIC VICAR APOSTOLIC OF THE
The appellant contends that the Sahiniwal bull was MOUNTAIN PROVINCE, petitioner, 
accidentally killed during a raid by the Huk in November vs.
1953 upon the surrounding barrios of Hacienda Felicidad COURT OF APPEALS, HEIRS OF EGMIDIO
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OCTAVIANO AND JUAN VALDEZ, respondents. not covered by any title in the name of Egmidio
Octaviano or any of the plaintiffs (Exh. 8). The
G.R. No. 80294-95 September 21, 1988 defendant dispensed with the testimony of Mons.William
Brasseur when the plaintiffs admitted that the witness if
GANCAYCO, J.: called to the witness stand, would testify that defendant
Vicar has been in possession of Lot 3, for seventy-five
(75) years continuously and peacefully and has
FACTS: The documents and records presented reveal
constructed permanent structures thereon.
that the whole controversy started when the defendant
Catholic Vicar Apostolic of the Mountain Province (VICAR
for brevity) filed with the Court of First Instance of The plaintiffs arque that the defendant Vicar is barred
Baguio Benguet on September 5, 1962 an application for from setting up the defense of ownership and/or long
registration of title over Lots 1, 2, 3, and 4 in Psu- and continuous possession of the two lots in question
194357, situated at Poblacion Central, La Trinidad, since this is barred by prior judgment of the Court of
Benguet, docketed as LRC N-91, said Lots being the Appeals in CA-G.R. No. 038830-R under the principle
sites of the Catholic Church building, convents, high of res judicata. Plaintiffs contend that the question of
school building, school gymnasium, school dormitories, possession and ownership have already been
social hall, stonewalls, etc. On March 22, 1963 the Heirs determined by the Court of Appeals (Exh. C, Decision,
of Juan Valdez and the Heirs of Egmidio Octaviano filed CA-G.R. No. 038830-R) and affirmed by the Supreme
their Answer/Opposition on Lots Nos. 2 and 3, Court (Exh. 1, Minute Resolution of the Supreme Court).
respectively, asserting ownership and title thereto. After
trial on the merits, the land registration court On his part, defendant Vicar maintains that the
promulgated its Decision, dated November 17, 1965, principle of res judicata would not prevent them from
confirming the registrable title of VICAR to Lots 1, 2, 3, litigating the issues of long possession and ownership
and 4. because the dispositive portion of the prior judgment in
CA-G.R. No. 038830-R merely dismissed their application
The Heirs of Juan Valdez (plaintiffs in the herein Civil for registration and titling of lots 2 and 3. Defendant
Case No. 3655) and the Heirs of Egmidio Octaviano Vicar contends that only the dispositive portion of the
(plaintiffs in the herein Civil Case No. 3607) appealed decision, and not its body, is the controlling
the decision of the land registration court to the then pronouncement of the Court of Appeals. 2
Court of Appeals, docketed as CA-G.R. No. 38830-R. The
Court of Appeals rendered its decision, dated May 9, ISSUE: whether or not the decisions of the Court of
1977, reversing the decision of the land registration Appeals and the Supreme Court touching on the
court and dismissing the VICAR's application as to Lots 2 ownership of Lot 2, which in effect declared the plaintiffs
and 3, the lots claimed by the two sets of oppositors in the owners of the land constitute res judicata.
the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently RULING: The petition is bereft of merit.
occupied by the convent and the second by the women's
dormitory and the sister's convent. Petitioner questions the ruling of respondent Court
of Appeals in CA-G.R. Nos. 05148 and 05149, when it
The instant cases were filed. The Heirs of Egmidio clearly held that it was in agreement with the findings of
Octaviano filed Civil Case No. 3607 (419) on July 24, the trial court that the Decision of the Court of Appeals
1979, for recovery of possession of Lot 3; and the Heirs dated May 4,1977 in CA-G.R. No. 38830-R, on the
of Juan Valdez filed Civil Case No. 3655 (429) on question of ownership of Lots 2 and 3, declared that the
September 24, 1979, likewise for recovery of possession said Court of Appeals Decision CA-G.R. No. 38830-R) did
of Lot 2 (Decision, pp. 199-201, Orig. Rec.). not positively declare private respondents as owners of
the land, neither was it declared that they were not
In Civil Case No. 3607 (419) trial was held. The plaintiffs owners of the land, but it held that the predecessors of
Heirs of Egmidio Octaviano presented one (1) witness, private respondents were possessors of Lots 2 and 3,
Fructuoso Valdez, who testified on the alleged with claim of ownership in good faith from 1906 to 1951.
ownership of the land in question (Lot 3) by their Petitioner was in possession as borrower in
predecessor-in-interest, Egmidio Octaviano (Exh. C ); his commodatum up to 1951, when it repudiated the trust
written demand (Exh. B—B-4 ) to defendant Vicar for by declaring the properties in its name for taxation
the return of the land to them; and the reasonable purposes. When petitioner applied for registration of
rentals for the use of the land at P10,000.00 per month. Lots 2 and 3 in 1962, it had been in possession in
On the other hand, defendant Vicar presented the concept of owner only for eleven years. Ordinary
Register of Deeds for the Province of Benguet, Atty. acquisitive prescription requires possession for ten
Nicanor Sison, who testified that the land in question is years, but always with just title. Extraordinary acquisitive
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prescription requires 30 years. 4 predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They
On the above findings of facts supported by never asked for the return of the house, but when they
evidence and evaluated by the Court of Appeals in allowed its free use, they became bailors
CA-G.R. No. 38830-R, affirmed by this Court, We in commodatum and the petitioner the bailee.
see no error in respondent appellate court's The bailees' failure to return the subject matter
ruling that said findings are res judicata between of commodatum to the bailor did not mean
the parties. They can no longer be altered by adverse possession on the part of the borrower.
presentation of evidence because those issues were The bailee held in trust the property subject
resolved with finality a long time ago. To ignore the matter of commodatum. The adverse claim of
principle of res judicata would be to open the door to petitioner came only in 1951 when it declared the lots
endless litigations by continuous determination of issues for taxation purposes. The action of petitioner Vicar
without end. by such adverse claim could not ripen into title by
way of ordinary acquisitive prescription because
An examination of the Court of Appeals Decision dated of the absence of just title.
May 4, 1977, First Division 5 in CA-G.R. No. 38830-R,
shows that it reversed the trial court's Decision 6 finding The Court of Appeals found that the predecessors-in-
petitioner to be entitled to register the lands in question interest and private respondents were possessors under
under its ownership, on its evaluation of evidence and claim of ownership in good faith from 1906; that
conclusion of facts. petitioner Vicar was only a bailee in commodatum; and
that the adverse claim and repudiation of trust came
The Court of Appeals found that petitioner did not only in 1951.
meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither Petition is DENIED.
did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence G. MARGARITA QUINTOS and ANGEL A.
of just title. The appellate court did not believe the ANSALDO, plaintiffs-appellants, 
findings of the trial court that Lot 2 was acquired from vs.
Juan Valdez by purchase and Lot 3 was acquired also by BECK, defendant-appellee.
purchase from Egmidio Octaviano by petitioner Vicar
G.R. No. L-46240             November 3, 1939
because there was absolutely no documentary evidence
to support the same and the alleged purchases were IMPERIAL, J.:
never mentioned in the application for registration.
Facts:

By the very admission of petitioner Vicar, Lots 2 and 3 The defendant was a tenant of the plaintiff and as such
were owned by Valdez and Octaviano. Both Valdez occupied the latter's house (M. H. del Pilar street, No.
and Octaviano had Free Patent Application for those lots 1175). Upon the novation of the contract of lease
since 1906. The predecessors of private respondents, between the plaintiff and the defendant, the former
not petitioner Vicar, were in possession of the gratuitously granted to the latter the use of the
questioned lots since 1906. furniture, subject to the condition that the defendant
would return them to the plaintiff upon the latter's
There is evidence that petitioner Vicar occupied Lots 1 demand.
and 4, which are not in question, but not Lots 2 and 3, The plaintiff sold the property and notified the defendant
because the buildings standing thereon were only of the conveyance, giving him sixty days to vacate the
constructed after liberation in 1945. Petitioner Vicar only premises under one of the clauses of the contract of
declared Lots 2 and 3 for taxation purposes in 1951. The lease. Thereafter the plaintiff required the defendant to
improvements oil Lots 1, 2, 3, 4 were paid for by the return ALL THE FURNITURE transferred to him for them
Bishop but said Bishop was appointed only in 1947, the in the house where they were found.
church was constructed only in 1951 and the new
convent only 2 years before the trial in 1963. The defendant, wrote to the plaintiff reiterating that she
may call for the furniture in the ground floor of the
house. The defendant wrote another letter to the
When petitioner Vicar was notified of the oppositor's
plaintiff informing her that he could not give up the
claims, the parish priest offered to buy the lot from
three gas heaters and the four electric lamps because he
Fructuoso Valdez. Lots 2 and 3 were surveyed by
would use them until the day when the lease in due
request of petitioner Vicar only in 1962.
expires. The plaintiff refused to get the furniture
because the defendant had declined to make delivery of
Private respondents were able to prove that their all of them. Before vacating the house, the defendant
8 | CREDIT TRANSACTIONS: Case Digest 1st Set
deposited with the Sheriff all the furniture belonging to the Research Division, it required him to travel to
the plaintiff. selected provinces in the country where there are
potentials for prawn culture.
Petitioner was issued Travel Order No. 2222 which
Petitioner’s Contention: The trial court incorrectly
covered his travels to different places in Luzon, a period
applied the law, in holding that they (plaintiff) violated
of thirty five (35) days. He received P6,438.00 as cash
the contract by not calling for all the furniture, when the
advance to defray his travel expenses.
defendant placed them at their disposal.
Within the same period, petitioner was issued another
Issue: Whether or not the defendant complied with his
travel order, T.O. 2268, requiring him to travel from the
obligation to return the furniture upon the plaintiff's
Head Station at Tigbauan, Iloilo to Roxas City, a period
demand. (NO)
of five (5) days. He received a cash advance of P495.00.
Ruling:
Petitioner presented both travel orders for liquidation,
The contract entered into between the parties is one submitting Travel Expense Reports to the Accounting
of commadatum, because under it the plaintiff Section. When the Travel Expense Reports were audited,
gratuitously granted the use of the furniture to the it was discovered that there was an overlap of four (4)
defendant, reserving for herself the ownership thereof; days in the two (2) travel orders for which petitioner
by this contract the defendant bound himself to return collected per diems twice. In sum, the total amount in
the furniture to the plaintiff, upon the latters demand the form of per diems and allowances charged and
(clause 7 of the contract, Exhibit A; articles 1740, collected by petitioner under Travel Order No. 2222 was
paragraph 1, and 1741 of the Civil Code). P1,230.00.
The obligation voluntarily assumed by the defendant to Two (2) complaints for Estafa were filed against the
return the furniture upon the plaintiff's demand, means petitioner before the Municipal Circuit Trial Court, and
that he should return all of them to the plaintiff at the which rendered a decision finding the accused, Yong
latter's residence or house. The defendant did not Chan Kim, guilty beyond reasonable doubt for the crime
comply with this obligation when he merely placed them of Estafa.
at the disposal of the plaintiff, retaining for his benefit
Hence, the present recourse.
the three gas heaters and the four electric lamps. The
provisions of article 1169 of the Civil Code cited by Petitioner’s Contention: Petitioner denied the alleged
counsel for the parties are not squarely applicable. anomaly, claiming that he made make-up trips to
compensate for the trips he failed to undertake under
The Court could not legally compel her to bear the
T.O. 2222 because he was recalled to the head office
expenses occasioned by the deposit of the furniture at
and given another assignment.
the defendant's behest. The latter, as bailee, was not
entitled to place the furniture on deposit; nor was the Issue:
plaintiff under a duty to accept the offer to return the
1. Whether or not the petitioner committed the
furniture, because the defendant wanted to retain the
crime of Estafa. (NO)
three gas heaters and the four electric lamps.
2. Whether or not the petitioner is under obligation
to return the same money (cash advance) which
III MUTUUM & USURY LAW
he had received. (NO)
A. YONG CHAN KIM, petitioner,  Ruling:
vs.
In order that a person can be convicted under Estafa, it
PEOPLE OF THE PHILIPPINES, HON. EDGAR D.
must be proven that he had the obligation to deliver or
GUSTILO, Presiding Judge, RTC, 6th Judicial
return the same money, good or personal property that
Region, Branch 28 Iloilo City and Court of Appeals
he had received.
(13th Division) respondents.
Was petitioner under obligation to return the same
G.R. No. 84719             January 25, 1991
money (cash advance) which he had received? The
PADILLA, J.: Court believed not.
Executive Order No. 10, dated 12 February 1980
provides as follows:
Facts:
B. Cash Advance for Travel
Petitioner Yong Chan Kim was employed as a
Researcher at the Aquaculture Department of the 4. All cash advances must be liquidated within
Southeast Asian Fisheries Development Center 30 days after date of projected return of the
(SEAFDEC – Iloilo). As Head of the Economics Unit of person. Otherwise, corresponding salary
9 | CREDIT TRANSACTIONS: Case Digest 1st Set
deduction shall be made immediately following B. BPI INVESTMENT CORPORATION, petitioner,
the expiration day. vs. HON. COURT OF APPEALS and ALS
Liquidation simply means the settling of an MANAGEMENT & DEVELOPMENT
indebtedness. An employee, such as herein petitioner, CORPORATION, respondents.
who liquidates a cash advance is in fact paying back his
debt in the form of a loan of money advanced to him by G.R. No. 133632. February 15, 2002]
his employer, as per diems and allowances. In other
words, the money advanced by either party is actually a QUISUMBING, J.:
loan to the other. Hence, petitioner was under no legal
obligation to return the same cash or money, i.e., the Facts:
bills or coins, which he received from the private
respondent.  Frank Roa obtained a loan with interest rate of
16 1/4% per annum from Ayala Investment and
Article 1933 and Article 1953 of the Civil Code define the
Development Corporation (AIDC), the predecessor
nature of a simple loan.
of BPI Investment Corp. (BPIIC), for the
Art. 1933. By the contract of loan, one of the construction of a house on his lot.
parties delivers to another, either something not  He mortgaged the house and lot to AIDC as
consumable so that the latter may use the same security for the loan.
for a certain time and return it, in which case  1980: Roa sold the house and lot to ALS
the contract is called a commodatum; or money Management & Development Corp. and Antonio
or other consumable thing, upon the condition Litonjua for P850K who paid P350K in cash and
that the same amount of the same kind and assumed the P500K indebtness of ROA with AIDC.
quality shall be paid, in which case the contract  AIDC proposed to grant ALS and
is simply called a loan or mutuum. Litonjua a new loan for P500K with interested rate
of 20% perannum and service fee of 1% perannum
Commodatum is essentially gratuitous.
on the outstanding balance payable within 10 years
Simple loan may be gratuitous or with a through equal monthly amortization of P9,996.58
stipulation to pay interest. and penalty interest of 21% pera nnum per day
from the date the amortization becomes due and
In commodatum the bailor retains the
payable.
ownership of the thing loaned, while in simple
 March 1981: ALS and Litonjua executed a
loan, ownership passes to the borrower.
mortgage deed containing the new stipulation with
Art. 1953.— A person who receives a loan of the provision that the monthly amortization will
money or any other fungible thing acquires the commence on May 1, 1981
ownership thereof, and is bound to pay to the  August 13, 1982: ALS and Litonjua paid
creditor an equal amount of the same kind and BPIIC P190,601.35 reducing the P500K principal
quality. loan to P457,204.90.
 September 13, 1982: BPIIC released to ALS
The ruling of the trial judge that ownership of the cash
and Litonjua P7,146.87, purporting to be what was
advanced to the petitioner by private respondent was
left of their loan after full payment of Roa’s loan
not transferred to the latter is erroneous. Ownership of
 June 1984: BPIIC instituted foreclosure
the money was transferred to the petitioner.
proceedings against  ALS and Litonjua on the
Since ownership of the money (cash advance) was ground that they failed to pay the mortgage
transferred to petitioner, no fiduciary relationship was indebtedness which from May 1, 1981 to June 30,
created. Absent this fiduciary relationship between 1984 amounting to P475,585.31
petitioner and private respondent, which is an essential  August 13, 1984: Notice of sheriff's sale was
element of the crime of estafa by misappropriation or published
conversion, petitioner could not have committed estafa.  February 28, 1985: ALS and Litonjua filed Civil
Case No. 52093 against BPIIC alleging that they are
Additionally, it has been the policy of private respondent
not in arrears and instead they made an
that all cash advances not liquidated are to be deducted
overpayment as of June 30, 1984 since the P500K
correspondingly from the salary of the employee
loan was only released September 13, 1982 which
concerned. The evidence shows that the corresponding
marked the start of the amortization and since
salary deduction was made in the case of petitioner vis-
only P464,351.77 was released applying legal
a-vis the cash advance in question.
compensation the balance of P35,648.23 should be
applied to the monthly amortizations
 RTC: in favor of ALS and Litonjua and against
BPIIC that the loan granted by BPI to ALS and
10 | CREDIT TRANSACTIONS: Case Digest 1st Set
Litonjua was only in the principal sum of
P464,351.77 Contention of the parties:
 CA: Affirmed reasoning that a simple loan is
perfected upon delivery of the object of the contract Petitoner: Petitioner claims that a contract of loan is a
which is on September 13, 1982 consensual contract, and a loan contract is perfected at
the time the contract of mortgage is executed
ISSUE: W/N the contract of loan was perfected conformably with our ruling in Bonnevie v. Court of
only on September 13, 1982 or the second Appeals. In the present case, the loan contract was
release of the loan? perfected on March 31, 1981, the date when the
mortgage deed was executed, hence, the amortization
HELD: YES. obligation to pay commenced only on and interests on the loan should be computed from said
October 13, 1982, a month after the perfection of the date.
contract.
Respondents: private respondents assert that based
We agree with private respondents. A loan contract is on Article 1934 of the Civil Code,[4] a simple loan is
not a consensual contract but a real contract. It is perfected upon the delivery of the object of the contract,
perfected only upon the delivery of the object of hence a real contract. In this case, even though the loan
the contract. Petitioner misapplied Bonnevie. The contract was signed on March 31, 1981, it was perfected
contract in Bonnevie declared by this Court as a only on September 13, 1982, when the full loan was
perfected consensual contract falls under the first clause released to private respondents.
of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that
In the present case, the loan contract between BPI, on the contract to extend the loan was perfected on March
the one hand, and ALS and Litonjua, on the other, was 31, 1981 but the contract of loan itself was only
perfected only on September 13, 1982, the date of the perfected upon the delivery of the full loan to private
second release of the loan. Following the intentions of respondents on September 13, 1982.
the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private C. EASTERN SHIPPING LINES, INC., petitioner,
respondents obligation to pay commenced only on vs.
October 13, 1982, a month after the perfection of the HON. COURT OF APPEALS AND MERCANTILE
contract. INSURANCE COMPANY, INC., respondents.
GR No. 97412, 12 July 1994
We also agree with private respondents that a contract 234 SCRA 78
of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the VITUG, J.:
consideration for that of the other. As averred by private
respondents, the promise of BPIIC to extend and deliver FACTS
the loan is upon the consideration that ALS and Litonjua
shall pay the monthly amortization commencing on May Two fiber drums of riboflavin were shipped from
1, 1981, one month after the supposed release of the Yokohama, Japan for delivery vessel "SS EASTERN
loan. It is a basic principle in reciprocal obligations that COMET" owned by defendant Eastern Shipping Lines.
neither party incurs in delay, if the other does not The shipment was insured with a marine policy.
comply or is not ready to comply in a proper manner
with what is incumbent upon him. Only when a party Upon arrival of the shipment in Manila, it was discharged
has performed his part of the contract can he demand unto the custody of defendant Metro Port Service, Inc.
that the other party also fulfills his own obligation and if The latter excepted to one drum, said to be in bad
the latter fails, default sets in. Consequently, petitioner order, which damage was unknown to the Mercantile
could only demand for the payment of the monthly
Insurance Company.
amortization after September 13, 1982 for it was only
then when it complied with its obligation under the loan
Allied Brokerage Corporation received the shipment from
contract. Therefore, in computing the amount due as of
Metro, one drum opened and without seal. Allied
the date when BPIIC extrajudicially caused the
delivered the shipment to the consignee’s warehouse.
foreclosure of the mortgage, the starting date is October
The latter excepted to one drum which contained
13, 1982 and not May 1, 1981.
spillages while the rest of the contents was
adulterated/fake.
Note:
11 | CREDIT TRANSACTIONS: Case Digest 1st Set
Plaintiff contended that due to the losses/damage not be an express finding of negligence to hold it
sustained by said drum, the consignee suffered losses liable (Art. 1735, Civil Code; Philippine National
totaling P19,032.95, due to the fault and negligence of Railways vs. Court of Appeals, 139 SCRA 87; Metro
defendants. Port Service vs. Court of Appeals, 131 SCRA 365).
There are, of course, exceptional cases when such
As consequence of the loss, the insurance company paid presumption of fault is not observed but these
the consignee, so that it became subrogated to all the cases, enumerated in Article 17341 of the Civil Code,
rights of action of consignee against the defendants are exclusive, not one of which can be applied to
Eastern Shipping, Metro Port and Allied Brokerage. this case.

The insurance company filed before the trial court an In Fireman's Fund Insurance vs. Metro Port Services we
action against defendants shipping company, arrastre have explained, in holding the carrier and the arrastre
operator and broker-forwarder for damages. operator liable in solidum, thus:

RTC: As there is sufficient evidence that the shipment The legal relationship between the consignee and the
sustained damage while in the successive possession of arrastre operator is akin to that of a depositor and
appellants, and therefore they are liable to the appellee, warehouseman (Lua Kian v. Manila Railroad Co., 19
as subrogee for the amount it paid to the consignee. SCRA 5 [1967]. The relationship between the consignee
Ordered payment of damages, jointly and and the common carrier is similar to that of the
severally: consignee and the arrastre operator (Northern Motors,
Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it
1. The amount of P19,032.95, with the present is the duty of the ARRASTRE to take good care of
legal interest of 12% per annum from the goods that are in its custody and to deliver
October 1, 1982, the date of filing of this them in good condition to the consignee, such
complaints, until fully paid xxx. responsibility also devolves upon the CARRIER.
Both the ARRASTRE and the CARRIER are
CA: affirmed in toto the judgment of the court a quo. therefore charged with the obligation to deliver
the goods in good condition to the consignee.
ISSUE:
1. WON the petitioner carrier is jointly and We do not, of course, imply by the above
severally liable with the arrastre operator and pronouncement that the arrastre operator and the
customs broker for the claim of private customs broker are themselves always and necessarily
respondent . YES liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule.
2. WON the payment of legal interest on an award The instant petition has been brought solely by Eastern
for loss or damage is to be computed from the Shipping Lines, which, being the carrier and not having
time the complaint is filed or from the date the been able to rebut the presumption of fault, is, in any
decision appealed from is rendered; and . event, to be held liable in this particular case. A factual
finding of both the court a quo and the appellate court,
3. WON the applicable rate of interest, referred to we take note, is that "there is sufficient evidence that
above, is twelve percent (12%) or six percent the shipment sustained damage while in the successive
(6%). possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern
HELD: Shipping Lines, Inc., the sole petitioner in this case, is
1. YES. The common carrier's duty to observe the inevitable regardless of whether there are others
requisite diligence in the shipment of goods lasts solidarily liable with it.
from the time the articles are surrendered to or
unconditionally placed in the possession of, and
received by, the carrier for transportation until 2. From the date the decision appealed from is
delivered to, or until the lapse of a reasonable time rendered
for their acceptance by, the person entitled to
receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the
The factual circumstances may have called for different
goods shipped either are lost or arrive in damaged applications, guided by the rule that the courts are
condition, a presumption arises against the carrier of vested with discretion, depending on the equities of
its failure to observe that diligence, and there need each case, on the award of interest. Nonetheless, it may
12 | CREDIT TRANSACTIONS: Case Digest 1st Set
not be unwise, by way of clarification and reconciliation, Appeals) AND A TWELVE PERCENT (12%)
to suggest the following rules of thumb for future interest, in lieu of SIX PERCENT (6%), shall be
guidance: imposed on such amount upon finality of the
Supreme Court decision until the payment
I. When an obligation, regardless of its source, i.e., law, thereof.
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 Note:
measure of recoverable damages.
Contentions
II. With regard particularly to an award of interest in
the concept of actual and compensatory Eastern Shipping: it alleged that the shipment was
damages, the rate of interest, as well as the accrual discharged in good order from the vessel unto the
thereof, is imposed, as follows: custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the
1. When the obligation is breached, and it consists shipment was turned over to the latter, is no longer its
in the payment of a sum of money, i.e., a loan or liability (p. 17, Record);
forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, Metroport : averred that although subject shipment
the interest due shall itself earn legal interest from the was discharged unto its custody, portion of the same
time it is judicially demanded.22 In the absence of was already in bad order ;
stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial Allied Brokerage: alleged that plaintiff has no cause of
or extrajudicial demand under and subject to the action against it, not having negligent or at fault for the
provisions of Article 116923 of the Civil Code. shipment was already in damage and bad order
condition when received by it, but nonetheless, it still
2. When an obligation, not constituting a loan or exercised extra ordinary care and diligence in the
forbearance of money, is breached, an interest on handling/delivery of the cargo to consignee in the same
the amount of damages awarded may be imposed at condition shipment was received by it.
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 D. CRISMINA GARMENTS, INC.,, vs.  COURT OF
demand can be established with reasonable APPEAL AND
certainty. Accordingly, where the demand is established
NORMA SIAPNO, 
with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or G.R. No. 128721. March 9, 1999
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the PANGANIBAN, J.:
time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made Interest shall be computed in accordance with the
(at which time the quantification of damages may be stipulation of the parties. In the absence of such
deemed to have been reasonably ascertained). The agreement, the rate shall be twelve percent (12%) per
actual base for the computation of legal interest shall, in annum when the obligation arises out of a loan or a
any case, be on the amount finally adjudged. forbearance of money, goods or credits. In other cases,
it shall be six percent (6%).
3. When the judgment of the court awarding a
sum of money becomes final and executory, the FACTS:
rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per P: engaged in the export of girls’ denim pants
annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent R: the sole proprietress of the DWilmar Garments
to a forbearance of credit.
Petitioner contracted the services of respondent
3. SIX PERCENT (6%) on the amount due for the sewing of 20,762 pieces of assorted girls’ denims
computed from the decision, dated 03 supplied by the petitioner under Purchase Orders Nos.
February 1988, of the court a quo (Court of 1404. Respondent was able to fulfill her obligations and
13 | CREDIT TRANSACTIONS: Case Digest 1st Set
delivered the same to petitioner in good condition; the money, goods or credits and the rate allowed in
same was acknowledged in several Delivery Receipts. judgments, in the absence of express contract
as to such rate of interest, shall be twelve per
At first, the respondent was told that the sewing of cent (12%) per annum. (Emphasis supplied.)
some of the pants were defective. She offered to take
delivery of the defective pants. However, she was later
told by petitioners representative that the goods were ISSUE: Whether or not it is proper to impose interest at
already good. She was told to just return for her the rate of twelve percent (12%) per annum for an
payment, of which petitioner failed to pay. obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties.
Despite demands, petitioner failed to pay respondent for
her services. Moreover, he averred that the pairs of
jeans sewn by respondent were defective and that the RULING: No. The Court found that the interest rate
latter was liable for the amount of P P49,925.51 which should be computed at six percent (6%) per annum.
was the value of the damaged pairs of denim pants and
As to the contention of respondent, the interest rate
demanded refund of the aforesaid amount.
under CB Circular No. 416 applies to

Respondent filed her complaint against the petitioner (1) loans;

with the Trial Court for the collection of the principal
(2) forbearance of money, goods or credits; or
amount of P76,410.00.
(3) a judgment involving a loan or forbearance of
RTC and CA: in favor of respondent ordering petitioner money, goods or credits. 
to pay
Cases beyond the scope of the said circular are
governed by Article 2209 of the Civil Code, which
(1) The sum of P76,140.00 with interest considers interest a form of indemnity for the delay in
thereon at 12% per annum, to be counted the performance of an obligation.
from the filing of this complaint on January
8, 1981, until fully paid; Because the amount due in this case arose from a
contract for a piece of work, not from a loan or
forbearance of money, the legal interest of six percent
Petitioner’s contention: Because the case before us is an (6%) per annum should be applied. Furthermore, since
action for the enforcement of an obligation for payment the amount of the demand could be established with
of money arising from a contract for a piece of work, certainty when the Complaint was filed, the six percent
petitioner submits that the interest rate should be six (6%) interest should be computed from the filing of the
percent (6%), pursuant to Article 2209 of the Civil Code, said Complaint. But after the judgment becomes final
which states: and executory until the obligation is satisfied, the
interest should be reckoned at twelve percent (12%) per
If the obligation consists in the payment of year.
money and the debtor incurs in delay, the Private respondent maintains that the twelve
indemnity for damages, there being no percent (12%) interest should be imposed, because the
stipulation to the contrary, shall be the payment obligation arose from a forbearance of money. This is
of the interest agreed upon, and in the absence erroneous. In Eastern Shipping, the Court observed that
of stipulation, the legal interest, which is six per a forbearance in the context of the usury law is a
cent per annum. (Emphasis supplied.) contractual obligation of lender or creditor to refrain,
during a given period of time, from requiring the
Private respondent’s contention: the interest rate should borrower or debtor to repay a loan or debt then due and
be twelve percent (12%) per annum, since the money payable.Using this standard, the obligation in this case
sought to be recovered by her is in the form of was obviously not a forbearance of money, goods or
forbearance, in accordance with Central Bank (CB) credit.
Circular No. 416, which reads:
Furthermore, In Eastern Shipping Lines, Inc. v. Court of
By virtue of the authority granted to it under Appeals,the Court gave the following guidelines for the
Section 1 of Act No. 2655, as amended, application of the proper interest rates:
otherwise known as the Usury Law, the
Monetary Board, in its Resolution No. 1622 I. When an obligation, regardless of its source, i.e., law,
dated July 29, 1974, has prescribed that the rate contracts, quasi-contracts, delicts or quasi-delicts is
of interest for the loan or forbearance of any
14 | CREDIT TRANSACTIONS: Case Digest 1st Set
breached, the contravenor can be held liable for should he be in default, from the time of judicial
damages. The provisions under Title XVIII on Damages or extrajudicial demand for the payment of the
of the Civil Code govern in determining the measure of price. 
recoverable damages.

II. With regard particularly to an award of interest in the

concept of actual and compensatory damages, the rate
E. PHILIPPINE NATIONAL BANK,  vs. COURT OF
of interest, as well as the accrual thereof, is imposed, as
APPEALS and DR. ERLINDA G. IBARROLA
follows:
G.R. No. 123643. October 30, 1996

1. When the obligation is breached, and it consists in the FRANCISCO, J.:

payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
FACTS:
have been stipulated in writing. Furthermore, the
As payments for the purchase of medicines,
interest due shall itself earn legal interest from the time
the Province of Isabela issued several checks drawn
it is judicially demanded. In the absence of stipulation,
against its accounts with petitioner PNB in favor of the
the rate of interest shall be 12% per annum to be
seller, Lyndon Pharmaceuticals Laboratories, a business
computed from default, i.e., from judicial or extrajudicial
operated by private respondent Ibarrola. The checks
demand under and subject to the provisions of Article
were delivered to the sellers agents who turned them
1169 of the Civil Code.
over to Ibarrola, except 23 checks amounting
to P98,691.90, which the agents appropriated after
2. When an obligation, not constituting a loan or negotiating them with PNB. 
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at
For her failure to receive the full payment for the
the discretion of the court at the rate of 6% per
medicines, Ibarrola filed with the Regional Trial Court,
annum. No interest, however, shall be adjudged on
an action for a sum of money and damages, against
unliquidated claims or damages except when or until the
the Province of Isabela, its Treasurer, the two agents
demand can be established with reasonable
and PNB.
certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run
RTC and CA: ruled in favor of respondent Ibarrola and
from the time the claim is made judicially or
the petitioners were ordered to pay
extrajudicially (Art. 1169, Civil Code) but when such
(1) P98,691.90 with interest thereon at the legal
certainty cannot be so reasonably established at the
rate from the date of the filing of the complaint until
time the demand is made, the interest shall begin to run
the entire amount is fully paid.
only from the date the judgment of the court is made
No mention was made as to how much the legal interest
(at which time the quantification of damages may be
would be but upon clarification by respondent, the RTC
deemed to have been reasonably ascertained). The
issued an order clarifying that the rate is 12%. CA
actual base for the computation of legal interest shall, in
affirmed.
any case, be xxx the amount finally adjudged.
ISSUE: whether in an action for damages, the legal rate
3. When the judgment of the court awarding a sum of
of interest is 6% as provided by Article 2209of the New
money becomes final and executory, the rate of legal
Civil Code or 12% as provided by CB Circular 416 series
interest, whether the case falls under paragraph 1 or
of 1974
paragraph 2, above, shall be 12% per annum from such
; whether such rate shall be computed from the filing of
finality until its satisfaction, this interim period being
the complaint until fully paid?
deemed to be by then an equivalent to a forbearance of
credit
RULING:
The court ruled that the rate of interest is 6%
Additional: When an obligation arises from a contract of purchase
and sale and not from a contract of loan or mutuum, the
1. The controversy revolves around petitioners
applicable rate is 6% per annum as provided in Article
payment of the price beyond the period
2209 of the NCC and not the rate of 12% per annum as
prescribed in a contract for a piece of
provided in (CB) Cir. No. 416.
work. Article 1589 of the Civil Code provides
that [t]he vendee [herein petitioner] shall owe
Indeed, PNBs liability is based only on the RTCs
interest for the period between the delivery of
judgment where it was held solidarily liable with the
the thing and the payment of the price x x x
other defendants due to its negligence when it failed to
15 | CREDIT TRANSACTIONS: Case Digest 1st Set
assure itself if the Provincial Treasurer was properly amount of P90,000.00, payable in two months, at
authorized by Ibarrola to make endorsements of said 6% interest per month. They executed a promissory
checks. note to evidence the loan, maturing on Janaury 19,
1986.
Thus, the proper rate of interest referred to in the  On maturity of the two promissory note, the
judgment under execution is only 6%. This interest borrowers failed to pay the indebtedness.
according to Eastern Shipping shall be computed from  Medel and Franco, obtained their 3 rd loan in in the
the time of the filing of the complaint considering that amount of P300,000.00, maturing in one month,
the amount adjudged (P98,691.90) can be established secured by a real estate mortgage over a property
with reasonable certainty. Said amount being merely the belonging to Leticia Makalintal Yaptinchay, who
uncollected balance of the purchase price covered by the issued a special power of attorney in favor of Leticia
23 checks encashed and appropriated by Ibarrolas Medel, authorizing her to execute the mortgage.
agents.  Servando and Leticia executed a promissory note in
However, once the judgment becomes final and favor of Veronica to pay the sum of P300,000.00,
executory, the "interim period from the finality of after a month, or on July 11, 1986. However, only
judgment awarding a monetary claim and until payment the sum of P275.000.00, was given to them out of
thereof, is deemed to be equivalent to a forbearance of the proceeds of the loan.
credit. Thus, in accordance with the pronouncement  Franco and Medel failed to pay the third loan on
in Eastern Shipping the rate of 12% p.a. should be maturity.
imposed, and to be computed from the time the  Franco and Medel obtained their fourth loan in the
judgment became final and executory until fully amount of P60,000.00, bringing their indebtedness
satisfied. The actual base for the computation of this to a total of P500,000.00, payable on August 23,
12% interest after the judgment in this damage suit 1986.
became final shall be the amount adjudged  On maturity of the loan, the borrowers failed to pay
(P98,691.90). the indebtedness of P500,000.00, plus interests and
penalties, evidenced by the above-quoted
The rate of 12% interest referred to in Cir. 416 promissory note.
applies only to:  Respondent filed with RTC of Bulacan a complaint
[L]oan or forbearance of money, or to cases where for collection of the full amount the loan including
money is transferred from one person to another and the interest and other charges.
the obligation to return the same or a portion thereof is  Servando alleged that he did not obtain any loan
adjudged. Any other monetary judgment which does not from the plaintiffs; that it was defendants Leticia
involve or which has nothing to do with loans or and Dr. Rafael Medel who borrowed from the
forbearance of any money, goods or credit does not fall plaintiffs the sum of P500,000.00, and actually
within its coverage for such imposition is not within the received the amount and benefited therefrom; That
ambit of the authority granted to the Central Bank.When the loan was secured by a real estate mortgage
an obligation not constituting a loan or forbearance of executed in favor of the plaintiffs, and that he
money is breached then an interest on the amount of (Servando Franco) signed the promissory note only
damages awarded may be imposed at the discretion of as a witness.
the court at the rate of 6% per annum in accordance  Leticia and Rafael Medel alleged that the loan was
with Art. 2209 of the Civil Code. Indeed, the monetary the transaction of Leticia Yaptinchay, who executed
judgment in favor of private respondent does not involve a mortgage in favor of the plaintiffs over a parcel of
a loan or forbearance of money, hence the proper real estate situated in San Juan, Batangas;
imposable rate of interest is six (6%) per cent.( Italics  They also alleged that the interest rate is excessive
ours.) at 5.5% per month with additional service charge of
2% per annum, and penalty charge of 1% per
F. Medel vs CA month; that the stipulation for attorney's fees of
25% of the amount due is unconscionable, illegal
FACTS: and excessive, and that substantial payments made
 Petitioners, Medel and Franco, obtained a load from were applied to interest, penalties and other
from Veronica R. Gonzales. The amount of charges.
P50,000.00, payable in two months. Veronica gave  RTC: four promissory notes had been duly proved,
only the amount of P47,000.00, to the borrowers, as and ruled that although the Usury Law had been
she retained P3,000.00, as advance interest for one repealed, the interest charged by the plaintiffs on
month at 6% per month. Servando and Leticia the loans was unconscionable and "revolting to the
executed a promissory note for P50,000.00, to conscience". Hence, the trial court applied "the
evidence the loan, payable on January 7, 1986. provision of the New [Civil] Code" that the "legal
 Medel and Franco obtained a second loan in the rate of interest for loan or forbearance of money,
16 | CREDIT TRANSACTIONS: Case Digest 1st Set
goods or credit is 12% per annum." 0010496, Jocelyn ordered the stop payment on the
 CA: It ruled that "the Usury Law having become remaining checks and on October 27, 1998, filed
'legally inexistent' with the promulgation by the with the RTC of Cebu City a complaint against
Central Bank in 1982 of Circular No. 905, the lender Marilou for Declaration of Nullity and Payment,
and borrower could agree on any interest that may Annulment, Sum of Money, Injunction and
be charged on the loan." Damages.
ISSUE: WON the stipulated rate of interest at 5.5%  Jocelyn averred that Marilou forced, threatened and
per month on the loan in the sum of P500,000.00, that intimidated her into signing the Acknowledgment of
plaintiffs extended to the defendants is usurious. Debt and at the same time forced her to issue the
WON the Usury Law is still effective seven postdated checks. She claimed that Marilou
HELD: YES. We agree with petitioners that the even threatened to sue her for violation of Batas
stipulated rate of interest at 5.5% per month on the Pambansa (BP) Blg. 22.
P500,000.00 loan is excessive, iniquitous,  Marilou alleged that Jocelyn voluntarily obtained
unconscionable and exorbitant. 13 However, we cannot the said loans knowing fully well that the interest
consider the rate "usurious" because this Court has rate was at 6% to 7% per month.
consistently held that Circular No. 905 of the Central  RTC: No intimidation enforced to Jocelyn in signing
Bank, adopted on December 22, 1982, has expressly the document.
removed the interest ceilings prescribed by the Usury  CA: On appeal, Jocelyn asserts that she had made
Law 14 and that the Usury Law is now "legally payments in the total amount of P778,000.00 for a
inexistent". principal amount of loan of only P290,000.00. Such
Security Bank and Trust Company vs. Regional amount of payments covered only the interest
Trial Court of Makati, Branch 61 16 the Court held that because of the excessive, iniquitous,
CB Circular No. 905 "did not repeal nor in anyway unconscionable and exorbitant imposition of the
amend the Usury Law but simply suspended the latter's 6% to 7% monthly interest.
effectivity." Indeed, we have held that "a Central Bank ISSUE: WON the CA gravely erred when it held that
Circular cannot repeal a law. Only a law can repeal the imposition of interest at the rate of six percent (6%)
another law." "Usury has been legally non-existent in to seven percent (7%) is not contrary to law, morals,
our jurisdiction. Interest can now be charged as lender good customs, public order or public policy.
and borrower may agree upon." HELD: NO. The 6% to 7% interest per month
We find the interest at 5.5% per month, or 66% paid by Jocelyn is not excessive under the circumstances
per annum, stipulated upon by the parties in the of this case.
promissory note iniquitous or unconscionable, and, In view of Central Bank Circular No. 905 s.
hence, contrary to morals ("contra bonos mores"), if not 1982, which suspended the Usury Law ceiling on interest
against the law. 20 The stipulation is void. 21 The courts effective January 1, 1983, parties to a loan agreement
shall reduce equitably liquidated damages, whether have wide latitude to stipulate interest rates.
intended as an indemnity or a penalty if they are Nevertheless, such stipulated interest rates may be
iniquitous or unconscionable. declared as illegal if the same is unconscionable. There
is certainly nothing in said circular which grants lenders
G. Toledo vs Hyden carte blanche authority to raise interest rates to levels
DEL CASTILLO, J.: which will either enslave their borrowers or lead to a
hemorrhaging of their assets.
FACTS: In this case, however, we cannot consider the
 Petitioner obtained several loans from respondent disputed 6% to 7% monthly interest rate to be
Heyden. iniquitous or unconscionable vis--vis the principle laid
 From August 15, 1993 up to December 31, 1997, down in Medel. In this case, there was no urgency of
Jocelyn had been religiously paying Marilou the the need for money on the part of Jocelyn, the debtor,
stipulated monthly interest by issuing checks and which compelled her to enter into said loan transactions.
depositing sums of money in the bank account of She used the money from the loans to make advance
the latter. However, the total principal amount of payments for prospective clients of educational plans
P290,000.0 remained unpaid. offered by her employer. In this way, her sales
 Marilou visited Jocelyn in her office at CAP and production would increase, thereby entitling her to 50%
asked her to acknowledge her debts. rebate on her sales. This is the reason why she did not
 A document entitled Acknowledgment of Debt for mind the 6% to 7% monthly interest. Notably too, a
the amount of P290,000.00 was signed by Jocelyn business transaction of this nature between Jocelyn and
with two of her subordinates as witnesses. Marilou continued for more than five years. Jocelyn
 Jocelyn issued five checks to Marilou representing religiously paid the agreed amount of interest until she
renewal payment of her five previous loans. ordered for stop payment on some of the checks issued
 After honoring Check Nos. 0010494, 0010495 and to Marilou. The checks were in fact sufficiently funded
17 | CREDIT TRANSACTIONS: Case Digest 1st Set
when she ordered the stop payment and then filed a a. That since the Conditional Deed of Sale
case questioning the imposition of a 6% to 7% interest provided only for the return of the
rate for being allegedly iniquitous or unconscionable downpayment in case of breach, they cant
and, hence, contrary to morals. be liable for legal interest as well
After years of benefiting from the proceeds of the 9. RTC ruled saying that the Spouses are entitled to
loans bearing an interest rate of 6% to 7% per month the interest but only at 6% per annum and also
and paying for the same, Jocelyn cannot now go to entitled to atty’s fees
court to have the said interest rate annulled on the 10. On appeal, CA said that the issue to resolve is
ground that it is excessive, iniquitous, unconscionable, a. whether it is proper to impose interest for
exorbitant, and absolutely revolting to the conscience of an obligation that does not involve a loan or
man. forbearance of money in the absence of
stipulation of the parties
Also, the document Acknowledgment of Debt is 11. CA affirmed RTC
valid and binding. a. That interest should start on date of formal
Jocelyn has failed to prove her claim that she demand by Spouses to return the money
was made to sign the document Acknowledgment of not when contract was executed as stated
Debt and draw the seven Bank of Commerce checks by the RTC
through force, threat and intimidation. As earlier b. That Arias not be solidarily liable as he acted
stressed, said document was signed in the office of as agent only and did not expressly bind
Jocelyn, a high ranking executive of CAP, and it was himself or exceeded his authority
Jocelyn herself who went to the table of her two 12. Estores contends:
subordinates to procure their signatures as witnesses to a. Not bound to pay interest because the deed
the execution of said document. If indeed, she was only provided for the return of the
forced to sign said document, then Jocelyn should have downpayment in case of failure to comply
immediately taken the proper legal remedy. But she did with her obligations
not. Furthermore, it must be noted that after the b. That atty fees not proper because both RTC
execution of said document, Jocelyn honored the first and CA sustained her contention that 12%
three checks before filing the complaint with the RTC. If interest was uncalled for so it showed that
indeed she was forced she would never have made good Spouses did not win
on the first three checks 13. Spouses contend:
a. It is only fair that interest be imposed
H. Hermojina Estores vs. Spouses Arturo and Laura because Estores failed to return the amount
Supangan upon demand and used the money for her
G.R. No. 175139 April 18, 2012 benefit
b. Estores failed to relocate the house outside
DEL CASTILLO, J.:
the perimeter of the subject lot and
Facts:
complete the necessary documents
1. In Oct. 1993, Hermojina Estores and Spouses
c. As to the fees, they claim that they were
Supangan entered into a Conditional Deed of Sale
forced to litigate when Estores unjustly held
where Estores offered to sell, and Spouses offered
the amount
to buy a parcel of land in Cavite for P4.7M.
2. After almost 7 years and despite the payment of Issue: Is the imposition of interest and attorney’s fees is
P3.5M by the Spouses, Estores still failed to comply
proper? YES
with her obligation to handle the peaceful transfer of
ownership as stated in 5 provisions in the contract. Whether or not the Interest would be based on Art 2209 of
3. In a letter in 2000, Spouses demanded the return of
CC (6%) or be under Central Bank Circular 416 (12%)? 12%
the amount within 15 days from receipt
4. In reply, Estores promised to return the same within Held:
120 days Interest may be imposed even in the absence of
5. Spouses agreed but imposed an interest of 12% stipulation in the contract.
annually  Article 2210 of the Civil Code expressly provides that
6. Estores still failed despite demands “[i]nterest may, in the discretion of the court, be allowed
7. Spouses filed a complaint with the RTC against upon damages awarded for breach of contract.”
Estores and Roberto Arias (allegedly acted as  Estores failed on her obligations despite demand.
Estores’ agent) o She admitted that the conditions were not
8. In Answer, Estores said they were willing to pay the fulfilled and was willing to return the full
principal amount but without the interest as it was amount of P3.5M but hasn’t done so
not agreed upon o She is now in default
18 | CREDIT TRANSACTIONS: Case Digest 1st Set
The interest at the rate of 12% is applicable in airconditioning system. On 24 November 1989, Pan
the instant case. Pacific, through its President, Ricardo F. Del Rosario (Del
 Gen Rule: the applicable interest rate shall be Rosario), entered into a contract of mechanical works
computed in accordance with the stipulation of the (Contract) with respondent for P20,688,800. Pan Pacific
parties and respondent also agreed on nine change orders
 Exc: if no stipulation, applicable rate of interest shall for P2,622,610.30. Thus, the total consideration for the
be 12% per annum whole project was P23,311,410.30. The Contract
o When obligation arises out of a loan or stipulated, among others, that Pan Pacific shall be
forbearance of money, goods or credits entitled to a price adjustment in case of increase in labor
 In other cases, it shall be 6% costs and prices of materials under paragraphs 70.1 and
 In this case, no stipulation was made 70.2 of the "General Conditions for the Construction of
 Contract involved in this case is not a loan but PCIB Tower II Extension" (the escalation clause).
a Conditional Deed of Sale.
o No question that the obligations were Pursuant to the contract, Pan Pacific
not met and the return of money not commenced the mechanical works in the project site,
made the PCIB Tower II extension building in Makati City. The
 Even if transaction was a Conditional Deed of project was completed in June 1992. Respondent
Sale, the stipulation governing the return of accepted the project on 9 July 1992.
the money can be considered as a forbearance
of money which requires 12% interest In 1990, labor costs and prices of materials
 In Crismina Garments, Inc. v. Court of Appeals, escalated. On 5 April 1991, in accordance with the
Forbearance-- “contractual obligation of lender or escalation clause, Pan Pacific claimed a price adjustment
creditor to refrain during a given period of time, from of P5,165,945.52. Respondent’s appointed project
requiring the borrower or debtor to repay a loan or engineer, TCGI Engineers, asked for a reduction in the
debt then due and payable.” price adjustment. To show goodwill, Pan Pacific reduced
o In such case, “forbearance of money, goods or the price adjustment toP4,858,548.67.
credits” will have no distinct definition from a
loan.   On 28 April 1992, TCGI Engineers recommended
o however, the phrase “forbearance of money, to respondent that the price adjustment should be
goods or credits” is meant to have a separate pegged atP3,730,957.07. TCGI Engineers based their
meaning from a loan, otherwise there would evaluation of the price adjustment on the following
have been no need to add that phrase as a loan factors:
is already sufficiently defined in the Civil Code
o Forbearance of money, goods or credits should 1. Labor Indices of the Department of Labor
and Employment.
therefore refer to arrangements other than loan
agreements, where a person acquiesces to the
2. Price Index of the National Statistics Office.
temporary use of his money, goods or credits
pending happening of certain events or
PD 1594 and its Implementing Rules and
fulfillment of certain conditions. 
Regulations as amended, 15 March 1991.
 Estores’ unwarranted withholding of the money amounts
to forbearance of money which can be considered as an
Shipping Documents submitted by PPSCI.
involuntary loan so rate is 12% starting in Sept. 2000
The award of attorney’s fees is warranted. 
Sub-clause 70.1 of the General Conditions of the
 no doubt that the Spouses were forced to litigate to
Contract Documents.
protect their interest, i.e., to recover their money.  The
amount of P50,000.00 more appropriate
Pan Pacific contended that with this
recommendation, respondent was already estopped
from disclaiming liability of at least P3,730,957.07 in
I. PAN PACIFIC SERVICE CONTRACTORS, INC.
accordance with the escalation clause.
and RICARDO F. DEL ROSARIO, Petitioners, 
vs.
Due to the extraordinary increases in the costs
EQUITABLE PCI BANK (formerly THE PHILIPPINE
of labor and materials, Pan Pacific’s operational capital
COMMERCIAL INTERNATIONAL
was becoming inadequate for the project. However,
BANK), Respondent.
respondent withheld the payment of the price
G.R. No. 169975               March 18, 2010
adjustment under the escalation clause despite Pan
Pacific’s repeated demands. Instead, respondent offered
Facts: Pan Pacific Service Contractors, Inc. (Pan
Pan Pacific a loan of P1.8 million. Against its will and on
Pacific) is engaged in contracting mechanical works on
19 | CREDIT TRANSACTIONS: Case Digest 1st Set
the strength of respondent’s promise that the price annum. It is only when the parties to a contract have
adjustment would be released soon, Pan Pacific, through failed to fix the rate of interest or when such amount is
Del Rosario, was constrained to execute a promissory unwarranted that the Court will apply the 12% interest
note in the amount of P1.8 million as a requirement for per annum on a loan or forbearance of money.
the loan. Pan Pacific also posted a surety bond. The P1.8
million was released directly to laborers and suppliers The written agreement entered into between
and not a single centavo was given to Pan Pacific. petitioners and respondent provides for an interest at
the current bank lending rate in case of delay in
Pan Pacific made several demands for payment payment and the promissory note charged an interest of
on the price adjustment but respondent merely kept on 18%.
promising to release the same. Meanwhile, the P1.8
million loan matured and respondent demanded To prove petitioners’ entitlement to the 18%
payment plus interest and penalty. Pan Pacific refused to bank lending rate of interest, petitioners presented the
pay the loan. Pan Pacific insisted that it would not have promissory note prepared by respondent bank itself.
incurred the loan if respondent released the price This promissory note, although declared void by the
adjustment on time. Pan Pacific alleged that the lower courts because it did not express the real intention
promissory note did not express the true agreement of of the parties, is substantial proof that the bank lending
the parties. Pan Pacific maintained that the P1.8 million rate at the time of default was 18% per annum. Absent
was to be considered as an advance payment on the any evidence of fraud, undue influence or any vice of
price adjustment. Therefore, there was really no consent exercised by petitioners against the respondent,
consideration for the promissory note; hence, it is null the interest rate agreed upon is binding on them.
and void from the beginning.
J. PRISMA CONSTRUCTION & DEVELOPMENT
Respondent stood firm that it would not release CORPORATION and ROGELIO S. PANTALEON,
any amount of the price adjustment to Pan Pacific but it Petitioners, -         versus - ARTHUR F. MENCHAVEZ ,
would offset the price adjustment with Pan Pacific’s Respondent.
outstanding balance of P3,226,186.01, representing the BRION, J.: March 9, 2010
loan, interests, penalties and collection charges.  
FACTS:
Pan Pacific refused the offsetting but agreed to  Pantaleon, the President and Chairman of the
receive the reduced amount of P3,730,957.07 as Board of PRISMA, obtained a P1,000,000.00[4]
recommended by the TCGI Engineers for the purpose of loan from the respondent, with a monthly
extrajudicial settlement, less P1.8 million and P414,942 interest of P40,000.00 payable for six months,
as advance payments. or a total obligation of P1,240,000.00 to be paid
within six (6) months
On 6 May 1994, petitioners filed a complaint for  To secure the payment of the loan, Pantaleon
declaration of nullity/annulment of the promissory note,
issued a promissory note
sum of money, and damages against the respondent
 Pantaleon signed the promissory note in his
with the RTC.
personal capacity, and as duly authorized by the
Issue: Whether the CA, in awarding the unpaid Board of Directors of PRISMA.The petitioners
balance of the price adjustment, erred in fixing the failed to completely pay the loan within the
interest rate at 12% instead of the 18% bank lending stipulated six (6)-month period.
rate.  As of January 4, 1997, the petitioners had
already paid a total of P1,108,772.00. However,
Held: the respondent found that the petitioners still
Under Article 2209 of the Civil Code, the had an outstanding balance of P1,364,151.00 as
appropriate measure for damages in case of delay in of January 4, 1997, to which it applied a 4%
discharging an obligation consisting of the payment of a monthly interest.
sum of money is the payment of penalty interest at the  The respondent filed a complaint for sum of
rate agreed upon in the contract of the parties. In the money with the RTC to enforce the unpaid
absence of a stipulation of a particular rate of penalty
balance, plus 4% monthly interest, P30,000.00
interest, payment of additional interest at a rate equal to
in attorneys fees, P1,000.00 per court
the regular monetary interest becomes due and payable.
appearance and costs of suit.
Finally, if no regular interest had been agreed upon by
the contracting parties, then the damages payable will  In his answer, the petitioners admitted the loan
consist of payment of legal interest which is 6%, or in of P1,240,000.00, but denied the stipulation on
the case of loans or forbearances of money, 12% per the 4% monthly interest, arguing that the
20 | CREDIT TRANSACTIONS: Case Digest 1st Set
interest was not provided in the promissory of law between the contracting parties and should be
note. Pantaleon also denied that he made complied with in good faith. When the terms of a
himself personally liable and that he made contract are clear and leave no doubt as to the intention
representations that the loan would be repaid of the contracting parties, the literal meaning of its
within six (6) months. stipulations governs. In such cases, courts have no
 RTC: The RTC observed that PRISMA was a authority to alter the contract by construction or to
one-man corporation of Pantaleon and used this make a new contract for the parties; a court's duty is
confined to the interpretation of the contract the parties
circumstance to justify the piercing of the veil of
made for themselves without regard to its wisdom or
corporate fiction. Thus, the RTC ordered the
folly, as the court cannot supply material stipulations or
petitioners to jointly and severally pay the read into the contract words the contract does not
respondent the amount of P3,526,117.00 plus contain. It is only when the contract is vague and
4% per month interest from February 11, 1999 ambiguous that courts are permitted to resort to the
until fully paid. interpretation of its terms to determine the parties
 CA: The CA found that the parties agreed to a intent.
4% monthly interest principally based on the In the present case, the respondent issued a
board resolution that authorized Pantaleon to check for P1,000,000.00.[23] In turn, Pantaleon, in his
transact a loan with an approved interest of not personal capacity and as authorized by the Board,
more than 4% per month. The appellate court, executed the promissory note quoted above. Thus, the
however, noted that the interest of 4% per P1,000,000.00 loan shall be payable within six (6)
month, or 48% per annum, was unreasonable months, or from January 8, 1994 up to June 8, 1994.
and should be reduced to 12% per annum. The During this period, the loan shall earn an interest of
P40,000.00 per month, for a total obligation of
CA affirmed the RTCs finding that PRISMA was a
P1,240,000.00 for the six-month period. We note that
mere instrumentality of Pantaleon that justified
this agreed sum can be computed at 4% interest per
the piercing of the veil of corporate fiction.
month, but no such rate of interest was stipulated in the
 The petitioner’s contention: CA mistakenly promissory note; rather a fixed sum equivalent to this
relied on their board resolution to conclude that rate was agreed upon.
the parties agreed to a 4% monthly interest Article 1956 of the Civil Code specifically
because the board resolution was not an mandates that no interest shall be due unless it has
evidence of a loan or forbearance of money, but been expressly stipulated in writing. Under this
merely an authorization for Pantaleon to provision, the payment of interest in loans or
perform certain acts, including the power to forbearance of money is allowed only if: (1) there was
enter into a contract of loan. The expressed an express stipulation for the payment of interest; and
mandate of Article 1956 of the Civil Code is that (2) the agreement for the payment of interest was
interest due should be stipulated in writing, and reduced in writing. The concurrence of the two
no such stipulation exists. Even assuming that conditions is required for the payment of interest at a
the loan is subject to 4% monthly interest, the stipulated rate. Thus, we held in Tan v. Valdehueza[24]
and Ching v. Nicdao[25] that collection of interest
interest covers the six (6)-month period only
without any stipulation in writing is prohibited by law.
and cannot be interpreted to apply beyond it.
Applying this provision, we find that the interest
 The respondent counter: that the CA
of P40,000.00 per month corresponds only to the six
correctly ruled that the loan is subject to a 4% (6)-month period of the loan, or from January 8, 1994 to
monthly interest because the board resolution is June 8, 1994, as agreed upon by the parties in the
attached to, and an integral part of, the promissory note. Thereafter, the interest on the loan
promissory note based on which the petitioners should be at the legal interest rate of 12% per annum.
obtained the loan. The respondent further We cannot apply the doctrine of estoppel in the
contends that the petitioners are estopped from present case since the facts and circumstances, as
assailing the 4% monthly interest, since they established by the record, negate its application. Under
agreed to pay the 4% monthly interest on the the promissory note,[44] what the petitioners agreed to
principal amount under the promissory note and was the payment of a specific sum of P40,000.00 per
the board resolution. month for six months not a 4% rate of interest per
month for six (6) months on a loan whose principal is
ISSUE: WON the parties agreed to a 4% interest P1,000,000.00, for the total amount of P1,240,000.00.
on the loan Thus, no reason exists to place the petitioners in
HELD: YES. Interest due should be stipulated in estoppel, barring them from raising their present
writing; otherwise, 12% per annum defenses against a 4% per month interest after the six-
Obligations arising from contracts have the force month period of the agreement.
21 | CREDIT TRANSACTIONS: Case Digest 1st Set
within thirty (30) days from the
(BAKA ITANONG NI SIR) receipt by anyone of us of the written
The doctrine of piercing the corporate veil applies notice. Otherwise, We/I shall be
only in three (3) basic instances, namely: a) when the deemed to have given our consent to
separate and distinct corporate personality defeats the interest rate adjustment.
public convenience, as when the corporate fiction is
used as a vehicle for the evasion of an existing Contrary, however, to the specific provisions
obligation; b) in fraud cases, or when the corporate as afore-quoted, there was a standing
entity is used to justify a wrong, protect a fraud, or agreement by the parties that any increase or
defend a crime; or c) is used in alter ego cases, i.e., decrease in interest rates shall be subject to the
where a corporation is essentially a farce, since it is a mutual agreement of the parties.
mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its B. It is [Permanents] stand that
affairs so conducted as to make it merely an SOLIDBANK unilaterally and arbitrarily
instrumentality, agency, conduit or adjunct of another accelerated the interest rates without
corporation.[46] In the absence of malice, bad faith, or any declared basis of such increases, of
a specific provision of law making a corporate officer which PERMANENT HOMES had not
liable, such corporate officer cannot be made personally agreed to, or at the very least, been
liable for corporate liabilities. informed of. Permanent thus filed a case
before the trial court for the annulment
K. Pilipinas Bank vs CA of the increases in interest rates on the
loans it obtained from SOLIDBANK, on
L. SOLIDBANK CORP (now Metropolitan Bank and the ground that it was violative of the
Trust Company) vs. PERMANENT HOMES INC. principle of mutuality of agreement of
G.R. No. 171925 the parties, as enunciated in Article
CARPIO, J.: 1409 of the New Civil Code, and the
fixing of the interest rates at the
applicable interest rate.
Facts:
C. SOLIDBANK, on the other hand, avers
a. PERMANENT HOMES is a real estate development
that PERMANENT HOMES has no cause
company, and to finance its housing project, it
of action against it, in view of the
applied and was subsequently granted by
pertinent provisions of the Omnibus
SOLIDBANK with an Omnibus Line credit facility in
Credit Line and the promissory notes
the total amount of 60M.
agreed to and signed by PERMANENT
HOMES. Thus, in accordance with said
The promissory notes between Solidbank and
provisions, SOLIDBANK was authorized
Permanent all contain the following provisions:
to, upon due notice, periodically adjust
the interest rates on PERMANENT
5.We/I irrevocably authorize Solidbank
HOMES loan availments during the
to increase or decrease at any time
monthly interest repricing dates,
the interest rate agreed in this Note or
depending on the changes in prevailing
Loan on the basis of, among others,
interest rates in the local and
prevailing rates in the local or
international capital markets. Also, it
international capital markets. For this
contended that SOLIDBANKs officers
purpose, We/I authorize Solidbank to
verbally advised PERMANENT HOMES
debit any deposit or placement
of the repriced rates at the start of the
account with Solidbank belonging to
period, and even added that their
any one of us. The adjustment of the
transaction[s] were based on trust.
interest rate shall be effective from
Aside from these allegations, however,
the date indicated in the written
no written memorandum or note was
notice sent to us by the bank, or if no
presented by SOLIDBANK to support
date is indicated, from the time the
their assertion that PERMANENT HOMES
notice was sent.
was timely advised of the repriced
interests.
6.Should We/I disagree to the interest
rate adjustment, We/I shall prepay all
ISSUE: Whether or not the increases in the
amounts due under this Note or Loan
interest rates on [Permanents] loans are void for
22 | CREDIT TRANSACTIONS: Case Digest 1st Set
having been unilaterally imposed without basis. effect of these circulars is to allow the parties to agree
on any interest that may be charged on a loan. The
The Trial Courts Ruling. virtual repeal of the Usury Law is within the range of
judicial notice which courts are bound to take into
The complaint was dismissed. account. Although interest rates are no longer subject to
“It becomes crystal clear that there is a ceiling, the lender still does not have an unbridled
sufficient proof to show that the instant license to impose increased interest rates. The lender
case was instituted by [Permanent] as and the borrower should agree on the imposed rate, and
an after-thought and as an obvious such imposed rate should be in writing.
subterfuge intended to completely lay
on the defendant the blame for the The stipulations on interest rate repricing are valid
debacle of its Buena Vida project. An because (1) the parties mutually agreed on said
afterthought because the records of the stipulations; (2) repricing takes effect only upon
case show that the complaint was filed Solidbanks written notice to Permanent of the new
in March 16, 1998, already after it was interest rate; and (3) Permanent has the option to
having difficulty making the amortization prepay its loan if Permanent and Solidbank do not agree
payments, the last of which being in on the new interest rate. The phrases irrevocably
February 1998. A subterfuge because authorize, at any time and adjustment of the interest
plaintiff, instead of blaming itself and its rate shall be effective from the date indicated in the
own business judgment that went sour, written notice sent to us by the bank, or if no date is
would rather put the blame on indicated, from the time the notice was sent, emphasize
[Solidbank], taking advantage of every that Permanent should receive a written notice from
conceivable gray area of its contract Solidbank as a condition for the adjustment of the
with [Solidbank] to avoid its own interest rates.
liabilities. In fact, this complaint was
made the very basis for [Permanent] to In order that obligations arising from contracts
altogether stop the payment of its loan may have the force of law between the parties, there
from [Solidbank] including the interest must be a mutuality between the parties based on their
payment.” essential equality. A contract containing a condition
CA: which makes its fulfillment dependent exclusively upon
The appellate court not only recognized the the uncontrolled will of one of the contracting parties is
validity of escalation clauses, but also underscored the void. There was no showing that either Solidbank or
necessity of a basis for the increase in interest rates and Permanent coerced each other to enter into the loan
of the principle of mutuality of contracts. agreements. The terms of the Omnibus Line Agreement
THE FOREGOING CONSIDERED, the instant appeal and the promissory notes were mutually and freely
is hereby GRANTED, the assailed decision dated July 5, agreed upon by the parties.
2002 is REVERSED and SET ASIDE, and a new one is
hereby entered as follows:
Unless the parties herein subsequently enter into an
express agreement regarding the applicable interest
rates on PERMANENT HOMES loan availments
subsequent to the initial thirty-day (30) period, the legal
rate of twelve percent (12%) per annum is hereby
FIXED, to be applied on the outstanding balance of the
loan. M. SALVADOR CHUA and VIOLETA CHUA,
SOLIDBANK is directed not to impose penalties, vs.
particularly interest on interest, upon PERMANENT RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA
HOMES loan, there being no evidence that the latter was TIMAN, G.R. No. 170452
in default on its payments;
SC. NO QUISUMBING, J.:

The Usury Law had been rendered legally FACTS:

ineffective by Resolution No. 224 dated 3 A. In February and March 1999, petitioners granted
December 1982 of the Monetary Board of the respondents Rodrigo, Ma. Lynn and Lydia Timan
Central Bank, and later by Central Bank Circular the following loans: a) P100,000; b) P200,000;
No. 905 which took effect on 1 January 1983. c) P150,000; d) P107,000; e) P200,000; and f)
These circulars removed the ceiling on interest rates for P107,000. These loans were evidenced by
secured and unsecured loans regardless of maturity. The promissory notes with interest of 7% per month,
23 | CREDIT TRANSACTIONS: Case Digest 1st Set
which was later reduced to 5% per month. SC: YES. The stipulated interest rates of 7% and
5% per month imposed on respondents’ loans must be
B. Respondents paid the loans initially at 7% equitably reduced to 1% per month or 12% per annum. 8
interest rate per month until September 1999 We need not unsettle the principle we had affirmed in a
and then at 5% interest rate per month from plethora of cases that stipulated interest rates of 3% 9
October to December 1999. Sometime in March per month and higher10 are excessive, iniquitous,
2000, respondents offered to pay the principal unconscionable and exorbitant. Such stipulations are
amount of the loans through a Philippine void for being contrary to morals, if not against the
National Bank manager’s check worth P764,000, law.11 While C.B. Circular No. 905-82, which took effect
but petitioners refused to accept the same on January 1, 1983, effectively removed the ceiling on
insisting that the principal amount of the loans interest rates for both secured and unsecured loans,
totalled P864,000. regardless of maturity,12 nothing in the said circular
could possibly be read as granting carte blanche
C. On May 3, 2000, respondents deposited authority to lenders to raise interest rates to levels which
P864,000 with the Clerk of Court of the RTC of would either enslave their borrowers or lead to a
Quezon City. Later, they filed a case for hemorrhaging of their assets.13
consignation and damages.
As well set forth in Medel:17
D. Petitioners aver that the stipulated interest of
5% monthly and higher cannot be considered We agree … that the stipulated rate of interest at
unconscionable because these rates are not 5.5% per month on the P500,000.00 loan is
usurious by virtue of Central Bank (C.B.) Circular excessive, iniquitous, unconscionable and
No. 905-82 which had expressly removed the exorbitant. However, we can not consider the rate
interest ceilings prescribed by the Usury Law. "usurious" because this Court has consistently held
Petitioners add that respondents were in pari that Circular No. 905 of the Central Bank, adopted
delicto since they agreed on the stipulated on December 22, 1982, has expressly removed the
interest rates of 7% and 5% per month. interest ceilings prescribed by the Usury Law and
that the Usury Law is now "legally inexistent."

E. Respondents, invoking Medel v. Court of

In Security Bank and Trust Company vs. Regional
Appeals, counter that the stipulated interest
Trial Court of Makati, Branch 61, the Court held
rates of 7% and 5% per month are iniquitous,
that CB Circular No. 905 "did not repeal nor in
unconscionable and exorbitant, thus, they are
any way amend the Usury Law but simply
entitled to the return of the excessive interest
suspended the latter’s effectivity." Indeed, we
paid. They also contend that petitioners cannot
have held that "a Central Bank Circular can not
raise the defense of in pari delicto for the first
repeal a law. Only a law can repeal another law." In
time on appeal.
the recent case of Florendo vs. Court of Appeals,
the Court reiterated the ruling that "by virtue of CB
ISSUE: Whether or not the original stipulated interest Circular 905, the Usury Law has been rendered
rates of 7% and 5%, equivalent to 84% and 60% per ineffective." "Usury has been legally non-existent in
annum, are unconscionable. our jurisdiction. Interest can now be charged as
lender and borrower may agree upon."
RTC : Yes. It ruled that the original stipulated interest
rates of 7% and 5% per month were excessive. It Nevertheless, we find the interest at
ordered petitioners to refund to respondents all interest 5.5% per month, or 66% per annum,
payments in excess of the legal rate of 1% per month or stipulated upon by the parties in the
12% per annum. promissory note iniquitous or
unconscionable, and, hence, contrary to
CA: It affirmed the trial court’s decision. It declared morals ("contra bonos mores"), if not
illegal the stipulated interest rates of 7% and 5% per against the law. The stipulation is void.
month for being excessive, iniquitous, unconscionable
and exorbitant. Accordingly, the Court of Appeals N. GR NO. 154129
reduced the stipulated interest rates of 7% and 5% per TERESITA DIO, Petitioner, vs SPOUSES VIRGILIO
month (equivalent to 84% and 60% per annum, and LUZ ROCES JAPOR and MARIA JAPOR,
respectively) to a fair and reasonable rate of 1% per Respondents.
month or 12% per annum. The Court of Appeals also
ordered petitioners to refund to respondents all interest DECISION
payments in excess of 12% per annum.
24 | CREDIT TRANSACTIONS: Case Digest 1st Set
QUISUMBING, J.: maintain that the Deed of Real Estate Mortgage is null
and void since it did not state the true intent of the
Facts: parties, which limited the 5% interest rate to only 2
 Respondents Spouses Japor were the owners of months from the date of the loan.
a residential lot situated in Lucena City. Adjacent
to that lot is owned by Marta Japor. SC Ruling:
 Respondents obtained a loan from Quezon YES. It sustained the appellate court when it found the
Development Bank, and as a security, they interest and penalty rates in the Deed of Real Estate
mortgaged the lots. Later on, respondents and Mortgage excessive, hence legally impermissible.
QDB amended the Deed of Real Estate
Mortgage by increasing the loan. A stipulated interest rate of 5% interest rate per month
 The respondents failed to pay the loans. But and 5% penalty rate per month for every month of
before the bank could foreclose on the default or delay is in reality interest rate of 120% per
mortgage, respondents, offered to mortgage annum. Likewise, having agreed to said rate, the parties
their properties to petitioner Teresita Dio. are now estopped from claiming otherwise.
 PET then prepared the Deed of Real Estate
Mortgage. The respondents were able to secure Further, nothing in the Circular grants lenders carte
with the QDB the timely payment of the loans. blanche authority to impose interest rates which would
 Under the terms of the deed, respondents result in the enslavement of their borrowers of to the
agreed to pay the PET interest rate of 5% a hemorrhaging of their assets.
month, within period of two months or until April
14, 1989. In the event of default, an additional
interest of 5%, for every month of delay. O. Nacar vs Gallery Frames – G.R. No. 189871
 The respondents failed to settle their obligation (August 13, 2013)
thus PET made written demands. Later on, PET
applied for extrajudicial foreclosure of the
mortgage. FACTS:
 The respondents filed an action for Fixing the On October 15, 1998, the Labor Arbiter rendered a
Contractual Obligation. Later on, the
Decision in favor of petitioner and found that he was
respondents filed an amended complaint praying
dismissed from employment without a valid or just
that the Deed of Real Estate Mortgage be
cause. Thus, petitioner was awarded backwages and
declared null and void.
separation pay in lieu of reinstatement in the amount
RTC Ruling: ofP158,919.92.
 Declared the Real Estate Mortgage valid and
Respondents appealed to the NLRC, but it was dismissed
binding between the parties
for lack of merit. Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents filed a motion
CA Ruling:
 It affirmed the RTC as to the validity of the for reconsideration, but it was denied. Dissatisfied,
mortgage but modified the interest and penalty respondents filed a Petition for Review on Certiorari
rates for being unconscionable and exorbitant. before the CA but it was likewise denied. Respondents
then sought relief before the Supreme Court. Finding no
Issue: WON the CA err when it held that the reversible error on the part of the CA, this Court denied
stipulations on interest and penalty in the Deed of Real the petition in the Resolution dated April 17, 2002.
Estate Mortgage is contrary to morals
An Entry of Judgment was later issued certifying that the
PET contends: resolution became final and executory on May 27, 2002.
The Usury Law has been rendered ineffective by the The case was, thereafter, referred back to the Labor
Central Bank, thus, interest rates may accordingly be Arbiter for execution. Petitioner filed a Motion for Correct
pegged at such rates as the lender and the borrower Computation, praying that his backwages be computed
may agree upon. She has not violated any law from the date of his dismissal on January 24, 1997 up to
considering she is not engaged in the business of the finality of the Resolution of the Supreme Court on
money-lending. Likewise, the 5% interest rate was May 27, 2002. Upon recomputation, the Computation
proposed by the respondents. and Examination Unit of the NLRC arrived at an updated
amount in the sum of P471,320.31.
RES contends:
They admitted that they owe PET 350,000 and do not Respondents filed a Motion to Quash Writ of Execution,
question any lawful interest on their loan but they arguing, among other things, that since the Labor
25 | CREDIT TRANSACTIONS: Case Digest 1st Set
Arbiter awarded separation pay ofP62,986.56 and (1) backwages computed from the time petitioner was
limited backwages of P95,933.36, no more illegally dismissed on January 24, 1997 up to May 27,
recomputation is required to be made of the said 2002, when the Resolution of this Court in G.R. No.
awards. They claimed that after the decision becomes 151332 became final and executory;
final and executory, the same cannot be altered or
amended anymore. LA denied the motion but the (2) separation pay computed from August 1990 up to
decision was reversed by the NLRC on appeal. May 27, 2002 at the rate of one month pay per year of
service; and
Petitioner appealed to the CA but was denied, stating
that since petitioner no longer appealed the October 15, (3) interest of twelve percent (12%) per annum of the
1998 Decision of the Labor Arbiter, which already total monetary awards, computed from May 27, 2002 to
became final and executory, a belated correction thereof June 30, 2013 and six percent (6%) per annum from
is no longer allowed. The CA stated that there is nothing July 1, 2013 until their full satisfaction.
left to be done except to enforce the said judgment. The Labor Arbiter is hereby ORDERED to make another
Consequently, it can no longer be modified in any recomputation of the total monetary benefits awarded
respect, except to correct clerical errors or mistakes. and due to petitioner in accordance with this Decision.
Thus, petitioner filed this petition for review on
certiorari. P. Title: ECE REALTY and DEVELOPMENT, INC vs.
ISSUE: Whether or not a re-computation in the course HAYDYN HERNANDEZ
G.R. No. 212689               August 6, 2014
of execution of the labor arbiter's original computation of
Ponente: REYES, J.:
the awards made is legally proper.

HELD: Yes. The legal interest in loan and forbearance of FACTS: Private Respondent Haydyn Fernandez
money, credits or goods was amended from 12% to 6% entered into a contract to sell with petitioners Emir
effective July 1, 2013. Bangko Sentral ng Pilipinas Realty and Development Corporation (EMIR) and ECE
Monetary Board (BSP-MB), in its Resolution No. 796, Realty and Development Incorporated (ECE) over a 30
approved the amendment of Section 2 of Circular No. sq.m condominium unit (Unit 808). Haydyn paid the
downpayment. It was agreed that petitioners shall
905, Series of 1982 and, accordingly, issued Circular No.
deliver the unit on December 31, 1999. However,
799, Series of 2013, effective July 1, 2013, the pertinent
petitioner failed to deliver the said unit on the date
portion of which reads:
agreed upon and by the said time, private respondent
Section 1. The rate of interest for the loan or had already paid a total of ₱452,551.65. Sometimes in
forbearance of any money, goods or credits and the rate 2005, respondent learned that petitioner already sold
allowed in judgments, in the absence of an express the unit to a third party.
contract as to such rate of interest, shall be six percent
(6%) per annum. The respondent in his complaint in the HLURB
which ordered EMIR and ECE to reimburse the
Thus, from the foregoing, in the absence of an express respondent the amount of ₱452,551.65, plus legal
stipulation as to the rate of interest that would govern interest, from the filing of the complaint, and to pay the
the parties, the rate of legal interest for loans or respondent ₱50,000.00 as moral damages, ₱50,000.00
forbearance of any money, goods or credits and the rate as attorney’s fees, and ₱50,000.00 as exemplary
allowed in judgments shall no longer be 12% per annum damages.11
but will now be 6% per annum effective July 1, 2013. It
should be noted, nonetheless, that the new rate could EMIR and ECE appealed to the HLURB Board of
Commissioners, which upheld the HLURB’s decision but
only be applied prospectively and not retroactively.
dropped EMIR as defendant. ECE appealed to the OP,
Consequently, the 12% per annum legal interest shall
but OP denied ECE’s motion for reconsideration.
apply only until June 30, 2013. Come July 1, 2013 the
new rate of 6% per annum shall be the prevailing rate
On appeal to the CA, the appellate court ordered
of interest when applicable.
petitioner to pay respondent Haydyn Hernandez, the
SC in this case held the following: Decision dated amount of [P]452,551.65 (representing the total amount
September 23, 2008 of the Court of Appeals in CA-G.R. respondent Hernandez paid petitioner ECE), plus 6%
SP No. 98591, and the Resolution dated October 9, 2009 interest per annum starting 07 September 2006, and
12% interest per annum from the time the judgment
are REVERSED and SET ASIDE. Respondents are
becomes final and executor[y], until fully paid.
Ordered to Pay petitioner:
26 | CREDIT TRANSACTIONS: Case Digest 1st Set
It argued that interest may be imposed only the absence of written stipulation the interest rate to be
from finality of judgment. Insisting that it was not in bad imposed in judgments involving a forbearance of credit
faith, ECE sought the deletion of the award for damages was twelve percent (12%) per annum, up from six
and attorney’s fees, saying also that they are excessive. percent (6%) under Article 2209 of the Civil
Code.1âwphi1 This was reiterated in Central Bank
ISSUE: WON CA erred in the imposable interest of 12% Circular No. 905, which suspended the effectivity of the
after finality of judgment? Usury Law beginning on January 1, 1983.

RULING: We resolve to affirm the CA decision with But since July 1, 2013, the rate of twelve percent (12%)
modification, by reducing the interest imposable after per annum from finality of the judgment until
finality from twelve percent (12%) to six percent (6%). satisfaction has been brought back to six percent (6%).
Section 1 of Resolution No. 796 of the Monetary Board
Article 2209 of the New Civil Code provides that of the Bangko Sentral ng Pilipinas dated May 16, 2013
"If the obligation consists in the payment of a sum of provides: "The rate of interest for the loan or
money, and the debtor incurs in delay, the indemnity for forbearance of any money, goods or credits and the rate
damages, there being no stipulation to the contrary, allowed in judgments, in the absence of an express
shall be the payment of the interest agreed upon, and in contract as to such rate of interest, shall be six percent
the absence of stipulation, the legal interest, which is six (6%) per annum." Thus, the rate of interest to be
per cent per annum." There is no doubt that ECE imposed from finality of judgments is now back at six
incurred in delay in delivering the subject condominium percent (6%), the rate provided in Article 2209 of the
unit, for which reason the trial court was justified Civil Code.
inawarding interest to the respondent from the filing of
his complaint. There being no stipulation as to interest, Q. De La Paz vs. L&J Development Company
under Article 2209 the imposable rate is six percent G.R. No. G.R. No. 183360               September 8,
(6%) by way of damages, following the guidelines laid 2014
down in the landmark case of Eastern Shipping Lines v. Ponente: DEL CASTILLO
Court of Appeals:16
FACTS: "No interest shall be due unless it has been
In Reformina v. Judge Tomol, Jr., the Court held that expressly stipulated in writing."
the legal interest at 12% per annum under Central Bank
(CB) Circular No. 416 shall be adjudged only in cases Rolando lent P350,000.00 to L&J Development without
involving the loan or forbearance of money. And for any security at rate of 6% without indicating date of
transactions involving payment of indemnities in the maturity and without reducing it into writing. From
concept of damages arising from default in the December 2000 to August 2003, L&J paid Rolando a
performance of obligations in general and/or for money total of ₱576,000.00 representing interest charges.
judgment not involving a loan or forbearance of money,
goods, or credit, the governing provision is Art. 2209 of As L&J failed to pay despite repeated demands, Rolando
the Civil Code prescribing a yearly 6% interest. Art. 2209 filed a Complaint8 for Collection of Sum of Money with
pertinently provides: Art. 2209. If the obligation consists Damages against L&J and Atty. Salonga in his personal
in the payment of a sum of money, and the debtor capacity before the MeTC.
incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of They argued that Rolando cannot enforce the 6%
the interest agreed upon, and in the absence of monthly interest for being unconscionable and shocking
stipulation, the legal interest, which is six per cent per to the morals. Hence, the payments already made
annum. should be applied to the ₱350,000.00 principal loan.

The term "forbearance," within the context of usury law, Rolando claimed that it was not he who demanded for
has been described as a contractual obligation of a the 6% monthly interest but L&J.
lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the
MeTC: upheld 6% monthly interest from 2000 to 2003.
loan or debt then due and payable.
Petitioner is estopped from impugning the same for it
agreed and voluntarily paid at such rate. Nonetheless,
Thus, from the finality of the judgment awarding a sum for reasons of equity, the said court reduced the interest
of money until it is satisfied, the award shall be rate to 12% per annum on the remaining principal
considered a forbearance of credit, regardless of obligation of ₱350,000.00.
whether the award in fact pertained to one. Pursuant to
Central Bank Circular No. 416 issued on July 29, 1974, in
RTC: affirmed MeTC’s ruling in all respect.
27 | CREDIT TRANSACTIONS: Case Digest 1st Set
CA: Reversed RTC decision. The parties failed to interest rates.
stipulate in writing the imposition of interest on the loan.
Hence, no interest shall be due thereon pursuant to In the case at bench, there is no specified period as to
Article 1956 of the Civil Code.17 And even if payment of the payment of the loan. Hence, levying 6% monthly or
interest has been stipulated in writing, the 6% monthly 72% interest per annum is "definitely outrageous and
interest is still outrightly illegal and unconscionable inordinate." The situation that it was the debtor who
because it is contrary to morals, if not against the law. insisted on the interest rate will not exempt Rolando
Being void, this cannot be ratified and may be set up by from a ruling that the rate is void. As this Court cited in
the debtor as defense. For these reasons, Rolando Asian Cathay Finance and Leasing Corporation v.
cannot collect any interest even if L&J offered to pay Gravador, "[t]he imposition of an unconscionable rate of
interest. Consequently, he has to return all the interest interest on a money debt, even if knowingly and
payments of ₱576,000.00 to L&J. voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous
Petitioner argued that it was the debtor, a lawyer, who deprivation of property, repulsive to the common sense
voluntarily imposed the 6% monthly interest hence, it of man." Indeed, "voluntariness does not make the
should not be considered unconscionable despite the stipulation on [an unconscionable] interest valid."
fact the it was not reduced into writing.
As exhaustibly discussed, no monetary interest is due
L&J, in controverting Rolando’s arguments, contends Rolando pursuant to Article 1956. The CA thus correctly
that the interest rate is subject of negotiation and is adjudged that the excess interest payments made by
agreed upon by both parties, not by the borrower alone. L&J should be applied to its principal loan. As computed
Furthermore, jurisprudence has nullified interest rates on by the CA, Rolando is bound to return the excess
loans of 3% per month and higher as these rates are payment of ₱226,000.00 to L&J following the principle of
contrary to morals and public interest. solutio indebiti.

Issue: WON CA is correct in invalidating the 6% However, pursuant to Central Bank Circular No. 799 s.
monthly interest rate. 2013 which took effect on July 1, 2013, the interest
imposed by the CA must be accordingly modified. The
Held: Yes. The lack of a written stipulation to pay ₱226,000.00 which Rolando is ordered to pay L&J shall
interest on the loaned amount disallows a creditor from earn an interest of 6% per annum from the finality of
charging monetary interest. this Decision.

Under Article 1956 of the Civil Code, no interest shall R. SPOUSES TAGUMPAY N. ALBOS and AIDA C.
bedue unless it has been expressly stipulated in writing. ALBOS, Petitioners, 
Jurisprudence on the matter also holds that for interest vs.
to be due and payable, two conditions must concur: a) SPOUSES NESTOR M. EMBISAN and ILUMINADA
express stipulation for the payment of interest; and b) A. EMBISAN, DEPUTY SHERIFF MARINO V.
the agreement to pay interest is reduced in writing. CACHERO, and the REGISTER OF DEEDS OF
QUEZON CITY, Respondents.
Here, it is undisputed that the parties did not put down
in writing their agreement. Thus, no interest is due. The Ponente: VELASCO, JR.
collection of interest without any stipulation in writing is Facts:
prohibited by law.  Petitioners entered into an agreement,
denominated as "Loan with Real Estate
"…xxx [e]stoppel cannot give validity to an act that is Mortgage, "with respondent spouses Nestor and
prohibited by law or one thatis against public policy." Iluminada Embisan (spouses Embisan). To
secure the indebtedness, petitioners mortgaged
to the spouses Embisan a parcel of land.
Even if the payment of interest has been reduced in
 Petitioners failed to settle their account upon
writing, a 6% monthly interest rate on a loan is
maturity despite being given three extensions.
unconscionable, regardless of who between the parties
 In a bid to prevent the foreclosure of their
proposed the rate.
mortgaged property, petitioners paid respondent
spouses the sum of ₱44,500.00 on October 2,
Indeed at present, usury has been legally non-existent 1987. The respondent spouses proceeded to
in view of the suspension of the Usury Law by Central extra-judicially foreclose the mortgaged property
Bank Circular No. 905 s. 1982. Even so, not all interest on October 12, 1987.
rates levied upon loans are permitted by the courts as  Petitioners filed a complaint for the annulment
they have the power to equitably reduce unreasonable
28 | CREDIT TRANSACTIONS: Case Digest 1st Set
of the Loan with Real Estate Mortgage alleging Ponente: DE LEON, JR.
that that the foreclosure sale is void because Facts:
respondents only released ₱60,000.00 out of the  Petitioner Antonio Tan obtained two (2) loans
₱84,000.00 amount loaned, which has already each in the principal amount of Two Million
been paid. Pesos (P2,000,000.00), or in the total principal
 The spouses Embisan countered that the loan amount of Four Million Pesos (P4,000,000.00)
was legally and validly entered at arms length from respondent Cultural Center of the
after a series of meetings and negotiations. Philippines (CCP).
 RTC – dismissed petitioner’s complaint.  Petitioner defaulted but after a few partial
 CA - affirmed in toto the ruling of the trial court; payments he had the loans restructured. Tan
the agreement to compound the interest was failed to pay any installment on the said
just and reasonable. restructured loan. Later, petitioner again sent a
letter to respondent CCP requesting for a
Issue: Whether or not the respondents can charge moratorium on his loan obligation until the
interest without reducing such agreement into writing. following year allegedly due to a substantial
deduction in the volume of his business and on
Ruling: No. Article 1956 of the New Civil Code, which account of the peso devaluation.
refers to monetary interest, provides:  CCP filed in the RTC of Manila a complaint for
collection of a sum of money. The petitioner
interposed the defense that he merely
Article 1956.No interest shall be due unless it has been
accommodated a friend, Wilson Lucmen, who
expressly stipulated in writing.
allegedly asked for his help to obtain a loan
from respondent CCP.
As mandated by the foregoing provision, payment of  RTC – ordered Tan to pay.
monetary interest shall be due only if: (1) there was an  CA – affirmed with modification by deleting the
express stipulation for the payment of interest; and (2) award for exemplary damages and reducing the
the agreement for such payment was reduced in writing. amount of awarded attorney’s fees
Thus, We have held that collection of interest without  Petitioner imputes error on the part of the
any stipulation thereof in writing is prohibited by law. appellate court in not totally eliminating the
award of attorney’s fees and in not reducing the
Given the circumstances, We rule that the first penalties considering that the petitioner
requirement––that there be an express stipulation for allegedly made partial payments on the loan. He
the payment of interest––is not sufficiently complied also claims that there is no basis in law for the
with, for purposes of imposing compounded interest on charging of interest on the surcharges.
the loan. The requirement does not only entail reducing Issues:
in writing the interest rate to be earned but also the 1. Whether or not petitioner is liable for interest
manner of earning the same, if it is to be compounded. and penalties.
Failure to specify the manner of earning interest,
however, shall not automatically render the stipulation 2. Whether interest may accrue on the penalty or
imposing the interest rate void since it is readily compensatory interest without violating the
apparent from the contract itself that the parties herein provisions of Article 1959 of the New Civil Code
agreed for the loan to bear interest. Instead, in default (Without prejudice to the provisions of Article
of any stipulation on the manner of earning interest, 2212, interest due and unpaid shall not earn
simple interest shall accrue. interest. However, the contracting parties may
by stipulation capitalize the interest due and
The SC also held that imposing 5% monthly interest, unpaid, which as added principal, shall earn new
whether compounded or simple, is unconscionable. interest)
Ruling:
1. Yes. In the case at bar, the promissory note
(Exhibit "A") expressly provides for the
imposition of both interest and penalties in case
of default.
S. ANTONIO TAN, petitioner, 
vs. The stipulated fourteen percent (14%) per
COURT OF APPEALS and the CULTURAL CENTER annum interest charge until full payment of the
OF THE PHILIPPINES, respondents. loan constitutes the monetary interest on the
note and is allowed under Article 1956 of the
New Civil Code.7 On the other hand, the
29 | CREDIT TRANSACTIONS: Case Digest 1st Set
stipulated two percent (2%) per month penalty payment for the loan. Petitioner claims that the excess
is in the form of penalty charge which is of ₱160,000.00 serves as interest on the loan to which
separate and distinct from the monetary interest he was entitled.
on the principal of the loan. Such a stipulation
about payment of an additional interest rate Not satisfied with the amount applied as interest,
partakes of the nature of a penalty clause which petitioner pestered her to pay additional interest.
is sanctioned by law. Petitioner threatened to block or disapprove her
transactions with the PNO if she would not comply with
2. Yes. Penalty clauses can be in the form of his demand. As all her transactions with the PNO were
penalty or compensatory interest. Thus, the subject to the approval of petitioner as comptroller of
compounding of the penalty or compensatory the PNO, and fearing that petitioner might block or
interest is sanctioned by and allowed pursuant unduly influence the payment of her vouchers in the
to the above-quoted provision of Article 1959 of PNO, she conceded. Thus, she paid additional amounts
the New Civil Code considering that, first, there in cash and checks as interests for the loan. She asked
is an express stipulation in the promissory note petitioner for receipt for the payments but petitioner told
(Exhibit "A") permitting the compounding of her that it was not necessary as there was mutual trust
interest, and second, Article 2212 of the New and confidence between them. According to her
Civil Code provides that "Interest due shall earn computation, the total amount she paid to petitioner for
legal interest from the time it is judicially the loan and interest accumulated to ₱1,200,000.00.
demanded, although the obligation may be
silent upon this point." In the instant case, Upon being advised by her lawyer that she made
interest likewise began to run on the penalty overpayment to petitioner, she sent a demand letter to
interest upon the filing of the complaint in court petitioner asking for the return of the excess amount of
by respondent CCP on August 29, 1984. Hence, ₱660,000.00. Petitioner, despite receipt of the demand
the courts a quo did not err in ruling that the letter, ignored her claim for reimbursement.
petitioner is bound to pay the interest on the
total amount of the principal, the monetary Petitioner Siga-an’s Contention:
interest and the penalty interest.
Petitioner denied that he offered a loan to respondent.
T. SEBASTIAN SIGA-AN, Petitioner, vs. ALICIA He averred that in 1992, respondent approached and
VILLANUEVA, Respondent. asked him if he could grant her a loan, as she needed
money to finance her business venture with the PNO. At
Facts: first, he was reluctant to deal with respondent, because
the latter had a spotty record as a supplier of the PNO.
On 30 March 1998, respondent Alicia Villanueva filed a However, since respondent was an acquaintance of his
complaint for sum of money against petitioner Sebastian officemate, he agreed to grant her a loan. Respondent
Siga-an before the Las Pinas City Regional Trial Court paid the loan in full.
(RTC). Villanueva alleged that she was a
businesswoman engaged in supplying office materials Subsequently, respondent again asked him to give her a
and equipments to the Philippine Navy Office (PNO) loan. As respondent had been able to pay the previous
located at Fort Bonifacio, Taguig City, while Siga-an was loan in full, he agreed to grant her another loan. Later,
a military officer and comptroller of the PNO from 1991 respondent requested him to restructure the payment of
to 1996. the loan because she could not give full payment on the
due date. He acceded to her request. Thereafter,
Respondent Villanueva’s Contention: respondent pleaded for another restructuring of the
payment of the loan. This time he rejected her plea.
Villanueva claimed that sometime in 1992, petitioner Thus, respondent proposed to execute a promissory
approached her inside the PNO and offered to loan her note wherein she would acknowledge her obligation to
the amount of ₱540,000.00. Since she needed capital for him, inclusive of interest, and that she would issue
her business transactions with the PNO, she accepted several postdated checks to guarantee the payment of
petitioner’s proposal. The loan agreement was not her obligation. Upon his approval of respondent’s
reduced in writing. Also, there was no stipulation as to request for restructuring of the loan, respondent
the payment of interest for the loan. executed a promissory note dated 12 September 1994
wherein she admitted having borrowed an amount of
Respondent issued two checks with a total worth of ₱1,240,000.00, inclusive of interest, from petitioner and
₱700,000.00 in favor of Siga-an as payment of the loan. that she would pay said amount in March 1995.
These checks were subsequently encashed by petitioner. Respondent also issued to him six postdated checks
Obviously, there was an excess of ₱160,000.00 in the amounting to ₱1,240,000.00 as guarantee of compliance
30 | CREDIT TRANSACTIONS: Case Digest 1st Set
with her obligation. Subsequently, he presented the six concurrence of the two conditions is required for the
checks for encashment but only one check was honored. payment of monetary interest. Thus, we have held that
He demanded that respondent settle her obligation, but collection of interest without any stipulation therefor in
the latter failed to do so. Hence, he filed criminal cases writing is prohibited by law.
for Violation of the Bouncing Checks Law (Batas
Pambansa Blg. 22) against respondent. It appears that petitioner and respondent did not agree
on the payment of interest for the loan. Neither was
Petitioner insisted that there was no overpayment there convincing proof of written agreement between
because respondent admitted in the latter’s promissory the two regarding the payment of interest. Respondent
note that her monetary obligation as of 12 September testified that although she accepted petitioner’s offer of
1994 amounted to ₱1,240,000.00 inclusive of interests. loan amounting to ₱540,000.00, there was, nonetheless,
He argued that respondent was already estopped from no verbal or written agreement for her to pay interest on
complaining that she should not have paid any interest, the loan.
because she was given several times to settle her
obligation but failed to do so. He maintained that to rule Petitioner presented a handwritten promissory note
in favor of respondent is tantamount to concluding that dated 12 September 199423 wherein respondent
the loan was given interest-free. Based on the foregoing purportedly admitted owing petitioner "capital and
averments, he asked the RTC to dismiss respondent’s interest." Respondent, however, explained that it was
complaint. petitioner who made a promissory note and she was told
to copy it in her own handwriting; that all her
RTC Decision: transactions with the PNO were subject to the approval
of petitioner as comptroller of the PNO; that petitioner
Respondent made an overpayment of her loan obligation threatened to disapprove her transactions with the PNO
to petitioner and that the latter should refund the excess if she would not pay interest; that being unaware of the
amount to the former. It ratiocinated that respondent’s law on interest and fearing that petitioner would make
obligation was only to pay the loaned amount of good of his threats if she would not obey his instruction
₱540,000.00, and that the alleged interests due should to copy the promissory note, she copied the promissory
not be included in the computation of respondent’s total note in her own handwriting; and that such was the
monetary debt because there was no agreement same promissory note presented by petitioner as alleged
between them regarding payment of interest. It proof of their written agreement on interest.24
concluded that since respondent made an excess Petitioner did not rebut the foregoing testimony. It is
payment to petitioner in the amount of ₱660,000.00 evident that respondent did not really consent to the
through mistake, petitioner should return the said payment of interest for the loan and that she was
amount to respondent pursuant to the principle of merely tricked and coerced by petitioner to pay interest.
solutio indebiti. Hence, it cannot be gainfully said that such promissory
note pertains to an express stipulation of interest or
The RTC also ruled that petitioner should pay moral written agreement of interest on the loan between
damages for the sleepless nights and wounded feelings petitioner and respondent.
experienced by respondent. Further, petitioner should
pay exemplary damages by way of example or 2. YES. Under Article 1960 of the Civil Code, if the
correction for the public good, plus attorney’s fees and borrower of loan pays interest when there has been no
costs of suit. stipulation therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154
CA: Affirmed in toto RTC’s Ruling. of the Civil Code provides that if something is received
when there is no right to demand it, and it was unduly
Issue: 1. WON Respondent Villanueva is liable to pay to delivered through mistake, the obligation to return it
Petitioner Siga-an Interest on the loan? NO arises. In such a case, a creditor-debtor relationship is
created under a quasi-contract whereby the payor
2. WON Petitioner Siga-an is liable by virtue of the becomes the creditor who then has the right to demand
Principle of Solution Indebiti? YES the return of payment made by mistake, and the person
HELD: 1. NO. Article 1956 of the Civil Code, which who has no right to receive such payment becomes
refers to monetary interest, specifically mandates that obligated to return the same. The quasi-contract of
no interest shall be due unless it has been expressly solutio indebiti harks back to the ancient principle that
stipulated in writing. As can be gleaned from the no one shall enrich himself unjustly at the expense of
foregoing provision, payment of monetary interest is another. The principle of solutio indebiti applies where
allowed only if: (1) there was an express stipulation for (1) a payment is made when there exists no binding
the payment of interest; and (2) the agreement for the relation between the payor, who has no duty to pay,
payment of interest was reduced in writing. The and the person who received the payment; and (2) the
31 | CREDIT TRANSACTIONS: Case Digest 1st Set
payment is made through mistake, and not through 1975 Zshornack indeed delivered to the bank US $3,000
liberality or some other cause. We have held that the for safekeeping. When he requested the return of the
principle of solutio indebiti applies in case of erroneous money on May 10, 1976, COMTRUST explained that the
payment of undue interest. sum was disposed of in this manner: US$2,000.00 was
sold on December 29, 1975 and the peso proceeds
It was duly established that respondent paid interest to amounting to P14,920.00 were deposited to Zshornack's
petitioner. Respondent was under no duty to make such current account per deposit slip accomplished by Garcia;
payment because there was no express stipulation in the remaining US$1,000.00 was sold on February 3,
writing to that effect. There was no binding relation 1976 and the peso proceeds amounting to P8,350.00
between petitioner and respondent as regards the were deposited to his current account per deposit slip
payment of interest. The payment was clearly a mistake. also accomplished by Garcia.
Since petitioner received something when there was no
right to demand it, he has an obligation to return it. 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
III DEPOSIT (Articles 1962 - 2009) contract embodied in the document is the contract of
depositum (as defined in Article 1962, New Civil Code),
I. Deposit in General & Its Different Kinds 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
A. BANK OF THE PHILIPPINE ISLANDS, petitioner, liable under the contract, and the obligation is purely
vs. personal to Garcia.
THE INTERMEDIATE APPELLATE COURT and
ZSHORNACK respondents. Issue: Whether the contract between petitioner and
respondent bank is a deposit?
Facts: Rizaldy T. Zshornack and his wife maintained
in COMTRUST a dollar savings account and a peso Held: YES.
current account. On October 27, 1975, an application for Before we go into the nature of the contract entered
a dollar draft was accomplished by Virgilio V. Garcia, into, an important point which arises on the pleadings,
Assistant Branch Manager of COMTRUST Quezon City, must be considered.
payable to a certain Leovigilda D. Dizon in the amount of
$1,000.00. In the application, Garcia indicated that the The cause of action is based on a document purporting
amount was to be charged to Dollar Savings Acct. No. to be signed by COMTRUST, a copy of which document
25-4109, the savings account of the Zshornacks; the was attached to the complaint. In short, such cause of
charges for commission, documentary stamp tax and action was based on an actionable document. It was
others totalling P17.46 were to be charged to Current therefore incumbent upon the bank to specifically deny
Acct. No. 210465-29, again, the current account of the under oath the due execution of the document, as
Zshornacks. There was no indication of the name of the prescribed under Rule 8, Section 8, if it desired: (1) to
purchaser of the dollar draft. question the authority of Garcia to bind the corporation;
and (2) to deny its capacity to enter into such contract.
On the same date, October 27,1975, COMTRUST, under No sworn answer denying the due execution of the
the signature of Virgilio V. Garcia, issued a check document in question, or questioning the authority of
payable to the order of Leovigilda D. Dizon in the sum of Garcia to bind the bank, or denying the bank's capacity
US $1,000 drawn on the Chase Manhattan Bank, New to enter into the contract, was ever filed. Hence, the
York, with an indication that it was to be charged to bank is deemed to have admitted not only Garcia's
Dollar Savings Acct. No. 25-4109. authority, but also the bank's power, to enter into the
contract in question.
When Zshornack noticed the withdrawal of US$1,000.00
from his account, he demanded an explanation from the Having determined that Garcia's act of entering into the
bank. In answer, COMTRUST claimed that the peso contract binds the corporation, we now determine the
value of the withdrawal was given to Atty. Ernesto correct nature of the contract, and its legal
Zshornack, Jr., brother of Rizaldy, on October 27, 1975 consequences, including its enforceability.
when he (Ernesto) encashed with COMTRUST a cashier's
check for P8,450.00 issued by the Manila Banking The document which embodies the contract states that
Corporation payable to Ernesto. the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also
During trial, it was established that on December 8, show that the intent of the parties was really for the
32 | CREDIT TRANSACTIONS: Case Digest 1st Set
bank to safely keep the dollars and to return it to On July 28, 1976, Bonifacio S. Maceda, Jr., obtained a
Zshornack at a later time, Thus, Zshornack demanded P7.3 million loan from the DBP for the construction of his
the return of the money on May 10, 1976, or over five New Gran Hotel Project in Tacloban City. On September
months later. 29, 1976, Maceda entered into a building construction
contract with Moreman Builders Co., Inc., (Moreman)
The above arrangement is that contract defined under agreeing that the construction would be finished not
Article 1962, New Civil Code, which reads: later than December 22, 1977.

Art. 1962. A deposit is constituted from the moment a Maceda purchased various construction materials and
person receives a thing belonging to another, with the equipment in Manila. Moreman deposited the materials
obligation of safely keeping it and of returning the same. in the warehouse of Wilson and Lily Chan. The deposit
If the safekeeping of the thing delivered is not the was free of charge. Moreman failed to finish the
principal purpose of the contract, there is no deposit but construction of the hotel at the stipulated date and so
some other contract. Maceda filed for rescission and damages before the CFI
against Moreman.
Note that the object of the contract between Zshornack
and COMTRUST was foreign exchange. Hence, the CFI ordered the rescission of the contract and awarded:
transaction was covered by Central Bank Circular No. 20, a) actual, moral and liquidated damages of Php 445k; b)
Restrictions on Gold and Foreign Exchange Transactions. P20k for the increase of the construction materials; and
The document and the subsequent acts of the c) P35k attorney’s fees. Moreman appealed before CA
parties show that they intended the bank to which was dimissed. He went to the SC for review on
safekeep the foreign exchange, and return it later certiorari. The same was denied.
to Zshornack, who alleged in his complaint that
he is a Philippine resident. The parties did not While the case was pending, Maceda demanded for the
intended to sell the US dollars to the Central Bank return of the construction materials and the equipment
within one business day from receipt. Otherwise, deposited by Moreman in Chan’s warehouse. The Chans
the contract of depositum would never have been informed Maceda that Moreman withdrew the
entered into at all. Since the mere safekeeping of the construction materials in 1977.
greenbacks, without selling them to the Central Bank
within one business day from receipt, is a transaction Maceda then filed for damages on Dec. 11, 1985 with an
which is not authorized by CB Circular No. 20, it must be application for preliminary attachement against the
considered as one which falls under the general class of Chans. On August 25, 1989, after almost 4 years, the
prohibited transactions. Hence, pursuant to Article 5 of case was dismissed for failure to prosecute and lack of
the Civil Code, it is void, having been executed against interest on Maceda’s part. On Sept. 6, 1994 or 5 years
the provisions of a mandatory/prohibitory law. More after, he filed an MR but was denied due to failure to
importantly, it affords neither of the parties a cause of appear on the scheduled hearing.
action against the other. The only remedy is one on
behalf of the State to prosecute the parties for violating Maceda filed a second MR and this time the motion was
the law. granted and the case reinstated, 10 years after the
action was originally filed. Chan filed an MTD on several
WHEREFORE, the decision appealed from is hereby grounds while Maceda moved to declare the Chans in
MODIFIED. Petitioner is ordered to restore to the dollar default on the ground that the MTD was filed out of time
savings account of private respondent the amount of and did not contain any notice of hearing. The trial court
US$1,000.00 as of October 27, 1975 to earn interest at declared the Chans in default.
the rate fixed by the bank for dollar savings deposits.
Petitioner is further ordered to pay private respondent Chan went to CA for certiorari which was dimissed. The
the amount of P8,000.00 as damages. case reached SC which affirmed the CA order. Maceda
presented evidence ex-parte before the RTC.

On Dec. 26, 1996, the trial court rendered a decision in

II. VOLUNTARY DEPOSIT favor of Maceda, citing Art. 20 and 21 of the NCC on
damages. Chan elevated the case to the CA which
affirmed the decision in toto in this: xxx…although the
A. JOSEPH CHAN, WILSON CHAN and LILY CHAN prayer in the complaint did not specify the amount of
vs. BONIFACIO S. MACEDA, JR. damages sought, the same was satisfactorily proved
G.R. No. 142591. April 30, 2003 during the trial. For damages to be awarded, it is
essential that the claimant satisfactorily prove during the
Facts: trial the existence of the factual basis thereof and its
33 | CREDIT TRANSACTIONS: Case Digest 1st Set
causal connection with the adverse party’s act ( PAL, Inc. deposit between Chan and Moreman, it is still incumbent
vs. NLRC, 259 SCRA 459. Evidence further revealed that upon Maceda to prove its existence and that it was
assorted materials owned by the New Gran Hotel were executed in his favor. However, he miserably failed to do
deposited in the bodega of defendant Wilson Chan with so. The only pieces of evidence he presented to prove
a total market value of P1,930,000.00, current price. the contract of deposit were the delivery receipts.
Significantly, they are unsigned and not duly received or
In his comment on the petition, Maceda maintains that authenticated by either Moreman, Chan or Maceda or
the Chans, as depositaries under the law, have both the any of their authorized representatives. Hence, those
fiduciary and extraordinary obligations not only to safely delivery receipts have no probative value at all. While
keep the construction material deposited, but also to our laws grant a person the remedial right to prosecute
return them with all their products, accessories and or institute a civil action against another for the
accessions, pursuant to Articles 1972, 1979, 1983 and enforcement or protection of a right, or the prevention
1988. Considering that Chan’s duty to return the or redress of a wrong, every cause of action ex-
construction materials in question has already become contractu must be founded upon a contract, oral or
impossible, it is only proper that the prices of those written, express or implied.
construction materials in 1996 should be the basis of the
award of actual damages.  Moreover, Maceda also failed to prove that there were
construction materials and equipment in Chan’s
Issue: warehouse at the time he made a demand for their
W/N there was a contract of deposit between Chan and return.
Maceda.
Considering that he failed to prove (1) the existence of
any contract of deposit between him and Chan, nor
Ruling: between the latter and Moreman in his favor, and (2)
At the outset, the case should have been dismissed that there were construction materials in Chan’s
outright by the trial court because of patent procedural warehouse at the time of his demand to return the
infirmities. This is a glaring gross procedural error same, we hold that Chan has no corresponding
committed by both the trial court and the Court of obligation or liability to him with respect to those
Appeals. Even without such serious procedural flaw, the construction materials.
case should also be dismissed for utter lack of merit.

It must be stressed that Maceda’s claim for damages is B) CA AGRO-INDUSTRIAL DEVELOPMENT CORP.
based on Chan’s failure to return or to release to him the vs. THE HONORABLE COURT OF APPEALS and
construction materials and equipment deposited by SECURITY BANK AND TRUST COMPANY.
Moreman to their warehouse. Hence, the essential G.R. No. 90027 March 3, 1993
issues to be resolved are: (1) Has Maceda presented
proof that the construction materials and equipment Facts: CA Agro and the spouses Pugaos entered into
were actually in Chan’s warehouse when he asked that a contract of sale for 2 parcels of land and among its
the same be turned over to him? (2) If so, does Maceda terms and conditions were that the titles to the lots shall
have the right to demand the release of the said only be transferred to CA Agro upon full payment of the
materials and equipment or claim for damages? purchase price and that the owner’s copies of the title
shall be deposited in a safety deposit box of any bank.
Under Article 1311 of the Civil Code, contracts are The same could be withdrawn only upon the joint
binding upon the parties (and their assigns and heirs) signatures of a representative of CA Agro and the
who execute them. When there is no privity of contract, Pugaos upon full payment of the purchase price. CA
there is likewise no obligation or liability to speak about Agro, through Sergio Aguirre, and the Pugaos then
and thus no cause of action arises. Specifically, in an rented Safety Deposit Box No. 1448 of private
action against the depositary, the burden is on the respondent Security Bank and Trust Company, a
plaintiff to prove the bailment or deposit and the domestic banking corporation hereinafter referred to as
performance of conditions precedent to the right of the respondent Bank. For this purpose, both signed a
action. A depositary is obliged to return the thing to the contract of lease which contains the following
depositor, or to his heirs or successors, or to the person conditions:
who may have been designated in the contract.
13. The bank is not a depositary of the contents of the
In the present case, the record is bereft of any contract safe and it has neither the possession nor control of the
of deposit, oral or written, between Chan and Maceda. If same.
at all, it was only between Chan and Moreman. And
granting arguendo that there was indeed a contract of 14. The bank has no interest whatsoever in said
34 | CREDIT TRANSACTIONS: Case Digest 1st Set
contents, except herein expressly provided, and it Issue:
assumes absolutely no liability in connection therewith. W/N the contractual relation between the bank and the
party who rents a safety deposit box with respect to its
A certain Margarita Ramos offered to buy the 2 lots contents is that of a lessor and lessee.
which meant a profit of P100/square meter or a total of
P280, 500 for the entire property and when CA Agro, Ruling:
along with the Pugaos went to retrieve the titles from The contract for the rent of the safety deposit box is not
the safety deposit box, the titles were not there. The an ordinary contract of lease as defined in Article 1643
reconstitution of the titles delayed the execution of a of the Civil Code but is not entirely governed by the law
deed of sale in favor of Ramos and so she withdrew her on deposit; the contract in the case at bar is a special
offer to buy. CA Agro filed on 1 September 1980 a kind of deposit. It cannot be characterized as an
complaint for damages against the respondent Bank ordinary contract of lease under Article 1643 because
with the Court of First Instance. the full and absolute possession and control of the
safety deposit box was not given to the joint renters —
In its Answer with Counterclaim, Security Bank alleged CA Agro and the Pugaos. The guard key of the box
that the CA Agro has no cause of action because of remained with the respondent Bank; without this key,
paragraphs 13 and 14 of the contract of lease; neither of the renters could open the box. On the other
corollarily, loss of any of the items or articles contained hand, the respondent Bank could not likewise open the
in the box could not give rise to an action against it . It box without the renter's key. In this case, the said key
then interposed a counterclaim for exemplary damages had a duplicate which was made so that both renters
as well as attorney's fees in the amount of P20,000.00. could have access to the box.

CFI ruled in favor of Security Bank, citing paragraphs 13 The generally accepted rule is that the relation is that of
and 14 of the contract of lease which is binding to the a bailor and bailee, however:
parties. CA Agro’s MR was denied and it appealed the Support for the view that the relationship in question
case before CA. It affirmed the appealed decision might be more properly characterized as that of landlord
principally on the theory that the contract executed by and tenant, or lessor and lessee. It has also been
CA Agro and Security Bank is in the nature of a contract suggested that it should be characterized as that of
of lease by virtue of which the petitioner and its co- licensor and licensee. The relation between a bank, safe-
renter were given control over the safety deposit box deposit company, or storage company, and the renter of
and its contents while the Bank retained no right to a safe-deposit box therein, is often described as
open the said box because it had neither the possession contractual, express or implied, oral or written, in whole
nor control over it and its contents. As such, the contract or in part. But there is apparently no jurisdiction in
is governed by Article 1643 of the Civil Code. which any rule other than that applicable to bailments
governs questions of the liability and rights of the parties
It ruled that Security Bank is not under any duty to in respect of loss of the contents of safe-deposit boxes.
maintain the contents of the box. The stipulation
absolving it from liability is in accordance with the nature Note that the primary function is still found within the
of the contract of lease and cannot be regarded as parameters of a contract of deposit, i.e., the receiving in
contrary to law, public order and public policy. custody of funds, documents and other valuable objects
for safekeeping. The renting out of the safety deposit
CA Agro’s MR having been denied by the respondent boxes is not independent from, but related to or in
court, it filed for review under R45. It maintains that conjunction with, this principal function. A contract of
regardless of nomenclature, the contract for the rent of deposit may be entered into orally or in writing and,
the safety deposit box is actually a contract of deposit. pursuant to Article 1306 of the Civil Code, the parties
Accordingly, it is claimed that the Security Bank is liable thereto may establish such stipulations, clauses, terms
for the loss of the certificates of title pursuant to Article and conditions as they may deem convenient, provided
1972. they are not contrary to law, morals, good customs,
public order or public policy. The depositary's
CA Agro further argues that conditions 13 and 14 of the responsibility for the safekeeping of the objects
questioned contract are contrary to law and public policy deposited in the case at bar is governed by the law on
and should be declared null and void. In support deposits. Accordingly, the depositary would be liable if,
thereof, it cites Article 1306 of the Civil Code which in performing its obligation, it is found guilty of fraud,
provides that parties to a contract may establish such negligence, delay or contravention of the tenor of the
stipulations, clauses, terms and conditions as they may agreement. In the absence of any stipulation prescribing
deem convenient, provided they are not contrary to law, the degree of diligence required, that of a good father of
morals, good customs, public order or public policy. a family is to be observed. Hence, any stipulation
exempting the depositary from any liability arising from
35 | CREDIT TRANSACTIONS: Case Digest 1st Set
the loss of the thing deposited on account of fraud, the certificates of title was due to the fraud or
negligence or delay would be void for being contrary to negligence of the respondent Bank. This in turn flows
law and public policy. from this Court's determination that the contract
involved was one of deposit. Since both the petitioner
Paragraphs 13 and 14 of the contract of lease are and the Pugaos agreed that each should have one (1)
inconsistent with the respondent Bank's responsibility as renter's key, it was obvious that either of them could ask
a depositary under Section 72(a) of the General Banking the Bank for access to the safety deposit box and, with
Act. Both exempt the latter from any liability except as the use of such key and the Bank's own guard key,
contemplated in condition 8 thereof which limits its duty could open the said box, without the other renter being
to exercise reasonable diligence only with respect to present.
who shall be admitted to any rented safe.

Furthermore, condition 13 stands on a wrong premise C. LUZAN SIA, petitioner, 

and is contrary to the actual practice of the Bank. It is vs.
not correct to assert that the Bank has neither the COURT OF APPEALS and SECURITY BANK and
possession nor control of the contents of the box since TRUST COMPANY, respondents.
in fact, the safety deposit box itself is located in its
premises and is under its absolute control; moreover, DAVIDE, JR., J.:
the respondent Bank keeps the guard key to the said
box. As stated earlier, renters cannot open their FACTS: The petitioner instituted an action for damages
respective boxes unless the Bank cooperates by arising out of the destruction or loss of the stamp
presenting and using this guard key. Clearly then, to the collection of the plaintiff (petitioner herein) contained
extent above stated, the foregoing conditions in the in Safety Deposit Box No. 54 which had been rented
contract in question are void and ineffective. from the private respondent bank pursuant to a contract
denominated as a Lease Agreement. The said safety
With respect to property deposited in a safe-deposit box deposit box leased by the plaintiff was at the bottom or
by a customer of a safe-deposit company, the parties, at the lowest level of the safety deposit boxes of the
since the relation is a contractual one, may by special defendant bank at its aforesaid Binondo Branch. During
contract define their respective duties or provide for the floods that took place in 1985 and 1986, floodwater
increasing or limiting the liability of the deposit entered into the defendant bank's premises, seeped into
company, provided such contract is not in violation of the safety deposit box leased by the plaintiff and
law or public policy. It must clearly appear that there caused, according to the plaintiff, damage to his stamps
actually was such a special contract, however, in order collection. 
to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit
The defendant bank denied liability for the
company will not be enlarged or restricted by words of
damaged stamps collection of the plaintiff on the
doubtful meaning. The company, in renting safe-deposit
basis of the "Rules and Regulations Governing
boxes, cannot exempt itself from liability for loss of the
the Lease of Safe Deposit Boxes"  particularly
contents by its own fraud or negligence or that of its
paragraphs 9 and 13, which reads :
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 "9. The liability of the Bank by reason
that the lessor of a safe-deposit box cannot limit its of the lease, is limited to the exercise
liability for loss of the contents thereof through its own of the diligence to prevent the
negligence, the view has been taken that such a lessor opening of the safe by any person
may limits its liability to some extent by agreement or other than the Renter, his authorized
stipulation. agent or legal representative;

Security Bank's exoneration cannot, contrary to the xxx xxx xxx

holding of the Court of Appeals, be based on or proceed
from a characterization of the impugned contract as a "13. The Bank is not a depository of
contract of lease, but rather on the fact that no the contents of the safe and it has
competent proof was presented to show that respondent neither the possession nor the control
Bank was aware of the agreement between the of the same. The Bank has no interest
petitioner and the Pugaos to the effect that the whatsoever in said contents, except
certificates of title were withdrawable from the safety as herein provided, and it assumes
deposit box only upon both parties' joint signatures, and absolutely no liability in connection
that no evidence was submitted to reveal that the loss of therewith."
36 | CREDIT TRANSACTIONS: Case Digest 1st Set
The defendant bank also contended that its contract required, that of a good father of a family is to be
with the plaintiff over safety deposit box No. 54 was one observed [Art. 1173, id.]. Hence, any stipulation
of lease and not of deposit and, therefore, governed by exempting the depositary from any liability
the lease agreement which should be the applicable law; arising from the loss of the thing deposited on
that the destruction of the plaintiff's stamps collection account of fraud, negligence or delay would be
was due to a calamity beyond obligation on its part to void for being contrary to law and public policy. 
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.

RTC favored private respondent. On appeal, CA favored

the defendant bank and ruled that the contract entered
into by the parties regarding Safe Deposit Box No. 54
was not a contract of deposit.
D. SILVESTRA BARON, plaintiff-appellant, 
vs. PABLO DAVID, defendant-appellant. And
ISSUE: WON the contract over Safety Deposit Box No. GUILLERMO BARON, plaintiff-appellant, 
54 is one of lease and not of deposit. vs.
PABLO DAVID, defendant-appellant.
HELD: It is a special kind of deposit.
STREET, J.:
SBTC's theory that the "Lease Agreement " covering
Safe Deposit Box No. 54 is just that — a contract of FACTS:
lease — and not a contract of deposit, and that Two actions were instituted in the Court of First Instance
paragraphs 9 and 13 thereof, which expressly limit the of the Province of Pampanga by the respective plaintiffs,
bank's liability as follows are valid and binding upon the Silvestra Baron and Guillermo Baron, for the purpose of
parties is NOT TENABLE. In accordance with the recovering from the defendant, Pablo David, the value of
decision in the case of CA Agro-Industrial Development palay alleged to have been sold by the plaintiffs to the
Corp. vs. Court of Appeals, this Court explicitly rejected defendant in the year 1920. With the same defendant,
the contention that a contract for the use of a safety the cases are heard together.
deposit box is a contract of lease, nor did we fully The defendant Pablo David has been engaged in running
subscribe to the view that it is a contract of deposit to a rice mill in the municipality of Magalang, in the
be strictly governed by the Civil Code provision on Province of Pampanga. On January 17, 1921, a fire
deposit; it is a special kind of deposit wherein occurred that destroyed the mill and its contents, and it
Section 72 of the General Banking Act [R.A. 337, as was some time before the mill could be rebuilt and put
amended] is held applicable in this case which in operation again.  In the months of March, April, and
pertinently provides that in addition to the operations May, 1920, Silvestra Baron placed a quantity of palay in
specifically authorized elsewhere in this Act, banking the defendant's mill and during approximately the same
institutions other than building and loan associations period Guillermo Baron placed other cavans of palay on
may receive in custody funds, documents, and valuable the same mill. No compensation has ever been received
objects, and rent safety deposit boxes for the by Silvestra Baron upon account of the palay delivered
safeguarding of such effects. by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this
Note that the primary function is still found within the he has not been compensated. Both the plaintiffs
parameters of a contract of deposit, i.e., the receiving in claim that the palay which was delivered by them
custody of funds, documents and other valuable objects to the defendant was sold to the defendant; while
for safekeeping. The renting out of the safety deposit the defendant, on the other hand, claims that the
boxes is not independent from, but related to or in palay was deposited subject to future withdrawal
conjunction with this principal function. Pursuant to by the depositors or subject to some future sale
Article 1306 of the Civil Code, the parties to a contract of which was never effected. He therefore supposes
deposit may establish such stipulations, clauses, terms himself to be relieved from all responsibility by virtue of
and conditions as they may deem convenient, provided the fire of January 17, 1921, already mentioned.
they are not contrary to law, morals, good customs, Sometime in the early part of August, 1920, make
public order or public policy. Accordingly, the depositary demand upon the defendant for a settlement, which he
would be liable if, in performing its obligation, it is found evaded or postponed leaving the exact amount due to
guilty of fraud, negligence, delay or contravention of the the plaintiffs undetermined. It should be stated that the
tenor of the agreement [Art. 1170, id.]. In the absence palay in question was placed by the plaintiffs in the
of any stipulation prescribing the degree of diligence defendant's mill with the understanding that the
37 | CREDIT TRANSACTIONS: Case Digest 1st Set
defendant was at liberty to convert it into rice and indebtedness, to which the plaintiff acceded; that on the
dispose of it at his pleasure. The defendant admits that 15th of May, 1902, the debtors paid on account of
the plaintiffs' palay was mixed with that of others. In interest due the sum of P1,000 pesos, with the
view of the nature of the defendant's activities and the exception of either capital or interest, had thereby been
way in which the palay was handled in the defendant's subjected to loss and damages.
mill, it is quite certain that all of the plaintiffs' palay,
which was put in before June 1, 1920, been milled and Evidence was adduced by both parties and, upon their
disposed of long prior to the fire of January 17, 1921. exhibits, together with an account book having been
made of record, the court below rendered judgment on
ISSUE: WON the palay was delivered in the character the 15th of January, 1907, in favor of the plaintiff for the
of a deposit recovery of the sum of P5,714.44 and costs.

HELD: Negative. The document of indebtedness inserted in the complaint

Even supposing that the palay may have been delivered states that the plaintiff left on deposit with the
in the character of deposit, subject to future sale or defendants a sum of money which they were jointly and
withdrawal at plaintiffs' election, nevertheless if it was severally obliged to return on a certain date. However,
understood that the defendant might mill the palay and when the document written in the Visayan dialect and
he has in fact appropriated it to his own use, he is followed by a translation into Spanish was executed, it
of course bound to account for its value. Under article was acknowledged that the amount deposited had not
1768 of the Civil Code, when the depository has yet been returned to the creditor, whereby he was
permission to make use of the thing deposited, subjected to losses and damages, when the return was
the contract loses the character of mere deposit again stipulated with the further agreement that the
and becomes a loan or a commodatum; and of amount deposited should bear interest at the rate of 15
course by appropriating the thing, the bailee becomes per cent per annum, and that the 1,000 pesos paid to
responsible for its value. In this connection we wholly the depositor according to the receipt issued by him to
reject the defendant's pretense that the palay delivered the debtors, would be included, and that the said rate of
by the plaintiffs or any part of it was actually consumed interest would obtain until the debtors on the 20th of
in the fire of January, 1921. May, 1897, it is called a deposit consisted, and they
could have accomplished the return agreed upon by the
E. ANGEL JAVELLANA vs. JOSE LIM, ET AL delivery of a sum equal to the one received by them. For
TORRES, J.: this reason it must be understood that the debtors were
G.R. No. 4015 lawfully authorized to make use of the amount
deposited, which they have done, as subsequent shown
FACTS: Angel Javellana, file a complaint, with the CIF when asking for an extension of the time for the return
of Iloilo, praying that Jose Lim and Ceferino Domingo thereof, inasmuch as, acknowledging that they have
Lim, be sentenced to jointly and severally pay the sum subjected the letter, their creditor, to losses and
of P2,686.58, with interest thereon at the rate of 15 per damages for not complying with what had been
cent per annum from the 20th of January, 1898, until stipulated, and being conscious that they had used, for
full payment should be made. their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to
Authority from the court having been previously the creditor from the date named until the time when
obtained, the complaint was amended on the 10th of the refund should be made.
January, 1907; it was then alleged, on the 26th of May,
1897, the defendants executed and subscribed a Issue: W/N the transaction entered into between the
document in favor of the plaintiff reading as follows: interested parties was deposit or a real contract of loan.

We have received from Angel Javellana, as a deposit Held: It was a contract of loan through deposit. Under
without interest, the sum of two thousand six hundred the Civil Code
and eighty-six cents of pesos fuertes, which we will
return to the said gentleman, jointly and severally, on Article 1767 provides that —
the 20th of January, 1898. — Jaro, 26th of May, 1897.
— Signed Jose Lim. — Signed: Ceferino Domingo Lim. The depository can not make use of the thing deposited
without the express permission of the depositor.
That, when the obligation became due, the defendants Otherwise he shall be liable for losses and damages.
begged the plaintiff for an extension of time for the
payment thereof, building themselves to pay interest at Article 1768 also provides that —
the rate of 15 per cent on the amount of their
38 | CREDIT TRANSACTIONS: Case Digest 1st Set
When the depository has permission to make use of the and with it bought exchange on Barcelona or other
thing deposited, the contract loses the character of a European point converted into pesetas. The plaintiff
deposit and becomes a loan or bailment. received these payments in silver without any protest
The permission shall not be presumed, and its existence whatever. However, he then called the attention of the
must be proven. defendants to the fact that by the new American law in
force in the Philippines the gold standard had been
For the reason above set forth it may, it can be inferred introduced and that by reason thereof he was entitled to
that there was no renewal of the contract deposited receive his interest in gold, in view of the fact that when
converted into a loan, because, as has already been he delivered the money to the defendants in 1876 he
stated, the defendants received said amount by virtue of delivered it in gold coin. In another letter, he expressly
real loan contract under the name of a deposit, since the refers to the act of Congress of March 2, 1903, and to
so-called bailees were forthwith authorized to dispose of the subsequent proclamations of the Governor-General
the amount deposited. This they have done, as has been relating to coinage. These are practically all the facts in
clearly shown. the case, and the claim of the plaintiff is that, having
paid to the defendants 12,000 pesos in gold coin, he is
The original joint obligation contracted by the defendant now entitled to receive from them the value of 12,000
debtor still exists, and it has not been shown or proven pesos in gold coin; that is to say, 24,000 pesos in silver.
in the proceedings that the creditor had released Jose
Lim from complying with his obligation in order that he The appellant in his brief repeatedly calls it a deposit,
should not be sued for or sentenced to pay the amount but we do not understand that he claims that it is or
of capital and interest together with his codebtor, ever was a deposit in the technical sense of the term;
Ceferino Domingo Lim, because the record offers that is, that his ownership of the particular coin which
satisfactory evidence against the pretension of Jose Lim, was delivered by him to Smith, Bell & Co. did not pass
and it has also been proven that Jose Lim, being fully to Smith, Bell & Co. but remained in him and that Smith,
aware that his debt had not yet been settled, took steps Bell & Co. was bound to return to him the identical coin
to secure an extension of the time for payment, and which they had received. It is claimed, however, by the
consented to pay interest in return for the concession appellant, that while not a deposit in the strict sense of
requested from the creditor. the word, the document evidences what is known as an
"irregular deposit."
F. JOSE ROGERS v SMITH, BELL, & CO.
Issue: W/N this case falls under irregular deposit.
Smith Bell and company has acknowledged that it
received an amount of 12,000 pesos (Confusing ang Held: No, the Court in this case said that the contract in
case, sabi nila peso tapos dollars na naman.) through question does not fulfill the requirements for it to be
deposit from Jose Rogers, as evidenced by the considered irregular deposit. Manresa states that there
documents presented before the CIF of Manila. The said are three points of difference between a loan and an
deposited amount will be paid within 6 months from the irregular deposit. The first difference which he points out
receipt thereof; that it will be paid either in Manila or consists in the fact that in an irregular deposit the only
London or as what Roger wishes; that the said amount benefit is that which accrues to the depositor, while in a
will have an 8% interest per annum from the date of the loan the essential cause for the transaction is the
execution of the said document (Feb. 17, 18786). necessity of the borrower. The contract in question does
not fulfill this requirement of an irregular deposit. It is
The document presented should the undisputed fact of very apparent that it was not for the sole benefit of
the case that the delivered12,000 pesos in silver were Rogers. It, like any other loan of money, was for the
worth more than 12,000 pesos in gold. The plaintiff benefit of both parties. The benefit which Smith, Bell &
delivered to the defendants in consideration of the Co. received was the use of the money; the benefit
execution of the document 12,000 in gold. Soon which Rogers received was the interest on his money. In
thereafter the plaintiff moved to Barcelona and has since the letter in which Smith, Bell & Co. on the 30th of June,
resided there. The defendants remitted the interest to 1888, notified the plaintiff of the reduction of the
him every three months at the rate of 8 per cent per interest, they said: "We call your attention to this matter
annum until when they notified him that thereafter the in order that you may if you think best employ your
interest would be 6 per cent. The plaintiff accepted this money in some other place."
reduction and interest at that rate was remitted to him
by the defendants. Nor does the contract in question fulfill the third
requisite indicated by Manresa, which is, that in an
The interest was remitted in silver; that is to say, every irregular deposit, the depositor can demand the return
three months the defendants took 180 pesos in silver of the article at any time, while a lender is bound by the
39 | CREDIT TRANSACTIONS: Case Digest 1st Set
provisions of the contract and cannot seek restitution same kind and quality, although the creditor should not
until the time for payment, as provided in the contract, specify either of the conditions.
has arisen. It is apparent from the terms of this
documents that the plaintiff could not demand his The supreme court of Spain in the judgment of the 27th
money at any time. He was bound to give notice of his of October, 1868, speaking of the obligation of the
desire for its return and then to wait for six months borrower in such case, says:
before he could insist upon payment.
Whereas the principle in Laws I and II of Title I of the
The Supreme Court of Spain decided that the Fifth Partida, according to which the borrower, acquires
transaction is still a loan: ownership of the thing and is bound to return an equal
amount of the same kind and quality, have special
Whereas, although the irregular deposit is considered as application to cases relating to loans of money or its
mutual, with respect to the repayment between the equivalent; whereas the thing loaned not being in such
depositor and the depositary, notwithstanding this, the cases what properly constitutes the material or the
latter retains the original status of personal creditor and object of deposit, as happens with other perishable
is simply privileged, in concurrence with other creditors things, but rather the value that the coins or the paper
against the former, and he must be paid after the money represents, the obligation of the depository in
mortgage creditors and before the creditors whose right this kind of contracts is to return the sum or amount
appears only by written instruments, in accordance with therein expressed, whatever may have been the
Law XII, Title XIV, fifth Partida. increase or depreciation suffered by the specific kind of
coin or paper, unless the contrary be stipulated.
In the given case, the document presented by the
appellant does not fall under the requisites which are It seems clear from these citations that the document in
essential to an irregular deposit. question is evidence of an ordinary loan and created
between the plaintiff and defendants the relation of
But even if it did, it seems that the appellant's debtor and creditor. And, it appeared that the Bank of
contention could not be sustained. He claims that in Havana returned to the plaintiff the same kind of money
accordance with said Law II, title III, Fifth Partida, the which it had received from him. It having been
defendants are bound to return to him the same kind of determined that the contract between the parties
money which was received. That law is in part as created the common relation of debtor and creditor, the
follows: case is easily resolved. Section 3 of the act of Congress
of March 2, 1903, entitled "An act to establish a
And the ownership of the thing given in deposit is not standard of value and to provide for a coinage system in
transferred to the one who receives the same; but, the Philippine Islands," is as follows:
should the thing be one of those which can be counted,
weighed, or measured, if, when receiving it, the same That the silver Philippine pesos authorized by this act
were given by count, weight, or measure, then the shall be legal tender in the Philippine Islands for all
ownership would be transferred to him. Yet he would be debts, public and private, unless otherwise specifically
obliged to return the same thing, or the same quantity, provided by contract: Provided, That debts contracted
or another similar to the one received, to him who gave prior to the thirty-first day of December, nineteen
it to him in deposit. hundred and three, may be paid in the legal tender
currency of said Islands existing at the time of the
An examination, however, of Law II, Title I, of the making of said contracts, unless otherwise expressly
Fifth Partida, which relates to loans, will show that the provided by contract.
obligation of the borrower in such case is stated in
almost exactly the same words. That law is in part as That this case falls within the terms of this section is
follows: very clear. The debt in question is a private debt, calling
for the payment of 12,000 pesos. This section authorizes
A man may loan to another any of the things mentioned the payment of that debt in the Philippine pesos
in the last law which are susceptible of being counted, authorized by the act.
weighed, or measured. And this is understood with
regard to things belonging to him who lends them, or (Ito na ang explanation kung bakit nag gamit ang
which are loaned by another by authority of his dollars)
principal; provided, however, that once the thing is in
the possession of him who secures the loan, he may The appellant in his brief discusses at length the
dispose of it as though it were his own. But he must meaning of the word "dollars." We do not see how such
return to the owner of the thing equal amount of the a discussion is material. The contract provides for the
40 | CREDIT TRANSACTIONS: Case Digest 1st Set
payment of "pesos," not "dollars." It is very evident that manager of Mariano Velasco & Co. at the time the note
the contract was not changed nor intended to be was executed.
changed by the use of the word "dollars" in the letter of The receipt reads as follow (translation):
February 17, 1876. That in English houses especially the
word "dollars" was, until very recently, used to indicate MANILA, P. I., April 5, 1918.
pesos of local currency, whether Mexican, Spanish, or Received from the "Compania Agricola de Ultramar" the
Hongkong, is well known. sum of ten thousand Philippine pesos as a deposit at the
interest of six per cent annually, for the term of three
In conclusion it may be said that the plaintiff, in 1876, months from date.
delivered to the defendants the cheapest kind of money In witness thereof, I sign the present.
then in use. If he had desired to be repaid in the same MARIANO VELASCO & CO. 
money which he delivered, he should have so provided By (Sgd.) JOSE VELASCO 
expressly in the contract. He had a perfect right to do Manager.         
so, and if he had done so he could now, by reason of P10,000.00.
the provisions of the said act of Congress, demand Jose Velasco stated that his signature on the receipt was
payment in gold. authentic and that he received the said sum of P10,000
from the appellee and deposited it with the bank in the
That the plaintiff's protest in 1904 was based entirely current account of Mariano Velasco & Co.
upon his construction of this act of Congress admits of
no doubt; that he delivered that by the terms of the ISSUE: W/N the transaction involved a [voluntary]
contract, without the act of Congress, Smith, Bell & deposit and a preferred claim.
Co. had the right to pay him in silver is beyond question.
This belief is shown not only by his letters of protest RULING: NO
which expressly refer to the act of Congress as the basis In our opinion the court below erred in finding that the
of his claim but also by his conduct during more than claim of the appellee should be considered a deposit and
twenty-five years in receiving interest in silver without a a preferred claim.
sign of protest. That he would have received the
principal also in silver had the defendants tendered it to In the case of Gavieres vs. De Tavera (1 Phil., 17), very
him at any time prior to 1903 is also free from doubt. In similar to the present case, this court held that the
making his protest in 1904 he evidently believed that the transaction therein involved was a loan and not a
act of Congress required the payment of the 12,000 deposit. In that case, the court held:
pesos in gold and that he thereby has acquired Although in the document in question a deposit
additional rights. His construction of the act is, as we is spoken of, nevertheless from an examination
have seen, wrong. of the entire document it clearly appears that
the contract was a loan and that such was
the intention of the parties. It is
G. Involuntary insolvency of Mariano Velasco and
unnecessary to recur to the cannons of
Co., et al. COMPAÑIA AGRICOLA DE ULTRAMAR
interpretation to arrive at this conclusion. The
vs. VICENTE NEPOMUCENO
obligation of the depository to pay interest at
G.R. No. L-32778 November 14, 1930
the rate of 6 per cent to the depositor suffices to
OSTRAND, J
cause the obligation to be considered as a loan
and makes it likewise evident that it was the
FACTS
intention of the parties that the depository
The registered partnerships, Mariano Velasco & Co.,
should have the right to make use of the
Mariano Velasco, Sons, & Co., and Mariano Velasco &
amount deposited, since it was stipulated that
Co., Inc., were declared insolvent by the CFI Manila.
the amount could be collected after notice of
Compania Agricola de Ultramar [Compania] filed a claim
two months in advance. Such being the case,
against Mariano Velasco & Co. claiming the sum of
the contract lost the character of a deposit and
P10,000 [with the agreed interest at 6% per annum
acquired that of a loan. (Art. 1768, Civil Code.)
from April 5, 1918, until its full payment] was a deposit
with said Mariano Velasco & Co. Compania further asked
Court ruled similarly in the case of Javellana v Lim.
the court to declare it a preferred claim.
[Gavieres vs. De Tavera AND Javellana vs. Lim]
The Court rendered a decision declaring that the alleged
are sufficient to show that the ten thousand pesos
deposit was a preferred claim for the sum mentioned,
delivered by the appellee to Mariano Velasco & Co.
with interest at 6% per annum from April 5, 1918, until
cannot be regarded as a technical deposit, nor can it be
paid.
an "irregular deposit." In Rogers vs. Smith, Bell & Co.
From this decision the assignee appealed.
(10 Phil., 319):
The evidence presented by Compania consisted of a
. . . Manresa, in his Commentaries on the Civil
receipt in writing, and the testimony of Jose Velasco, the
41 | CREDIT TRANSACTIONS: Case Digest 1st Set
Code (vol. 11, p. 664), states that there are CBTC through its branch manager, Ceferino Jimenez,
three points of difference between a loan and Eastern, through Lim, as its President and General
and an irregular deposit. Manager. The loan was payable on demand with interest
The first difference which he points out consists at 14% per annum.
in the fact that in an irregular deposit the For this loan, Eastern issued a negotiable promissory
only benefit is that which accrues to the note for P73,000.00 payable on demand to the order of
depositor, while in a loan the essential CBTC with interest at 14% per annum, signed by Lim
cause for the transaction is the necessity both in his own capacity and as President and General
of the borrower. xxx Manager of Eastern. No reference to any security for the
Nor does the contract in question fulfill the loan appears on the note.
third requisite indicated by Manresa, which is, Eastern and Lim, and CBTC signed another document
that in an irregular deposit, the depositor entitled "Holdout Agreement," also dated 18 August
can demand the return of the article at 1978,  wherein it was stated that "as security for the
any time, while a lender is bound by the Loan [Lim and Eastern] have offered [CBTC] and the
provisions of the contract and cannot seek latter accepts a holdout on said [Current Account No.
restitution until the time for payment, as 2310-011-42 in the joint names of Lim and Velasco] to
provided in the contract, has arisen. xxx the full extent of their alleged interests therein as these
In the present case the transaction in question was may appear as a result of final and definitive judicial
clearly not for the sole benefit of the Compania; it action or a settlement between and among the
was evidently for the benefit of both parties. Neither contesting parties thereto.”
could the alleged depositor demand payment until the In the meantime, a case for the settlement of Velasco's
expiration of the term of three months. estate was filed with Branch 152 of the RTC of Pasig,
For the reasons stated, the appealed judgment is entitled "In re Intestate Estate of Mariano Velasco,"
reversed, and we hold that the transaction in question wherein the whole balance of P331,261.44 in the
must be regarded as a loan, without preference. Without aforesaid joint account of Velasco and Lim was being
costs. So ordered. claimed as part of Velasco's estate. The intestate court
granted the urgent motion of the heirs of Velasco to
H. BANK OF THE PHILIPPINE ISLANDS withdraw the deposit under the joint account of Lim and
(successor-in- interest of COMMERCIAL AND Velasco and authorized the heirs to divide among
TRUST CO.) v CA, EASTERN PLYWOOD CORP. and themselves the amount withdrawn.
BENIGNO D. LIM Sometime in 1980, CBTC was merged with BPI.
G.R. No. 104612 May 10, 1994 BPI filed with the RTC of Manila a complaint against Lim
DAVIDE, JR., J. and Eastern demanding payment of the promissory note
for P73,000.00.
FACTS: Defendants Lim and Eastern, in turn, filed a
Eastern Plywood Corporation (Eastern) and Benigno D. counterclaim against BPI for the return of the balance in
Lim (Lim), an officer and stockholder of Eastern, held at the disputed account subject of the Holdout Agreement
least one joint bank account ("and/or" account) with the and the interests thereon after deducting the amount
Commercial Bank and Trust Co. (CBTC), the due on the promissory note.
predecessor-in-interest of petitioner Bank of the RTC dismissed the complaint because BPI failed to make
Philippine Islands (BPI). out its case. It further ruled that "the promissory note in
In March 1975, Mariano Velasco opened a joint checking question is subject to the 'hold-out' agreement," and
account ("and" account) with Lim in the amount of that based on this agreement, "it was the duty of
P120,000.00 withdrawn from the account of Eastern plaintiff Bank [BPI] to debit the account of the
and/or Lim. Various amounts were later deposited or defendants under the promissory note to set off the loan
withdrawn from the joint account of Velasco and Lim. even though the same has no fixed maturity."  RTC also
The money therein was placed in the money market. denied the counterclaim because the "said claim cannot
When Velasco died on 7 April 1977, the outstanding be awarded without disturbing the resolution" of the
balance of the account stood at P662,522.87. intestate court.
LIM executed an Indemnity Undertaking for himself Both parties appealed from the said decision to the
and as President and General Manager of Eastern by Court of Appeals.
which one-half of this amount was provisionally released CA affirmed RTC decision but failed to rule on the
and transferred to one of the bank accounts of Eastern private respondents' partial appeal from the trial court's
with CBTC. denial of their counterclaim.
Thereafter Eastern obtained a loan of P73,000.00 from Upon their motion for reconsideration, CA ruled that the
CBTC as "Additional Working Capital," evidenced by settlement of Velasco's estate had nothing to do with
the "Disclosure Statement on Loan/Credit the claim of the defendants for the return of the balance
Transaction" (Disclosure Statement) signed by of their account with CBTC/BPI as they were not privy to
42 | CREDIT TRANSACTIONS: Case Digest 1st Set
that case, and that the defendants, as depositors of provides is an alternative, not an exclusive, method of
CBTC/BPI, are the latter's creditors; hence, CBTC/BPI enforcing its claim on the note. When it demanded
should have protected the defendants' interest in Sp. payment of the debt directly from Eastern and Lim, BPI
Proc. No. 8959 when the said account was claimed by had opted not to exercise its right to apply part of the
Velasco's estate. It then ordered BPI "to pay defendants deposit subject of the Holdout Agreement to the
the amount of P331,261.44 representing the outstanding payment of the promissory note for P73,000.00. Its suit
balance in the bank account of defendants." for the enforcement of the note was then in order and it
was error for the trial court to dismiss it on the theory
BPI claims that Holdout Agreement was subject to a that it was set off by an equivalent portion in C/A No.
suspensive condition stated therein, viz., that the 2310-001-42 which BPI should have debited. The Court
"P331,261.44 shall become a security for respondent of Appeals also erred in affirming such dismissal.
Lim's promissory note only if respondents' Lim and The "suspensive condition" theory of the petitioner is,
Eastern Plywood Corporation's interests to that amount therefore, untenable.
are established as a result of a final and definitive
judicial action or a settlement between and among the [2] W/N BPI is still liable to the private
contesting parties thereto." Hence, BPI asserts, the respondents on the account subject of the
Court of Appeals erred in affirming the trial court's Holdout Agreement after its withdrawal by the
decision dismissing the complaint on the ground that it heirs of Velasco. – YES
was the duty of CBTC to debit the account of the Article 1980 of the Civil Code expressly provides that
defendants to set off the amount of P73,000.00 covered "[f]ixed, savings, and current deposits of money in
by the promissory note. banks and similar institutions shall be governed by the
Eastern and Lim dispute the "suspensive condition" provisions concerning simple loan."
argument of the petitioner. They interpret the findings of In Serrano vs. Central Bank of the Philippines, we
both the trial and appellate courts that the money held that bank deposits are in the nature of
deposited in the joint account of Velasco and Lim came irregular deposits; they are really loans because
from Eastern and Lim's own account as a finding that they earn interest. The relationship then between a
the money deposited in the joint account of Lim and depositor and a bank is one of creditor and debtor. The
Velasco "rightfully belong[ed] to Eastern Plywood deposit under the questioned account was an ordinary
Corporation and/or Benigno Lim." And because the latter bank deposit; hence, it was payable on demand of the
are the rightful owners of the money in question, the depositor.
suspensive condition does not find any application in this The account was proved and established to belong to
case and the bank had the duty to set off this deposit Eastern even if it was deposited in the names of Lim and
with the loan. They add that the ruling of the lower Velasco. As the real creditor of the bank, Eastern has
court that they own the disputed amount is the final and the right to withdraw it or to demand payment thereof.
definitive judicial action required by the Holdout BPI cannot be relieved of its duty to pay Eastern simply
Agreement; hence, the petitioner can only hold the because it already allowed the heirs of Velasco to
amount of P73,000.00 representing the security required withdraw the whole balance of the account. BPI should
for the note and must return the rest. not have allowed such withdrawal because it had
ISSUES: admitted in the Holdout Agreement the questioned
[1] W/N BPI can demand payment of the loan of ownership of the money deposited in the account. As
P73,000.00 despite the existence of the Holdout early as 12 May 1979, CBTC was notified by the
Agreement – YES Corporate Secretary of Eastern that the deposit in the
It is clear from paragraph 02 thereof that CBTC, or BPI joint account of Velasco and Lim was being claimed by
as its successor-in-interest, had every right to them and that one-half was being claimed by the heirs
demand that Eastern and Lim settle their liability of Velasco.
under the promissory note. It cannot be compelled Moreover, the order of the intestate court merely
to retain and apply the deposit in Lim and Velasco's joint authorized the heirs of Velasco to withdraw the account.
account to the payment of the note. What the BPI was not specifically ordered to release the account
agreement conferred on CBTC was a power, not a duty. to the said heirs; hence, it was under no judicial
Generally, a bank is under no duty or obligation to make compulsion to do so.
the application. To apply the deposit to the payment of a Because the ownership of the deposit remained
loan is a privilege, a right of set-off which the bank has undetermined, BPI, as the debtor with respect thereto,
the option to exercise. had no right to pay to persons other than those in
Also, paragraph 05 of the Holdout Agreement itself whose favor the obligation was constituted or
states that notwithstanding the agreement, CBTC was whose right or authority to receive payment is
not in any way precluded from demanding indisputable. The payment of the money deposited
payment from Eastern and from instituting an with BPI that will extinguish its obligation to the creditor-
action to recover payment of the loan. What it depositor is payment to the person of the creditor or to
43 | CREDIT TRANSACTIONS: Case Digest 1st Set
one authorized by him or by the law to receive it. Sydney.
Payment made by the debtor to the wrong party When the petitioners arrived in Australia, in the
does not extinguish the obligation as to the presence of other delegates, they were not allowed to
creditor who is without fault or negligence, even registered because the foreign exchange demand draft
if the debtor acted in utmost good faith and by for their registration fee had been dishonored for the
mistake as to the person of the creditor, or second time. Gregorio asked the member of the
through error induced by fraud of a third person.  secretariat that he be shown the foreign exchange
The payment then by BPI to the heirs of Velasco, even if demand draft that has been dishonored after which he
done in good faith, did not extinguish its obligation to promised that he would pay the registration fees in
the true depositor, Eastern. cash. In the meantime, he demanded that he be given
his name plate and conference kit.
I. Metrobank vs BA Fiance Petitioners filed a complaint for damages against the
respondent bank.
J. Reyes vs. CA TC: rendered judgment in favor of the defendant and
G.R. No. 118492       August 15, 2001 against the plaintiffs.
De Leon Jr. CA: affirmed the decision
ISSUE:
FACTS: WoN the bank was negligent
In view of the 20 th Asian Racing Conference scheduled
to be held in Sydney, Australia, the Philippine Racing HELD:
Club, Inc. (PRCI) sent 4 delegates to the conference. NO.
Petitioner Reyes, VP for Finance, sent Godofredo Reyes, The courts a quo found that respondent bank did not
the club’s cashier to Far East Bank to apply for a foreign misrepresent that it was maintaining a deposit account
exchange demand draft in Australian dollars. with Westpac-Sydney.
Initially, the respondent bank’s cashier denied the Respondent bank's assistant cashier explained to
application since the bank did not have an Australian Godofredo Reyes, representing PRCI and petitioner
dollar account in any bank. But the cashier informed Gregorio H. Reyes, how the transfer of Australian dollars
Godofredo of a roundabout way of effecting the would be effected through Westpac-New York where the
requested remittance to Sydney: the respondent bank respondent bank has a dollar account to Westpac-
would draw a demand draft against Wespac Bank in Sydney where the subject foreign exchange demand
Sydnety (Westpac-Sydney) and have the latter draft (FXDD No. 209968) could be encashed by the
reimburse itself from the US dollar account of the payee, the 20th Asian Racing Conference Secretariat.
respondent in Westpac Bank in New York, U.S.A. PRCI and its Vice-President for finance, petitioner
That arrangement was customarily resorted to since the Gregorio H. Reyes, through their said representative,
19060’s and the procedure was proven to be problem- agreed to that arrangement or procedure.
free. PRCI agreed to this arrangement in order to effect In other words, the petitioners are estopped from
the urgent transfer of Australian dollars payable to the denying the said arrangement or procedure. Similar
Secretariat of the 20th Asian Racing Conference. arrangements have been a long standing practice in
Upon due presentment of the foreign exchange demand banking to facilitate international commercial
draft, the same was dishonored with the notice of transactions.
dishonor stating that “No account held with Westpac.” In fact, the SWIFT cable message sent by respondent
Meanwhile, Westpac New York sent a cable to bank to the drawee bank, Westpac-Sydney, stated that
respondent Bank informing the latter that its dollar it may claim reimbursement from its New York branch,
account was debited for the amount of AU$1,610. Westpac-New York, where respondent bank has a
In response to PRCI's complaint about the dishonor of deposit dollar account. The facts as found by the courts
the said foreign exchange demand draft, respondent a quo show that respondent bank did not cause an
bank informed Westpac-Sydney of the issuance of the erroneous transmittal of its SWIFT cable message to
said demand draft FXDD No. 209968, drawn against the Westpac-Sydney. It was the erroneous decoding of the
Wespac-Sydney and informing the latter to be cable message on the part of Westpac-Sydney that
reimbursed from the respondent bank's dollar account in caused the dishonor of the subject foreign exchange
Westpac-New York. The respondent bank on the same demand draft.
day likewise informed Wespac-New York requesting the The evidence also shows that the respondent bank
latter to honor the reimbursement claim of Wespac- exercised that degree of diligence expected of an
Sydney. ordinary prudent person under the circumstances
Upon its second presentment for payment, FXDD No. obtaining. Prior to the first dishonor of the subject
209968 was again dishonored by Westpac-Sydney for foreign exchange demand draft, the respondent bank
the same reason, that is, that the respondent bank has advised Westpac-New York to honor the reimbursement
no deposit dollar account with the drawee Wespac- claim of Westpac-Sydney and to debit the dollar account
44 | CREDIT TRANSACTIONS: Case Digest 1st Set
of respondent bank with the former. As soon as the In I.S. No. 81-31938, David charged petitioners
demand draft was dishonored, the respondent bank, (together with one Robert Marshall and the following
thinking that the problem was with the reimbursement directors of the Nation Savings and Loan Association,
and without any idea that it was due to Inc., namely Homero Gonzales, Juan Merino, Flavio
miscommunication, re-confirmed the authority of Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V.
Westpac-New York to debit its dollar account for the Paz, Paulino B. Dionisio, and one John Doe) with estafa
purpose of reimbursing Westpac-Sydney. Respondent and violation of Central Bank Circular No. 364 and
bank also sent two (2) more cable messages to related Central Bank regulations on foreign exchange
Westpac-New York inquiring why the demand draft was transactions, allegedly committed as follows (Petition,
not honored. Annex "A"):têñ.£îhqwâ£
In Philippine Bank of Commerce v. Court of Appeals15
upholding a long standing doctrine, we ruled that the CLEMENT DAVID: "From March 20, 1979 to March,
degree of diligence required of banks, is more than that 1981, David invested with the Nation Savings and Loan
of a good father of a family where the fiduciary nature Association, (hereinafter called NSLA) the sum of
of their relationship with their depositors is concerned. P1,145,546.20 on nine deposits, P13,531.94 on savings
In other words banks are duty bound to treat the account deposits (jointly with his sister, Denise Kuhne),
deposit accounts of their depositors with the highest US$10,000.00 on time deposit, US$15,000.00 under a
degree of care. But the said ruling applies only to cases receipt and guarantee of payment and US$50,000.00
where banks act under their fiduciary capacity, that is, under a receipt dated June 8, 1980 (au jointly with
as depositary of the deposits of their depositors. But the Denise Kuhne), that David was induced into making the
same higher degree of diligence is not expected to be aforestated investments by Robert Marshall an
exerted by banks in commercial transactions that do not Australian national who was allegedly a close associate
involve their fiduciary relationship with their depositors. of petitioner Guingona Jr., then NSLA President,
Considering the foregoing, the respondent bank was not petitioner Martin, then NSLA Executive Vice-President of
required to exert more than the diligence of a good NSLA and petitioner Santos, then NSLA General
father of a family in regard to the sale and issuance of Manager; that on March 21, 1981 N LA was placed
the subject foreign exchange demand draft. The case at under receivership by the Central Bank, so that David
bar does not involve the handling of petitioners' deposit, filed claims therewith for his investments and those of
if any, with the respondent bank. Instead, the his sister; that on July 22, 1981 David received a report
relationship involved was that of a buyer and seller, that from the Central Bank that only P305,821.92 of those
is, between the respondent bank as the seller of the investments were entered in the records of NSLA; that,
subject foreign exchange demand draft, and PRCI as the therefore, the respondents in I.S. No. 81-31938
buyer of the same, with the 20th Asian Racing misappropriated the balance of the investments, at the
conference Secretariat in Sydney, Australia as the payee same time violating Central Bank Circular No. 364 and
thereof. As earlier mentioned, the said foreign exchange related Central Bank regulations on foreign exchange
demand draft was intended for the payment of the transactions; that after demands, petitioner Guingona Jr.
registration fees of the petitioners as delegates of the paid only P200,000.00, thereby reducing the amounts
PRCI to the 20th Asian Racing Conference in Sydney. misappropriated to P959,078.14 and US$75,000.00."
In any event, it was established that the respondent
bank acted in good faith and that it did not cause the MARTIN AND SANTOS: "That Martin became
embarrassment of the petitioners in Sydney, Australia. President of NSLA in March 1978 (after the resignation
Hence, the Court of Appeals did not commit any of Guingona, Jr.) and served as such until October 30,
reversable error in its challenged decision. 1980, while Santos was General Manager up to
November 1980; that because NSLA was urgently in
K. TEOFISTO GUINGONA, JR., ANTONIO I. need of funds and at David's insistence, his investments
MARTIN, and TERESITA SANTOS, petitioners,  were treated as special- accounts with interest above
vs. the legal rate, an recorded in separate confidential
THE CITY FISCAL OF MANILA, HON. JOSE B. documents only a portion of which were to be reported
FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. because he did not want the Australian government to
LOTA and CLEMENT DAVID, respondents. tax his total earnings (nor) to know his total
investments; that all transactions with David were
MAKASIAR, Actg. C.J.:ñé+.£ªwph!1 recorded except the sum of US$15,000.00 which was a
personal loan of Santos; that David's check for
FACTS: On December 23,1981, private respondent US$50,000.00 was cleared through Guingona, Jr.'s dollar
David filed I.S. No. 81-31938 in the Office of the City account because NSLA did not have one, that a draft of
Fiscal of Manila, which case was assigned to respondent US$30,000.00 was placed in the name of one Paz Roces
Lota for preliminary investigation (Petition, p. 8). because of a pending transaction with her; that the
Philippine Deposit Insurance Corporation had already
45 | CREDIT TRANSACTIONS: Case Digest 1st Set
reimbursed David within the legal limits; that majority of and the inclusion of other deposits of private
the stockholders of NSLA had filed Special Proceedings respondent's sister in the amount of P116,613.20.
No. 82-1695 in the Court of First Instance to contest its
(NSLA's) closure; that after NSLA was placed under It must be pointed out that when private respondent
receivership, Martin executed a promissory note in David invested his money the contract that was
David's favor and caused the transfer to him of a nine perfected was a contract of simple loan
and on behalf (9 1/2) carat diamond ring with a net or mutuum and not a contract of deposit. Thus,
value of P510,000.00; and, that the liabilities of NSLA to Article 1980 of the New Civil Code provides that: têñ.
David were civil in nature." £îhqwâ£

GUINGONA: "That he had no hand whatsoever in the Article 1980. Fixed, savings, and current
transactions between David and NSLA since he deposits of-money in banks and similar
(Guingona Jr.) had resigned as NSLA president in March institutions shall be governed by the
1978, or prior to those transactions; that he assumed a provisions concerning simple loan.
portion o; the liabilities of NSLA to David because of the
latter's insistence that he placed his investments with Hence, the relationship between the private respondent
NSLA because of his faith in Guingona, Jr.; that in a and the Nation Savings and Loan Association is that of
Promissory Note dated June 17, 1981 (Petition, Annex creditor and debtor; consequently, the ownership of the
"D") he (Guingona, Jr.) bound himself to pay David the amount deposited was transmitted to the Bank upon the
sums of P668.307.01 and US$37,500.00 in stated perfection of the contract and it can make use of the
installments; that he (Guingona, Jr.) secured payment of amount deposited for its banking operations, such as to
those amounts with second mortgages over two (2) pay interests on deposits and to pay withdrawals. While
parcels of land under a deed of Second Real Estate the Bank has the obligation to return the amount
Mortgage (Petition, Annex "E") in which it was provided deposited, it has, however, no obligation to return or
that the mortgage over one (1) parcel shall be cancelled deliver the same money that was deposited. And, the
upon payment of one-half of the obligation to David; failure of the Bank to return the amount deposited will
that he (Guingona, Jr.) paid P200,000.00 and tendered not constitute estafa through misappropriation
another P300,000.00 which David refused to accept, punishable under Article 315, par. l(b) of the Revised
hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in Penal Code, but it will only give rise to civil liability over
the Court of First Instance of Rizal at Quezon City, to which the public respondents have no- jurisdiction.
effect the release of the mortgage over one (1) of the
two parcels of land conveyed to David under second
In simple loan (mutuum), as contrasted to commodatum
mortgages."
the borrower acquires ownership of the money, goods or
personal property borrowed Being the owner, the
ISSUE: whether or not public respondents acted borrower can dispose of the thing borrowed (Article 248,
without jurisdiction when they investigated the charges Civil Code) and his act will not be considered
(estafa and violation of CB Circular No. 364 and related misappropriation thereof'.
regulations regarding foreign exchange transactions)
subject matter of I.S. No. 81-31938.
But even granting that the failure of the bank to pay the
time and savings deposits of private respondent David
RULING: There is merit in the contention of the would constitute a violation of paragraph 1(b) of Article
petitioners that their liability is civil in nature and 315 of the Revised Penal Code, nevertheless any
therefore, public respondents have no jurisdiction over incipient criminal liability was deemed avoided, because
the charge of estafa. when the aforesaid bank was placed under receivership
by the Central Bank, petitioners Guingona and Martin
Records reveal that when the aforesaid bank was placed assumed the obligation of the bank to private
under receivership on March 21, 1981, petitioners respondent David, thereby resulting in the novation of
Guingona and Martin, upon the request of private the original contractual obligation arising from deposit
respondent David, assumed the obligation of the bank to into a contract of loan and converting the original trust
private respondent David by executing on June 17, 1981 relation between the bank and private respondent David
a joint promissory note in favor of private respondent into an ordinary debtor-creditor relation between the
acknowledging an indebtedness of Pl,336,614.02 and petitioners and private respondent. Consequently, the
US$75,000.00 (p. 80, rec.). This promissory note was failure of the bank or petitioners Guingona and
based on the statement of account as of June 30, 1981 Martin to pay the deposits of private respondent
prepared by the private respondent (p. 81, rec.). The would not constitute a breach of trust but would
amount of indebtedness assumed appears to be bigger merely be a failure to pay the obligation as a
than the original claim because of the added interest debtor.
46 | CREDIT TRANSACTIONS: Case Digest 1st Set
Moreover, while it is true that novation does not property (hereinafter referred to as the BASECO
extinguish criminal liability, it may however, prevent the property) situated at Mariveles, Bataan and formerly
rise of criminal liability as long as it occurs prior to the registered and titled in the name of either the Bataan
filing of the criminal information in court. Shipyard and Engineering Corporation (BASECO), the
Philippine Dockyard Corporation or the Baseco Drydock
In the case at bar, there is no dispute that petitioners and Construction Co., Inc..
Guingona and Martin executed a promissory note on Pursuant to Presidential Decree No. 464, otherwise
June 17, 1981 assuming the obligation of the bank to known as the Real Property Tax Code of 1974, the
private respondent David; while the criminal complaint Provincial Treasurer of Bataan advertised for auction
for estafa was filed on December 23, 1981 with the sale the BASECO property due to real estate tax
Office of the City Fiscal. Hence, it is clear that novation delinquency amounting to P7,914,281.72.
occurred long before the filing of the criminal complaint
with the Office of the City Fiscal. No bidder vied for said property, the Provincial Treasurer
of Bataan adjudged the property to, and acquired the
Consequently, as aforestated, any incipient criminal same for, and in the name of herein petitioner Province
liability would be avoided but there will still be a civil of Bataan. Upon the expiration of the one-year
liability on the part of petitioners Guingona and Martin to redemption period, and without the owner exercising its
pay the assumed obligation. right to such, the Provincial Government of Bataan
consolidated its title thereon.
Petitioners herein were likewise charged with violation Petitioner entered into a ten-year contract of lease with
of Section 3 of Central Bank Circular No. 364 and 7-R Port Services, Inc., whereby portions of the BASECO
other related regulations regarding foreign property, were leased to the latter for a minimum
exchange transactions by accepting foreign escalating annual rental of P18 million. Petitioner forged
currency deposit in the amount of US$75,000.00 another contract of lease with Marina Port Services, over
without authority from the Central Bank. They contend a ten-hectare portion of the BASECO property.
however, that the US dollars intended by
The Presidential Commission on Good Government
respondent David for deposit were all converted
(PCGG) filed with the RTC-Bataan a complaint for
into Philippine currency before acceptance and
annulment of sale, assailing the validity of the tax
deposit into Nation Savings and Loan Association.
delinquency sale of the BASECO property in favor of
petitioner Province of Bataan.
In conclusion, considering that the liability of the
petitioners is purely civil in nature and that there is no The PCGG filed with the lower court an "Urgent Motion
clear showing that they engaged in foreign to Deposit Lease Rentals," alleging inter alia that the
exchange transactions, We hold that the public rentals amounting to "Hundreds of Millions of Pesos" are
respondents acted without jurisdiction when they "in danger of being unlawfully spent, squandered and
investigated the charges against the petitioners. dissipated to the great and irreparable damage of
Consequently, public respondents should be restrained plaintiffs who are the rightful owners of the property
from further proceeding with the criminal case for to leased."
allow the case to continue, even if the petitioners could
have appealed to the Ministry of Justice, would work
great injustice to petitioners and would render RTC decision:
meaningless the proper administration of justice. Lower court granted the PCGG’s urgent motion:

Petition is GRANTED. "ACCORDINGLY, the defendant Province of

Bataan is hereby ordered to remit to this Court
L. THE PROVINCE OF BATAAN, petitioner- the lease rentals it may receive from the
appellant,  defendant 7-R Port Services, Inc. and the Marina
vs. Port Services, Inc. to commence from its receipt
HON. PEDRO VILLAFUERTE, JR., as Presiding of this Order and for the Clerk of Court of this
Judge of the Regional Trial Court of Bataan Branch to deposit said amount under special
(Branch 4), and THE PRESIDENTIAL time deposit with the Land Bank of the
COMMISSION ON GOOD Philippines, in the name and/or account of this
GOVERNMENT, respondents-appellees. Court to be held in ESCROW for the person or
persons, natural or juridical, who may be finally
BUENA, J.: adjudged lawfully entitled thereto, and subject
Facts: to further orders from this Court."

Involved in the present controversy is an expanse of real The CA decision: dismissed the petition.
47 | CREDIT TRANSACTIONS: Case Digest 1st Set
Petitioner’s Contention: A. DURBAN APARTMENTS CORPORATION vs
PIONEER INSURANCE AND SURETY
1. That the respondent judge acted without
CORPORATION
jurisdiction or with grave abuse of discretion in
ordering the deposit in escrow of the rental
G.R. No. 179419 January 12, 2011
payments pertaining to the petitioner province."
NACHURA, J.:
A. That the issuance of the escrow order by
the trial court "was patently irregular, if not
Facts: Pioneer Insurance and Surety Corporation, by
downright anomalous", reasoning that
right of subrogation, filed a Complaint for Recovery of
"nowhere in the Revised Rules of Court is
Damages against Durban Apartment Corporation.
the trial court, or any court for that matter,
Pioneer Insurance and Surety Corporation is the insurer
authorized to issue such escrow order,
of Jeffrey S. See,’s 2001 Suzuki Grand Vitara. Loss
whether as a provisional or permanent
occured when See‘s Vitara was carnapped while it was in
remedy."
the possession of petitioner Durban Apartment Hotel.
B. That "the escrow orders in question are null
RTC: Ordered Durban to pay the “sum of P1,163,250.00
and void ab initio for having been issued
with legal interest thereon from July 22, 2003 until the
absent any legal basis" and are "merely
obligation is fully paid and attorney’s fees and litigation
calculated to prejudice the petitioner
expenses amounting to P120,000.00.”  
province without any practical or
worthwhile, much less legal objective."
CA: Affirmed the decision of RTC

Issue: WON there exist a contract of deposit. YES

Issue: Whether or not the escrow orders (ordering the
deposit of the rental payments in escrow) are void.
Held: In this case, respondent substantiated the
(NO).
allegations in its complaint, i.e., a contract of necessary
deposit existed between the insured See and petitioner.
On this score, we find no error in the following
Ruling:
disquisition of the appellate court:
An escrow is a written instrument which by its terms  
imports a legal obligation and which is deposited by the [The] records also reveal that upon arrival at the
grantor, promisor, or obligor, or his agent with a City Garden Hotel, See gave notice to the doorman
stranger or third party, to be kept by the depositary until and parking attendant of the said hotel, x x x
the performance of a condition or the happening of a Justimbaste, about his Vitara when he entrusted its
certain event, and then to be delivered over to the ignition key to the latter. x x x Justimbaste issued a
grantee, promisee, or obligee. valet parking customer claim stub to See, parked
the Vitara at the Equitable PCI Bank parking area,
The term escrow is not limited in its application to
and placed the ignition key inside a safety key box
deeds, but is applied to the deposit of any written
while See proceeded to the hotel lobby to check in.
instrument with a third person. Moreover, it is no longer
The Equitable PCI Bank parking area became an
open to question that money may be delivered in
annex of City Garden Hotel when the management
escrow.
of the said bank allowed the parking of the vehicles
The lower court, in the course of adjudicating and of hotel guests thereat in the evening after banking
resolving the issues presented in the main suit, is clearly hours.
empowered to control the proceedings therein through  
the adoption, formulation and issuance of orders and Article 1962, in relation to Article 1998, of the Civil Code
other ancillary writs, including the authority to place the defines a contract of deposit and a necessary deposit
properties in custodia legis, for the purpose of made by persons in hotels or inns:
effectuating its judgment or decree and protecting
further the interests of the rightful claimants of the Art. 1962. A deposit is constituted from the moment a
subject property. Petition is denied for lack of merit. 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
III. NECESSARY DEPOSIT principal purpose of the contract, there is no deposit but
some other contract.
 
Art. 1998. The deposit of effects made by travelers in
48 | CREDIT TRANSACTIONS: Case Digest 1st Set
hotels or inns shall also be regarded as necessary. The the possession of the management of the hotel.
keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, When he left for Hongkong for a short trip, he
or to their employees, of the effects brought by the discovered that some of the money he kept in the safety
guests and that, on the part of the latter, they take the box was missing. Since he had no idea whether
precautions which said hotel-keepers or their substitutes somebody else had tampered with his safety deposit
advised relative to the care and vigilance of their effects. box, he thought that it was just a result of bad
  accounting since he did not spend anything from that
  envelope. He came back to Manila afterwards and
Plainly, from the facts found by the lower courts, the returned to the hotel. Subsequently, after checking out
insured See deposited his vehicle for safekeeping with of the hotel, he discovered that the envelope with Ten
petitioner, through the latters employee, Justimbaste. In Thousand US Dollars (US$10,000.00) was short of Five
turn, Justimbaste issued a claim stub to See. Thus, the Thousand US Dollars (US$5,000). He also noticed that
contract of deposit was perfected from Sees the jewelry which he bought in Hongkong and stored in
delivery, when he handed over to Justimbaste the the safety deposit box upon his return to Tropicana was
keys to his vehicle, which Justimbaste received likewise missing, except for a diamond bracelet.
with the obligation of safely keeping and
returning it. Ultimately, petitioner is liable for the When McLoughlin discovered the loss, he immediately
loss of Sees vehicle. confronted Lainez and Payam who admitted that Tan
opened the safety deposit box with the key assigned to
him. McLoughlin went up to his room where Tan was
Contention: staying and confronted her. Tan admitted that she had
Respondent: Pioneer alleged that the loss was an stolen McLoughlins key and was able to open the safety
offshoot of the hotel’s negligence and accordingly filed a deposit box with the assistance of Lopez, Payam and
claim by means of subrogation, against the hotel and its Lainez. Lopez also told McLoughlin that Tan stole the
parking valet. It was established that there was a key assigned to McLoughlin while the latter was asleep.
previous similar incident and yet no “no necessary
precautions were taken to prevent its repetition Private Respondent’s contention: it must be the hotel
xxx”.  Pioneer argued that the hotel was “was wanting in who must assume responsibility for the loss he suffered.
due diligence in the selection and supervision of its Petitioner’s contention: they refused to accept the
employees particularly its parking valet.” responsibility relying on the conditions for renting the
safety deposit box entitled Undertaking For the Use Of
Petitioner: The Hotel argued that the insured was not Safety Deposit Box, specifically paragraphs (2) and (4)
a guest of the hotel but a visitor therein, that its valet thereof, to wit:
did not get his keys but it was the insured who
requested him to find a space wherever one was 2. To release and hold free and blameless TROPICANA
available, that valet parking was provided for APARTMENT HOTEL from any liability arising from any
convenience of its customers and that it was a special loss in the contents and/or use of the said deposit box
privilege that was given to the insured.  The vehicle was for any cause whatsoever, including but not limited to
taken without using the key which was even turned over the presentation or use thereof by any other person
to the owner. Its valet even tried to run after the should the key be lost;
carnappers to no avail. ...
4. To return the key and execute the RELEASE in favor
of TROPICANA APARTMENT HOTEL upon giving up the
B. YHT REALTY CORPORATION, ERLINDA LAINEZ use of the box.
and ANICIA PAYAM, petitioners, vs. THE COURT RTC and CA: in favor of McLoughlins
OF APPEALS and MAURICE The trial court found that defendants acted with gross
McLOUGHLIN, respondents. negligence in the performance and exercise of their
[G.R. No. 126780. February 17, 2005] duties and obligations as innkeepers and were therefore
TINGA, J.: liable to answer for the losses incurred by McLoughlin.
FACTS: Private respondent McLoughlin, an
Australian businessman-philanthropist, arrived from Moreover, the trial court ruled that paragraphs (2) and
Australia and registered with Tropicana Hotel. He rented (4) of the Undertaking For The Use Of Safety Deposit
a safety deposit box. As a tourist, McLoughlin was aware Box are not valid for being contrary to the express
of the procedure observed by Tropicana relative to its mandate of Article 2003 of the New Civil Code and
safety deposit boxes. The safety deposit box could only against public policy.  Thus, there being fraud or wanton
be opened through the use of two keys, one of which is conduct on the part of defendants, they should be
given to the registered guest, and the other remaining in responsible for all damages which may be attributed to
49 | CREDIT TRANSACTIONS: Case Digest 1st Set
the non-performance of their contractual obligations.
Article 2003, thus: RULING: NO. The justification that petitioners raise
would render nugatory the public interest sought to be
Art. 2003. The hotel-keeper cannot free himself from protected by the provision. What if the negligence of the
responsibility by posting notices to the effect that he is employer or its employees facilitated the consummation
not liable for the articles brought by the guest. Any of a crime committed by the registered guests relatives
stipulation between the hotel-keeper and the guest or visitor? Should the law exculpate the hotel from
whereby the responsibility of the former as set forth in liability since the loss was due to the act of the visitor of
Articles 1998 to 2001 is suppressed or diminished shall the registered guest of the hotel? Hence, this provision
be void. presupposes that the hotel-keeper is not guilty of
concurrent negligence or has not contributed in any
ISSUE: whether or not a hotel may evade liability for degree to the occurrence of the loss. A depositary is not
the loss of items left with it for safekeeping by its responsible for the loss of goods by theft, unless his
guests, by having these guests execute written waivers actionable negligence contributes to the loss.
holding the establishment or its employees free from
blame for such loss in light of Article 2003 of the Civil In the case at bar, the responsibility of securing the
Code which voids such waivers. safety deposit box was shared not only by the guest
himself but also by the management since two keys are
RULING: No. Article 2003 was incorporated in the New necessary to open the safety deposit box. Without the
Civil Code as an expression of public policy precisely to assistance of hotel employees, the loss would not have
apply to situations such as that presented in this case. occurred.
The hotel business like the common carriers business is
imbued with public interest. Catering to the public, Thus, Tropicana was guilty of concurrent negligence in
hotelkeepers are bound to provide not only lodging for allowing Tan, who was not the registered guest, to open
hotel guests and security to their persons and the safety deposit box of McLoughlin, even assuming
belongings. The twin duty constitutes the essence of the that the latter was also guilty of negligence in allowing
business. The law in turn does not allow such duty to another person to use his key. To rule otherwise would
the public to be negated or diluted by any contrary result in undermining the safety of the safety deposit
stipulation in so-called undertakings that ordinarily boxes in hotels for the management will be given
appear in prepared forms imposed by hotel keepers on imprimatur to allow any person, under the pretense of
guests for their signature. being a family member or a visitor of the guest, to have
access to the safety deposit box without fear of any
Paragraphs (2) and (4) of the undertaking manifestly liability that will attach thereafter in case such person
contravene Article 2003 of the New Civil Code for they turns out to be a complete stranger. This will allow the
allow Tropicana to be released from liability arising from hotel to evade responsibility for any liability incurred by
any loss in the contents and/or use of the safety deposit its employees in conspiracy with the guests relatives and
box for any cause whatsoever. Evidently, the visitors.
undertaking was intended to bar any claim against
Tropicana for any loss of the contents of the safety Management Contention in relation to the second issue:
deposit box whether or not negligence was incurred by The management contends, however, that McLoughlin,
Tropicana or its employees. by his act, made its employees believe that Tan was his
spouse for she was always with him most of the time.
The New Civil Code is explicit that the responsibility of The evidence on record, however, is bereft of any
the hotel-keeper shall extend to loss of, or injury to, the showing that McLoughlin introduced Tan to the
personal property of the guests even if caused by management as his wife. Such an inference from the act
servants or employees of the keepers of hotels or inns of McLoughlin will not exculpate the petitioners from
as well as by strangers, except as it may proceed from liability in the absence of any showing that he made the
any force majeure. It is the loss through force management believe that Tan was his wife or was duly
majeure that may spare the hotel-keeper from liability. authorized to have access to the safety deposit box.
In the case at bar, there is no showing that the act of Mere close companionship and intimacy are not enough
the thief or robber was done with the use of arms or to warrant such conclusion considering that what is
through an irresistible force to qualify the same as force involved in the instant case is the very safety of
majeure. McLoughlins deposit.
---------------------------------------------------------------------
ISSUE: Whether or not Article 2002 , which exempts -------------------------------------------------------------------
the hotel-keeper from liability if the loss is due to the Under Article 1170 of the New Civil Code, those who, in
acts of his guest, his family, or visitors, is applicable in the performance of their obligations, are guilty of
this case. negligence, are liable for damages. As to who shall bear
50 | CREDIT TRANSACTIONS: Case Digest 1st Set
the burden of paying damages, Article 2180, paragraph respondent and likewise came to know that the
(4) of the same Code provides that the owners and subject property was mortgaged by Macy to the
managers of an establishment or enterprise are respondent bank.
likewise responsible for damages caused by their  To protect their interests over the subject property,
employees in the service of the branches in which the petitioners lodged an action in court against Macy
latter are employed or on the occasion of their functions. and the respondent bank for Annulment of Title,
Also, this Court has ruled that if an employee is found Deed of Absolute Sale and Deed of Mortgage.
negligent, it is presumed that the employer was  Respondent bank in utter bad faith, foreclosed the
negligent in selecting and/or supervising him for it is subject property on June 11, 1996 without due
hard for the victim to prove the negligence of such notice to the petitioners.
employer.[35]Thus, given the fact that the loss of  Petitioner prayed for the issuance of a temporary
McLoughlins money was consummated through the restraining order and/or writ of preliminary
negligence of Tropicanas employees in allowing Tan to injunction.
open the safety deposit box without the guests consent,  RTC: granted the application of the petitioner for a
both the assisting employees and YHT Realty writ of preliminary injunction.
Corporation itself, as owner and operator of Tropicana,  CA: overturned the RTC order and granted the
should be held solidarily liable pursuant to Article 2193. issuance of a preliminary injunction to restrain
[36]
petitioner from proceeding with the foreclosure and
the consolidation of title over the subject property.
The CA ruled that respondents had title to and
IV. SEQUESTRATION OR JUDICIAL DEPOSIT
possession of the property and were deprived
thereof by petitioner.
ISSUE: WON the appellate court erred in issuing a
A. Los Baňos Rural Bank, Inc. vs Africa
writ of preliminary injunction to stop petitioner’s
consolidation of its title to the subject property.
A writ of preliminary injunction is issued to preserve the
HELD: NO. Injunction is a preservative remedy
status quo ante, upon an applicant’s showing of two
aimed at no other purpose than to protect the
important requisite conditions; namely, (1) the right to
complainants substantive rights and interests during the
be protected exists prima facie, and (2) the acts sought
pendency of the principal action. A preliminary
to be enjoined are violative of that right. It must be
injunction, as the term itself suggests, is merely
proven that the violation sought to be prevented would
temporary. It is to be resorted to only when there is a
cause an irreparable injustice.
pressing necessity to avoid injurious consequences that
FACTS:
cannot be remedied under any standard of
 Petitioner Pacita Africa (Pacita for brevity) is the
compensation.
widow of Alberto Africa and the rest of her co-
Moreover, injunction, like other equitable
petitioners are their children.
remedies, should be issued only at the instance of a
 Due to fire in Register of Deeds, some of its
suitor who has sufficient interest in or title to the right or
records/documents were destroyed. Among which
the property sought to be protected. It is proper only
was the original Transfer Certificate of Title (TCT)
when the plaintiff appears to be entitled to the relief
No. 203492 covering a parcel of land situated in
demanded in the complaint. In particular, the existence
Diliman, Quezon City, and registered in the name of
of the right and the violation thereof must appear in the
petitioner Pacita.
allegations of the complaint and must constitute at least
 On request of Pacita, private respondent Macy
a prima facie showing of a right to the final relief. Thus,
Africa, the common-law wife of petitioner Antonio
there are two requisite conditions for the issuance of a
Africa, worked for the reconstitution of the said
preliminary injunction, namely, (1) the right to be
document.
protected exists prima facie, and (2) the acts sought to
 The same was done and a new TCT was issued in
be enjoined are violative of that right. It must be proven
the name of Pacita.
that the violation sought to be prevented would cause
 While the reconstituted title was in her possession,
an irreparable injustice.
Macy allegedly forged, or caused the forgery of,
Existence of the Right: Respondents possess the right
Pacitas signature on a Deed of Absolute Sale dated
to prevent petitioner from consolidating the title in its
December 29, 1992, purporting to transfer
name.
ownership of the subject property to Macy.
Respondent Pacita Africa is the registered owner of the
 On the strength of the forged Deed of Absolute Sale,
subject property. Her ownership is evidenced by the
Macy was able to cause the issuance of TCT No.
reconstituted Transfer Certificate of Title (TCT) No. RT-
81519 in her name, without the knowledge of any of
76140 (203492) PR-36463, issued by the Registry of
herein petitioners.
Deeds of Quezon City. Also, the validity of the Deed of
 The petitioners discovered the fraudulent act of the
Sale dated December 29, 1992, is still in dispute
51 | CREDIT TRANSACTIONS: Case Digest 1st Set
because Respondent Pacita Africa claims that her foreclosure. However, the last actual uncontested status
signature was forged by the vendee, Macy Africa. that preceded the controversy was when the property in
Furthermore, there is doubt as to the validity of the dispute was still registered in the name of Macy Africa,
mortgage in favor of petitioner, because there exists on petitioner not having consolidated in its name the title
record two TCTs covering the mortgaged property: (1) thereto.[59] Thus, the issuance of the writ would no
TCT No. 81519 registered in the name of Pacita Africa doubt preserve the status quo.
and (2) TCT No. 81519 registered in the name of Macy
Africa.
Violation of Applicants Right: Unless legally stopped,
petitioner may consolidate title to the property in its
name and enjoy the unbridled freedom to dispose of it
to third persons, to the damage and prejudice of
respondents. What respondents stand to lose is material
and substantial. They would lose their ancestral home
even without the benefit of a trial. Clearly, the act
sought to be enjoined is violative of their proprietary
right over the property.

Lis Pendens
Petitioner further contends that respondents are not
entitled to the relief prayed for, because they caused a
notice of lis pendens to be annotated at the back of TCT
No. 81519, registered in the name of Macy P. Africa;
thus, that notice provided ample protection of their
rights and interests. We are not persuaded. A notice of
lis pendens serves as an announcement to the whole
world that a particular real property is in litigation and as
a warning that those who acquire an interest in the
property do so at their own risk -- they gamble on the
result of the litigation over it. However, the cancellation
of such notice may be ordered by the court that has
jurisdiction over it at any given time. Its continuance or
removal -- like the continuance or the removal of a
preliminary attachment or injunction -- is not contingent
on the existence of a final judgment on the action and
ordinarily has no effect on the merits thereof. Thus, the
notice of lis pendens does not suffice to protect herein
respondents rights over the property. It does not
provide complete and ample protection.

Status Quo Ante

Petitioner further claims that the RTC erred in enjoining
the foreclosure sale of the subject property. It argues
that the foreclosure may no longer be enjoined, because
it has long been effected since 1996. We agree with
petitioner. It is a well-entrenched rule that
consummated acts can no longer be restrained by
injunction whose sole objective is to preserve the status
quo until the merits of the case are fully heard. Status
quo is defined as the last actual peaceful uncontested
situation that precedes a controversy, and its
preservation is the office of an injunctive writ. In the
instant case, the status quo was the situation of the
parties at the time of the filing of the Amended
Complaint with a prayer for a writ of preliminary
injunction. It was that point at which petitioner had
already foreclosed the subject property and, hence,
could no longer be enjoined from going on with the