Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 CREDIT TRANSACTIONS Article 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 ownerships of the thing loaned, while in simple load, ownership passes to the borrower. Article 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. Governing Laws: The contract of loan is governed by rules as to the requisites and validity of contracts in general (Article 1305; 1306; 1318). The distinction between civil loans and commercial loans has been abolished and Articles 1933-1961 of the New Civil Code now primarily govern all loans. Distinguish Loan from Credit? In the case of People of the Philippine Islands vs. Venancio Concepcion (44 Phil. 126, G.R. No. 19190, November 29, 1922), the Supreme Court, through the penmanship of Justice Malcolm, distinguished Loan from Credit, ruling in effect that the credit of an individual means his ability to borro w money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. A loan means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, expresses or implied, to repay the sum loaned, with or without interest. The concession of a credit necessarily involves granting loans up to the limit of the amount fixed in the credit. Is loan a real contract? Yes. In Garcia vs. Thio (G.R. No. 154878, March 16, 2007, 518 SCRA 433), the Supreme Court, through then Chief Justice Renato Corona, ruled that a loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. This is evident in Article 1934 of the Civil Code, which provides. Article 1934. An Accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. Contract of loan is a consensual contract; loan is a real contract

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 Facts: Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan to be used for construction of factory building, for payment of the balance of the purchase price of the jute machinery and equipment and as additional working capital. In Resolution No.145, the loan application was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and equipment to be installed. The mortgage was registered and documents for the promissory note were executed. The cancellation of the mortgage was requested to make way for the registration of a mortgage contract over the same property in favor of Prudential Bank and Trust Co., the latter having issued Saura letter of credit for the release of the jute machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to pay said obligation, Prudential sued Saura. After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to comply with tits obligations to release the loan proceeds, thereby prevented it from paying the obligation to Prudential Bank. The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties ad that the RFC was guilty of breach thereof. Issue: Whether or not there was a perfected contract between the parties. Held: The Court held in the affirmative. Article 1934 provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until delivery of the object of the contract. There was undoubtedly offer and acceptance in the case. When an application for a loan of money was approved by resolution of the respondent corporation and the responding mortgage was executed and registered, there arises a perfected consensual contract. *Case Doctrine: A contract of loan is a consensual contract. Where the application of X Inc. for a loan of P500,000 was approved by resolution of the defendant, and the corresponding mortgage executed and registered, there undoubtedly offer and acceptance and [The Court] hold that there was indeed a perfected consensual contract as recognized in Article 1934 of the Civil Code But this fact alone falls short of resolving the second issue and the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. The action thus taken by both parties Saura's request for cancellation and RFC's subsequent approval of such cancellationwas in the nature of mutual desistance what Manresa terms "mutuo disenso" which is a mode of extinguishing obligations. It is a concept derived from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. In view of such extinguishment, said perfected consensual contract to deliver did not constitute a real contract of loan (Saura Import and Export Co. vs. DBP, 44 SCRA 445, G.R. No. 24968, April 27, 1972). Binding effect of promise to lend Central Bank of the Philippines vs. CA, 139 SCRA 46 (G.R. No. 45710, October 3, 1985)

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 Facts: Tolentino made a loan from Island Savings Bank secured by a mortgage. The Bank did not release the whole amount but only a portion thereof. Later, the Bank experienced liquidity problems and the Monetary Board of Central Bank prohibited it from making new loans and much later, from doing business in the Philippines. Thereafter, the Acting Superintendent of Central Bank took charge of its assets. Upon expiration of the load term, the Bank filed extrajudicial foreclosure of mortgage. Issue: Was there a perfected contract of loan when only a portion of the amount was delivered? Ruling: The Supreme Court, through Chief Justice Makasiar, held that there was only partial delivery. Under Article 1934, the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. As such, the contract in the case at bar is deemed perfect only insofar as what has been delivered. The mortgage cannot be entirely foreclosed, except for up to the amount of the actual amount released. On the other hand, the Bank can recover the interest of the partial loan. Tolentino cannot anymore demand the remaining amount of the loan from the Bank because he defaulted on his payment. His liability offsets the liability of the Bank to him. Nature of Commodatum Article 1935. The Bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is to be paid by him who acquires the use, the contract ceases to be commodatum. ARTICLE 1936.Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. (n) aisa dc ARTICLE 1937.Movable or immovable property may be the object of commodatum. (n) ARTICLE 1938.The bailor in commodatum need not be the owner of the thing loaned. (n) ARTICLE 1939.Commodatum is purely personal in character. Consequently: (1)The death of either the bailor or the bailee extinguishes the contract; (2)The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the bailee's household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use. (n) ARTICLE 1940.A stipulation that the bailee may make use of the fruits of the thing loaned is valid. (n) Producers Bank of the Philippines vs. CA G.R. No. 115324, February 19, 2003

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 Facts: Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a savings account for Sterela Marketing, in coordination with Producer's Bank assistant branch manager, Rufo Atienza. The purpose was for incorporation, and the agreement was that the money would not be removed from Sterela's savings account and returned to Vives after thirty (30) days. Later, however, Doronilla who also opened a current account and authorized the bank to debit the savings account to cover overdrawing in the current account had withdrawn part of the money. Vives filed a case for recovery of sum of money and both the trial court and the appellate court ruled on the solidary liability of Producers Bank to Vives. Hence, this appeal. Issue: What is the Subject of the Contract in this case? Ruling: The Supreme Court, through Justice Callejo, Sr., ruled that the foregoing provision1 seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be amutuum. However, there are some instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum. The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination. Commodatum essentially gratuitous (Article 1933 par. 2) Republic vs. Bagtas 6 SCRA 262, G.R. No. L-17474, October 25, 1962 Facts: Jose Bagtas borrowed from 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 books. Upon the expiration of the contract, Bagtas asked for a renewal for another one year, however, the Secretary of Agriculture and Natural Resources approved only the renewal for one bull and other two bulls be returned. Bagtas then wrote a letter to the Director of Animal Industry that he would pay the value of the three bulls with a deduction of yearly depreciation. The Director advised him that the value couldnt be depreciated and asked Bagtas to either return the bulls or pay their book value. Bagtas neither paid nor returned the bulls. The Republic then commenced an action against Bagtas ordering him to return the bulls or pay their book value.

Article 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 ownerships of the thing loaned, while in simple load, ownership passes to the borrower.

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 After hearing, the trial Court ruled in favor of the Republic, as such, the Republic moved ex parte for a writ of execution, which the court granted. Felicidad Bagtas, the surviving spouse and administrator of Bagtas estate, returned the two bulls and filed a motion to quash the writ of execution since one bull cannot be returned for it was killed by gunshot during a Huk raid. The Court denied her motion hence, this appeal certified by the Court of Appeals because only questions of law are raised. Issue: WON the contract was commodatum;thus, Bagtas be held liable for its loss due to force majeure. Ruling: A contract of commodatum is essentially gratuitous. Supreme Court held that Bagtas was liable for the loss of the bull even though it was caused by a fortuitous event. If the contract was one of lease, then the 10% breeding charge is compensation (rent) for the use of the bull and Bagtas, as lessee, is subject to the responsibilities of a possessor. He is also in bad faith because he continued to possess the bull even though the term of the contract has already expired. If the contract was one of commodatum, he is still liable because: (1) he kept the bull longer than the period stipulated; and (2) the thing loaned has been delivered with appraisal of its value (10%). No stipulation that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid stray bullets killed it. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. Obligations of the Bailee ARTICLE 1941.The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned. (1743a) ARTICLE 1942.The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1)If he devotes the thing to any purpose different from that for which it has been loaned; cd i (2)If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (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;

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697

(4)If he lends or leases the thing to a third person, who is not a member of his household; (5)If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745) ARTICLE 1943.The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault. (1746) ARTICLE 1944.The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses. However, the bailee has a right of retention for damages mentioned in article 1951. (1747a) ARTICLE 1945.When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. (1748a) Obligation to return, payment of expenses, Obligations of the Bailor Quintos vs. Beck 69 Phil. 108, G.R. No. 46240, November 3, 1939 Facts: Beck is a tenant of defendant Margarita Quintos. As such, Beck occupied Quintos house. Quintos granted Beck the use of the furniture found on the leased house, among these were three gas heaters and 4 electric lamps, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. Quintos sold the pieces of furniture to Maria Lopez and Rosario Lopez and thereafter notified Beck of the conveyance. Beck informed Quintos that the latter can get the furniture at the ground floor of the house, however, at a later date, Beck told Quintos that he will return only the other furniture but not the gas heaters and the electric lamps as he is to return them only after the expiration of the lease contract. When the lease contract expires, Beck deposited the furniture to the sheriffs warehouse. Quintos refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. Consequently, Quintos brought an action to compel Beck to return her certain furniture, which she lent him for his use. The trial court ruled in favour of Beck holding that Quintos failed to comply with her obligation to get the furniture when they were offered to her. On appeal of the case, the Court of First Instance of Manila affirmed the lower courts decision. Hence, this petition. Issue: Whether or not the trial court erred in ruling that Quintos failed to comply with her obligation to get the furniture when they were offered to her. Held: The contract entered into between the parties is one of commadatum. 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 electric lamps. The trial court, therefore, erred when it came to the legal

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her. Simple Loan or Mutuum ARTICLE 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. (1753a) ARTICLE 1954.A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter. (n) ARTICLE 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. (1754a) ARTICLE 1956.No interest shall be due unless it has been expressly stipulated in writing. (1755a) ARTICLE 1957.Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. (n) ARTICLE 1958.In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment. (n) ARTICLE 1959.Without prejudice to the provisions of article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. (n) ARTICLE 1960.If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerningsolutio indebiti, or natural obligations, shall be applied, as the case may be. (n) ARTICLE 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code. (n) BPI Investment Corp. vs. CA G.R. No. 133632, February 15, 2002 Facts: Frank Roa obtained a loan from the Ayala Investment and Development Corp. (predecessor of BPIIC). The property which served as collateral was sold to private respondent ALS Management and Development Corp. AIDC granted them a new loan of P500,000 to be applied to Roas debt and secured by the same property payable in ten years with monthly amortization. The mortgage contract was executed on March 1981, with a stipulation that the amortization will start on such date. However, the money loaned was released only on August and September 1982. The petitioner foreclosed the mortgage alleging that

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 respondents were in arrears in the payment of amortization. Respondents on the other hand contended that they were not in arrears because the amortization should start only from the day the money was actually released, or when the contract of loan was actually perfected. Issue: Whether or not a contract of loan is a consensual contract. Ruling: The Supreme Court, through Justice Quisumbing, ruled that a loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan. In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract, which under normal circumstances could have made the bank liable for not releasing the loan. However, since the fault was attributable to petitioner therein, the court did not award it damages. A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower. In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents' obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract. Eastern Shipping Lines vs. Court of Appeals 234 SCRA 78 Case doctrine: Guidelines on: 1) computation of interest; 2) how various types of interest computed Facts: Because of the damages on the cargo (riboflavin), the insurance company filed a case for payment of such damages against the petitioner, upon payment to the insured consignee by virtue of subrogation. The trial court rendered a judgment ordering the petitioner to pay the damages plus 12% interest per annum from the date of the filing of the complaint until actual payment. Petitioner contended that the interest should be only 6% and computed from the time of the finality of judgment Issue: What is the proper rate of interest and from when it is to be computed? Ruling: The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697

Loans/forbearances of money, goods or credits: 1. Principal plus agreed regular interest 2. Stipulated regular/ordinary/monetary interest + (substituted to the regular interest) penalty/compensatory interest in the amount of stipulated penalty interest/stipulated regular interest/legal interest in 12% per annum - upon demand 3. Interest upon interest due, which is the stipulated regular interest + stipulated penalty interest (if any) upon judicial demand until actual payment. Obligation arising from other sources: 1. Damages + legal interest 6% - from the time demand is established with reasonable certainty (usually from the time of filing of the complaint) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court (appealable judgment) is made. 2. The 6% interest is converted to 12% from the time of the finality of judgment until actually paid.

Medel vs. Court of Appeals G.R. No. 131622, November 27, 1998 Facts: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced by several promissory notes agreeing to an interest rate of 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for collection of the full amount of the loan. RTC declared that the promissory notes were genuine, however, it ruled that although the Usury Law had been repealed, the interest charged by Gonzales on the loans was unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or credit of 12% per annum. CA reversed the ruling of the RTC holding that the Usury Law had become legally inexistent. Hence, this petition for review on certiorari. Issue: Whether or not the stipulated interest at 5.5% per month on the loan in the sum of P500, 000, that the plaintiffs extended to the defendants is usurious. Held: The Court agrees with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, it cannot consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent." In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61, the Court held that CB Circular No. 905 "did not repeal nor in anyway amend

Denn Reed B. Tuvera Jr. San Beda College Alabang School of Law (0927)405-3697 the Usury Law but simply suspended the latter's effectivity." Indeed, the Court have held that "a Central Bank Circular cannot repeal a law. Only a law can repeal another law." In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that "by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective." "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon." The Court finds the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, the Court agrees with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable.