BPI INVESTMENT CORPORATION, PETITIONER, VS. HON.

COURT OF APPEALS AND ALS

MANAGEMENT & DEVELOPMENT CORPORATION, RESPONDENTS.
Facts: Frank Roa obtained a loan at an interest rate of 16 1/4% 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 P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s
indebtedness with AIDC.
The latter, however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the
same property, at an interest rate of 20% per annum and service fee of 1% per annum on the
outstanding principal balance payable within ten years in equal monthly amortization of
P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the
amortization became due and payable.
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
P190,601.35. This reduced Roa’s principal balance to P457,204.90 which, in turn, was liquidated
when BPIIC applied thereto the proceeds of private respondents’ loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87, 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 Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100
Pesos (P475,585.31). A notice of sheriff’s sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, 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 P500,000 loan in August and September 1982. Further, out of the
P500,000 loan, only the total amount of P464,351.77 was released to private respondents.
Hence, applying the effects of legal compensation, the balance of P35,648.23 should be applied
to the initial monthly amortization for the loan.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this
petition, where BPIIC submits for resolution the following issues:
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.
Ruling: No.
A loan contract is not a consensual contract but 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.
A perfected consensual contract can give rise to an action for damages. However, said contract
does not constitute the real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on the part of the borrower.
In the present case, 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]
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.
Bonnevie v. CA
Facts: Lozano spouses were the owners of the property which they mortgaged on December 6,
1966 to secure the payment of the loan in the principal amount of P75,000.00, which they were
about to obtain from defendant-appellee Philippine Bank of Commerce (PBC).
On December 8, 1966 they executed in favor of Honesto Bonnevie the Deed of Sale with
Assumption of Mortgage, for and in consideration of the sum of P100,000.00, P25,000.00 of
which amount being payable to the Lozano spouses upon the execution of the document, and
the balance of P75,000.00 being payable to the bank.
When the mortgage was executed on December 6, 1966 by the Lozano spouses in favor of the
bank, the loan of P75,000.00 was not yet received by them, as it was on December 12, 1966
when they and their co-maker Alfonso Lim signed the promissory note for that amount.
From April 28, 1967 to July 12, 1968, Honesto Bonnevie made payments to the bank on the
mortgage. On May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with
Assumption of Mortgage to his brother, intervenor Raoul Bonnevie.
On June 10, 1968, the bank applied for the foreclosure of the mortgage. The auction sale was
conducted on August 19, 1968, and the property was sold to the bank for P84,387.00. Offers
from plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he caused
an adverse claim to be annotated on the title of the property.
Petitioner assailed, among others, the validity of the deed of mortgage. They contended that
when it was executed on December 6, 1966, there was yet no principal obligation to secure as
the loan of P75,000.00 was not received by the Lozano spouses "so much so that in the absence
of a principal obligation, there is want of consideration in the accessory contract, which
consequently impairs its validity and fatally affects it very existence.”
On the other hand, the answer of defendant Bank, now private respondent herein, specifically
denied most of the allegations in the complaint and raised the following affirmative defense,
among others, that the defendant has not given its consent, much less the requisite written
consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter of
the loan secured thereby.
RTC ruled in favor of the bank, IAC affirmed.
Issue: Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed
Ruling: Yes. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage
deed was executed for and on condition of the loan granted to the Lozano spouses. The fact
that the latter did not collect from the respondent Bank the consideration of the mortgage on
the date it was executed is immaterial. A contract of loan being a consensual contract, the
herein contract of loan was perfected at the same time the contract of mortgage was executed.
The promissory note executed on December 12, 1966 is only an evidence of indebtedness and
does not indicate lack of consideration of the mortgage at the time of its execution.
Republic v. Bagtas
Facts: On May 8, 1948 Bagtas borrowed from the Bureau of Animal Industry three bulls of
different breeds, for a period of one year from 8 May 1948 to 7 May 1949 for breeding
purposes subject to a government charge of breeding fee of 10% of the book value of the bulls.
Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of Agriculture and Natural Resources
approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950
and requested the return of the other two.
In March 1950 Bagtas wrote to the Director of Animal Industry that he would pay the value of
the three bulls. In October 1950, he reiterated his desire to buy them at a value with a
deduction of yearly depreciation to be approved by the Auditor General.
On 19 October 1950 the Director of Animal Industry 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 not
later than 31 October 1950.
Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December
1950 in the CFI 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.
Bagtas answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of
Agriculture and Natural Resources and the President of the Philippines from the refusal by the
Director of Animal Industry to deduct from the book value of the bulls corresponding yearly
depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did
not object, he could not return the animals nor pay their value and prayed for the dismissal of
the complaint.
CFI ruled against Bagtas. Bagtas died on 23 October 1951.
On 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned two of
the bulls to Bureau of Animal Industry, Bayombong, Nueva Viscaya. The appellant contends that
the remaining one bull was accidentally killed during a raid by the Huks and that as such death
was due to force majeure, she is relieved from the duty of the returning the bull or paying its
value to the appellee.
Issue: Whether the appellants are relieved from the liability
Ruling: No. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for
breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed
for another year as regards one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. The appellant contends 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. 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. 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 thing, 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. 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.
Republic v. Grualdo
Facts: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of
6% per annum, compounded quarterly. These loans are evidenced by five promissory notes
executed by the appellant in favor of the Bank of Taiwan, all notes without due dates. But
because the loans were crop loans, it was considered that the loans were due one year after
they were incurred. To secure the payment of the loan the appellant executed a chattel
mortgage on the standing crops on his land.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided
for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of
Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine
Property Act of 1946 of the United States, these assets, including the loans in question, were
subsequently transferred to the Republic of the Philippines by the Government of the United
States under Transfer Agreement dated July 20, 1954.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman
of the Board of Liquidators demanded a payment from the loan but the appellant defaulted.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question but
the same was dismissed on the ground that the action had prescribed.
The appellee appealed to the CFI, which rendered a decision in its favor.
The appellant appealed directly to this Court. During pendency of this appeal the appellant Jose
Grijaldo died and was subsequently substituted by his legal heirs.
The appellant maintains, in support of his contention that the appellee has no cause of action,
that because the loans were secured by a chattel mortgage on the standing crops on a land
owned by him and those crops were lost or destroyed through enemy action his obligation to
pay the loans was thereby extinguished.
Issue: Whether or not the Republic of the Philippines has cause of action against Jose Grualdo
Ruling: Yes.
The terms of the promissory notes and the chattel mortgage that the appellant executed in
favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the
appellant under the five promissory notes was not to deliver a determinate thing; namely, the
crops to be harvested from his land, or the value of the crops that would be harvested from his
land. Rather, his obligation was to pay a generic thing the amount of money representing the
total sum of the five loans, with interest. The transaction between the appellant and the Bank
of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of
(simple) loan, one of the parties delivers to another . . . money or other consumable thing upon
the condition that the same amount of the same kind and quality shall be paid." (Article 1933,
Civil Code.) The obligation of the appellant under the five promissory notes evidencing the
loans in question is to pay the value thereof; that is, to deliver a sum of money—a clear case of
an obligation to deliver a generic thing. Article 1263 of the Civil Code provides: "In an obligation
to deliver a generic thing, the loss or destruction of anything1 of the same kind does not
extinguish the obligation".
The chattel mortgage on the crops growing on appellant's land simply stood as a security for
the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of
the crops did not extinguish his obligation to pay, because the account could still be paid from
other sources aside from the mortgaged crops.
Producers Bank v. CA
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money from said
account within a month’s time.
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronilla’s private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check in
the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela.
Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check.
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact.
Private respondent tried to get in touch with Doronilla through Sanchez to demand the return
of his money, but Doronilla on several occasions failed to do so.
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. RTC ruled in
favor of Vives, and the CA affirmed the same in toto.
Petitioner contends, among others, that the transaction between private respondent and
Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what
was delivered by private respondent to Doronilla was money, a consumable thing; and second,
the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check
issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private
respondent deposited in Sterela’s bank account. Moreover, the fact that private respondent
sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the
transaction was not merely gratuitous but “had a business angle” to it. Hence, petitioner argues
that it cannot be held liable for the return of private respondent’s P200,000.00 because it is not
privy to the transaction between the latter and Doronilla.

Private respondent, on the other hand, argues that the transaction between him and Doronilla
is not a mutuum but an accommodation, since he did not actually part with the ownership of
his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so
that a certification can be issued to the effect that Sterela had sufficient funds for purposes of
its incorporation but at the same time, he retained some degree of control over his money
through his wife who was made a signatory to the savings account and in whose possession the
savings account passbook was given.
Issue: Whether or not CA erred when it ruled that the transaction between private respondent
and Doronilla was a commodatum and not a mutuum
Ruling: No. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this
wise: 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. In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
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 days.” 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 P200,000.00 which the
latter deposited in Sterela’s account together with an additional P12,000.00, 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
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. 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.