espina.niemes.millan.omolon.salva.singco

Title XI - LOAN

General Provisions(Articles 1933 1934)

Bailment, defined

It is the delivery of property of one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it.

Generally,abailmentmaybesaidtobeacontractual relation.

Tobe legallyenforceable,it must contain the essential elements of a valid contract.

It may also be created by operation of law.

Parties

In COMMODATUM:

1. Bailor the giver

2. Bailee the recipient of the thing bailed In MUTUUM:

1. Lender - the one who delivers

2. Borrower - the one who receives

Classes

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

COMMODATUM - loan of use Something to be returned (subject matter is non-fungible thing)

Essentially gratuitous (if there is compensation ceases to be commodatum)

Ownership retained by lender or bailor

May involve real or personal property

Referred to as loan for use or temporary possession

Lender bears the risk of loss because of his ownership

While generally oblige to return object at end of period, still in some cases the return can be demanded even before the end of the period

Personal in characterMUTUUM simple loan or loan of consumption Equivalent amount to be returned (subject matter is fungible)

May be gratuitous or onerous (with interest)

Ownership goes to borrower or baille

Refers to personal property only

Referred to as loan for consumption

Borrower bears the risk of loss, because of his ownership

Can be generally oblige to pay at the end of the period

Not personal in character

Characteristics1. REAL Loan is perfected by delivery of the thing loaned.

Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

2. UNILATERAL Loan produces obligations only for the borrower. Obligations of the lender are either incidental to ownership or consequences of the borrowers rights and duties.

Distinctions

CommodatumMutuum

CharacterEssentially gratuitousNaturally gratuitous

ObjectNon-fungible object (but may be consumable)Object is money or fungible thing

PurposeTransfer its useTransfer its ownership

EffectRestoration of the very thing loanedRestoration of an equal quantity and quality (equivalent amount)

RiskOn the lender (as owner)On the borrower (as debtor of a generic thing)

Personal in characterNot personal in character

Referred to as loan for use or temporary possessionReferred to as loan for consumption

DurationMay be claimed before the end of the term if urgently neededMay not be claimed until the term expires or is forfeited

CHAPTER I

COMMODATUM

Section I Nature of Commodatum

(Articles 1935 1940)

Contract of Commodatum, Concept

Commodatum is essentially gratuitous. If compensation is present, the contract ceases to be a Commodatum. In such a case, there arises a lease contract.

The right to use is limited to the thing loaned but not to its fruits unless there is a stipulation to the contrary.

Purpose: The right to use is limited to the thing loaned for a certain time or period. If bailee not entitled to the use of the thing, the contract may be a DEPOSIT not a Commodatum. Subject matter: A Commodatum is generally non-consumable things, whether real or personal.

Consumable goods however may be the subject of a Commodatum but only for purposes of EXHIBITION!

Bailor need not be the owner: Since ownership is not transferred in a Commodatum, the bailor need not be the owner of the thing loaned. It is sufficient that the bailor has such possessory interest in the subject matter or right to its use which he may assert against the bailee and the third persons although not against the rightful owner. Commodatum is purely personal: Death of either bailor or bailee extinguishes or terminates the contract unless, by stipulation the Commodatum is transmitted to the heirs of either or both parties. If there are two or more borrowers/bailee, the death of one does not extinguish the contract in the absence of stipulation to the contrary. (Source: De Leon)

Cases:

Commodatum is essentially gratuitousREPUBLIC vs. BAGTASFACTS:

Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls for a period of one year for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration of the contract, the 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 and requested the return of the other two. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls and later reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. The Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later which Bagtas failed to pay or to return. An action against him was commenced, praying that he be ordered to return the three bulls loaned to him or to pay their book value with interests, and costs; and that other just and equitable relief be granted. Bagtas answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huks in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of the returning the bull or paying its value to the appellee.ISSUE:

Whether or not Bagtas is relieved from the duty of returning or paying for the value of the bull.

SC RULING:

Bagtas is not relieved of his obligation. The loan by the appellee to the late defendant Bagtas of the three bulls for breeding purposes for a period of one year, 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 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 the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the thing, even if it should be through a fortuitous event: xxx 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.

Commodatum is for a certain period

ALEJANDRA MINA, ET AL., vs. RUPERTA PASCUAL, ET AL.,

FACTS:

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired a property during his lifetime having purchased a lot a public auction. Andres Fontanilla, with the consent of his brother, Francisco, erected a warehouse on a part of the lot of his brother.

When Franciso Fontanilla died, the herein plaintiffs, Alejandro Mina, et al., were recognized without discussion as his heirs. On the other hand, when Andres Fontanilla died, the children of Ruperta Pascual were recognized as his heirs without discussion and are consequently entitled to the warehouse. The plaintiffs and the defendants are therefore, virtually, to all appearance, the owners of the warehouse; while the plaintiffs are undoubtedly, the owners of the part of the lot occupied by that building, as well as of the remainder thereof.

But on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the herein defendants, petitioned the Court 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." The plaintiffs, that is Alejandra Mina, et al., opposed the petition of Ruperta Pascual for the reason that the latter had included therein the lot occupied by the warehouse, which they claimed was their exclusive property.

The plaintiffs thereofre requested the court to decide the question of ownership first before the it passes upon the petition for the sale of the warehouse. However, the trial court still ordered the sale of the warehouse.

So, the warehouse, together with the lot on which it stands, was sold to Cu Joco.

On appeal, commenced by the plaintiffs, the decision of the trial court was reversed. But soon after a writ of execution was issued and the plaintiffs were given possession of the lot, the trial court annulled this possession for the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was served.

The plaintiffs now commenced this present action for the purpose of having the sale of the said lot declared null and void and of no force and effect.

ISSUE: Whether or not defendant Pascual is the owner of the property so as to give her the right to sell the warehouse and the lot where it stands.

SC RULING:

No. Defendant Pascual has no right to sell the lot where the warehouse is standing. What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the ownership, and they themselves only the use, of the said lot. But while finding the plaintiffs to be the owners of the lot, we recognized in principle the existence of a commodatum under which the defendants held the lot.

An essential feature of the commodatum is the use of the thing belonging to another shall for a certain period. Therefore, 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.

The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is disposed of. What the minor children of Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half of the warehouse and the use of the lot occupied by his building. This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the other half, nor the remaining one-seventh of the said first half, of the warehouse.

The present contention, however, of the plaintiffs that Cu Joco, now in possession of the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum sustained by them, since, according to the second paragraph of the aforecited article 1740, "commodatum is essentially gratuitous.

Hence, as the facts show that a building was erected on another's ground, the question should be decided in accordance with the statutes that, thirty years ago, governed accessions to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the owner of the land on which a building is erected in good faith has a right to appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the value of the land. Such, and no other, is the right to which the plaintiff are entitled.

For these reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs shall choose one or the other of the two rights granted them by article 361 of the Civil Code.

Effect of Adverse Possession for 11 years

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ

FACTS:

The whole controversy started when the petitioner Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The respondent in this case appealed the decision of the land registration court to the then Court of Appeals. The Court of Appeals rendered its decision, reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3. VICAR then filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3. The Heirs of Juan Valdez and Pacita Valdez, on likewise filed with the Supreme Court a petition for review.

The Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolution. The Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision did not grant the Heirs of Octaviano any affirmative relief. The heirs of Octaviano and the Heirs of Valdez then filed their cases for recovery of possession.

In these two cases , the plaintiffs argue that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals and affirmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent them from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals.

ISSUE:

Whether or not the adverse possession of the petitioner of the subject lot for 11 years would constitute as a valid acquisitive prescription of the lot?

SC RULING:

Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were in possession Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have become incontestable. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a long time ago.

Effect of Suspension of Possessory Rights for more than 50 yearsREPUBLIC vs. CA

FACTS:

Applicant Baloys claim is anchored on their possessory information title coupled with their continuous, adverse and public possession over the land in question. An examination of said title shows that the description and the area of the land stated therein substantially coincides with the land applied for and that said title had been regularly issued having been acquired by applicants predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on April 8, 1965. The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive order of the President of the U.S., the area was declared within the U.S. Naval Reservation.

ISSUE:

Whether or not the possessory rights of Baloy are lost?

SC RULING:

No. The finding of the respondent court that during the interim of 57 years from November 26, 1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or the heirs were merely suspended and not lost by prescription, is supported by a communication or letter No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of the Philippines with regard to the status of the land in question.

Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successor-in-interest. Ones ownership of a thing may be lost by prescription by reason of anothers possession if such possession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navys occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

Kinds1. ORDINARY - has a definite period stipulated. One of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. In the ordinary commodatum, the possession of the bailee is more secure for he has the right to retain the thing loaned until the expiration of the period agreed upon, or the accomplishment of the use for which the commodatum has been constituted.

2. PRECARIUM - no definite time or use stipulated, or merely tolerated. One whereby the bailor may demand the thing loaned at will (art.1947) if neither the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated, or if the use of the thing is merely tolerated by the owner.

Cases:

If neither the duration of the contract nor the use of the thing loaned is stipulated

QUINTOS vs. BECK

FACTS:

Beck was a tenant of Quintos and occupied the latter's house. Upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on notified the defendant of the conveyance, and asked him to vacate the premises. Also, Quintos required the defendant to return all the furniture transferred to him for them in the house where they were found.

Beck wrote a letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUE:

1. Whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand;

2. whether the latter is bound to bear the deposit fees thereof,

3. whether she is entitled to the costs of litigation.

SC RULING:

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand

Issue 1:

YES, The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

Issue 2:

NO, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

Issue 3:

Yes, the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party. The defendant was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances

If the use of the thing is merely toleratedCATHOLIC VICAR vs. CA

FACTS:

Catholic Vicar Apostolic of the Mountain Province filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. The two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; petitioner had been in possession as owner for eleven years.

ISSUE:

Whether or not Catholic Vicar acquired subject lots by way of ordinary acquisitive prescription. SC RULING:

There is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

Pactum de Commodando An accepted promise to deliver something by way of commodatum.

It is valid but no commodatum is perfected until delivery.

Case:

Effect of approval of loan application

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, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, 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. Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it. On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.the loan was suggested to be reduced from 500,000 to 300,00. In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you." Because of the conflict with regards to the negotiations within the DBP, 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.

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.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof.

ISSUE:

Whether or not the approval of the loan create an obligation on the part of DBP which it has to fulfill in favor of Saura Inc.

SC Ruling:

We hold 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.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. As it is there was mutual desistance to the performance of the obligation.

Requisites1. CAPACITY - no special capacity. Any person entitled to possession may be the lender so long as his rights to the thing are not strictly personal. (Lender need not be the owner; a lessee may constitute a contract of Commodatum; a thief may even be a bailor.)

2. OBJECT - must be non-fungible. If consumable, valid so long as the use agreed upon will not to consume it (for exhibition purposes). It may be real or personal

3. CONSIDERATION - gratuitous. If not, it ceases to be a Commodatum. (maybe a lease)

4. FORM - no special form is required. Commodatum starts from the moment the thing is delivered.

Section II Obligations of the Bailee

(Articles 1941 1945)

Rights and Obligations of the Bailee

Right of a BAILEE:

1. A personal right to use the thing, but not to use its fruits unless stipulated by the parties. He can neither lend nor lease the thing to a stranger who is not a member of his household because the contract is personal.

Obligations of a BAILEE:

1. To preserve the thing.

2. To incur expenses required by the use and preservation of the thing, without reimbursement.

3. To return the thing at the expiration of the contract.

The bailee cannot retain the thing on account of the bailors obligation or bailors debt.

4. He does not answer for damages not due to his fault, but only due to use

But he is liable for fortuitous events if:

If the thing is devoted to a different use

If return of the thing is delayed

If the thing bailed has been appraised

If the bailee lends it to a stranger

If the bailee did not save it when he could

5. Two or more borrowers are solidarily liable .

Cases:

Effect of failure to return

QUINTOS vs. BECK

FACTS:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them.

On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUE:

Whether or not the defendant has the obligation to return the furniture upon demand of the plaintiff?

SC RULING:

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand. The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.

The defendant, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described.

CATHOLIC VICAR vs. CA

FACTS:

Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357 located in Benguet. Said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. However, oHothe Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. However, the Court of Appeals rendered its decision reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the convent and the second by the women's dormitory and the sister's convent.

ISSUE:

Whether or not Vicar can validly claim the lands in question.

SC RULING:

No, Vicar cannot validly acquire the lands especially on the ground of acquisitive prescription. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years.

DE LOS SANTOS vs. JARRA

The carabaos delivered to be used not being returned by the defendant upon demand, there is no doubt that she is under obligation to indemnify the owner thereof by paying him their value.

Article 1101 of said code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subjected to indemnify for the losses and damages caused thereby.

The obligation of the bailee or of his successors to return either the thing loaned or its value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with precision the legal doctrine touching commodatum as follows:

Although it is true that in a contract of commodatum the bailor retains the ownership of the thing loaned, and at the expiration of the period, or after the use for which it was loaned has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him damages if through the fault of the bailee the thing should have been lost or injured, it is clear that where public securities are involved, the trial court, in deferring to the claim of the bailor that the amount loaned be returned him by the bailee in bonds of the same class as those which constituted the contract, thereby properly applies law 9 of title 11 of partida 5.

Section III Obligations of the Bailor

(Articles 1946 1952)

Rights and Obligations of the Bailor

A. incidental obligation of the bailor - To pay extraordinary expenses of preservation, if notified by the bailee. The bailee may elect to make such repairs provided he notify the bailor (notice may be dispense with if such repair is urgently required).

B. Hidden defects- bailor liable to answer for damages to the bailee if due to defects known and not disclosed. Bailor does not answer for unknown defects. (Source: Cruz)PRIMARY OBLIGATION OF THE BAILOR:

To allow the bailee the use of the thing loaned for the duration of the period stipulated. (bailor bound by the terms of the contract of commodatum).

RIGHT OF THE BAILOR TO DEMAND RETURN OF THE THING FOR ACTS OF INGRATITUDE:

Under Art. 1948, bailor may demand the return of thing if the bailee commits acts of ingratitude specified under Art. 465

1. If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental authority;

2. If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife or children under his authority;

3. If he unduly refuses him support when the donee is legally or morally bound to give support to the donor. (648a)OBLIGATION TO REFUND EXTRAORDINARY EXPENSES:

GR: Bailor bears the extra ordinary expenses.

IF: bailee makes such repairs, he must first notify the bailor and bailor must refund the bailee.

The notice is important because it is possible that the bailor may not want to incur the extraordinary expenses at all. Bailor should be given the discretion as to what must be done with his property.

EXEPTION: when such repairs are so urgent.

EXTRAORDINARY EXPENSES ARISING FROM THE ACTUAL USE OF THE THING LOANED:Such expenses (caused by fortuitous event) arising on the occasion of the actual use of the thing loaned shall be borne by the bailor and bailee alike on a 50-50 (pro rata)

LIABILTY TO PAY DAMAGES FOR KNOWN HIDDEN DEFECTS:

Requisites:

1. There is flaw or defect in the thing loaned

2. That the flaw or defect is hidden

3. The bailor is aware of such flaw

4. He does not notify or advise the bailee of the same and;

5. The bailee suffers damage by reason of such flaw or defect.

IF FLAW IS UNKNOWN TO THE BAILOR:

Bailor is not liable because commodatum is gratuitous. The rule is different in sale (Art, 1547), and lease (Art. 1653) (Source: De Leon) TerminationCauses of Extinguishment

1. Expiration of the time or use stipulated

2. Claim of the lender

GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted.

EXCEPTION: In case of urgent need in which case bailee may demand its return or temporary use.

Reason: The right of the bailor is based on the fact that commodatum is essentially gratuitous.

3. Destruction of the thing

4. Death of the borrower

5. Ingratitude of the bailee

The bailor may demand the return when the bailee commits an act of ingratitude:

If the bailee should commit an offense against the person, the honor or the property of the bailor, or the wife or children under his parental authority

If the bailee imputes to the bailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the bailee himself, his wife, or children under his authority

If the bailee unduly refuses the bailor support when the bailee is legally and morally bound to give support to the bailor

Chapter II

SIMPLE LOAN or MUTUUM

(Articles 1953 1961)

Concept It is a contract whereby one party delivers to another money or fungible thing, on the condition of returning the same kind, amount and quality. If the object loaned is not fungible but the borrower is to return another of the same kind and quality, it is barter.

Cases:

Mutuum vs. Commodatum

CHEE KIONG YAM vs. MALIKFACTS:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:

(a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima facie case against the latter;

(b) he issued warrants of arrest against petitioners after making the above determination; and

(c) he undertook to conduct trial on the merits of the charges which were docketed in his court as Criminal Cases No. M-111, M-183 and M-208.

In the three criminal cases the respondents charges the petitioner with estaffa through misappropriation, however in the face of the documents it state that the amount received was in the nature of a simple loan.

ISSUE:

Whether or not the petitioners in this case can be charged of estaffa when the obligation is said to be that of simple loan.

SC Ruling:

We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute estafa through misappropriation.

In order that a person can be convicted of estaffa, it must be proven that he has the obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loam ownership passes to the borrower.

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof.

In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to nay his debt or to deny its existence.

We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, when he performed the questioned acts, He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender.

Thus the criminal complaints against petitioners are hereby declared null and void; respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest he had issued in connection therewith.

Mutuum vs. Lease

TOLENTINO vs. GONZALES SY CHIAMFACTS:

Sometime prior to the 28th day of November, 1922, the appellants (Tolentino and Manio) purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon for the price of P25,000, promising to pay therefor in three installments. 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. For the last installment, upon receiving the letter of the vendor of said property, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property.

ISSUE:

May a tenant charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest?

SC RULING:

No. The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation of the property may depend upon a thousand different conditions. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a thousand different conditions and may or may not have any direct reference to the value of the property rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or rural community. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country.

Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of receiving or taking usurious rates." It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind shall be returned with a compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It never means the return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the moment the contract is completed the money, goods or chattels given cease to be the property of the former owner and becomes the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between the contractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other some nonconsumable thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning an equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum."

In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner of the property. During the period of redemption the vendor was a tenant of the purchaser. During the period of redemption the relation which existed between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655.

Mutuum vs. Estafa

LIWANAG vs. CA

When there is no transfer of ownership, it is not a simple loan but estafa.

FACTS:

Rosales constituted Liwanag and Tabligan as her agents in buying and selling cigarettes business. Under their agreement, Rosales would give the money needed to buy cigarettes while Liwanag and Tabligan would sell them, with corresponding 40% commission if the goods are sold; otherwise, the money would be returned to Rosales. Thus Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00. The two, after a few visits to Rosales to report on the progress of the transactions, never showed up to remit the proceeds of sale, nor returned the money advanced. Liwanag was charged with estafa, which she was convicted of. This was affirmed by CA, hence the petition.

SC RULING: Liwanag alleged the contract between her and Rosales was simple loan, hence there was no estafa. But the court held that the transaction cannot be considered loan since in a contract of loan, once money is received, ownership over the same is transferred. Being the owner, the borrower can dispose of it freely. Here, Liwanag could not dispose of the property freely as it was delivered to her for the single purpose of buying cigarettes, and if this was not possible then to return the money to Rosales. As there was no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art.315 par.1(b) of the RPC.

Kinds

1. Gratuitous

2. With interest

Requisites

1. Capacity of the parties

No special capacity is required to be a lender except ownership. But an emancipated minor may not borrow money without the consent of his parent or guardian.

2. Object

Consumable

Muttum involves money or any other fungible things. If not fungible, the contract is barter.

3. Consideration

Gratuitous or onerous.

4. Form

No special form is needed; but there must be delivery, as the contract is real. An accepted promise to deliver something by way of simple loan may be subject to the Statute of Frauds if not to be performed within one year. This contract is consensual as distinguished from loan proper which is real.Case:

Accepted promise to deliver something by way of simple loan

SAURA IMPORT and EXPORT CO., INC., vs. DEVELOPMENT BANK OF THE PHILIPPINESFACTS:

Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building for the manufacture of jute sacks; P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

After agreeing on the terms of the industrial loan, Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation. 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. Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. which was willing to assume liability only to the extent of its stock subscription with Saura, Inc. sign as co-maker on the corresponding promissory notes.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. But after the reexamination, there ensued several more circumstances that occurred that resulted to the prolonged the discharged of the loan. Afterwhich, the loan was again restored to the original amount of P500,000. Yet at one point, the negotiations between the two parties came to a standstill, and so Saura Inc. did not anymore pursue the matter. 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 defendant bank is guilty of breach of contract of loan.

SC RULING:

No. DBP is not guilty of breach of contract of loan. The Supreme Court held in this case that although there was a perfected consensual contract between the parties, such that there was offer and acceptance: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. It was in line with such assumption that when RFC approved and restored the loan to the original amount of P500,000.00. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance, what Manresa terms "mutuo disenso," which is a mode of extinguishing obligations.

Clearly, the subsequent conduct of Saura Inc. requesting for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance confirms their desistance. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself.

Effects (Obligation of the Borrower only)Art. 1955. The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money the debtor owes another thing of the same kind, quantity and quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the perfection of the loan shall be paid.

a. To return the thing or amount borrowed at the period stipulated or fixed according to general rules.

If the thing borrowed is money;

Art.1249. the payment of debts in money shall be made in the currency stipulated and if it is not possible to deliver such currency then in the currency which is the legal tender in the Philippines.

The delivery of promissory notes payable to order or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed or when through the fault of the creditor they have been impaired.

Art. 1250. In case of extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

If the thing borrowed is not money, to return the same amount in equal kind and quality, even if the price has changed or else its value at the time the contract was perfected.

b. To Pay Interest

When it is expressly agreed in writing (Art. 1956)

When the stipulation to pay is verbal, the volountary payment is valid as a performance of a natural obligation. (But GR: Verbal void; EXCP: voluntary payment)

Interest paid even if not stipulated, is not recoverable, it being proof of a tacit contract or a natural obligation.a. Except where it is proved that the interest was paid by error (solution indebiti)

b. Interest payable in kind, it is appraised at the current price at the time of payment (Art. 1958)

c. Interest due shall not earn interest (no compounding) in the absence of agreement and without prejudice to Art 2212 (interest after judicial demand) (Art. 1595)

d. The following are not considered interest:

Increase in the price when the sale is on installment

Attorneys fees for cost of collection

Penalty for breach

Bank deposits, whether fixed savings or current are governed by the provisions concerning simple loan.

Cases:

Payment in Currency Stipulated

RONO vs. GOMEZ

FACTS:

Cristobal Roo received as a loan four thousand pesos in Japanese fiat money from Jose L. Gomez. He informed the later that he would use the money to purchase a jitney; and he agreed to pay that debt one year after date in the currency then prevailing. After the liberation, Roo was sued for payment. His main defense was his liability should not exceed the equivalent of 4,000 pesos "mickey mouse" money and could not be 4,000 pesos Philippine currency, because the contract would be void as contrary to law, public order and good morals.ISSUE:

Whether or not the contract is contrary to the Usury law, because on the basis of calculations by Government experts Roo only received the equivalent of one hundred Philippine pesos and now he is required to disgorge four thousand pesos or interest greatly in excess of the lawful rates.

SC RULING:

No, he is not paying interest. The contract says that the money received "will not earn any interest." Furthermore, he received four thousand pesos; and he is required to pay four thousand pesos exactly. The increased intrinsic value and purchasing power of the current money is consequence of an event (change of currency) which at the time of the contract neither party knew would certainly happen within the period of one year. They both elected to subject their rights and obligations to that contingency. If within one year another kind of currency became legal tender, Gomez would probably get more for his money. If the same Japanese currency continued, he would get less, the value of Japanese money being then on the downgrade.

Stipulation not to pay while war is going on

NEPOMUCENO vs. NARCISO

FACTS:

In 1938, plaintiff executed a mortgage in favor of defendant on a parcel of land to secure the payment of P24,000 in 7 years at 8% interest per year. By mutual agreement, the term was modified in 1943 by reducing the interest to 6% per year from December 1941 until the end of the war and by stipulating that the mortgagor shall not pay and release the mortgage while the war went on. In 1944, the plaintiff offered to pay which the defendant refused. Plaintiff filed this action to compel the defendant to accept his tender of payment. The trial court sustained the defense that payment was premature. Plaintiff appealed alleging that the provision for non-redemption during the war is against public policy and a restraint on the freedom of commerce.

ISSUE: Whether or not said provision is against public policy as to render said contract void.

SC RULING: There is nothing immoral or violative of public order in the questioned stipulation. The morgagee apparently did not want to have their pre-war credit paid with Japanese military notes, and the mortgagor voluntarily agreed not to do so in consideration of the reduction of the rate of interest. It was a perfectly equitable and valid transaction. Appellants were bound by said contract and appellees were not obliged to receive payment before it was due. Hence, the latter had reason not to accept the tender of payment made to them by the former. Judgment affirmed.

Liability for contractual interest after maturity of note

JARDENIL vs. SOLAS

FACTS:Salas issued a promissory note where it was clearly agreed that he will pay interest only up to the date of maturity, or until March 31, 1934, and that payment is extendable by one year but without mention of interest.

ISSUE:

Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected?

SC RULING:

As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period, indicates that the true intention of the parties was that no interest should be paid during the period of grace. Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule.

As the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.

Increase in the prince when sale is on installment

MANILA TRADING vs. TAMARAW PLANTATION

FACTS:

On August 23, 1920, the plaintiff sold to the defendant the goods mentioned in Exhibit A of the defendant for P5,300, if paid in cash, but as it was not so paid, there was added to said amount the sum of P265, which is 5 per cent thereon, making a total of P5,565. The defendant paid the first six monthly installments provided in Exhibit A, plus P213.89 on account of the seventh installment, that is, a total of P2,996.39, and failed to pay the rest, namely, P2,568.61; wherefore said goods were on August 15, 1922, sold by the sheriff of Mindoro at public auction, as provided in Act No. 1508, the proceeds of the sale having amounted to P2,000, which were paid to the plaintiff.

On December 24, 1920, the plaintiff sold to the defendant the goods mentioned in Exhibit B for P2,550, if paid in cash. To said amount there was added the sum of P127.50, which is 5 per cent thereon, making a total of P1,877.50. The defendant paid P800 upon the delivery of the goods, but did not pay anything more afterwards; wherefore said goods were sold at public auction by the sheriff of Mindoro on August 15, 1922, for P1,000, as provided in Act No. 1508, said sum of P1,000 having been paid to the plaintiff.

The trial court, in view of said stipulation of facts, rendered judgment, sentencing the defendant to pay to the plaintiff company

ISSUE:

Whether or not the increase of the price of an article sold on credit upon its cash sale value constitutes interest within the meaning of the Usury Law.

SC RULING:

No. The instant case is of a chattel mortgage given to secure payment for the agricultural implements sold by the plaintiff to the defendant. The transaction was carried out between the parties in good faith, and there is no proof that the contract of sale of agricultural effects, secured by a mortgage on the same goods, was executed as a loan of money. This being so, the parties may freely agree upon the price of the goods sold, and it cannot be said that the credit, greater than the cash, price, constitutes interest within the meaning of the Usury Law. The increase of the price, when the sale is on credit, serves not only to cover the expenses generally entailed by such transactions on credit, but also to encourage cash sales, so useful to commerce. It is up to the purchaser to decide which price he prefers in making the purchase. If he prefers to purchase for cash, he obtains a 5 per cent reduction of the price; if, on the contrary, he prefers to buy on credit, he cannot complain of the increase of the price demanded by the vendor.

"On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense." It is also established that: "A vendor mat well fix upon the property one price for cash and another for credit, and the mere fact that the credit price exceeds the costs price by a greater percentage than is permitted by the usury laws is a matter of concern to the parties but not to the courts, barring evidence of bad faith. If the parties have acted in good faith such a transaction is not a loan, and not usurious."

Attorneys fees

ANDREAS vs. GREEN

FACTS:

The defendant and appellant questions the clause in the promissory note sued on reading "and a further sum equal to 10 per cent of the total amount due as and for expenses of collection for attorney's fees whether actually incurred or not," as in contravention of the Usury Law.

SC RULING: Stipulations in negotiable instruments for the payment of collection and attorney's fees are not forbidden by lay in this jurisdiction. The lender may without violating the Usury Law provide in a note for an attorney's fee to cover the cost of collection. This has been definitely held in a long line of cases both here and elsewhere. The purpose of a stipulation in a note for reasonable attorney's fees is not to give the lender a larger compensation for the loan than the law allows, but is to safeguard the lender against future loss or damage by being compelled to retain counsel to institute judicial proceedings to collect his debt.

The only difference between the provision of the promissory note here complained of and the provision of the promissory notes in any of the above-cited cases is that the note before us contains these additional words: "whether actually incurred or not." But this clause is merely descriptive in nature is in reality merely surplusage. The idea of the parties was to provide for a penalty to cover expenses of collection. That such expenses were actually incurred in this case is now before the appellate court for decision. Whether the creditor could enforce the penalty where expenses of collection and attorney's fees were not actually incurred, is questionable, but does not affect the result in this case.

Judgment affirmed.

Penalty for Breach

SENTINEL INSURANCE CO. vs. CA

FACTS:Petitioner Sentinel Insurance Co., Inc., was the surety in a contract of suretyship with Nemesio Azcueta, Sr., who is doing business under the name and style of 'Malayan Trading both of them bound themselves, 'jointly and severally, to fully and religiously guarantee the compliance with the terms and stipulations of the credit line granted by private respondent Rose Industries, Inc., in favor of Nemesio Azcueta, Azcueta made various purchases of tires, batteries and tire tubes from the private respondent but failed to pay therefor, prompting Rose Industries to demand payment but because Azcueta failed to settle his accounts, the case was referred to the Insurance Commissioner who invited the attention of the petitioner on the matter and the latter cancelled the Suretyship Agreement with due notice to the private respondent.

Meanwhile, private respondent Rose Industries filed with the respondent court of Makati a complaint for collection of sum of money against herein petitioner and Azcueta.The decision having become final and executory, the prevailing party moved for its execution which respondent judge granted and pursuant thereto, a notice of attachment and levy was served upon the petitioner. On the same day.Contending that the order was issued with grave abuse of discretion, petitioner went to respondent court on a petition for certiorari and mandamus to compel the court below to clarify its decision to pay interest at 14% per annum on the principal obligation and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is fully paid.

ISSUE:

Whether or not respondent court should not have made an award for "damage dues" at such late stage of the proceeding since said dues were not the subject of the award made by the trial court.

SC RULING:

To clarify an ambiguity or correct a clerical error in the judgment, the court may resort to the pleadings filed by the parties, the findings of fact and the conclusions of law expressed in the text or body of the decision. this was what respondent court did in resolving the original petition.

The findings made by respondent court did not actually nullify the judgment of the trial court. More specifically, the statement that the imposition of 2% interest every 45 days commencing from April 30, 1975 on top of the 14% per annum (as would be the impression from a superficial reading of the dispositive portion of the trial court's decision) would be usurious is a sound observation. It should, however, be stressed that such observation was on the theoretical assumption that the rate of 2% is being imposed as interest, not as damage dues which was the intendment of the trial court.

Damage dues in this case do not include and are not included in the computation of interest as the two are of different categories and are distinct claims which may be demanded separately, in the same manner that commissions, fines and penalties are excluded in the computation of interest where the loan or forbearance is not secured in whole or in part by real estate or an interest therein.While interest forms part of the consideration of the contract itself, damage dues (penalties, and so forth) are usually made payable only in case of default or non-performance of the contract. 11 Also, although interest is subject to the provisions of the Usury Law, there is no policy or provision in such law preventing the enforcement of damage dues although the effect may be to increase the sum payable beyond the prescribed ceiling rates.

The lower court's decision explicitly ordered petitioner to pay private respondent the amount of P198,602.41 as principal obligation including interest and damage dues, which is a clear and unequivocal indication of the lower court's intent to award both interest and damage dues.

Bank DepositsCases:

Nature of Bank Deposits

GOPOCO GROCERY vs. PACIFIC COAST BISCUIT

FACTS:

The Mercantile Bank of China was declared in liquidation. Creditors and all those who had any claim against it were required to present the same before the Bank Commissioner within 90 days. Gopoco presented its claim.

ISSUE:

What is the real nature of current account a savings deposit?

SC RULING:

The current account and savings deposit have lost their character as deposits and are converted into simple commercial loans because in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes but precisely because of the authority deemed to have been granted to it by the depositors to enable him to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by Section 125 of the Corporation Law and the Banking Law. The deposits created a juridical relation of creditor and debtor. The back acquired ownership of the money deposited.

CENTRAL BANK OF THE PHIL. vs. MORFE

FACTS:

On February 18, 1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions. Central Bank of the Philippines, then filed the corresponding petition for assistance and supervision in the Court of First Instance of Manila.

Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the spouses Job Elizes and Marcela P. Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits. In the judgment rendered, the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of P50, 584 plus accumulated interest.

In another case, spouses Augusta A. Padilla and Adelaida Padilla secured on April 14, 1972 a judgment against the Fidelity Savings Bank for the sums of P80,000 as the balance of their time deposits, plus interests, P70,000 as moral and exemplary damages and P9,600 as attorney's fees.

After the two judgments were rendered and upon motions of the Elizes and Padilla spouses but over the opposition of the Central Bank, the court directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments. From the said order, the Central Bank appealed to this Court by certiorari. It contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank.

ISSUE: Whether or not a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank.

SC RULING:

Section 29 of Republic Act No. 265 provides:

Whenever upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the Superintendent forthwith, in writing to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.

xxx xxx xxx

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Office of the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

Section 30 of the same law also provides that:

In case of liquidation of a banking institution, after payment of the costs of the proceedings, including reasonable expenses and fees of the Central Bank to be allowed by the court, the Central Bank shall pay the debts of such institution, under the order of the court, in accordance with their legal priority.

The trial court or, to be exact, the liquidation court noted that there is no provision in the charter of the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which suspends or abates civil actions against an insolvent ban