I.

INTRODUCTION

Republic Act No. 3765, “Truth in Lending Act”

REPUBLIC ACT No. 3765

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE
CHARGES IN CONNECTION WITH EXTENSIONS OF
CREDIT.
Section 1. This Act shall be known as the "Truth in Lending
Act."
Section 2. Declaration of Policy. It is hereby declared to be the
policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed
use of credit to the detriment of the national economy.
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank
of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust,
advance, or discount; any conditional sales contract; any
contract to sell, or sale or contract of sale of property or
services, either for present or future delivery, under which
part or all of the price is payable subsequent to the making
of such sale or contract; any rental-purchase contract; any
contract or arrangement for the hire, bailment, or leasing of
property; any option, demand, lien, pledge, or other claim
 against, or for the delivery of, property or money; any
purchase, or other acquisition of, or any credit upon the
security of, any obligation of claim arising out of any of the
foregoing; and any transaction or series of transactions
having a similar purpose or effect.
(3) "Finance charge" includes interest, fees, service
charges, discounts, and such other charges incident to the
extension of credit as the Board may be regulation
prescribe.
(4) "Creditor" means any person engaged in the business of
extending credit (including any person who as a regular
business practice make loans or sells or rents property or
services on a time, credit, or installment basis, either as
principal or as agent) who requires as an incident to the
extension of credit, the payment of a finance charge.
(5) "Person" means any individual, corporation,
partnership, association, or other organized group of
persons, or the legal successor or representative of the
foregoing, and includes the Philippine Government or any
agency thereof, or any other government, or of any of its
political subdivisions, or any agency of the foregoing.
Section 4. Any creditor shall furnish to each person to whom
credit is extended, prior to the consummation of the transaction,
a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the
Board, the following information:
 (1) the cash price or delivered price of the property or
service to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to
be paid by such person in connection with the transaction
but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total amount
to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
Section 5. The Board shall prescribe such rules and regulations
as may be necessary or proper in carrying out the provisions of
this Act. Any rule or regulation prescribed hereunder may
contain such classifications and differentiations as in the
judgment of the Board are necessary or proper to effectuate the
purposes of this Act or to prevent circumvention or evasion, or
to facilitate the enforcement of this Act, or any rule or regulation
issued thereunder.
Section 6. (a) Any creditor who in connection with any credit
transaction fails to disclose to any person any information in
violation of this Act or any regulation issued thereunder shall be
liable to such person in the amount of P100 or in an amount
equal to twice the finance charged required by such creditor in
connection with such transaction, whichever is the greater,
except that such liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of
the violation, in any court of competent jurisdiction. In any
action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney's
fees and court costs as determined by the court.
(b) Except as specified in subsection (a) of this section,
nothing contained in this Act or any regulation contained in
this Act or any regulation thereunder shall affect the
validity or enforceability of any contract or transactions.
(c) Any person who willfully violates any provision of this
Act or any regulation issued thereunder shall be fined by
not less than P1,00 or more than P5,000 or imprisonment
for not less than 6 months, nor more than one year or both.
(d) No punishment or penalty provided by this Act shall
apply to the Philippine Government or any agency or any
political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal
proceeding under this Act to the effect that a defendant has
willfully violated this Act shall be prima facie evidence
against such defendant in an action or proceeding brought
by any other party against such defendant under this Act as
 to all matters respecting which said judgment would be an
estoppel as between the parties thereto.
Section 7. This Act shall become effective upon approval.

People vs. Concepcion, G.R. No. L-19190, November 29,

1922

FACTS: Between April 10 and May 7, 1919, Venancio

Concepcion, then President and member of Board of Directors
of the Philippine National Bank (PNB), authorized an extension
of credit in favor of “Puno y Concepcion, S. en C” in the amount
of PHP 300,000. “Puno y Concepcion, S. en C” was a co-
partnership where the wife of Concepcion was a member and
owns half of its capital. Concepcion was charged with a
violation of Section 35 of Act No. 2747 and was later found
guilty. Section 35 of Act No. 2747 states that the National Bank
shall not, directly or indirectly, grant loans to any of the
members of the board of the directors of the bank nor to agents
of the branch banks. The counsel of Concepcion appealed the
case, and argued that the granting of credit of PHP 300,000 is
not a loan within the meaning of Section 35.

ISSUE: Whether or not the granting of a credit of PHP 300,000

to the co-partnership is considered a "loan" within the meaning
of section 35 of Act No. 2747

RULING: YES. The "credit" of an individual means his ability

to borrow money by virtue of the confidence or trust reposed by
a lender that he will pay what he may promise. A "loan" means
 the delivery by one party and the receipt by the other party of a
given sum of money, upon an agreement, express or implied, to
repay the sum loaned, with or without interest. The concession
of a "credit" necessarily involves the granting of "loans" up to
the limit of the amount fixed in the "credit". Thus, extension or
concession of credit to the co-partnership involves the loan of
the amount of PHP 300,000. It is further evidenced by the fact
that the demand notes signed by the co-partnership are
evidences of indebtedness.

II. LOAN

A.General Concepts

 Articles 1933 to 1934

 Cases:

1. Garcia vs. Thio, G.R. No. 154878, March 16, 2007

FACTS
            Respondent Thio received from petitioner Garcia two
crossed checks which amount to US$100,000 and US$500,000,
respectively, payable to the order of Marilou Santiago.
According to petitioner, respondent failed to pay the principal
amounts of the loans when they fell due and so she filed a
complaint for sum of money and damages with the RTC.
Respondent denied that she contracted the two loans and
countered that it was Marilou Satiago to whom petitioner lent
the money. She claimed she was merely asked y petitioner to
 give the checks to Santiago. She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate
petitioner’s request that respondent use her own checks instead
of Santiago’s.

            RTC ruled in favor of petitioner. CA reversed RTC and

ruled that there was no contract of loan between the parties.

ISSUE
(1)   Whether or not there was a contract of loan between petitioner
and respondent.
(2)   Who borrowed money from petitioner, the respondent or
Marilou Santiago?

HELD
(1)           The Court held in the affirmative. A loan is a real
contract, not consensual, and as such I perfected only upon the
delivery of the object of the contract. Upon delivery 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. It is undisputed that the checks were delivered
to respondent.

(2)           However, the checks were crossed and payable

not to the order of the respondent but to the order of a certain
Marilou Santiago. Delivery is the act by which the res or
substance is thereof placed within the actual or constructive
possession or control of another. Although respondent 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 amount to Santiago.

Petition granted; judgment and resolution reversed and set aside.

2. Saura Import and Export Co. vs. DBP, G.R. No. L-24968,
April 27,1972

Facts: Saura Import and Export Co. (Saura) applied for an

industrial loan of ₱ 500,000 with RFC to be used in the
construction of a factory for the manufacture of jute sacks. RFC
initially approved the loan which was to be secured by
promissory notes and a deed of mortgage. When Saura requested
for modification of the terms, RFC passed a Resolution calling
for the reexamination of the proposed project. After the
reexamination of the proposed project, RFC resolved to reduce
the loan from P500,00 to P300,000 to which Saura appealed.
Eventually, RFC agreed to loan ₱ 500,000 to Saura on the
condition that the Department of Agriculture and Natural
Resources would certify that there are enough raw materials in
the immediate vicinity. However, Saura later informed RFC that
the Department certified a shortage of local raw materials and
asked RFC for the release of part of the loan to be used for
importing raw materials. The RFC refused to release the
requested amounts  Negotiations between the two had been
going on for the implementation of the agreement but then the
same reached an impasse. Saura did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and
RFC also agreed to it. Saura executed another contract of
mortgage with Prudential Bank to secure a trust receipt. When
Saura eventually defaulted with its obligation, it was sued by
Prudential.  Nine years after RFC cancelled the mortgage, Saura
filed an action for damages due to  breach of contract against the
former. the former. CFI Manila ruled in favor of Saura. Hence,
this appeal by RFC (now DBP).

Issue: Whether or not there was a perfected contract consensual

contract in the said case.

Held: Yes. The Supreme Court held the view that there was
indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code, which provides: “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 perfected until the delivery of
the object of the contract.” There was undoubtedly offer and
acceptance in this case: the application of Saura for a loan of
P500,000.00 was approved by resolution of the defendant, and
the corresponding mortgage was executed and registered. But
this fact alone falls short of resolving the basic claim that the
defendant failed to fulfill its obligation and the plaintiff is
therefore entitled to recover damages. Hence, when Saura was
obviously no longer in a position to comply with the condition
set forth by RFC, it opted to request that the mortgage be
cancelled and this was also agreed upon by RFC. The action
thus taken by both parties was in the nature of mutual desistance
or, what Manresa calls, “mutuo disenso”. Mutual desistance is a
mode of extinguishing obligations. It is derived from the
principle that since mutual agreement can create a contract,
mutual disagreement by parties can cause its extinguishment.
BPI Investment Corporation vs. Court of Appeals & ALS
Management & Development Corporation, G.R. No. 133632,
February 15, 2002

FACTS: Frank Roa obtained a loan from Ayala Investment and

Development Co. (AIDC),  predecessor of BPI Investment Co.
(BPIIC) for the construction of a house on his lot. To secure the
loan, Roa mortgaged the said property to AIDC. Roa
subsequently sold the house and lot to ALS and Antonio who
assumed the former’s indebtedness with AIDC. AIDC, not
willing to extend the old interest, granted ALS and Antonio a
new loan to be applied to Roa’s loan balance and to be secured
by the same property. The twothen executed a mortgage deed
containing the new stipulations. Later, BPIIC released to ALS
and Antonio what was left of their loan after full  payment of
Roa’s indebtedness. Thereafter, BPIIC instituted foreclosure
proceedings against ALS and Antonio on the ground that they
failed to pay the monthly amortization from the date of the
execution of the mortgage. BPIIC claimed that a contract of loan
is a consensual contract and is perfected at the time the contract
of mortgage is executed. On the other hand, ALS and Antonio
contended that they were not in arrears in their  payment.They
maintained that they should not be made to pay amortization
before the actual release of the full amount of the loan. They
likewise asserted based on Article 1934 of the Civil Code that a
simple loan is perfected upon delivery of the object of the
contract, hence, a real contract. Their loan contract was
perfected only when the full loan was released to them.

ISSUE: Whether or not a contract of loan isa consensual

contract.
 HELD:  No. The Court held that a contract of loan is not a
consensual contract but a real contract. It is perfected only upon
the delivery of the object of the contract. Here, the loan contract
between BPIIC and ALS and Antonio was perfected only on the
date of the full release of the loan. The court likewise ruled that
a contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for that
of the other. The promise of BPIIC to extend and deliver the
loan is upon the consideration that ALS and Antonio shall pay
the monthly amortization commencing one month after the
supposed release of the loan. It is 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 of what
is incumbent upon him. Only when a party has performed his
part of the contract can he demand that the other party also
fulfils his own obligation and if the latter fails, default sets in.
Here, the BPIIC could only demand for the payment of the
monthly amortization only after when it complied with its
obligation.

Panteleon vs. American Express International, Inc., GR

No. 174269, August 25, 2010

Facts:
1. The petitioner (Pantaleon) and his family, joined an
escorted tour of Western Europe.
2. In Coster Diamond House, Amsterdam, Mrs. Pantaleon
(wife) was about to bought a 2.5 karat diamond brilliant cut, a
pendant and a chain, all of which totaled U.S. $13,826.00.
3. To pay these purchases, around 9:15am, Pantaleon
presented his American Express Credit Card together with his
passport.
4. By 9:40am, Pantaleon was already worried about further
inconveniencing the tour group, he asked the store clerk to
cancel the sale. the store manager though asked him to wait a
few more minutes.
5. Around 10:00am (around 45 minutes after Pantaleon had
presented his AmexCard), Coster decided to release the items
even without American Express International, Inc.’s (herein
respondent, Amex for brevity) approval of the purchase. This
was 30 minutes after the tour group was supposed to have left
the store.
6. The spouses Pantelon returned. Their offers of apology
were met by their tourmates with stony silence. The tour group’s
visible irritation was aggravated when the tour guide announced
that the city tour of Amsterdam was to be canceled due to lack
of remaing time. Mrs. Pantaleon ended up weeping.
7. After the star-crossed tour had ended, the Pantaleon family
proceeded to the United States before returning to Manila. While
in the United States, Pantaleon continued to use his AmEx card,
several times without hassle or delay, but with two other
incidents similar to the Amsterdam brouhaha.

Issue/s:

1. Whether or not Amex was in default or mora.

2. Whether Amex (Credit Card Company) is in mora
solvendi or in mora accipiendi.
Ruling:
1. Yes. The Court is convinced that Amex’s delay constituted
breach of its contractual obligation to act on his use of the card
abroad “with special handling.:
Notwithstanding the popular notion that credit card purchases
are approved “WITHIN SECONDS,” there really is no strict,
legally determinative point of demarcation on how long must it
take for a credit car company to approve or disapprove a
customer’s purchase, much less one specifically contracted upon
by the parties. yet this is one of those instances when “you’d
know it what you’d see it,” and one hour appears to be an
awfully long, patently unreasonable length of time to approve or
disapprove a credit card purchases. It is long enough time for the
customer to walk to a bank a kilometer away, withdraw money
over the counter, and return to the store.

The Credit Authorization System (CAS) record on the

Amsterdam transaction shows how Amexco Netherlands viewed
the delay as unusually frustrating. In sequence expressed in
Phoenix time from 01:20 when the charge purchased was
referred for authorization:

01:22 – the authorization is referred to manila Amexco.

01:32 – Netherlands gives information that the identification of

the card member has been presented and he is buying jewelries
worth US $13,826

01:33 – Netherlands asks “How long will this take?”

02:08 – Netherlands is still asking “How long will this take?”

  The Amex has a right to verify whether the credit it is
extending upon on a particular purchase was indeed contracted
by the cardholder, and that the cardholder is within his means to
make such transaction. The culpable failure of respondent herein
is not the failure to timely approve petitioner’s purchase, but the
more elemental failure to timely act on the same, whether
favorably or unfavorably. Even assuming the respondent’s credit
authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why Amex could not have promptly
informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way,
petitioner would have had informed basis on whether or not to
pursue the transaction at Coster, given the attending
circumstances. instead, Pantaleon was left uncomfortably
dangling in the chilly autumn winds in a foreign land and soon
forced to confront the wrath of foreign folk.

The delay committed by Amex was clearly attended by

unjustified neglect and bad faith, since it alleges to have
consumed more than one hour to simply go over Pantaleon’s pas
credit history with Amex, his payment record and his credit and
bank references, when all such data are already stored and
readily available from its computer. There is nothing in
Pantaleon’s billing history that would warrant the imprudent
suspension of action by Amex in processing the purchase.

2. Amex is in mora solvendi. Generally, the relationship

between a credit card provided and its card holder is that of
creditor-debtore, with the card company as a the creditor
extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. The relationship already takes
exception to the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while the depositor
is considered as the creditor. In the present case, we should shift
perspectives and again see the credit card company as the
debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.
If there was delay on the part of Amex in its normal role as
creditor to the cardholder, such delay would not have been in
acceptance of the performance of the debtor’s obligation (i.e.,
the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not
fall under mora accipiendi, which contemplates that the
obligation of the debtor, such as the actual purchases on credit
has already been instituted. The establishment of the debt itself
(purchases on credit of the jewelry) had not yet been perfected,
as it remained pending the approval or consent of the credit card
company.

Acme Shoe Rubber vs. CA, G.R. No. 103576,

August 22, 1966

FACTS:
Petitioner Chua Pac, the president and general manager of co-
petitioner Acme executed a chattel mortgage in favor of private
respondent Producers Bank as a security for a loan of
P3,000,000. A provision in the chattel mortgage agreement was
to this effect:
"In case the MORTGAGOR executes subsequent promissory
note or notes either as a renewal of the former note, as an
extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments
on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new
contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations
were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been contracted
before, during or after the constitution of this mortgage."

In due time, the loan of P3,000,000.00 was paid. Subsequently it

obtained additional loan totalling P2,700,000.00 which was also
duly paid.

Another loan was again extended (P1,000,000.00) covered by

four promissory notes for P250,000.00 each, but went unsettled
prompting the bank to apply for an extrajudicial foreclosure with
the Sheriff.

ISSUE:
Would it be valid and effective to have a clause in a chattel
mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred?
HELD:
No. While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel
mortgage or by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law. Refusal on the
part of the borrower to execute the agreement so as to cover the
after-incurred obligation can constitute an act of default on the
part of the borrower of the financing agreement whereon the
promise is written but, of course, the remedy of foreclosure can
only cover the debts extant at the time of constitution and during
the life of the chattel mortgage sought to be foreclosed.
 Navoa vs. Court of Appeals, et. al., G.R. No.
59255, 29 December 1995

Facts:
Domdoma gave Olivia Navoa a loan. The first instance is when
Teresita gave Olivia a diamond ring valued at 15,000.00 which
was secured by a PCIB check under the condition that if the ring
was not returned within 15 days from August 15, 1977 the ring
is considered sold. Teresita attempted to deposit the check on
November 1977 but the check was not honored for lack of
funds.

After this instance, there were other loans, totaling of 6 loans, of

various amounts that were extended by Teresita to Olivia, These
loans were secured by PCIB checks, which were all dated to 1
month after the loan. All these checks were not honored under
the same reason as the first loan. Statement of the Case

On 17 December 1977 private respondents filed with the

Regional Trial Court of Manila an action against petitioners for
collection of various sums of money based on loans obtained by
the latter. On 3 January 1978 petitioners filed a motion to
dismiss the complaint on the ground that the complaint stated no
cause of action and that plaintiffs had no capacity to sue.

The trial court dismissed the case and the motion to reconsider
the dismissal was denied. Private respondents appealed to the
Court of Appeals which modified the order of dismissal "by
returning the records of this case for trial on the merits,
Issue
Was the decision of the RTC to dismiss the case due to having
no cause of action valid?

Ruling
NO
A cause of action is the fact or combination of facts which
affords a party a right to judicial interference in his behalf.
For the first loan it is a fact, that the ring was considered sold to
Olivia Navoa 15 days after August 15, 1977, and even then,
Olivia Navoa failed to pay the price for the ring when the
payment was due because of the check issued that was not
honored.

Thus it is confirmed that Teresita’s right under the agreement

was violated. The other loans extended by Teresita to Olivia
were all secured by PCIB checks. It can be inferred that since
the checks were all dated to 1 month after the loan, it
follows that the loans are then payable 1 month after they were
contracted, and also these checks were dishonored by the bank
for lack of funds. Olivia and Ernesto Navoa failed to make good
the checks that were issued as payment for their obligations. The
continuing refusal of Olivia and Ernesto Navoa to
comply with the demand of payment shows the existence of a
cause of action.

All the loans granted to petitioners are secured by corresponding

checks dated a month after each loan was obtained. In this
regard, the term security is defined as a means of ensuring the
enforcement of an obligation or of protecting some interest in
property. It may be personal, as when an individual becomes a
surety or a guarantor; or a property security, as when a
mortgage, pledge, charge, lien, or other device is used to have
property held, out of which the person to be made secure can be
compensated for loss. Security is something to answer for as a
promissory note. That is why a secured creditor is one who
holds a security from his debtor for payment of a debt. From the
allegations in the complaint there is no other fair inference than
that the loans were payable one month after they were
contracted and the checks issued by petitioners were drawn to
answer for their debts to private respondents.

The trial court erred in dismissing the case on the ground of lack
of cause of action. Respondent Court of Appeals therefore is
correct in remanding the case to the trial court for the filing of
an answer by petitioners and to try the case on the merits.
 Bonnevie vs. CA, G.R. No. L-49101, October 24,
1983
FACTS:

On December 6, 1966, spouses Jose and Josefa Lozano

mortgaged their lot to Philippine Bank of Commerce (PBCom)
to secure the payment of PHP 75, 000 loan. At the time of the
execution of the mortgage, the amount of PHP 75, 000 was not
yet received by them. Later, they executed a Deed of Sale with
Mortgage in favor of Honesto Bonnevie for the amount of PHP
100, 000. Of this amount, the PHP 25, 000 is payable to Lozano
spouses, and the PHP 75, 000 is  payable to PBCom. In 1968,
Honesto assigned all his rights under the Deed of Sale with
Mortgage to his brother, Raoul Bonnevie. Both the sale and the
assignment were not registered and made without the consent of
PBCom. On June 1968 PBCom applied for the foreclosure of
the mortgage. An auction sale was conducted where PBCom, as
the highest bidder, acquired the  property. In 1971 Honesto filed
a complaint against PBCom seeking the annulment of the Deed
of the Mortgage as well as the extrajudicial foreclosure. In his
complaint he alleged that the mortgage is invalid because it was
executed by one who was not the owner of the mortgaged
property and that at the time its execution, the PHP 75, 000 loan
was not yet received by the Lozano spouses, hence there was yet
no principal obligation to secure. In addition, they contend that
the extrajudicial sale is invalid because they were not notified of
such. PBCom, in its Answer, averred that the sale to Honesto
was made without its consent and that they had no knowledge of
the sale until after the foreclosure.
ISSUE/S:

1. Whether or not the Deed of Mortgage is valid 2.

Whether or not the extrajudicial foreclosure is valid

RULING:

1. 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 spouses did not collect from PBCom 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. Thus, there was a  principal obligation to secure
existing at the time of execution of mortgage. In addition,
Honesto voluntarily assumed the mortgage when they entered
into the Deed of Sale with Assumption of Mortgage. They are,
therefore, estopped from impugning its validity whether on the
original loan or renewals thereof. 2. YES. Since PBCom was not
a party to the Deed of Sale with Mortgage and the sale and the
assignment were not registered, it can validly claim that it was
not aware of the same. Hence, it may not be obliged to notify
Honesto and Raoul. In addition, Honesto is not entitled to notice
since he had transferred all his rights and interests over the
property and PBCom was not informed of the same, while Raoul
is not entitled to notice for the same reason. Most importantly,
Act No. 3135 does not require personal notice to the mortgago
 Central Bank vs. CA, G.R. No. L-45710, October
03, 1985
FACTS:

On April 28, 1965, Island Savings Bank, approved the loan

application for ₱80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves,
Agusan. The loan called for a lump sum of ₱80,000, repayable
in semi-annual installments for 3 years, with 12% annual
interest. On May 22, 1965, a mere ₱17,000 partial release of the
loan was made by Island Savings and Sulpicio and his wife
signed a promissory note for P17,000 at 12% annual interest
payable w/in 3 yrs. An advance interest was deducted from the
partial release but the said interest was also refunded to
Tolentino after being informed that there was no fund yet for the
release of the ₱63,000 balance. On August 13, 1965, the
Monetary Board of Central Bank, after finding out that Island
Savings Bank was suffering from liquidity problems, issued
Board Resolution No. 1049. The said resolution prohibited
Island Savings from making new loans and investments. And
after the said bank failed to restore its solvency, the Central
Bank prohibited Island Savings Bank from doing business in the
Philippines. Island Savings Bank, in view of the non-payment
by Mr. Tolentino in the amount of ₱17,000, filed an application
for foreclosure of the real estate mortgage. Mr. Tolentino, on the
other hand, filed a petition for specific performance or rescission
and damages with preliminary injunction, claiming that since
Island Savings failed to deliver the remaining balance of
₱63,000, he is now entitled to specific performance or to
rescission of the real estate mortgage.

ISSUE: Whether or not Tolentino can demand for specific

performance.

RULING:  No. The loan agreement implied reciprocal

obligations. In reciprocal obligations, the obligation or promise
of each other is the consideration for that of the other, and when
one party is willing and ready to perform, the other party who is
not ready nor willing, incurs in delay. When Mr. Tolentino
executed the real estate mortgage, he signified his willingness to
pay. The  prohibition on the bank to make new loans is
irrelevant since it did not prohibit the bank from releasing the
balance of loans from previous contracts. The mere fact of
insolvency by the debtor is never an excuse for the non-
fulfillment of obligation and is taken as a breach of contract.
When Island Savings Bank and Mr. Sulpicio M. Tolentino
undertook reciprocal obligations by entering an ₱80,000 loan
agreement, with Mr. Tolentino executing a real estate mortgage
and Island Savings was only able to release ₱17,000, the said
bank was held in default for the remaining balance of ₱63,000.
Since Island Savings Bank was in default, Mr. Tolentino may
choose bet specific performance or rescission with damages in
either case. But considering that Island Savings is now
prohibited by the Central Bank Board Resolution from doing
business, specific performance cannot be granted. Thus,
rescission for the ₱63,000 balance is the rightful remedy.
 Herrera vs. Petrophil, G.R. No. L-48349,
December 29, 1986

FACTS:

On December 5, 1969, Herrera and ESSO Standard, (later

substituted by Petrophil Corp.,) entered into a lease agreement,
whereby the former leased to the latter a portion of his property
for a period of 20yrs. subject to the condition that monthly
rentals should be paid and there should be an advance payment
of rentals for the first eight years of the contract, to which ESSO
paid on December 31, 1969. However, ESSO deducted the
amount of 101, 010.73 as interest or discount for the eight years
advance rental. On August 20, 1970, ESSO informed Herrera
that there had been a mistake in the computation of the interest
and paid an additional sum of 2,182.70; thus, it was reduced to
98, 828.03. As such, Herrera sued ESSO for the sum of 98,
828.03, with interest, claiming that this had been illegally
deducted to him in violation of the Usury Law. ESSO argued
that amount deducted was not usurious interest but rather a
discount given to it for paying the rentals in advance. Judgment
on the pleadings was rendered in favor of ESSO. Thus, the
matter was elevated to the SC for only questions of law was
involve.

ISSUE: W/N the contract between the parties is one of loan or

lease.

RULING: Contract between the parties is one of lease and not

of loan. It is clearly denominated a "LEASE AGREEMENT.
" Nowhere in the contract is there any showing that the parties
intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or forbearance
of money as to constitute an indebtedness on the part of the
lessor. On the contrary, the defendant-appellee was discharging
its obligation in advance by paying the eight years rentals, and it
was for this advance payment that it was getting a rebate or
discount. There is no usury in this case because no money was
given by the defendant-appellee to the plaintiff-appellant, nor
did
 it allow him to use its money already in his possession. There
was neither loan nor forbearance but a mere discount which the
plaintiff-appellant allowed the defendant-appellee to deduct
from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction
of the rentals which the lessor had the right to determine, and
any reduction thereof, by any amount, would not contravene the
Usury Law. The difference between a discount and a loan or
forbearance is that the former does not have to be repaid. The
loan or forbearance is subject to repayment and is therefore
governed by the laws on usury. To constitute usury, "there must
be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all
events; and something must be exacted for the use of the money
in excess of and in addition to interest allowed by law." It has
been held that the elements of usury are (1) a loan, express or
implied; (2) an understanding between the parties that the
money lent shall or may be returned; that for such loan a greater
rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more
than the legal rate for the use of money loaned. Unless these
four things concur in every transaction, it is safe to affirm that
no case of usury can be declared.
De los Santos vs. Jarra, G.R. No. L-4150, February
10, 1910
De los Santos owned 10 carabaos which he lent to Jimenea to be
used in his hacienda. The 10carabaos were not returned upon de
los santos’ demand. Jimenea died and Jarra was appointed to be
the administratrix of his estate. De los Santos filed for the
exclusion of his carabaos with the commissioners of Jimenea’s
estate. The commissioners rejected her claim.Jarra was
contending that only 3 carabaos were given to Jimenea and
afterwards these 3 were also sold to him (jimenea).

The court stated that Jarra had no basis in his claim and
rendered judgment against to him to give 6 carabaos or it’s
equivalent value (120 each). Jarra appealed.The supreme court
held that there is no evidence of the sale between Jimenea and
de losSantos. Therefore it is not true.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.The obligation of the bailee or of his successors to return
either the thing loaned or its value issustained by the tribunal of
Spain which said in its decision. (mentioned jurisprudence):

Legal doctrine touching commodatum as follows: Although it

is true that in a contract of commodatum the bailor retains the
ownership of thingloaned at the expiration of the period, or
after the use for which it was loaned has beenaccomplished, it is
the imperative duty of the bailee to return the thing itself to its
owner, or topay him damages if through the fault of the
baileethe thing should have been lost or injured...Torres, J.
Facts: (this is a case of appeal from a judgment of the CFI of
Occidental negros)
1)
Felix de los Santos brought suit against Agusitina Jarra (the
administratrix of the estateof Magdaleno Jimenea, he 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
and under the sole condition thatthey should be returned to the
owner as soon as the work at the mill was terminated.Jimenea
however, did not return the carabaos even though de los Santos
claimed their return after the work at the mill was
finished.2)Jimenea died in 1904 (before the suit)and Jarra was
appointed by the CFI asadministratrix of his estate.
3)
De los Santos presented his claim to the commissioners of the
estate of Jimenea for return of
the carabaos. (for the carabaos to be exluded from the estate of
Jimenea). thecommissioners
rejected his claim, and thus a lawsuit ensued.4)Jarra answered
and said that it was true that the
late Jimenea asked the plaintiff to loanhim ten carabaos, but that
he only obtained THREE (3)
second-class carabaos, whichwere afterwards sold by the Delos
Santos to Jimenea. (basically
Jarra denied all theallegations in the complaint)5)The case came
up for trial and the court
2
rendered judgment against Jarra and orderingher to return to de
los Santos 6 second-class and
third class carabaos. The value of which was 120 each so 720
pesos.
6)Jarra moved for a new trial on the ground that the findings of
fact were openly andmanifestly
contrary to the weight of the evidence.7)Jarra needs to prove
that Jimenea only received 3
second class carabaos tosubstantiate her claim.
8)
The record however, discloses that it has been fully proven from
the testimonies of anumber of
witnesses that Santos, sent in charge of various persons, the 10
carabaosrequiested by Jiminea
(it was revealed that Jimenea is the father in law of de
losSantos). Also, de los Santos produced
2 letters proving that jimenea received them inthe presence of
said persons (brother of
Jimenea) who saw the animals arrive at thehacienda. FOUR of
the carabaos died of rinderpest
and thus the judgment appealedfrom only deals with 6
carabaos.9)THE ALLEGED PURCHASE
of 3 carabaos by Jimenea from his son-in-law Santos is
notevidenced by any trustworthy
evidence. Therefore, it is not true.10)From the foregoing, it may
be logically inferred that the
carabaos loaned or given oncommodatum to the deceased
Jimenea were ten in number, that 6
survived and thatthese carabaos have not been returned to the
owner delos Santos, and lastly,
that the 6carabaos were not the property of the deceased nor any
of his descendants, it is
theduty of the administratrix to return them or indemnify the
owner for the value.
Issue:
(NOT STATED EXPLICITLY) WON the carabaos belonged to
the estate of Jimenea.
Held:
NO. it was not part of Jimenea’s estate. Therefore Agustina Jarra
should exclude it or indemnify
De los Santos... “for the reasons above set forth, by which the
erros assigned to the judgment
appealed from have been refuted, and considering that the same
is in accordancewith the law
and the merits of the case, it is our opinion that it should be
affirmed and we dohereby affirm it
with the costs against appellant.
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 thelatter may
use it during a certain period and
return it to the former, in which case it iscalled commodatum
, or money or any other perishable thing, under the condition to
return anequal 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
3
bailor retains ownership of the thing loaned the bailee acquires
the usethereof
, but not its fruits; if any compensation is involved, to be paid by
the person requiring theuse, the
agreement ceases to be a commodatum. Art 1742. The
obligations and rights which arise from
the commodatum pass to the heirs of bothcontracting 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 nodoubt 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
issustained by the tribunal of Spain which said in its decision.
(mentioned jurisprudence):
legaldoctrine 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 hasbeen accomplished, it is
the imperative duty of the
bailee to return the thing itself to itsowner, or to pay him
damages if through the fault of the
bailee the thing should havebeen lost or injured
 Naguiat vs. Court of Appeals, G.R. No. 118375,
October 3, 2003
FACTS
Queaño applied with Naguiat a loan for P200,000, which the
latter granted. Naguiat indorsed to Queaño Associated bank
Check No. 090990 for the amount of P95,000 and issued also
her own Filmanbank Check to the order of Queaño for the
amount of P95,000. The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño. To secure the
loan, Queaño executed a Deed of Real Estate Mortgage in favor
of Naguiat, and surrendered the owner’s duplicates of titles of
the mortgaged properties. The deed was notarized and Queaño
issued to Naguiat a promissory note for the amount of P200,000.
Queaño also issued a post-dated check amounting to P200,000
payable to the order of Naguait. The check was dishonoured for
insufficiency of funds. Demand was sent to Queaño. Shortly,
Queaño, and one Ruby Reubenfeldt met with Naguiat. Queaño
told Naguiat that she did not receive the loan proceeds, adding
that the checks were retained by Reubenfeldt, who purportedly
was Naguiat’s agent.

Naguiat applied for extrajudicial foreclosure of the mortgage.

RTC declared the Deed as null and void and ordered Naguiat to
return to Queaño the owner’s duplicates of titles of the
mortgaged lots.

ISSUE
Whether or not the issuance of check resulted in the perfection
of the loan contract.
HELD
The Court held in the negative. No evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. 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. It is only after the checks
have been produced the effect of payment that the contract of
loan may have been perfected.

Article 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
itsel shall not be perfected until the delivery of the object of the
contract. A loan contract is a real contract, not consensual, and
as such, is perfected only upon the delivery of the objects of the
contract.

 
COMMODATUM

 Articles 1935 - 1952

 Cases:

Republic vs. Bagtas, G.R. No. L-17474, October 25,

1962
FACTS: May 8, 1948: Jose V. Bagtas borrowed from the
Republic of the Philippines through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of 1 year for breeding purposes subject to
a breeding fee of 10% of the book value of the bulls May 7,
1949: Jose requested for a renewal for another year for the three
bulls but only one bull was approved while the others are to be
returned March 25, 1950: He wrote to the Director of Animal
Industry that he would pay the value of the 3 bulls October
17, 1950: he reiterated his desire to buy them at a value with a
deduction of yearly depreciation to be approved by the Auditor
General. October 19, 1950: Director of Animal Industry advised
him that either the 3 bulls are to be returned or their book
value without deductions should be paid not later than October
31, 1950 which he was not able to do December 20, 1950: An
action at the CFI was commenced against Jose praying that he
be ordered to return the 3 bulls or to pay their book value of
P3,241.45 and the unpaid breeding fee of P199.62, both with
interests, and costs July 5, 1951: Jose V. Bagtas, through
counsel Navarro, Rosete and Manalo, 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, he could not
return the animals nor pay their value and prayed for the
dismissal of the complaint. RTC: granted the action
December 1958: granted an ex-parte motion for the appointment
of a special sheriff to serve the writ outside Manila December
6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who
died on October 23, 1951 and administratrix of his estate, was
notified January 7, 1959: she file a motion that the 2 bulls
where returned by his son on June 26, 1952 evidenced by
recipt and the 3rd bull died from gunshot wound inflicted during
a Huk raid and prayed that the writ of execution be quashed and
that a writ of preliminary injunction be issued.

ISSUE: W/N the contract is commodatum and NOT a lease and

the estate should be liable for the loss due to force majeure due
to delay.

HELD: YES. writ of execution appealed from is set aside,

without pronouncement as to costs If contract was
commodatum then Bureau of Animal Industry 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 if he keeps it longer
than the period stipulated the estate of the late defendant is only
liable for the sum of P859.63, the value of the bull which has
not been returned because it was killed while in the custody of
the administratrix of his estate Special proceedings for the
administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the CFI, the money
judgment rendered in favor of the appellee cannot be enforced
by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix
appointed by the court.
Producers Bank vs. CA, G.R. No. 115324, February 19,
2003

Facts:

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

Relying on the assurances and representations of Sanchez

and Doronilla, Vives issued acheck of P200,00 in favor of Strela
and deposited the same into Strela’s newly-openedbank account
(the passbook was given to the wife of Vives and the passbook
had aninstruction that no withdrawals/deposits will be allowed
unless the passbook ispresented).
•
Later on, Vives learned that Strela was no longer holding
office in the address previouslygiven to him. He later found
out that the funds had already been withdrawn leaving onlya
balance of P90,000. The Vives spouses tried to withdraw the
amount, but it wasunable to since the balance had to answer for
certain postdated checks issued byDoronilla.
•
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, Dumagpiand Producer’s Bank.
•
 TC & CA: ruled in favor of Vives.

Issue/s:
(1)WON the transaction is a commodatum or a mutuum.
COMMODATUM.(2) WON the fact that there is an additional P
12,000 (allegedly representing interest) inthe amount to
be returned to Vives converts the transaction from commodatum
tomutuum. NO.(3)WON Producer’s Bank is solidarily liable to
Vives, considering that it was not privy tothe transaction
between Vives and Doronilla. YES.

Held/Ratio:
(1)The transaction is a commodatum.
•
CC 1933 (the provision distinguishing between the two kinds of
loans) seem to implythat if the subject of the contract is a
consummable thing, such as money, the contractwould be a
mutuum. However, there are instances when a commodatum
may have forits 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 contractis 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 moneyin Strela’s account
specifically for purpose of making it appear that Streal
had sufficientcapitalization for incorporation, with the promise
that the amount should be returned

Mina, et. al. vs. Pascual, et. al., G.R. No. L-8321,
October 14, 1913
FACTS:
Francisco is the owner of land and he allowed his brother,
Andres, to erect a warehouse in that lot. Both Francisco and
Andres died and their children became their respective heirs:
Mina for Francisco and Pascual for Andres. Pascual sold his
share of the warehouse and lot. Mina opposed because the lot is
hers because her predecessor (Francisco) never parted with its
ownership when he let Andres construct a warehouse, hence, it
was a contract of commodatum. What is the nature of the
contract between Francisco and Andres?

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.

NOTA BENE: 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.
Producers Bank of the Philippines v. CA, 397 SCRA 651

Doronilla is in the process of incorporating his business and to

comply with one of the requirements of incorporation, he caused
Vives’ to issue a check which was then deposited in Doronilla’s
savings account. It was agreed that Vives can withdraw his
money in a month’s time. However, what Doronilla did was to
open a current account and instructed the bank to debit from the
savings account and deposit it in his current account. So when
Vives checked the savings account, the money was gone. Is the
contract a mutuum or commodatum?

Supreme Court held that the contract is a commodatum.

Although in a commodatum, the object is a non-consumable
thing, there are instances where a consumable thing may be the
object of a commodatum, such as when the purpose is not for
consumption of the object but merely for exhibition (Art. 1936).
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.
 Quintos & Ansaldo vs. Beck, G.R. No. L-46240,
November 03, 1939

FACTS: The defendant was a tenant of the plaintiff and as such

occupied the latter's house on M. H. del Pilar street, No. 1175.
On January 14, 1936, upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture, subject to the
condition that the defendant would return them to the plaintiff
upon the latter's demand. The plaintiff sold the property to Maria
Lopez and Rosario Lopez and on September 14, 1936, these
three notified the defendant of the conveyance, giving him sixty
days to vacate the premises. Thereafter, the plaintiff required the
defendant to return all the furniture transferred to him for them
in the house where they were found on several instances. The
plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On
November 15, 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.

ISSUES: 1. Whether or not the defendant complied with his

obligation to return the furniture upon the plaintiff's demand; 2.
Whether or not plaintiff is bound to bear the deposit fees thereof,
and whether she is entitled to the costs of litigation.

RULING: 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
herselfthe ownership thereof; by this contract the defendant
bound himself to return the furniture to the plaintiff, upon the
latter’s demand. 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 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.
The costs in both instances should be borne by the defendant
because the plaintiff is the prevailing party (Sec. 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
 Pajuyo vs. CA, G.R. No. 146364, June 03, 200

Facts: Pajuyo entrusted a house to Guevara for the latter's use

provided he should return the same upon demand and with the
condition that Guevara should be responsible of the maintenance
of the property. Upon demand Guevara refused to return the
property to Pajuyo. The petitioner then filed an ejectment case
against Guevara with the MTC who ruled in favor of the
petitioner. On appeal with the CA, the appellate court reversed
the judgment of the lower court on the ground that both parties
are illegal settlers on the property thus have no legal right so that
the Court should leave the present situation with respect to
possession of the property as it is, and ruling further that the
contractual relationship of Pajuyo and Guevara was that of a
commodatum.

Issue: Is the contractual relationship of Pajuyo and Guevara that

of a commodatum?

Held: No. The Court of Appeals’ theory that the Kasunduan is

one of commodatum is devoid of merit. 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.
 C.SIMPLE LOAN OR MUTUUM

 Articles 1953 to 1961, Article 1980

 Cases:

Republic v. Grijaldo, G.R. No. L-20240, December

31, 1965
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, Ltd., as follows: On June 1, 1943, P600.00; on
June 3, 1943, P159.11; on June 18, 1943, P22.86; on
August 9, 1943,P300.00; on August 13, 1943, P200.00, all
notes without due dates, but because the loans were due
one year after they were incurred. To secure the payment
of the loans the appellant executed a chattel mortgage
on the standing crops on his land, Lot No. 1494 known
as Hacienda Campugas in Hinigiran, Negros
Occidental. By virtue of Vesting Order No. P4, 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. These assets were among the
properties that were placed under the
administration of the Board of Liquidators created under
Executive Order No. 372, dated November 24, 1950, and
in accordance with Republic Acts Nos. 8 and 477 and
other pertinent laws.

On September 29, 1954 the appellee, Republic of the

Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The
record shows that the appellant had actually received the
written demand for payment, but he failed to pay.

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.
The Justice of the Peace Of Hinigaran, after hearing,
dismissed the case on the ground that the action had
prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the
court a quorendered a decision ordering the appellant to pay the
appellee the sum of P2,377.23 as of December 31, 1959,
plus interest at the rate of 6% per annum compounded
quarterly from the date of the filing of the complaint until full
payment was made. The appellant was also ordered to pay
the sum equivalent to 10% of the amount due as attorney's
fees and costs.
The appellant appealed directly to this Court. During the
pendency of this appeal the appellant Jose Grijaldo died.
Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon,
Jacinto Lagtapon, Ruben Lagtapon and Anita L Aguilar,
who are the legal heirs of Jose Grijaldo to appear
and be substituted as appellants in accordance with Section
17 of Rule 3 of the Rules of Court.

ISSUE:
Whether or not the obligation to pay is extinguished. The
appellant likewise 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 these crops were lost or
destroyed through enemy action his obligation to pay the
loans was thereby extinguished.
HELD:
This argument is untenable. 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 questions 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 anything of the same kind
does not extinguish the obligation.

Tan v. Valdehueza, G.R. No. L-38745, August 06,

1975

Jardenil v. Solas, G.R. No. L47878, July 24, 1942

Frias v. San Diego-Sison, G.R. No. 155223, April 04, 2007

Frias vs San Diego

-
Sison
G.R. No. 155223
April 4, 2007
Facts

Petitioner is the owner of a house and lot in Ayala
Alabang.

Petitioner and Dra. Flora San Diego
-
Sison (Respondent)
entered into a Memorandum of Agreement (MOA) over
the cited property with the following terms:
1.
The land is to be sold for P 6.4 million.
2.
Petitioner
will
receive
P3
million
from
respondent as downpaymen
t.
3.
In light of the downpayment, respondent had 6
months (1
st
) to notify the Petitioner of her
intention to purchase the land. However, the
balance is to be paid within another 6 months.
4.
Prior to the first six months, the Petitioner may
still offer the cited land to other persons
provided that the
P
3 million downpayment shall
be returned to the Respondent including
interest based on prevailing compounded bank
interest.
5.
Nevertheless, in cas
e there are no other buyers
within the first 6 months, no interest shall be
charged on the P3 million.
6.
However, in the event that on the 6th month
the Respondent does not purchase the land, the
Petitioner has a period of another 6 months
(2
nd
) within whi
ch to pay the sum of
P
3 million
with interest for the
last six months on
ly. The
downpayment shall be treated as loan granted
by the Respondent.

Petitioner received from Respondent P2 million in cash
and P1 million in a post
-
dated check which was
subsequent
ly considered as stale. Therefore, only P2
million was received as downpayment.

Before the check became stale, Petitioner gave
Respondent the TCT and the Deed of Absolute Sale of the
land.

Subsequently, Respondent decided not to purchase the
property and
notified Petitioner of this reminding the
latter that the amount of P2 million should be considered
as a loan payable within six months as stipulated in the
MOA with interest computed from such notification.

Petitioner subsequently failed to return the P
2 million
pesos.

CA ruled that the P2 million downpayment shall include
interest computed at the time the disputed amount was
considered a loan. Thus, this petition.
Issue:
Whether or not the interest should be limited to the 1st six
months as contained
in the MOA?
Ruling:
No. SC ruled in favour of Respondent.

The SC opined that if the terms of an agreement are clear
and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall
prevail.

It is further
required that the various stipulations of a
contract shall be interpreted together.

In this case, the phrase "for the last six months only"
should be taken in the context of the entire agreement.

The MOA speaks of 2 periods of six months each.
o
The 1st six
-
months was given to Respondent to
make up her mind whether or not to purchase
Petitioner's property.
o
The 2nd six
-
months was given to Petitioner to
pay the P2 million loan (downpayment) in the
event that Respondent decided not to buy the
proper
ty in which case interest will be charged
"
for the last six months only", referring to the
2nd six
-
month period
.
o
This means that no interest will be charged for
the
1st
six
-
months
while
Respondent
contemplating on whether to buy the property,
but only for
the 2
nd
six
-
months after Respondent
had decided not to buy the property. This is the
meaning of the phrase "for the last six months
only
".
o
Certainly, there is
nothing
in their agreement
that suggests that interest will be charged for 6
months only even i
f it takes defendant
-
appellant
an eternity to pay the loan

This does NOT mean that interest will no longer be
charged after the 2nd six
-
month period since such
stipulation was made on the logical and reasonable
expectation that such amount
would be paid
wi
thin the
date stipulated. Therefore, the monetary interest for the
last 6 months continued to accrue until actual payment
of the loaned amount.

It has been held that for a debtor to continue in
possession of the principal of the loan and to continue to
us
e the same after maturity of the loan without payment
of the monetary interest, would constitute
unjust
enrichment
on the part of the debtor at the expense of
the creditor.
 1. Arwood Industries v. DM Consunji, G.R. No.
142277, December 11, 2002

rt. 1956. No interest shall be due when not expressly

stipulated in writing.
ARWOO
D INDUSTRIES, INC. vs. D.M. Consunji, Inc.
FACTS: Petitioner and respondent, as owner and contractor,
respectively entered into an Agreement for the construction
of petitioner’s condominium. Despite the completion of the
project, petitioner was not able to
pay respondent the full
amount and left a balance. Repeated demands were left
unheeded prompting respondent to file a civil case against
petitioner, with a prayer among others that the full amount
be paid with interest of 2% per month, from Nov. 1990 up t
o
the time of payment. RTC ruled in favor of respondent.
Petitioner appealed to the CA, particularly opposing the
imposition of the 2% interest. The CA ruled in favor of the 2%
interest.
Petitioner’s contention
-
The imposition of the interest is
without ba
sis because (1) although it was written in the
Agreement, it was not mentioned by the RTC in the
dispositive portion and (2) the interest does not apply to the
respondent’s claim but to the “monthly progress billing”.
ISSUE: WON the RTC and Ca is correct
in imposing a 2% per
month interest on the monetary award or the balance of the
contract price.
HELD: Yes. The Agreement between the parties is the
formal
expression of the parties’ rights, duties and obligations. It is
the best evidence of the intention o
f the parties.
Consequently, upon the fulfillment by respondent of its
obligation to complete the construction project, petitioner
had the correlative duty to pay for respondent’s services.
However, petitioner refused to pay the balance of the
contract pri
ce. From the moment respondent completed the
construction of the condominium project and petitioner
refused to pay in full, there was delay on the part
of
petitioner.
Delay in the performance of an obligation is looked upon with
disfavor because, when a p
arty to a contract incurs delay, the
other party who performs his part of the contract suffers
damages thereby. Obviously, respondent suffered damages
brought about by the failure of petitioner to comply with its
obligation on time.
And, sans elaboration
of the matter at
hand, damages take the form of interest.
Accordingly, the
appropriate measure of damages in this case is the payment
of interest at the rate agreed upon, which is 2% interest for
every month of delay.
It must be noted that the Agreement p
rovided the contractor,
respondent in this case, two options in case of delay in
monthly payments, to wit: a) suspend work on the project
until payment is remitted by the owner or b) continue the
work but the owner shall be required to pay interest at a ra
te
of two percent (2%) per month or a fraction thereof.
Evidently, respondent chose the latter option, as the
condominium project was in fact already completed.
The
payment of the 2% monthly interest, therefore, cannot be
jettisoned overboard.
Since the
Agreement stands as the law between the parties,
this Court cannot ignore the existence of such provision
providing for a penalty for every month’s delay.
Facta legem
facunt inter partes
.
Neither can petitioner impugn the
Agreement to which it willingly gave its consent.
From the
moment petitioner gave its consent, it was bound not only to
fulfill what was expressly stipulated in the Agreement but
also all the consequences which, accordin
g to their nature,
may be in keeping with good faith, usage and law.
Petitioner’s attempt to mitigate its liability to respondent
should thus fail.
As a last
-
ditch effort to evade liability, petitioner argues that
the amount of
P
962,434.78 claimed by respo
ndent and later
awarded by the lower courts does not refer to “monthly
progress billings,” the delayed payment of which would earn
interest at 2% per month.
Petitioner appears confused by a semantics problem.
“Monthly progress billings” certainly form par
t of the
contract price.
If the amount claimed by respondent is not
the “monthly progress billings” provided in the contract, what
then does such amount represent? Petitioner has not in point
of fact convincingly supplied an answer to this query.
Neither
has petitioner shown any effort to clarify the meaning of
“monthly progress billings” to support its position.
This
leaves us no choice but to agree with respondent that the
phrase “monthly progress billings” refers to a portion of the
contract price pay
able by the owner (petitioner) of the
project to the contractor (respondent) based on the
percentage of completion of the project or on work
accomplished at a particular stage.
It refers to that portion of
the contract price still to be paid as work progr
esses, after
the downpayment is made.”
This definition is, indeed, not without basis.
Articles 6.02 and
6.03 of the Agreement, which respectively provides that the
“(b)alance shall be paid in monthly progress payments based
on actual value of the work acc
omplished” and that “the
progress payments shall be reduced by a portion of the
downpayment made by the OWNER corresponding to the
value of the work completed” give sense to respondent’s
interpretation of “monthly progress billings.”

2. Soncuya v. Azarraga, G.R. No. L-43579, June 14,

1938
3. Royal Shirt v. Co Bon Tic, G.R. No. 6313, May
14, 1954
4. Overseas v. Cordero, G.R. No. L33582, March 30,
1982
5. Ramos v. Central Bank, G.R. No. L-29352,
October 04, 1971
6. Lirag v. SSS, G.R. No. L-33205, August 31, 1987
 7. Angel Jose Warehousing v. Childa Enterprises,
G.R. No. L-25704, April 24, 1968
8. Cu-Unjieng v. Mabalacat, G.R. No. L-32644,
October 04, 1930

CU
-
UNJIENG V. MABALACAT
Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k,
for
security,
Mabalacat
mortgaged
its
property.
Mabalacat failed to pay, but Cu Unjieng extended the
pa
yment. Cu Unjieng filed a case against Mabalacat for
foreclosure of property and payment of attorney's fees. It
also claims interest over interest. Mabalacat insisted that the
agreement for the extension of the time of payment had the
effect of abrogating
the stipulation of the original contract
with respect to the acceleration of the maturity of the debt
by non
-
compliance with the terms of the mortgage. The issue
related on this case is the interest over interest.
Issue: WoN Cu
-
Unjieng is entitled to int
erest over interest.
Ruling: It is well settled that, under article 1109 of the
Civil
Code
, as well as under section 5 of the
Usury Law
(Act No.
2655), the parties may stipulate that interest shall be
compounded; and rests for the computation of compound
interest can certainly be made monthly, as well as
quarterly,
semiannually, or annually. But in the absence of express
stipulation for the accumulation of compound interest, no
interest can be collected upon interest until the debt is
judicially claimed, a
nd then the rate at which interest upon
accrued interest must be computed is fixed at 6 per cent per
annum. In this case, there was no compound interest in the
agreement

9. David v. CA, G.R. No. 115821, October 13, 1999

10. Velez v. Balzarra, G.R. No. 48389, July 27, 1942

opic: Simple Loan or Mutuum; Arti

cle 1960
Velez v. Balzarra
FACTS:

Plaintiff Velez filed a complaint for the return of
parcels of land sold by Defendant to Plaintiff’s
husband. She further alleged that defendants had
remained in possession of said land under Contract
of Lease but for
over 2 years defendants had not
paid the agreed rentals.

Defendant alleged that the real agreement was a
loan secured by a mortgage of those lands.

Trial court found that the payments made by
defendants were not made by way of interest but as
payments for
the principal. Defendant overpaid
therefore Plaintiff should return excess.
ISSUE:
Whether payments were intended to be applied to the
principal OR were considered as rents, interests?
HELD:

Payments were NOT rents, interests

Neri took possession of land
and collected fruits. The
creditor having enjoyed the beneficial use of the
lands delivered as security for the loan, it appears to
have been the intention of the parties that the
creditor should be compensated thereby.

Though receipts, payments are calle
d rents, they
were prepared by Neri (P’s husband) and Plaintiff,
and defendants in their ignorance did not look into
the wording, being merely satisfied that they were
proofs of payment.

The liability of plaintiff to return the excess
payments is in keepin
g with Article 1895 (Old Civil
Code) which provides that, “when something is
received which there is no right to collect, and which
by mistake has been unduly delivered, the obligation
to restore it arises.”

The 2 requisites are present: 1) There is no rig
ht to
collect these excess sums; and 2) the amounts have
been paid through mistake by defendants. Such
mistake is shown by the fact that their contracts
never intended that either rents or interest should
be paid, and by the further fact that when these
pa
yments were made, they were intended by
defendants to be applied to the principal, but they
overpaid the amounts loaned to them.
11. Tolentino, et. al. vs. Gonzales, G.R. No. 26085,
August 12, 1927

TOLENTINO(plaintiff-apellant) v GONZALES
SY CHIAM (defendantappellee) G.R. No. 26085
August 12, 1927 FACTS: 1. Before Nov 28, 1922,
Severino Tolentino and Potenciana Manio
purchased Luzon Rice Mills, Inc., parcel of land in
Tarlac for P25,000.00 to be paid in three
installments. a. First installment is P2,000 due on
or before May 2, 1921 b. Second installment is
P8,000 due on or before May 31, 1921 c. Third
installment of P15,000 at 12% interest due on or
before Nov 30, 1922 One of the conditions of the
contract of purchase was that if Tolentino and
Manio failed to pay the balance of any of the
installments on the date agreed upon, the property
bought would revert to the original owner. The
first and second installments were paid but the
balance was paid on Dec 1, 1922 2. On Nov 7,
1922, a representative of vendor of said property
wrote Manio , notifying her that if the balance of
said indebtedness was not paid, they would
recover the property with damages for non
compliance with the condition of the contract of
purchase. 3. Tolentino and Manio borrowed
money from Benito Gonzales Sy Chiam to satisfy
their indebtedness to the vendor. 4. Gonzales
agreed to loan the P17,500 upon condition that
they execute and deliver to him a pacto de retro of
the property. 5. The contract includes a contract of
lease on the property whereby the lessees as
vendors apparently bind themselves to pay rent at
the rate of P375 per month and whereby "Default
in the payment of the rent agreed for two
consecutive months will terminate this lease and
will forfeit our right of repurchase, as though the
term had expired naturally" 6. Upon maturation of
loan, Tolentino defaulted payment and Gonzales
demanded recovery of land. Tolentino’s argument:
that the pacto de retro sale is a mortgage and not
an absolute sale and that the rental price paid
during the period of the existence of the right to
repurchase, or the sum of P375 per month, based
upon the value of the property, amounted to usury.
ISSUE: WoN the contract in question is a
mortgage HELD: No. RATIO: The contract is a
pacto de retro and not a mortgage. There is not a
word, a phrase, a sentence or a paragraph in the
entire record, which justifies this court in holding
that the said contract of pacto de retro is a
mortgage and not a sale with the right to
repurchase. The purpose of the contract is
expressed clearly that there can certainly be no
doubt as to the purpose of the Tolentino to sell the
property in question, reserving the right only to
repurchase the same: Second. That is a condition
of this sale that if in the course of five (5) years
from the 1st of December, 1922, we return to Don
Benito Gonzales Sy Chiam the above-mentioned
price of seventeen thousand five hundred
(P17,500), Mr. Benito Gonzales Sy Chiam is
forced to return the farm; but if it passes the above
mentioned term of five (5) years without
exercising to the right of redemption that we have
saved ourselves, then this sale will be absolute and
irrevocable. From the foregoing, we are driven to
the following conclusions: First, that the contract
of pacto de retro is an absolute sale of the property
with the right to repurchase and not a mortgage;
and, second, that by virtue of the said contract the
vendor became the tenant of the purchaser, under
the conditions mentioned in paragraph 3 of said
contact. When the vendor of property under a
pacto de retro rents the property and agrees to pay
a rental value for the property during the period of
his right to repurchase, he thereby becomes a
"tenant" and in all respects stands in the same
relation with the purchaser as a tenant under any
other contract of lease. In the present case the
property in question was sold. It was an absolute
sale with the right only to repurchase. During the
period of redemption the purchaser was the
absolute owner of the property. During the period
of redemption the vendor was not the owner of the
property. During the period of redemption the
vendor was a tenant of the purchaser. During the
period of redemption the relation which existed
between the vendor and the vendee was that of
landlord and tenant. That relation can only be
terminated by a repurchase of the property by the
vendor in accordance with the terms of the said
contract. The contract was one of rent. The
contract was not a loan, as that word is used in Act
No. 2655. Loan v Rent as discussed under Usury
Law in relation to Act No. 2655 "An Act fixing
rates of interest upon 'loans' and declaring the
effect of receiving or taking usurious rates."
Usury, generally speaking, may be defined as
contracting for or receiving something in excess of
the amount allowed by law for the loan or
forbearance of money—the taking of more interest
for the use of money than the law allows. It will be
noted that said statute imposes a penalty upon a
"loan" or forbearance of any money, goods,
chattels or credits, etc. The central idea of said
statute is to prohibit a rate of interest on "loans." A
contract of "loan," is very different contract from
that of "rent". A "loan," as that term is used in the
statute, signifies the giving of a sum of money,
goods or credits to another, with a promise to
repay, but not a promise to return the same thing.
To "loan," in general parlance, is to deliver to
another for temporary use, on condition that the
thing or its equivalent be returned; or to deliver for
temporary use on condition that an equivalent in
kind shall be returned with a compensation for its
use. The word "loan," however, as used in the
statute, has a technical meaning. It never means
the return of the same thing. It means the return of
an equivalent only, but never the same thing
loaned. A "loan" has been properly defined as an
advance payment of money, goods or credits upon
a contract or stipulation to repay, not to return, the
thing loaned at some future day in accordance with
the terms of the contract. Under the contract of
"loan," as used in said statute, the moment the
contract is completed the money, goods or chattels
given cease to be the property of the former owner
and becomes the property of the obligor to be used
according to his own will, unless the contract itself
expressly provides for a special or specific use of
the same. At all events, the money, goods or
chattels, the moment the contract is executed,
cease to be the property of the former owner and
becomes the absolute property of the obligor. A
contract of "loan" differs materially from a
contract of "rent." In a contract of "rent" the owner
of the property does not lose his ownership. He
simply loses his control over the property rented
during the period of the contract. In a contract of
"loan" the thing loaned becomes the property of
the obligor. In a contract of "rent" the thing still
remains the property of the lessor. He simply loses
control of the same in a limited way during the
period of the contract of "rent" or lease. In a
contract of "rent" the relation between the
contractors is that of landlord and tenant. In a
contract of "loan" of money, goods, chattels or
credits, the relation between the parties is that of
obligor and obligee. "Rent" may be defined as the
compensation either in money, provisions,
chattels, or labor, received by the owner of the soil
 from the occupant thereof. It is defined as the
return or compensation for the possession of some
corporeal inheritance, and is a profit issuing out of
lands or tenements, in return for their use. It is
that, which is to paid for the use of land, whether
in money, labor or other thing agreed upon. A
contract of "rent" is a contract by which one of the
parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a
certain period and return it to the former; whereas
a contract of "loan", as that word is used in the
statute, signifies the delivery of money or other
consumable things upon condition of returning an
equivalent amount of the same kind or quantity, in
which cases it is called merely a "loan." In the case
of a contract of "rent," under the civil law, it is
called a "commodatum."

12. PNB vs. CA, G.R. No. 109563, July 09, 1996

PNB v CA
FACTS:
-
Province of Isabela issued several checks drawn
against its account with PNB (P) in favor of Ibarrola
(R), as payments
for the purchase of medicines.
-
The checks were delivered to R’s agents who turned
them over to R, except 23 checks amounting to
P98k.
-
Due to failure to receive full amount, R filed case
against P
-
LC, CA and SC ordered PNB to pay however, all 3
courts fail
ed to specify the legal rate of interest
–
6%
or 12%
ISSUE: WoN the rate to be used is 6%
SC: YES!
-
This case does not involve a loan, forbearance of
money or judgment involving a loan or forbearance
of money as it arose from a contract of sale whereby
R
did not receive full payment for her merchandise.
-
When an obligation arises “from a contract of
purchase and sale and not from a contract of loan or
mutuum,” the applicable rate is 6% per annum as
provided in Art. 2209 of the NCC
-
6% from filing of complain
t until full payment before
finality of judgment
-
12% from finality of judgmen
13. Medel, et. al. vs. CA, G.R. No. 131622,
November 27, 1998
14. Cuaton vs. Salud, et. al., G.R. No. 158382,
January 27, 2004
15. Tan vs. CA, G.R. No. 116285, October 19, 2001
16. Ligutan vs. CA, G.R. No. 138677, February 12,
2002
17. Sentinel Insurance vs. CA, G.R. No. L-52482,
February 13, 1990
18. Cebu Financial vs. Court of Appeals, G.R. No.
123031, October 12, 1999
19. People vs. Puig & Porras, G.R. No. 173654-765,
August 28, 2008
20. BPI Family Bank vs. Franco, G.R. No. 123498,
November 23, 2007
21. Siga-an vs. Villanueva, G.R. No. 173227,
January 30, 2009