G.R. No.

L-7593 March 27, 1913

THE UNITED STATES v. JOSE M. IGPUARA
FACTS
The defendant therein is charged with the crime of estafa, for having swindled Juana
Montilla and Eugenio Veraguth out of P2,498 Philippine currency, which he had take on
deposit from the former to be at the latter's disposal.
The Court of First Instance of Iloilo sentenced the defendant to two years of presidio
correccional, to pay Juana Montilla P2,498 Philippine currency, and in case of
insolvency to subsidiary imprisonment at P2.50 per day, not to exceed one-third of the
principal penalty, and the costs.
That the defendant received P2,498 is a fact proven. The defendant drew up a
document declaring that they remained in his possession, which he could not have said
had he not received them. They remained in his possession, surely in no other sense
than to take care of them, for they remained has no other purpose. They remained in
the defendant's possession at the disposal of Veraguth; but on August 23 of the same
year Veraguth demanded for him through a notarial instrument restitution of them, and
to date he has not restored them.
ISSUE
I.
Whether or not the instrument drawn up in the form of a deposit certificate could be
indorsed or negotiated like any other commercial instrument.
II.
Whether or not the sum of P2,498 remained in defendant's possession as a loan.
RULING
I
It is erroneous to assert that the certificate of deposit in question is negotiable like any
other commercial instrument: First, because every commercial instrument is not
negotiable; and second, because only instruments payable to order are negotiable.
Hence, this instrument not being to order but to bearer, it is not negotiable.
II
It is also erroneous to assert that sum of money set forth in said certificate is, according
to it, in the defendant's possession as a loan. In a loan the lender transmits to the
borrower the use of the thing lent, while in a deposit the use of the thing is not
transmitted, but merely possession for its custody or safe-keeping.
In order that the depositary may use or dispose oft he things deposited, the depositor's
consent is required, and then:
The rights and obligations of the depositary and of the depositor shall cease, and the
rules and provisions applicable to commercial loans, commission, or contract which took
the place of the deposit shall be observed. (Art. 309, Code of Commerce.)
The defendant has shown no authorization whatsoever or the consent of the depositary
for using or disposing of the P2,498, which the certificate acknowledges, or any contract
entered into with the depositor to convert the deposit into a loan, commission, or other
contract.
--x--
G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL

AND TRUST CO.) vs. HON. COURT OF APPEALS, EASTERN PLYWOOD CORP.
and BENIGNO D. LIM
FACTS
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim),
an officer and stockholder of Eastern, held at least one jointv bank account with the
Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank
of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account with
Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds
withdrawn from the account of Eastern and/or Lim. Various amounts were later
deposited or withdrawn from the joint account of Velasco and Lim. The money therein
was placed in the money market.
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as
"Additional Working Capital," evidenced by the "Disclosure Statement on Loan/Credit
Transaction" (Disclosure Statement) signed by CBTC through its branch manager,
Ceferino Jimenez, and Eastern, through Lim, as its President and General Manager.
The loan was payable on demand with interest at 14% per annum.
On 2 December 1987, BPI filed with the RTC of Manila a complaint against Lim and
Eastern demanding payment of the promissory note for P73,000.00.
the trial court rendered its decision on 15 November 1990 dismissing the complaint
because BPI failed to make out its case. Furthermore, it ruled that "the promissory note
in question is subject to the 'hold-out' agreement," and that based on this agreement, "it
was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the
promissory note to set off the loan even though the same has no fixed maturity." As to
the defendants' counterclaim, the trial court, recognizing the fact that the entire amount
in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate
court in Sp. Proc. No. 8959, denied it because the "said claim cannot be awarded
without disturbing the resolution" of the intestate court.
ISSUE
Whether or not BPI is still liable to the private respondents on the account subject of the
Holdout Agreement after its withdrawal by the heirs of Velasco.
RULING
The relationship then between a depositor and a bank is one of creditor and debtor. The
deposit under the questioned account was an ordinary bank deposit; hence, it was
payable on demand of the depositor.
The account was proved and established to belong to Eastern even if it was deposited
in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right
to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay
Eastern simply because it already allowed the heirs of Velasco to withdraw the whole
balance of the account. The petitioner should not have allowed such withdrawal
because it had admitted in the Holdout Agreement the questioned ownership of the
money deposited in the account.
--x--
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS v. THE INTERMEDIATE APPELLATE COURT
and ZSHORNACK
FACTS
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First
Instance of Rizal — Caloocan City a complaint against COMTRUST alleging four
causes of action.
the complaint filed with the trial court alleged that on December 8, 1975, Zshornack
entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as
greenbacks) for safekeeping, and that the agreement was embodied in a document, a
copy of which was attached to and made part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam:

We acknowledged (sic) having received from you today the sum of US DOLLARS:
THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

Received by:
(Sgd.) VIRGILIO V. GARCIA

It was also alleged in the complaint that despite demands, the bank refused to return
the money.
ISSUE
Whether or not the nature of the contract between Zshornack and COMTRUST is that
of a deposit.
RULING
The document which embodies the contract states that the US$3,000.00 was received
by the bank for safekeeping. The subsequent acts of the parties also show that the
intent of the parties was really for the bank to safely keep the dollars and to return it to
Zshornack at a later time, Thus, Zshornack demanded the return of the money on May
10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code,
which reads:
Art. 1962. A deposit is constituted from the moment a person receives a
thing belonging to another, with the obligation of safely keeping it and of
returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other
contract.
The document and the subsequent acts of the parties show that they intended the bank
to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not intended to sell the US
dollars to the Central Bank within one business day from receipt. Otherwise, the
contract of depositum would never have been entered into at all.
--x--
G.R. No. 202 September 21, 1901
THE UNITED STATES v. CARLOS RASTROLLO
FACTS
In civil proceedings instituted to obtain a preventive attachment to secure a debt
contracted by Carlos Rastrollo in favor of D. Emeterio Ruiz, 1, 121 feet of hose, among
other property belonging to said Rastrollo, was attached at the instance of Attorney
Florencio Gonzalez on behalf of Don Gerardo Urbina. The attached property remained
in the possession of the debtor, Rastrollo, who, with the consent of the attorney for the
plaintiff, sold the same to the Manila Fire Department. Rastrollo failed to deliver the
proceeds of the sale, which took place late in March of this year, to the attorney for the
plaintiff, and only deposited the same in the court on the 4th day of June of this year,
the day following the filing of the complaint charging him with the crime of
embezzlement (estafa).
ISSUE
Whether or not Ratrollo is liable for estafa?
RULING
No.
The act could not be regarded as constituting estafa under paragraph 5 of article 535 of
the Code, because the property alleged to have been misapplied was not the subject of
a mere private bailment but of a judicial deposit. This gives the depositary a character
equivalent to that of a public official, and a breach of his obligation is similar to the
violation of the obligations imposed by public office.
However, as the accused, Rastrollo, in selling the said hose, acted with the knowledge
and consent of the attorney for his creditor, since it is proved that the said attorney
agreed with the depositary that the proceeds of the sale should be delivered to him, and
inasmuch as there is no proof, on the other hand, that the depositary, Rastrollo,
appropriated or applied the proceeds of the sale of the hose to his own use or that of
others, but has deposited the same in court, although somewhat tardily, it is evident that
the defendant has contracted no criminal liability. His act does not include all of the
elements which constitute the crime of malversation, or of any other crime, and the
irregularity noted in his conduct is chargeable to the attorney for the creditor who might
have been prejudiced thereby.
--x--
G.R. No. L-23033 January 5,
1967
LUA KIAN v. MANILA RAILROAD COMPANY and MANILA PORT SERVICE
FACTS
The present suit was filed by Lua Kian against the Manila Railroad Co. and Manila Port
Service for the recovery of the invoice value of imported evaporated "Carnation" milk
alleged to have been undelivered. On December 31, 1959, plaintiff Lua Kian imported
2,000 cases of Carnation Milk from the Carnation Company of San Francisco,
California, and shipped on Board SS "GOLDEN BEAR" per Bill of Lading No. 17. Out of
the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of Lading No. 17, only
1,829 cases marked `LUA KIAN 1458' were discharged from the vessel SS `GOLDEN
BEAR' and received by defendant Manila Port Service per pertinent tally sheets issued
by the said carrying vessel, on January 24, 1960.
ISSUE
Whether or not defendants Manila Railroad Company and Manila Port Service should
not be made to answer for the undelivered cases of milk.
RULING
No.
The legal relationship between an arrastre operator and the consignee is akin to that of
a depositor and warehouseman. As custodian of the goods discharged from the vessel,
it was defendant arrastre operator's duty, like that of any ordinary depositary, to take
good care of the goods and to turn them over to the party entitled to their possession.
Under this particular set of circumstances, said defendant should have withheld delivery
because of the discrepancy between the bill of lading and the markings and conducted
its own investigation, not unlike that under Section 18 of the Warehouse Receipts Law,
or called upon the parties, to interplead, such as in a case under Section 17 of the same
law, in order to determine the rightful owner of the goods.
--x--

G.R. No. 90027 March

3, 1993
CA AGRO-INDUSTRIAL DEV. CORP. v. COURT OF APPEALS and SECURITY
BANK AND TRUST COMPANY
FACTS
On 3 July 1979, petitioner and the spouses Ramon and Paula Pugao entered into an
agreement whereby the former purchased from the latter two (2) parcels of land for a
consideration of P350,625.00. Among the terms and conditions of the agreement
embodied in a Memorandum of True and Actual Agreement of Sale of Land were that
the titles to the lots shall be transferred to the petitioner upon full payment of the
purchase price and that the owner's copies of the certificates of titles thereto shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon
the joint signatures of a representative of the petitioner and the Pugaos upon full
payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then
rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
Company, a domestic banking corporation hereinafter referred to as the respondent
Bank.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2)
lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint,
translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire
property. Mrs. Ramos demanded the execution of a deed of sale which necessarily
entailed the production of the certificates of title. In view thereof, Aguirre, accompanied
by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the
safety deposit box and get the certificates of title. However, when opened in the
presence of the Bank's representative, the box yielded no such certificates. Because of
the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to
purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint
for damages against the respondent Bank with the Court of First Instance (now
Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No.
38382.
ISSUE
Whether or not the contractual relation between a commercial bank and another party in
a contract of rent of a safety deposit box with respect to its contents placed by the latter
one of bailor and bailee or one of lessor and lessee?
RULING
The contractual relation between a commercial bank and another party is that of a bailor
and bailee.
The Court held that the prevailing rule is that the relation between a bank renting out
safe-deposit boxes and its customer with respect to the contents of the box is that of a
bail or and bailee, the bailment being for hire and mutual benefit. Note that the primary
function is still found within the parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for safekeeping. The renting
out of the safety deposit boxes is not independent from, but related to or in conjunction
with, this principal function. A contract of deposit may be entered into orally or in writing
and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public policy.
--x--
G.R. No. 102970 May 13,
1993
LUZAN SIA v. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY
FACTS
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant
bank at its Binondo Branch located at the Fookien Times Building, Soler St., Binondo,
Manila wherein he placed his collection of stamps. The said safety deposit box leased
by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the
defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit box leased by the plaintiff
and caused, according to the plaintiff, damage to his stamps collection. The defendant
bank rejected the plaintiff's claim for compensation for his damaged stamps collection,
so, the plaintiff instituted an action for damages against the defendant bank.
ISSUE
Whether or not BTC had failed "to exercise the required diligence expected of a bank
maintaining such safety deposit box.
RULING
Yes.
SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it
should have lost no time in notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from further deterioration and loss.
In this respect, it failed to exercise the reasonable care and prudence expected of a
good father of a family, thereby becoming a party to the aggravation of the injury or loss.
Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp
collection which was, in the language of the trial court, the "product of 27 years of
patience and diligence" caused the petitioner pecuniary loss; hence, he must be
compensated therefor.
--x--
G.R. No. L-6 November 14,
1901
MANUEL GARCIA GAVIERES v. T.H. PARDO DE TAVERA
FACTS
The present appeal has been interposed in the declarative action of greater import filed
in the Court of First Instance of Tondo, commenced on January 10, 1900, by Don
Manuel Garcia Gavieres as plaintiff and successor in interest of the deceased Doña
Ignacia de Gorricho against Don Trinidad H. Pardo de Tavera as universal heir of the
deceased Don Felix Pardo de Tavera for the collection of a balance of 1,423 pesos 75
cents, remaining due on an original obligation of 3,000 pesos which, as the plaintiff
alleges, was the amount of a deposit delivered by Doña Ignacia Gorricho, deceased, to
Don Felix Pardo de Tavera, deceased, on the 31st day of October, 1859. The
agreement between the parties appears in the following writing:
Received of Señorita Ignacia de Gorricho the sum of 3,000 pesos, gold
(3,000 pesos), as a deposit payable on two months' notice in advance,
with interest at 6 per cent per annum with an hypothecation of the goods
now owned by me or which may be owned hereafter, as security of the
payment.

In witness whereof I sign in Binondo, January 31, 1859.

ISSUE
Whether or not the document is that of a deposit or contract of loan.
RULING
The document is a contract of loan.
The obligation of the depositary to pay interest at the rate of 6 per cent to the depositor
suffices to cause the obligation to be considered as a loan and makes it likewise evident
that it was the intention of the parties that the depositary should have the right to make
use of the amount deposited, since it was stimulated that the amount could be collected
after notice of two months in advance. Such being the case, the contract lost the
character of a deposit and acquired that of a loan.
--x--
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION v. HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT CORPORATION
FACTS
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC,
for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said
house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and Antonio Litonjua for ₱850,000. They
paid ₱350,000 in cash and assumed the ₱500,000 balance of Roa’s indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of ₱500,000 to be applied to Roa’s
debt and secured by the same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding principal balance payable within ten
years in equal monthly amortization of ₱9,996.58 and penalty interest at the rate of 21%
per annum per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They
alleged, among others, that they were not in arrears in their payment, but in fact made
an overpayment as of June 30, 1984. They maintained that they should not be made to
pay amortization before the actual release of the ₱500,000 loan in August and
September 1982. Further, out of the ₱500,000 loan, only the total amount of
₱464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance of ₱35,648.23 should be applied to the initial monthly
amortization for the loan.
ISSUE
I. Whether or not a contract of loan is a consensual contract in the light of the
rule laid down in Bonnevie v. Court of Appeals, 125 SCRA 122.
II. Whether or not BPI should be held liable for moral and exemplary damages
and attorney’s fees in the face of irregular payments made by ALS and
opposed to the rule laid down in Social Security System v. Court of Appeals,
120 SCRA 707.
RULING
I
A loan contract is not a consensual contract but a real contract. It is perfected only upon
the delivery of the object of the contract. Petitioner misapplied Bonnevie. The contract in
Bonnevie declared by this Court as a perfected consensual contract falls under the first
clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way
of simple loan.
A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which gives rise
to obligations only on the part of the borrower.
In the present case, the loan contract between BPI, on the one hand, and ALS and
Litonjua, on the other, was perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private
respondents’ obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.
II
BPIIC was negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount actually
released to private respondents and the date when it was released. Such negligence
resulted in damage to private respondents, for which an award of nominal damages
should be given in recognition of their rights which were violated by BPIIC. For this
purpose, the amount of ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because private respondents were
compelled to litigate, we sustain the award of ₱50,000 in favor of private respondents as
attorney’s fees.
--x--
G.R. No. 4015 August 24, 1908

ANGEL JAVELLANA v. JOSE LIM, ET AL.

FACTS
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October,
1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim and
Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of P2,686.58,
with interest thereon at the rate of 15 per cent per annum from the 20th of January,
1898, until full payment should be made, deducting from the amount of interest due the
sum of P1,102.16, and to pay the costs of the proceedings.
ISSUE
Whether or not the contract is of a deposit or a loan
RULING
The document of indebtedness inserted in the complaint states that the plaintiff left on
deposit with the defendants a given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document. For this reason it must be
understood that the debtors were lawfully authorized to make use of the amount
deposited, which they have done, as subsequent shown when asking for an extension
of the time for the return thereof, inasmuch as, acknowledging that they have subjected
the letter, their creditor, to losses and damages for not complying with what had been
stipulated, and being conscious that they had used, for their own profit and gain, the
money that they received apparently as a deposit, they engaged to pay interest to the
creditor from the date named until the time when the refund should be made. Such
conduct on the part of the debtors is unquestionable evidence that the transaction
entered into between the interested parties was not a deposit, but a real contract of
loan.
Article 1767 of the Civil Code provides that — The depository can not make use of the
thing deposited without the express permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that — When the depository has permission to make use of
the thing deposited, the contract loses the character of a deposit and becomes a loan or
bailment.
The permission shall not be presumed, and its existence must be proven.
--x--
G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES vs. JOSE GRIJALDO
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.
The assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets, including the loans in question, were subsequently
transferred to the Republic of the Philippines by the Government of the United States
under Transfer Agreement dated July 20, 1954.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, 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.
The aggregate amount due as principal of the five loans in question, computed under
the Ballantyne scale of values as of the time that the loans were incurred in 1943, was
P889.64; and the interest due thereon at the rate of 6% per annum compounded
quarterly, computed as of December 31, 1959 was P2,377.23.
ISSUE
Whether or not the appellant is liable to pay the amount of P2,377.23.
RULING
Yes
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.
--x--
G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON vs. PABLO DAVID
An
GUILLERMO BARON vs. PABLO DAVID
FACTS
The defendant Pablo David has been engaged in running a rice mill in the municipality
of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date stated a fire occurred
that destroyed the mill and its contents, and it was some time before the mill could be
rebuilt and put in operation again.
In the months of March, April, and May, 1920, Silvestra Baron placed a quantity of palay
in the defendant's mill. During approximately the same period Guillermo Baron placed
other of palay in the mill. No compensation has ever been received by Silvestra Baron
upon account of the palay delivered by Guillermo Baron, he has received from the
defendant advancements amounting to P2,800; but apart from this he has not been
compensated.
Both the plaintiffs claim that the palay which was delivered by them to the defendant
was sold to the defendant; while the defendant, on the other hand, claims that the palay
was deposited subject to future withdrawal by the depositors or subject to some future
sale which was never effected. He therefore supposes himself to be relieved from all
responsibility by virtue of the fire of January 17, 1921, already mentioned.
ISSUE
Whether or not the defendant is liable to the plaintiffs
RULING
It should be stated that the palay in question was place by the plaintiffs in the
defendant's mill with the understanding that the defendant was at liberty to convert it
into rice and dispose of it at his pleasure. The mill was actively running during the entire
season, and as palay was daily coming in from many customers and as rice was being
constantly shipped by the defendant to Manila, or other rice markets, it was impossible
to keep the plaintiffs' palay segregated.
Nevertheless if it was understood that the defendant might mill the palay and he has in
fact appropriated it to his own use, he is of course bound to account for its value. Under
article 1768 of the Civil Code, when the depository has permission to make use of the
thing deposited, the contract loses the character of mere deposit and becomes a loan or
a commodatum; and of course by appropriating the thing, the bailee becomes
responsible for its value.
--x--
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE
PHILIPPINES
FACTS
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue
the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June
17, 1955 RFC executed the corresponding deed of cancellation and delivered it to
Ramon F. Saura himself as president of Saura, Inc.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at
the request of Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to
release the proceeds of the loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual commitments it had entered into, in
connection with its jute mill project.
ISSUE
Whether or not the contract of loan was perfected
RULING
No.
The Court held that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery
of the object of the contract.
Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of
doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that
the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by
both parties was in the nature cf mutual desistance — what Manresa terms "mutuo
disenso" — which is a mode of extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.
Evidently Saura, Inc. realized that it could not meet the conditions required by RFC.
This was a deviation from the terms laid down in Resolution No. 145 and embodied in
the mortgage contract, implying as it did a diversion of part of the proceeds of the loan
to purposes other than those agreed upon.
--x--
G.R. No. 73271 May 29, 1987
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA vs. INSULAR BANK OF
ASIA AND AMERICA
FACTS
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short),
doing business under the name and style "Dax Kin International," engaged in the
manufacture of raw sea shells into finished products, applied for and were granted a
domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City in
the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate for their
account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the
purchase of puka and olive seashells. In consideration thereof, the VINTOLAS, jointly
and severally, agreed to pay the bank "at maturity, in Philippine currency, the
equivalent, of the aforementioned amount or such portion thereof as may be drawn or
paid, upon the faith of the said credit together with the usual charges."
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive
shells worth P40,000.00, the VINTOLAS executed a Trust Receipt agreement with
IBAA, Cebu City. Under that Agreement, the VINTOLAS agreed to hold the goods in
trust for IBAA as the "latter's property with liberty to sell the same for its account, " and
"in case of sale" to turn over the proceeds as soon as received to (IBAA) the due date
indicated in the document was October 19, 1975.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a
letter dated January 1, 1976. The VINTOLAS, who were unable to dispose of the shells,
responded by offering to return the goods. IBAA refused to accept the merchandise,
and due to the continued refusal of the VINTOLAS to make good their undertaking,
IBAA charged them with Estafa for having misappropriated, misapplied and converted
for their own personal use and benefit the aforesaid goods. During the trial of the
criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court.
ISSUE
Whether or not the VINTOLAS are liable against IBAA
RULING
Yes.
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a
"security interest" in the goods. "It secures an indebtedness and there can be no such
thing as security interest that secures no obligation." 4 As defined in our laws:
 (h) "Security Interest"means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee or
of some third persons to the entruster and includes title, whether or not
expressed to be absolute, whenever such title is in substance taken or
retained for security only.
IBAA did not become the real owner of the goods. It was merely the holder of a security
title for the advances it had made to the VINTOLAS The goods the VINTOLAS had
purchased through IBAA financing remain their own property and they hold it at their
own risk. The trust receipt arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor.
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably
claim that because they have surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are absolutely relieved of their
obligation to pay their loan because of their inability to dispose of the goods.
--x--
G.R. No. 159794 December 19, 2006
MACLARING M. LUCMAN, in his capacity as the Manager of the LAND BANK OF
THE PHILIPPINES, Marawi City
vs.
ALIMATAR MALAWI, ABDUL-KHAYER PANGCOGA, SALIMATAR SARIP, LOMALA
CADAR, ALIRIBA S. MACARAMBON and ABDUL USMAN
FACTS
Beginning with the second quarter of 1997, LBP was selected as the government
depository bank for the IRAs of the barangays. Being a new government depositary
bank for the IRA funds, the authorized public officials had to open new accounts in
behalf of their government units with the proper LBP branch from which they could
withdraw the IRAs.
Respondents attempted to open their respective barangays' IRA bank accounts but
were refused by petitioner because respondents needed to show their individual
certifications showing their right to continue serving as Barangay Chairmen and the
requisite Municipal Accountant's Advice giving respondents the authority to withdraw
IRA deposits.
Then on 4 August 1997, five (5) other persons presented themselves before petitioner
as the newly proclaimed Punong Barangays of the five barangays concerned, each of
them presenting a certification of his election as Punong Barangay issued by the
provincial director of the DILG-ARMM and another Certification issued by the Local
Government Operations Officer attesting, among others, to the revocation of the
certification previously issued to respondents. Without verifying the authenticity of the
certifications presented by these third persons, petitioner proceeded to release the IRA
funds for the 2nd and 3rd quarters of 1997 to them.
Respondents thus filed on 11 August 1997 a special civil action for Mandamus with
Application for Preliminary Mandatory Injunction docketed as Civil Case No. 11-106, to
compel petitioner to allow them to open and maintain deposit accounts covering the
IRAs of their respective barangays and to withdraw therefrom.
ISSUE
Whether or not there exist a creditor-debtor relationship between petitioner and
respondents
RULING
From the records of the case, it appears that the shares of the barangays in the IRA had
already been remitted by the Department of Budget and Management (DBM) to the LBP
Marawi Branch where they were kept in the accounts opened in the names of the
barangays.
By virtue of the deposits, there exists between the barangays as depositors and LBP a
creditor-debtor relationship. Fixed, savings, and current deposits of money in banks and
similar institutions are governed by the provisions concerning simple loan. In other
words, the barangays are the lenders while the bank is the borrower.
The relationship being contractual in nature, mandamus is therefore not an available
remedy since mandamus does not lie to enforce the performance of contractual
obligations.
--x--
G.R. No. 115324 February 19,
2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK)
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES
FACTS
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity).
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation. She assured
private respondent that he could withdraw his money from said account within a month’s
time.
Thereafter, relying on the assurances and representations of Sanchez and Doronilla,
private respondent issued a check in the amount of Two Hundred Thousand Pesos
(₱200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia
Vives, to accompany Doronilla and Sanchez in opening a savings account in the name
of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines.
Subsequently, private respondent learned that Sterela was no longer holding office in
the address previously given to him. Alarmed, he and his wife went to the Bank to verify
if their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the
assistant manager, who informed them that part of the money in Savings Account No.
10-1567 had been withdrawn by Doronilla, and that only ₱90,000.00 remained therein.
Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to
debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in
Current Account No. 10-0320. In opening said current account, Sterela, through
Doronilla, obtained a loan of ₱175,000.00 from the Bank.
ISSUE
Whether or not the transaction between Doronilla and Vives was one of simple loan not
commodatum
RULING
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are
some instances where a commodatum may have for its object a consumable thing.
Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a
mutuum.
the evidence shows that private respondent agreed to deposit his money in the savings
account of Sterela specifically for the purpose of making it appear "that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be
returned within thirty (30) days. “Private respondent merely "accommodated" Doronilla
by lending his money without consideration, as a favor to his good friend Sanchez.
--x--
G.R. No. L-60033 April 4, 1984

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS,

petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
FACTS
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of
the City Fiscal of Manila, which case was assigned to respondent Lota for preliminary
investigation
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and
the following directors of the Nation Savings and Loan Association, Inc., namely
Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac,
Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of
Central Bank Circular No. 364 and related Central Bank regulations on foreign
exchange transactions.
But, after the presentation of David's principal witness, petitioners filed the instant
petition because: (a) the production of the Promisory Notes, Banker's Acceptance,
Certificates of Time Deposits and Savings Account allegedly showed that the
transactions between David and NSLA were simple loans, i.e., civil obligations on the
part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and
(b) David's principal witness allegedly testified that the duplicate originals of the
aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's
claim that some of his investments were not record.
ISSUE
Whether or not the contract between private respondent Clement David and Nation
Savings Loan Association is a mutuum.
RULING
Yes.
The Court held that when private respondent David invested his money on nine. and
savings deposits with the aforesaid bank, the contract that was perfected was a contract
of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New
Civil Code provides that:
Article 1980. Fixed, savings, and current deposits of-money in banks and
similar institutions shall be governed by the provisions concerning simple
loan.
Hence, the relationship between the private respondent and the Nation Savings and
Loan Association is that of creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the contract and it
can make use of the amount deposited for its banking operations, such as to pay
interests on deposits and to pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the amount deposited
will not constitute estafa through misappropriation punishable under Article 315, par. l(b)
of the Revised Penal Code, but it will only give rise to civil liability over which the public
respondents have no- jurisdiction.
--x--
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.
CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in
his capacity as statutory receiver of Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO,
respondents.
FACTS
Island Savings Bank, upon favorable recommendation of its legal department, approved
the loan application for P80,000.00 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 approved loan application called for a lump
sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years,
with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property into a subdivision.
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island
Savings Bank was suffering liquidity problems. On June 14, 1968, the Monetary Board,
after finding thatIsland Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of Banks to take
charge of the assets of Island Savings Bank.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First
Instance of Agusan for injunction, specific performance or rescission and damages with
preliminary injunction, alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum
from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate
mortgage.
ISSUE
I. Whether or not the action of Sulpicio M. Tolentino for specific performance
will prosper
II. Whether or not Sulpicio M. Tolentino is liable to pay the P17,000 debt
covered by the promissory note
III. Whether or not if Sulpicio M. Tolentino’s liability to pay the P17,000 subsist,
can his real estate mortgage be forclosed to satisfy said amount
RULING
No.
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-
deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a
6-month period cannot be taken as a waiver of his right to collect the P63,000.00
balance. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an
exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their
loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with damages in either case. But
since Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, the Court cannot grant specific performance in favor of
Sulpicio M, Tolentino.
--x--
G.R. No. 146918 May 2, 2006
CITIBANK, N.A., Petitioner,
vs.
SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN,
JR. and LITO CABAMONGAN, Respondents.
FACTS
On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or"
foreign currency time deposit in Citibank, N.A., Makati branch, in the amount of
$55,216.69. Prior to maturity, or on November 10, 1993, a person claiming to be
Carmelita went to the Makati branch and pre-terminated the said foreign currency time
deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and
a Mabuhay Credit Card.4 She filled up the necessary forms for pre-termination of
deposits with the assistance of Account Officer Yeye San Pedro. While the transaction
was being processed, she was casually interviewed by San Pedro about her personal
circumstances and investment plans. Since the said person failed to surrender the
original Certificate of Deposit, she had to execute a notarized release and waiver
document in favor of Citibank, pursuant to Citibank's internal procedure, before the
money was released to her. The release and waiver document was not notarized on
that same day but the money was nonetheless given to the person withdrawing. The
transaction lasted for about 40 minutes.
ISSUE
I. Whether or not Citibank is liable for the loss sustained by Sps. Cabamongan
II. Whether or not the claim of the Cabamongan spouses does not constitute a
loan or forbearance of money and therefore, the interest rate of 6%, not 12%,
applies.
RULING
I
Yes.
The Court has repeatedly emphasized that, since the banking business is impressed
with public interest, of paramount importance thereto is the trust and confidence of the
public in general. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. By the nature of its
functions, a bank is "under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship."
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms
for pretermination of deposits are forgeries. Citibank, with its signature verification
procedure, failed to detect the forgery. Its negligence consisted in the omission of that
degree of diligence required of banks. The Court has held that a bank is "bound to know
the signatures of its customers; and if it pays a forged check, it must be considered as
making the payment out of its own funds, and cannot ordinarily charge the amount so
paid to the account of the depositor whose name was forged." Such principle equally
applies here.
II
No.
The time deposit subject matter of herein petition is a simple loan. The provisions of the
New Civil Code on simple loan govern the contract between a bank and its depositor.
Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of
money in banks and similar institutions shall be governed by the provisions concerning
simple loan." Thus, the relationship between a bank and its depositor is that of a debtor-
creditor, the depositor being the creditor as it lends the bank money, and the bank is the
debtor which agrees to pay the depositor on demand.
Thus, in a loan or forbearance of money, the interest due should be that stipulated in
writing, and in the absence thereof, the rate shall be 12% per annum counted from the
time of demand.
--x--
G.R. No. 107569 November 8, 1994
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO
FERNANDEZ, respondents.
FACTS
On April 7, 1982, (private respondents) as owners of a NACIDA-registered enterprise,
obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from the
Philippine National Bank (PNB) in the amount of Fifty Thousand (P50,000.00) Pesos, as
evidenced by a Credit Agreement.
The Credit Agreement provided inter alia, that —
(a) The BANK reserves the right to increase the interest rate within the limits allowed
by law at any time depending on whatever policy it may adopt in the future.
ISSUE
Whether or not the increase in interest rates are unauthorized.
RULING
Yes.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated. However, contrary to the
stubborn insistence of petitioner bank, the said law and circular did not authorize either
party to unilaterally raise the interest rate without the other's consent.
Similarly, contract changes must be made with the consent of the contracting parties.
The minds of all the parties must meet as to the proposed modification, especially when
it affects an important aspect of the agreement. In the case of loan contracts, it cannot
be gainsaid that the rate of interest is always a vital component, for it can make or break
a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is
bereft of any binding effect.
--x--
G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants,
vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
FACTS
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired
during his lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the
capital of the Province of Ilocos Norte. Andres Fontanilla, with the consent of his brother
Francisco, erected a warehouse on a part of the said lot, embracing 14 meters of its
frontage by 11 meters of its depth.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of
Ruperta Pascual were recognized likes without discussion, though it is not said how,
and consequently are entitled to the said building, or rather, as Ruperta Pascual herself
stated, to only six-sevenths of one-half of it.
On May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the herein
defendants, petitioned the Curt of First Instance of Ilocos Norte for authorization to sell
"the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its
lot."
But the court before determining the matter of the ownership of the lot occupied by the
warehouse, ordered the sale of this building. So, the warehouse, together with the lot on
which it stands, was sold to Cu Joco, the other defendant in this case, for the price
mentioned.
ISSUE
Whether or not the defendant has ownership over the warehouse.
RULING
He who has only the use of a thing cannot validly sell the thing itself. The effect of the
sale being a transfer of the ownership of the thing, it is evident that he who has only the
mere use of the thing cannot transfer its ownership. The sale of a thing effected by one
who is not its owner is null and void. The defendants never were the owners of the lot
sold. The sale of it by them is necessarily null and void. On cannot convey to another
what he has never had himself.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the
previous suit, that Andres Fontanilla, the defendants' predecessor in
interest, erected the warehouse on the lot, some thirty years ago, with the
explicit consent of his brother Francisco Fontanilla, the plaintiff's
predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the
defendants are the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres
Fontanilla nor his successors paid any consideration or price whatever for
the use of the lot occupied by the said building; whence it is, perhaps,
that both parties have denominated that use a commodatum.
The defendants do not hold lawful possession of the lot in question.
 --x--
G.R. No. 116285 October 19, 2001
ANTONIO TAN, petitioner,
vs.
COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES,
respondents.
FACTS
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each
in the principal amount of Two Million Pesos (P2,000,000.00), or in the total principal
amount of Four Million Pesos (P4,000,000.00) from respondent Cultural Center of the
Philippines (CCP, for brevity) evidenced by two (2) promissory notes with maturity dates
on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few
partial payments he had the loans restructured by respondent CCP, and petitioner
accordingly executed a promissory note (Exhibit "A") on August 31, 1979 in the amount
of Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and
Thirty-Two Centavos (P3,411,421.32) payable in five (5) installments. Petitioner Tan
failed to pay any installment on the said restructured loan of Three Million Four Hundred
Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32), the last installment falling due on December 31, 1980. In a letter,
petitioner requested and proposed to respondent CCP a mode of paying the
restructured loan, i.e., (a) twenty percent (20%) of the principal amount of the loan upon
the respondent giving its conformity to his proposal; and (b) the balance on the principal
obligation payable in thirty-six (36) equal monthly installments until fully paid. On
October 20, 1983, petitioner again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year allegedly due to a substantial
deduction in the volume of his business and on account of the peso devaluation. No
favorable response was made to said letters. Instead, respondent CCP, through
counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full payment,
within ten (10) days from receipt of said letter, of the petitioner’s restructured loan which
as of April 30, 1984 amounted to Six Million Eighty-Eight Thousand Seven Hundred
Thirty-Five Pesos and Three Centavos (P6,088,735.03).
ISSUE
Whether or not there are contractual and legal bases for the imposition of the penalty,
interest on the penalty and attorney’s fees.
RULING
Yes.
First, there is an express stipulation in the promissory note (Exhibit "A") permitting the
compounding of interest. The fifth paragraph of the said promissory note provides that:
"Any interest which may be due if not paid shall be added to the total amount when due
and shall become part thereof, the whole amount to bear interest at the maximum rate
allowed by law." Therefore, any penalty interest not paid, when due, shall earn the legal
interest of twelve percent (12%) per annum, in the absence of express stipulation on the
specific rate of interest, as in the case at bar.
Second, Article 2212 of the New Civil Code provides that "Interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent
upon this point." In the instant case, interest likewise began to run on the penalty
interest upon the filing of the complaint in court by respondent CCP on August 29, 1984.
Hence, the courts a quo did not err in ruling that the petitioner is bound to pay the
interest on the total amount of the principal, the monetary interest and the penalty
interest.
--x--
G.R. No. L-43682 March 31, 1938
In Re Liquidation of Mercantile Bank of China.
TAN TIONG TICK, claimant-appellant,
vs.
AMERICAN APOTHECARIES CO., ET AL., claimants-appellees.
FACTS
In the proceedings for the liquidation of the Mercantile Bank of China, the appellant
presented a written claim alleging: that when this bank ceased to operate on September
19, 1931, his current account in said bank showed a balance of P9,657.50 in his favor;
that on the same date his savings account in the said bank also showed a balance in
his favor of P20,000 plus interest then due amounting to P194.78; that on the other
hand, he owed the bank in the amount of P13,262.58, the amount of the trust receipts
which he signed because of his withdrawal from the bank of certain merchandise
consigned to him without paying the drafts drawn upon him by the remittors thereof; that
the credits thus described should be set off against each other according to law, and on
such set off being made it appeared that he was still the creditor of the bank in the sum
of P16,589.70. And he asked that the court order the Bank Commissioner to pay him
the aforesaid balance and that the same be declared as preferred credit. The claim was
referred to the commissioner appointed by the court, who at the same time acted as
referee, and this officer recommended that the balance claimed be paid without interest
and as an ordinary credit. The court approved the recommendation and entered
judgment in the accordance therewith. The claimant took an appeal.
ISSUE
Whether or not the current account and savings deposits are not preferred credits in the
cases
RULING
In our opinion, these deposits are essentially merchantile contracts and should,
therefore, be governed by the provisions of the Code of Commerce, pursuant to its
article 2 reading:
ART. 2 Commercial transactions, be they performed by merchants or not,
whether they are specified in this Code or not, shall be governed by the
provisions contained in the same; in the absence of such provisions, by
the commercial customs generally observed in each place; and in the
absence of such provisions, by the commercial customs generally
observed in each place; and in the absence of both, by those of the
common law.
Commercial transactions shall be considered those enumerated in this Code and any
others of a similar character.
--x--
G.R. No. 75223 March 14, 1990

PHILIPPINE NATIONAL BANK, petitioner

vs.
The HON. INTERMEDIATE APPELLATE COURT and SPOUSES FERMIN
MAGLASANG and ANTONIA SEDIGO, respondents.
FACTS
The petitioner, a government banking institution, extended financial assistance to the
private respondents in the form of loans, the total amount of which is P82,682.39 as
embodied in the promissory notes that the latter have executed on various dates from
February 5, 1976 to May 18, 1979, the payment of which to come from the proceeds of
sugar sales of the private respondents. The promissory notes bore 12% interest per
annum plus 1% interest as penalty charge in case of default in the payments.
On January 16, 1969, the private respondents mortgaged several real estate properties
in favor of the petitioner as security of their loans.
On December 1, 1979, the Monetary Board of the Central Bank, by virtue of Presidential
Decree No. 116, issued CB Circular No. 705 increasing the ceiling on the rate of interest
on both secured and unsecured loans up to no more than 21% per annum.
When the private respondents defaulted in the payments of their loans, the petitioner
demanded not only the settlement of their outstanding obligation but also the payment
of the new interest rate of 21% per annum beginning June 1, 1980 per the PNB board
resolution.
ISSUE
Whether or not the revised rate of interest interposed on the loans of the private
respondents is legal.
RULING
In Insular Bank of Asia and America v. Spouses Salazar, (159 SCRA 133 [1988]), the
Court ruled that the Escalation Clause is a valid provision in the loan agreement
provided that — (1) the increased rate imposed or charged does not exceed the ceiling
fixed by law or the Monetary Board; (2) the increase is made effective not earlier than
the effectivity of the law or regulation authorizing such an increase; and (3) the
remaining maturities of the loans are more than 730 days as of the effectivity of the law
or regulation authorizing such an increase.
Central Bank Circular No. 705, authorizing the increase from 12% to 21% was issued
on December 1, 1979. The promissory notes executed by the private respondents show
that they are all payable on demand but the records do not show when payment was
demanded. Even granting that it was demanded on the effectivity of law, it is obvious
that the period of 730 days has not yet elapsed at the date the mortgaged properties
were sold at the public auction on November 27, 1981 (Certificate of Sheriff's Sale,
Records of Exhibits, p. 84). Accordingly, as of December 1, 1979, the remaining
maturity days of the loans were less than 730 days. Hence, the increased rate imposed
or charged is not valid.
--x--
G.R. No. L-12174 April 26, 1962
MARIA B. CASTRO, petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent.
FACTS
Petitioner Maria B. Castro, who is authorized to manage her own property, is a duly
licensed merchant. Pursuant to the provisions of Section 4 (b) and (c) of Republic Act
No. 55, she filed with the Bureau of Internal Revenue on February 28, 1947, her war
profits tax returns which showed a net worth on February 26, 1945 in the amount of
P431,884.00 and a net worth on December 8, 1941 in the sum of P409,581.57.
Although there is indicated an increase in net worth in the amount of P22,302.43, she is
totally exempted from paying any war profits tax therefor as the deduction of six per
centum (6%) per annum of the net worth on December 8, 1941 therefrom would show
only a taxable increase in net worth in the amount of P5,574.61 which is not taxable
under the said law.
On November 22, 1947, however, Criminal Case No. 4976 was filed against her in the
Court of First Instance of Manila for violation of Section 4, in connection with Section 8,
of the War Profits Tax Law, for allegedly defrauding the Republic of the Philippines in
the total amount of P1,048,687.76.
In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316 with the
Court of First Instance of Manila against the respondent Collector of Internal Revenue
for the recovery of the properties advertised for saleon November 22 and 27, 1950
which for lack of bidders were forfeited to theGovernment. However, before the case
could be tried on the merits before said Court, the Court of Tax Appeals was created by
Republic Act No. 1125 and pursuant to Section 22 thereof, the record of the case was
remanded for final disposition to this Court. This last mentioned case is now pending
hearing before this Court.
ISSUE
Whether or not the War Profits Tax Law (R.A. No. 55) is unconstitutional and void
Whether or not the said law was improperly applied to the case of the appellant;
RULING
I
Petitioner's attack on the constitutionality of Republic Act No. 55, commonly known as
the War Profits Tax Law, on account of its retrospective operation (Errors XVIII), is now
foreclosed by our decision in Republic [Link] Vda. de Fernandez, G.R. No. L-9141,
September 25, 1956, wherein thisCourt upheld the validity of the statute; and no
reasons are alleged that would justify a departure from the ruling made in that case.
II
It is urged, however, that even if this finding were correct, still, under Republic Act No.
55, only "cash in banks" is expressly mentioned as taxable, and appellant infers that
cash on hand not so deposited was not intended to be subject to war profits tax. This
thesis appears unmeritorious: cash held by the taxpayer on February 26, 1945 clearly
falls under the description of "assets, including real and personal property" that section
2 of the Act expressly orders included in determining the taxable net worth. If "cash in
banks" is expressly mentioned by the Act, it is not because cash on hand was intended
to be excluded, but because "cash in banks" is not, strictly speaking, part of the assets
of the taxpayer, but assets of the banks where the cash is deposited. It is well
established that a so-called "bank deposit" is in reality a loan to the bank, the latter
acquiring title to the amount "deposited", subject to its withdrawal (or recall of the loan)
on the dates specified. Taxpayer's "assets", therefore, would not per se include cash
deposited in banks by the taxpayer; and its inclusion had to be expressly prescribed by
the statute in order to remove all doubt as to its taxability.
--x--
G.R. No. 93849 December 20, 1991

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and
LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant.
FACTS
Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust
Company in its Aurea Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be
referred to as the Bank. He opened his savings account on December 6, 1978, under
the Bank's Saving Account No. 6-1981, with an initial deposit of P22.14 in cash and
P10,000.00 in (a) check.
On the same date, December 6, 1978, without his check undergoing the usual and
reglamentary (sic) clearance, which normally takes about five working days, Dick Ong
was allowed to withdraw from his savings account with the Bank the sum of P5,000.00.
The corresponding withdrawal slip was signed and approved by Lino Morfe, then the
Branch Manager, and accused Lucila Talabis, the Branch Cashier.
That initial transaction was followed by other similar transactions where Dick Ong, upon
depositing checks in his savings account with the Bank, was allowed to withdraw
against those uncleared checks and uncollected deposits. The withdrawals were
authorized and approved by accused Ricardo Villaran and Lucila Talabis, sometimes
jointly, sometimes by aither (aic) of them alone, and at other times by one of them
together with another official of the Bank. But all of those uncleared checks deposited
by Dick Ong prior to January 3, 1979 and against which he was allowed to withdraw
were subsequently honored and paid by the drawee banks.
ISSUE
Whether or not the nature of the bank deposits is an irregular deposit.
RULING
We were categorical that bank deposits are in the nature of irregular deposits. They are
really loans because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated loans and are to be covered by the law on loans.
Current and savings deposits are loans to a bank because it can use the same.
--x--
G.R. No. 138677 February 12, 2002
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners,
vs.
HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY,
respondents.
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan
in the amount of P120,000.00 from respondent Security Bank and Trust Company.
Petitioners executed a promissory note binding themselves, jointly and severally, to pay
the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a
penalty of 5% every month on the outstanding principal and interest in case of default.
In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s
fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on 8 September 1981; the bank, however,
granted an extension but only up until 29 December 1981.
ISSUE
Whether or not the interest and the penalty is exorbitant, iniquitous, and
unconscionable.
RULING
The question of whether a penalty is reasonable or iniquitous can be partly subjective
and partly objective. Its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs.
Court of Appeals, just an example, the Court has tempered the penalty charges after
taking into account the debtor’s pitiful situation and its offer to settle the entire obligation
with the creditor bank. The stipulated penalty might likewise be reduced when a partial
or irregular performance is made by the debtor. The stipulated penalty might even be
deleted such as when there has been substantial performance in good faith by the
obligor, when the penalty clause itself suffers from fatal infirmity, or when exceptional
circumstances so exist as to warrant it.
--x--
G.R. No. 167346 April 2, 2007
SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,*
Petitioner,
vs.
SPOUSES PETER and SUSAN TAN, Respondents.
FACTS
On December 2, 1991, respondents’ representative, Remigia Frias, deposited with
petitioner ten checks worth ₱455,962. Grace Neri, petitioner’s teller no. 8 in its Juan
Luna, Manila Branch, received two deposit slips for the checks, an original and a
duplicate. Neri verified the checks and their amounts in the deposit slips then returned
the duplicate copy to Frias and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latter’s
passbook was left with petitioner for the recording of the deposits on the bank’s ledger.
Later, respondents retrieved the passbook and discovered that one of the checks,
Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash
in the sum of ₱250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed
respondent Peter Tan a duplicate copy of a deposit slip indicating the list of checks
deposited by Frias. But it did not include the missing check. The deposit slip bore the
stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an
account) that Metrobank check no. 403954 had cleared after it was inexplicably
deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna.
Respondents demanded that petitioner pay the amount of the check but it refused,
hence, they filed a case for collection of a sum of money in the RTC of Manila, Branch
31.
ISSUE
Whether or not the bank was negligent
RULING
While petitioner may argue that simple negligence does not warrant the award of moral
damages, it nonetheless cannot insist that that was all it was guilty of. It refused to
produce the original copy of the deposit slip which could have proven its claim that it did
not receive respondents’ missing check. Thus, in suppressing the best evidence that
could have bolstered its claim and confirmed its innocence, the presumption now arises
that it withheld the same for fraudulent purposes.
The business of banking is impressed with public interest and great reliance is made on
the bank’s sworn profession of diligence and meticulousness in giving irreproachable
service. For petitioner’s failure to carry out its responsibility and to account for
respondents’ lost check, we hold that the lower courts did not err in awarding exemplary
damages to the latter.
--x--
G.R. No. 118375 October 3, 2003
CELESTINA T. NAGUIAT, petitioner,
vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.
FACTS
The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño)
filed a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage
she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a
decision, declaring the questioned Real Estate Mortgage void, which Naguiat appealed
to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat
instituted the present petition.
ISSUE
Whether or not Queaño received the loan proceeds which were supposed to be covered
by the two checks Naguiat had issued or indorsed.
RULING
"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."
A loan contract is a real contract, not consensual, and, as such, is perfected only upon
the delivery of the object of the contract. In this case, the objects of the contract are the
loan proceeds which Queaño would enjoy only upon the encashment of the checks
signed or indorsed by Naguiat. If indeed the checks were encashed or deposited,
Naguiat would have certainly presented the corresponding documentary evidence, such
as the returned checks and the pertinent bank records. Since Naguiat presented no
such proof, it follows that the checks were not encashed or credited to Queaño’s
account.
--x--
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
FACTS
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without
interest, to defendant partnership and defendant Elino Lee Chi, as the managing
partner. The loan became ultimately due on January 31, 1960, but was not paid on that
date, with the debtors asking for an extension of three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the
P10,000.00 was extended to April 30, 1960, but the obligation was increased by
P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form
part of the principal obligation to answer for attorney's fees, legal interest, and other cost
incident thereto to be paid unto the creditor and his successors in interest upon the
termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960 and, on September 23,
1960, plaintiff instituted this collection case. Defendants admitted the P10,000.00
principal obligation, but claimed that the additional P6,000.00 constituted usurious
interest.
ISSUE
Whether or not the additional 6,000 constituted a usurious interest
RULING
Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative
to the P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor
proves the contrary". No evidentiary hearing having been held, it has to be concluded
that defendants had not proven that the P6,000.00 obligation was illegal. Confirming the
Trial Court's finding, we view the P6,000.00 obligation as liquidated damages suffered
by plaintiff, as of March 17, 1960, representing loss of interest income, attorney's fees
and incidentals.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be
charged as lender and borrower may agree upon.
--x--
G.R. No. L-48349 December 29, 1986
FRANCISCO HERRERA, plaintiff-appellant,
vs.
PETROPHIL CORPORATION, defendant-appellee.
FACTS
On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later
substituted by Petrophil Corporation) entered into a "Lease Agreement" whereby the
former leased to the latter a portion of his property for a period of twenty (20) years from
said date.
On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to
the plaintfff-appellant advance rentals for the first eight years, subtracting therefrom the
amount of P101,010.73, the amount it computed as constituting the interest or discount
for the first eight years, in the total sum P180,288.47. On August 20, 1970, the
defendant-appellee, explaining that there had been a mistake in computation, paid to
the appellant the additional sum of P2,182.70, thereby reducing the deducted amount to
only P98,828.03.
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of
P98,828.03, with interest, claiming this had been illegally deducted from him in violation
of the Usury Law.
ISSUE
Whether or not the contract between the parties is a loan or a lease.
RULING
As its title plainly indicates, the 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.
The provision for a discount is not unusual in lease contracts. As to its validity, it is
settled that the parties may establish such stipulations, clauses, terms and condition as
they may want to include; and as long as such agreements are not contrary to law,
morals, good customs, public policy or public order, they shall have the force of law
between them.
--x--
G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose
V. Bagtas, petitioner-appellant.
FACTS
On 8 May 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 one year from 8
May 1948 to 7 May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949
of the contract, the borrower asked for a renewal for another period of one year.
However, the Secretary of Agriculture and Natural Resources approved a renewal
thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested
the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of
Animal Industry that he would pay the value of the three bulls.
ISSUE
Whether or not the contract is one of commodatum
RULING
The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for
breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on
renewed for another year as regards one bull, was subject to the payment by the
borrower of breeding fee of 10% of the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force majeure. A contract of
commodatum is essentially gratuitous.
If the breeding fee be considered a compensation, then the contract would be a lease of
the bull. Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of
the bull after the expiry of the contract. And even if the contract be commodatum, still
the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a
contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event.
--x--
G.R. No. 26085 August 12, 1927
SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,
vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the
Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon,
situated in the municipality of Tarlac of the Province of Tarlac for the price of P25,000,
promising to pay therefor in three installments. The first installment of P2,000 was due
on or before the 2d day of May, 1921; the second installment of P8,000 was due on or
before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due
and payable on or about the 30th day of November, 1922. One of the conditions of that
contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to
pay the balance of said purchase price or any of the installments on the date agreed
upon, the property bought would revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid
so far as the record shows upon the due dates. The balance of P15,000 due on said
contract of purchase was paid on or about the 1st day of December, 1922, in the
manner which will be explained below. On the date when the balance of P15,000 with
interest was paid, the vendor of said property had issued to the purchasers transfer
certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was
transfer certificate of title from No. 40, which shows that said land was originally
registered in the name of the vendor on the 7th day of November, 1913.
ISSUE
Whether the contract in question is pacto de retro or a mortgage
RULING
From the foregoing, the Court was 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 quoted above.
It has been the uniform theory of the court, due to the severity of a contract of pacto de
retro, to declare the same to be a mortgage and not a sale whenever the interpretation
of such a contract justifies that conclusion. There must be something, however, in the
language of the contract or in the conduct of the parties which shows clearly and
beyond doubt that they intended the contract to be a "mortgage" and not a pacto de
retro.
--x--