CHAPTER 2

SIMPLE LOAN OR MUTUUM

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. (1753a)
Art. 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)

Art. 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)

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

Art. 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)

Art. 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)

Art. 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)

Art. 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)

Art. 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)

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance.
(1170)

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be
the basis of payment, unless there is an agreement to the contrary. (n)

REPUBLIC VS BAGTAS
[G.R. No. L-17474 October 25, 1962]
PADILLA, J.

FACTS:
 Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for a period of
one year for breeding purposes subject to a government charge of breeding fee of 10% of
the book value of the books.
 Upon the expiration of the contract, Bagtas asked for a renewal for another one year,
however, the Secretary of Agriculture and Natural Resources approved only the renewal for
one bull and other two bulls be returned.
 Bagtas then wrote a letter to the Director of Animal Industry that he would pay the
value of the three bulls with a deduction of yearly depreciation. The Director advised him that
the value cannot be depreciated and asked Bagtas to either return the bulls or pay their book
value.
 Bagtas neither paid nor returned the bulls. The Republic then commenced an action
against Bagtas ordering him to return the bulls or pay their book value.
 After hearing, the trial Court ruled in favor of the Republic, as such, the Republic
moved ex parte for a writ of execution which the court granted.
 Felicidad Bagtas, the surviving spouse and administrator of Bagtas’ estate, returned
the two bulls and filed a motion to quash the writ of execution since one bull cannot be
returned for it was killed by gunshot during a Huk raid. The Court denied her motion hence,
this appeal certified by the Court of Appeals because only questions of law are raised.

ISSUE: WON the contract was commodatum;thus, Bagtas be held liable for its loss due to force
majeure.

RULING:
 A contract of commodatum is essentially gratuitous. Supreme Court held that Bagtas
was liable for the loss of the bull even though it was caused by a fortuitous event.
 If the contract was one of lease, then the 10% breeding charge is compensation
(rent) for the use of the bull and Bagtas, as lessee, is subject to the responsibilities of a
possessor. He is also in bad faith because he continued to possess the bull even though the
term of the contract has already expired.
 If the contract was one of commodatum, he is still liable because: (1) he kept the bull
longer than the period stipulated; and (2) the thing loaned has been delivered with appraisal
of its value (10%). No stipulation that in case of loss of the bull due to fortuitous event the
late husband of the appellant would be exempt from liability.
 The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the appellant
kept and used the bull until November 1953 when during a Huk raid it was killed by stray
bullets.
 Furthermore, when lent and delivered to the deceased husband of the appellant the
bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at
P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull
due to fortuitous event the late husband of the appellant would be exempt from liability.

GUINGONA VS CITY FISCAL

GUINGONA VS CITY FISCAL

G.R. No. L-60033 April 4, 1984

Nature: Petition for prohibition and injunction with a prayer for the immediate issuance of
restraining order and/or writ of preliminary injunction seeking to prohibit the public respondent
which is the City Fiscal of Manila from proceeding with the preliminary investigation, in which
they were charged by private respondent Clement David
Keywords: Bank deposits are loans, mutuum, estafa, criminal charge, civil case, thrift bank,
NSLA
Summary: From March 1979 to March 1981, Clement David made several investments with the
National Savings and Loan Association (NSLA). On March 21, 1981, the Bangko Sentral placed
the bank under receivership. 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.

MAKASIAR, Actg. C.J.

On June 1981, Guingona and Martin, upon David’s request, assumed the bank’s obligation to
David by executing a joint promissory note. On July 1981, David received a report that only a
portion of his investments was entered in the NSLA records.

On December 1981, David filed I.S. No. 81-31938 in the Office of the City Fiscal, which case
was assigned to Asst. City Fiscal Lota for preliminary investigation. David charged petitioners
with estafa and violation of Central Bank Circular No. 364 and related regulations on foreign
exchange transactions.

Petitioners moved to dismiss the charges against them for lack of jurisdiction because David's
claims allegedly comprised a purely civil obligation, but the motion was denied. After the
presentation of David's principal witness, petitioners filed this petition for prohibition and
injunction because:

a. The production of various documents showed that the transactions between David and NSLA
were simple loans (civil obligations which were novated when Guingona and Martin assumed
them)

b. David's principal witness testified that the duplicate originals of the instruments of
indebtedness were all on file with NSLA.

A TRO was issued ordering the respondents to refrain from proceeding with the preliminary
investigation in I.S. No. 81-31938.

Petitioners’ liability is civil in nature, so respondents have no jurisdiction over the estafa charge.
TRO CORRECTLY ISSUED.

Issue:
1. Whether the contract between NSLA and David is a contract of depositor or 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 David invested his money on time and savings deposits with NSLA, the contract that
was perfected was a contract of simple loan or mutuum and not a contract of
deposit. Hence, the relationship between David and NSLA 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 the amount deposited, it has no obligation to return
or deliver the same money that was deposited. NSLA’s failure 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.

Considering that petitioners’ liability is purely civil in nature and that there is no clear showing
that they engaged in foreign exchange transactions, public respondents acted without
jurisdiction when they investigated the charges against the petitioners. Public respondents
should be restrained from further proceeding with the criminal case for to allow the case to
continue would work great injustice to petitioners and would render meaningless the proper
administration of justice.

Even granting that NSLA’s failure to pay the time and savings deposits would constitute a
violation of RPC 315, paragraph 1(b), any incipient criminal liability was deemed avoided. When
NSLA was placed under receivership, Guingona and Martin assumed the obligation to David,
thereby resulting in the novation of the original contractual obligation. The original trust relation
between NSLA and David was converted into an ordinary debtor-creditor relation between the
petitioners and David. While it is true that novation does not extinguish criminal liability, it may
prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal
information in court.

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

Ruling: WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY

Note:

GENERAL RULE: Criminal prosecution may not be blocked by court prohibition or injunction.

EXCEPTIONS
1. For the orderly administration of justice
2. To prevent the use of the strong arm of the law in an oppressive and vindictive manner
3. To avoid multiplicity of actions
4. To afford adequate protection to constitutional rights
5. In proper cases, because the statute relied upon is unconstitutional or was held invalid
Case Digest: G.R. No. 173227. January 20, 2009
Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.

Facts: Respondent filed a complaint for sum of money against petitioner. Respondent claimed
that petitioner approached her inside the PNO and offered to loan her the amount
of P540,000.00 of which the loan agreement was not reduced in writing and there was no
stipulation as to the payment of interest for the loan. Respondent issued a check
worth P500,000.00 to petitioner as partial payment of the loan. She then issued another check
in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan of
which the excess amount of P160,000.00 would be applied as interest for the loan. Not
satisfied with the amount applied as interest, petitioner pestered her to pay additional interest
and threatened to block or disapprove her transactions with the PNO if she would not comply
with his demand. Thus, she paid additional amounts in cash and checks as interests for the
loan. She asked petitioner for receipt for the payments but was told that it was not necessary as
there was mutual trust and confidence between them. According to her computation, the total
amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the excess amount to the former. It
ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00,
and that the alleged interests due should not be included in the computation of respondent’s
total monetary debt because there was no agreement between them regarding payment of
interest. It concluded that since respondent made an excess payment to petitioner in the
amount of P660,000.00 through mistake, petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti. Also, petitioner should pay moral damages for the
sleepless nights and wounded feelings experienced by respondent. Further, petitioner should
pay exemplary damages by way of example or correction for the public good, plus attorney’s
fees and costs of suit.

Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio
indebiti applies to the case at bar.

Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not
duly proven that respondent defaulted in paying the loan and no interest was due on the loan
because there was no written agreement as regards payment of interest. 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 in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for the payment of monetary interest.
Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as
interest. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there
has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall
be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said
provision provides that if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-
debtor relationship is created under a quasi-contract whereby the payor becomes the creditor
who then has the right to demand the return of payment made by mistake, and the person who
has no right to receive such payment becomes obligated to return the same. The quasi-contract
of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at
the expense of another. The principle of solutio indebiti applies where (1) a payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause. We have held that the principle of solutio indebiti applies
in case of erroneous payment of undue interest.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary
damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and threatened to block her
transactions with the PNO if she would not pay interest. This forced respondent to pay interest
despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate so as
to deter petitioner and other lenders from committing similar and other serious wrongdoings

“Art. 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.” (Emphasis supplied)
), the Supreme Court, through former Associate Justice Minita Chico-Nazario,
explained:1942In Siga-an vs. Villanueva (G.R. No. 173227, January 20, 2009, citing Moreo-
Lentfer v. Wolff, G.R. No. 152317, 10 November 2004, 441 SCRA 584, 591 and Velez v.
Balzarza, 73 Phil. 630, 632

“Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been
no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision
provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no
right to receive such payment becomes obligated to return the same. The quasi-contract of
solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the
expense of another. The principle of solutio indebiti applies where (1) a payment is made when
there exists no binding relation between the payor, who has no duty to pay, and the person who
received the payment; and (2) the payment is made through mistake, and not through liberality
or some other cause. We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.

It was duly established that respondent paid interest to petitioner. Respondent was under no
duty to make such payment because there was no express stipulation in writing to that effect.
There was no binding relation between petitioner and respondent regarding the payment of
interest. The payment was clearly a mistake.

Since petitioner received something when there was no right to demand it, he has an obligation
to return it.” (Emphasis supplied)
Verily, your neighbor had no right to demand the payment of any interest and should
therefore return the amount you paid as interest to your loan based on the principle of solutio
indebiti.