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REPUBLIC VS BAGTAS
Contracts; Loan of bulls for breeding purposes; Nature of contract affected by payment of fee.—
The loan by the Bureau of Animal Industry to the defendant of three bulls for breeding purposes
for a period of one year, later on renewed for another as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls. If the breeding
fee be considered a compensation, the contract would be a lease of the bulls; it could not be
a contract of commodatum, because that contract is essentially gratuitous.

FACTS: Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal
Industry three bulls: for a period of one year subject to a government charge of breeding fee
of 10% of the book value of the bulls. Upon the expiration, Bagtas asked for a renewal for
another period of one year. The Agriculture Secretary approved only one bull for another year
and requested the return of the other two. Bagtas wrote to the Director of Animal Industry that
he would pay the value of the three bulls who later advised him that the book value of the three
bulls could not be reduced and that they either be returned or their book value paid.
Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas later filed a motion
alleging that the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry
and that the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on
Hacienda Felicidad Intal and that as such death was due to force majeure she is relieved from
the duty of returning the bull or paying its value to the appellee., and praying that the writ of
execution be quashed and that a writ of preliminary injunction be issued. The Court denied her
motion.

ISSUES/ RULING:

1. Whether the contract was commodatum.

No, the contract is not a commodatum. In this case, there is a 10% charge. If this is considered
compensation, then the case at bar is a lease. A contract of commodatum is essentially
gratuitous. If the breeding fee be considered a compensation, then the contract would be a
lease of the bull.

2. Whether Bagtas should be held liable for its loss due to force majeure.

Yes, since it is a lease, the 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. Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of the bull
after the expiry of the contract.

And even if the contract be commodatum, still the appellant is liable, because article 1942 of
the Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous
event:
(2) If he keeps it longer than the period stipulated . . .
(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;
ROGERS VS SMITH BELL & CO
1. IRREGULAR DEPOSIT; RELATION OF DEBTOR AND CREDITOR.—The following document
does not create an irregular deposit, but simply creates the relation of debtor and
creditor between the parties:

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"No. 1418. $12,000.

“The sum of pesos twelve thousand has been deposited with us, received from Mr. Jose Rogers,
which sum we will 'pay on the last day of the six months after the presentation of this document,
to the order of Mr. Jose Rogers.

"Manila, February 17, 1876.

"SniTH, BELL & Co.

"The said sum of twelve thousand pesos shall bear interest at the rate of eight per centum (8%)
per annum from this date, February 17, 1876.

"SMITH, BBLL & Co."

2. LOAN; PAYMENT; CURRENCY.—A debt of 12,000 pesos, created in 1876, can now be
paid by 12,000 of the Philippine pesos authorized by the act of Congress of March 2,
1903, although at the time the loan was made, which created the debt, the creditor
delivered to the debtor 12,000 pesos in gold coin.

3. CONSTITUTIONALITY OP LAWS; ACT OF CONGRESS, MABCH 2, 1903.—The act of Congress

of March 2, 1903, by which it is provided, that debts created prior to its passage may be
thereafter paid in the money authorized by the Aet, is not unconstitutional.

FACTS: Plaintiff Jose Rogers (Rogers) brought this action in the CFI city of Manila upon the
following document:(the subject document of the case) No. 1418. $12,000.

The sum of pesos twelve thousand has been deposited with us, received from Jose Rogers,
which sum we will pay on the last day of the six months after the presentation of this document,
to the order of Mr. Jose Rogers. Manila, February 17, 1876. SMITH, BELL & CO.

The said sum of twelve thousand pesos shall bear interest at the rate of eight per centum (8%)
per annum from this date, February 17, 1876.

SMITH, BELL & CO.

When this document was delivered by the defendants Smith, Bell & CO. (Smith) to Rogers, 12,000
pesos in silver were worth more than 12,000 pesos in gold.

Plaintiff Rogers delivered to the defendants Smith, Bell and Co in consideration of the execution
of the document 12,000 in gold. The defendants Smithe Bell and Co remitted the interest to him
every three months at the rate of 8 per cent per annum until the 30th day of January, 1888,
when they notified him that the interest would be 6 per cent. The plaintiff accepted this
reduction and interest was remitted in silver. Every three months the defendants took 180 pesos
in silver and with it bought exchange on Barcelona or other European point converted into
pesetas. The plaintiff received this payments in silver without any protest whatever until the 10th
day of February, 1904 when he called the attention of the defendants that by the new
American law in force in the Philippines. Plaintiff Rogers claim is that, having paid to the
defendants 12,000 pesos in gold coin, he is now entitled to receive from them the value of
12,000 pesos in gold coin; that is to say, 24,000 pesos in silver.

ISSUES/ RULING:

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1. Whether the document is an evidence of an ordinary loan

YES, it is an ordinary loan. The Supreme Court cited Manresa's discussion on the differences of a
loan and an irregular deposit namely:

a) in irregular deposit the benefit accrues to the depositor alone whereas in loan
the benefit is for both parties, the essential cause is the necessity of the borrower;

b) in irregular deposit the depositor has a preference over other creditors whereas
in loan there is no such preference;

c) in irregular deposit the depositor can demand the return of the article at any
time whereas in loan the parties are bound by the contract.

In the first difference, the contract in question does not fulfill this requirement of an irregular
deposit. It is very apparent that is was not for the sole benefit of Rogers. It like any other loan of
money was for the benefit of both parties. The benefit which Smith, Bell & Co. received was the
use of the money; the benefit which Rogers received was the interest of his money. In the letter
which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the reduction of the
interest, they said: "We call your attention to this matter in order that you may if you think best
employ your money in some other place."

The second difference which exists, according to Manresa, between an irregular deposit and
a loan lies in the fact that in an irregular deposit the depositor has a preference over other
creditors in the distribution of the debtor's property. It is apparent, therefore, that this document
does not state those requisites which are essential to an irregular deposit.

Nor does the contract in question fulfill the third requisite, which is, in an irregular deposit, the
depositor can demand the return of the article at any time, while a lender is bound by the
provisions of the contract and cannot seek restitution until the time for payment, as provided in
the contract, has arisen. It is apparent from the terms of this document that the plaintiff could
not demand his money at any time. He was bound to give notice of his desire for its return and
then to wait for six months before he could insist upon payment.

It is apparent, therefore, that this document does not state those requisites which are essential
to an irregular deposit.
It seems clear from these citations that the document in question is evidence of an ordinary
loan and created between the plaintiff and defendants the relation of debtor and creditor.

2. How should the plaintiff be paid? In gold or in silver?

He must be paid in silver. If he had desired to be repaid in the same money which he delivered,
he should have so provided expressly in the contract. He had a perfect right to do so, and if he
had done so he could now, by reason of the provisions of the said act of Congress, demand
payment in gold.

Section 3 of the act of Congress of March 2, 1903, entitled "An act to establish a standard of
value and to provide for a coinage system in the Philippine Islands," is as follows:

That the silver Philippine pesos authorized by this act shall be legal tender in the
Philippine Islands for all debts, public and private, unless otherwise specifically
provided by contract: Provided, That debts contracted prior to the thirty-first day

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of December, nineteen hundred and three, may be paid in the legal tender
currency of said Islands existing at the time of the making of said contracts,
unless otherwise expressly provided by contract.

LUCMAN VS MALAWI
Banks and Banking; Mandamus; Bank deposits are in the nature of irregular deposits—they are
really loans because they earn interest; All kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be covered by the law on loans; Mandamus does
not lie to enforce the performance of contractual obligations.— Bank deposits are in the nature
of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and are to be covered by the law
on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519). Current and savings
deposits are loans to a bank because it can use the same. The petitioner here in making time
deposits that earn interest with respondent Overseas Bank of Manila was in reality a creditor of
the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation
as a debtor and not a breach of trust arising from a depository’s failure to return the subject
matter of the deposit. (Emphasis supplied.) The relationship being contractual in nature,
mandamus is therefore not an available remedy since mandamus does not lie to enforce the
performance of contractual obligations.

FACTS: The petition for mandamus filed by respondents Malawi Et al is rooted in their claim that
they were deprived of their Internal Revenue Allotment (IRA) for the 2nd and 3rd quarters of
1997 but the Manager of Land Bank of the Philippines released these same funds to third
persons.

All respondents were the incumbent barangay chairmen. Due to the failure of elections,
respondents remained in office in a holdover capacity

Beginning with the second quarter of 1997, LBP was selected as the government depository
bank for the IRAs of the abovementioned barangays. The authorized public officials had to
open new accounts in behalf of their government units with the proper LBP branch from which
they could withdraw the IRAs.

Respondents Malawi et al attempted to open their respective barangays' IRA bank accounts
but were refused by petitioner Lucman because respondents needed to show their individual
certifications showing their right to continue serving as Barangay Chairmen and the requisite
Municipal Accountant's Advice giving respondents the authority to withdraw IRA deposits.
Respondents Malawi et al thus filed on 11 August 1997 a special civil action for Mandamus with
Application for Preliminary Mandatory Injunction to compel petitioner Lucman to allow them to
open and maintain deposit accounts covering the IRAs of their respective barangays and to
withdraw therefrom.

At the trial respondents Sarip, Cadar, Pangcoga and Usman testified that they were duly
elected chairpersons of their respective barangays and continued as such in a holdover
capacity until their re-election on 30 August 1997. They testified further that despite presenting
the corresponding documents, petitioner refused to allow the withdrawal of the funds.

RTC rendered a Decision dated 8 October 1999 commanding petitioner to pay respondents,
except respondent Alimatar Malawi who failed to testify, the IRAs of their respective barangays
"even without the Accountant's Advice."

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ISSUES/ RULINGS:

1. WON it is in nature of a simple loan?

YES. By virtue of the deposits, there exists between the barangays as depositors and LBP a
creditor-debtor relationship. Fixed, savings, and current deposits of money in banks and similar
institutions are governed by the provisions concerning simple loan. In other words, the
barangays are the lenders while the bank is the borrower.
From the records of the case, it appears that the shares of the barangays in the IRA had already
been remitted by the Department of Budget and Management (DBM) to the LBP Marawi
Branch where they were kept in the accounts opened in the names of the barangays.
This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of Manila, et al.,34
citing Serrano v. Central Bank of the Philippines, thus:

Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519).
Current and savings deposits are loans to a bank because it can use the
same. The petitioner here in making time deposits that earn interest was in
reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent
Bank to honor the time deposit is failure to pay its obligation as a debtor
and not a breach of trust arising from a depository's failure to return the
subject matter of the deposit. (Emphasis supplied.)

2. Can mandamus be a remedy to compel petitioner to allow them to open and maintain
deposit accounts?

NO. The relationship being contractual in nature, mandamus is therefore not an available
remedy since mandamus does not lie to enforce the performance of contractual obligations.

SAURA IMPORT AND EXPORT VS DBP

Civil Law; Obligations and Contracts; When contract of simple loan perfected.—Where an
application for a loan of money was approved by resolution of the defendant corporation and
the corresponding mortgage was executed and registered, there arises a perfected-
consensual contract of loan.

Same; Extinguishment of obligations by mutual desistance.—Where after approval of his loan,

the borrower, instead of insisting for its release, asked that the mortgage given as security be
cancelled and the creditor acceded thereto, the action taken by both parties was in the
nature of mutual desistance—what Manresa terms “mutuo disenso”—which is a mode of
extinguishing obligations. It is a concept that derives from, the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.

FACTS: Petitioner Saura Import & Export Co. applied with the Rehabilitation Finance Corporation
(RFC), now DBP, for an industrial loan of P500, 000 to be used for the construction of a factory
building, payment for the purchase price of the jute mill machinery and equipment and
additional working capital. RFC approved the loan to be secured by a first mortgage on the
factory buildings to be constructed, the land site thereof, and the machinery and equipment
installed. A day before the notice of approval, Saura wrote to RFC requesting modifications of

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the terms to their agreement as regards the persons and entity who shall sign the promissory
notes with the company. In view of this request, RFC issued a resolution designating its Board of
Governors to reexamine all aspects of the approved loan.

In connection with the reexamination of the project, the parties named their respective
committees of engineers and technical men to undertake the necessary studies. The loan
documents were then executed namely the promissory note, China Engineers Ltd acting as co-
signer, and the deed of mortgage which was duly registered.

Despite the formal execution of the loan agreement, the reexamination proceeded and the
Board of Governors decided to reduce the loan from P500, 000 to P300, 000. Then, China
Engineers Ltd. wrote RFC that it no longer wish to avail of the loan and therefore considered the
loan as cancelled as far as it was concerned and requested the mortgage be withdrawn.

Saura wrote to RFC requesting that the P500, 000 loan be granted, but was denied by RFC as it
was constrained to consider the loan cancelled in view of China Engineers Ltd.’s desire to
“consider the loan cancelled as far as they are concerned”.

Saura then informed RFC that China Engineers Ltd. will at any time act as co-signer again if RFC
releases the P500, 000 originally approved. In lieu of this, the P500, 000 loan was granted subject
to conditions. It was stipulated that the Department of Agriculture and Natural Resources must
certify to that the raw materials needed by Saura to carry out its operations are available in the
immediate vicinity and that there is prospect of increased production to provide adequately
for the requirements of the factory.

RFC explained the reason why certification by the Department of Agriculture was required is to
develop the manufacture of the sacks on the basis of locally available raw materials. Saura
then asked for the release of the loan and stating that it shall import jute for the meantime. RFC
then sent letter to Saura that it could not release the fund as Saura’s plan then to rely on the
importation of jute was not in line with defendant's underlying principle in approving the loan.

Saura instead asked that the mortgage be cancelled. RFC then cancelled said mortgage. The
cancellation of the mortgage, it appears, was to make way for the registration of another
mortgage contract over the same property with Prudential Bank and Trust. It appears further
that for failure to pay the obligation, Prudential sued Saura.

Almost nine years after the cancellation of Saura’s mortgage with RFC, Saura commenced suit
for damages against now, DBP, alleging that it had failed to comply with the obligation to
release the approved loan that prevented the plaintiff from complying with its own
commitments.

The trial court ruled that there was a perfected contract between the parties and that DBP was
guilty of breach thereof.

ISSUES/ RULING:
1. Was there a perfected contract of loan between the parties despite Saura’s having
opted to cancel the mortgage when the negotiations came to an impasse?

YES, there was indeed a perfected consensual contract, as recognized in Article 1934 of the
Civil Code, which provides:

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ART. 1934. 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 perferted until the
delivery of the object of the contract.
Where an application for a loan of money was approved by resolution of the defendant
corporation and the corresponding mortgage was executed and registered, there arises a
perfected consensual contract of loan.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. The defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.

When an application for a loan of money was approved by resolution of the respondent
corporation and the responding mortgage was executed and registered, there arises a
perfected consensual contract. However, it should be noted that RFC imposed two conditions
(availability of raw materials and increased production) when it restored the loan to the original
amount of P500,000.00. Saura, Inc. obviously was in no position to comply with RFC’s conditions.
So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled.

2. Whether Saura was entitled to damages by the alleged breach of contract by DBP

No, there was mutual desistance. Saura’s request for the cancellation of mortgage carried no
reservation of whatever rights it believed it might have against DBP for the latter’s non-
Compliance. It was only 9years after the loan agreement had been cancelled at its own
request that Saura brought this action for damages. The action thus taken by both parties was
in the nature of mutual desistance which is a mode of extinguishing obligations. It is a concept
that derives from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.

In view of such extinguishment, said perfected consensual contract to deliver did not constitute
a real contract of loan.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.
NAGUIAT VS CA AND QEANO
Evidence; Documents; The presumption of truthfulness engendered by notarized documents is
rebuttable, yielding as it does to clear and convincing evidence to the contrary.—Against the
common finding of the courts below, Naguiat vigorously insists that Queaño received the loan
proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and truthfulness of its contents.
The Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the
recitals in a public document was defeated by the clear and convincing evidence in this case
that pointed to the absence of consideration. This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and
convincing evidence to the contrary, as in this case.

Civil Law; Estoppel; Court of Appeals is correct in invoking the said rule on agency by
estoppel.—The Court of Appeals recognized the existence of an “agency by estoppel” citing
Article 1873 of the Civil Code. Apparently, it considered that at the very least, as a consequence
of the interaction between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaño’s

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impression. In that situation, the rule is clear. One who clothes another with apparent authority
as his agent, and holds him out to the public as such, cannot be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith, and in the honest belief that he is what he appears to be. The Court of
Appeals is correct in invoking the said rule on agency by estoppel.

Same; Mortgages; A mortgage contract being a mere accessory contract, its validity would
depend on the validity of the loan secured by it.—All told, we find no compelling reason to
disturb the finding of the courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that the mortgage which is
supposed to secure the loan is null and void. The consideration of the mortgage contract is the
same as that of the principal contract from which it receives life, and without which it cannot
exist as an independent contract. A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.

FACTS: Queaño applied with Naguiat for a loan in the amount of P200,000.00, which Naguiat
granted. On 11 August 1980, Naguiat indorsed to Queaño Associated Bank Check (dated 11
August 1980) for the amount of P95,000.00 and also issued her own Filmanbank Check, to the
order of Queaño, also dated 11 August 1980 and for the amount of P95,000.00 to constitute the
loan granted.To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owner’s duplicates of the
titles covering the mortgaged properties. On the same day, the mortgage deed was notarized,
and Queaño issued to Naguiat a promissory note for the amount of the loan with interest at 12%
per annum, payable on 11 September 1980. Queaño also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of P200,000.00.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds.

Demand letter were sent to Queano settlement of the loan from Naguiat. Shortly thereafter,
Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. Queaño told Naguiat that
she did not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiat’s agent.

Naguiat applied for the extrajudicial foreclosure of the mortgage and the foreclosure sale was
scheduled. Three days before the scheduled sale, Queaño filed the case to RTC seeking the
annulment of the mortgage deed.

ISSUE: Whether the issuance of check resulted in the perfection of the loan contract?

RULING: NO. The mere issuance of the checks did not result in the perfection of the contract of
loan. The Civil Code provides that the delivery of bills of exchange and mercantile documents
such as checks shall produce the effect of payment only when they have been cashed.20 It is
only after the checks have produced the effect of payment that the contract of loan may be
deemed perfected.

Art. 1934 of the Civil Code 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."

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A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
delivery of the object of the contract.21 In this case, the objects of the contract are the loan
proceeds which Queaño would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have
certainly presented the corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such proof, it follows that the
checks were not encashed or credited to Queaño’s account.
DELOS SANTOS VS JARRA
FACTS: Felix de los Santos brought suit against Agusitina Jarra (the administratrix of the estate
of Magdaleno Jimenea). Petitioner Delos Santos alleges that Jimenea borrowed and obtained
from the plaintiff 10 first class carabos, to be used at the animal power mill of JImenea’s
hacienda.

Without recompense or remuneration for the use of it but under the sole condition that they
should be returned to the owner as soon as the work at the mill was terminated. Jimenea, the
father in-law of petitioner Delos Santos. however, did not return the carabaos even though
Petitioner de los Santos claimed their return after the work at the mill was finished.

Jimenea died in 1904 (before the suit)and Jarra was appointed by the CFI as administratrix of
his estate.

De los Santos presented his claim to the commissioners of the estate of Jimenea for return of
the carabaos so that the carabaos to be exluded from the estate of Jimenea.

The commissioners rejected his claim, and thus a lawsuit ensued.

Jarra answered and said that it was true that the late Jimenea asked the plaintiff to loan him
ten carabaos, but that he only obtained THREE (3) second-class carabaos, which were
afterwards sold by the Delos Santos to Jimenea.

The case came up for trial and the court rendered judgment against Jarra and ordering her to
return to de los Santos 6 second-class and third class carabaos. The value of which was 120
each so 720 pesos.

Jarra moved for a new trial on the ground that the findings of fact were openly and manifestly
contrary to the weight of the evidence.

The record however, discloses that it has been fully proven from the testimonies of a number of
witnesses that Delos Santos sent in charge of various persons, the 10 carabaos requested by
Jiminea. Also, de los Santos produced 2 letters proving that jimenea received them in the
presence of said persons (brother of Jimenea) who saw the animals arrive at the hacienda.
FOUR of the carabaos died of rinderpest and thus the judgment appealed from only deals with
6 carabaos.

Since the alleged purchase of 3 carabaos by Jimenea from his son-in-law Santos is not
evidenced by any trustworthy evidence. Therefore, it is not true.

From the foregoing, it may be logically inferred that the carabaos loaned or given on
commodatum to the deceased Jimenea were ten in number, that 6 survived and that these
carabaos have not been returned to the owner delos Santos, and lastly, that the 6 carabaos
were not the property of the deceased nor any of his descendants, it is the duty of the
administratrix to return them or indemnify the owner for the value.

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ISSUES/ RULING:
1. Whether the carabaos belonged to the estate of Jimenea?
NO. it was not part of Jimenea’s estate. Therefore Agustina Jarra should exclude it or indemnify
De los Santos.

2. Whether the contracts is one of a commodatum?

YES. The carabaos were given on commodatum as these were delivered to be used by
defendant. Upon failure of defendant to return the cattle upon demand, he is under the
obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos were not
the property of the deceased or of any of his descendants, it is the duty of the administratrix of
the estate to either return them or indemnify the owner thereof of their value.

Ratio: The ratio differentiates a loan from a commodatum.

Art 1740. (old civil code) By the contract of loan , one of the parties delivers to the other, either
anything not perishable (in the new civil code it’s consumable), in order that the latter may use
it during a certain period and return it to the former, in which case it is called commodatum, or
money or any other perishable thing, under the condition to return an equal amount of the
same kind and quality, in which case it is merely called a loan.

Commodatum is essentially gratuitous.

A simple loan may be gratuitous, or made under a stipulation to pay interest.

Art 1741. The bailor retains ownership of the thing loaned the bailee acquires the use thereof,
but not its fruits; if any compensation is involved, to be paid by the person requiring the use, the
agreement ceases to be a commodatum.

Art 1742. The obligations and rights which arise from the commodatum pass to the heirs of both
contracting parties, unless the loan has been made in consideration for the person of the bailee,
in which case his heirs shall not have the right to continue using the thing loaned.

The carabaos delivered to be used were not returned by Jiminea upon demand. There is no
doubt that Jarra is under the obligation to indemnify delos Santos.

Article 101. those who in fulfilling their obligations are guilty of fraud, negligence or delay.

The obligation of the bailee or of his successors to return either the thing loaned or its value is
sustained by the tribunal of Spain which said in its decision.

Legal doctrine touching commodatum as follows:

Although it is true that in a contract of commodatum the bailor retains the ownership of thing
loaned at the expiration of the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to
pay him damages if through the fault of the bailee the thing should have been lost or injured.
PAJUYO VS CA AND GUEVARRA
Same; Same; Contracts; Commodatum; Precarium; Words and Phrases; An essential feature of
commodatum is that it is gratuitous, while another feature is that the use of the thing belonging
to another is for a certain period; If the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case the contractual relation is called a
precarium; Precarium is a kind of commodatum.—In a contract of commodatum, one of the
parties delivers to another something not consumable so that the latter may use the same for

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a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing belonging to another is for a certain period.
Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may demand its return for temporary use. If the
use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will,
in which case the contractual relation is called a precarium. Under the Civil Code, precarium is
a kind of commodatum.

FACTS:
Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a lot, where Pajuyo
subsequently built a house. In 1985, Pajuyo and private respondent Guevarra executed a
Kasunduan wherein Pajuyo allowed Guevarra to live in the house for free, on the condition that
Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that
he would vacate the premises upon Pajuyo’s demand.

In 1994, Pajuyo informed Guevarra of his need of the house and demanded that the latter
vacate the house. Guevarra refused. Pajuyo filed an ejectment case against Guevarra before
the MTC.

Guevarra claimed that Pajuyo had no valid title over the lot since it is within the area set aside
for socialized housing. MTC rendered its decision in favor of Pajuyo, which was affirmed by RTC.
(MTC and RTC basically ruled that the Kasunduan created a legal tie akin to that of a landlord
and tenant relationship).

CA reversed the RTC decision, stating that the ejectment case is without legal basis since both
Pajuyo and Guevarra illegally occupied the said lot. CA further stated that both parties are in
pari delicto; thus, the court will leave them where they are. CA ruled that the Kasunduan is not
a lease contract, but a commodatum because the agreement is not for a price certain.

ISSUE: W/N the contractual relationship between Pajuyo and Guevarra was that of a
commodatum NO

HELD:
In a contract of commodatum, one of the parties delivers to another something not consumable
so that the latter may use the same for a certain time and return it. An essential feature of
commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing
belonging to another is for a certain period. Thus, the bailor cannot demand the return of the
thing loaned until after expiration of the period stipulated, or after accomplishment of the use
for which the commodatum is constituted. If the bailor should have urgent need of the thing,
he may demand its return for temporary use. If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is
called a precarium. Under the Civil Code, precarium is a kind of commodatum.

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes the
Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based
on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease. The tenant’s withholding of the property
would then be unlawful.

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Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum.70 These contracts
certainly involve the obligation to deliver or return the thing received.

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a
squatter. Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has
a right to physical possession of the contested property. The Kasunduan is the undeniable
evidence of Guevarra’s recognition of Pajuyo’s better right of physical possession. Guevarra is
clearly a possessor in bad faith. The absence of a contract would not yield a different result, as
there would still be an implied promise to vacate.

PRODUCERS BANKS (now First Int’l Bank) VS CA AND FRANKLIN

Civil Law; Contracts; Loan; Distinguished from Commodatum; Article 1933 of the Civil Code
distinguishes between the two kinds of loans.—By the contract of loan, one of the parties
delivers to another, either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to
pay interest. In commodatum, the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.

FACTS: Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s
friend, Doronilla (will be the debtor in this case) in incorporating Doronilla’s business “Strela”. This
“help” basically involved Vives depositing a certain amount of money in Strela’s bank account
for purposes of incorporation (rationale: Doronilla had to show that he had sufficient funds for
incorporation). This amount shall later be returned to Vives.

Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check
of P200,00 in favor of Strela and deposited the same into Strela’s newly-opened bank account
(the passbook was given to the wife of Vives and the passbook had an instruction that no
withdrawals/deposits will be allowed unless the passbook is presented).

Later on, Vives learned that Strela was no longer holding office in the address previously given
to him. He later found out that the funds had already been withdrawn leaving only a balance
of P90,000. The Vives spouses tried to withdraw the amount, but it was unable to since the
balance had to answer for certain postdated checks issued by Doronilla.

Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which
were dishonored.

Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and
Producer’s Bank.

TC & CA: ruled in favor of Vives.

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ISSUES/ RULINGS:

1. Whether the transaction is a commodatum or a mutuum? COMMODATUM.

The transaction is a commodatum.
CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the
subject of the contract is a consummable thing, such as money, the contract would be a
mutuum. However, there are instances when a commodatum may have for its object a
consummable thing. Such can be found in CC 1936 which states that “consummable 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”. In this case, the intention of the parties was merely
for exhibition. Vives agreed to deposit his money in Strela’s account specifically for purpose of
making it appear that Streal had sufficient capitalization for incorporation, with the promise that
the amount should be returned withing 30 days.

2. Whether the fact that there is an additional P 12,000 (allegedly representing interest) in
the amount to be returned to Vives converts the transaction from commodatum to
mutuum. NO.
CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not
its fruits”. In this case, the additional P 12,000 corresponds to the fruits of the lending of the P
200,000.

3. Whether Producer’s Bank is solidarily liable to Vives, considering that it was not privy to
the transaction between Vives and Doronilla. YES.

Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of
Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will be
permitted except upon the production of the passbook (recall in this case that the passbook
was in the possession of the wife of Vives all along). Hence, this only proves to show that Atienza
allowed the withdrawals because he was party to Doronilla’s scheme of defrauding Vives. By
virtue of CC 2180, PNB, as employer, is held primarily and solidarily liable for damages caused
by their employees acting within the scope of their assigned tasks. Atienza’s acts, in helpong
Doronilla, a customer of the bank, were obviously done in furtherance of the business of the
bank, even though in the process, Atienza violated some rules.

MINA ET AL VS PASCUAL ET AL
1.REALTY; SALE OF LAND BY ONE NOT THE OWNER.—A sale of land belonging to another, on
which a building of the vendor's is located, is null and void, for the vendor cannot sell or transfer
property that does not belong to him.

2.ID.; BUILDING ON LAND OF ANOTHER; OPTION OF OWNER OF THE LAND,—Inasmuch as the acts
involved were all performed prior to the enactment of the Civil Code, the controversy must be
settled in accordance with the provisions of Laws 41 and 42, title 28, third Partida, nearly
identical with articles 361 and 362 of the Civil Code. Therefore, as prescribed by article 361, the
owner of the land on which a building has been erected by another in good faith has the option
either to appropriate and pay for the building, under articles 453 and 454, or to oblige the
builder to purchase the land.

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FACTS: Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired
during his lifetime, on March 12, 1874, a lot.

Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of
the said lot, embracing 14 meters of its frontage by 11 meters of its depth.

Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro
Mina, et al., were recognized without discussion as his heirs.

Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta
Pascual were recognized, though it is not said how, and consequently are entitled to the said
building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the
other half belonging, as it appears, to the plaintiffs themselves, and the remaining one-seventh
of the first one-half to the children of one of the plaintiffs, Elena de Villanueva.

Ruperta Pascual, as the guardian of her minor children, the herein defendants, petitioned the
Curt of First Instance of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of
the warehouse, of 14 by 11 meters, together with its lot.
The warehouse, together with the lot on which it stands, was sold to Cu Joco, the other
defendant in this case

ISSUE: Whether there exist a contract of commodatum? NO

HELD: The Supreme Court held that it was not a commodatum. It is an essential feature of
commodatum that the use of the thing belonging to another shall be for a certain period. The
parties never fixed a definite period during which Andres could use the lot and afterwards return
it. Although both litigating parties may have agreed in their idea of the commodatum, on
account of its not being, as indeed it is not, a question of fact but of law

Contracts are not to be interpreted in conformity with the name that the parties thereto agree
to give them, but must be construed, duly considering their constitutive elements, as they are
defined and denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything not perishable,
in order that the latter may use it during the certain period and return it to the former, in which
case it is called commodatum
It is, therefore, an essential feature of the commodatum that the use of the thing belonging to
another shall BE for a certain period. Francisco Fontanilla did not fix any definite period or time
during which Andres Fontanilla could have the use of the lot whereon the latter was to erect a
stone warehouse of considerable value, and so it is that for the past thirty years of the lot has
been used by both Andres and his successors in interest.
It would seem that the Supreme Court failed to consider the possibility of a contract of
precardium between Francisco and Andres. Precardium is a kind of commodatum wherein the
bailor may demand the object at will if the contract does not stipulate a period or use to which
the thing is devoted.

CATHOLIC VICAR APOSTOLIC VS CA, HEIRS OF OCTAVIANO AND VALDEZ

Civil Law; Credit Transactions; Commodatum; Property; Adverse Possession; Adverse Claim;
Acquisitive Prescription; When petitioner borrowed the house of private respondents’
predecessors, and petitioner was allowed its free use, private respondents became bailors in

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commodatum, and petitioner, the bailee.—Private respondents were able to prove that their
predecessors’ house was borrowed by petitioner Vicar after the church and the convent were
destroyed. They never asked for the return of the house, but when they allowed its free use, they
became bailors in commodatum and the petitioner the bailee. The bailees’ failure to return the
subject matter of commodatum to the bailor did not mean adverse possession on the part of
the borrower. The bailee held in trust the property subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action
of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.

FACTS:
In 1962,Petitioner Catholic Vicar Apostolic of the Mountain Province (Vicar), filed with the court
an application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central,
Benguet to be used as sites of the Catholic Church, building, convents, high school building,
school gymnasium, dormitories, social hall and stonewalls.

In 1963, the Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have
ownership over lots 1, 2 and 3. (2 separate civil cases)

In 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4.
Upon appeal by the private respondents (heirs), the decision of the lower court was reversed.
Title for lots 2 and 3 were cancelled.

VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court
of Appeals dismissing his application for registration of Lots 2 and 3.

During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged
ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his
written demand to Vicar for the return of the land to them; and the reasonable rentals for the
use of the land at P10,000 per month. On the other hand, Vicar presented the Register of Deeds
for the Province of Benguet, Atty. Sison, who testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of the heirs. Vicar dispensed with the
testimony of Mons. Brasseur when the heirs admitted that the witness if called to the witness
stand, would testify that Vicar has been in possession of Lot 3, for 75 years continuously and
peacefully and has constructed permanent structures thereon.

ISSUE: Whether Vicar had been in possession of lots 2 and 3 merely as bailee borrower in
commodatum, a gratuitous loan for use.

HELD: YES.

Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors in commodatum
and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared
the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not
ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

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The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of
10 years possession for ordinary acquisitive prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner Vicar because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.

QUINTOS AND ANSALDO VS BECK

COMMODATUM; OBLIGATION OF THE PARTIES.—The contract entered into between the parties
is one of commodatum, because under it the plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latter's demand (Clause
7 of the contract, Exhibit "A"; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's residence or
house. The defendant did not comply with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three gas heaters and the four electric lamps.

ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE.—As the defendant had voluntarily undertaken to
return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally
compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's
behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the
plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.

ID.; ID.; VALUE OF FURNITURE.—As to the value of the furniture. we do not believe that the plaintiff
is entitled to the payment thereof by the defendant in case of his inability to return some of the
furniture, because under paragraph 6 of the stipulation of facts, the defendant has neither
agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver
some of the furniture, the value thereof should be later determined by the trial Court through
evidence which the parties may desire to present.

FACTS: Quintos and Beck entered into a contract of lease, whereby the latter occupied
the former’s house. On Jan 14, 1936, the contract of lease was novated, wherein the
QUintos gratuitously granted to Beck the use of the furniture, subject to the condition
that Beck should return the furnitures to Quintos upon demand. Thereafter, Quintos sold
the property to Maria and Rosario Lopez. Beck was notified of the conveyance and
given him 60 days to vacate the premises. IN addition, Quintos required Beck to return
all the furniture. Beck refused to return 3 gas heaters and 4 electric lamps since he
would use them until the lease was due to expire. Quintos refused to get the furniture
since Beck had declined to return all of them. Beck deposited all the furniture
belonging to QUintos to the sheriff.

ISSUES/ RULING:

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1. What is the nature of the contract entered

The contract entered into between the parties is one of commadatum, because under
it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving
for herself the ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract,
Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code).

2. Whether Beck complied with his obligation of returning the furnitures to Quintos
when it deposited the furnitures to the sheriff.

NO. The obligation voluntarily assumed by the defendant to return the furniture upon
the plaintiff's demand, means that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his benefit the three
gas heaters and the four eletric lamps.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as
bailee, was nt entitled to place the furniture on deposit; nor was the plaintiff under a
duty to accept the offer to return the furniture, because the defendant wanted to
retain the three gas heaters and the four electric lamps.

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