civ - updated pre-bar notes - credit

7/28/2019 Civ - Updated Pre-bar Notes - Credit

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8.3

GENERAL PROVISIONSA. Delinition of Credit or Socurity Trrnuctionr

Credit transactions include all tansactions involving the purchase or loan of goods,services or money in the present with a promise to pay oi delivir in the firture. Without apromise to pay or deliver in the future, there can be no security transaction.B. Kinds of Bailment ContractB.l Those for the sole benefit ofthe bailorI.l gratuitous deposit

I .2 mandatum8.2 Those lbr the sole bcnefit ofthe bailee2.1 commodatum2.2 gratuitous mutuumThose flor the benefit ofboth parties3.1 deposit lbr a compensation; involuntary deposit3.2 pledge3.3 bailments for hrre

C. Loan in GenerelC.l Characteristics of the Contractl. Real Contract because the delivery of the thing loaned is necessary for the perfection ofthe contract (Article 1934: see also Article l3l6 ofthe Civil Code).

BPI Investment Corooretion vr. Court ofAoocak(377 SCRA 117)A loan contract is not a consensual confact but a real contract. isperfected only upon the delivery ofthe object of the contract. The real contractof loan requires the delivery of the object 6f the contrapt for its perfection andgives rise to obligations only on the part ofthe borrower.

2. unilateral Contract because once the subject matter has been deliverd it createsobligations on the part ofonly one ofthc porties, i.e., thc bonower.MCO Ssmole Problem

Examples ol real bailment contracts arc:a. antichresis and guaranty* b. commodatum and pldgec. chnttcl mortgage and suretyshipd. rcal cstatc rnortgag and depositLeqal Basis: Articles 1934 and 2093 ofthc Civil Codct


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C.2 Kinds of Loanl. Commodatum - where the bailor (lender) delivers to the bailec (bonower) a non-consumable thing so that the latter may use it for a certain time and retum the idcntical thing; and2. Mutuum - where the bailor (lender) delivers to the bailee (borrower) mony or otherconsumable thing upon the condition that the lattcr shall pay the ssme amount ofthe same kindor quality.MCO Samole Problem

An example of a bailment contract which is always gratuitous is:a. deJxrsitb. antichresisc. guaranty.:. d. cornrnotlatrrmother$'ise, it becomes a contract of:a. salcb. usuliuct* c. leased. mortgageLeqal Basis: Articles 1933 and 1935 of the Civil Code

C.3 Distinctions betx eetr Commodatum end MutuumCommodatum (Einm) Mutuun ([Itrlg)L subject matter is non-consumable things l. subject mattcr is moncy or other

consumable thingsowncrship tansfcrred to borrowermay bc gratuitous or onerougborrower need only pay the samcamount of the same kind and qualityinvolves only personl propertyloan for consumptionno right to demand Ole rcturn of thething loaned before the lapce of the termagrdcd upon

2. ownership retained by lender 2.3. essentially gratuitous 3.4. borrower must return the same thing , 4.loaned5. may involve real or personal property 5.6. loan flor use or temporary possession . 6.7: right to demand the ritum of the thing 7.loaned before the expiration of term incase of urgcnt need8. loss is shouldered by bailor since he isthe owner 8. bonower suffers the loss even if the lossis caused by a fortuitous evcntC.4 Distinctiotrs between Commodatum @iram) and Leale (Upa)l. Commodatum is a real contract, whereas lease is a consensusl corilracL2. The object of commoaatdii is I nonconsumable (nonfungible) thing whcreas the objectof lease may even be work or service.3. Commodatum is essentially gratuitous, whereas leasc is not gratuitous.


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l.

2.

4.5.

t.

J.4.5.

C,5 Distinctions between Commodrtum and Ucufruct(1998 Bar E,xrm Oueslion|Commodatum

constitutcd by law or by contract

creates a purely personal right touse another's propertyalways or essentially gratuitousreal contractbailec onlv acquires usc of thething loancd but not its fruitsconsumable goods may be thesubject only when the purpose ofthe contract is merely forexhibitionCOMMODATUM

2.

Urufructconstituted by law or by contract,by testamentary succession or byprescriptioncreats a real right to the fruits of. another's propertymay b onerousconsensual contractusufructuary acquires the right tothe use and fruits of proprtysubject of usufructmay be constituted overconsumables like money6..

IL.A.l.

CharecteristicsGratuitous, otherwise it is a lease (Article 1935).

Paiuvo vr. Court of Aooceb(430 SCnA a92)The Kasunduan reveals that tht accommodation accorded by Pajuyo toGuevarra was not essentially gratuitous. Whilc the Kasunduan did not requircGuevarra to pay rent, it obligated him to maintain the property in goodcondition. The imposition of this obligation makes the Kasunduan a contsactdifferent from a commodatum. The effeas.of the Kasunduan are also differentfrom that of a commodatum. Case law on cjcctment has treated relationship

bascd on lolerurce as one that is akin to a tandlord+enant rclationship where thcwithdrawal of permission would result in the termination of the lease. Thetelant's .withholding of the property would then be unlawful. This is sehledjurisprudence.Even assuming that the rclationship between fajuyo rnd Guevana is oneof commodatum, Guevana as bailec would still have the duty to turn overpossession of the property to Pajuyo, the boilor. The obliption to deliver or toretum the thing received attraches to confacts for safekccpinq. or cootrscls ofcommission, adrninistratign and commo&tum. Thcsc conaads certainlvinvolve the obligation to deliver or rctum the thine recsived.

PurSr,osc is thc tcmyrcrary usc of the thing loancd (Articlc 1935).


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3

4.

Catholic Vicar Anogtolic of the MountainProvince vs. Court of Aonerls(165 SCRA st5)Private respondents were able to prove that their predecessors' housewas borrowed by petitioner Vicar after the church and the convent weredestroyed. Thev never asked for the return of the house. but when tlc.v allowedis free use. thev became bailors in commodatum and the octitioner the bailee.

The bailee's failure to return the subject mafter of commodatum to the bailor didnot mean adverse possession on the part of the bonower. The bailce held intrust the Dropertv .subiect matter of commodatum. The adverse claim ofpetitioner came only in l95l when it declared.the lots for taxation purposes.The action of ptitioner Vicar by such adverse claim could not ripen into title by,rvat'ol'ordrnury acquisitivr: prcscription becausc of thc absence ofjus! title.Bailee's right to use is limited to the thing loanei and not to its fruits (Article 1935)unless there is a stipulation to the contrary (Article 1940).Suhject mrtter is generally non-consumable things but may cover consumables if thepurfx)sc ol' lhe contrncl is for cxhibition.

I'rorlucers Brrnk ofthe Philionines vs. Court of Anoeals(J97 SCRA 65r )Facts: Sonretime in | 979, private respondent Franklin Vives was asked by hisneighbor and friend Angeles Sanchez to help her friend and towunate Col.Arturo Doronilla in incorporating his business, the Sterela Marketing andServices ("Sterela", for brevity). Sanchez asked Vives to deposit a oertainamount of money in the bank account of Sterela for purposes of itsincorporation and assured that he could withdraw the same within a month'stimc. Vivcs issucd a check in the amount ofF200,000.00 in favor of Sterela andinstructed his wit'e to accompany Doronilla and Sanchez in opening a savingsaccount in the name of Sterela in Producers Bank. Subsequcntly, upon leamingthat Slcrcla rvas no longer holding oIlice in the address previously givcn tothem, Mr. and Mrs. Vives went to the bar* but the assistant bank managerinformed them that part ofthe money in Sterela's Savings Account No. 10-1567 .had been withdrawn by Doronilla and the remaining P90,000.00 could not bervithdrawn because it had to answer for some postdated checks issued byDoronilla. The bank likewise informed them that after Mrs. Vives and Sanchezopcnod Savings Aocount No. l0-1567, Doronilla opened Current Account No.l0-0320 for Sterela and authorized the bank to debit the said savings account forthe amounts necessary to cover overdrawings in said current Account and wasable to obtain a loan ofPl75,000.00 from Producers Bank.Issue: Is the tr,.nsaction between Yives and Doronilla a conmct of mutuumor commodatum?tleld. l. The transaction between Vives and Doronilla was a commodatumand not a mutuum. Therc are some instances where a commodatum mav havefor its object a consumable thine. Thus. if consumable eoods are loaned onlyfor purpqses of exhibition. or when the intention of the parties is to lendpcriod a&reed uoon. the [


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5.

the amount shall be retumed within thirty (30) days.. Vio, ,.r"ly"accommodated" Doronilla by lerding his money without comsidcration, as afavor to his good friend Sanchcz It was however clcar to the parties to thetransaction that the money would not be removed fiom Stelrela,s ssvingsaccount and would be rcturned to Vives affer thirty days.3. Doronilla's attempts to rcturn to Vives the amount of I1j100,000.00 wtrichthe latter deposited in Stercla's aooount together with an additioal t12,[email protected],allegedly representing interest on the mutuum, did not co,nvert the traasactionfrom a commodatum into a mutuum becausc the additional p12,000.00conesponds to the fruits ofthe lending ofthe p200,000.00. Article 1935 oftheCivil Code exoresslv states ihat the bailec in commodatum acquircs the use oi!h9lLi!c.-l9g!tgd-buf-[etlE-f!u!!s. Hencc, it rras only proper for Doronitla toremit to Vives the interest accruing to the latter,s moncy deposited withPioducers Bank.Bailor need nor be the o*ner; it is sufticient tbat he has possessory interest over subjectmarter (A(icle 1938).commodatum is purely personal in character hence death of either the bailor or the baileeextinguishes the contract (Article 1939).

MCO Samole ProblemThe death of either the bailor or the bailee extinguishes the contact of commodatumbecause commodatum is a:a. consensual conffactb. bilateral contract* c. purely personal contractd. reat contract

Article 1939 ofthe Civil CodeRule: Bailee can ncither lend nor lease the object of thc contract to a third

Member of bailec's horneholdException to the exception:a) there is a contrary stipulationb) nature ofthing forbids such use.Obligations of the BaileeBailee is iiable for ordirrary expenses for the use and preservation ofthe thing loaned.General Rule:Exceptions:

B.l.2.

a)b)

,Bail:e is not liable for loss or damagc due to a fortuitous event(because the bailor retains ownership over thc thing loaaed).Bailee devotes thing to a different purposeBailee keeps thing longer than the period stipulated or after theaccomplishment of the use for which commoddum was. )onstifutcd'tlfrng loaned was delivered with appraisal of its value (unlessthere is cxp,ress stipulation to thc con&ary) .Llailee lends thing to a third pcrson not a mcmbcr of hist,ousehold , rill,ailee, if being ablc to save either &e thing bononcd or his owntr ing, chose to save the latter

c)d)e)


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1993 Bar Exam OuestionA, upon request, loaned his passenger jeepney to B to enable B to bring his sick wifefrom Paniqui, Tarlac to the Philippine General Hospital in Manila for tcafincnt. On the wayback to Paniqui, after leaving his wife at the hospital, people stopped the possengerjeepney. Bstopped for them and allowed them to ridc on board, accepting payment from them just as in thecase of ordinary passenger jeepneys plying their route. As B was crossing Bamban, thore wasonrush of lahar from Mt. Pinatubo. The jecp that was loaned to him was wreckcd.

l. What do you call the contract that was entered into by A and B with respect to thepassenger jeepney that was loaned by A to B to transport the latter's sick wife to Manila?2. ls B obliged to pay A for the use ofthe passengel jeepney?L ls ll liablc to A lirr the loss ofthejeepney?Answer:L Commodalum (Art. 1993, Civil Code)2. B is not obliged to pay A for the use ofthe passenger jeepney because commodatum isessentially gratuitous. (Art. 1933, Civil Code)3. B is liablc because he devoted the thing to a purpose different from that for which it hasbeen loaned (Art . 1942, par.2, Civil Code)Altemative Answer:

B is not liable because an obligation which consists in the delivery ofa determinate thingshall be extinguished if it should be lost or destroyed without the fault ofthe debtor, and beforehe has incuned in delay. (A(. 1262, Civil Code)1983 Bar Exam Ouestion

A borrowed B's truck. During a fire whioh broke out in A's garage, he had time to saveonly one vehicle and he saved his car instead of the truck. Is he liable for the loss of B's truck?whv?Answer:

A is lisble for the loss of B's truck. The bailee in commodatum is liable for thc loss ofthe thing loaned even if the loss is due to a lbrtuitous event where, being ablc to save it or hisown thing, he chose to save the latter.3. Bailees are solidarily liable when the thing is loaned to two or more bailees in the samecontracl.Note:l. Bailee is not liable for ordinary wear and tear due to us ofthe thing loaned.

Exceptions: a. if he is guilty of fault or negligenceb. if he devotes thing to any purpos different from that for which ithas been loaned

2. Bailee cannot retain the thing loaned as scurity for claims lrc may hsve against thebailor, even though by reason of extraordinary expenses.C. Obligations of Bailorl. To allow the bailee the use of the thing loancd for thc duration of period stipulated oruntil the accomplishment of the purpose for wtich commodatum was constitutcd.


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Note:l.

III.

nrgont nccd &ring wlilch tirnJthe eommodatum is suspend.dprecariunoifduration ofthe confiact has not been stipulatedifusc or purposc of the thing has not been stipulatedif use of thing is merely tolerated by the bailorIMCO Srmole Problem

Precarium arises:

a. ifthe use of the thing pledged has not been stipulated by the partiesb. ifthe duration ofthe contract ofmutuum has not been itipulited by the partiesc ifthe purpose ofthe thing subjea ofdenosit has not been stipulated by the parties* d. if the use of the thing subject of commbaatum is merely toreiated by t-he bailor.Leml Basis; Article 1974 of the Civil Code2. To refund exhaordinary expenses for fie preservation ofthe thing loaned provided bailoris notified before the expenses were incurred. 'Exception: urgent need hence nonotice is necessary

3' To refrurd 50% of the extraordinary .*p"n$s arising from actual use of the thing loaned(i.e. caused by fortuitous went).Exception: confary stipulation4. To pay damrges to boilee for known hidden flaws in the thing loaned.

a.b.

b.1b,2b.3

Bailor has the right to dcmand rotum ofthc thing if bailec commirs any act of ingratitude.

:A. DelinitionMufuum is a contract whereby one of the parties delivers to another party, money or otherconsumable things with the understanding that the same amount of thc same kind and qualityshall be paid.

B. CharacteristicsI Borrower acquires ownership of the thing and can therefore dispose of the thingbonowed. There is no criminal liability for failure to pay one,s debt.

Garcia vs. Thio(5r8 SCRA 433)A loan is a real contract, not consensual, and as such is perfected onlyupon the delivery of the object of the contact. Upon delivery of the object ofthe contract of loan (in this case the money received by the debtor when thechecks were encashed), the debtor acquires ownership of such money or loanproceeds and is bound to pay the creditor an equal amount.Delivery is the act by which the res or substance thereof is placed withinthe actual or constructive possession or control of another.


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-- -------: 0camoo III vs. peoole(5,l3 SCRA,tSZ)' Art 1953 of the Civil Code provides that ..[a] person who receives aloan of moncy or Bny other fungiblc thing acquires thi ownership thercof, anrt isbound to pay to the creditor an equal amount of the,same kind and quality -Hcnce, pctitioner ocampo conectly argued that the NALGU funds shid theirpublic charactr when they were lent to LTFI as it acquired ownership of thefunds with an obligation to repay the province of rarlac the amount borrowed.The relationship between the province of rarlac and the LTFI is rhat of acreditor and debtor. Faiture to pay the indebtedness would give rise to acollection suit. t. (422SCRA459)

The DBP contends that the Special Loan program (SLp) is merely anormal loan transaction, akin to the loan granted by the-GSIS, SSS and the OepProvident Fund. The records show otherwis. In i roan transaction or mutuum,the borrower or debtor acquires owncnhip of the amount borrowed. As theowner, the debtor is then free to dispose of ot to ut ize the sum he loaned,subject to the condition thar he should later retum the amount with the stipulateiintcrest to thc crcditor. ln contrast, the amount borrowed by a qualifiedemployee undcr the sLP was not even reteased to him. It merery allowed thedebtor-employee to "bonod' a portion of his gratuity solely for tire purpose ofinraesting it in certain instruments specified by DBp. 'ihe debtor-employee courdnot dispose ofor utilize the loan in any other way and never had any iontrol orcustody ofthe amount he supposedly borrowed.

? . _If the thing loaned is money, payment must be made in the currency which is legal renlerin the Philippines and in case of extraordinary deflation or inflation, the 6asis of payrient shallbe the value ofthe currency at the time ofthe creation of the obligation.3. If fungible thing was loaned, the bonower is obliged to pay the lender another thing ofthe same kind, quality and quantity.

Reves vs. Court of Apneals(383 SCRA 47r). An acknowledgment receipt in the nature of a promissory notc is validand binding between the parties who executed it, as a document ividencing theloan agreement they had entered into. Said document reads:

"This is to acknowledge receipt (of) the sum of five hundred thousandpesos (F500,000.00) from (?) broken down as follows:3116l$---P300,000.00711_9J9_0_c-Ltt_1_$a1-l7/14t90 - P200,000.00 + tlq0.00gTotal .amt. P500,000.00, with corresponding interest at five percent (5%) permonth due and payable every 15u day ofthe month for a period of six months.',The ststement of the interest payments negates the allegation that it ismerely an aoknowledgnent recgip and not a promissory note.


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-n-C. Dirtinctlonr between Mutuum (Utang) and Lease (Upa)l. In mutuum, the object is money or any consumable (fungible) thing, whereas in lease, theobject may be any thing whether movable or immovable, frmgible or nonfungible.2. In mutuum, the thing loaned becomes the property of the debtor, whereas in lease, theowner does not lose his right ofownership.

lJ*'rnaq vr. Court of Aooeals281 SCRA 223nO991)Neither can the transaction be considered a loan, since in a contract ofIoan once the money is received by the debtor, ownership over the same istransfened. Being the owner, the borrower can dispose of it for whateverpurpose he may deem proper. In the instent petition, however, it is evident thatLiwanag could not dispose of the money as she pleased because it was onlydelivered to her for a single purpose, namely, for the purchase of cigarettes, andif this was not possible then to retum the money to Rosales. Since in this case.therewasnotransferofownershipofthemoneydelivered,Liwanagisliablefor

conversion under Art. 315, par. 1(b) of the Revised Penal Code.3. In mutuutn, the relationship which is created is that of creditor and debtor, whereas inlease, the relationship that is created ii that of landlord and tenant or lessor and lessee (Tolentinovs. Gonzales,50 Phil. 558). rPrudential Bank and Trugt Comornv (now Bankof the Philinnine Islandg) vs. Abasolo(631 SCRA 367)

Facts: The heirs of konor Rosales authorized Liwayway Abasolo to sell theproperties of the deceased in Sta. Cruz, Lagura. Corazon Marasigan, aninterested buyer, proposed to Liwayway to mortgage the suhjccl propcrties topetitioner Prudential Bank and Trust Company (PB'I'C) ro which rcsponilcntagreed on the condition that the proceeds would be paid directly to her. In theprocess, PBTC employee Norberto Mendiola advised Liwayway to transfer firstthe properties to Corazon for the immediate processing of the loan rvith theassurance that the proceeds would be directly paid to her. Without requestingfor a bank guarantee, respondent acceded to the proposal. Upon Corazon'sexecution of a real estate mortgage on subject properties to secure the loan,PBTC approved the loan and ieliased th" -proceeds to her. Leaming ol therelease of the proceeds to Corazon, Liwalrray demanded payment trom thelatter. Corazon failed to fully pay the purchase price of the properties prompringLiwayway to file a complaint for collection of sum of money and annulment ofsale with damages against Corazon and PBTC with the Regional Trial Cou( ofSta. Cruz, laguna. The trial court decided in Liwayway's favor and lbundPBTC subsidiarily liable. On appeal, the Court of Appeals affirmed the trialcourt's decision, hence the present petition.Issue: Is petitioner PBTC subsidiarily liable with Corazon for the payment ofthe balance ofthc purchasc price to Liwayway?Rulinq: No, PBTC is not subsidiarily liable.

_

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_- ln.the absbnce ofa lender-borrower relationship betrveen petitioncr anrlthe seller Liwayway, petitioner has no inherent obligation lo release thcproceeds of the loan to her. To a banking institution, rvell-dctlned lendinqpolicies and sound lending practices are essential to prlorm rts lending functioneffectively and minimizc the risk inhcrcnt in any cxtcnsron ol'crcdit.For [.irvayrvll' to pr(]\'c lrcr clarnr gulnst l)ctltrotrcr, a clear arrildeliberate act olconlerring a lhvor u;xrn hcr rnust trc prcscnt. A rvrittcrr rctlucslwould have sutllced to prove this, given the naturc ol"a banking business, not tomention the amount involved. Under this fold lalls lhe issuance by a bank of'a

guarantee which is cssentially a promise to repay the liabilities ofdebtor, in thiscase Coruon. lt would be contrary to cstablishcd banking practice rl'Mendiolaissued a bank guarantee, even il no rcquest to tha.t ollbct was made. Srncc it hasnot been established that pctitioncr had an obligatitin to Lilvayrvay, thcrc is nobreach to speak of Liwayway's claim should onlv be dircctcd against Coraz,rxr.Petitioner cannot thui be held subsidiarily liable.

Citibank. N.A. vs. Sabeninno(sl4 s('RA 44r)Although thc Supreme Court conccdes that all thc I'hilippinc branchcs ol'Citibank should be treated as one unit rvilh rls head olllce, it cannot bepersuaded to declare that thesc Philippine branchcs are likervrse a single unitrvith the Geneva branch - the ollsetting or conrpcnsution ol'a borrowcr's loanswith Citibank-Manrla using her dollar accounls with ('rtibank-(icncva cannol bu

effected. 1'he parties cannot be considcrcd princrpal crcdrlor o['the other. As forthe dollar accounts, respondent was the creditor and Citibank-Geneva was thedebtor; and as for thi outstanding loans. pctrtioncr Citibank, particularlyCitibank-Manila, 'was the creditor hnd respondent was the debtor. Since legalcompensation was not possible, petilroner Citibank could only usc resgrndcnt'sdollar accounts with Citibank-Ceneva to liquidate hcr loans if she had exprcsslyauthorized it to do so by contract.

Citibank N,A, vs. Cebamonqan(488 SCRA 517). The time deposit subject matter of herein petition is a simple loan. Theprovisions of the New Civil Code on simple loan govem the contracl bctwecn abank and its depositor. Specifically, Art. 1980 thereof catcgoricallv providcsthat "... savings . . . dgposits ofmoney in banks and.sinrilar rnstitutions shall bcgovemed by the provisions conceming simple loan." Thus, the relationshipbetween a bank and its depositor is that of a debtor-creditor, the depositor beingthe creditor as it lends the bank money, and the bank is the debtor which agreesto pay the depositor on demand.

In the province, a farmer couple borrowed money from the local merchant. To guaranteepaymcnt, they left the Tonens title of their land with thc merchant, for him to hold until they payttr locn. Is there a -a. contract of pledge,. b. contract of mortgage,. c. conlracl ofantichresis. ord. none of the above?


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. -I Explain.

Answer: T'here is no plcdgo bccausc only movablc propnv nray bc plcijgcd IArl. -lo.r.l.NCC). lf at all, there was a plcdge of the papr or document constituting thc 'l orrcns titlc, as amovable by itself, but not of the land which the titlc represents. There is no mortgage bccause nodced or contract was executed in the manner rcquired by law lbr a mortgage (Articles 2085 to2092,2124 to 2l3l). l'here is no contract of antrchrcsis bccausc no right to thc ttuits of rhcproperty was given to the creditor (Arr. Z t :: t. Therefore, lhe ansrver is none of the ahor e.United Coconut PlantersBank vs. Beluso(s30 scRA s67).

Opening a credit line does not create a credrt transaction ol'loan ormuluum, since the former is mcrely a prcparalory conlract to the contract ol'loanot nrutuutrt - under such credil line, thc bank. is mercly obligcd, lirr thcconsiderations spccified therelbr, to lend to thc othcr party amounts n()texceeding the limit provided.D. Rules on Interestl. In order that interest nray bc chargcd, it nrust bc csprossll stipulatcd in wrilrng (n rlielcr956)a) Garcia vs. Thio,518 SCRA 431 (2008)b) Ching vs. Nicdao,522 SCRA 316 (2008)c) Philippine Phosphate Fertilizer Corporation vs. Kamalig Rcsources, Inc., 5.10scRA r39 (2008)d) Republic vs. Unimex Micro-Electronics CmBll, 5 l8 SCRA l9 (2007)

Exceptions: l. Debtor in delay is liable to pay lcgal interest as indemnity, lirr damageseven in the absence of stipulation for the payment ol intercst (Articlo220e1a) Eusebio-Calderonvs. People,44l SCRA l-17(2005)b) Difro vs. Jardines,43l SCRA 226 (7006)c) Ongson vs. People,466 SCRA 656 (2006)d) Citibank N.A. vs. Cabamongan. 4{18 SCRA 517 (2007)' e) JL lnvestment and Dcvelopment, Inc. vs. 'l'endon0' lilll,li,lil;1"';;'# '.,.,-f,.*,fillJJ,*. vs c.urr orAppeals,494 SCRA 25 \2007)C) United Coconut Planters Bank vs. Beluso, 530 SCRA 567(2008)

2, . Interest due shall eam interest flnterest is compounded fiom the trme itis judicially demanded although the obligation may be silent ufxrn thispoint (Article 2212) or when there is express stipulalion (Articlel e5e)1.

BPI Familv Savinss Bank Inc. vs. First MetroInvestment Corporation(429 SCRA 30)Whcn the obligation is breachcd, and il consists in thc paymcnt ol'a sunrof nroncy, i.e., a loan or lbrbcarance of monoy, thc intcrcsl duc should hc thalwhich may havc been stipulatcd in writing, and the intcrest due shall itscll'earn1 legal interest from lhc timc it is.ludiciallv dcmandcd.

.


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E.f,,.1

Torinq vs. Ganzoa0lan(s6E SCRA 376)ln a loan or forbearance of money, the intcrest duc should be thatstipulated in writing, and in the absence thereofi, the rate shall be l2o/o perannum.

Relevant Jurisprudence on Mutuumlnterest Rates

thiliooine Rabbit Bus Lines. Inc. vs. Cruz(143 SCRA rsE)and'l'io Khc Chio vs. Court of Anpcalr(202 SCRA119)xxx The legal rate of interest is six (6%) percent per annum, and nottwelve (12%) percent, where a judgrnent award is based on an action fordamages for personal injury, not use or forbearance of money, goods or credit.

JL Inv6tment rnd Developmcnt Ire.yl. Tendon Philiopiner. Inc.(sl2 scRA E4):

satisfaction.f,astern Shinnins Linc+ Inc. v* Court ofAnperb(234 SCRA 78)andAlmedr ir. Ceriio(39SSCRA t{4)aodVicente vs. Planteru Dcvelooment Bank(3e6 SCRA 2E2)

l. In a loan, the interest due shoUId be that stipulated in rrriting and in thcabsence thereof, the rate shall be I2% pcr annum.2. In case of other obligations, interest on the amount of damages may beimposed at the court's discretion at the rate of6% per annum.3. When the money judgrnent becomes final and e)rccutory, the ratelegal interest shall be l2o/o pr annum from such finality utitsatisfaction, the iiiterim period being equivalent to a forbearaoce

The lTYo rate of interest is proper only when the obligtion consist ofloans or forbearance of money, in the abseoce of stipulation to trc contry. Ifthe obligation is otherwise, as in this crse, the applicable rate is 6% pcr annumcomputed from the time of extrajudicial or judicial demsd. Upon thc finelity ofthis ruling, the entire amount due shall oarn interest at 12% pi:r annum rntii itsri

ofitsof

c

credit.


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Peooie vs. [qlesia(365 SCRA ls6)When the judgment of the Court awarding a sum ol' money becomcsfinal and executory, the rate ot'legal interest shall be l2% per annum liom suchfinality until its satisfaction. The interest should thus be compuled liom rhctime of the finality of the decision. and not liom tho Iiling of the complaintagainst accused-appellant.

Schmitz Transoort & Brokerase ('oroorationvs. Trsnsnort Venturc. Inc.(4s6 SCRA ss7).As for the court a quo's award of interest on the amounr clairncd, thcsame calls for modification following thc ruling in Easlern Shipping t.ines,Inc. vs. Cou( of Appeals that when the demand cannot be rcasonablyestablished at the time the demand is made, the interest shall begin lo run notfrom the time the claim is made judicially or extrajudicially bur frorn the darethe judgment of the court is made (at which time the quantification of damagemay be deemed to have been reasonably ascertained).

Korcrn Airlines l.s. ('ourt of Auoctls(2J.r s('RA 7r7)Legal interest ol6% p.a. on thc atr()unt ol'tlantagcs in lhvor ol't littgantshould commence from rendition ol.iudgrnent ol'thc trial court instcad ol'thcdate of filing of the complaint.

Food Terminal. Inc. vs. Court of Anneals(262 SCRA 339)8ndHeirs of Isnacia Asuilar-Reves vs. Miiares(410 scRA e7)

When an obligation not constituting a loan or fbrbearance of'money isbreached, then an interest on the amount o{'damages awarded may be imposcdat the discretion ofthe court at the rate of 60,6 per annum in accordance with Art.2209 of the Civil Code. Indeed, the monetary judgment in favor of privatcrespondent does not involve a loan or iorbearance of money, hence the propcrimposable rate of interest is six (6%) prcent. However, as declared in the caseofEastern Shipping Lines, Inc. vs. CA (234 SCRA 78), the interim period frornthe finality of the judgment awarding a monetary claim and until paymentthereof, is deemed to be equivalent to a lorbearance of'credit. Thus, from thetime the judgment becomes final until its full satisfaction, the applicablc rale oflegal interest shall be twelve percent (12%).

Petitioner Food Terminal was ordered. to pay the private respondentactual damages, uneamed profits and atlomey's fees. These amounts shall earninterest at the rate of SIX PERCENT (6%) per annum from May 15, I984 untilfully satisfied, but before judgment becomes final. From the date of finality ofthe judgment until the obligation is toully paid by petitioner, a TWEI-VEPERCENT (12%) interest, in lieu of the SIX PERCENT (6%) interest, shall beimposed.

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Philioniae Airlircrl, Ilc. v!. Court of Aluk(27s SCRA 621)endLin vr. Court of APneals(373 SCRA 394)nndTerminal Faciliticr ud Scrvir:es Corooration vr'Philiooine Ports 4qthoritY(378 SCRA 82)We agree, however, with the contention that the intLerest of 6% imposedby respondent court should be computed from the date of rendition ofjudgrnent

and not from the filing of the complaint. The rule has been laid down in EastcmShipping Lines, Inc. vs. Court of Appeals, et al. (234 SCRA 78) that:"Wlrcn rn obligation, not constitutiog a loan or lirrbcarance of money, ishrcachcd. an interest on the amount of damages may tle imposed at thediscretion of thc court at the rate of 6%o pr annum. No interest, however, shallbe adjudged on unliquidated claims or damages except when or until thedemand cun be cstablished with reasonable certainty. Accordingly, where thedemand is established with reasonable certainty, the interest shall begin to run

from the lime the claim is made judicially or extrajudicially (Art. 1169, CivilCode) but when such ce(ainty cannot be so reasonably established at the timethe denrand is made, th{j interest shall begin to run only from thc date thejudgnrent of the court is made (at which time the quantification of damages maybe deemed to have been reasonably ascertained). The aphul base for thecornputation of legal interest shall, in any casc, bc on the amoutrt finsllyadjudged "This is because at the time of the filing of the complain! the amour( of

damages to which plaintiff may be entitled remains unliquidatcd sni not known,until it is definitely ascedained, assesscd and detcrmined by thc cowt, and onlyafter the presentation of proofthereof

National Commercial Bank of Saridi Arabirvs. Court of Aooealr(437 SCRA 1)

In Eastern Shipping Lines, Inc. v. Court of Appeals, this Courtformulated the rules on the imposition of the proper interest on amounts due,and at no instance was interest to run until demand has bcen ma& abscnt anyegreement htween the parties.

Santos Venturl Hocorne Fourdation. Inc. vs. Sutc(441 SCRA 472)rnd' Eurcbio-Crlde ron vs Pconle(441 SCRA 137)' In the absence of agreement, the legal rate of interest shall pevail. Thelegal interest for loan as forbearance of money is l2Vo pu annum to becomputed from default, i,c., from judicial or exra;udicial demand under andsubject to the provision ofArticle I 169 ofthe Civil Code.

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_ _ ffi (sJ9 SCRA 226)The trial courl ts vestcd rvrth discrctton trr 3\r.0[J thc lcgal rrrlcrcstdespite the tbct that it rvas not prayc


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Ilocriel v* Jaucirn(427 SCRA 5l7)l. An interest rate of 16 percent per month is iniquitous, unconscionableand exorbitant and must bc equitably rcduccd.2. A penalty charge of 5 pcrcent per month, in addition to rcgular intercstsand attomey's fees, is iniquitous and unconscionable.

Cuaton vr. Srlud(421 SCRA 27r)lnterest rates al l}Vo and8To per month'on a one-mitlion-peso loan is

excessive, iniquitous, unconscionable and exorbitant and their reduction to 12%per annum is fair and reasonable. Stipulations authorizing iniquitous orunconscionable interests are contrary to morals, ifnot against the law.Arrofo vs. 0uiilo(449 SCRA 2E4)

The Court of Appeals ordered Quifro to py 7o/o interest per month onthe P15,000 loan from Renato, computed from I I April 1990. This amounts to84olo interest per annun, which is unconscionable. This Court dcems itequitable to reduce this interesl rate to l8% per annum.Urury Law' Lirm [.lw vr.Olvmoic Sawmlll(r29 SCRA di9)

Usury is now legally non-existent. Interst can be charged as lender andborrower may agree upon. The Rules of Court in regard to allegations of usury,being procedural in nature, should be considered repealed with retroactivceffea.Philiooine National Bank vs. Encina(s44 SCRA 608)

The Usury Law had been rendersd lggally ineffectivc by Resolution No.224 dated 3 December 1982 of the Monetary Board of the Central Bank, andlater by Central Bank Circular No. 905 which took effect on I January 1983 andrcmoved the ceiling on interest rates for sccured and unsecured loans regardlessof maturity. The effect of these oirculars. is to allow the parties to agrce on anyintrest that may be charged on a losn. The virtual repeal of thc Usury taw iswithin the range ofjudicial notice which courts are bound to takc into rccount.After all, the fundamental tenet is that the law is deemed part of the contnct.Medel w. Court of Aoperlg(299 SCRA,l8lIThe stipulated rate of interest al 5.5o/o per month on the P500,000.00

Ioan is excessive, iniquitous, unconscionable and exorbitant. Howwer, the ratecannot be considcred "usurious" because the Supreme Court has consistentlyheld that Circular No. 905 of the Cental Bank, adopted on December 22, 1982,


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the Usury Law is now "legally inexistent".In Security Bank and Trust Company vs. Regional 'l'rial Court ot'Makati, Branch 61, thc Court hcld that CU Circular No. 905 did not repcal norin any way amend the Usury [.aw but simply susgrcnded thc latter's clTectivitrA Ccntral Bank Circular can not repcal a law Only a lau'can rcpcal anolhcrlaw. In the recent case of Florendo vs. courl of Appeals, the court rcitcratedthe ruling that by virtue of CB Circular 905, thc Ilsury [.arv has bccn rcndcrcdineffective. usury has been legally non-existent in our junsdiction. Interesl

cdn now be charged as lender and borrower may agree upon'

The 24% interest rate agreed upon by the parties does not violate thcUsury Law, as amentlcd by P.D. I16. [ror somctimc now' usury has bcen lcgallynon-existcnt and that interest can now he chargcd as lcnder and borrorvcr rravagree upon. By no means is an intcrest ralc ol'249ir l(r rttttt agrcctl upoll llvthe parties considcrctl unconscionahlc or cxccssivcr"i#:iffii}-

While the pa(ies are trce to stlpulate on thc interest to bc imposed onmonetary obligations, the Court will temper interest rates if they areunconscionable:. Even if the Usury Law has been suspended by Ccntral BankCircular No. 905-82, and parties to a loan agreement have been given widelatitude to agree on any interest rate, rvg have held that stipulatcd interest ratesare illegal iithey are unconscionable Consequently, in our vierv, thc Court ofAppeali ened in sustaining the trial court's decision upholding the stipulatcdinierest of 3% and.3.gl% lper month). Thus, we are unanimous norv in ournrling to reduce the abovi stipulated interest rates to- I o'lo per month' inconfirmity with our ruling in Ruiz v. Court of Appeals' 401 SCRA 410 (2003)Nothing in cB circular No. 905, Series of 1982 grants. lcnders cartc blanchcauthori! to raise interest rates to levels which rvill either cnslave theirbonowers or lead to a hemorrhaging of their assets'

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tssue:DotheCourtshavelhcdiscrctiontoarbilrarilyovcrridestipulatcd;;-erest rates of pror.nissory notes and thereby impose a l27o interest on thei;;, i, the abslnce of evidence lustitying the imposition of a higher rare?Staiea otrcrr rise, the sole issue to be settled in this petition is whether or not the23o/o nteof interest pr annum agreed upon by petitioner bank and respondentsis allowable and not against the Usury Law'Rulins: l. From the eximination ofthe records, it appears that indeed theffi rate of interest as stipulated on thc threc (3) prornissory notes is 2370 -per""rm Central Bank Circular No. 905 which took effect on 22 December 1982ullorn, "ontroating partics to stipulatc licclv rcgardrng any subsctluentudiu.,ran in the-iniercst rate that shall accruc o't a loan .r f


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money, goods or aredits. ln fine, they can agre;, to adjust, upward or downward,the interest previously stipulated.2. All the promissory notes were sigred in 1983 and therefore, werealready covered by CB Circular No. 905. Contrary to the claim of respondentcourt, this circular did not repeal nor in any way ar4cnd the Usury Law butsimply suspended the laner's effectivity.3. The rate of interest was agreed upon by the parties freely. Significantly,respondent did not question that rate. It is not for respondent

"or.t uquo io

changc the stipulation in the contract where it is not illegal. Furthermore,Artiole 1306 of the New Civil Code provides that contracting parties mayestablish such stipulations, clauses, terms and conditions as they may deemconvenient, provided they are not contrary to laq rirorals, good cuitoms, publicorder, or public policy. We find no valid reason for the respondent court a quoto impose a l2Yo rale of interest on thc principal balance owing to the petitionerby respondent in the presence of a valid stipulation. In a loan or forbearance ofmoney, the interest due should be thai stipulated in writing, and in the ahsencethereof, thc ratc shall be 12% per onnum. Hcnce, only in the absence of astipulation can the court impose the l2% rate of interest.' Der,clopment B.trk of rhe ihlliopln$ ys, Perez(442 SCRA 238)

In usurious loans, the ontire obligation dces nol become void becausc ofan egreement for usurious interest; the unpaid principal debt still stands andremains valid, but the stipulotion.as to tlrc usurious interest is void.Caroo vs. Chge(471 SCRA 47r)

A usurious loan transaction is not a complete nullity but defective onlywith respect to the agreed interest.Since the mortgage contract derives its vitality from the validity of theprincipal obligation, the invalid stipulation on interest rate is similarlyinsu{ficient to render void lhe ancillary mortgage contract.

PNB vs. CA(238 SCRA 20)Presidential Decree No. 1684 and CB Circular No. 905 did not authorizeeither party to unilaterally raise the interest rate without the other's consent.

Escrletion CleureInruhr Brnk of Asir rnd Amerlcr vr. Spousg Srhz.r(rs9 scRA 133)

It is the rule that escalation clauses are valid stipulations in commercialcontracts to maintain fiscal stability and to retain the value of money in longterm controcts. However, the enforcement of such stipulations are subjsct tocertain conditions.

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Baaco Filioiro v* Nrvarro(1s2 SCRA 346)andFNB vr. Irtermedirte Aorctlate Court(r&3 scnA l3r)An escalation clauge can bc valid only if it also includcg a de+scalalionclause or a stipulation that the rate of interest agred upon shsll be rcduced inthe event that the maximum rate of intercst is rcdrrced by law or by the

Monctary Board.Llorin vs. Court of Auperlt(2lE SCRA 436)

An escalation clause must be bilateral hence it must provide forreduction or de-cscalatron oFinterest for said clause to be valid.PNB vs Court of Aooeals(196 SCRA s36)

ln order that obligations arisrng from contracts may have the force oflaw between the parties, there must be mutuality between the parties bosed ontheir essential cquality. A contract containing a condition which makes isfulfillment dependent exclusively upon the uncontrolled will of thc contractingparties, is void. Hence, even assuming that the loan agrcemcnt bctwcen thePNB and the private respondort grvc the PNB a licenr (altho4h in fact thcrcwhs none) to increase the intercst rate at will during the term of thc loan, thatlicense would have bcen null and void for being violative of the principle ofmutuality essential in conkacts. It rrculd have invested the loon arccmcnt withthe churacter ofa contract of edhesion, wherc the parties do not bsrgain oD egudf(roting, the weaker party's (the dcbtor) participation being rcduccd to thcaltemative *to take it or leave it". Such a contract is a veritablc trap for theweaker party whom the courts of justice must protect against abuse andimposition.

Almeda vs. Court of Aooerlr(256 SCRA 2e2)Moreover, respondent bank's reliance on C.B. Circular No. 905, Sericsof 1982 did not authorize the bank, or any lending instituiion for that mattcr, toprogressively increase interest rates on bonowings to an extent which would

have made it virtually impossible for debtors to comply with their ownobligations. True, escalation clauses in credit agleements are pcrfectly validand do not conmvene public policy. Such clauses, however, (as arc stiprlationsin other contracts) are nonetheless still subject to laws and provisions govcmingagreements between parties, which agreements while thcy may bc thc lawbetwccn the contracting parties - implicitly incorporate provisions ofcxistinglaw. Conscquently, while the Usury Law ceiling on interest rates was liffed byC.B. Circular No 905, nothing in thc said circular could possibly bc rcad asgranting respondent bank cartc blanche authority to raise intercst ratcs to lcvclswhich would either enslqrrc its borrowcrs or lead to a hemonhaging of theirassets.

lisctlutrtrrr elruscs urc not basically wrong or lcgolly objectionable solong as they are not solely potcstative but based on reasonable and valid'grounds. Here, as clearly demonstrated above, not only (are) the increases oft


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the interest rates on the basis of thc escalation clausc patcntll. unrcasonablc andunconscionable, but also there arc no valid and reasonable standards upon uhrchthe increases are anchored.Fkrirendo. Jr. vs. Metrooolitan Ban kand 'l'rusl ('om uanv(s32 S('RA 4J)

Petitioner contcnds that the "escalation clausc" in thc promissory notcimJr,osing l5.4460/o intcrcst on 'thc loan "lirr thc llrst l0 davs .ruh1t,t t tttupwurd downwurtl ullustnent cycr.l,' -10 lu.ys tlrcrut/tr,r" is illcgal. cxccssivs andarbitrary. The detcrmination to increase or dccrease such intercst ratc isprimarily left to the discrstion of respondcnt banJi, Wc agrce. We hold that thsincreases of interest rate unilaterally imposed by respondent bank withoutpetitioner's assent are violative of the principlc o{' mutuality of contractsordained in Article 1308 of the Civil Code.

It would be converting the loan agreement into a contract ol' adhcsion.where the parties do not bargain on equal fooring, thc rveaker party's(petitioner's) participatron being reduccd to the alternalivc "to takc it or lcaveit." While the Usury Law ceiling on interest rare was lilied by Central BankCircular No. 905, nothing therein could possibly bc read as ganting respondenrbank carte blanche authority to raise interest ratc to lcvels which would eilherenslave its borrower (petitioner herein)or lead to hcmorrhaging o1'his asscts.Penalty Cherges

. Lisutan vs. Court of Anneals(376 SCRA 560)L A penalty clause, expressly recognized hy law, rs an acccss()rvundertaking to assume geater liability on the part of the obligor in casc ofbreach of an obligation. It functions to strengthen lhe coercive force of lhcobligation and to provide, in etTect, for what could bc thc liquidated damagcsresulting from such a breach. The obligor would,thcn bc bound to pay thestipulated indemnity without the necessity of prool'on thc existsncc and un thcmessure of damages caused by the breach. A stipulatcd grcnalty, ncverlhclcss,may be equitably reduced by the courts if it is iniquitous or unconscionablc or ifthe principal obligation has been partly or inegularly complied rvith.2. The stipulated interest of I 5. I tl% pr annum is not cxccssive. 'l'heessence or rationale for the payment of interest, quite olien relbrred to as cost ol'money, is not exactly lhe same as that ofa surcharge or a penalty. n S:naltystiPulation is not necessarily preclusive of interesl. rf there is an agreement tothat eflecl. the two beins drstinct concepts which may. separately be dernanded.

Tan vs. Court of Aooeals(367 SCRA s7r)Issues: l. Can a debtor be made liablc forbothrhc stipulated monthly interestand the stipulated penalty charge?

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Held: 1. The promissory note expressly provides for the imposition of bothinterest and penalties in case of default on the part of the petitioner in thepayment of the subject restructured loan. Penalty on delinquent loans may takedifferent forms. In GSIS vs. CA, this Court has ruled that the New Civil Codepermits an agrecment upon s penalty apart from the monetary intrcst also calledpenalty or compensatory intercst. Such a stipulation about psyment of anadditional intrest ratc partakes of the nature of a penalty clause which issanctioned by law, more particularly undcr Article 2209 of thc New Civil Code.

2. The contracting parties may by stipulation capitalize the interestduc antl unpaitl. rvhich as added principal, shall eam new interest. Thecornpounding ol'ths penBlty or compensatory'intcrest is sanctioned by andallowed pursuant to Article 1959 of the New Civil Code.' State Investment Houge. Inc. vs. CourJ ofAnpealr(36r SCRA 201)

Petitioner was no longer entitled to the payment of the deficiencynmounl of' P600,000.00 after the extrajudicial foreclosure sale whererespondent's properties were sold for Pl.2M because the principal obligation ofrespondent would not have ballooned to Pl.8M if not for the pcnalty charge of3% 1x..-r month or 36010 per annum. The disallowancc of tlrc payment ofdeficiency was in effect merely a reduction of the lrnalty charges and not adeletion ofthe penalties as contended by the petitioncr.:Nature ofan Action to Annul a Contrect of Loan

Chua vs. Totrl Offrcc Product! and Servicer (Tonros). hc.(471 SCRA sm)An Ection to Bnnul a contrrct of loan and its accegsory real estatcmortgage is a personal action. In a personal action, the plaintiff scks therecovery of personal property, the enforcement of a contract or the recovcry ofdamages. A reul action is an action affecting titlc to rcal propcrty or for tlprecovery of possession, or for partition or condemnation of, or forcclosurc ofmortgage on, real propertyThe rulc on real actions only mentions an action for foreclosure ofa rcal

estate mortgage; it does not include an action for the calrcellation or annulmentof a real estate mortgage. The place where the parties reside is the proper venuefor an action to nulliS a loan and ral estate mortgage contract.Assignment of Credit .i

Aouintcv vs Tibons(511 SCRA 4r4)An assignment of credit is ari agrcement by virtue of which thc owncr ofa credit, known as the assignor, by a legal cause, such as sale, dation inpayment, exchange or doottion, and withort thc consent of the. debtor, transfenhls credit and accessory rights to &nother, known as the assigncc, who acquiresthe power to enforce it to the same extent as the assigror could enforce itagainst the debtor.

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In an assignment of credit, the consent of the debtor is not cssontial fbrits perfection - the knowledge thereof or lack oi it affecting only theefficaciousness or ineflicaciousness ofany payrncnt that might have becn made.Ledonio vs. CaoitolDeveloument Corporation(s26 SCRA 379)

Although it may be said that the eflbct ol thc assignrnenr of credit is tosubrogate the assignec in the rights ofthc original crcditor, thc Court still cannotdefinitively rule that assignment of credit and convcntional subrogation arc oncand the same. What the law requires in an assrgnment of credit is not theconsent of the debtor, but merely notice to him'as the assignrnent takcs el'l"rctonly from the timo hc has knowlcdgc therool' whi.lc conventional subrogalionrequires an agreement among the partics conccrned - thc original creditor, thcdebtor, and the new creditor.

The Supreme Court has already noted previously thal thcrc docs notappear to be anything in Philippinc statutos or.iurisprudcncc rvhrch prohibrts acreditor, without the consent ol thc debtor, tiom making an assignmcnt ol' hiscredit and the rights accessory thereto. Even if the consent of the debtor isunnecessary for the validity and enforceability of the assignrnent ol'credit,nonetheless, he must have knorvledge, acquired either by lormal nolrcc or sonleofher means, of the assignment so lhat he may pay the debt to thc proper part\ ,which shall now be the assignee.

. Rosario vs. PCI Leasinq and F'inance. Inc.({7.t s('Rt 500)There is no factual basis for thc petitioncrs' claim that CarMerchants,

Inc. had assigned its rights to collect thc balance of the purchase price to thcrespondent and that as assignee, respondent rvas proscnbed liom collectingfrom petitioners the balance of the purchase price ol the vchicle a{icr havingtaken possession of the chattel for purposes of foreclilsure. 'lhe lact of thcmaner is that petitioners admitted ln thcir petition that thcy wsrc dcclarcd indefault and failed to provc such clairn. 'lhc cvrdcncc on rccord clcarly showsthat the pctitioncrs seuurod a loan liorrr thc rcs;xrndcrrt l'Cl l,uasing antlFinance, Inc. to pay thc P190,000.00 balance to CarMerchants, lnc., and evcnexecuted a promissory note evidencing their loan in lavor of the rcspondcnt.Petitioners forthrvith executed a chattel mortgage in favor of the respondentover the vehicle as security lbr the payment ol'thcir l0an ond thc intcrcstslhereon. lt bears stressing that under Article 1615 ol'lhe Ncw Crvil Codc. anassignment of credit, right or action must appear in a public document to bindthird persons. There is no evidence on rrlcord to prove lhal CarMerchants, lnc.cxecuted such a dccd, ussigning its rrghl to collcct thc halant:c ol'thc purchast:price ofthe vehicle liom ihe petitioners, in tbvor of respondcntPeyment by I'hird Persons

('rrrnrlrnp vr, llciis of Ouirino de (Juzman(s08 s(:RA 469)Articles 1236 and lZ37 of the Civil Code are clear that, even in cases

qvhere the debtor has no knowledge of payment by a third person and even incasb where the lhird person paid against the will of thc debtor. such paymentwould produce a debt in favor of the paying third person. In fact, the only

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pcrloo cE rs the PaYT T6t s cnbeneficial to the debtor; and (2) the third person is not subropted to the rightsof the creditor, such as those arising from a mortgBge, guarantee or penalty.Credit Cards

Aznar vr. Citibrnk N.A. (Philioliner)(sl9 scRA 2E7)A stipulation in a credit card agrcement which limits the crrd compsny's

linhility to Fl.(XX) or the octunl damsge proven, whichever is lesser, connot beconsidcred as valid for bcing unconscionable as it precludes payment of r largcramount even though damage may be clearly proven.I)octrine of Promissory Estoppel

. Mendoza vs. Court of Anoerls(3se scRA 43r)tlndcr lhc docrine of promissory estopp|, an estoppel may arise fromthe making ofa promise, even though without consideration, if it was intendedthat the promise should be relied upon and in fact it was relied upon, and if arefusal to enforce it would be virtually to sanction the perpetration of fraud orwould result in other injustice. In order to make out a claim of promissoryestoppel, a party bears the burden of cstablishing the following elements: (l) apromise reasonably expected to induce action or forbearance; (2) such promisedirl in fact induce such action or fortearancc; and (3) thc party sufrercddctriment as a result.It is clear from the foregoing that the doctrine of promissory estoppelpresupposes lhe existence of a promise on the prrt ofone agrinrt whom dtoppelis cluinrcd. 'l'he pnrmisc must bc ploin and unambiguous and cufficicntlyspecific so that the Judiciary can undcrstand the obligation assumcd and enforcethe promise nccording to its terms. For petitionr to cluim that respondent PNBis estopped to deny the five-year rrstsuctudng plan, he must first prove thatrespondent PNB had promised to approve the plan in cxchange for thesubmission of the proposal. As discrrsed earlicr, no such promisc was provcil,therefore, the doctrine does not &pply to the case at bsr. A carrsc of rction forpromissory estoppel does not lie where an alleged oral promisc ulras conditional,so that relisnce upon it was not reasotable. It does not opcratc to creatc liabilitywhere it does not otherwise exist-

E.l0 Gro$ or lntermcdiation SprcadNew Sronasuita Bu.ilders Construction. Inc.vs. Piiliooioe Natiolal Bank(43s SCRA s65)

The difference between the interest and other service fecs chargcd by abank to its borrowers &nd clients and the interest it pays to its dcpositors andother suppliers of funds is the "gross or intermediation spread."No penalty chargci or incrpases thcreof appcar either in the Dsclosur

Statements or in any of the clauscs in thc crodit sgrGemcnts. While a stur&rdpenalty charge of6 percent pcr annum has been imposcd on the amounts statad

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in all tkee itomissory Notes still remaining unpaid or unrenewed when they felldue, there is no stipulation therein that would justi$ anv increase in thatchorgcs. Thc cffect, thcrefore, whcn the borrowpr is no1 clearly informed of theDisclosure St tcmcDts -- prior to the consummation of the availment ordraudoum -- is that the lender will have no right to collct upon such charge or ,inore.scr thcrpo{, cvcn rf stipulatcd in tho Notes. Thc time is now riJre to givercoth to the often ignorcd forty-one-year old '"Truth in Lending Act'; and ihustransform it from a snivelling paper tiger to a growling financial watchdog ofhaplcss bonowcrs.MCO Samote Problem

The differerrcc bctween the interest and other service lbes charged by a bank to itsborrowers and clients and the interest it pays to its depositors and other suppliers of fundsis the:net rodiscounting sprcadgross credit differentialintermcdiation spreadgross refinancing differential

I"egal Basis: New Sampaguita Builders Construction, Inc. vs. Philippine Nationd Bank(435 SCRA 565)

A- Statutory PurporeSection 2 of Republic Act No. 3765 declites that it is "the policy of the State Io proiectits citizens from a lack of awareness of the tue cost of credit to the user by assuring a fulldisclosure of such cost with a view of prwenting the uninformed use of credit to the detriment ofthe national economy."

B. Delinition of TermsAs used in the Truth in Lending Act, the following terms are defined as follows:

B. I "Credit" means any:a. loan, mortgage, deed oftrust, advance or discount;b. conditional sales contract;c. contract to sell, or sale or contract of sale of property or services, either for present orfuturc delivery;d. rental - purchase contract;e. contract or arrangement for the hire, bailment, or leasing or property;f. optiorl demand, lien, pledge, or other claim against, or for the delivery of, proprty ormoney;g. purchase or acquisition of any credit upon the security ofany obligation arising out ofany ofthe foregoing transactions; andh. any transaction or series of transactions having a similar purpose or effect. [Section3(2) of R.A. 376s1

"Finance charge" includes interest, fees, service charges, discounts, and such othercharges incident to the extension of credit as the Monetary Board of the Central Bank ofthe Philippines may by regulation Fescrih. [Secfion 3(3) of R.A. 3765]"Creditot'' refers to any person engaged in the business of extending credit (whichincludes any person who as a regular business practice makcs loans or sells or rents

a.b.*c.d.

i

8.2

B3


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property or services on a time, credit or inslallmcnt hasis. cithcr as prrncrpal (,r as agcnt.)rvho requires as an incident 1o thc cxlcnsion oi crcdit, lhc pa\nlrnl ol'a liurntc chargc[Section 3(4) of R.A 37651Obligation of Creditor to Borrower undcr thr 'I'ruth in l,cnding .,\ct- Prior to lhe consummation of the transactron, the crcdrtor is obliged to lurnish to bachperson to whom'credit is extcndcd a clear stalcmclrt in writing sctting fonh thc lollouinginformation:

I . Cash or delivered price of the sen ice or propcrty to be acquired2. AmounVs to be credited as downpayment and/or trade-in, ifthere be any3. The difference benveen the cashidclivered pricc and downpayment trade-in4. Individually itemized charges rvhich are to b'e paid in connection rvith the transaclionwhich are not incident to the extension ofthe creditTotal amount 10 be financedFinance chaJge in pesos and ccntavos; andThe percentage that the finance charge bears to thc total amount to be financcdexpressed as an annual rale on the outstanding unpaid balance ol'the obligatron.[Section 4 ofR.A 3765]

United Coconut Plsnters Bank vs. Beluso(530 SCRA s67)The interest rale provisions in the case al bar are illegal not only becauseof the provisions of the Civil Code on mutuality ol contracts, but also becauscthey violate the Trulh in Lending Act. Not disclosing the true tinancc charges inconnection with the cxtensions of credit is, fu(hermore, a lorm of deceptionwhich we cannot countenance.Section 4 ofthc Truth in Lending Act clcarly provrdcs that thc drsclosurc

statement must be furnished prior to thc consummation of the transaction. 'l'hcrationale of this provision is to protect users of credit from a lack of awarenessof the true cost thereof, proceeding from the experience ihat banks are able toconceal such true cost by hidden charges, uncertainty olinterest rates, deductionof interests from the loaned amount, and the like. The law thereby sceks toprotect debtors by permitting them to fully appreciate the true cost oltheir loan,to enable them to give full consent to the contract, and to properly evaluale theiroptions in arriving af business dccisions. LJpholding LiCI'}ll's clarnr ol'substantial compliance rvould defeat those purposcs ol'the lruth in l.cnding Act.'fhc bclated discovcrl of thc truc cost ol.crcdit uill lrxr olicrr nol bc ablc torcverse the ill r:fl'ccts ol'an already consulnmatcd busiltcss dccisi0tt.

'l'hc allcgation that thc promissory notcs grant [J('l'lt thc poncr tuunilatcrally flx the intcrcst ratcs ccrtainly alsu mcans lhat thc prornissory nolcsdo not contain a "clcar statement in rvriting" ol' "(6) thc linattcc chargeexpressed in terms of pesos and centavos; and (7) the perccntage thal thetinance charge bcars to the amount lo be finartccd expressed as a sintplc annualratc on the outstanding unpaid balanoc ol the obligation." Furthermorc, thespouses Beluso's prayer "for such other reliefs just and equitable in thepremises" should be deemed to include the civil pcnalty providcd lirr in Section6(a) ofthe Truth in Lending Act.

D. Consequences of Non-Compliance with the 'I'ruth in l,enrling ActAny creditor who in connection with any crcdit trans otion l'ails to disc,losc to any pcrsonwhom credit is extcndcd thc requircd infbrnratron untlcr thc'l ruth in Lcnding Act shall bc

C.

5.6.7.

l.to


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liable to such person in the amount of One Hundred Pesos (P100.00) or in an amount equal totwice the finance charge required by such creditor, whichever is higher brrt shall not exceed TwoThousand Pesos (P2,000.00), plus attomey's fees and court costs, provided the sctior to recoversuch penalty is brought within one (1) year from the dale of occurrence of the said violation, butthe validity or enforceability ofthe contrrct is not affected [Sections 6(a) and 6(b) ofRA 3765]2. Willful violators of the Truth in knding Act shall be fined not less than orre ThousandPesos (P1,000.00) nor more than Five Thousand Pesos (P5,000.00) or imprisonment of not lessthan six (6) months nor more.than one (l) year or both. [Section 6(c) ofRA 3765]. New Samprquitr Builderu Constructlon. Inc.vs. Philipoine Nrtional Bank(435 SCRA s6s)

No penalty charges or increases thereof appear either in the DisclosureStatements or in any of the clauses in the credit agrecmcnts. While a standardpenalty charge of 6 percent per annum has been imposed on the amounts statedin all threc Promissory Notes still rcmaining unpaid or unrencwcd whcn theyfell due, there is no stipulation therein that would justiff any increase in thatcharge. The effect, therefore, when the bonower is not clearly informed of thcDisclosure Statements -- prior to the consummation of the availment ordrawdown -- is that the lender will have no right to collect upon such charge orincreases thereof, even if stipulated in the Notes. The time is now ripe to giveteeth to the often ignored forty-one-year old "Truth in Lending Act" and thustransform it fiom a sniveling paper tiger to a growling financial watchdog of. hryless borrowers.IV. DEPOSIT

A. D,efinitionA deposit is constituted from the moment a person receives a thing bclonging to another,with t[e obligation of safely kee ping it and of retuming the same.

B.l.2.

Durban Aorrtments Coroorrtion vs. Pioneer' Insurance lnd Surctv Corooration(639 SCRA 441)The contract of deposit was perfected when the hotel guest handed ovcrto the hotel's parking attendant the keys to his vehicle, which the lattcr receivedwith the obligation of safely keeping and retuming it.

. . The insured Jeffrey S. See deposited his vehicle for safekeeping withpetitioner, through the latter's emfoyee, Justimbaste . In turn, Justimbasteissued a claim stub to See. Thus, the contract of deposit was perfocted fromSee's'delivery, when he handed over to Justimbastc the keys to his vehicle,which Justimbsste received with the obligation of safely keeping and returningit. [Jltimately, petitioner is liable for the loss ofSee's vehicle.Characteristics tReal contract because it is perfected by the delivery ofthe subject matter.If gratuitous, it is unilateral because only the depositary has an obligation. If onerous, itis bilateral.


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-- _. q -3. Principal purposc of thc contract ofdcJxrsit is thc salckccping ol'thc thirrg dclrrcrcr.l4. Contract ofdeposit is generally graluitous.

Exception. a) contrarystipulationb) depository is in thc businr:ss ol'storing goodsc) propcrty savcd liom dcstruclion during calarnilr \\tth()ut ()r\ncr'sknowlcdgc: just compensation should bc givcn thc dcpositorlC. Distinctions between Deposit and Mutuum

Deoosit lllutuuml. Principal Safekeeping or mere Consumption of thccustody ' subject matlcr2. Retum Depositor can demand l.ender must wait tbr. retum at rvill the exprration of thestipulated period3. Ob.yect Movable (extraludicial) Money or ungiblcand immovatrle propcrly thing(judicial)D. Distinctions between Deposit and CommodatumDcoosit ('ommodnluml. Principal Safekeeping 'l'ransfer of'uso

Purpose2. Nature May be gratuitous Always gratuitousE. Kinds of Depositl. Judicial2. Extrajudiciala. Voluntaryb. Necessary3. Distinctions between Extrajudicial and Judicial Depositsl. An extrajudicial deposit is constituted by the will of the contracting parties while ajudicial deposit rs constituted by virlue ofa court order.

2. ln the first, the object must be movable propeny, whcreas in thc second, thc otrjectmay be either movable or immovable proprty.

3. The purpose of an extrajudicial deposit is the safekeeping ol-the thing depositedwhereas the main purpose of a judicial deposit is lo sccure or protect the owner'sright.4. The first is, as a general rule, gratuitous, whereas the second is always onerous.5. In an extrajudicial deposit, the depositary is obliged to retum the thing deposited upondemand made by the depositor whereas in a judicial deposit, the thing shall be

delivered only upon order ofthe court.F. Voluntary Depositl. Defined 0s one rvhcrern the dclilerv is rnadc bv thc rvill ol tht'dcposiror.


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Although generally the owner, the depositor need not be the owner ofthe thing deposited.3. May be oral or in writingG. Obligations of the Depositaryl. , Depositary is obliged to kecp the thing safely and return it when required even though aspecified term may have been stipulated in the contnct.

Chan vg. Mrceda. Jr.(402 SCRA 3s2)ln an action against the depositary, the burden is on the plaintiff to provethe bailment or deposit and the performance ofconditions prcccdent to the rightof action. A depositary is obliged to return the.thing to the depositor, or to hisheirs or successors, or to the person who may have been designated in thecontract.In the present casc, the record is bereft ofany contract of deposit, oral orwritten, between petitioners and respondent. If at all, it was only between

petitioners and Moreman. And granting arguendo rhat there was indeed acontract of deposit between petitioners and Moreman, it is still incumbent uponrespondent to prove its existence and that it was executed in his favor.However, respondent miserably failed to do so. The only pieces of evidencereSpondent presented to prove the contract ofdeposit were the delivery rcccipts.Sipnificantly, they are unsigned and not duly received or authcnticatcd by either. Moreman, petitiorErs or rcspondent or ury of their &uthorizcd reprcsontativos.Hence, those delivery receipts have no probative value at all.2. DeJnsitary is liable if the loss occurs through his fault or ncgligencc. Loss of thc thingwhle in -the depositary's possession raises a presumption of fault. Required degrcc of care iigreater if the deposit is for compensation than when it is gratuitous.. CA Aerc'Indmtrial Deyelooment Corporrtionvs. Courl of Anoerlc(2le scRA 426)

'Ihe contract for the rent ofa safety deposit box cannot be classified asan ordinary contract ol'leasc undcr Arlicle 1643 of the Civil Code becausc thcfrrll and absolute possession and control of the safety deposit box is not given tothe renter. Neither is it a contract ofdeposii that is to be strictly govemed by theprovisions of the Civil Code on deposit. The contract for the rent ofa safetydeposit box is a special kind of deposit. ._ With respect to property deposited in a safe-deposit box by a customcrof a safe deposit compony, the Frties, sinc the relation is 8 conhactual onc,may by special contract define &eir respoctive duties or provide for incrcasingor limiting the liability of the deposit company, provided such contrac{ is not inviolation of law or public policy. Any stipulation exempting thc dcposinry fromany liability arising from the loss of the thing deposited on accour( of frau{' negligence or delay would be void for being contrary to law and public policy.

.E

.. . T!. gompsny, in renting safedeposit boxee, cannot exempt itrclf fromliability tbr loss of the contents by its own fraud or ncgligcnco or that of itsagcnts or servants, and if a provision of the contract may be constued as anattempt to do so, it will be held ineffective for the purposc. Although it has beenheld that the lessor of a safedeposit box


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contents thereofthrough its orvn negligcncc. the vic\\ has bccn talcn that sLrch alessor may limit its liabilitl, lo somc cxtcnt by,agrccnrcnt or slipulatrorrSia vs. (lourt of Aoneals(222 S(:RA 24)

A contract for the use ofa safety deposit box is a special kind ofdcposirand the relationship between the parties lhereto, with respect to the contents olthe box, is that of a bailor and bailee, rhe bailmcnr being lor hirc and mulualbenefit.Conditions in a Lease Agrcement coveging a safcty dcposit bo.r rvhichexempt lhc bank from any liahility lirr darnagr:. loss or dcstruction ol' rhucontents thereof arising lrom its own or its agcnr's liaud. ncgligcncc or ctcla!arc considcrcd null and void, lirr hcing contrary lo larv. and puhlic prlrcyIn the instant casc, Sccurity llank and'l rusl Conrpany (StilC) sasguilty of negligence. SIJ'I'C's ncgli.gcncc aggravatctl tho rnjun,or damagc ro lhcprtltioncr which rcsultcrJ litxn lhc krss or dcstruclron ol'lhc starnp col[:elrorrSB'I'C rvas aware of' thc floods ol' l9tt5 and l9tl6; it also knov lhal lhcllmdwaters inundated thc room wherc Sal'e l)cposit llox No. 5.1 was locatcd. Invierv thereof, it Should have lost no time in notifying the pctitioner in order lhatthe box could have been opened to retrieve ths slamps, thus saving thc sanrefrom lurther deterioration and loss.

1987 Bar Eram OuestionAna rented a safety deposit box at the Alto Bank, paid the renral tec anti rvas given lhckey. Ana put her jewdlry and gold coins in the box. Days after, three armed men gained entryinto lhe Alto Bank, opening its vault and sevcral safctv:deposit boxes, rncludrng Ana's andcmptied them of their contents.Could Ana hold the Alto Bank liable for the loss ol'thc conrcnrs ol'her deposit box?Explain.

Answer:Alto Bank is nol liable lbr rhe loss of thc contcnts ol'Ana's


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4.3 the thing is lost through thc ncgligcncc ol'his crnpkryecs whcthcr the lattcr arcmanifestly careless or not.Note: Depositary is not resg)nsiblc for loss ofthe thrng rvithoul ncgligcncr"- of'thc thrrd perstinwith rvhom he was allorvcd to deposit the thing if such third person is not maniltsrl\

careless or unfit.5. Depositary is obliged to first notiry the deposrtor and s'ait lirr lhc lattcr's dccisron it'hcwill change the way or manner of the deposit

Exception: delay will cause danger6. If the thing deposited should cam interest, the deposrtary is under obligation ( I ) to collcctthe interest as il becomes due and (2) to take such stepshs rnay be nccessary to prcscr\e its valucand the rights corresponding to it. The deglsitary is bound to collect not only thc intcrcst butalso the capital itself when due.?. Depositary has ihe obligation not to comminglc things dcpositcd il'so strpulatctl. crcn il'the1, arc of the same kind and quality (Articlc 1976).8. Deposiury is under obligation not to make use ol'lhc thing deposited (becausc tlcposrt isfor safekeeping ol the subject matter and not tbr its use); otherwise hc shall bc liablc tbrdamages.

Exceptions: a) express permission ofthe depositorb) preservation of the thing deposited rcquircs itsuse (Article 1977)

Note:l. If the thing deposited is non-consumable and the depositary has permission to use thething, the contract becomes one of commodatum.

Ifthe thing deposited is moncy or olher consumablc thing. the conlract is convcrtcd into asimple loan or mutuum..t Exccption: Whcrc satckccping is still thc prirrcrpal purlxrsc ol'thc contract, thc sarncshall be considered an irregular degxlsit.

Depositary is liable for loss through a fortuitous cvent even without his lault:a) If it is so stipulated;b) If he uses the thing without the depositor's permissron;c) lf he delays its return:d) lf he allows others to use it, even though hc himsclf muy havc bccn aulhorizcd to' use the same (Article 1979).' X left his BMW car with his best friend Y lor salbkeeping because he had to imrnedratch

loave for the United States for a medical check-up with instructions that Y may use lhc car rnose of urgent need. A week after during one stormy night, Y and his brother Z had to bring theirriling father (A) lo St. Luke's Hospitai. Y drove the car with Z and A on board. On the *a1'. Ysrddenly expcricnccd an atlack of vertigo which constraincd him to rcqucsl Z to rcplace htrn atthe steering wheel. Because of strong winds, a hig tree fell on top of thc fiont porlron ol'thc carlotally rwecking its engine heyond repair. ls Y liable lo X fbr damagcs arising liunt thc car'sdcstruchon'

3.


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a. Yes, because an obligation rvhich consist rn thc delivcry ol'a dctenninatc thrng shallbe extinguished if it shall be lost or destrolcd without the lault of rhe debtor andbefore he has incuned in delay.'!' b. Yes, becausc Y allorved another pcrson to uss it cvcn though thc depositar_,-, nrarhave been authorized to use the samc.c. No, because bailee (Y) lent the car to Z who is a mcmtre'r of thc ftrrmcr's houschold.d. No, because the loss of the object ofdeposit was causcd by lbrtuitous evcntLegal Basis: Depositary is liable for loss through fo(uitous event cven rvithout his tirultif the depositary allorvs others to use the thing degrsited even though hehimself may have been authorized lo use the same (Articlc 1979, Civil

Code)4. Depositary has the obligation to:(a) retum the thing deSrcsitcd when delivered closcd and scalcd, in thc samc conditron.(b) pay for damagcs should thc seal or lock bc broken through his lault uhich ts

presumed unlcss proven othcrwisci and(c) keep the secrcl of thc dcgnsit when lhc scal or lock rs hrokcn. rvith or uithout hisfautt

Note: Depositary is authorized to open the thing depositcd which is closed andthere is:

sealcd rr hen

(a) presumed authoril)' (ke1's having been delivered to depositarv;, or(b) in the case ofnccessity.5. Depositary has.the obligation to retum not oniy the thing but also its product, accessionsand accessories which are a consequence of orvnership.

H. Penons to whom Return of ThingDeposited Muct Be Madel. The depositary is obliged lo rctum the thing deposrted, rvhcn requrrcd, lo lhe dcJxrsrtor, tohis heirs and successors, or to the person rvho may have been designated in the contract. (Articlcte72)2. Ifthc depositor was rncapacitated at the tinre of rnaking thc dcFnsit, thc propcrty must bereturned to his guardian or adrninistrator ()r thc pcrson rvho rnrdc thc dcgrsit or kr lhc dcposilrtrhimself should he acquire capacrty (Articlc 1970).3. Even if the depositor had capacity at thc time of rnaking thc rlcposit but he subscqucntlyloses his capacity during the deposit, the thing must be returned to his legal representative(Article 1986).L Place of Return ofThing Depositedl. at the place agreed upon by the parties, and2. io the absence of stipulation, it the place where lhe thing deposrted might be cvcn rl' itshould not be the same place rvhere the original deposit was rnadc providcd the transl'cr rrasrccomplished without malice on the part of the depositary.Note: Dcpositor shoulders the expenses for lransporlatittn


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Time of Return of Thing Dcpositcd

Exceptions:

Right of Depositary to Rcturn'fhing l)cposittrtl. ifdeposit is gratuitous, and2. justifiable reasons exist for its return

LJpon demand or al \\'ill, rvhethcr or not a period has bcen strpulated.thing isjudicially attached while in the depositary's possessiondcpositary rvas notitlcd of thc opposition ol'a third person to thc returnor thc rcmoval ofthc thing dcposrtcd (Articlc 1988)

a)b)

K

Note: otherwise; depositary may avail of consignation there{bre there is no righl to returnbcforc cxpiration ol' thc tcrm dcsignatcd il'thc dcposit is lirr valuahlc corrsidcration(Article 1989).L.l

Alteration by Depositary's IleirIf in good faith, heir may either rr:turn the price hc rcr:cived or assirn his right ol' action

sgainst the buyer in case thc price has not been paid.2. If in bad faith, heir is liable for damagcs and may be sued lor estafaM. Relation between Bank and Depositor

Deposits of money in banks, whether fixed, savings and current. are govemed by theprovisions on mutuum and the relation between a depositor and a hank is thal ofa creditor and adebtor.(lonsolidatcd Bank and 'frust (lornoration

vs. Courl of Anpcals(4r0 scRA s62)The contract between the bank and its depsitors is governed by thcprovisions o[ the Civil Code on simple loan. The law imposes on banks highstandards in view of the fiduciary nature of banking which requires banks toassume a degree ofdiligence higher than that ofa good father ofa family. Thisfiduciary relationship means thar the bank's obligarion to obscrve "highstandards of integrity and pcrlilrntancc" is tlccrncd rvrittcn into cvcry dcJxrsrtagreement belween a bank and its depositor.

MCO Srmole ProblemX Corporation bonowcd money from Y llank and was requircd lo surrcnder to Y []ankthc original of its certificatc of time deposit (C'lD) wilh said bank by way of securiry XCorporation repeatedly defaulted on its loan thereby comp:lling Y tlank lo encash subject C lt)upon its maturity. The bank's action is.a. unlawful because the bank is only a depositary ol'the C'l'Db. unlawful because it amounts to pactum comnrissorium* c. la*ful under the principle ofcompensationd. la*ful because it amounts to dacion en pagoLegal_Bam. Article 1980. Civil Code. cf also tlPl vs CA (231 SCRA 301)


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Reasons: l. Thcre is no pactutn conrrnissoriurn rn thrs casc. l)cposits ol rn()[cl rrr banls arrdsimilar inslitutions are govemed by the prol rsions on sinrplc loans ( n n I 9110, L'rr rlCode). The relationship between thc depositor and a bank is that of'creditor anddebtor. This is cssentially a rnattcr of' compensation as all thc elcmcnts of'compensation arc present in this casc (BI'l vs. CA,232 SCRA 302).2. Where the security for the dcbt is also moncy deposited in a hank, it is not illcgalfor the creditor to encash the time deposit certificates to pay the dcbtor's ovcrducobligation. (Chu vs CA, et al , (i R 785 19. September 26, 1989)

(96 S('RA 96)A bank's failure to honor a deposit is lailure to pay rts obligalion as adebtor and not a breach of trust arising from a depositaryls lailure to return the

subject maner of the deposit.

Guineons vs. (litY l'iscuLqf f,funils(r28SCRAs77),While the bank has the obligation to retum thc amount deposrted, it has.however, no obligation to return or deliver the same money that was depositcd.A bank's failure to relum money on deposit will not conslrtute cslalathrough misappropriation punishable under Article 315 (paragraph I [b]) oftheRevised Penal.Code.

It has bcen held that suspension of a bank rvhich had fallen into a"dislressed financial srluation" by ordcr ol the Ccntral llank cannol cxcusc ilfrom its obligations to depositors rvho had nothing whalsocvcr to do rvith thcCentral Bank actualion or the cvcnts lcading to thc bank's dislrcssed statc.

2

lntesrrted Reeltv Coro. vs. Philiooine National Bank(, ," aar*. .rt,andFidelitv Savinss vs. ('enzon(181 SCRA l4l)

The obligation ofa bank to pay intcrest on a deposit ceases the momentthe operations of the bank is completely suspended by the Central Bank. Thedeposit is not entitled to interest during the period the bank is not allowed tooperate.Obligations of DepositorHe is obliged to pay expenses for the preservation of the thing deposited, if dcposit isgratuitous.He is obliged to pay lbr losses incurred due to the character of'thc thing dcprsited

N.l.


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Exceptions: a) unlcss depositor tvas not arvarc thcrcot'b) depositor was not cxpcctcd lu know lhc dangcrous charactcr ol thcthingc). unless he notified the depositan ofthe samc. ord) dcpositary was awarc ol'it rvithour dcJxrsikrr's advtcc (Artrclc l99l)Nole: Dcposiiary has tho nght to rctarn thc thing dcpositcd in plcdgc until lull payment ol'\rharmay be duc him by rcason of thc deposit (Articlc 199.{).O. Necessary Depositl. Necessary deposit in compliance with a legal obligalron1.1 The judicial deposit ola thing, the possession of uhich is being disputed in alitigation by two.or more persons (Article 538);

1.2 The deposit rvith a bank or public institution oipublic bonds or instrumcnts of' credit payable to ordcr or bearer given in usuliuct when the usuliuctuary docs not grveproper security for thoir conscrvation (Articlc 5t161;1.3 The deposit ol'a thing pledged when the crcditor uses lhe samc rvithoul theauthority of the owner or misuses it in any other way (Article 2104)'1.4 Those required in suits as provided in the Rules ofcourt; and1.5 Those constitutcd to guarantce contracts with the governmcnt. In this last casc,the deposit arises f,rom an obligation of public or administrative character.

2. Necessary deposit made on the occasion ofa calamiry.3. Deposit by travelers in hotels and inns

3. I They have tiben previously informed about the effects brought by thc gucsts. an


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i

a. done without the use of arms or irrcsistible force provided that notice has beengrven and proper precautions have been taken* b. done without the use of ms and inesistible forcc regardless of the amount ofcare exercised by the hotelkeeperc. done with the use of arms and irresistible force unless the hotelkceper is guilty offault or negligence in failing to provide against the loss from said caused. done with the use of arms and inesistible force regardless of the amount of careexercised

Le,ral tlasis: Article 2001, Civil Code3. Stipulations on exemption or diminution of liaOility is void (Article 2003).4. Hotelkeeper has a right to retain the things of guests as security for unpaid lodgingexpenses and supplies.P. Judicial Deposit or Sequ$trttionCausePurpose

Subject Matter ,

RemunerntionBc4eliciory

Judicial. by will of court

to secure the right ofaparty to recover incase of a favorablejudgmentmovable andimmovable propertyonerouspcrson with favorablcj udgment

Extraiudicialbywilt of the partiescustody and safekeepingofthe thing

only movable property

gencrally gratuitousdcpositor

v.A. Definition

Guaranty is a contract whereby I person binds himself to the creditor to fulfill theobligation ofthe principal debt,rr in case the latter should fail to do so.B. CharacteristicsL accessory

Prudent, al Guarantee and Assuratrce Inc.ys, ANcor LISILIE3(630 SCRA 368)'l"he Performance donC issued by the petitioner was meant to guarantee

the supply of labor, materiah tools, equipment, and necessar5r supervision tocomplete the construction proj( ct. A guarantee or a surety contract under Article

35


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2.3.4.

2047 of the civil Codc orm rffif ij "n "ocrto"y coltnct bcctusc it isdependcnt for its existcnce upon the principal obligation gruranteed by it. Infact, the primary and only reason behind the acquisition of the pcrformancebond by Kraft Realty and Development Corporation (KRDC) was to guaranteeto Ansoor Land, Inc. (ALD that the construction project would proceed inaccordance with the contract terms and conditions' In effeot, the performancebond becomes liable for the complaion of the construction projcct in the eventKRDC fails in its contractual undertaking.Because of the performance bond, the construction contract between

ALI and KRDC is guarantced to be pcrformed even if KRDC fails in itsobligation. In practice, a performance bond is usually a condition or a necessaryco,nlron.nt ofconstruction contracts. In the case at bar, the performance bondwas so connected \.Yith the construction contradt that the former was agreed bythe parties to be a condition for the latter to push through and at the same time'the former is reliant on the latter for its existenc as an accessory contract.subsidiary and conditionalun ilateralreriuires thnt thc uu:rranlor must be a person distinct from the debtorDistincti0ns between Guaranty and Suretyship.

Guarantyl. Ouarantor is sccondarily liable.

Guarantor binds himself to payonly when the principal cannot pay.

3. Guarantor is an insurer of thedebtor's insolvency.

Suretvshiol. Surety is primarily liable and istherefore not entitled to theexhaustion of the properties of theprincipal debtor.2. Surety assumcs liability as a regularpsrty to the underraking andundertakes to pay if the principaldoes not pay.3. Surety is an insurer ofthe debt.

Prudentirl Guarantee and Arsunnce. Inc.vs. E{uinox Land Corooration(533 SCRA 2s7)

Article 2047 of the Civil Code provides that suretyship arises upon thesolidary binding of a person deemed the suety with the principol debtor for thepurpose of fulfilling an obligation. lt Castellvi de Higgins and Higgins tSeliner, 41 Phil. 142 (1920), we held that while a surety and a guarantor arealike in that each promises to answer for the debt or default of another, the'surety assumes liability as a regular party to the undertaking and hence itsobligation is primary.

Palmares vs. Court of Anpeals(288 SCRA 422) .A surety is an insurer of the debt, whereas a guamntor is an insurer ofthe solvency of the debtor.' A suretyship is an undertaking that the debt shell bepaid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a

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c.lFir3t

surety promises to pay the principal's debt if the principal will not pay, while aguarantor

civ - updated pre-bar notes - credit

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