Carolyn M.

Garcia
-vsRica Marie S. Thio
GR No. 154878, 16 March 2007
FACTS
Respondent Thio received from petitioner Garcia two crossed
checks which amount to US$100,000 and US$500,000, respectively,
payable to the order of Marilou Santiago. According to petitioner,
respondent failed to pay the principal amounts of the loans when they fell
due and so she filed a complaint for sum of money and damages with the
RTC. Respondent denied that she contracted the two loans and countered
that it was Marilou Satiago to whom petitioner lent the money. She
claimed she was merely asked y petitioner to give the checks to Santiago.
She issued the checks for P76,000 and P20,000 not as payment of interest
but to accommodate petitioners request that respondent use her own
checks instead of Santiagos.
RTC ruled in favor of petitioner. CA reversed RTC and ruled that
there was no contract of loan between the parties.
ISSUE
(1) Whether or not there was a contract of loan between petitioner and
respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou
Santiago?
HELD
(1)
The Court held in the affirmative. A loan is a real contract, not
consensual, and as such I perfected only upon the delivery of the object of
the contract. Upon delivery of the contract of loan (in this case the money
received by the debtor when the checks were encashed) the debtor
acquires ownership of such money or loan proceeds and is bound to pay
the creditor an equal amount. It is undisputed that the checks were
delivered to respondent.
(2)
However, the checks were crossed and payable not to the order
of the respondent but to the order of a certain Marilou Santiago. Delivery
is the act by which the res or substance is thereof placed within the actual
or constructive possession or control of another. Although respondent did
not physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby she
actually re-lent the amount to Santiago.
Petition granted; judgment and resolution reversed and set aside.

Saura Import & Export Co., Inc.

-vsDBP
GR No. L-24968, 27 April 972
44 SCRA 445
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.

BPI Investment Corporation

-vsCA
GR No. 133632, 15 February 2002
377 SCRA 117
FACTS
Frank Roa obtained a loan from Ayala Investment and Development
Corporation (AIDC), for the construction of his house. Said house and lot
were mortgaged to AIDC to secure the loan. Roa sold the properties to ALS
and Litonjua, the latter paid in cash and assumed the balance of Roas
indebtedness wit AIDC. AIDC was not willing to extend the old interest to
private respondents and proposed a grant of new loan of P500,000 with
higher interest to be applied to Roas debt, secured by the same property.
Private respondents executed a mortgage deed containing the stipulation.
The loan contract was signed on 31 March 1981 and was perfected on 13
September 1982, when the full loan was released to private respondents.
BPIIC, AIDCs predecessor, released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas
loan. BPIIC filed for foreclosure proceedings on the ground that private
respondents failed to pay the mortgage indebtedness. Private
respondents maintained that they should not be made to pay amortization
before the actual release of the P500,000 loan. The suit was dismissed
and affirmed by the CA.
ISSUE
Whether or not a contract of loan is a consensual contract.
HELD
The Court held in the negative. A loan contract is not a consensual
contract but a real contract. It is perfected only upon delivery of the object
of the contract. A contract o loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of the
other; it is a basic principle in reciprocal obligations that neither party
incurs in delay, if the other does not comply or is not ready to comply is a
proper manner with what is incumbent upon him

PANTALEON VS AMERICAN EXPRESS

Posted by kaye lee on 11:30 PM
G.R. No. 174269, May 8 2009 [Credit Transaction]
FACTS:
After the Amsterdam incident that happened involving the delay of
American Express Card to approve his credit card purchases worth
US$13,826.00 at the Coster store, Pantaleon commenced a complaint for
moral and exemplary damages before the RTC against American Express.
He said that he and his family experienced inconvenience and humiliation
due to the delays in credit authorization. RTC rendered a decision in favor
of Pantaleon. CA reversed the award of damages in favor of Pantaleon,
holding that AmEx had not breached its obligations to Pantaleon, as the
purchase at Coster deviated from Pantaleon's established charge purchase
pattern.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to
Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are approved within
seconds, there really is no strict, legally determinative point of
demarcation on how long must it take for a credit card company to
approve or disapprove a customers purchase, much less one specifically
contracted upon by the parties. One hour appears to be patently
unreasonable length of time to approve or disapprove a credit card
purchase.
The culpable failure of AmEx herein is not the failure to timely approve
petitioners purchase, but the more elemental failure to timely act on the
same, whether favorably or unfavorably. Even assuming that AmExs
credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why it could not have promptly informed
Pantaleon the reason for the delay, and duly advised him that resolving
the same could take some time.
2. Yes. The reason why Pantaleon is entitled to damages is not simply
because AmEx incurred delay, but because the delay, for which culpability

lies under Article 1170, led to the particular injuries under Article 2217 of
the Civil Code for which moral damages are remunerative. The somewhat
unusual attending circumstances to the purchase at Coster that there
was a deadline for the completion of that purchase by petitioner before
any delay would redound to the injury of his several traveling companions
gave rise to the moral shock, mental anguish, serious anxiety, wounded
feelings and social humiliation sustained by Pantaleon, as concluded by
the RTC.

Producers Bank of the Philippines v. CA, 397 SCRA 651

Doronilla is in the process of incorporating his business and to comply with
one of the requirements of incorporation, he caused Vives to issue a
check which was then deposited in Doronillas savings account. It was
agreed that Vives can withdraw his money in a months time. However,
what Doronilla did was to open a current account and instructed the bank
to debit from the savings account and deposit it in his current account. So
when Vives checked the savings account, the money was gone. Is the
contract a mutuum or commodatum?
Supreme Court held that the contract is a commodatum. Although in a
commodatum, the object is a non-consumable thing, there are instances
where a consumable thing may be the object of a commodatum, such as
when the purpose is not for consumption of the object but merely for
exhibition (Art. 1936). 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.

4. Pajuyo v. CA
GR No. 146364 June 3, 2004
Facts: Pajuyo entrusted a house to Guevara for the latter's use provided
he should return the same upon demand and with the condition that
Guevara should be responsible of the maintenance of the property. Upon
demand Guevara refused to return the property to Pajuyo. The petitioner
then filed an ejectment case against Guevara with the MTC who ruled in
favor of the petitioner. On appeal with the CA, the appellate court
reversed the judgment of the lower court on the ground that both parties
are illegal settlers on the property thus have no legal right so that the
Court should leave the present situation with respect to possession of the
property as it is, and ruling further that the contractual relationship of
Pajuyo and Guevara was that of a commodatum.
Issue: Is the contractual relationship of Pajuyo and Guevara that of a
commodatum?
Held: No. The Court of Appeals theory that the Kasunduan is one of
commodatum is devoid of merit. In a contract of commodatum, 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. An essential feature of
commodatum is that it is gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is for a certain period. Thus,
the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for
which the commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary use. If the use
of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a
precarium. Under the Civil Code, precarium is a kind of commodatum. The
Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not
require Guevarra to pay rent, it obligated him to maintain the property in
good condition. The imposition of this obligation makes the Kasunduan a

contract different from a commodatum. The effects of the Kasunduan are

also different from that of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is akin to a landlordtenant relationship where the withdrawal of permission would result in the
termination of the lease. The tenants withholding of the property would
then be unlawful.

Republic v. Bagtas

G.R. No. L-17474 October 25, 1962

Laws Applicable: Commodatum
Lessons Applicable:
FACTS:
May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a
book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of 1 year for breeding purposes subject to a
breeding fee of 10% of the book value of the bulls
May 7, 1949: Jose requested for a renewal for another year for the three
bulls but only one bull was approved while the others are to be returned
March 25, 1950: He wrote to the Director of Animal Industry that he would
pay the value of the 3 bulls
October 17, 1950: he reiterated his desire to buy them at a value with a
deduction of yearly depreciation to be approved by the Auditor General.
October 19, 1950: Director of Animal Industry advised him that either the
3 bulls are to be returned or their book value without deductions should
be paid not later than October 31, 1950 which he was not able to do
December 20, 1950: An action at the CFI was commenced against Jose
praying that he be ordered to return the 3 bulls or to pay their book value

of P3,241.45 and the unpaid breeding fee of P199.62, both with interests,
and costs
July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
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, he could not return the animals nor pay their
value and prayed for the dismissal of the complaint.
RTC: granted the action
December 1958: granted an ex-parte motion for the appointment of a
special sheriff to serve the writ outside Manila
December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who
died on October 23, 1951 and administratrix of his estate, was notified
January 7, 1959: she file a motion that the 2 bulls where returned by his
son on June 26, 1952 evidenced by recipt and the 3rd bull died from
gunshot wound inflicted during a Huk raid and prayed that the writ of
execution be quashed and that a writ of preliminary injunction be issued.
ISSUE: W/N the contract is commodatum and NOT a lease and the estate
should be liable for the loss due to force majeure due to delay.
HELD: YES. writ of execution appealed from is set aside, without
pronouncement as to costs
If contract was commodatum then Bureau of Animal Industry retained
ownership or title to the bull it should suffer its loss due to force majeure.
A contract of commodatum is essentially gratuitous. If the breeding fee
be considered a compensation, then the contract would be a lease of the
bull. Under article 1671 of the Civil Code the lessee would be subject to
the responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable if he keeps it longer
than the period stipulated
the estate of the late defendant is only liable for the sum of P859.63, the
value of the bull which has not been returned because it was killed while
in the custody of the administratrix of his estate
Special proceedings for the administration and settlement of the estate of
the deceased Jose V. Bagtas having been instituted in the CFI, the money
judgment rendered in favor of the appellee cannot be enforced by means
of a writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the court.

PEOPLE V. PUIG AND PORRAS

(Simple Loan)

Depositors who place their money with the bank are considered
creditors of the bank. The bank acquires ownership of the money
deposited by its clients, making the money taken by respondents as
belonging to the bank.

The relationship between banks and depositors has been held to be

that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code,
as appropriately pointed out by petitioner, provide as follows:

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.

Article 1980. (supra)

In summary, the Bank acquires ownership of the money deposited

by its clients; and the employees of the Bank, who are entrusted with the
possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.

SPOUSES JUICO V. CHINA BANKING CORP.

(Conventional Interest; Escalation Clause)
(Include Concurring Opinion)

Bank: that the interest rate changes every month based on the
prevailing market rate and notified petitioners of the prevailing rate by
calling them thru a telephone monthly before their account becomes past
due. When asked if there was any written authority from petitioners for
respondent to increase the interest rate unilaterally, respondent answered
that petitioners signed a promissory note indicating that they agreed to
pay interest at the prevailing rate.

China Bank unilaterally increased the interest rates from 15% to as

high as 24.50%.
RULES on Escalation Clauses:
a)
Escalation clauses are not void per se.
Escalation clauses refer to stipulations allowing an increase in the interest
rate agreed upon by the contracting parties. This Court has long
recognized that there is nothing inherently wrong with escalation clauses
which are valid stipulations in commercial contracts to maintain fiscal
stability and to retain the value of money in long term contracts. Hence,
such stipulations are not void per se.
b)
Escalation clauses violating the principle of mutuality of contracts
are void.

Nevertheless, an escalation clause "which grants the creditor an unbridled

right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in
the agreement" is void. A stipulation of such nature violates the principle
of mutuality of contracts. Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of increases in
the rate of interest provided in loan contracts.
Banco Filipino Savings & Mortgage Bank v. Navarro: While escalation
clauses in general are considered valid, we ruled that Banco Filipino may
not increase the interest on respondent borrowers loan, pursuant to
Circular No. 494 issued by the Monetary Board, because said circular is
not a law although it has the force and effect of law and the escalation
clause has no de-escalation clause.
De-escalation Clause: provision for reduction of the stipulated interest
"in the event that the applicable maximum rate of interest is reduced by
law or by the Monetary Board."
It is now settled that an escalation clause is void where the creditor
unilaterally determines and imposes an increase in the stipulated rate of
interest without the express conformity of the debtor. Such unbridled right
given to creditors to adjust the interest independently and upwardly would
completely take away from the debtors the right to assent to an important
modification in their agreement and would also negate the element of
mutuality in their contracts.34 While a ceiling on interest rates under the
Usury Law was already lifted under Central Bank Circular No. 905, nothing
therein "grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets."
Ecalation clause in this case: I/We hereby authorize the CHINA BANKING
CORPORATION to increase or decrease as the case may be, the interest
rate/service charge presently stipulated in this note without any advance
notice to me/us in the event a law or Central Bank regulation is passed or
promulgated by the Central Bank of the Philippines or appropriate
government entities, increasing or decreasing such interest rate or service
charge.
RULING: At no time did petitioners protest the new rates imposed on their
loan even when their property was foreclosed by respondent. This
notwithstanding, we hold that the escalation clause is still VOID because it
grants respondent the power to impose an increased rate of interest
without a written notice to petitioners and their written consent.
Respondents monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement
based on the new imposed interest with corresponding computation of the
total debt should have been provided by the respondent to enable
petitioners to make an informed decision. An appropriate form must also
be signed by the petitioners to indicate their conformity to the new rates.
Compliance with these requisites is essential to preserve the mutuality of

contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the
parties essential equality.
Effect: Modifications in the rate of interest for loans pursuant to an
escalation clause must be the result of an agreement between the parties.
Unless such important change in the contract terms is mutually agreed
upon, it has no binding effect. In the absence of consent on the part of the
petitioners to the modifications in the interest rates, the adjusted rates
cannot bind them.
NOTE: The lender and the borrower should agree on the imposed rate, and
such imposed rate should be in writing. Escalation clauses are not
basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds.
Concurring Opinion:
Points to consider in drafting a valid escalation clause: (DAP)
1)
Firstly, as a matter of equity and consistent with P.O. No. 1684, the
escalation clause must be paired with a de-escalation clause.
2)
Secondly, so as not to violate the principle of mutuality, the
escalation must be pegged to the prevailing market rates, and not merely
make a generalized reference to "any increase or decrease in the interest
rate" in the event a law or a Central Bank regulation is passed.
3)
Thirdly, consistent with the nature of contracts, the proposed
modification must be the result of an agreement between the parties.