GRANDEUREIGN D.

ORTIZO CREDIT TRANSACTION

I. LOAN (Arts 1933-1964)

a) Gen Provisions (Arts. 1933-1934)

LOAN

Article 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or
money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid,
in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower. (1740a)

Article 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties,
but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (n)

1. LIWANAG VS CA, 281 SCRA 225 (1997)

Facts:

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant Isidora Rosales
(Rosales) and asked her to join them in the business of buying and selling cigarettes. Convinced of the feasibility of the
venture, Rosales readily agreed. Under their agreement, Rosales would give the money needed to buy the cigarettes
while Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are
sold; otherwise the money would be returned to Rosales. Consequently, Rosales gave several cash advances to
Liwanag and Tabligan amounting to P633,650.00.

During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the progress of the
transactions. The visits, however, suddenly stopped, and all efforts by Rosales to obtain information regarding their
business proved futile.

Alarmed by this development and believing that the amounts she advanced were being misappropriated, Rosales filed
a case of estafa against Liwanag.

The Trial Court rendered Liwanag guilty as charged, which was affirmed with modification by the CA.

Issue:

WON the transaction entered by Liwanag and Rosales can be considered as a simple loan only?

Held:

No. In a contract of loan once the money is received by the debtor, ownership over the same is transferred.
Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. The receipt made
by Liwanag indicates that the money delivered to Liwanag was for a specific purpose, that is, for the purchase of
cigarettes, and in the event the cigarettes cannot be sold, the money must be returned to Rosales.

It is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a
single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales.
Since in this case there was no transfer of ownership of the money delivered,

2. HERRERA VS PETROPHIL CORP, GR No. 48349, 29 Dec. 1986

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A loan must be in form of money or something circulating as money. It must be payable absolutely
and in all events

FACTS:

On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil Corp.,) entered into a lease
agreement, whereby the former leased to the latter a portion of his property for a period of 20 yrs. subject to the condition
that monthly rentals should be paid and there should be an advance payment of rentals for the first eight years of the
contract, to which ESSO paid on December 31, 1969. However, ESSO deducted the amount of 101, 010.73 as interest
or discount for the eight years advance rental.

On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation of the interest
and paid an additional sum of 2,182.70; thus, it was reduced to 98, 828.03.

As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that this had been illegally
deducted to him in violation of the Usury Law.

ESSO argued that amount deducted was not usurious interest but rather a discount given to it for paying the
rentals in advance. Judgment on the pleadings was rendered in favor of ESSO. Thus, the matter was elevated to the
SC for only questions of law were involve.

ISSUE: Whether the contract between the parties is one of loan or lease?

RULING:

Contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT."
Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance
of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was
discharging its obligation in advance by paying the eight years rental, and it was for this advance payment that it was
getting a rebate or discount.

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant,
nor did it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere
discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they
were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had
the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The
loan or forbearance is subject to repayment and is therefore governed by the laws on usury.

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as
money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in
excess of and in addition to interest allowed by law."

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between
the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by
law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for
the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury
can be declared.

3. KIM VS PEOPLE, GR No. 84719, 25 Jan. 1991

Cash advance when not liquidated is considered as loan

FACTS:

Petitioner Kim Yong Chan (Kim) was employed as a researcher in Aquaculture Department of the Southeast
Asian Fisheries Development Center (SEAFDEC) with head office in Tigbauan, Iloilo. His work, being the head in his
unit, requires him to travel to various selected provinces in the country. On June 15 1982, Kim was issued Travel Order
2222 which covered his travels to different places in Luzon from June 16 to July 21. He received P6,438 cash advance
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under such TO. Within the same period, he was issued another travel order, TO 2268, requiring him to travel from head
office to Roxas City from June 30 to July 4. He received P495 cash advance.

He presented both travel orders for liquidation. When the Travel Expense Reports were audited, it was
discovered that there was an overlap of 4 days (June 30-July 3) in the two travel orders for which Kim collected per
diems twice. The total amount charged and collected by Kim when he did not actually and physically travel is P1,230.
Kim claimed that he made make-up trips he failed to undertake under TO 2222 because he was recalled to the head
office.

` 2 complaints for Estafa were filed against him. One was dismissed for failure to prosecute. The other one
convicted him. The RTC affirmed the decision of MTC. CA dismissed Kim’s appeal for being filed out of time.
ISSUE: Whether Kim is criminally liable for the crime of Estafa

HELD: No.

For him to be convicted, it must be proven that he had the obligation to deliver or return the same money, good
or personal property that he had received. The Court ruled that Kim has no obligation to return the same money (cash
advance) he received.

Under EO no.10, Cash advances are to be liquidated within 30 days after projected return of the employee,
otherwise there will be a corresponding salary deduction. Liquidation means settling of indebtedness. An employee who
liquidates cash advance is in fact paying back his debt in the form of a loan of money advanced to him by his employer,
as per diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash
advance he received is less than the amount he spent for actual travel . . . he has the right to demand reimbursement
from his employer the amount he spent coming from his personal funds. In other words, the money advanced by either
party is actually a loan to the other.

Under Art.1953, it is provided that the person who receives a loan acquires the ownership thereof. Applying
the foregoing in the present case, ownership of the money was transferred to Kim. Hence, he was under no legal
obligation to return the same cash or money.

CREDIT CARD

Credit Cards; Words and Phrases; A credit card is defined as “any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit”; It traces
its roots to the charge card first introduced by the Diners Club in New York City in 1950; In the Philippines, the now
defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s.—A credit card is
defined as “any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods,
property, labor or services or anything of value on credit.” It traces its roots to the charge card first introduced by the
Diners Club in New York City in 1950. American Express followed suit by introducing its own charge card to the American
market in 1958. In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into
the country in the 1970s. However, it was only in the early 2000s that credit card use gained wide acceptance in the
country, as evidenced by the surge in the number of credit card holders then.
Same; Every credit card transaction involves three contracts— the sales contract, the loan agreement, and the promise
to pay.—Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the
credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan
agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the
credit card issuer and the merchant or business establishment. Pantaleon vs. American Express International, Inc., 629
SCRA 276, G.R. No. 174269<br/> August 25, 2010

Credit Cards; Words and Phrases; A credit card is defined as “any card, plate, coupon book, or other credit device
existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit”; It traces
its roots to the charge card first introduced by the Diners Club in New York City in 1950; In the Philippines, the now
defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s.—A credit card is
defined as “any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods,
property, labor or services or anything of value on credit.” It traces its roots to the charge card first introduced by the
Diners Club in New York City in 1950. American Express followed suit by introducing its own charge card to the American
market in 1958. In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into
the country in the 1970s. However, it was only in the early 2000s that credit card use gained wide acceptance in the
country, as evidenced by the surge in the number of credit card holders then.
Same; Every credit card transaction involves three contracts— the sales contract, the loan agreement, and the promise
to pay.—Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the
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credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan
agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the
credit card issuer and the merchant or business establishment.

4. Pantaleon vs American Express International Inc G.R. No. 174269, May 8 2009
FACTS:

After the Amsterdam incident that happened involving the delay of American Express Card to approve his credit card
purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint for moral and exemplary
damages before the RTC against American Express. He said that he and his family experienced inconvenience and
humiliation due to the delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached its obligations to Pantaleon, as the
purchase at Coster deviated from Pantaleon's established charge purchase pattern.

ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.

RULING:
1. Yes. The popular notion that credit card purchases are approved “within seconds,” there really is no strict, legally
determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a
customer’s purchase, much less one specifically contracted upon by the parties. One hour appears to be patently
unreasonable length of time to approve or disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioner’s purchase, but the more elemental
failure to timely act on the same, whether favorably or unfavorably. Even assuming that AmEx’s credit authorizers did
not have sufficient basis on hand to make a judgment, we see no reason why it could not have promptly informed
Pantaleon the reason for the delay, and duly advised him that resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay, but because the
delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for
which moral damages are remunerative. The somewhat unusual attending circumstances to the purchase at Coster –
that there was a deadline for the completion of that purchase by petitioner before any delay would redound to the injury
of his several traveling companions – gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings
and social humiliation sustained by Pantaleon, as concluded by the RTC.

*Discounting:

It is a mode of loaning with the agreement that interest is deducted in advance

b) Commodatum (Arts. 1935-1952)

b.1) Nature of Commodatum (Arts. 1935-1940)

NATURE OF COMMODATUM

Article 1935. The bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is
to be paid by him who acquires the use, the contract ceases to be a commodatum. (1941a)

Article 1936. Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition. (n)

Article 1937. Movable or immovable property may be the object of commodatum. (n)

Article 1938. The bailor in commodatum need not be the owner of the thing loaned. (n)

Article 1939. Commodatum is purely personal in character. Consequently:

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(1) The death of either the bailor or the bailee extinguishes the contract;

(2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of
the bailee's household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless
the nature of the thing forbids such use. (n)

Article 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid. (n)

5. CATHOLIC VICAR APOSTOLIC OF THE MT. PROV. VS CA, 165 SCRA 515 (1988)

When petitoner borrowed the house of private respondents’ predecessors, and the petitioner was allowed its
free use, private respondents became bailors in commodatum, and petitioner, the bailee

Facts:

Background: Catholic Vicar filed an application for registration of title over Lots 1, 2, 3, and 4 which were situated
in La Trinidad, Benguet. The said lots were the sites of the Catholic Church building, convents, high school building,
school gymnasium, and other structures. The Heirs of Juan Valdez and Egmidio Octaviano opposed the registration of
lots 2 and 3 respectively. After trial the land registration court ruled in favor of Vicar but the CA reversed the lower court’s
decision and dismissed Vicar’s application over lots 2 and 3. The Supreme Court sustained the ruling of the CA.
Thereafter, the Heirs of Octaviano filed with the CFI a Motion for Execution praying that they be placed in possession
of Lot 3 but the lower court denied the motion on the ground that the CA’s prior decision did not grant the Heirs any
affirmative relief. The Heirs appealed the denial of their motion but the case was also dismissed by the CA.

It was at that stage that the instant cases were filed. The Heirs of Octaviano filed a case for recovery of
possession of Lot 3 and the Heirs of Valdez likewise filed the same case over Lot 2. At the trial, the Heirs of Octaviano
presented Fructuoso Valdez. The latter testified on the ownership of the land by their predecessors-in-interest, Egmidio
Octaviano. On the other hand, Vicar presented the Register of Deeds of Benguet, Atty. Nicanor Sison, who testified that
the land is not covered by any title in the name of Egmidio Octaviano. Vicar claims that they have been in possession
of the questioned lots for 75 years continuously and peacefully and has constructed permanent structures thereon. Both
sets of Heirs now argue that Vicar is barred from setting up the defense of ownership and/or long and continuous
possession of the two lots in question since this is barred by prior judgment of the CA (the one stated in the Background
case) under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already
been determined by the CA and affirmed by the Supreme Court. After yet another unfavorable decision, Vicar filed a
petition for review before the SC.

Issue: WON Vicar can claim ownership over the land in question?

Ruling: NO. Petitioner questions the ruling of respondent Court of Appeals when it clearly held that it was in agreement
with the findings of the trial court that the Decision of the Court of Appeals (the one in the background facts) on the
question of ownership of Lots 2 and 3, declared that the said Court of Appeals did not positively declare private
respondents as owners of the land, neither was it declared that they were not owners of the land, but it held that the
predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906
to 1951. Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring
the properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had
been in possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for
ten years, but always with just title (which the petitioner does not have). Extraordinary acquisitive prescription requires
30 years (petitioner is in possession for only 11 years). Private respondents were able to prove that their predecessors'
house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they (the Heirs) became bailors in commodatum and the
petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by
such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just
title.

OBLIGATIONS OF THE BAILEE (ARTS. 1941 – 1945)

Obligations of the Bailee

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Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
(1743a)

Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

(1) If he devotes the thing to any purpose different from that for which it has been loaned;

(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the
commodatum has been constituted;

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event;

(4) If he lends or leases the thing to a third person, who is not a member of his household;

(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and
1745)

Article 1943. The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without
his fault. (1746)

Article 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though
it may be by reason of expenses. However, the bailee has a right of retention for damages mentioned in article 1951.
(1747a)

Article 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable
solidarily. (1748a)

OBLIGATIONS OF THE BAILOR (Arts. 1946-1952)

Obligations of the Bailor

ARTICLE 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated,
or after the accomplishment of the use for which the commodatum has been constituted. However, if in the meantime,
he should have urgent need of the thing, he may demand its return or temporary use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession
of the bailor. (1749a)

Article 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the
following cases:

(1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been
stipulated; or

(2) If the use of the thing is merely tolerated by the owner. (1750a)

Article 1948. The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude
specified in article 765. (n)

Article 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing
loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are
so urgent that the reply to the notification cannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted
without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary.
(1751a)
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Article 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in
articles 1941 and 1949, he is not entitled to reimbursement. (n)

Article 1951. The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be
liable to the latter for the damages which he may suffer by reason thereof. (1752)

Article 1952. The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to
the bailee. (n)

1. The primary obligation of the bailor is to allow the bailee the use of the thing loaned for the duration of the
period stipulated or until the accomplishment of the purpose for which the commodatum was constituted
a. However, the lender may demand its return or temporary use if he has the urgent need of the thing or
if the borrower commits an act of ingratitude

2. PRECARIUM:

1. If neither the duration of the contract nor the use to which the thing loaned should be devoted has been
stipulated; or
2. If the use of the thing is merely tolerated by the owner

A kind of commodatum where the bailor may demand the thing at will. In this kind of commodatum, the lender may
demand at will the return of thing under the following circumstances:
a. If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been
stipulated; or
b. If the use of the thing is merely tolerated by the owner.
c. the law recognizes the urgency as well as it is gratuitous.
d. Take note that in precarium, there is no stipulated period or the use is merely tolerated

3. He may demand the immediate return of the thing if the bailee commits any act of ingratitude
a. If the bailee should commit some offenses against the person, honor or the property of the bailor, or of his
wife, and children under his parental authority.
b. If the bailee imputes to the bailor any criminal offense or any act involving moral turpitude, even though he
should prove it, unless the crime or act has been committed against himself, his wife and children under
his authority
c. If the bailee unduly refuses the bailor support when the bailee is legally or morally bound to give support

4. He has the obligation to refund extraordinary expenses for the preservation of the thing loaned—it is him
who profits from the said expenses anyway.
a. As a rule, notice is required because it is possible that the bailor may not want to incur the extraordinary
expenses at all
b. An exception of course is where there is urgency that the reply to the notification cannot be awaited without
danger
c. you have to determine if its ordinary or extraordinary
d. why would you advance for the extraordinary expenses when you can return the thing and make
the lender pay for the expenses?

5. Regarding, extraordinary expenses arising from the actual use of the thing, the division of liability between
the bailor and bailee is 50-50. This is the default rule but the parties may stipulate for a different apportionment.

6. For expenses other than ordinary expenses and expenses for the preservation and use of the thing, the
bailor is not liable for the same.

7. He is liable to the bailee for damages in case he has knowledge of flaws of the thing loaned, and
he didn't advise the bailee of the same
a. There is flaw or defect in the thing loaned
b. The flaw or defect is hidden
c. The bailor is aware thereof
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of the said flaw or defect

8. He cannot excuse himself from liability for any expense or damages by abandoning the thing to the bailee
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C. Simple Loan or Mutuum ( Arts. 1953-1961)

Simple Loan or Mutuum

Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and
is bound to pay to the creditor an equal amount of the same kind and quality. (1753a)

Article 1954. A contract whereby one person transfers the ownership of non-fungible things to another with the
obligation on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter. (n)

Article 1955. The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and
1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and
quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the
perfection of the loan shall be paid. (1754a)

Article 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)

Article 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against
usury shall be void. The borrower may recover in accordance with the laws on usury. (n)

Article 1958. In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price
of the products or goods at the time and place of payment. (n)

Article 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall not earn interest.
However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal,
shall earn new interest. (n)

Article 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. (n)

Article 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not
inconsistent with this Code. (n)

7. LAO VS CA, 275 SCRA 237 (1997)

Necessitous men are nit, truly speaking, free men; but to answer a present emergency, will submit to
terms that the crafty may impose upon them.
Where the borrower’s urgent need for money places the latter at a disadvantage vis-a-vis the mender
who can thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the contact to
be the one which involves the lesser transmission of rights and interest over the property in controversy

Facts:

Private respondent Better Homes Realty and Housing Corp. filed a complaint for unlawful detainer with the Metc
on the ground that petitioner Lao occupied its property without rent, but on its pure liberality with the understanding that
he would vacate the property upon demand. However, despite demand to vacate, Lao refused to vacate the premises.

Lao claimed that he is the true owner of the property; that the private respondent purchased the same from N.
Domingo Realty and Development Corporation, but the agreement was actually a loan secured by mortgage; and that
plaintiff's cause of action is for accion publiciana, outside the jurisdiction of an inferior court.

MeTC ruled in favor of private respondent, but RTC reversed its decision, saying that the real transaction over
the subject property was not a sale but a loan secured by a mortgage thereon. On appeal, the CA reversed the decision
of the RTC.

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Issue:
1. Whether or not Better Homes Realty and Housing Corp had acquired ownership over the property in question.

2. Whether or not petitioner should be ejected from the premises in question

Held

1. No. the agreement between the private respondent and N. Domingo Realty & Housing Corporation is one of
equitable mortgage. First, possession of the property in the controversy remained with Petitioner Manuel Lao who was
the beneficial owner of the property, before, during and after the alleged sale. It is settled that a "pacto de retro sale
should be treated as a mortgage where the (property) sold never left the possession of the vendors." Second, the option
given to Manuel Lao to purchase the property in controversy had been extended twice through documents executed by
the President and Chairman of the Board of Better Homes Realty & Housing Corporation. Third, unquestionably, Manuel
Lao and his brother were in such "dire need of money" that they mortgaged their townhouse units registered under the
name of N. Domingo Realty Corporation, the family corporation put up by their parents, to Private Respondent Better
Homes Realty & Housing Corporation. Since the borrower's urgent need for money places the latter at a disadvantage
vis-a-vis the lender who can thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the
contract to be one which involves the lesser transmission of rights and interest over the property in controversy.

2. No. There was no sale of the disputed property. Hence, it still belongs to petitioner's family corporation, N.
Domingo Realty & Development Corporation. Private respondent, being a mere mortgagee, has no right to eject
petitioner.

8. CLARAVALL VS CA, 190 SCRA 439 (1990)

A contract of loan with mortgage made to appear in paper as an absolute sale with a companion an
option to buy is null and void even if no usury is involved

FACTS: Appellant Loreto Claravall and Victoria H. Claravall obtained loans from the Development Bank of the
Philippines (DBP) in the amount of P52,000.00 for the construction of a commercial building on their property situated
in the Municipality of Ilagan, Isabela. To secure the loan, a mortgage was executed upon said property in favor of the
DBP. Claravall was unable to pay the amortization over said loan and the DBP threatened to foreclose the mortgage.

However, Claravall was able to pay DBP by executing a deed of sale over the property in question with a 5-year
option to repurchase the same with a certain Juan Ang-angan.

Claravall exercised the said right to repurchase the property from Ang-angan by obtaining a loan from spouses
Francisco and Carolina Ramirez in the amount of P75,000.00. A deed of sale dated December 29, 1965 was executed
over the same property by the Claravalls in favor of Ramirez.

Another instrument was entered into by Claravall and Ramirez which granted Claravall an option to repurchase
the property in question within a period of two (2) years from December 29, 1965 but not earlier nor later than the month
of December, 1967, for the sum of P10,000.00 payable at the time of repurchase.

At the expiration of the 2-year period, appellant Claravall failed to redeem the property in question and because
of this they brought suit against Francisco and Carolina Ramirez to compel the latter to sell the property in question
back to them (Claravall).

The lower court rendered judgment in favor of defendants, the Ramirez spouses, (private respondents herein)
which was affirmed in toto by respondent court.

ISSUE: WON the contract of loan with mortgage made to appear in paper as absolute sale is null and void.

HELD: Yes. A contract of loan with mortgage made to appear in paper as an absolute sale with a companion option to
buy is null and void even if no usury is involved.

Under Article 1604 a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage,
should any of the conditions in Article 1602 be present. Otherwise stated, the presence of only one circumstance defined
in Article 1602 is sufficient for a contract of sale with right to repurchase to be presumed an equitable mortgage.

ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
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(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption
or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.

ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

Under Article 1604 a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage,
should any of the conditions in Article 1602 be present. Otherwise stated, the presence of only one circumstance defined
in Article 1602 is sufficient for a contract of sale with right to repurchase to be presumed an equitable mortgage.

9. JAVIER VS DE GUZMAN, 192 SCRA 434 (1990)

The Usury Law is legally inexistent pursuant to CB Circular No. 905, and the interest now legally
chargeable depends upon the agreement of the lender and borrower.

FACTS:

On 7 December 1987, Efren Javier, and his mother, Lolita Javier, borrowed P200,000.00 from Respondent
Judge with interest orally agreed upon at ten per cent (10%) monthly, They tendered to the latter UCPB Check No. BNE
012872, dated 7 January 1988, in the amount of P220,000.00. The drawer of the check was actually Donato Belen, a
brother-in-law of Efren, as the Javiers had no personal checking account. The following day, Respondent required them
to sign a Memorandum of Agreement, which they did. Two of the conditions imposed were interest at the rate of twenty
per cent (20%) per month, compounded monthly, and should they fail to pay the loan and its interest upon maturity on
7 January 1988 and the check is deposited and dishonored, an appropriate charge for violation of Batas Pambansa Blg.
22 may be filed at Respondent's option. When the Javiers defaulted on due date because of business reverses, partial
payments in the total amount of P177,000.00 were made to Respondent between 6 January 1988 and 16 June 1988.
Meanwhile, the check, which was deposited by Respondent on 14 April 1988, was dishonored by the drawee bank.

On 8 September 1988, Respondent instituted suit for a "Sum of Money and Damages with Prayer for the
Issuance of a Writ of Preliminary Attachment" in the Regional Trial Court of Makati, Metro Manila, against the spouses
Pedro and Lolita Javier, and their son, Efren, for the recovery of the "sum of P220,000.00 with 20% interest/penalty a
month compounded monthly from January 7, 1988 until fully paid," computed at P622,871.67. Judgment on the
pleadings was rendered on 3 February 1989 ordering the Javiers to pay Respondent Judge the "sum of P608,871.67
with 20% interest/penalty a month compounded monthly beginning September 8, 1988 until fully paid" and the "sum
equal to 10% of the amounts due and recoverable as reimbursement of attorney's fees and litigation expenses". In the
meantime, an Order granting execution pending appeal was issued by the Trial Court on 14 April 1989. The Javiers
appealed to the Court of Appeals where the case still pends. Still later, Respondent filed in Manila two (2) criminal
complaints, the first, for violation of B.P. Blg. 22 against Efren, who, however, was acquitted, and the second, for Estafa
against Complainants and Lolita Javier, which complaint was dismissed.

On 21 March 1989, Respondent further filed an administrative charge against Complainant father, Pedro, with
the Bureau of Internal Revenue where the latter was employed. Earlier, an administrative charge against Pedro had
also been filed with the Civil Service Commission on 3 March 1989 accusing Pedro in both instances, of having
committed estafa against him and his wife, of dishonesty and of conduct unbecoming of a government official. Feeling
harassed, Complainants filed this administrative charge against Respondent Judge on four counts of "dishonorable
conduct,

ISSUE: WON the respondent judge can be held liable for the usurious interest.

HELD:

No. As to the usurious rate of interest, while that issue was considered by Justice de la Fuente as irrelevant
since the Usury Law is now legally inexistent pursuant to Central Bank Circular No. 905 and the interest now legally
chargeable depends upon the agreement of lender and borrower (Liam Law v. Olympic Sawmill Co., G.R. No. L-30771,
May 28, 1984, 129 SCRA 439), she found that the interest charged on the loan was exorbitant. While he had every right
to protect his investment, and while the contract of loan entered into between him and the Javiers was legal per se,
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Respondent rendered it unconscionable by imposing a penalty of twenty per cent (20%) interest per month compounded
monthly. Respondent was equivocal as to the repayments that were made to him by the Javiers. In his Verified Complaint
before the Trial Court, he averred failure to repay. However, in the computation attached to his Motion for Judgment on
the Pleadings, he made mention of "alleged payments being accepted by (him) at face value" and included them in the
determination of the balance due.

Respondent also brought suit to collect the staggering sum of P622,871.67 despite payments by the debtors of
approximately P177,000.00 of the original P200,000.00 loan. Although not illegal under the terms of the Memorandum
of Agreement, as in fact, the Trial Court had ruled in Respondent's favor, it does not necessarily follow that it was moral
and fair. Respondent is not a hard-boiled and callous businessman. He is a Judge.

Finding Respondent Judge, Salvador P. de Guzman, Jr. guilty on three (3) counts, of irresponsible, improper
and dishonorable conduct in disregard of the Code of Judicial Ethics, he is severely censured, with a stern warning that
a repetition of the said acts or similar acts in the future shall receive graver sanctions.

10. ALMEDA VS CA, 256 SCRA 292

While the Usury ceiling interest rates was lifted by CB Circular No. 905, nothing in the said circular
could possibly read as granting carte blanche authority to lenders to raise interest rates to levels which
would either enslave their borrowers or lead to hemorrhaging of their assets.
Where the escalation clause of the credit agreement in the instant case required the same be made
“within the limits allowed by laws” it is obviously referred to specifically to legislative enactments not
administrative circulars.

Facts:

In 1981, PNB granted herein petitioner several loan/credit accommodations totaling P18.0 Million pesos payable
in a period of six years at an interest rate of 21% per annum. To secure the loan, the spouses Almeda executed a Real
Estate Mortgage Contract covering a 3,500 square meter parcel of land, together with the building erected thereon (the
Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying the terms and conditions
of the loan was executed between the parties.

The agreement contains…

xxx xxx xxx

The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending
on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease of the maximum interest rate.

Between 1981 and 1984, petitioners made several partial payments on the loan totaling. P7,735,004.66, 2 a
substantial portion of which was applied to accrued interest. Said interest rate thereupon increased from an initial 21%
to a high of 68% between March of 1984 to September, 1986. Before the loan matures, petitioner filed a complaint in
the lower court for declaratory relief and with prayer for a writ of preliminary injunction and temporary restraining order.
The lower court issued the writ of preliminary injunction which was appealed in the CA which rendered the assailed
Decision. Hence this petition.

Issue: Whether or not PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreement's
escalation clause, and in relation to Central Bank Circular No. 905.

Ruling: No, PNB cannot.

Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of 1982 did not authorize the bank, or
any lending institution for that matter, to progressively increase interest rates on borrowings to an extent which would
have made it virtually impossible for debtors to comply with their own obligations. True, escalation clauses in credit
agreements are perfectly valid and do not contravene public policy. Such clauses, however, (as are stipulations in other
contracts) are nonetheless still subject to laws and provisions governing agreements between parties, which
agreements — while they may be the law between the contracting parties — implicitly incorporate provisions of existing
law. Consequently, while the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said
circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which
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would either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing represents a transfusion of
capital from lending institutions to industries and businesses in order to stimulate growth. This would not, obviously, be
the effect of PNB's unilateral and lopsided policy regarding the interest rates of petitioners' borrowings in the instant
case.

Loan is a Real Contract

11. GARCIA VS THIO, 518 SCRA 433 (2007)

A loan is a real contract, not consensual, and as asuch is perfected upon delivery of the object of the
contract.

FACTS:

Two crossed check payable to certain Mariou Santiago were given to the respondent by the petitioner – the first
check covers one-hundred thousand US dollar and the second check covers five-hundred thousand pesos.

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with
interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995. The amount of this loan
was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed
monthly interest of 4%, the maturity date of which was on November 5, 1995. The amount of this loan was covered by
the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends
at the time. Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay
the principal amounts despite repeated demands.

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago
to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to
Santiago. She issued the checks not as payment of interest but to accommodate petitioner’s request that respondent
use her own checks instead of Santiago’s.

The lower court decided in favor of the petitioner stating that there is a contract of load between the two but the
appellate court reversed the decision finding that “there is nothing in the record that shows that respondent received
money from petitioner.”

ISSUE: Whether or not there is a contract of loan between the petitioner and the respondent.

HELD:

Yes, there is a contract of loan between the petitioner and the respondent. A loan is a real contract, not
consensual, and as such is perfected only upon the delivery of the object of the contract. This is evident in Art. 1934 of
the Civil Code which provides:

“An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of
the contract.”

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to
pay the creditor an equal amount.

In the case at bar, it is undisputed that the checks were delivered to respondent. The decision of the Court of
Appeals was reversed and set-aside.

NOTE: The held is supposedly short, but for further clarification, I included the reasons why did the Court believe that
there is contract between the respondent and petitioner.

This is supported by the following reasons:

1. First, respondent admitted that petitioner did not personally know Santiago. It was highly improbable that
petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written

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acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand,
already had transactions with Santiago at that time.

2. Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties’ list
of witnesses) testified that respondent’s plan was for petitioner to lend her money at a monthly interest rate of 3%, after
which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This
explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown
any reason why Ruiz’ testimony should not be believed.

3. Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each
(peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued
her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated
petitioner’s request for her to issue her own checks to cover the interest payments since petitioner was not personally
acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her
explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would
be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:

“In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be
believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such
as the common experience of mankind can approve as probable under the circumstances. We have no
test of the truth of human testimony except its conformity to our knowledge, observation, and experience.
Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.”

4. Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was
listed as one of her (Santiago’s) creditors.

5. Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. The presumption
is that "evidence willfully suppressed would be adverse if produced." Respondent was not able to overturn this
presumption.

Payment of Loan

11.A) Cinco vs. C.A., G.R. No. 151903

A loan is paid by the delivery of the sum of money due (Art. 1233 of the Civil Code).

Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be. (1157).

If the creditor unjustly refuses to accept the tender of payment, the loan wil still be considered paid if
the debtor makes a consignation or deposits the thing due or place it at the diaposal of judicial authorities for
the creditor to collect. There must therefore be tender of payment and consignation (Art. 1256, Civil Code)

Tender of Payment and Consignation

Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)

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Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent Maasin Traders Lending
Corporation (MTLC). The loan was evidenced by the promissory note, and secured by a real estate mortgage over the
spouses Cinco’s land and 4-storey building.To pay the loan in favor of MTLC, the spouses Cinco applied for a loan with
the Philippine National Bank(PNB), and offered the same properties they previously mortgage to MTLC. The PNB
approved the loadapplication for 1.3 Million; the release was, however, conditioned on the cancellation of the mortgage
infavor of MTLC. Manuel went to Ester Servacio (Ester), MTLC’s President to inform her that there was money with PNB
forPayment of his loan. Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect theproceeds of
the loan. Ester went to the PNB to inquire, the second time around, about the proceeds. Thebank officer confirmed the
existence of such loan, but they required Ester to first sign a deed ofrelease/cancellation of the mortgage before they
could release the proceeds of the loan to her. Outraged,Ester refused the deed and did not collect the 1.3 Million.Ester
instituted foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an action forspecific performance,
damages, and preliminary injunction.Issue: Whether the loan due the MTLC had been extinguished by the act of the
spouses Cinco amountedto payment.Held: No, While Ester’s refusal was unjustified and unreasonable, we cannot agree
with Manuel’s positionthat this refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256
is clear and unequivocal on this point when it provides that –ARTICLE 1256. If the creditor to whom tender of payment
has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due. In short, a refusal without just cause is not equivalent to payment; to have the
effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of
tender ofpayment and consignation.Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty,
Inc., is the definitive act of offering the creditor what is due him or her, together with the demand that the creditor accept
the same. When a creditor refuses the debtor’s tender of payment, the law allows the consignation of thething or the
sum due. Tender and consignation have the effect of payment, as by consignation, the thingdue is deposited and placed
at the disposal of the judicial authorities for the creditor to collect.Nonetheless, the SPA stood as an authority to collect
the proceeds of the already-approved PNB loanthat, upon receipt by Ester, would have constituted as payment of the
MTLC loan. The Court agrees withManuel that Ester’s refusal of the payment was without basis.Under these
circumstances, we hold that while no completed tender of payment and consignation tookplace sufficient to constitute
payment, the spouses Go Cinco duly established that they have legitimatelysecured a means of paying off their loan
with MTLC; they were only prevented from doing so by theunjust refusal of Ester to accept the proceeds of the PNB
loan through her refusal to execute the releaseof the mortgage on the properties mortgaged to MTLC. We also find that
under the circumstances, thespouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment
that cannotbut have legal effect. Since payment was available and was unjustifiably refused, justice and equitydemand
that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding

In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the amount.
Actual and compensatory damages are those recoverable because of pecuniary loss in business, trade, property,
profession, job or occupation and the same must be sufficiently proved, otherwise, if the proof is flimsy and
unsubstantiated, no damages will be given.” [Emphasis supplied.]

12. RA 8183 (11 July 1996)

Republic Act No. 8183 June 11, 1996

Repealing RA 529

All money obligations shall be settled in the Phil. Currency which is legal tender of the Phil. However,
the parties may agree that the obligation or transaction shall be settled in any other currency at the time of the
payment

"AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY."

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::

Section 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines.
However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of
payment.

Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as amended entitled "An Act to Assume the
Uniform Value of Philippine Coin and Currency," is hereby repealed.

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Sec. 3. This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in two (2) national
newspapers of general circulation. The Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an
intensive information campaign on the effect of this Act.
Approved: June 11, 1996

13. CF SHARP & CO. VS NORTHWEST AIRLINES, GR NO. 133498, 18 APRIL 2002

Facts:

On May 9, 1974, respondent, through its Japan Branch, entered into an International Passenger Sales Agency
Agreement with petitioner, authorizing the latter to sell its air transport tickets. Petitioner failed to remit the proceeds of
the ticket sales, for which reason, respondent filed a collection suit against petitioner before the Tokyo District Court
which rendered judgment on January 29, 1981, ordering petitioner to pay respondent the amount of "83,158,195 Yen
and damages for the delay at the rate of 6% per annum from August 28, 1980 up to and until payment is completed."
Unable to execute the decision in Japan, respondent filed a case to enforce said foreign judgment with the Regional
Trial Court (RTC) of Manila, Branch 54. However, the case was dismissed on the ground of failure of the Japanese
Court to acquire jurisdiction over the person of the petitioner. Respondent appealed to the Court of Appeals, which
affirmed the decision of the RTC.

Thereafter, the RTC issued a writ of execution for foreign court’s decision. The petitioner filed for certiorari, asserting it
has already made partial payments. The CA lowered the amount to be paid and included in its decision that the amount
may be paid in local currency at rate prevailing at time of payment. The Supreme Court partly affirmed the decision.
The RTC issued a writ of execution of decision ruling that Sharp is to pay Northwest the sum of 83,158,195 yen at the
exchange rate prevailing on the date of the foreign judgment plus 6% per annum until fully paid, 6% damages and 6%
interest. On appeal, the Court of Appeals reduced the interest and it ruled that the basis of the conversion of Petitioner’s
liability in its peso equivalent should be the prevailing rate at the time of payment and not the rate on the date of the
foreign judgment

Issue:

WON the conversion of CF Sharp’s liability in its peso equivalent basing on the prevailing rate at the time of the
establishment of the obligation is correct?

Held:

No. Petitioner’s contention that it is Article 1250 of the Civil Code that should be applied is untenable. The rule that the
value of the currency at the time of the establishment of the obligation shall be the basis of payment finds application
only when there is an official pronouncement or declaration of the existence of an extraordinary inflation or deflation.

The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the stipulation of
currency other than Philippine currency, such that obligations or transactions may now be paid in the currency
agreed upon by the parties. Just like R.A. No. 529, however, the new law does not provide for the applicable
rate of exchange for the conversion of foreign currency-incurred obligations in their peso equivalent. It follows,
therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains
applicable. Thus, in Asia World Recruitment, Inc. v. National Labor Relations Commission,13 the Court,
applying R.A. No. 8183, sustained the ruling of the NLRC that obligations in foreign currency may be discharged
in Philippine currency based on the prevailing rate at the time of payment. The wisdom on which the
jurisprudence interpreting R.A. No. 529 is based equally holds true with R.A. No. 8183. Verily, it is just and fair
to preserve the real value of the foreign exchange- incurred obligation to the date of its payment.

Petition is denied.

Claim and Debt

14. PREMIER DEVELOPMENT BANK VS FLORES, 574 SCRA 66, 16 DEC 2008

FACTS:

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The undisputed facts show that on or about October 1994, Panacor Marketing Corporation (Panacor for brevity), a
newly-formed corporation, acquired an exclusive distributorship of products manufactured by Colgate Palmolive
Philippines, Inc. (Colgate for short). To meet the capital requirements of the exclusive distributorship, which required an
initial inventory level of P7.5 million, Panacor applied for a loan of P4.1 million with Premiere Development Bank. After
an extensive study of Panacor’s creditworthiness, Premiere Bank rejected the loan application and suggested that its
affiliate company, Arizona Transport Corporation (Arizona for short), should instead apply for the loan on condition that
the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit line as
evidenced by a Credit Line Agreement. As suggested, Arizona, which was an existing loan client, applied for and was
granted a loan of P6.1 million, P3.4 million of which would be used to pay-off its existing loan accounts and the
remaining P2.7 million as credit line of Panacor. As security for the P6.1 million loan, Arizona, represented by its Chief
Executive Officer Pedro Panaligan and spouses Pedro and Marietta Panaligan in their personal capacities, executed a
Real Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2,
1995.

Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was previously approved,
Panacor negotiated for a take-out loan with IBA-Finance Corporation (hereinafter referred to as IBA-Finance) in the sum
of P10 million, P7.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the
balance of P2.5 million (to complete the needed capital ofP4.1 million with Colgate) to be released after the cancellation
by Premiere of the collateral mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out
agreement, IBA-Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount
not to exceed P6 million.

On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of Premiere Bank’s San
Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and requesting for the release of TCT
No. T-3475. Martillano, after reading the letter, affixed her signature of conformity thereto and sent the original copy to
Premiere Bank’s legal office. x x x

On October 12, 1995, Premiere Bank sent a letter-reply to [IBA]-Finance, informing the latter of its refusal to turn over
the requested documents on the ground that Arizona had existing unpaid loan obligations and that it was the bank’s
policy to require full payment of all outstanding loan obligations prior to the release of mortgage documents. Thereafter,
Premiere Bank issued to IBA-Finance a Final Statement of Account showing Arizona’s total loan indebtedness. On
October 19, 1995, Panacor and Arizona executed in favor of IBA-Finance a promissory note in the amount of P7.5
million. Thereafter, IBA-Finance paid to Premiere Bank the amount of P6,235,754.79, representing the full outstanding
loan account of Arizona. Despite such payment, Premiere Bank still refused to release the requested mortgage
documents specifically, the owner’s duplicate copy of TCT No. T-3475.

On November 2, 1995, Panacor requested IBA-Finance for the immediate approval and release of the remaining P2.5
million loan to meet the required monthly purchases from Colgate. IBA-Finance explained however, that the processing
of the P2.5 million loan application was conditioned, among others, on the submission of the owner’s duplicate copy of
TCT No. 3475 and the cancellation by Premiere Bank of Arizona’s mortgage. Occasioned by Premiere Bank’s adamant
refusal to release the mortgage cancellation document, Panacor failed to generate the required capital to meet its
distribution and sales targets. On December 7, 1995, Colgate informed Panacor of its decision to terminate their
distribution agreement.

On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages against Premiere
Bank before the Regional Trial Court of Pasig City, docketed as Civil Case No. 65577.

On June 11, 1996, IBA-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere
Bank to pay damages in its favor.

On May 26, 1998, the trial court rendered a decision in favor of Panacor and IBA-Finance, the decretal portion of which
reads: x x x

Premiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter alia, that it had
maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million.

In the meantime, a compromise agreement was entered into between IBA-Finance and Premiere Bank whereby the
latter agreed to return without interest the amount of P6,235,754.79 which IBA-Finance earlier remitted to Premiere
Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the compromise agreement was approved.

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On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with modification the decision of the
trial court, the dispositive portion of which reads:7 x x x

ISSUE: Whether PDB has a claim or a debt to the other corporations?

RULING:

A distinction must be made between a debt and a mere claim. A debt is an amount actually ascertained.
It is a claim which has been formally passed upon by the courts or quasi-judicial bodies to which it can in law
be submitted and has been declared to be a debt. A claim, on the other hand, is a debt in embryo. It is mere
evidence of a debt and must pass thru the process prescribed by law before it develops into what is properly
called a debt. Absent, however, any such categorical admission by an obligor or final adjudication, no legal
compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth
indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the
examination of the pertinent records of the validity of that conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced by final judgment of a competent court. At best, what Premiere
Development Bank has against respondent corporations is just a claim, not a debt. At worst, it is a speculative
claim.

Default on Demand

15. Maybank Philippines Inc. (formerly PNB-Republic Bank) vs. Tarrosa

FACTS:

Sps. Tarrosa obtained from petitioner-bank Maybank a loan in the amount of P91,000 secured by a Real Estate
Mortgage (parcel of land in San Carlos City, Negros Occidental). After paying the said loan, Sps. Tarrosa obtained a
second loan in the amount of P60,000 payable on March 11, 1984. The spouses failed to pay upon maturity. The
spouses received their final demand letter sometime in April 1998. They offered to pay a lesser amount, which Maybank
refused. Thereafter, Maybank commenced extrajudicial foreclosure. The subject property was eventually sold to Philmay
Property Inc. after a public auction sale proceeding.

The spouses filed a complaint for declaration of nullity and invalidity of the foreclosure and of the public auction
sale proceedings. They averred, among others, that Maybank’s right to foreclosure had prescribed or is barred by
laches. The RTC ruled that Maybank’s right to foreclosure, reckoned from the time the mortgage indebtedness became
due and demandable on March 11, 1984, had already prescribed. It ruled in favor of the spouses. The CA affirmed the
RTC ruling that the prescriptive period should be reckoned from March 11, 1984.

ISSUE: Whether CA erred in finding that Maybank’s right to foreclose over the subject property was barred by
prescription.

HELD: No.

An action to enforce a right arising from a mortgage should be enforced within 10 years from the time the right
of action accrues – when the mortgagor defaults in payment of his obligation to the mortgagee. Mere delinquency in
payment does not necessarily mean delay in legal concept.

In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and
already liquidated; (b) the debtor delays performance; and (c) the creditor requires the performance judicially
or extrajudicially, unless demand is not necessary - i.e., when there is an express stipulation to that effect;
where the law so provides; when the period is the controlling motive or the principal inducement for the creation
of the obligation; and where demand would be useless.

In the present case, both the CA and the RTC reckoned the accrual of Maybank's cause of action to foreclose
the real estate mortgage over the subject property from the maturity of the second loan on May 11, 1984. The CA
reckoned the accrual after construing the par.5 of the REM.

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In no way did the mentioned paragraph affect the general parameters of default, particularly the need of prior
demand under Article 1169 of the Civil Code, considering that it did not expressly declare: (a) that demand shall not be
necessary in order that the mortgagor may be in default; or (b) that default shall commence upon mere failure to pay on
the maturity date of the loan. Hence, the CA erred in construing the above provision as one through which the parties
had dispensed with demand as a condition sine qua non for the accrual of Maybank's right to foreclose the real estate
mortgage over the subject property, and thereby, mistakenly reckoned such right from the maturity date of the loan on
March 11, 1984.

On Interest Rates

16. Pan Pacific Service Contractors Inc., vs. Equitable PCI Bank

No interest shall be due unless it has been expressly stipulated in writing.

Facts:

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on air
conditioning system. They entered into a contract with the respondent for P20M. Pan Pacific and respondent also agreed
on nine change orders for P2,622,610.30. They also agreed that Pan Pacific shall be entitled to a price adjustment in
case of increase in labor costs and prices of materials. Pursuant to the contract, Pan Pacific commenced the mechanical
works in the project site, the PCIB Tower II extension building. The project was completed and accepted by the
respondent in 1992. However, in 1990 labor costs and prices of materials escalated. So in 1991, in accordance with the
escalation clause, Pan Pacific claimed a price adjustment of P5.1M. In response, the respondent bank appointed TCGI
Engineers to assess if the said claim was correct. The latter recommended to respondent that the price adjustment
should be pegged at P3.7M only. Pan Pacific contended that with this recommendation, respondent was already
estopped from disclaiming liability of at least P3.7M in accordance with the escalation clause. Due to the extraordinary
increases in the costs of labor and materials, Pan Pacific’s operational capital was becoming inadequate. However,
respondent withheld the payment of the price adjustment under the escalation clause despite Pan Pacific’s repeated
demands. To add insult, the respondent bank instead offered a loan to the petitioner to enable them to have something
to work with. Out of desperation, and the promise that the price adjustments would be released soon, the petitioner
accepted the loan and they were required to issue a promissory note. Not a single centavo was received by the
petitioner, all of the amount of the loan was given to the employees for their salary. Petitioner’s repeated demands were
just ignored. Meanwhile, the loan matured and the respondent is now the one demanding payment with interest.
Petitioner refused to pay the loan contending that it would not have accepted the loan if only the respondent released
the money that was rightfully theirs. They also contend that the promissory note they issued did not contain their true
intentions. They maintained that the loan should be considered as an advanced payment for the balance of the
respondent and hence, the promissory is void for lack of consideration. The petitioner filed a complaint and judgment
was rendered in their favor. As a result the respondent was ordered to pay the unpaid balance with 12% per annum
interest. The petitioners partially appealed the decision with respect to the interest. Petitioners claimed that the interest
rate applicable should be the 18% bank lending rate because that is what they have agreed upon in the contract.

Issue: WON erred in fixing in fixing the interest rate at 12% instead of the 18% bank lending rate.

Ruling:

YES. It is settled that the agreement or the contract between the parties is the formal expression of the parties’
rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an
agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the contents of the written
agreement. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations governs. In these cases, courts have no authority to alter a contract by construction or
to make a new contract for the parties. The Courts duty is confined to the interpretation of the contract which the parties
have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read
into the contract words which it does not contain. It is only when the contract is vague and ambiguous that courts are
permitted to resort to construction of its terms and determine the intention of the parties. The written agreement entered
into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in
payment and the promissory note charged an interest of 18%. To prove petitioners entitlement to the 18% bank lending
rate of interest, petitioners presented the promissory note prepared by respondent bank itself. This promissory note,
although declared void by the lower courts because it did not express the real intention of the parties, is substantial
proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence
or any vice of consent exercised by petitioners against the respondent, the interest rate agreed upon is binding on them.

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17. A) CARLOS LIM, et. al. v. DEVELOPMENT BANK OF THE PHILIPPINES, G.R. No. 177050, July 1, 2013

The payment of interest and penalty in loans is allowed only if the parties agreed to it and reduced their
agreement in writing

Civil law; Notice of extrajudicial foreclosure. [U]nless the parties stipulate, “personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary” because Section 3 of Act 3135 only requires the posting of the
notice of sale in three public places and the publication of that notice in a newspaper of general circulation.

In this case, the parties stipulated in paragraph 11 of the Mortgage that:

All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notification of any
judicial or extra-judicial action shall be sent to the Mortgagor at xxx or at the address that may hereafter be given in
writing by the Mortgagor or the Mortgagee;

However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure sale scheduled
on July 11, 1994. The letters dated January 28, 1994 and March 11, 1994 advising petitioners to immediately pay their
obligation to avoid the impending foreclosure of their mortgaged properties are not the notices required in paragraph 11
of the Mortgage. The failure of DBP to comply with their contractual agreement with petitioners, i.e., to send notice, is a
breach sufficient to invalidate the foreclosure sale.

17. Pua vs. Lo Bun Tioing

Article 1956 (Article 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)).
Which refers to the monetary interest specifically mandates that no interest shall be due unless it has been
expressly stipulated.

FACTS:

Ting Ting Pua extended a loan to respondent spouses Benito Lo Bun Tiong and Caroline Siok Chung Teng ,
vouched by her sister, Lilian in 1988, with a total amount of P 1,795,000 covered by 176 check with an oral agreement
that the same shall incur 2% compounding interest every month.. The checksissued by the spouses were subsequently
dishonored by the drawee bank upon presentment. On demand, the spouses pleaded for more time because of their
financial difficulties. Pua obliged and simply reminded the respondents of their indebtedness from time to time.

Several years later, in 1996, when their financial situation turned better, respondents called the petitioner for
the computation of their loan obligation. Hence, petitioner handed them a computation dated Oct 2, 1996 which showed
that at the agreed 2% compounding interest per month, the amount payable to the petitioner rose to P13,218,544,20.
The respondents asked Pua to reduce the amount to P 8,250,000.00. Wanted to get paid , petitioner agreed to the
lowered amount.
Respondents then delivcered to Pua a check bearing the reduced amount. In turn, respondents demanded for
the return of the 17 previously dishonored checks. Pua however, said that she will do so only after the encashment of
their payment.

Like the 17 checks. the check payment was dishonored, Hence, Pua filed a complaint to collect the money owed
by respondents.

On defense, Caroline denied having owed Pua as well as issuing the checks. The husband, Benito contends
that he and Caroline had been separated and did not know anything about the loan.

After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In holding thus, the RTC
stated that the possession by petitioner of the checks signed by Caroline, under the Negotiable Instruments Law, raises
the presumption that they were issued and delivered for a valuable consideration. On the other hand, the court a quo
discounted the testimony for the defense completely denying respondents’ loan obligation to Pua.

The trial court, however, refused to order respondents to pay petitioner the amount of PhP 8,500,000
considering that the agreement to pay interest on the loan was not expressly stipulated in writing by the parties. The
RTC, instead, ordered respondents to pay the principal amount of the loan as represented by the 17 checks plus legal
interest from the date of demand. As rectified,36 the dispositive portion of RTC’s Decision reads:

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Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are hereby ordered jointly and solidarily:

1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from September 30, 1998, until fully paid;
2. To pay plaintiff attorney’s fees of P200,000.00; and
3. To pay the costs of the suit.

On motion for reconsideration, the appellate court set aside the RTC Decision holding that Asiatrust Bank Check
No. BND057550 was an incomplete delivered instrument and that petitioner has failed to prove the existence of
respondents’ indebtedness to her. Hence, the CA added, petitioner does not have a cause of action against
respondents.

ISSUE: WON the 12% compounding interest on the loan may be collected by the plaintiff.

HELD: NO, respondents cannot be obliged to pay the interest of the loan on the ground that the supposed agreement
to pay such interest was not reduced to writing. Article 1956 of the Civil Code, which refers to monetary interest,
specifically mandates that no interest shall be due unless it has been expressly stipulated inwriting.68 Thus, the
collection of interest in loans or forbearance of money is allowed only when these two conditions concur: (1) there was
an express stipulation for the payment of interest; (2) the agreement for the payment of the interest was reduced in
writing.69 Absent any of these two conditions, the money debtor cannot be made liable for interest. Thus, petitioner is
entitled only to the principal amount of the loan plus the allowable legal interest from the time of the demand,70 at the
rate of 6% per annum.

The BSP may prescribe rates

Section 109 of RA No. 265 covered only loans extended by banks, whereas under section 1_A of the Usury Law, as
amended, the Bangko Sentral Monetary Board (BSP-MB) may prescribe the maximum rate or rates of interest for
loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority
such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions

Advocates for Truth in Lending Inc. vs. Bangko Sentral Monetary Board

Facts
"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation organized to engage in pro bono
concerns and activities relating to money lending issues. It was incorporated on July 9, 2010,and a month later, it filed
this petition, joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.

HISTORY OF CENTRAL BANK’S POWER TO FIX MAX INTEREST RATES

1. R.A. No. 265, which created the Central Bank on June 15, 1948, empowered the CB-MB toset the maximum
interest rates which banks may charge for all types of loans and other credit operations.
2. The Usury Law was amended by P.D.1684, giving the CB-MB authority to prescribe different maximum rates
of interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in advance. Section 1-a of Act No.
2655 now reads:
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular No. 905, Series of 1982,
effective on January 1, 1983. It removed the ceilings on interest rates on loans or forbearance of any money,
goods or credits:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance
of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.

4. R.A. No. 7653 establishing the BSP replaced the CB:

Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 and 132 of this Act, Republic Act No. 265,
as amended, the provisions of any other law, special charters, rule or regulation issued pursuant to said Republic Act
No. 265, as amended, or parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed.
Presidential Decree No. 1792 is likewise repealed.
Note: R.A. 7653 – the law that created BSP to replace CB – Note: this law did not retain the same provision as that of
Section 109 in RA 265.

PETITIONER’S ARGUMENTS
To justify their skipping the hierarchy of courts petitioners contend the transcendental importance of their Petition:
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a. CB-MB statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury Law;
b. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest
ceilings and thus suspended Act No. 2655 as regards usurious interest rates;
c. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905.
·
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB
was authorized only to prescribe or set the maximum rates of interest for a loan or renewal thereof or for the
forbearance of any money, goods or credits, and to change such rates whenever warranted by prevailing economic
and social conditions, the changes to be effected gradually and on scheduled dates; that nothing in P.D. No. 1684
authorized the CB-MB to lift or suspend the limits of interest on all credit transactions, when it issued CB Circular
No. 905. They further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly only to fix
the banks’ maximum rates of interest, but always within the limits prescribed by the Usury Law.

CB Circular No. 905, which was promulgated without the benefit of any prior public hearing, is void because it
violated NCC 5 which provides that "Acts executed against the provisions of mandatory or prohibitory laws shall be void,
except when the law itself authorizes their validity." weeks after the issuance of CB Circular No. 905, the benchmark
91-day Treasury bills shot up to 40% PA, as a result. The banks followed suit and re-priced their loans to rates which
were even higher than those of the "Jobo" bills. CB Circular No. 905 is also unconstitutional in light of the Bill of Rights,
which commands that "no person shall be deprived of life, liberty or property without due process of law, nor shall any
person be denied the equal protection of the laws." R.A. No. 7653 did not re-enact a provision similar to Section 109 of
RA 265, and therefore, in view of the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped
of the power either to prescribe the maximum rates of interest which banks may charge for different kinds of
loans and credit transactions, or to suspend Act No. 2655 and continue enforcing

CB Circular No. 905.

Ruling

CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury Law but simply suspended its effectivity;
that a Circular cannot repeal a low; that by virtue of CB the Usury Law has been rendered ineffective; that the Usury
has been legally non-existent in our jurisdiction and interest can now be charged as lender and borrow may agree upon.
Circular upheld the parties’ freedom of contract to agree freely on the rate of interest citing Art. 1306 under which the
contracting parties may establish such stipulations, clauses terms and conditions as they may deem convenient provided
they are not contrary to law, morals, good customs, public order or public policy.

BSP-MB has authority to enforce CB Circular No. 905.

RA 265 covered only banks while Section 1-a of the Usury Law, empowers the Monetary Board, BSP for that matter, to
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, good
or credits …
The Usury Law is broader in scope than RA 265, now RA 7653, the later merely supplemented the former as it
provided regulation for loans by banks and other financial institutions. RA 7653 was not unequivocally repealed by RA
765.

CB Circular 905 is essentially based on Section 1-a of the Usury Law and the Usury Law being broader in scope
than the law that created the Central Bank was not deemed repealed when the law replacing CB with the Bangko Sentral
was enacted despite the non-reenactment in the BSP Law of a provision in the CB Law which the petitioners purports
to be the basis of Circular 905. Magulo ba? Hahaha. Basta the present set up is: The power of the BSP Monetary Board
to determine interest rates emanates from the Usury Law [which was further specified by Circular 905].

Granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not retain this power of its
predecessor, in view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners point out
that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under
Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority
such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions.
It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 been intended
to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
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Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws existing pertaining to the subject.An implied repeal is
predicated upon the condition that a substantial conflict or repugnancy is found between the new and prior laws. Thus,
in the absence of an express repeal, a subsequent law cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws. We find no such conflict
between the provisions of Act 2655 and R.A. No. 7653.
#generalia specialibus non derogant

The lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable,
and iniquitous interest.
In Castro v. Tan, the Court held that the imposition of unconscionable interest is immoral and unjust. It is tantamount to
a repugnant spoliation and an iniquitous deprivation of property repulsive to the common sense of man. They are struck
down for being contrary to morals, if not against the law, therefore deemed inexistent and void ab initio. However this
nullity does not affect the lender’s right to recover the principal of the loan nor affect the other terms thereof.

PROCEDURAL MATTERS
The Petition is procedurally infirm.
The CB-MB was created to perform executive functions with respect to the establishment, operation or liquidation of
banking and credit institutions. It does not perform judicial or quasi-judicial functions. Certainly, the issuance of CB
Circular No. 905 was done in the exercise of an executive function. Certiorari will not lie in the instant case.

Petitioners have no locus standi to file the Petition

Locus standi is defined as "a right of appearance in a court of justice on a given question." In private suits, Section 2,
Rule 3 of the 1997 Rules of Civil Procedure provides that "every action must be prosecuted or defended in the name of
the real party in interest," who is "the party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit." Succinctly put, a party’s standing is based on his own right to the relief sought.
Even in public interest cases such as this petition, the Court has generally adopted the "direct injury" test that the
person who impugns the validity of a statute must have "a personal and substantial interest in the case such that
he has sustained, or will sustain direct injury as a result." while petitioners assert a public right it is nonetheless
required of them to make out a sufficient interest in the vindication of the public order and the securing of relief.
Petitioners also do not claim that public funds were being misused in the enforcement of CB Circular No. 905 which
would have made the action a public one, "and justify relaxation of the requirement that an action must be prosecuted
in the name of the real party-in-interest."

The Petition raises no issues of transcendental importance.

In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the requirements before taxpayers, voters, concerned
citizens, and legislators can be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must
be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as
legislators.
In CREBA v. ERC, guidelines as determinants on whether a matter is of transcendental importance, namely:
1. the character of the funds or other assets involved in the case;
2. the presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent
agency or instrumentality of the government; and
3. the lack of any other party with a more direct and specific interest in the questions being raised.

Legal Interest: BSP Circular No. 799 effective July 2013

The rate of interest for loan or forbearance of any money, goods or credits and the rate allowed in
judgements, in the absence of an express contract as to such rate of interest: shall be 6% per annum.

19. Andal vs. PNB

Pursuant to circular 799, series of 2013, issued by the office if the Governor of the Bnagko Sentral ng Pilipinas
on 21 June 2013, and in accordance with the ruling of the SC in the recent case of Dario Nacar v. Gallery Frames,
703 scra 439 (2013), effective July 1, 2013, the rate for the loan or forbearance of the money, goods or credits

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GRANDEUREIGN D. ORTIZO CREDIT TRANSACTION

and the rate allowed in judgments in the absence of an express contract as to such interest, shall be fix 6% per
annum.

Facts:

Petitioners-spouses obtained a loan from, for which they executed (12) promissory notes undertaking to pay
the bank the principal loan with varying interest rates per interest period. It was agreed upon by the parties that the rate
of interest may be increased or decreased for the subsequent interest periods, with prior notice to petitioners-spouses.
To secure payment for the loan, petitioners-spouses executed in favor of the bank a real estate mortgage using as
collateral 5 parcels of land including all improvements therein.

When the bank advised petitioners-spouses to pay their loan obligation, the latter complied to avoid foreclosure
of the properties subject of the real estate mortgage. However, despite payment PNB proceeded to foreclose the real
estate mortgage so petitioners-spouses filed a case with the RTC

Petitioners-spouses alleged that the exorbitant rate of interest unilaterally determined and imposed by PNB
prevented them from paying their obligation. They also alleged that they signed the promissory notes in blank, relying
on the representation of PNB that they were merely proforma bank requirements. PNB contended that the penalty
charges imposed on the loan was expressly stipulated under the credit agreements and in the promissory notes.

RTC rendered judgment in favor of petitioners-spouses. The CA affirmed the decision, but it also denied
petitioners-spouses’ contention that no interest is due on their principal loan obligation from the time of foreclosure until
finality of the judgment annulling the foreclosure sale.

Issue: Whether no interest is due on the petitioners-spouses loan obligation

Held:

No. That the rate of interest was subsequently declared illegal and unconscionable does not entitle petitioners-
spouses to stop payment of interest.1âwphi1 It should be emphasized that only the rate of interest was declared void.
The stipulation requiring petitioners-spouses to pay interest on their loan remains valid and binding. They are, therefore,
liable to pay interest from the time they defaulted in payment until their loan is fully paid.
Forbearance of Money

20. Land Bank of the Philippines vs. Ong

Forbearance of money refers to the contractual obligation of the lender or creditor to desist for a fixed period
from requiring borrower or debtor to repay the loan or debt when due anf for which 12% per annum is imposed
as interest in the absence of a stipulated.

FACTS: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City
in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February
28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated
February 22, 1996 contained an acceleration clause wherein any default in payment of amortizations or other charges
would accelerate the maturity of the loan.1

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they
sold three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a
Deed of Sale with Assumption of Mortgage.

That as soon as our obligation has been duly settled, the bank is authorized to release the mortgage in favor of
the vendees and for this purpose VENDEES can register this instrument with the Register of Deeds for the issuance of
the titles already in their names.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption
of mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo
de Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements
for the assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed
at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve
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GRANDEUREIGN D. ORTIZO CREDIT TRANSACTION

the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty.
Hingco. A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as
financial statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy
would be transferred in his name but this never materialized. No notice of transfer was sent to him.

Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The
bank learned from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP
18,300,000 with another bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land
Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he
saw the subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in
Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to Land Bank’s lawyer and was told that
the PhP 750,000 he paid would be returned to him.

ISSUE: WON Alfredo’s conditional payment constitutes forbearance of money.

HELD: No. Forbearance of money refers to the contractual obligation of the lender or creditor to desist for a fixed period
from requiring the borrower or debtor to repay the loan or debt then due and for which 12% per annum is imposed as
interest in the absence of a stipulated rate.

In the instant case, Alfredo’s conditional payment to Land Bank does not constitute forbearance of money, since
there was no agreement or obligation for Alfredo to pay Land Bank the amount of PhP 750,000, and the obligation of
Land Bank to return what Alfredo has conditionally paid is still in dispute and has not yet been determined. Thus, it
cannot be said that Land Bank’s alleged obligation has become a forbearance of money.

21. Estores vs. Supangan

ESTORES V. SPOUSES SUPANGAN, (2012)

(Compensatory, Penalty or Indemnity Interest)
*Forbearance of money
ISSUE: Whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the
absence of stipulation of the parties.

HELD:
YES. Interest may be imposed even in the absence of stipulation in the contract.
Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract.” In this case, there is no question that petitioner is legally obligated to return the P3.5 million
because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. Petitioner enjoyed the use of
the money from the time it was given to her until now. Thus, she is already in default of her obligation from the date of demand.

Forbearance is defined as a “contractual obligation of lender or creditor to refrain during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable.” This definition describes a loan where a debtor is given a
period within which to pay a loan or debt. In such case, “forbearance of money, goods or credits” will have no distinct definition
from a loan. We believe however, that the phrase “forbearance of money, goods or credits” is meant to have a separate meaning
from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil
Code.

Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain
conditions.

In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore
allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were
deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached,
they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the
compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan
since the use or deprivation of funds is similar to a loan.

5. Reduction of Unconscionable Interest Rates

22. Phil. Export and Foreign Loan Guarantee Corp. vs. Amalgamated Management and Dev’t. Corp

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In contracts, the law empowers the courts to reduce interest rates and penalty charges that are iniquitos,
unconscionable and exorbitant

Facts:

The petitioner, is a government-owned and controlled-corporation created by virtue of Presidential Decree No.
1080, as amended by Republic Act No. 8497. Its primary purpose is to guarantee the foreign loans, in whole or in part,
granted to any domestic entity, enterprise, or corporation, majority of the capital of which is owned by Filipino citizens.

Respondent Amalgamated Management and Development Corporation (AMDC), a domestic corporation, had
as its main business the hauling of different commodities within the Middle East countries. Its co-respondents Felimon
R. Cuevas (Cuevas) and Jose A. Saddul, Jr. (Saddul) were, respectively, its President and Vice-President.

AMDC obtained from the National Commercial Bank of Saudi Arabia (NCBSA) a loan amounting to SR3.3
million (equivalent to P9,000,000.00). As the security for the guaranty, Amalgamated Motors Philippines Incorporated
(AMPI), a sister company of AMDC, acted as an accommodation mortgagor, and executed in favor of the petitioner a
real estate mortgage over two parcels of land located in Dasmarias. AMDC also executed in favor of the petitioner a
deed of undertaking dated April 21, 1982,[6] with Cuevas and Saddul as its co-obligors. In the deed of undertaking,
AMDC, Cuevas, and Saddul jointly and severally bound themselves to pay to the petitioner, as obligee, whatever
damages or liabilities that the petitioner would incur by reason of the guaranty.

AMDC defaulted on the obligation. Upon demand, the petitioner paid the obligation to NCBSA. By subrogation
and pursuant to the Deed of Undertaking, the petitioner then demanded that AMDC, Cuevas and Saddul should pay the
obligation, but its demand was not complied with. Hence, it extra-judicially foreclosed the real estate mortgage.

Petitioner sued AMDC, Cuevas and Saddul on the premise that the procees were insufficient to cover balance.

RTC, ruled in favor of Petitioner, however, Cuevas and Saddul were absolved and the lower court fixed the
interest rate from 16% to 6% per annum(accruing interest until deficiency claim is fully paid)

On appeal, the CA affirmed in toto the decision.

Issue: Whether the CA erred in declaring that AMDC was liable to pay interest and penalty charge at the rate of only
6% per annum instead of 16% per annum

Ruling: No, the CA did not err.

We do not subscribe to the petitioners submission.

In contracts, the law empowers the courts to reduce interest rates and penalty charges that are iniquitous,
unconscionable and exorbitant.[33] Whether an interest rate or penalty charge is reasonable or excessive is addressed
to the sound discretion of the courts. In determining what is iniquitous and unconscionable, courts must consider the
circumstances of the case.

23. Albos vs. Embisan

As case law instructs, the imposition of unconscionable rate of interest on money debt, even if
knowingly and voluntarily assumed, is immoral and unjust.

FACTS:

On October 17, 1984, petitioners entered into an agreement, denominated as "Loan with Real Estate Mortgage,"
with respondent spouses Nestor and Iluminada Embisan (spouses Embisan) in the amount of P84,000.00 payable within
90 days with a monthly interest rate of 5%. To secure the indebtedness, petitioners mortgaged to the spouses Embisan
a parcel of land in Project 3, Quezon City, measuring around 207.6 square meters and registered under their name, as
evidenced by Transfer Certificate Title No. 257697. Payments are made but there are times that the petitioners fails to
pay which led to the the request of extension of the loan obligation which are also granted. Along with the grant of
extensions, a stipulation was made which would make the 5% interest compounded. Unfortunately, such change in the
contract was not deduced to writing. The subject parcel land was extra-judicially foreclose and was auctioned. The
herein respondents became the highest bidder. The petitioners are forced to sign an agreement that would make them
lease to the parcel of land which was now owned by the respondents. The petitioners filed a suit to declare the extra-
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judicial foreclosure void on the ground that they already paid the principal amount. The lower court dismissed the case
as well as the Court of Appeals. Thus, this petition.

ISSUE: Whether or not the stipulation compounding the interest charged should specifically be indicated in a written
agreement.

HELD:
Yes, the stipulation compounding the interest charged should specifically be indicated in a written agreement.
In accordance with Article 1956 – No interest shall be due unless it has been expressly stipulated in writing.

As mandated by the foregoing provision, payment of monetary interest shall be due only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for such payment was reduced in writing. Thus,
the Court has held that collection of interest without any stipulation thereof in writing is prohibited by law.

In the case at bar, it is undisputed that the parties have agreed for the loan to earn 5% monthly interest, the
stipulation to that effect put in writing. When the petitioners defaulted, the period for payment was extended, carrying
over the terms of the original loan agreement, including the 5% simple interest. However, by the third extension of the
loan, respondent spouses decided to alter the agreement by changing the manner of earning interest rate, compounding
it beginning June 1986.

Given the circumstances, the Court rule that the first requirement––that there be an express stipulation for the
payment of interest––is not sufficiently complied with, for purposes of imposing compounded interest on the loan. The
requirement does not only entail reducing in writing the interest rate to be earned but also the manner of earning the
same, if it is to be compounded.

Also, imposing 5% monthly interest, whether compounded or simple, is unconscionable.

Thus, the stipulation in the Loan with Real Estate Mortgage imposing an interest of 5% monthly is declared
void and in view of the nullity of the interest imposed on the loan which affected the total arrearages upon which
foreclosure was based, the foreclosure of mortgage, Certificate of Sale, Affidavit of Consolidation, Deed of Final Sale,
and Contract of Lease are declared void.

Albos vs. Embisan

Facts:

On October 17, 1984, petitioners entered into an agreement,denominated as “Loan with Real Estate Mortgage,”2 with
respondent spouses Nestor and IluminadaEmbisan (spouses Embisan) i payable within 90 days with a monthly interest
rate of 5%. To secure the indebtedness, petitioners mortgaged to the spouses Embisan a parcel of land in Project 3,
Quezon City, measuring around 207.6 square meters and registered under their name, as evidenced by Transfer
Certificate Title No. 257697.3chanrobleslaw

For failure to settle their account upon maturity, petitioner Aida Albos requested and was given an extension of eleven
(11) months, when the said deadline came , petitioners failed to pay his obligation, on agreement of the parties, another
extension on the second time and obligations remained unpaid. Thus, when the petitioners requested a third extension,
as will later be alleged by the respondent spouses, an additional eight (8) months was granted on the condition that the
monthly 5% interest from then on, i.e. June 1986 onwards, will be compounded. This stipulation, however, was not
reduced in writing.

Issue:
Whether or not the stipulation compounding the interest charged should specifically be indicated in a written agreement.

Held:
YES. Article 1956 of the New Civil Code, which refers to monetary interest, provides:
No interest shall be due unless it has been expressly stipulated in writing.
As mandated by the foregoing provision, payment of monetary interest shall be due only if: (1) there was
an express stipulation for the payment of interest; and (2) the agreement for such payment was reduced in
writing.
In the case at bar, it is undisputed that the parties have agreed for the loan to earn 5% monthly interest, the stipulation
to that effect put in writing. When the petitioners defaulted, the period for payment was extended, carrying over the
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terms of the original loan agreement, including the 5% simple interest. However, by the third extension of the loan,
respondent spouses decided to alter the agreement by changing the manner of earning interest rate, compounding it
beginning June 1986. This is apparent from the Statement of Account prepared by the spouses Embisan themselves.

Article 1956 of the New Civil Code, which refers to monetary interest, provides: Article 1956. No interest shall be due
unless it has been expressly stipulated in writing. As mandated by the foregoing provision, payment of monetary interest
shall be due only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for such
payment was reduced in writing. Thus, the collection of interest without any stipulation thereof in writing is prohibited by
law.

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II. DEPOSIT ( Arts 1962-2009)

a) Deposit in General & its Different Kinds (Arts 1962-1967)

CHAPTER 1
Deposit in General and its Different Kinds

Article 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract. (1758a)

Article 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of
the thing. (n)

Article 1964. A deposit may be constituted judicially or extrajudicially. (1759)

Article 1965. A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the
depositary is engaged in the business of storing goods. (1760a)

Article 1966. Only movable things may be the object of a deposit. (1761)

Article 1967. An extrajudicial deposit is either voluntary or necessary. (1762)

26. Bank of the Phil. Islands vs. Intermediate Appellate Court, 164 SCRA 630, No. L-66826, August 19, 1988

The document which embodies the contract states that the US$ 3,000 was received by the bank fior safekeeping. The
subsequent acts of the parties also shiw that the inteant of the parties was really for the bank to safely keep the dollars and to
return of the money on May 10,1976 or over months later. The above arrangeents, is that defined under Art. 1962, Civil Code

Article 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract. (1758a

Facts:
A contract of depositum was entered into by Garcia, on behalf of COMTRUST (BPI), wherein he received US $3,000
(foreign exchange) from Zshornack for safekeeping. Later on or over five months later, Zshornack demanded the return
of the money but the bank refused alleging that the amount was sold and transferred to her current account.
Arguments: COMTRUST (BPI): The parties entered into a contract of depositum which banks do not enter into. Thus,
Garcia exceeded his powers when he entered into the contract on behalf of the bank, hence, the bank cannot be liable
under the contract.

Issue:
WON the contract entered into is a contract of depositum.

Held:
Yes. The situation is one contemplated in Art. 1962 of the NCC:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation
of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of
the contract, there is no deposit but some other contract.
Note: But because the subject of the contract here is a foreign exchange, it is covered by Central Bank Circular No. 20
which requires that, “All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold
to authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign
exchange.” Since the document and the subsequent acts of the parties show that they intended the bank to safekeep
the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident, the
parties did not intend to sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the
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contract of depositum would never have been entered into at all. In other words, the transaction between Zshornack
and the bank was void having been executed against the provisions of a mandatory law (CB Circ No. 20). Being in pari
delicto, the law cannot afford either of them remedy.

27. BPI FAMILY SAVINGS BANK, INC vs. FIRST METRO INVESTMENT CORPORATION

Ordinarily, a time deposit ids defined as “ one the payment of which cannot legally be required within
such specified number of days” In Contrast, demand deposits are “ all those liabilities of BSP and other banks
which are denominated in Phil. Currency and are subject to payment in legal tender upon demand by the
presentation of ( depositor’s) checks

G.R. No. 132390 May 21, 2004 429 SCRA 30

FACTS:
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current account and
deposited METROBANK check no. 898679 of P100 million with BPI Family Bank (BPI FB) . Ong made the deposit upon
request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch Manager of BPI FB San
Francisco del Monte Branch. Sebastian’s aim was to increase the deposit level in hisBranch.BPI FB, through Sebastian,
guaranteed the payment of P14,667,687.01 representing 17% per annum interest of P100 million deposited by
FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of P100 million for a period of one year on
condition that the interest of 17% per annum is paid in advance. This agreement between the parties was reached
through their communications in writing. Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon
clearance of the latter’s check deposit
However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma. Theresa David, Senior
Manager of FMIC, BPI FB transferred P80 million from FMIC’s current account to the savings account of Tevesteco
Arrastre – Stevedoring, Inc. FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the
signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit, FMIC, on September 12,
1989, issued BPI FB check no. 129077 forP86,057,646.72 payable to itself and drawn on its deposit with BPI FB SFDM
branch. But upon presentation for payment on September 13, 1989, BPI FB dishonored the check as it was "drawn
against insufficient funds. Consequently, FMIC filed A COMPLAINT against BPI FB. FMIC FILED an Information for
estafa against Ong, de Asis, Sebastian and four others. However, the Information was dismissed on the basis of a
demurrer to evidence filed by the accused.
ISSUE:
1. WHETHER THE TRANSACTION BETWEEN FMIC AND BPI FB A TIME DEPOSIT or a DEMAND DEPOSIT?
HELD:
The SC held that the parties did not intend the deposit to be treated as a demand deposit but rather as an interest-
earning time deposit not withdrawable anytime.
When respondent FMIC invested its money with petitioner BPI FB, they intended theP100 million as a time deposit, to
earn 17% per annum interest and to remain intact until its maturity date one year thereafter. Ordinarily, a time deposit
is defined as "one the payment of which cannot legally be required within such a specified number of days. In
contrast, demand deposits are "all those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippine currency and are subject to payment in legal tender upon demand by
the presentation of (depositor’s) checks.
While it may be true that barely one month and seven days from the date of deposit, respondent FMIC demanded the
withdrawal of P86,057,646.72 through the issuance of a check payable to itself, the same was made as a result of the
fraudulent and unauthorized transfer by petitioner BPI FB of its P80 million deposit to Tevesteco’s savings account.
Certainly, such was a normal reaction of respondent as a depositor to petitioner’s failure in its fiduciary duty to treat its
account with the highest degree of care. Under this circumstance, the withdrawal of deposit by respondent FMIC before
the one-year maturity date did not change the nature of its time deposit to one of demand deposit.
The SC have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope
of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will,
as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying
such authority. Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and
the fixing of the interest rate were pursuant to its (petitioner’s)internal procedures. Petitioner’s stance is a futile attempt
to evade an obligation clearly established by the intent of the parties. What transpires in the corporate boardroom is
entirely an internal matter. Hence, petitioner may not impute negligence on the part of respondent’s representative in
failing to find out the scope of authority of petitioner’s Branch Manager.
Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously, confidence
in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society.
Significantly, the transaction was actually acknowledged and ratified by petitioner when it paid respondent in advance
the interest for one year. Thus, petitioner is estopped from denying that it authorized its Branch Manager to enter into

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an agreement with respondent’s Executive Vice President concerning the deposit with the corresponding 17% interest
per annum.

b. Voluntary Deposit (Arts 1968-1994)

b.1 General Provisions

SECTION 1
General Provisions

Article 1968. A voluntary deposit is that wherein the delivery is made by the will of the depositor. A deposit may also be
made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who
shall deliver it in a proper case to the one to whom it belongs. (1763)

Article 1969. A contract of deposit may be entered into orally or in writing. (n)

Article 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former
shall be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or
administrator, of the person who made the deposit, or by the latter himself if he should acquire capacity. (1764)

Article 1971. If the deposit has been made by a capacitated person with another who is not, the depositor shall only
have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter
to pay him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third
person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery. (1765a)

Voluntary deposit defined.

A voluntary deposit is one wherein the delivery is made by the will of the depositor.

Ordinarily, there are only two persons involved. Sometimes, however, the depositary may be a third person.
(Art. 1968, par. 2.)

Voluntary and necessary deposits distinguished.

The chief difference between a voluntary deposit and a necessary deposit is that in the former, the depositor
has complete freedom in choosing the depositary, whereas in the latter, there is lack of free choice in the
depositor. (see 11 Manresa 674.)

Depositor need not be owner of thing.

Generally, the depositor must be the owner of the thing deposited. But it may belong to a person other than
the depositor.

110

Arts. 1969-1970 DEPOSIT 111 Voluntary Deposit/General Provisions

Thus, a carrier, commission agent, a lessee, etc. may deposit goods temporarily in his possession
considering that the contract does not involve the transfer of ownership.

As a matter of fact, the depositary cannot dispute the title of the depositor to the thing deposited. (Art. 1984,
par. 1.) The depositary is in estoppel. (see Art. 1436.)

Where there are several depositors.

Two or more persons each claiming to be entitled to a thing may deposit the same with a third person. In
such case, the third person assumes the obligation to deliver to the one to whom it belongs.

The action to compel the depositors to settle their conflicting claims among themselves would be in the

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nature of an interpleader. (Sec. 1, Rule 62, Rules of Court.1) Here, one of the depositors is not the owner.

Art. 1969. A contract of deposit may be entered into orally or in writing.

Form of contract of deposit.

The above article follows the general rule that contracts shall be obligatory in whatever form they may have
been entered into provided all the essential requisites for their validity are present. (Art. 1356.) Thus, except
for the delivery of the thing, there are no formalities required for the existence of the contract.

Art. 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall
be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or
administrator, of the person who made the deposit, or by the latter himself if he should acquire capacity.

Where depositary capacitated and depositor incapacitated.

If the depositary is capacitated, he is subject to all the obliga- tions of a depositary whether or not the
depositor is capacitated. In the latter case, the depositary must return the property to the
legalrepresentativeoftheincapacitated ortothedepositorhim- self if he should acquire capacity. (see Art.
1986.)

Under the law, “persons who are capable cannot allege the incapacity of those with whom they contract.”
(Art. 1397.)

Art. 1971. If the deposit has been made by a capacitated person with another who is not, the depositor shall only have
an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay
him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third person
who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery.

Where depositary incapacitated and depositor capacitated.

The incapacitated depositary (like a minor or an insane person) does not incur the obligation of a depositary.
However, he is liable (1) to return the thing deposited while still in his possession and (2) to pay the
depositor the amount by which he may have benefited himself with the thing or its price subject to the right
of any third person who acquired the thing in good faith.

EXAMPLE:

A deposited a watch with B, a minor who sold it to C.

If C acted in bad faith, A may recover the watch from him. But if C acted in good faith, A’s only recourse is
against B to compel him to return the price received for the watch or the amount by which he may have
benefited himself.

b.2 Obligations of Depositor

It has been held that when there is no fix period for the return, withdrawal can be made at any time without
necessity of judicial order (Aboitiz vs Oquinena, 39 phil 926)

Obligations of the Depositary

Article 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to
his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard
to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book.
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If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary
must observe. (1766a)

Article 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit the thing with a third person. If
deposit with a third person is allowed, the depositary is liable for the loss if he deposited the thing with a person who is
manifestly careless or unfit. The depositary is responsible for the negligence of his employees. (n)

Article 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume
that the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary
may make such change, he shall notify the depositor thereof and wait for his decision, unless delay would cause danger.
(n)

Article 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to
collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes. (n)

Article 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the
same kind and quality, in which case the various depositors shall own or have a proportionate interest in the mass. (n)

Article 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor.

Otherwise, he shall be liable for damages.

However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose.
(1767a)

Article 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit
and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract.

The permission shall not be presumed, and its existence must be proved. (1768a)

Article 1979. The depositary is liable for the loss of the thing through a fortuitous event:

(1) If it is so stipulated;

(2) If he uses the thing without the depositor's permission;

(3) If he delays its return;

(4) If he allows others to use it, even though he himself may have been authorized to use the same. (n)

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. (n)

Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same
condition, and he shall be liable for damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening
is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility
of the depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit. (1769a)

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Article 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized
to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot
be executed without opening the box or receptacle. (n)

Article 1983. The thing deposited shall be returned with all its products, accessories and accessions.

Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary.
(1770)

Article 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited.

Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of
the deposit.

If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved
of all responsibility by returning the thing deposited to the depositor.

If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the
former may return the same. (1771a)

Article 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one
cannot demand more than his share.

When there is solidarity or the thing does not admit of division, the provisions of articles 1212 and 1214 shall govern.
However, if there is a stipulation that the thing should be returned to one of the depositors, the depositary shall return it
only to the person designated. (1772a)

Article 1986. If the depositor should lose his capacity to contract after having made the deposit, the thing cannot be
returned except to the persons who may have the administration of his property and rights. (1773)

Article 1987. If at the time the deposit was made a place was designated for the return of the thing, the depositary must
take the thing deposited to such place; but the expenses for transportation shall be borne by the depositor.

If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not
be the same place where the deposit was made, provided that there was no malice on the part of the depositary. (1774)

Article 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or
time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he
have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases,
the depositary must immediately inform the depositor of the attachment or opposition. (1775)

Article 1989. Unless the deposit is for a valuable consideration, the depositary who may have justifiable reasons for not
keeping the thing deposited may, even before the time designated, return it to the depositor; and if the latter should
refuse to receive it, the depositary may secure its consignation from the court. (1776a)

Article 1990. If the depositary by force majeure or government order loses the thing and receives money or another
thing in its place, he shall deliver the sum or other thing to the depositor. (1777a)

Article 1991. The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall
only be bound to return the price he may have received or to assign his right of action against the buyer in case the
price has not been paid him. (1778)

b.3 Obligations of the Depositor (Arts. 1992-1995)

Obligations of the Depositor

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Article 1992. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may
have incurred for the preservation of the thing deposited. (1779a)

Article 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited,
unless at the time of the constitution of the deposit the former was not aware of, or was not expected to know the
dangerous character of the thing, or unless he notified the depositary of the same, or the latter was aware of it without
advice from the depositor. (n)

Article 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of
the deposit. (1780)

Article 1995. A deposit its extinguished:

(1) Upon the loss or destruction of the thing deposited;

(2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary. (n)

29. CA-Agro Industrial Development Corp. vs. CA – Castro A.

*safety deposit box – a contract for the rent of safety deposit box an ordinary contract of lease but
special king of deposit

Facts:
Petitioner (through its President) purchased 2 parcels of land from spouses Pugao for P350K with a downpayment of
P75 K. Per agreement, the land titles will be transferred upon full payment and will be placed in a safety deposit box of
any bank. Moreover, the same could be withdrawn only upon the joint signatures of a representative of the Petitioner
and the Pugaos upon full payment of the purchase price. Thereafter, Petitioner and spouses placed the titles in the
safety deposit box of Respondent Security Bank and signed a lease contract which substantially states that the Bank
will not assume liability for the contents of the deposit box. Subsequently, 2 renter's keys were given to the renters; one
to the Petitioner and the other to the Pugaos. A guard key remained in the possession of the Respondent Bank. The
safety deposit box can only be opened using these 2 keys simultaneously. Afterwards, a certain Mrs. Ramos offered to
buy from the Petitioner the 2 lots that would yield a profit of P285K. Mrs. Ramos demanded the execution of a deed of
sale which necessarily entailed the production of the certificates of title. Thus, Petitioner with the spouses went to
Respondent Bank to retrieve the titles. However, when opened in the presence of the Bank's representative, the safety
deposit box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew
her earlier offer to purchase the lots; as a consequence, the Petitioner allegedly failed to realize the expected profit of
P285K. Hence, Petitioner filed a complaint for damages against Respondent Bank. The Lower court ruled in favor of
Respondent Bank.
Issues:
1. Whether or not the disputed contract is an ordinary contract of lease?
2. Whether or not the provisions of the cited contract are valid?
3. Whether or not Respondent Bank is liable for damages?
Ruling:
1. No. SC ruled that it is a special kind of deposit because: the full and absolute possession and control of the safety
deposit box was not given to the joint renters the Petitioner and the Pugaos. The guard key of the box remained with
the Respondent Bank; without this key, neither of the renters could open the box and vice versa. In this case, the said
key had a duplicate which was made so that both renters could have access to the box. Moreover, the renting out of the
deposit box is not independent from, but related to or in conjunction with, the principal function of a contract of deposit
the receiving in custody of funds, documents and other valuable objects for safekeeping.
2. NO. SC opined that it is void. Generally, the Civil Code provides that the depositary (Respondent Bank) would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. In the absence of any stipulation, the diligence of a good father of a family is to be observed. Hence, any
stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy (which is present in the disputed contract·
Said provisions are inconsistent with the Respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act.
3. NO. SC ruled that: no competent proof was presented to show that Respondent Bank was aware of the private
agreement between the Petitioner and the Pugaos that the Land titles were withdrawable from the safety deposit box
only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of
title was due to the fraud or negligence of the Respondent Bank.

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TRIPLE-V vs. FILIPINO MERCHANTS???

FACTS:
A certain Mary Jo-anne De Asis is an employee of Crispa Textile Inc. A car was issued to her by the latter. She
went to Kamayan Restaurant in Quezon City. De Asis availed of the valet parking service of petitioner and entrusted
her car key to petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car. The car was
then parked by petitioner's valet attendant, a certain Madridano, at the designated parking area. Few minutes later,
Madridano noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually
keep the keys of cars entrusted to them. The car was never recovered.
Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI).
Having indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's
rights, filed with the RTC at Makati City an action for damages against petitioner.
The trial court ruled in favor of the respondent. Its decision was affirmed on appeal.
The petitioner argues that it was not a depositary of the subject car and that it exercised due diligence and
prudence in the safe keeping of the vehicle, in handling the car-napping incident and in the supervision of its employees.
It further argued that there was no valid subrogation of rights between Crispa and respondent FMICI.
ISSUE: Whether petitioner is a depositary of the subject vehicle
HELD: YES. It is a depositary of the subject vehicle.
In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping
it and returning the same. A deposit may be constituted even without any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to
the depositor.
When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan
Restaurant, the former expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a
depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of
insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking
service.
As to petitioner’s argument that the stub given to the employee is an explicit waiver of any right to claim
indemnity for the loss of the car
The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner
from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the
petitioner alone with no participation whatsoever on the part of the customers, like De Asis, who merely adheres
to the printed stipulations therein appearing. While contracts of adhesion are not void in themselves, yet this Court will
not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and
circumstances.

*Bank Deposits

Case 1.

31. People v Ong, 204 scra 942

All kinds of deposits whether fixed or current are to be treated as loans and are to be covered by the
law on loans*

Facts:
Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust Company (HSBTC) opened a
savingsaccount with HSBTC with an initial deposit of P22.14 in cash and P10,000.00 in check.Ong was allowed to
withdraw from his savings account with the Bank the sum of P5,000.00, without his check undergoingthe usual and
reglementary clearance. The withdrawal slip was signed and approved by Lino Morfe, then the BranchManager, and
accused Lucila Talabis, the Branch Cashier.Subsequently, Ong deposited eleven checks in his savings account with
the Bank and against which he made withdrawalsagainst its amount. Again, the withdrawal of the amount by Ong was
made before said checks were cleared and the Bank had collected their amounts and with the approval of
Talabis.However, when the Bank presented the eleven checks issued, deposited and against which Ong made
withdrawals againstits amounts, to their respective drawee banks for payment, they were all dishonored for lack or
insufficiency of funds.Because of this, the Bank filed a criminal action for Estafa against Ong, and the Bank’s officer in
charge Villaran andTalabis.Talabis testified that the approval of the withdrawals of Ong against his uncleared checks
was in accordance with theinstruction of their then bank manager and that it is a kind of accommodation given to Ong
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and also a common practice of the Bank.RTC ruled Ong as guilty for the crime of estafa but acquitted Villarin and Talabis
as their guilt were not proven beyondreasonable doubt. CA affirmed RTCs decisions.Issue:
1.
What is the nature of bank deposits?
2.
WON Ong is guilty of Estafa. No.Ruling:
1.
The Supreme Court held that bank deposits are in the nature of irregular deposits.Bank deposits are really loans
because they earn interest. Whether fixed, savings, or current, all bank Adepositsare to be treated as loans and are to
be covered by the law on loans.
2.
The elements of this kind of estafa are the following: (1) postdating or issuance of a check in payment of anobligation
contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and(3) damage to
the payee thereof.In this case, the fact was established that Ong either issued or indorsed the subject checks. However,
it must beremembered that the reason for the conviction of an accused of the crime of estafa is his guilty knowledge of
thefact that he had no funds in the bank when he negotiated the spurious check.In the present case, however, the
prosecution failed to prove that Ong had knowledge with respect to the checkshe indorsed.Moreover, it has also been
proven that it was the Bank which granted him a drawn against uncollected deposit(DAUD) privilege without need of
any pretensions on his part. The privilege this privilege was not only for thesubject checks, but for other
past transactions. If ever, he, indeed acted fr audulently, he could not have done so without the active cooperation of
the Banks employees. Since Talabis andVillaran were declared innocent of the crimes charged against them, the
same should be said for the Ong.

Thus, Ong cannot be held criminally liable against the Bank. He can only be held civilly liable as the Bank incurred
damages

Case 2
32. Guingona vs City Fiscal, 128 scra 577

While have obligation to return the amount deposited, they have no obligation to return or deliver the
same money deposited in the same denomination as was deposited. Thus, Estafa will not prosper

Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. The City Fiscal of Manila, Hon. Jose Flaminiano,
Asst. City Fiscal Felizardo Lota and

Facts:
From March 1979 to March 1981, Clement David made several investments with the National Savings and Loan
Association. On March 21, 1981, the bank was placed under receivership by the Bangko Sentral. Upon David’s request,
petitioners Guingona and Martin issued a joint promissory note, absorbing the obligations of the bank. On July 17, 1981,
they divided the indebtedness. David filed a complaint for estafa and violation of Central Bank Circular No. 364 and
related regulations regarding foreign exchange transactions before the Office of the City Fiscal of Manila. Petitioners
filed the herein petition for prohibition and injunction with a prayer for immediate issuance of restraining order and/or
writ of preliminary injunction to enjoin the public respondents to proceed with the preliminary investigation on the ground
that the petitioners’ obligation is civil in nature.
Issue:
(1) Whether the contract between NSLA and David is a contract of depositor a contract of loan, which answer determines
whether the City Fiscal has the jurisdiction to file a case for estafa
(2) Whether there was a violation of Central Bank Circular No. 364
Held:
(1) When private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the
contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Hence, the
relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor;
consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract
and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return theamount deposited, it has, however, no obligation to return
or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not
constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will
only give rise to civil liability over which the public respondents have no jurisdiction.
But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would
constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal
liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank,
petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in
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the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original
trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the
petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation
as a debtor. Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the
rise of criminal liability as long as it occurs prior to the filing of the criminal information in court. In the case at bar, there
is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation
of the bank to private respondent David; while the criminal complaint for estafa was filed on December 23, 1981 with
the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal complaint with
the Office of the City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided but there will
still be a civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
(2) Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in order to clear
the bank draft through his dollar account because the bank did not have a dollar account. Immediately after the bank
draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order
to be utilized by the bank for its operations. It is safe to assume that the U.S. dollars were converted first into Philippine
pesos before they were accepted and deposited in Nation Savings and Loan Association, because the bank is presumed
to have followed the ordinary course of the business which is to accept deposits in Philippine currency only, and that
the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing
that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when
they investigated the charges against the petitioners. Consequently, public respondents should be restrained from
further proceeding with the criminal case for to 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 meaningless the proper
administration of justice.

# 33 Tan, Tiong, Tick vs. American Hypothecary Co., G.R. No. L-43682 March 31, 1938 - DINGLASAN

Money deposited in banks, whether fixed, savings and current, are really loans to a bank because the
bank can use the same for its ordinary transactions and for banking business in which it is engaged.

DOCTRINES:
1. The bank can make use as its own the money deposited.
2. Current account and savings deposts are not preferred credits in case of insolvency and liquidation.
3. The bank can offset the deposit of the client who has a debt with the bank.
4. Deposits should not earn interest from the time the bank cease to do business. IMPERIAL, J.:

Facts:

In the proceedings for the liquidation of the Mercantile Bank of China, the appellant presented a written claim alleging:
that when this bank ceased to operate on September 19, 1931, his current account in said bank showed a balance of
P9,657.50 in his favor; that on the same date his savings account in the said bank also showed a balance in his favor
of P20,000 plus interest then due amounting to P194.78; that on the other hand, he owed the bank in the amount of
P13,262.58, the amount of the trust receipts which he signed because of his withdrawal from the bank of certain
merchandise consigned to him without paying the drafts drawn upon him by the remittors thereof; that the credits thus
described should be set off against each other according to law, and on such set off being made it appeared that he
was still the creditor of the bank in the sum of P16,589.70. And he asked that the court order the Bank Commissioner
to pay him the aforesaid balance and that the same be declared as preferred credit. The claim was referred to the
commissioner appointed by the court, who at the same time acted as referee, and this officer recommended that the
balance claimed be paid without interest and as an ordinary credit. The court approved the recommendation and
entered judgment in the accordance therewith. The claimant took an appeal.

ISSUES:

1. Whether or not the current account and savings deposits are preferred credits in cases involving insolvency and
liquidation of the bank.

2. Whether or not the deposits could be offset with the debt of the depositor with the bank.

3. Whether or not the deposits should earn interest from the time the bank ceased to operate.

RULING:
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GRANDEUREIGN D. ORTIZO CREDIT TRANSACTION

1.The SC ruled that, these deposits are essentially merchantile contracts and should, therefore, be governed by the
provisions of the Code of Commerce. In accordance with article 309, the so-called current account and savings
deposits have lost the character of deposits properly so-called, and are converted into simple commercial loans,
because the bank disposed of the funds deposited by the claimant for its ordinary transactions and for the banking
business in which it was engaged. That the bank had the authority of the claimant to make use of the money
deposited on current and savings account is deducible from the fact that the bank has been paying interest on both
deposits, and the claimant himself asks that he be allowed interest up to the time when the bank ceased its
operations. Moreover, according to section 125 of the Corporation Law and 9 of Act No. 3154, said bank is authorized
to make use of the current account, savings, and fixed deposits provided it retains in its treasury a certain percentage
of the amounts of said deposits.

2.It appears that even after the enactment of the Insolvency Law there was no law in this jurisdiction governing the
order or preference of credits in case of insolvency and liquidation of a bank. But the Philippine Legislature
subsequently enacted Act No. 3519, amended various sections of the Revised Administrative Code, which took effect
on February 20, 1929, and section 1641 of this latter Code. as amended by said Act provides:

SEC. 1641. Distribution of assets. — In the case of the liquidation of a bank or banking institution, after payment of the
costs of the proceeding, including reasonable expenses, commissions and fees of the Bank Commissioner, to be
allowed by the court, the Bank Commissioner shall pay the debts of the institution, under of the court in the order of
their legal priority.

From this section 1641 we deduce that the intention of the Philippine Legislature, in providing that the Bank
Commissioner shall pay the debts of the company by virtue of an order of the court in the order of their priority, was to
enforce the provisions of section 48, 49 and 50 of the Insolvency Law in the sense that they are made applicable to
cases of insolvency or bankruptcy and liquidation of banks. No other deduction can be made from the phrase “in the
order of their legal priority” employed by the law, for there being no law establishing any priority in the order of
payment of credits, the legislature could not reasonably refer to any legislation upon the subject, unless the
interpretation above stated is accepted.
Examining now the claims of the appellant, it appears that none of them falls under any of the cases specified by
section 48, 49 and 50 of the Insolvency Law; wherefore, we conclude that the appellant’s claims, consisting of his
current and savings account, are not preferred credits.

3. “It may be stated as a general rule that when a depositor is indebted to a bank, and the debts are mutual — that is,
between the same parties and in the same right — the bank may apply the deposit, or such portion thereof as may be
necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to the contrary
and the deposit is not specially applicable to some other particular purposes.” (7 Am. Jur., par. 629, p.455; United
States vs. Butterworth-Judson Corp., 267 U.S., 387; National Bank vs. Morgan, 207 Ala.., 65; Bank of Guntersville vs.
Crayter, 199 Ala., 699; Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co. vs. Quilling, 118
Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; Niblack vs.
Park Nat. Bank, 169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.) The
situation referred to by the appellees is inevitable because section 1639 of the Revised Administrative Code, as
amended by Act No. 3519, provides that the Bank Commissioner shall reduce the assets of the bank into cash and
this cannot be done without first liquidating individually the accounts of the debtors of said bank, and in making this
individual liquidation the debtors are entitled to set off, by way of compensation, their claims against the bank.

4. Upon this point a distinction must be made between the interest which the deposits should earn from their existence
until the bank ceased to operate, and that which they may earn from the time the bank’s operations were stopped until
the date of payment of the deposits. As to the first class, it should be paid because such interest has been earned in
the ordinary course of the bank’s business and before the latter has been declared in a state or liquidation. Moreover,
the bank being authorized by law to make us of the deposits, with the limitation stated, to invest the same in its
business and other operations, it may be presumed that it bound itself to pay interest to the depositors as in fact it paid
interest prior to the date of the said claims.

As to the interest which may be charged from the date the bank ceased to do business because it was declared in a
state of liquidation, SC held that the said interest should not be paid. Under articles 1101 and 1108 of the Civil Code,
interest is allowed by way of indemnity for damages suffered, in the cases wherein the obligation consists in the
payment of money. In view of this, SC held that in the absence of any express law or any applicable provision of the
Code of Commerce, it is not proper to pay this last kind of interest to the appellant upon his deposits in the bank, for
this would be anomalous and unjustified in a liquidation or insolvency of a bank. This rule should be strictly observed
in the instant case because it is understood that the assets should be prorated among all the creditors as they are
insufficient to pay all the obligations of the bank.
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GRANDEUREIGN D. ORTIZO CREDIT TRANSACTION

In view of all the foregoing considerations, SC affirmed the part of the appealed decision for the reasons stated herein,
and it is ordered that the net claim of the appellant, amounting to P13,611.21, is an ordinary and not a preferred credit,
and that he is entitled to charge interest on said amount up to September 19, 1931.

34. People vs Puig, 563 scra 564 (2008)

Facts
The petitioners filed before the RTC of Iloilo 112 cases of Qualified Theft against respondents Teresita Puig (Puig)
and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural
Bank of Pototan, Inc for taking various amounts of money with grave abuse of confidence, and without the knowledge
and consent of the bank, to the damage and prejudice of the bank. The RTC dismissed the cases and refused to issue
a warrant of arrest against Puig and Porras on the ground of lack of probable cause because the complaint failed to
state the facts constituting the qualifying circumstance of grave abuse of confidence and
the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors
therein. Motion for Reconsideration was filed but it was also denied.

Issue
1. Whether the relationship between banks and depositors is that of creditor and debtor.
2. Whether the bank acquires ownership of the money deposited by its clients.

Held
Yes. It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks,
on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only
from the express provisions of the law, but from established jurisprudence. The relationship between banks
and depositors has been held to be that of creditor and debtor.
Yes. The Bank acquires ownership of the money deposited by its clients (Art 1953).
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan. (n)

c. Necessary Deposit (Arts- 1996-2004)

Article 1996. A deposit is necessary:

(1) When it is made in compliance with a legal obligation;

(2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other
similar events. (1781a)

Article 1997. The deposit referred to in No. 1 of the preceding article shall be governed by the provisions of the law
establishing it, and in case of its deficiency, by the rules on voluntary deposit.

The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning voluntary deposit
and by article 2168. (1782)

Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to
their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which
said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. (1783)

Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in
the annexes of the hotel. (n)

Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal
property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but
not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of
the keeper of the hotels or inns shall be considered in determining the degree of care required of him. (1784a)
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GRANDEUREIGN D. ORTIZO CREDIT TRANSACTION

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with
the use of arms or through an irresistible force. (n)

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family,
servants or visitors, or if the loss arises from the character of the things brought into the hotel. (n)

Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable
for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility
of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. (n)

Article 2004. The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits
on account of lodging, and supplies usually furnished to hotel guests. (n)

d. Sequestration of Judicial Deposit (Arts 2005-2009)

Sequestration or Judicial Deposit

Article 2005. A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is
ordered. (1785)

Article 2006. Movable as well as immovable property may be the object of sequestration. (1786)

Article 2007. The depositary of property or objects sequestrated cannot be relieved of his responsibility until the
controversy which gave rise thereto has come to an end, unless the court so orders. (1787a)

Article 2008. The depositary of property sequestrated is bound to comply, with respect to the same, with all the
obligations of a good father of a family. (1788)

Article 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court.
(1789a)

GARNISHMENT

1. Nature

36. NPC vs PCIB

598 scra 326

Facts:
The complaint for a sum of money filed by the Philippine Commercial International Bank (PCIB) against B.R. Sebastian
and Associates, Inc. (Sebastian). The court rendered decision in favor of PCIB and ordered to pay the PCIB inclusive
of marginal deposits, interest, commission and other bank charges plus interests and other bank.
The CA affirmed the decision of CFI.
On July 20, 1976, CFI issued an alias writ of execution that became the basis for the issuance on of a Notice of
Garnishment by the Sheriff, attaching and levying on all the “good(s), effects, moneys in the possession and control of
NPC. The amount to be satisfied is Sebastian’s liability in Civil Case

The NPC argue that it cannot be made to pay interests and bank charges since there is nothing in the dispositive portions
that requires NPC to do so; the NPC bases its argument on the principle that only the dispositive portion of the decision
becomes the subject of execution.

Issue:
Whether NPC is to pay interest and bank charges on the garnished amount, where said interest and bank charges are
over and beyond the amount specified in the notice of garnishment

Held:
YES. NPC is required to pay the interest and other bank charges.
The legal basis of garnishment is found in Section 9(c), Rule 39 of the Rules of Court, which states:

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(c) Garnishment of debts and credits. —The officer may levy on debts due the judgment obligor and other credits,
including bank deposits, financial interests, royalties, commissions and other personal property not capable of manual
delivery in the possession or control of third parties. Levy shall be made by serving notice upon the person owing such
debts or having in his possession or control such credits to which the judgment obligor is entitled. The garnishment shall
cover only such amount as will satisfy the judgment and all lawful fees.

Garnishment has been defined as a specie of attachment for reaching credits belonging to the judgment debtor
and owing to him from a stranger to the litigation. Under this rule, the garnishee [the third person] is obliged to
deliver the credits, etc. to the proper officer issuing the writ and “the law exempts from liability the person
having in his possession or under his control any credits or other personal property belonging to the defendant.

The garnishee is obliged to pay all interests and bank charges that have accumulated on the amount garnished
or, on such amount which has not been paid, from the date of its receipt of the notice of garnishment until it
has made payment.

All that is necessary for the trial court to lawfully bind the person of the garnishee or any person who has in his
possession credits belonging to the judgment debtor is service upon him of the writ of garnishment.

2. Garnishment is proper only in money judgments

37. NHMFC vs. ABAYARI et al., 602 scra 242

Garnishment is proper only when the judgment to be enforced is one for the payment of a sum of money
– it cannot be employed to implement a special judgment such as that rendered in a special civil action for
mandamus

Facts: Petitioner, the National Home Mortgage Finance Corporation (NHMFC), is a government-owned and controlled
corporation created under the authority of Presidential Decree No. 1267 for the primary purpose of developing and
providing a secondary market for home mortgages granted by public and/or private home-financing institutions. In its
employ were respondents, mostly rank-and-file employees, who all profess as having been hired after June 30, 1989.
On July 1, 1989, Republic Act No. 6758, otherwise known as The Compensation and Position Classification Act of
1989, was enacted and was subsequently approved on August 21, 1989. Section 12 thereof directed that all allowances
namely representation and transportation allowance, clothing and laundry allowance, subsistence allowance, hazard
pay and other allowances as may be determined by the budget department enjoyed by covered employees should be
deemed included in the standardized salary rates prescribed therein, and that the other additional compensation being
received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates should continue to be
authorized.
Respondents filed a petition for mandamus with the RTC of Makati City, Branch 138[11] to compel petitioner to pay them
meal, rice, medical, dental, optical and childrens allowances, as well as longevity pay, which allegedly were already
being enjoyed by other NHMFC employees as early as July 1, 1989. In its April 27, 2001 Decision, the trial court ruled
favorably and ordered petitioner to pay respondents the allowances prayed for, retroactive to the respective dates of
appointment.
CA affirmed. Instead of an appeal the Parties entered into a compromise agreement in which petitioner bound itself to
comply with the decision rendered in the case, except that the payment of the allowances adjudicated in favor of
respondents would be made in four installments instead.
Conflict arose when the DBM sent a letterto NHMFC disallowing the payment of certain allowances, including
those awarded by the trial court to respondents. DBM then curtailed the award to respondent pursuant to DBM letter.

This eventuality compelled respondents to file for the second time a motion for a writ of execution of the trial
court decision. The trial court found merit in respondents’ motion; hence, it directed the execution of the judgment, the
trial court issued a Writ of Execution/Garnishment with a directive to the sheriff to tender to respondents the amount of
their collective claim equivalent to P4,806,530.00 to be satisfied out of petitioners goods and chattels and if the same
be not sufficient, out of its existing real property. On appeal by petitioner, the CA dismissed the appeal.
Hence, this recourse.

Issue: (Credit only) Whether or Not the garnishment order was proper.

Ruling; No, the garnishment was not proper.

Petitioner asserts that the garnishment of its funds was not in order as there was no existing appropriation
therefor.

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Garnishment is proper only when the judgment to be enforced is one for payment of a sum of money. It
cannot be employed to implement a special judgment such as that rendered in a special civil action
formandamus.

On this score, not only did the trial court exceed the scope of its judgment when it awarded the benefits claimed by
respondents. It also committed a blatant error when it issued the February 16, 2004 Order directing the garnishment of
petitioners funds with the Land Bank of the Philippines equivalent to P4,806,530.00, even though the said amount was
not specified in the decision it sought to implement.

Be that as it may, assuming for the sake of argument that execution by garnishment could proceed in this case against
the funds of petitioner, it must bear stress that the latter is a government-owned or controlled corporation with a charter
of its own. Its juridical personality is separate and distinct from the government and it can sue and be sued in its name. As
such, while indeed it cannot evade the effects of the execution of an adverse judgment and may not ordinarily place its
funds beyond an order of garnishment issued in ordinary cases, it is imperative in order for execution to ensure that a
claim for the payment of the judgment award be first filed with the Commission on Audit (COA).

Being a special judgment, the decision may not be executed in the same way as a judgment for money
handed down in an ordinary civil case governed by Section 9, Rule 39 of the Rules Court which sanctions
garnishment of debts and credits to satisfy a monetary award.

III GUARANTY & SURETY (Arts. 2047 2084)

Contracts of security are either personal or real. In contracts of personal security, such as guaranty or
suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal
commitment of another ( the guarantor or surety)

39. Acme Shoe, Rubber & Plastic Corp vs. CA, Producers Bank of the Phil.
Facts:
Petitioner Chua Pac, the president and general manager of co-petitioner corporation, executed, a chattel mortgage in
favor of private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's
corporate loan of three million pesos (P3,000,000.00) A pertinent portion of the instrument states that:
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or
obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x.
”In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as
an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of
credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also
stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes
and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations
and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the constitution of this mortgage”
The Loan of P3M was paid. Petitioner Obtained another loan of P2.7M and was also paid.
10 and 11 January 1984, the bank again obtained loan of P1M in 4 promissory notes of 250K each. But Due to financial
constraints, the loan was not settled at maturity.
Bank applied for extrajudicial foreclosure of chattel mortgage. Acme filed action for injunction however RTCultimately
dismissed complaint and ordered foreclosure saying Acme was bound by stipulations.
CA dismissed appeal and affirmed RTC.
Issue:
Whether or not a clause in the chattel mortgage that purports to likewise extend its coverage to obligations yet to be
contracted or incurred?
Held:
No.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship,
the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the
guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is
secured by an encumbrance of property - in pledge, the placing of movable property in the possession of the creditor;
in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis,
by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation
to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential
condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation,[7] but that should the obligation be duly paid, then the contract is automatically
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extinguished proceeding from the accessory character[8] of the agreement. As the law so puts it, once the obligation
is complied with, then the contract of security becomes, ipso facto, null and void.
A Chattel Mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although
a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment
that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or
by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law.
Since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00
loan,] there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter.

a. Nature and Extent of Guaranty (Arts. 2047-2057)

Nature and Extent of Guaranty

Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the contract is called a suretyship. (1822a)

Article 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary. (n)

Article 2049. A married woman may guarantee an obligation without the husband's consent, but shall not thereby bind
the conjugal partnership, except in cases provided by law. (n)

Article 2050. If a guaranty is entered into without the knowledge or consent, or against the will of the principal debtor,
the provisions of articles 1236 and 1237 shall apply. (n)

Article 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by onerous title.

It may also be constituted, not only in favor of the principal debtor, but also in favor of the other guarantor, with the
latter's consent, or without his knowledge, or even over his objection. (1823)

Article 2052. A guaranty cannot exist without a valid obligation.

Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract.
It may also guarantee a natural obligation. (1824a)

Article 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there
can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. (1825a)

Article 2054. A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the
amount and the onerous nature of the conditions.

Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor. (1826)

Article 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein.

If it be simple or indefinite, it shall compromise not only the principal obligation, but also all its accessories, including the
judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he
has been judicially required to pay. (1827a)

Article 2056. One who is obliged to furnish a guarantor shall present a person who possesses integrity, capacity to bind
himself, and sufficient property to answer for the obligation which he guarantees. The guarantor shall be subject to the
jurisdiction of the court of the place where this obligation is to be complied with. (1828a)

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Article 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or should become
insolvent, the creditor may demand another who has all the qualifications required in the preceding article. The case is
excepted where the creditor has required and stipulated that a specified person should be the guarantor. (1829a)

40. Aglibot vs. Santia

A guaranty agreement is a promise to answer for the debt or default of another, the law clearly requires
that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless ratified,
although it does not have to appear in a public document.
Article 2055 of the Civil Code provides that a guaranty is not presumed, but must be express, and
cannot extend to more than what is stipulated therein.

Facts:
Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC),
through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a promissory note. Allegedly as
a guaranty for the payment of the note, Aglibot issued and delivered to Santia eleven (11) post-dated personal checks
drawn from her own account maintained at Metrobank. Upon presentment of the checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds or closed account. Santia thus demanded
payment from PLCC and Aglibot of the face value of the checks, but neither of them heeded his demand. Consequently,
eleven (11) Informations for violation of B.P. 22 were filed before the MTCC.

MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving Aglibot and dismissing the civil aspect of
the case on the ground of failure to fulfill a condition precedent of exhausting all means to collect from the principal
debtor.

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil aspect of the case. Hence, the CA
ruled that Aglibot is personally liable for the loan.

Thus, Aglibot filed before the SC arguing that she was merely a guarantor of the obligation and therefore, entitled to the
benefit of excussion under Article of the 2058 of the Civil Code. She further posited that she is not personally liable on
the checks since she merely contracted the loan in behalf of PLCC.
ISSUE:

I. Whether or not Aglibot is entitled to the benefit of excussion?

RULING: No. Aglibot cannot invoke the benefit of excussion.

It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal debtor, the PLCC
in this case, must first be exhausted before the guarantor may be held answerable for the debt. Thus, the creditor may
hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to
pay, for obviously the exhaustion of the principals property the benefit of which the guarantor claims cannot even
begin to take place before judgment has been obtained. This rule is contained in Article 2062 of the Civil Code,
which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some
instances mentioned in Article 2059 when the action may be brought against both the guarantor and the principal
debtor.

The Court must, however, reject Aglibots claim as a mere guarantor of the indebtedness of PLCC to Santia for want of
proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds. Under the above provision,
concerning a guaranty agreement, which is a promise to answer for the debt or default of another, the law clearly
requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified, although under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public
document. Contracts are generally obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present, and the Statute of Frauds simply provides the method by which the
contracts enumerated in Article 1403(2) may be proved, but it does not declare them invalid just because they are not
reduced to writing. Thus, the form required under the Statute is for convenience or evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated therein. This is the obvious rationale why a contract
of guarantee is unenforceable unless made in writing or evidenced by some writing.

41. Prudential Guarantee and Assurance Inc. vs. Anscor Land, Inc -TITO
630 SCRA 368, G.R. No. 177240 September 8, 2010

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Facts:
On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a Construction Contract for the construction of an
8-unit townhouse (project). Under the contract, KRDC was to build and complete the project within 275 continuous
calendar days from the date of receipt of a notice to proceed for the consideration of P18,800,000.00.
As part of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00 to secure the
reimbursement of the down payment paid by ALI in case of failure to finish the project and a performance bond
amounting to P4,700,000.00 to guarantee the supply of labor, materials, tools, equipment, and necessary supervision
to complete the project. The said bonds were issued in favor of ALI by herein petitioner PGAI.
KRDC then received a notice to proceed on November 24, 1999. On October 16, 2000 or 325 days after KRDC
received the notice to proceed, and 50 days beyond the contract date of completion, ALI sent PGAI a letter notifying the
latter that the contract with KRDC was terminated due to very serious delays. The letter also informed PGAI that ALI
may be making claims against the said bonds.
KRDC, through a letter on October 20, 2000, asked ALI to reconsider its decision to terminate the contract and
requested that it be allowed to continue with the project. On October 27, 2000, ALI replied with regrets that it stands by
its earlier decision to terminate the construction contract.
Through a letter dated November 29, 2001, or exactly one (1) year after the expiration date in the performance
bond, ALI reiterated its claim against the performance bond issued by PGAI amounting to P3,852,800.84. PGAI however
did not respond to the letter.
On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in the CIAC. PGAI
answered with cross-claim contending that it was not a party to the construction contract and that the claim of ALI against
the bonds was filed beyond the expiration period.
On September 2, 2002, the CIAC rendered judgment awarding a total of P7,552,632.74 to ALI and a total
of P1,292,487.81 to KRDC. CIAC also allowed the offsetting of the awards to both parties which resulted to a net amount
due to ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC found PGAI liable for the reimbursement of the
unliquidated portion of the down payment as a solidary liability under the surety bond in the amount of P1,771,264.06.

Issue: Whether the performance bond become liable for the completion of the construction project in the event KRDC
fails in its contractual undertaking.

Held:
A guarantee or a surety contract under Article 2047 of the Civil Code of the Philippines is an accessory
contract because it is dependent for its existence upon the principal obligation guaranteed by it; As regards the
first requirement, the Performance Bond issued by the petitioner was meant to guarantee the supply of labor, materials,
tools, equipment, and necessary supervision to complete the project. A guarantee or a surety contract under Article
2047 of the Civil Code of the Philippines is an accessory contract because it is dependent for its existence upon the
principal obligation guaranteed by it. In fact, the primary and only reason behind the acquisition of the performance bond
by KRDC was to guarantee to ALI that the construction project would proceed in accordance with the contract terms
and conditions. In effect, the performance bond becomes liable for the completion of the construction project in the event
KRDC fails in its contractual undertaking.
In practice, a performance bond is usually a condition or a necessary component of construction contracts.
Because of the performance bond, the construction contract between ALI and KRDC is guaranteed to be performed
even if KRDC fails in its obligation. In practice, a performance bond is usually a condition or a necessary component of
construction contracts. In the case at bar, the performance bond was so connected with the construction contract that
the former was agreed by the parties to be a condition for the latter to push through and at the same time, the former is
reliant on the latter for its existence as an accessory contract.

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