Credit Case Digest

PEOPLE vs. CONCEPCION, 44 Phil. 126FACTS: Venancio Concepcion, President of the Philippine National Bank and a member of theBoard thereof, authorized an extension of credit in favor of "Puno y Concepcion, S. en C.” to themanager of the Aparri branch of the Philippine National Bank. "Puno y Concepcion, S. en C."was a co-partnership where Concepcion is a partner. Subsequently, Concepcion was charged andfound guilty in the Court of First Instance of Cagayan with violation of section 35 of Act No.2747. Section 35 of Act No. 2747 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 agentsof the branch banks. Counsel for the defense argue that the documents of record do not provethat authority to make a loan was given, but only show the concession of a credit. They averredthat the granting of a credit to the co-partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National Bank, is not a "loan" within the meaning of section 35 of Act No. 2747. ISSUE: Whether or not the granting of a credit of P300,000 to the co-partnership "Puno yConcepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a"loan" within the meaning of section 35 of Act No. 2747. HELD: The Supreme Court ruled in the affirmative. The "credit" of an individual means hisability to borrow money by virtue of the confidence or trust reposed by a lender that he will paywhat 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," G.R. No. L-4150 February 10, 1910 Facts: The Plaintiff Felix delos Santos filed this suit against Agustina Jarra. Jarra was the administratix of the estate of Jimenea. Plaintiff alleged that he owned 10 1st class carabaos which he lent to his father-in-law Jimenea to be used in the animal-power mill without compensation. This was done on the condition of their return after the work at the latter’s mill is terminated. When delos Santos demanded the return of the animals Jimenea refused, hence this suit. Issue: W/N the contracts is one of a commodatum Ruling: YES. The carabaos were given on commodatum as these were delivered to be used by defendant. Upon failure of defendant to return the cattle upon demand, he is under the obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos were not the property of the deceased or of any of his descendants, it is the duty of the administratrix of the estate to either return them or indemnify the owner thereof of their value. - See more at: http://lawsandfound.blogspot.com/2012/07/delos-santos-v-jarradigest.html#sthash.c4meC5AP.dpuf

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Felix De los Santos, plaintiff appellee. V Agustina Jarra, administratrix of the Estate of Magdaleno Jimenea. (1910 case) EMERGENCY RECIT: De los Santos owned 10 carabaos which he lent to Jimenea to be used in his hacienda. The 10carabaos were not returned upon de los santos’ demand. Jimenea died and Jarra wasappointed to be the administratrix of his estate. De los Santos filed for the exclusion of hiscarabaos with the commissioners of Jimenea’s estate. The commissioners rejected her claim.Jarra was contending that only 3 carabaos were given to Jimenea and afterwards these 3 werealso sold to him (jimenea). The court stated that Jarra had no basis in his claim and rendered judgment against to him to give 6 carabaos or it’s equivalent value (120 each). Jarra appealed.The supreme court held that there is no evidence of the sale between Jimenea and de losSantos. Therefore it is not true.The carabaos delivered to be used were not returned by Jimineaupon demand. There is no doubt that Jarra is under the obligation to indemnify delos Santos.The obligation of the bailee or of his successors to return either the thing loaned or its value issustained by the tribunal of Spain which said in its decision. (mentioned jurisprudence): legaldoctrine touching commodatum as follows: Although it is true that in a contract of commodatum the bailor retains the ownership of thingloaned at the expiration of the period, or after the use for which it was loaned has beenaccomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or topay him damages if through the fault of the baileethe thing should have been lost or injured…Torres, J. Facts: (this is a case of appeal from a judgment of the CFI of Occidental negros) 1) Felix de los Santos brought suit against Agusitina Jarra (the administratrix of the estateof Magdaleno Jimenea, he alleges that Jimenea borrowed and obtained from the plaintiff 10 first class carabos, to be used at the animal power mill of JImenea’s hacienda,without recompense or remuneration for the use of it and under the sole condition thatthey should be returned to the owner as soon as the work at the mill was terminated.Jimenea however, did not return the carabaos even though de los Santos claimed their return after the work at the mill was finished.2)Jimenea died in 1904 (before the suit)and Jarra was appointed by the CFI asadministratrix of his estate. 3) De los Santos presented his claim to the commissioners of the estate of Jimenea for return of the carabaos. (for the carabaos to be exluded from the estate of Jimenea). thecommissioners rejected his claim, and thus a lawsuit ensued.4)Jarra answered and said that it was true that the late Jimenea asked the plaintiff to loanhim ten carabaos, but that he only obtained THREE (3) second-class carabaos, whichwere afterwards sold by the Delos Santos to Jimenea. (basically Jarra denied all theallegations in the complaint)5)The case came up for trial and the court

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rendered judgment against Jarra and orderingher to return to de los Santos 6 second-class and third class carabaos. The value of which was 120 each so 720 pesos. 6)Jarra moved for a new trial on the ground that the findings of fact were openly andmanifestly contrary to the weight of the evidence.7)Jarra needs to prove that Jimenea only received 3 second class carabaos tosubstantiate her claim. 8) The record however, discloses that it has been fully proven from the testimonies of anumber of witnesses that Santos, sent in charge of various persons, the 10 carabaosrequiested by Jiminea (it was revealed that Jimenea is the father in law of de losSantos). Also, de los Santos produced 2 letters proving that jimenea received them inthe presence of said persons (brother of Jimenea) who saw the animals arrive at thehacienda. FOUR of the carabaos died of rinderpest and thus the judgment appealedfrom only deals with 6 carabaos.9)THE ALLEGED PURCHASE of 3 carabaos by Jimenea from his son-in-law Santos is notevidenced by any trustworthy evidence. Therefore, it is not true.10)From the foregoing, it may be logically inferred that the carabaos loaned or given oncommodatum to the deceased Jimenea were ten in number, that 6 survived and thatthese carabaos have not been returned to the owner delos Santos, and lastly, that the 6carabaos were not the property of the deceased nor any of his descendants, it is theduty of the administratrix to return them or indemnify the owner for the value. Issue: (NOT STATED EXPLICITLY) WON the carabaos belonged to the estate of Jimenea. Held: NO. it was not part of Jimenea’s estate. Therefore Agustina Jarra should exclude it or indemnify De los Santos… “for the reasons above set forth, by which the erros assigned to the judgment appealed from have been refuted, and considering that the same is in accordancewith the law and the merits of the case, it is our opinion that it should be affirmed and we dohereby affirm it with the costs against appellant. Ratio: The ratio differentiates a loan from a commodatum. Art 1740. (old civil code) By the contract of loan , one of the parties delivers to the other,either anything not perishable (in the new civil code it’s consumable), in order that thelatter may use it during a certain period and return it to the former, in which case it iscalled commodatum , or money or any other perishable thing, under the condition to return anequal amount of the same kind and quality, in which case it is merely called a loan. Commodatum is essentially gratuitous. A simple loan may be gratuitous, or made under a stipulation to pay interest. Art 1741. The 3

bailor retains ownership of the thing loaned the bailee acquires the usethereof , but not its fruits; if any compensation is involved, to be paid by the person requiring theuse, the agreement ceases to be a commodatum. Art 1742. The obligations and rights which arise from the commodatum pass to the heirs of bothcontracting parties, unless the loan has been made in consideration for the person of the bailee,in which case his heirs shall not have the right to continue using the thing loaned.The carabaos delivered to be used were not returned by Jiminea upon demand. There is nodoubt that Jarra is under the obligation to indemnify delos Santos. Article 101. those who in fulfilling their obligations are guilty of fraud, negligence or delay….The obligation of the bailee or of his successors to return either the thing loaned or its value issustained by the tribunal of Spain which said in its decision. (mentioned jurisprudence): legaldoctrine touching commodatum as follows: Although it is true that in a contract of commodatum the bailor retains the ownership of thing loaned at the expiration of the period, or after the use for which it was loaned hasbeen accomplished, it is the imperative duty of the bailee to return the thing itself to itsowner, or to pay him damages if through the fault of the bailee the thing should havebeen lost or injured…

COMMISSIONER OF INTERNAL REVENUE v. BURROUGHSLIMITED AND THE COURT OF TAX APPEALS

PONENTE : PARASLEGAL DOCTRINE: Memorandum Circular No. 8-82 cannot begiven retroactive effect in light of Section 327 of the NIRC. 1 FACTS: 1.March 1979: The branch office of Burroughs Limited, a foreigncorporation, applied with the Central Bank for authority to remit to itsparent company abroad, branch profit.

Amount Applied for: Php 7,647,058.0015% Branch Profit Remittance Tax: Php 1,147,048.70 Amount Actually Remitted: Php 6,499,999.302.

24 December 1980: Burroughs claims a tax refund/credit of Php172,058.90.Branch Profit Remittance tax should be 15% of Amount Actually Remitted.(based on Ruling of Acting Commissioner of Internal Revenue)

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CTA: grants tax credit4.

CIR: Burroughs no longer entitled to refund because MemorandumCircular No. 8-82 dated 17 March 1982 had revoked and/or repealed theBIR ruling of 21 Jan 1980. ISSUE(S) WON Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can begiven retroactive effect? (NO) DISPOSITIONvvvvvvvvvvvvv 1. Jan 1980: BIR ruling by Acting Commissioner of Internal Revenue of NIRC Sec 24 (b)(2) (ii) Tax Base upon which 15% branch profits remittance tax shall beimposed on Branch profits actually remitted and not on the total branch profits out of which the remittance is to be made. 2. Applicable Ruling is Revenue Ruling of 21 Jan 1980 because Burroughspaid the branch profit remittance tax on 14 Mar 1979. MC No. 8-82 cannot be given retroactive effect in light of Sec 327 of NIRC.3.

3. The retroactive application of MC No. 8-82 would prejudice Burroughs asit would be deprived of the substantial amount of 172T++. Burroughs alsodoes not fall under any of the enumerated exceptions where retroactivity would apply. REPUBLIC VS BAGTAS [G.R. No. L-17474 October 25, 1962] PADILLA, J. 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.

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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.

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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 cannot be depreciated and asked Bagtas to either return the bulls or pay their book value.

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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.

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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.

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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.

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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.

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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.

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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 it was killed by stray bullets.

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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 6

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.

SAURA IMPORT and EXPERT CO., INC., vs DBP [G.R. No. L-24968, April 27, 1972] MAKALINTAL, J. FACTS:

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In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill 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.

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The mortgage was registered and documents for the promissory note were executed. But then, later on, was cancelled to make way for the registration of a mortgage contract over the same property in favor of Prudential Bank and Trust Co., the latter 7

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 almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the latter to comply with its obligations to release the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

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The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties and that the RFC was guilty of breach thereof.

ISSUE: Whether or not there was a perfected contract between the parties. YES. There was indeed a perfected consensual contract. HELD: ·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. 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. The defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. · 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. · However, it should be noted that RFC imposed two conditions (availability of raw materials and increased production) when it restored the loan to the original amount of P500,000.00. · 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.The action thus taken by both parties was in the nature of mutual desistance 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. ·WHEREFORE, the judgment appealed from is reversed and the complaint dismissed. Carolyn M. Garcia -vsRica Marie S. Thio GR No. 154878, 16 March 2007 FACTS 8

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 petitioner’s request that respondent use her own checks instead of Santiago’s. 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. Vvvvvv Ligutan vs. CA G.R#138677 Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissorynote binding themselves, jointly and severally, with an interest of 15.189% per annum upon maturityand to pay a penalty of 5% every month on the outstanding principal and interest in case of default and also a 10% attorney’s fees if the matter were indorsed to a lawyer for collection. The obligation matured, the petitioners were not able to settle the obligation; The bank gave anextension, still the same happened. Since the petitioners still defaulted, the former filed a complaint forrecovery of the due amount. 9

Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners’ loan are manifestly exorbitant, iniquitous and unconscionable?Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not atliberty ignore the freedom of the parties to agree on such terms and conditions as they see fit thatcontravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if theprincipal obligation has been partly or irregularly complied with.The question of whether a penalty is reasonable or iniquitous can be partly subjective and partlyobjective. Its resolution would depend on such factors as, but not necessarily confined to, the type,extent and purpose of the penalty, the nature of the obligation, the mode of breach and itsconsequences, the supervening realities, the standing and relationship of the parties, and the like, theapplication of which, by and large, is addressed to the sound discretion of the court.The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3% a month. It was also been held that the 15.189% per annum stipulated interest and the 10% attorney’s is reasonable and not excessive. The interest prescribed in loan financing arrangements is a fundamental part of thebanking business and the core of a bank's existence Ligutan vs CA DOCTRINE: penalty clause is an accessory undertaking to assume greater liability on the part of the obligor in case of breach. although parties are free to stipulate in their contract the terms, courts may reduce interest if it is unconscionable F: Ligutan and de Llana obtained a lon from Security bank and trust company. petitioners (ligutan and de llana) executed a promissory note binding themselves solidarily to pay with an interest of 15.189% and pay a penalty of 5% for every month in case of default and in addition, to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer. despite several demands, petitioner failed to pay.first demand was made on may 20 1982. bank filed a case. RTC ruling: 1. sum of 114k with interest of 15%, 2% sservice charge, 5% penalty charge,commencing on may 20 1982 until fully paid 2. pay further sum of 10% attorneys fees. petitioners appealed. CA affirmed except on 2% service charge which was deleted pursuant to Cetral bank circular 783. parties filed for motion for reconsideration. petitioners prayed for the reduction of 5%. bank on the other hand prayed that the payment of interest and penalty be commenced not from the date of filinf but from the time of default. CA resolved the two motion thusly: default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or law so provides. in this case, it was a promissory note hence demand is not necessary. While parties are bound to the stipulations in the contract (specifically interest rates), we take cognizance of their plea for the application of art. 1229 which is partial performance. it is our view that 3% per month penalty or 36% per annum would suffice. petitioners filed a motion for reconsideration and to admit newly discovered evidence. appellate court denied. 10

hence, this present action for review on certiorari. Respondent, which did not appeal, would have it that the penalty sought to be deleted by petitioner was not even sufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of peso. ISSUE: won penalty should be reduced or interest should be removed HELD: NO, CA is correct in its reduction of 5% to 3%. penalty clause is an accessory undertaking to assume greater liability on the part of the obligor in case of breach. although parties are free to stipulate in their contract the terms, courts may reduce interest if it is unconscionable the court sees no cogent ground to modify the ruling of the CA in view of the fact of the constant breach by the petitioner. petitioner questions the 15% interest. the court said that it is not excessive to warrant reduction. the essence or rationale for the payment of interest, is not exactly the same as that of surcharge or penalty. what may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non payment or reduction of interest. irrelevant: there was no novation in this case.

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