CREDIT TRANSACTIONS CASE DIGESTS It is a loan.

It is a loan. The conclusion is inevitable that the demand notes signed by the firm "Puno y
CONCEPT OF CREDIT
People v. Concepcion, GR No. L-19190, November 29, 1922, 44 Phil. 126
Facts: Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919,
and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the
amount of P300,000. Pursuant to this authorization, credit aggregating P300,000, was granted the
firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes.
The notes, together with the interest, were taken up and paid by July 17, 1919. The wife of the
defendant held one-half of the capital of this partnership. Venancio Concepcion, was charged in the
CFI of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty.
Section 35 of Act No. 2747, effective on February 20, 1918, reads as follows: "The National Bank
shall not, directly or indirectly, grant loans to any of the members of the board of directors of the
bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who
shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand
pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These
two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by
Act No. 2938, approved on January 30, 1921.
Issues:
I.Was the granting of a credit of P300,000 to the copartnership by Venancio Concepcion, President
of the PNB, a "loan" within the meaning of section 35 of Act No. 2747?
Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because
(1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and
(2) they were single-name and not double-name paper.
Yes. A loan to a partnership of which the wife of a director of a bank is a member, is an
indirect loan to such director. That it was the intention of the Legislature to prohibit exactly such
an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted
to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a
partnership of no established reputation and without asking for collateral security.
Yes, Concepcion could be convicted of the violation of section 35 of Act No. 2747 in relation
with section 49 of the same Act despite having repealed by Act No. 2938. Where an Act of the
Legislature which penalizes an offense, such repeals a former Act which penalized the same
offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try,
convict, and sentenced offenders charged with violations of the old law.
Yes. It is a violation of section 35 of Act No. 2747 and is with a penal sanction. The answer is
that when the corporation itself is forbidden to do an act, the prohibition extends to the board of
directors, and to each director separately and individually. (People vs. Concepcion, supra.)
No. Good faith is not a defense. Under the statute which the defendant has violated, criminal intent
is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and
public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of
the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular
Auditor, even conceding that such rulings have controlling effect.

II. Was the granting of a credit of P300, 000 to the copartnership by Venancio Concepcion, president
of the PNB, a “loan” or a “discount”?

III. Was the granting of a credit of P300, 000 to the copartnership, by Venancio Concepcion,
President of the PNB, an "indirect loan" within the meaning of section 35 of Act No. 2747?

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a
violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions
of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the
rendition of the judgment?

V. Was the granting of a credit of P300, 000 to the copartnership by Venancio Concepcion, President
of the PNB, in violation of section 35 of Act No. 2747, penalized by this law?

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank,
in extending the credit of P300, 000 to the copartnership "Puno y Concepcion, S. en C." constitute
a legal defense?

Held:

Yes. It is a loan within the meaning of Section 35 of Act No. 2747. The concession of a "credit"
necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

CRC. Credit Transaction 1|Page

LOAN
Garcia v. Thio, GR No. 154878, March 16, 2007
Facts: In February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia
a crossed check in the amount of US$100,000 payable to the order of a certain Marilou Santiago. In
June 1995, Thio received from Garcia another crossed check in the amount of ₱500,000, also
payable to the order of Marilou Santiago.10 Tio failed to pay the principal amounts of the loans when
they fell due. Thus, Garcia filed a complaint for sum of money and damages respondent Thio,
seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26,
1995 and ₱500,000, with interest thereon at 4% a month from November 5, 1995. For both loans,
no promissory note was executed since petitioner and respondent were close friends at the time.
Respondent Thio denied that she contracted the two loans with petitioner Garcia and countered that
it was Marilou Santiago to whom petitioner Garcia lent the money. She claimed she was merely
asked by petitioner Garcia to give the crossed checks to Santiago.17 She issued the checks for
₱76,000 and ₱20,000 not as payment of interest but to accommodate petitioner’ Garcia’s request
that respondent Thio use her own checks instead of Santiago’s.18
Issue: who borrowed money from petitioner Garcia — respondent Thio or Santiago?
Held: Respondent Thio is liable for the principal amounts of the loans. Delivery is the act by
which the res or substance thereof is placed within the actual or constructive possession or control
of another.30 Although respondent Thio did not physically receive the proceeds of the checks,
these instruments were placed in her control and possession under an arrangement whereby
she actually re-lent the amounts to Santiago.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the
object of the contract.25 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. (Emphasis supplied)
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.26 It is undisputed that the checks were
delivered to respondent.
We do not, however, agree that respondent Thio is liable for the 3% and 4% monthly interest for the
US$100,000 and ₱500,000 loans respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article
1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly
stipulated in writing." Be that as it may, while there can be no stipulated interest, there can be
legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that: When the obligation is
breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.41
CRC. Credit Transaction
Saura Import & Export Co., Inc. v. Development Bank of the Philippines, GR No. L-24968, April
27, 1972
Facts: In July 1953 the plaintiff Saura, Inc.applied to the Rehabilitation Finance Corporation (RFC),
before its conversion into DBP, for an industrial loan of P500,000.00 to be used as follows:
P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital. On January 7, 1954 RFC passed Resolution No. 145
approving the loan application for P500,000.00. RFC approved Resolution No. 736 on February 4,
1954, designating of the members of its Board of Governors, "to reexamine all the aspects of this
approved loan." RESOLUTION No. 3989 was approved Reducing the loan from P500,000.00 to
P300,000.00. On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00. Saura, Inc. itself confirmed the defendant's stand impliedly in its
letter of January 21, 1955: (1) stating that "kenaf will not be available in sufficient quantity this year
or probably even next year;" The negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC
executed the corresponding deed of cancellation and delivered it to the president of Saura, Inc.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the request
of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC to comply
with its obligation to release the proceeds of the loan applied for and approved, thereby preventing
the plaintiff from completing or paying contractual commitments it had entered into, in connection
with its jute mill project.
Issues: Whether or not the petitioner Saura Inc has a cause of action for damages against defendant
DBP for failure to comply with its obligation.
Whether or not there was a perfected contract
Held: No. The petitioner has no cause of action against the defendant for damages although
there was a perfected contract. 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.
It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December
17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit:
"(1) that the raw materials needed by the borrower-corporation to carry out its operation are available
in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide
adequately for the requirements of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No.
145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be
utilized exclusively for the following purposes: for construction of factory building — P250,000.00;
for payment of the balance of purchase price of machinery and equipment — P240,900.00; for
working capital — P9,100.00."
Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released
"for raw materials and labor." This was a deviation from the terms laid down in Resolution No.
145 and embodied in the mortgage contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those agreed upon.
2|Page
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been
going on for the implementation of the agreement reached an impasse. 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, which was done on
June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance
— what Manresa terms "mutuo disenso"1 — which is a mode of extinguishing obligations.
BPI Investment Corporation v. Court of Appeals & ALS Management and Development
Corporation, GR No. 133632, February 15, 2002
Facts: Frank Roa obtained a loan at an interest rate of 20% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a
house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC
to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and
Antonio Litonjua for ₱850,000. They paid ₱350,000 in cash and assumed the ₱500,000 balance of
Roa’s indebtedness with AIDC. Consequently, in March 1981, private respondents executed a
mortgage deed containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981. On August 13, 1982, ALS and Litonjua updated Roa’s
arrearages by paying BPIIC the sum of ₱190,601.35. This reduced Roa’s principal balance to
₱457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private
respondents’ loan of ₱500,000.
On September 13, 1982, BPIIC released to private respondents ₱7,146.87, purporting to be what
was left of their loan after full payment of Roa’s loan. In June 1984, BPIIC instituted foreclosure
proceedings against private respondents on the ground that they failed to pay the mortgage
indebtedness which from May 1, 1981 to June 30, 1984, amounted to (₱475,585.31).
On February 28, 1985, ALS and Litonjua filed Civil Case against BPIIC alleging that they were not
in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained
that they should not be made to pay amortization before the actual release of the ₱500,000 loan in
August and September 1982. Further, out of the ₱500,000 loan, only the total amount of
₱464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance of ₱35,648.23 should be applied to the initial monthly amortization for
the loan.
Issue: Whether or not a contract of loan is a consensual contract in the light of the rule laid down
in bonnevie vs. court of appeals, 125 scra 122.
Held: No. A loan contract is a real contract. It is perfected only upon the delivery of the object of
the contract.5 Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a
perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
The loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the monthly amortization, as found by the
Court of Appeals, private respondents’ obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.7
CRC. Credit Transaction
A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other.8 As averred by private respondents, the promise
of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after the supposed release of the
loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.9 Only
when a party has performed his part of the contract can he demand that the other party also fulfills
his own obligation and if the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982 for it was only
then when it complied with its obligation under the loan contract. Therefore, in computing the
amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the
starting date is October 13, 1982 and not May 1, 1981.
Pantaleon v. American Express International, Inc., GR No. 174269, August 25, 2010
Facts: AMEX is a resident foreign corporation engaged in the business of providing credit services
through the operation of a charge card system. Pantaleon has been an AMEX cardholder since
1980. In October 1991, Pantaleon, together with his wife, daughter, and son, went on a guided
European tour. While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a
total of US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to
pay for this purchase but it took AMEX a total of 78 minutes to approve Pantaleon’s purchase and
to transmit the approval to the jewelry store.7 When the Pantaleons finally returned to the tour bus,
they found their travel companions visibly irritated. This irritation intensified when the tour guide
announced that they would have to cancel the tour because of lack of time as they all had to be in
Calais, Belgium by 3 p.m. to catch the ferry to London. Pantaleon filed an action for damages against
the credit card company.
Issue: Whether or not Pantaleon has a cause of action for damages against the credit card
company.
Held:
None. AMEX is neither contractually bound nor legally obligated to act on its cardholders’ purchase
requests within any specific period of time, much less a period of a "matter of seconds" that
Pantaleon uses as his standard.
From the loan agreement perspective, the contractual relationship begins to exist only upon the
meeting of the offer25 and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into
loan agreements with the credit card company. Only after the latter approves the purchase
requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the
Civil Code.This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny
authorization for any requested Charge." By so providing, AMEX made its position clear that it
has no obligation to approve any and all charge requests made by its card holders.
AMEX not guilty of culpable delay. Since AMEX has no obligation to approve the purchase
requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its
obligation. Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Before the
credit card issuer accepts this offer, no obligation relating to the loan agreement exists
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between them. A demand presupposes the existence of an obligation between the parties.
Pantaleon’s act of "insisting on and waiting for the charge purchases to be approved by AMEX" 28 is
not the demand contemplated by Article 1169 of the Civil Code.
iii. On AMEX’s obligation to act on the offer within a specific period of time
Every time Pantaleon charges a purchase on his credit card, the credit card company still
has to determine whether it will allow this charge, based on his past credit history. This right
to review a card holder’s credit history, although not specifically set out in the card membership
agreement, is a necessary implication of AMEX’s right to deny authorization for any requested
charge. There is no provision in this agreement that obligates AMEX to act on all cardholder
purchase requests within a specifically defined period of time.
As financial institutions engaged in the business of providing credit, credit card companies fall under
the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).34 BSP Circular No. 398 dated
August 21, 2003 embodies the BSP’s policy when it comes to credit cards. Based on this Circular,
"x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card companies must
exercise proper diligence by ascertaining that applicants possess good credit standing and are
financially capable of fulfilling their credit commitments."35 As the above-quoted policy expressly
states, the general intent is to foster "fair and sound consumer credit practices."
AMEX acted with good faith
The reason why Pantaleon had to wait for AMEX’s approval was because he had to go over
Pantaleon’s credit card history for the past twelve months.43 It would certainly be unjust for us to
penalize AMEX for merely exercising its right to review Pantaleon’s credit history meticulously.
Pantaleon’s action was the proximate cause for his injury
The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury")
refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by
one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in
doing so is applicable in this case. We have to acknowledge, however, that Pantaleon was not a
helpless victim in this scenario – at any time, he could have cancelled the sale so that the group
could go on with the city tour. But he did not.
More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under
the principle of damnum absque injuria, or damages without legal wrong, loss without injury.
CRC. Credit Transaction
COMMODATUM
Producers Bank of the Philippines v. Court of Appeals, GR No. 115324, February 19, 2003
Facts: Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a
savings account for Sterela Marketing, in coordination with Producer's Bank assistant branch
manager, Rufo Atienza. The purpose was for incorporation, and the agreement was that the money
would not be removed from Sterela's savings account and returned to Vives after thirty (30) days.
Later, however, part of the money had been withdrawn by Doronilla who also opened a current
account and authorized the bank to debit the savings account to cover overdrawing in the current
account. Vives filed a case for recovery of sum of money and both the trial court and the appellate
court ruled on the solidary liability of Producers Bank to Vives. Hence, this appeal. IDSEAH
Issue: Whether or not the transaction between the defendant Doronilla and respondent Vives was
one of simple loan and not accommodation
Held: No. The transaction was a commodatum and not mutuum.
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.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such
as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides: 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.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention
of the parties is to lend consumable goods and to have the very same goods returned at the
end of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.27 In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.2
The evidence shows that private respondent agreed to deposit his money in the savings account of
Sterela specifically for the purpose of making it appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days." 29 Private
respondent merely "accommodated" Doronilla by lending his money without consideration,
as a favor to his good friend Sanchez. It was however clear to the parties to the transaction
that the money would not be removed from Sterela’s savings account and would be returned
to private respondent after thirty (30) days.
Doronilla’s attempts to return to private respondent the amount of ₱200,000.00 which the latter
deposited in Sterela’s account together with an additional ₱12,000.00, allegedly representing
interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because
such was not the intent of the parties and because the additional ₱12,000.00 corresponds to
4|Page
the fruits of the lending of the ₱200,000.00. Article 1935 of the Civil Code expressly states that
"[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was
only proper for Doronilla to remit to private respondent the interest accruing to the latter’s money
deposited with petitioner.
Neither does the Court agree with petitioner’s contention that it is not solidarily liable for the return
of private respondent’s money because it was not privy to the transaction between Doronilla and
private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum,
has no bearing on the question of petitioner’s liability for the return of private respondent’s money
because the factual circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondent’s money and is liable for its
restitution.
Pajuyo v. Court of Appeals, GR No. 146364, June 3, 2004
Facts: In June 1979, petitioner Colito T. Pajuyo paid ₱400 to a certain Pedro Perez for the rights
over a lot in Quezon City. Pajuyo then constructed a house made of light materials on the lot and
lived in the house with his family. Pajuyo and private respondent Eddie Guevarra executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on Pajuyo’s demand. Pajuyo informed
Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra
refused. Pajuyo filed an ejectment case against Guevarra. Guevarra claimed that Pajuyo had no
valid title or right of possession over the lot where the house stands because the lot is within the 150
hectares set aside by Proclamation No. 137 for socialized housing. The Court of Appeals ruled that
the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price
certain.
Issue: Whether or not the Kasunduan voluntarily entered into by the parties was in fact
a commodatum.
Held: No. It was not a 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.69 The tenant’s withholding of
the property would then be unlawful. This is settled jurisprudence.
CRC. Credit Transaction
Republic v. Bagtas, GR No. L-17474, October 25, 1962
Facts: On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: for a period of one year 1949 for breeding purposes subject
to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
of the contract, the Secretary of Agriculture and Natural Resources approved a renewal thereof of
only one bull for another year and requested the return of the other two. Jose V. Bagtas reiterated
his desire to buy the three bulls at a value with a deduction of yearly depreciation.
In the CFI of Manila the Republic of the Philippines commenced an action against him praying that
he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of
P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests. The appellant
contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953,
and that the contract was commodatum and that, for that reason, as the appellee retained ownership
or title to the bull it should suffer its loss due to force majeure.
Issue: Whether or not the appellee Republic of the Philippines retained ownership or title to the bull
hence it should suffer its loss due to force majeure.
Held: No. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. 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;
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.
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Republic v. Court of Appeals, 146 SCRA 15 (1986)
Facts: Applicants' claim is anchored on their possessory information title coupled with their
continuous, adverse and public possession over the land in question. The Director of Lands opposed
the registration alleging that this land had become public land thru the operation of Act 627 of the
Philippine Commission. On November 26, 1902 pursuant to the executive order of the President of
the U.S., the area was declared within the U.S. Naval Reservation. Under Act 627 as amended by
Act 1138, a period was fixed within which persons affected thereby could file their application, (that
is within 6 months from July 8, 1905) otherwise "the said lands or interest therein will be conclusively
adjudged to be public lands and all claims on the part of private individuals for such lands or interests
therein not to presented will be forever barred." Petitioner argues that since Domingo Baloy failed to
file his claim within the prescribed period, the land had become irrevocably public and could not be
the subject of a valid registration for private ownership.
Issue: Whether or not the occupancy of the U.S. Navy was in the concept of an owner.
Held: No. Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes
of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy
and his successors-in-interest. One's ownership of a thing may be lost by prescription by reason of
another's possession if such possession be under claim of ownership, not where the possession is
only intended to be transient, as in the case of the U.S. Navy's occupation of the land concerned, in
which case the owner is not divested of his title, although it cannot be exercised in the meantime.
During the interim of 57 years from November 26, 1902 to December 17, 1959 (when the U.S. Navy
possessed the area) the possessory rights of Baloy or heirs were merely suspended and not lost by
prescription, is supported by Exhibit "U," a communication or letter No. 1108-63, dated June 24,
1963, which contains an official statement of the position of the Republic of the Philippines with
regard to the status of the land in question. Said letter recognizes the fact that Domingo Baloy and/or
his heirs have been in continuous possession of said land since 1894 as attested by an "Informacion
Possessoria" Title, which was granted by the Spanish Government. Hence, the disputed property is
private land and this possession was interrupted only by the occupation of the land by the U.S. Navy
in 1945 for recreational purposes. The U.S. Navy eventually abandoned the premises. The heirs of
the late Domingo P. Baloy, are now in actual possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy
personnel and this place is remote from the land in question.
CRC. Credit Transaction
Quintos & Ansaldo v. Beck, GR No. L-46240, November 3, 1939
Facts: The defendant Beck was a tenant of the plaintiff Quinto’s and Ansaldo. Upon the novation
of the contract of lease between the plaintiff and the defendant Beck, the former gratuitously granted
to the latter the use of the furniture subject to the condition that the defendant Beck would return
them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez. There after the plaintiff required the defendant to return all the furniture transferred
to him for them in the house where they were found. The defendant informed her that he could not
give up the three gas heaters and the four electric lamps because he would use them until the 15th
of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view
of the fact that the defendant had declined to make delivery of all of them. Before vacating the house,
the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now
on deposit in the warehouse, in the custody of the said sheriff.
Issue: Whether or not the defendant should return the said furniture to the plaintiff.
Held: Yes. 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). 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. The provisions of article 1169 of the Civil Code cited by counsel for the parties
are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that
the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.
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.
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
latter determined by the trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing
party (section 487 of the Code of Civil Procedure). The defendant was the one who breached the
contract of commodatum, and without any reason he refused to return and deliver all the
furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that he
pay the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.
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De Los Santos v. Jarra, 15 Phil 147 (1910)
Facts: On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra, the
administratrix of the estate of Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea
borrowed and obtained from the plaintiff ten first-class carabaos, to be used at the animal-power mill
of his hacienda during the season of 1901-2, without recompense or remuneration whatever for the
use thereof, under the sole condition that they should be returned to the owner as soon as the work
at the mill was terminated; that Magdaleno Jimenea, however, did not return the carabaos,
notwithstanding the fact that the plaintiff claimed their return after the work at the mill was finished;
that Magdaleno Jimenea died, and the defendant herein was appointed administratrix of his estate.
Four died of rinderpest, and it is for this reason that the judgment appealed from only deals with six
surviving carabaos.plaintiff to the said Jimenea.
Issue: Whether or not the plaintiff has a right to the return of the subject carabaos.
Held: Yes. In a contract of commodatum the bailor retains the ownership of the thing loaned, and 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, it is clear that where
public securities are involved, the trial court, in deferring to the claim of the bailor that the amount
loaned be returned him by the bailee in bonds of the same class as those which constituted the
contract, thereby properly applies law 9 of title 11 of partida
The carabaos delivered to be used not being returned by the defendant upon demand, there is no
doubt that she is under obligation to indemnify the owner thereof by paying him their value.
CRC. Credit Transaction
Catholic Vicar Apostolic of the Mt. Province v. Court of Appeals, 165 SCRA 515 (1988)
Facts: The whole controversy started when the defendant VICAR filed with the CFI of Baguio
Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 said
Lots being the sites of the Catholic Church building, convents, high school building. The Heirs of
Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and
3, respectively, asserting ownership and title thereto. The land registration court confirmed the
registrable title of VICAR to Lots 1, 2, 3, and 4.
Issue: Whether or not the petitioner had been in possession of lots 2 and 3 merely as bailee
(borrower) in commodatum, a gratuitous loan for use
Held: Yes. The petitioner had been in possession of the lots merely as bailee in commodatum.
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.
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. Extraordinary
acquisitive prescription requires 30 years. 4
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