espina.niemes.millan.omolon.salva.singco
CREDIT TRANSACTIONS
REVIEWERespina.niemes.millan.omolon.salva.singco1
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.
DistinctionsCommodatumMutuum
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 personal3. 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. EstafaLIWANAG 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.
Kinds1. 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 bank pending in courts other than the liquidation court.
It reasoned out that, because such actions ar