People vs Venancio Concepcion Facts: Venancio Concepcion was the President of The Philippine National Bank when he issued

a memorandum approving the credit application of the partnership of Puno y Concepcion S. en C for the amount of P300,000.00. The only securities required were six demand notes. The approval of the credit application was done despite the prevailing rule that limits the credit application to P5, 000.00 up to P10, 000.00. It is noteworthy to add that defendant Punos wife was a member in the said partnership. Puno was sued in violation of Section 35 of Act. No. 2747 which states 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." Puno was found guilty by the CFI. Defendant argued that the court erred in applying credit similar to loan as the one being transpired in the aforestated law. Also, in construing discounts as similar to loan. Issue: Whether or not credit and discounts can be held synonymous to loan. Held: YES. 1. Credit and Loan: 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. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) 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. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit," Discounts vis--vis Loans 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. The main ratio of the prohibition can be gleamed from these courts statements: Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. 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. Quoting from foreign jurisprudence: What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank. Trial Court decision was AFFIRMED. REPUBLIC OF THE PHILIPPINES vs. PHILIPINE NATIONAL BANK, THE FIRST NATIONAL CITY BANK OF NEW YORK Facts: The Republic of the Philippines filed before the CFi complaints for escheat of certain unclaimed bank deposits balances under the provisions of Act No. 3936, one of whom the defendant FNCBNY. The escheat proceedings include the credits and deposits held by them in favor of persons known to be dead or who have not made further deposits or withdrawal during the

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period of 10 years or more. The said credits are prayed to be escheated I favor the RP. FNCBNY admitted that there were deposits held by them under such category. They submitted before the Treasurer of the Philippines an amount totaling to more that P100, 000.00. However, it further stated that it inadvertently included certain items amounting to P18, 589.89, which, properly speaking are not credits or deposits within the contemplation of the Act No 3936. The Trial court ruled that the managers or cashiers checks and demand drafts come before the contemplation of the law but not with regard the telegraphic transfer payments. The FNCBNY complaint was dismissed. (Section 1, Act No. 3936, provides: Section 1. "Unclaimed balances" within the meaning of this Act shall include credits or deposits of money, bullion, security or other evidence of indebtedness of any kind, and interest thereon with banks, as hereinafter defined, in favor of any person unheard from for a period of ten years or more. Such unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the Insular Treasure to the credit of the Government of the Philippine Islands to be as the Philippine Legislature may direct.) (It should be understood that the terms being contemplated by the law involves credits and deposits.) Issue: Do demand draft and telegraphic orders come within the meaning of the term "credits" or "deposits" employed in the law? Can their import be considered as a sum credited on the books of the bank to a person who appears to be entitled to it? Do they create a creditor-debtor relationship between drawee and the payee? Held: CREDIT - is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment. DEBT - that which is due to any person, a distinguished from that which he owes

DEPOSIT (in bank) - where the relationship created between the depositor and the bank is that of creditor and debtor. DEMAND DRAFT - is a bill of exchange payable on demand. Considered as a bill of exchange, a draft is said to be, like the former, an open letter of request from, and an order by, one person on another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein specified. As a matter of fact, the term "draft" is often used, and is the common term, for all bills of exchange. And the words "draft" and "bill of exchange" are used indiscriminately BILL OF EXCHANGE - within the meaning of our Negotiable Instruments Law (Act No. 2031) [it] does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it. This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereon and the drawee is not liable on the bill unless and until he accepts the same." In other words, in order that a drawee may be liable on the draft and then become obligated to the payee it is necessary that he first accepts the same. In fact, our law requires that with regard to drafts or bills of exchange there is need that they be presented either for acceptance or for payment within a reasonable time after their issuance or after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such presentment will discharge the drawer from liability or to the extent of the loss caused by the delay Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment, the inevitable consequence is that the appellee bank never had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts cannot be considered as credits subject to escheat within the meaning of the law. DEMAND DRAFT is NOT INCLUDED IN THE INTERPRETATION OF THE LAW. CASHIERS/MANAGERS CHECKS A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of exchange drawn by a bank on itself and accepted in advance by the act of issuance. A cashier's check issued on request of a depositor is the substantial equivalent of a certified check and the deposit represented by the check passes to the credit of the checkholder, who is thereafter a depositor to that amount. A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in

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advance by the act of issuance, is not subject to countermand by the payee after indorsement, and has the same legal effects as a certificate deposit or a certified check. IT IS INCLUDED IN THE INTERPRETATION OF THE LAW. Keyword: ACCEPTANCE by the drawee. TELEGRAPHIC TRANSFER In view of the fact that the telegraphic transfer was already paid by the drawer, it is absurd to surmise that the same was already owned by the drawee bank. HENCE, TELEGRAPHIC TRANSFER is NOT INCLUDED. AFFIRMED with MODIFICATION.

Now, Saura, nine years after its request for cancellation, sued RFC (now DBP) for actual and consequential damages. Issue: Whether or not there was a perfected contract between Saura Import and RFC. Held: YES. 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. When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. 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 cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2 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 noncompliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the

SAURA IMPORT AND EXPORT CO, INC., VS DEVEOPMENT BANK OF THE PHILIPPINES FACTS: Saura Import applied for an industrial loan of P500, 000.00 before the Rehabilitation Finance Corporation (RFC later on Development Bank of the Philippines) for the construction and establishment of its jute mill. The loan application was initially approved by the RPC. Consequently, Saura Import initiated a mortgage agreement between the Prudential Bank for the materials to be used. However, with the backing-out of China Engineers Ltd., the RFC moved to cancel the loan agreement. Later on, China Engineers Ltd. resumes the contract with the Saura and is now willing to sign a promissory note with it, however, with the following proviso: 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." Saura then requested the revival of the loan agreement with the RFC. RFC, on the other hand, relying on the proviso of the new contract, sought the certification by the DENR that enough local materials will be available to run the operation of the jute mill. RFC did not comply with the condition because, as certified, DENR stated that there will be no enough materials in the country and importation would be an option. Henceforth, Saura, by its own initiative, requested the cancellation of the loan agreement. Prudential sued Saura for its inability to pay its obligation.

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said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself. DECISION REVERSED, COMPLAINT DISMISSED.

Held: NO. As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7). This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution. Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and void, This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage. Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent

RAOUL S.V. BONNEVIE and HONESTO BONNEVIE vs CA and THE PHILIPPINE BANK OF COMMERCE FACTS: Petitioners assail the validity of the mortgage executed by Spouses Jose and Josefa Lozana in favor of the PBC together with its subsequent foreclosure of the deed of mortgage. They alleged that the deed of mortgage was without consideration, that it was issued not by the true owner of the property, and also, the foreclosure was affected in violation of Act. No. 3135. Spouses Lozano was the owner of the property mortgaged to the PBC on Dec. 6, 1966 to secure for the payment of the loan they amounting to P75, 000.00 they were about to obtain from the PBC. On December 8, 2966, a Deed of Sale with mortgage was executed in favor of the petitioner Bonnevie for a consideration f P100, 000.00, P25, 000.00 of which amount payable to the Lozano spouses upon the execution of the document, and P75, 000.00 payable to the PBC. On December6, 1966, the time of the execution of the mortgage, the loan was not yet received by them. as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments to defendantappellee on the mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiffappellant assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968, and the property was sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the property. Noteworthy was the fact that the mortgage was not registered and the PBC, effecting the foreclosure of mortgage relied on the certificate of title in which the spouses Lozano was the registered owner. Issue: Whether or not petitioners rights were violated by virtue of the foreclosure of mortgage.

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Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals thereof.

Issue: whether or not the contract between Jose Bagtas and the RP is one of commodatum. Held: The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk 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 returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, 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.1 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, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum . . . is liable for loss of the things, even if it should be through a fortuitous event: (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; LIABLE FOR THE VALUE OF THE BULL WHICH HAS NOT BEEN RETURNED.

REPUBLIC OF THE PHILIPPINES vs JOSE V. BAGTAS, and FELICIDAD M. BAGTAS Administrator of the Estate left by Jose V. Bagats. FACTS: Jose Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi a with book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. The contract was for 1 year and to be expired on 7 May 1949. However, upon expiration, Jose Bagtas asked for an extension of another one year. The Secretary of Agriculture Natural Resources approved the renewal of only one bull and requested the return of the other two. In this connection, Jose Bagtas offered to buy the bulls wit a deduction of yearly depreciation value. The Director of Animal Industry did not accede, and the book value of the bulls must be paid. However, Jose Bagtas failed to pay the same. Hence, the RP thru the CFI commenced an action against him praying that he be ordered to return the bulls and to pay the breeding fee of 10%. However, Jose Bagtas still failed to return the bulls. The latter died on 06 December 1958. A writ of execution was issued against his estate, with whom. his wife, Felicidad Bagtas is the administratrix. On the other hand, Felicidad said that the two bulls were already returned by his son and the other was shot dead by the Huks. Henceforth, she prayed that the writ of execution be quashed and an injunction be issued to prevent them from claiming said breeding fee. She contend that the agreement was that of commodatum and not a a lease, whereby the RP retained ownership over the bulls and be held liabe in case of its demise. The RP absolved the estate for the two bulls in view of the fact the they were already returned.

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs CA, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ FACTS: Prior judgments by the Court were held that Lots nos. 2 & 3 respectively belong to the respondents heirs of Octoviano and Valdez. However, the VICAR repeatedly assails the ownership of the lots contending that they have been in possession of it for long time and

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purchased the same from the registered owners. It has been held that the Vicar were just bailee in a contract of commodatum when the latters church and convent were destroyed. Controversies started when petitioner Vicar filed for registration of title over Lots 1, 2, 3 & 4 situated at Poblacion Central, La Trinidad, Benguet, wherein said lots were the site of ts church, convents, school, etc. However, herein respondents heirs of Octaviano and Valdez filed an Answer/Opposition on Lots Nos. 2 and 3 asserting ownership over the same. After trial the land registration court promulgated its Decision, confirming the registrable title of VICAR over Lots 1, 2, 3 & 4. The Heirs appealed the Decision of the land registration court before the CA. The latter dismissed the claim of the VICAR as to Lots Nos. 2 & 3 holding the same due to the heirs. However, upon petition to allow the same be registered in their names, the CA denied the same. On the other hand VICAR appealed before the SC to vests the ownership of the lots unto it but the same was denied. Upon reconsideration of the Heirs, SC also denied the motion. Seeking the CFI, the latter likewise denied the petition. After a long twist of event, the Court finally held that the parties were barred by res judicata. The ownership of the lots 2 & 3 was already determined in the prior decisions. (Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust [based on commodatum] and when it applied for registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without; that the principle of res judicata on these findings by the Court of Appeals will bar a reopening of these questions of facts; and that those facts may no longer be altered.) Issue: Whether or not the VICAR has a right to assume ownership over Lots Nos. 2 & 3. Held: NO. 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 predecessorsin-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. MARGARITA QUINTOS and ANGEL A. ANSALDO vs, BECK FACTS: Beck was a tenant of the plaintiff and occupied the laters house on M.H. del Pilar St., Manila. Upon novation of the contract of lease between Quintos and Beck, the former gratuitously granted the latter the use of furniture consisting of 3 heaters and 4 electric lamps. On September 14, 1936, Quintos sold the property to Maria and Rosario Lopez. Because of these, she gave Beck 60 days to vacate the premise, and in addition thereto, to give her the furniture upon demand. Quintos ordered the return of the furniture, however Beck contend that he has still need to use the same until the termination of the 60 days period. He soon wanted to return the furniture but, instead of delivering the same to the plaintiff, he just wrote letters informing her that she can call for the furniture in the ground floor of the house adding up that he still has to use it until the expiration of the lease. Upon termination, he deposited the furniture to the sheriff. Plaintiff filed a case against him praying that he be ordered to pay the value of the furniture in the case that the same were not delivered to her. The Trial Court denied the petition because they were the ones who violated the contract by not calling for all the furniture on the moment the defendant offered them to her. Also, she was ordered to pay half price of the deposit fee on the sheriff. Hence this petition. Issue: Whether or not the defendant is liable for damages for breach of a contract of commodatum. Held: 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

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bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). 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. 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. ORDERED TO DELIVER THE FURNITURE TO THE PLAINTIFFS HOUSE.

the real estate mortgage and from collecting the P17, 000.00 part of the loan together with its accumulated interest. The CFI issued the injunction but later on, upon hearing the answer of the petitioner, lifted the injunction. Upon appeal to the CA, the latter ruled that specific performance is no longer applicable (so as to force ISB to release the balance of P63, 000.00) because of its insolvency. It ruled that ISB can no longer foreclose the mortgage nor recover the P17, 000.00 part of the loan. Issue: Whether or not ISB can still recover the P17, 000.00 with interest and foreclose the 100-hectare mortgaged real property of the Tolentino. Held. YES. The nature of the contract between ISB and Sulpicio Tolentino was reciprocal obligation. The performance of the other party gives rise too the delay of the other party. Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their

CENTRAL BANK OF THE PHILIPPINES vs. CA & SULPICIO M. TOLENTINO FACTS: Sulpicio M. Tolentino applied for an P80, 000.00 loan before the Island Savings Bank (ISB), placing his 100 hectares land in Agusan as security for the loan. On May 22, 1965, ISB released P17, 000.00 as a part of the loan agreement in favor of Sulpicio. In this regard, Sulpicio signed a promissory note stating that, he shall pay the P17, 000.00 loan together with its 12% per annun interest 3 years thereafter. ISB then promised to release the remaining part of the loan amounting to P63, 000.00. However, on August 13, 1965, the Menetary Board of the Central Bank found that ISB was suffering from liquidity problems and prohibit the latter to make new loans and investments. On August 1, 1968, ISB was totally prohibited from doing business in the Philippines. In view of these facts, Sulpicio Tolentiono filed before the CFI Agusan a petition for injundtion and specific performance or rescission against the ISB in order to prevent the latter from foreclosing

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reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. As to the real estate mortgage of 100 has land, the Court held that only the proportionate portion of the P17, 000.00 out of P80, 000.00 or 21.25 has of the total hectarage can be foreclosed. LIABLE TO PAY P17, 000.00 PLUS INTEREST, or in its FAILURE TO DO SO, THE FORECLOSURE OF THE 21.25 HAS OF THE REAL ESTATE MORTGAGE. As to the over-valuation of the real estate mortgage, the Cour said: The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings. PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES VS THE INTERMEDIATE APPELLATE COURT AND ERNESTO C. DEL ROSARIO

Facts: The Davao Timber Corporation (DATICOR) wherein the private respondent Del Rosario was its President entered into a loan agreement between the petitioner Private Development Corporation of the Phils. (PDCP) for the purpose of establishing a kiln drying and woodworking plant in Mati, Davao Oriental. The stipulated amount of loan were: 1. US$ 265,000.00 with 11-3/4% interest per annum; and 2. P2, 500.000.00 with 12% interest rate per annum, or a total of 4.4 million pesos. 3. As penalty for non-payment or delays, PDCP would charge 2% per month penalty. The loans were secure by the properties of Del Rosario and his sister, ourdes C. Cuerva. Later on, PDCP included 5 other parcels of land as mortgaged property. A total of P3, 000,000.00 was already paid by Del Rosario when PDC said that he still has an outstanding obligation of P10, 887,856.00 accruing from the interest rates agreed upon. Upon failure to settle the amount, PDCP filed before the Trial Court a petition to foreclose the mortgaged property. Del Rosario sought an injunction before the Trial upon contention that the PDCP was liable for violation of the Usury Law. Del Rosario at first was lost in the Trial Court, but on appeal to the IAC, the latter upheld his contention. Issue: Whether or no the transaction between PDCP and DATICOR was usurious, hence void. Held: Yes. The prevailing law that time was the Act No. 2655 or the Usury Law. In its Section 2, it states that the interest rate over a transaction involving loan, forbearance of money as secured by a mortage upon a real property must not be more than 12% per annum. In the instant case, PDCP charged DATICOR a total of 42% interest rate per annum upon its peso obligation (in view of the 2% penalty charges per month), and 18-3/4% in its foreign currency obligation. Clearly, a violation of the Usury Law. The Supreme Court held that since Del Rosario had already paid 3 million pesos, he is still liable to pay PDCP 1.4 million pesos its deficiency in the principal obligation. This is to prevent unjust enrichment of the borrower at the expense of the lender.

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