Sps. Ong v.
BPI Fam Savings Bank petitioners entered into a credit agreement with BSA to enable them to buy
FACTS: Petitioners are engaged in the business of printing under the name
and style "Melbros Printing Center”. Sometime in December 1996, Bank of
Southeast Asia's (BSA) managers visited petitioners' office and discussed
the various loan and credit facilities offered by their bank. In view of
petitioners' business expansion plans and the assurances made by BSA's
managers, they applied for the credit facilities offered by the latter.
Sometime 1997, they executed a real estate mortgage over their property in
favor of BSA as security for a P15M term loan and P5M credit line or a total
of P20M. Thus, with regard to the term loan, only P10,444,271.49 was
released by BSA, while with regard to the P5M credit line, only P3M was
released. BSA promised to release the remaining P2M conditioned upon
the payment of the P3M initially released to petitioners.
Petitioners acceded to the condition and paid the P3M in full. However, BSA
still refused to release the P2M. Petitioners then refused to pay the
amortizations due on their term loan. Later on, BPI Family Savings Bank
(BPI) merged with BSA, thus, acquired all the latter's rights and assumed its
obligations. BPI filed a petition for extrajudicial foreclosure of the REM for
petitioners' default in the payment of their term loan. In order to enjoin the
foreclosure, petitioners instituted an action for damages with Temporary
Restraining Order and Preliminary Injunction against BPI praying for
P23,570,881.32 as actual damages; P1,000,000.00 as moral damages;
P500,000.00 as attorney's fees, litigation expenses and costs of suit. The
RTC ruled in favor of the petitioners, however BPI appeal before the CA.
The CA reversed the decision of the lower court and ruled in favor of BPI
ISSUES: 1. Whether there was already an existing and binding contract
between Petitioners and BSA with regard to the Omnibus Credit Line;
2. Whether BSA incurred delay in the performance of its obligations;
3. Whether the Petitioners are entitled to damages; and
4. Whether the BPI can foreclose the mortgage on the land of herein
petitioners
RULING:
There was a perfected contract. As a rule, a contract is perfected upon the
meeting of the minds of the two parties. It is perfected by mere consent, that
is, from the moment that there is a meeting of the offer and acceptance
upon the thing and the cause that constitute the contract.
In the case of Spouses Palada v. Solidbank Corporation, et al.,9 this Court
held that under Article 1934 of the Civil Code, a loan contract is perfected
only upon the delivery of the object of the contract. In that case, although
therein petitioners applied for a P3,000,000.00 loan, only the amount of
P1,000,000.00 was approved by therein respondent bank because
petitioners became collaterally deficient. Nonetheless, the loan contract was
deemed perfected on March 17, 1997, the date when petitioners received
the P1,000,000.00 loan, which was the object of the contract and the date
when the REM was constituted over the property.
when BSA approved and released the P3,000,000.00 out of the original
P5,000,000.00 credit facility, the contract was perfected.
The credit facility that BSA extended to petitioners was a credit line of
P20,000,000.00 consisting of a term loan in the sum of P15,000,000.00 and
a revolving omnibus line of P3,000,000.00 to be used in the petitioner's
printing business. In separate Letters both dated January 31, 1997, BSA
approved the term loan and the credit line. Such approval and subsequent
release of the amounts, albeit delayed, perfected the contract between the
parties.
Loan is a reciprocal obligation, as it arises from the same cause where one
party is the creditor and the other the debtor.11 The obligation of one party
in a reciprocal obligation is dependent upon the obligation of the other, and
the performance should ideally be simultaneous. This means that in a loan,
the creditor should release the full loan amount and the debtor repays it
when it becomes due and demandable.
In this case, BSA did not only incur delay in releasing the pre-agreed credit
line of P5,000,000.00 but likewise violated the terms of its agreement with
petitioners when it deliberately failed to release the amount of
P2,000,000.00 after petitioners complied with their terms and paid the first
P3,000,000.00 in full. The default attributed to petitioners when they
stopped paying their amortizations on the term loan cannot be sustained by
this Court because long before they sent a Letter to BSA informing the latter
of their refusal to continue paying amortizations, BSA had already reneged
on its obligation to release the amount previously agreed upon, i.e., the
P5,000,000.00 covered by the credit line.
Art 1170 - parties to a contract who are guilty of DELAY may be held liable
for damages.
machineries and equipment for their printing business. On its face, it can be
gleaned that the purpose of the credit agreement with BSA was indeed to
assist and finance petitioner's business by way of providing additional funds
as working capital or revolving fund.13
The direct consequences therefore of the acts of BSA are: the machinery
and equipment that were essential to petitioners' business and requisite for
its operations had to be procured so late in time and had crippled the
printing of school supplies, hence, petitioners were constrained to cancel
purchase orders of their clients to petitioners' damage.14
BSA claims that the release of the amount covered by the credit line was
subject to the "availability of funds" thus only a part of the proceeds of the
entire omnibus line was released.
Assuming for the sake of discussion that the funds at the time were
insufficient to cover the entire P5,000,000.00, BSA should have at least
informed petitioners in advance so that the latter could have resorted to
other means to secure the amount needed for their printing business. The
omnibus line was approved and became effective on January 1997 yet BSA
did not allow petitioners to draw from the line until November 1997.
Moreover, BSA downgraded petitioners' drawdown to only P3,000,000.00
despite the clear wordings of their credit agreement whereby petitioners
were allowed to draw any portion or all of the omnibus line not to exceed
P5,000,000.00. The almost 10 months delay in releasing the amount
applied for by petitioners negates good faith on the part of BSA.
BPI insists that it acted in good faith when it sought extrajudicial foreclosure
of the mortgage and that it was not responsible for acts committed by its
predecessor, BSA. Good faith, however, is not an excuse to exempt BPI
from the effects of a merger or consolidation
Effects of M&C. The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and obligations of each of the
constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations;
Moreover, Section 1(e) of the Articles of Merger dated November 21, 2001
provides that all liabilities and obligations of BSA shall be transferred to and
become the liabilities and obligations of BPI in the same manner as if it had
itself incurred such liabilities or obligations.15
Pursuant to such merger and consolidation, BPI's right to foreclose the
mortgage on petitioner's property depends on the status of the contract and
the corresponding obligations of the parties originally involved, that is, the
agreement between its predecessor BSA and petitioner.
Since BSA incurred delay in the performance of its obligations and
subsequently cancelled the omnibus line without petitioners' consent, its
successor BPI cannot be permitted to foreclose the loan for the reason that
its successor BSA violated the terms of the contract even prior to
petitioners' justified refusal to continue paying the amortizations.
The trial court pointed out that based on the evidence presented by
petitioners, the latter conformed to the acquisition of the loan precisely
because BSA promised them working capital for the expansion of their
business
The subsequent refusal of BSA in releasing the maximum amount agreed
upon, transgressed the very purpose of petitioners in availing the credit
facility. Clearly, given the nature of petitioners' business, time is of the
essence as they needed to have the orders ready before opening of
classes.
Delay and damages are not cloaks to hide petitioners obligations
No evidence was ever presented in the lower courts showing that the
petitioners defaulted in paying their amortizations on the term loan prior to
their refusal which was mainly grounded on BSA's failure to release the
amount covered by the omnibus line. Petitioners' continuous payment of
amortizations even during the period between January 1997 and November
1997 (when BSA incurred delay in releasing the omnibus line credit) is
inconsistent with the appellate court's finding that petitioners intended to
hide their obligations in the mortgage loan agreement. Petitioners' refusal to
continue paying was only prompted by BSA's refusal to abide by the terms
of the contract. Thus, it would be the height of injustice to allow BPI to
foreclose on the mortgage despite violation of its predecessor BSA of its
principal obligation.
Sps. Ramon Sy and Anita Ang v. Westmont Bank
Westmont alleged that on Oct 21, 1997, petitioners, doing business under
the trade name of Moondrops General Merchandising (Moondrops),
obtained a loan in the amount of P2,429,500.00, evidenced by PN GP-
52806 (PN 5280), payable on November 20, 1997. Barely a month after, or
on November 25, 1997, petitioners obtained another loan from Westmont
Bank in the amount of P4,000,000.00, evidenced by PN No. GP-52857 (PN
5285), payable on December 26, 1997. Disclosure Statements on the
Loan/Credit Transactions8 were signed by the parties. Earlier, a Continuing
Suretyship Agreement,9 dated February 4, 1997, was executed between
Westmont and petitioners for the purpose of securing any future
indebtedness of Moondrops.
Westmont averred that petitioners defaulted in the payment of their loan
obligations. It sent a Demand Letter, dated August 27, 1999, to petitioners,
but it was unheeded. Hence, Westmont filed the subject complaint.
Petitioners in their Answer countered that in Aug 1997, Ramon Sy and
Richard Sy applied for a loan with Westmont Bank, through its bank
manager William Lao (Lao). Acc to them, Lao required them to sign blank
forms of promissory notes and disclosure statements and promised that he
would notify them immediately regarding the status of their loan application.
In September 1997, Lao informed Ramon Sy and Richard Sy that their
application was disapproved. He, however, offered to help them secure a
loan through Amado Chua (Chua), who would lend them the amounts of
P2,500,000.00 and P4,000,000.00, both payable within three (3) months.
Ramon Sy and Richard Sy accepted Lao's offer and received the amounts
of P2,429,500.00 and P3,994,000.00, respectively, as loans from Chua.
Petitioners claimed that they paid Chua the total amount of their loans.
Petitioners insisted that their loan applications from Westmont were denied
and it was Chua who lent them the money. Thus, they contended that
Westmont could not demand the payment of the said loans.
In the pre-trial conference, the parties agreed on one issue - whether or not
the defendants obtained loans from Westmont in the total amount of
P6,429,500.00.12 During trial, Westmont presented, among others, its
employee Consolacion Esplana, who testified that the proceeds of the loan
were credited to the account of Moondrops per its loan manifold.13
Westmont, however, never offered such loan manifold in evidence.14
On the other hand, petitioners presented a Cashier's Check,15 dated
October 21, 1997, in the amount of P2,429,500.00, purchased from Chua,
to prove that the said loan was obtained from Chua, and not from
Westmont. The cashier's check for the subsequent loan of P4,000,000.00
could not have been obtained from Westmont.
RTC: in favor of Westmont. Westmont's cause of action was based on PN
5280 and PN 5285, the promissory notes executed by petitioners. The RTC
opined that petitioners admitted the genuineness and due execution of the
said actionable documents because they failed to make a specific denial in
the answer. It added that it should be presumed that the two (2) loan
transactions were fair and regular; that the ordinary course of business was
followed; and that they were issued for a sufficient consideration.
Ramon Sy never took any steps to have the promissory notes cancelled
and annulled, which led to the conclusion that their obligations to Westmont
were valid and binding.
Subsequently, RTC modified its ruling when petitioner denied the genuiness
and due execution of the PNs.
CA: affirmed RTC in toto. the genuineness and due execution of the
promissory notes were deemed admitted by petitioners. It added that the
admission of the said actionable documents created a prima facie case in
favor of Westmont which dispensed with the necessity of presenting
evidence that petitioners actually received the loan proceeds.
R:
Petitioners specifically denied the genuineness and due execution of
the promissory notes
Petitioners did not spell out the words "specifically deny the genuineness
and due execution of the promissory notes." Nevertheless, when the
answer is read as whole, it can be deduced that petitioners specifically
denied the paragraphs of the complaint regarding the promissory notes.
More importantly, petitioners were able to set forth what they claim to be the
facts, which is a crucial element under Section 8 of Rule 8. In particular,
they alleged that although Ramon Sy and Richard Sy signed blank forms of
promissory notes and disclosure statements, they were later informed that
their loans were not approved. Such disapproval led them to seek loans
elsewhere, through Lao and Chua, but definitely not with the bank anymore.
They insisted that the promissory notes and disclosure statement attached
to the complaint were false and different from the documents they had
signed. These significant and consistent denials by petitioners sufficiently
informed Westmont beforehand that it would have to meet the issue of
genuineness or due execution of the actionable documents during trial.
Westmont failed to prove that it delivered the proceeds of the loan to
petitioners
A simple loan or mutuum is a contract where one of the parties delivers to
another, either money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid.34 A simple
loan is a real contract and it shall not be perfected until the delivery of the
object of the contract.35 Necessarily, the delivery of the proceeds of the
loan by the lender to the borrower is indispensable to perfect the contract of
loan. Once the proceeds have been delivered, the unilateral characteristic
of the contract arises and the borrower is bound to pay the lender an
amount equal to that received.36
Here, there were purported contracts of loan entered between Westmont
and petitioners for the amounts of P2,429,500.00 and P4,000,000.00,
respectively. The PN evidencing such loans were denied by petitioners,
thus, the genuineness and due execution of such documents were not
admitted. Petitioners averred that they never received such loans because
their applications were disapproved by the bank and they had to acquire
loans from other persons. They presented a cashier's check, in the amount
of P2,429,500.00, obtained from Chua, which showed that the latter
personally provided the loan, and not the bank. As the proceeds of the loan
were not delivered by the bank, petitioners stressed that there was no
perfected contract of loan. In addition, they doubt the reliability of the
promissory notes as their original copies were not presented before the
RTC.
Due to the doubtful circumstances surrounding the loan transactions,
Westmont cannot rely on the disputable presumptions that private
transactions have been fair and regular and that the ordinary course of
business has been followed. The afore-stated presumptions are disputable,
meaning, they are satisfactory if uncontradicted, but may be contradicted
and overcome by other evidence.
At any rate, granting that they did execute the promissory note and other
actionable documents, still it was incumbent on Westmont, as plaintiff, to
establish that the proceeds of the loans were delivered to petitioners,
resulting into a perfected contract of loan.38 Notably, these documents also
did not state that the loan proceeds had been delivered to petitioners, and
that they had acknowledged its receipt.
In civil cases, the burden of proof rests upon the plaintiff who is required to
establish his case by a preponderance of evidence.39 As aptly stated by
the RTC, the primordial issue that must be resolved is whether petitioners
obtained loans from Westmont in the total amount of P6,429,500.00.40
Westmont failed to establish that it released and delivered the proceeds of
the loans in the total amount of P6,429,500.00 to petitioners. Westmont
could have easily presented a receipt, a ledger, a loan release manifold, or
a statement of loan release to indubitably prove that the proceeds were
actually released and received by petitioners. During trial, Westmont
committed to the RTC that it would submit as evidence a loan manifold
indicating the names of petitioners as recipients of the loans,41 but these
purported documents were never presented, identified or offered.42
As Westmont failed to prove that it had delivered the loan proceeds to
respondents, then there is no perfected contract of loan
People v. Concepcion (1922)
Venancio Concepcion, President of the Philippine National Bank, sent
telegrams and a confirmation letter to the manager of the Aparri branch of
PNB, authorizing an extension of credit in favour of Puno y Concepcion, S.
en C. in the amount of P300,000.00. This special authorization limited the
discretional power of the local manager of the Aparri branch to grant loans
and discount negotiable documents to P5,000, which in certain cases, could
be increased to P10,000. Pursuant to this authorization, credit aggregating
P300,000 was granted to Puno y Concepcion, S. en C., the only security
required consisting of six demand notes. This Puno y Concepcion, S. en C.,
in reality is a copartnership capitalized at P100,000 wherein, Venancio
Concepcion’s wife owns half of the copartnership. Venancio Concepcion
was found guilty by the CFI for violation of Section 354 of Act 2747 which
provides that: : "The National Bank shall not, directly or indirectly, grant
loans to any of the members of the board of directors of the bank nor to
agents of the branch banks."
ISSUES:

1. Whether or not the granting of a credit of P300,000 to the

copartnership was a “loan” within the meaning of Section 35 of
Act No. 2747.

YES. The "credit" of an individual means his ability to borrow 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, express or
implied, to repay the sum loaned, with or without interest. The concession of
a "credit" necessarily involves the granting of "loans" up to the limit of the
amount fixed in the "credit,"

2. Whether or not the granting of a credit of P300,000 to the

copartnership was a “loan” or a “discount”.

LOAN. Discounts are favored by bankers because of their liquid nature,

growing, as they do, out of an actual, live, transaction. But in its last
analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit; (2) a
discount is always on double-name paper; a loan is generally on single-
name paper.

Conceding, without deciding, the law covers loans and not discounts, yet
the conclusion is inevitable that the demand notes signed by the firm "Puno
y Concepcion, S. en C." were not discount paper but were mere evidences
of indebtedness, because (1) interest was not deducted from the face of the
notes, but was paid when the notes fell due; and (2) they were single-name
and not double-name paper.

3. Whether or not the granting of a credit of P300,000 to the

copartnershop was an “indirect loan” within the meaning of
Section 35 of Act 2747.

YES. In the interpretation and construction of statutes, the primary rule is to

ascertain and give effect to the intention of the Legislature. In this instance,
the purpose of the Legislature is plainly to erect a wall of safety against
temptation for a director of the bank. The prohibition against indirect loans is
a recognition of the familiar maxim that no man may serve two masters —
that where personal interest clashes with fidelity to duty the latter almost
always suffers. If, therefore, it is shown that the husband is financially
interested in the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within the
prohibition.

Various provisions of the Civil serve to establish the familiar relationship

called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and
1412 can be specially noted.) A loan, therefore, to a partnership of
which the wife of a director of a bank is a member, is an indirect loan
to such director.

That it was the intention of the Legislature to prohibit exactly such an

occurrence is shown by the acknowledged fact that in this instance the
defendant was tempted to mingle his personal and family affairs with his
official duties, and to permit the loan P300,000 to a partnership of no
established reputation and without asking for collateral security.