Credit Digests

People v. Conception, G.R. No. L-19190, November 29, 1922, 44 Phil 126 - Em DOCTRINE: ● “Credit” 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. ● “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. FACTS: ● Herein defendant Venancio Concepcion is the President of PNB. He executed a special authorization of an extension of credit for P300,000 to the Aparri bank manager in favor of a copartnership named “Puno y Concepcion” of which his wife was a member. ● This was a special authorization because by a memo, Concepcion originally limited the discretional power of the manager to grant loans to only P5,000 which could be increased to P10,000. ● The only security consisted of 6 demand notes. The co-partnership itself was capitalized at P100,000. The notes and interest were taken up and paid. ● Concepcion was then charged with a violation of Sec 35 Act 2747 which states that: “the National Bank shall not directly or indirectly grant loans neither to any of the members of the board or directors of the bank nor to agents of the branch banks.” ● CFI of Cagayan: Venancio Concepcion is guilty of violation of Sec 35 Act 2747 ISSUES: (1) Whether or not the granting of a credit to the co-partnership a “loan” within the meaning of Sec 35 Act 2747 (2) Whether or not the granting of a “credit” of P300,000 a“loan” or a “discount” HELD: (1) No. It was a credit. However, the concession of a “credit” necessarily involves the granting of “loans” up to the limit of the amount fixed in the “credit.” Credit v. Loan “Credit” 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. “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 sumloaned, with or without interest. (2) It was a loan Discount

Loan

Interest is deducted in advance

Interest is taken at the expiration of a credit

Always in double-name paper

Generally on single-name paper

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans, not discounts, conclusion is inevitable that the demand notes were NOT discount paper but mere evidence of indebtedness because: 1. Interest was not deducted from the face of the notes, but was paid when the notes fell due 2. They were single-name and not double-name paper In the Binalbagan Estate case: similar facts and the ruling was that the operations constituted a loan and not a discount Dispositive: CFI Decision affirmed. Concepcion is guilty. Garcia v. Thio, 518 SCRA 433 (2007) - Jez Doctrine: Delivery is the act by which the res or substance thereof is 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 amounts to Santiago. Facts: Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed checkdated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago. Thereafter, petitioner received from respondent every month the amount of US$3,000 and P76,500on July 26,August 26, September 26 and October 26, 1995. In June 1995, respondent received from petitioner another crossed check dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago. Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995. According to petitioner, respondent failed to pay the principal amounts of the loans when they fell due. Thus, petitioner filed a complaint for sum of money and damages in the RTC against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorney‟s fees and actual damages. Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands. Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed 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. The RTC ruled in favor of petitioner. It found that respondent borrowed from petitioner the amounts of

US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%. On appeal CA reversed the decision stating that There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner].The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. Hence this petition. Issue: Whether there is a contract of loan between the parties and may therefore be compelled to deliver payment Held: The petition is impressed with merit. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract. This is evident in Art. 1934 of the Civil Code which 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 the delivery of the object of the contract. It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago? The court agrees with the petitioner is stating that, although respondent did not physically receive the proceeds of the checks, these instruments where placed under her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago. Why is that? First, respondent admitted that petitioner did not personally know Santiago. It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Second, Leticia Ruiz, a friend of both petitioner and respondent testified that respondent‟s plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same

amount to Santiago at a higher rate of 5% and realize a profit of 2%. This explained why respondent instructed petitioner to make the checks payable to Santiago. Third, respondent admitted that she issued her own checks for the US$100,000 loan in the amount of P76,000 each for eight months to cover the monthly interest. Same goes for the P500,000 loan in the amount of P20,000 each for four months; claiming that she merely accommodated petitioner‟s request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago but that Santiago would replace the checks with cash. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiago‟s) creditors. Last, respondent never presented Santiago as a witness to corroborate her story.The presumption is that "evidence willfully suppressed would be adverse if produced."Respondent was not able to overturn this presumption. Dispositive: Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioner‟s demand letter. From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit

Saura Import and Export Co. Inc. v. DBP, 44 SCRA 445 (1972) - DJ Doctrine: Promise to deliver a commodatum is binding as contract however the commodatum itself shall only be binding upon delivery 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. DISPOSITIVE: REVERSED

BPI Inv. Corp. v. CA and ALS M & D Corp., 377 SCRA 117 (2002) - Rikki Contract to Loan, Art. 1934 BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION,respondents. Doctrine: A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. (NCC 1934) Facts: 1. Frank Roa originally obtained a loan from Ayala Investment and Dev't Corp (now BPIIC) for the construction of his house in Alabang. The house was mortgaged to AIDC to secure the loan. The house and lot was eventually sold to private respondents for P850,000. They paid P350,000 and assumed P500,000 debt of Roa. 2. Private respondents wanted to assume the old debt of Roa to the AIDC, but the latter refused. Instead, it offered a new load of P500,000 to be applied to Roa's debt and secured by the same property. at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable. 3. On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of P190,601.35. This reduced Roa’s principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents’ loan of P500,000. On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of Roa’s loan.

4. BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). 5. RTC and CA favored private respondents. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC released the purported balance of the P500,000 loan after deducting therefrom the value of Roa’s indebtedness. Thus, payment of the monthly amortization should commence only a month after the said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the parties that payment shall commence on May 1, 1981. Evidence showed that private respondents had an overpayment, because as of June 1984, they already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private respondents’ delinquency in the payment of their loan

Issue: Is the contract of loan consensual (subject to party stipulation)? Held: NO. · A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. (NCC 1934) · The loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents’ obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract · We also agree with private respondents that a contract of 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 in a proper manner with what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Dispositive: WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in favor of private respondents is DELETED, but the award to them of attorney’s fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.

Pantaleon v. American Express, 629 SCRA 276 (2010) - Kikoy POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC., Respondent. Doctrine: Simply put, every credit card transaction involves three contracts, namely: (a) the sales

contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the merchant or business establishment. Facts: (Note that this case is a Motion for Reconsideration) AmEx is an international credit card company. In October 1991, Atty. Pantaleon, together with his family, went on a guided European tour. When they were in Amsterdam, Atty. Pantaleon decided to purchase some diamond pieces from the Coster Diamond House worth a total of US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for this purchase. Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine depository banks. During the tour in Amsterdam they were riding a tour bus. Due to the complications in the Credit Card transaction(The Delay due to AmEx) caused to Atyy Pantaleon, the tour was cancelled because the tour bus was obligated to wait for its tourists. In all, it took AMEX a total of 78 minutes to approve Pantaleon’s purchase and to transmit the approval to the jewelry store. After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991. Another delay occurred when he wanted to purchase children’s shoes worth US$87.00 at the Quiency Market in Boston on November 3, 1991. Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved – the charged purchase of US$13,826.00 deviated from Pantaleon’s established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card company with the Makati City Regional Trial Court (RTC). *RTC found AMEX guilty of delay *On appeal, the CA reversed the awards. - While the CA recognized that delay in the nature of mora accipiendi or creditor’s default attended AMEX’s approval of Pantaleon’s purchases, it disagreed with the RTC’s finding that AMEX had breached its contract, noting that the delay was not attended by bad faith. *SC reversed the CA decision. In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of culpable delay in complying with its obligation to act with timely dispatch on Pantaleon’s purchases. While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a normal one.

Issue/s: Should AmEx be held liable for culpable delay? Held: NO. Nagdiscuss pa ng history ng credit card yung ponente Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the merchant or business establishment. From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides: “Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.” This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10, which clearly states that AMEX “reserve*s+ the right to deny authorization for any requested Charge.” By so providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders. ince AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a debtor guilty of culpable delay, states: “Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x x. The three requisites for a finding of default are: (a) that the obligation is demandable and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires the debtor’s performance.” Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit card agreement, is not obligated to approve Pantaleon’s purchase request. Without a demandable obligation, there can be no finding of default. Dispositive: WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs. Producers Bank v. CA, 397 SCRA 651 (2003) - Gab

[G.R. No. 115324. February 19, 2003]

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK) vs.HON. COURT OF APPEALS AND FRANKLIN VIVES Doctrine:naka bold FACTS: 1. Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (“Sterela” for brevity). 2. Sanchez asked F. Vives to deposit in a bank a P200,000.00 in the bank account of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account within a month’s time. 3. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, “in coordination with Mr. Rufo Atienza,” to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 101567 was thereafter issued to Mrs. Vives. 4. Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to him. They then went to the Bank to verify if their money was still intact. 5. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein and told them that Mrs. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. 6. Private respondent tried to get in touch with Doronilla through Sanchez. Doronilla issued a postdated check for P212,000.00 in favor of private respondent. However, upon presentment thereof the check was dishonored. 7. Private respondent instituted an action for recovery of sum of money and criminal case in the RTC against Doronilla, Sanchez, Dumagpi and petitioner. The RTC promulgated its Decision in Civil Case rendered defendants liable jointly and severally the amount of P200,000.00, moral damages, exemplary damages, attorney’s fees, the costs of the suit. 8. The appellate court affirmed in toto the decision of the RTC. It likewise denied with finality petitioner’s motion for reconsideration. Hence, this present petition. ISSUE: WHETHER THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION. WHETHER PRODUCERS BANK CAN BE HELD LIABLE FOR MR.ATIENZA’s ACTS RULING: A circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise: · By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. · Commodatum is essentially gratuitous.Simple loan may be gratuitous or with a stipulation to pay interest.In commodatum, the bailor retains the ownership of the thing loaned, while in simple

loan, ownership passes to the borrower. The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides: · Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. · Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum. · The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination. · As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear “that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days.” Private respondent merely “accommodated” Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from Sterela’s savings account and would be returned to private respondent after thirty (30) days. · Doronilla’s attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterela’s account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum.This is because such was not the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits. · 2. The bank should be held solidary liable. This is because Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted except upon the production of the passbook (recall in this case that the passbook was in the possession of the wife of Vives all along). Also, between Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla.Lastly, Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. SanchezHence, this only proves to show that Atienza allowed the withdrawals because he was party to Doronilla’s scheme of defrauding Vives ·

Pajuyo v. CA, 430 SCRA 492 (2004) - Eunice *doctrine yung nakabold. FACTS: Petitioner Colito Pajuyo paid a certain Perez $00 pesos for the rights over a 250 sqm lot in QC. Pajuyo

then constructed a house made of light materials. A few years after, Pajuyo and private respondent Eddie Guevarra executed a Kasunduan or agreement. Pajuyo allowed Guevarra to live in the house FOR FREE provided that Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised to vacate the premises on Pajuyo’s demand. Now eventually Pajuyo informed Guevarra that he needed the house and demanded Guevarra to vacate it, but he refused. Pajuyo filed an ejectment case against Guevarra in the MTC of QC. MTC in favour of Pajuyo Guevarra raised as a defense that Pajuyo had no valid title or right of possession over the lot because it was within the 150 hectares set aside by PD 137 for socialized housing RTC affirmed the MTC. Guevarra directly filed to the SC but the 1st division of SC issued a resolution referring the case to the CA. CA reversed the decision of the RTC. CA ruled in favor of Guevarra because it believed that Guevarra enjoys a preferential right over Pajuyo for under PD 1377 it is the actual occupant or caretaker who is qualified to apply for socialized housing. CA declared that contract was a commodatum. ISSUE: Who has a better right over the house and lot? Pajuyo. HELD: in relation to ca decision. The SC believes however, that such a determination made by the CA was premature because both Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Note that Guevarra expressly admitted the existence and due execution of the Kasunduan. Based on such, the facts make out a case for unlawful detainer. The SC also does not support the view that the Kasunduan was a commodatum. An essential feature of commodatum is that it must be gratuitous and that the use of the thing belonging to another is only for a certain period. In this case, if the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will. Such a contractual relation is called a PRECARIUM. Precarium is a kind of commodatum. The kasunduan itself reveals that the contract was not gratuitous. Although it did not require Guevarra to pay rent, it required him to maintain the property in good condition. The effects of the kasunduan are also different from a commodatum. Case law on ejectment as one that is akin to a landlord tenant relationship where withdrawal of permission would result in the termination of the lease. The tenant’s withholding the property would then be unlawful. Even assuming that the contract is a commodatum, the bailee Guevarra has the duty to return or turn over the possession of the property to Pajuyo. Guevarra points out that he turned his back on the kasunduan because like him Pajuyo is also a squatter. Squatters, in his belief, cannot enter into a contract involving the land they illegally occupy. Guevarra entered freely into the kasunduan, he cannot now impugn it after having benefited from such. The kasunduan itself is the undeniable evidence of Guevarra’s recognition of Pajuyo’s better right. Hence, he was clearly a possessor in bad faith.

Republic v. Bagtas, 6 SCRA 262 (1962) - Jerome REPUBLIC VS BAGTAS DOCTRINE: in a contract of commodatum, the debtor is liable for the loss of the thing even if it be a fortuitous event if the debtor is in delay in returning the thing loaned. F: Bagtas borrowed from RP through the bureau of animal industry three bulls: a) A red sindhi b) Bhagnari c) Sahiniwal For a period of one year from May 1948 to May 1949 for breeding purposes. Upon expiration, and Bagtas asking for a renewal, only a renewal for one bull was allowed for another year and Secretary of Agriculture demanded the return of the other two. Bagtas wrote to the Bureau that he will pay the value of the three bulls provided the value would be lowered. (year 1950) Bureau said that the value of the three bulls cannot be lowered anymore. Bagtas failed to return the bulls upon demand hence the RP filed a case. Bagtas answered in the case that because of bad peace and order in Cagayan Valley, and his pending appeal he had taken to the Secretary of Agriculture for the value of the bulls, he could not return it. CFI of Manila ruled in ordered Bagtas to return the bulls. RP was granted a writ of execution. A special sheriff was assigned. Jose bagtas died, the surviving spouse of jose bagtas prayed for the quashal of the writ of execution. CA denied his motion. Jose bagtas Jr returned only two of the bulls to the RP. ISSUE: won appellant may be held liable for the bull that died due to force majeure? --- namatay kasi ung bull niraid daw ng hukbalahap HELD: YES. The appellant contends that the contract was a commodatum hence the RP should bear the loss because ownership never transferred. However, it is to note that the loan contract here is not gratutitous. Commodatum is gratutitous. The contract here provides that Bagtas should pay breeding fee. The contract is actually a lease of bull. Under the art 1671 of the CCode, the lessee would be subject to the responsibilityof a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract, and even if it be a commodatum, still the appellant is liable because of art. 1942. Appellant is liable for the loss of the thing because the period of the loan already expired and he did not deliver it to the creditor. Also, there was no stipulation that Bagtas would be exempt from liability in case of loss due to fortuitous event. Quintos v. Beck, 69 Phil. 108 (1939) - Em DOCTRINE: Since the contract entered into between the parties is one of commadatum, the defendant bound himself to return the furniture to the plaintiff, upon the latter’s demand.

FACTS: ● Quintos and Beck entered into a contract of lease, whereby the latter occupied the former’s house. ● On Jan 14, 1936, the contract of lease was novated, wherein the Quintos gratuitously granted to Beck the use of the furniture, subject to the condition that Beck should return the furniture to Quintos upon demand. ● Thereafter, Quintos sold the property to Maria and Rosario Lopez. ● Beck was notified of the conveyance and given him 60 days to vacate the premises. In addition, Quintos required Beck to return all the furniture. ● Beck refused to return 3 gas heaters and 4 electric lamps since he would use them until the lease was due to expire. ● Quintos refused to get the furniture since Beck had declined to return all of them. Beck deposited all the furniture belonging to Quintos to the sheriff. ISSUE: Whether or not Beck complied with his obligation of returning the furniture to Quintos when it deposited the furniture to the sheriff. HELD: NO. 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 bound himself to return the furniture to the plaintiff, upon the latter’s 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 electric lamps. 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.

BPI Family Bank v. Franco, 538 SCRA 184 (2007) - Jez People v. Puig and Porras, 563 SCRA 564 (2008) - DJ Doctrine: Banks ang debtor sa depositor, ndi ang book keeper The bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship

FACTS: Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The petitioners filed before the RTC of Iloilo 112 cases of Qualified Theft against respondents for taking various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank. The RTC dismissed the cases and refused to issue a warrant of arrest against Puig and Porras on the ground of lack of probable cause because the complaint failed to state the facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. MR was filed but it was also denied. ISSUE: WHETHER OR NOT THE INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THEOWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE. RULING: Yes. Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, ART. 310. Qualified Theft . The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence , or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another's property without violence or intimidation against persons or force upon things. The elements of the crime under this Article are: 1. Intent to gain; 2. Unlawful taking; 3. Personal property belonging to another; 4. Absence of violence or intimidation against persons or force upon things. To fall under the crime of Qualified Theft, the following elements must concur: 1. Taking of personal property; 2. That the said property belongs to another; 3. That the said taking be done with intent to gain; 4. That it be done without the owners consent; 5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things; 6. That it be done with grave abuse of confidence. On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia , that the information must state the acts or omissions complained of as constitutive of the offense. On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening: Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment. It is evident that the Information need not use the exact language of the statute in alleging the acts or

omissions complained of as constituting the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment properly. The portion of the Information relevant to this discussion reads: [A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x. It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. 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. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan. In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft Where the Information's merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, of a relation by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which respondents abused , and without employing the word owner in lieu of the Bank were considered to have satisfied the test of sufficiency of allegations. As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft. 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. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. We agree with petitioner, however, that it is wrong to award, along with nominal damages, temperate or moderate damages. The two awards are incompatible and cannot be granted concurrently. Nominal damages are given in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Art.2221, New Civil Code.

Concepcion v. Court of Appeals, et. al., 274 SCRA 614 (1997) - Rikki Conventional Interest SPOUSES ANTONIO E.A. CONCEPCION and MANUELA S. CONCEPCION, petitioners, vs. HON. COURT OF APPEALS, HOME SAVINGS BANK AND TRUST COMPANY, and as nominal partydefendants, THE SHERIFF ASSIGNED TO SAN JUAN, METRO MANILA, and who conducted the auction sale and the REGISTER OF DEEDS or his representative of San Juan, Metro Manila, and ASAJE REALTY CORPORATION,respondents. Doctrine: Escalation clauses in contracts are valid as long as there exists mutuality and consent between contracting parties. Facts: 1. Private respondent Home Savings granted the petitioner Concepcions a loan worth P1,400,000. In return, the petitioners executed in favor of the bank a promissory note and a real estate mortgage over 1 of their property in San Juan. In the promissory note, the Concepcions ALLOWED the bank to increase the interest rate originally stipulated (16% per annum) without advance notice to them IF the Central Bank of the Phils. raises its rediscount rate to member banks, among others. (in short, bank can raise interest rates if it is the prevailing practice of other banks as authorized by the Central Bank). 2. The bank unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984, increasing the quarterly amortizations from P67,830.00 to, respectively, P77,619.72, P104,661.10, and P123,797.05 for the periods aforestated. Petitioners still paid, only up until P104k. They defaulted on the last payment. 3. After repeated demands, the petitioners still failed to pay. Hence, a extrajudicial foreclosure was made on their property. Eventually, the property was transferred to Asaje Realty Corp. 4. Petitioners filed a case against respondents for the cancellation of the foreclosure sale. Issue: Was the sale valid (YES); but more importantly, CAN THE BANK INCREASE INTEREST RATES UNILATERALLY? Held:

YES.

· What the bank did is termed as an "escalation/escalator" clause, which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the price up to a fixed percentage of the base. It takes into account changes in the cost of living. · BUT WHAT IS REQUIRED IS CONSENT FROM THE CONTRACTING PARTIES. Escalation clauses should be mutually agreed upon, for such is needed in the contract. Note that the spouses agreed to such stipulation of increased interests. · In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting

parties, is void. · The escalation should still be subject, as so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on savings and time deposit, or of the interest rate on such loans and advances. Dispositive: WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private respondent Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the bid price it received from Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of the loan computed at the original interest rate. This case is REMANDED to the trial court for the above determination. No costs.

Frias v. San Diego-Sison, 520 SCRA 244 (2007) - Kikoy BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner, vs. FLORA SAN DIEGO-SISON, Respondent. Doctrine: The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. For a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense of the creditor. Facts: ● On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA over Frias’ property ● MOA consideration is 3M ● Sison has 6 months from the date of contract’s execution to notify Frias of her intention to purchase the property with the improvements at 6.4M ● Prior to this 6 month period, Frias may still offer the property to other persons, provided that 3M shall be paid to Sison including interest based on prevailing compounded bank interest + amount of sale in excess of 7M [should the property be sold at a price greater than 7M] ● In case Frias has no other buyer within 6 months from the contract’s execution, no interest shall be charged by Sison on the 3M ● In the event that on the 6th month, Sison would decide not to purchase the property, Frias has 6 months to pay 3M (amount shall earn compounded bank interest for the last 6 months only) ● 3M treated as a loan and the property considered as the security for the mortgage ● Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M (6.4M less 3M MOA consideration) ● Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28, 1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and the Deed of Absolute Sale over the property. Sison decided not to purchase the property, so she notified Frias through a letter dated March 20, 1991 [Frias received it only on June 11, 1991], and Sison

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reminded Frias of their agreement that the 2M Sison paid should be considered as a loan payable within 6 months. Frias failed to pay this amount. Sison filed a complaint for sum of money with preliminary attachment. Sison averred that Frias tried to deprive her of the security for the loan by making a false report of the loss of her owner’s copy of TCT, executing an affidavit of loss and by filing a petition*1+ for the issuance of a new owner’s duplicate copy. RTC issued a writ of preliminary attachment upon the filing of a 2M bond. RTC found that Frias was under obligation to pay Sison 2M with compounded interest pursuant to their MOA. RTC ordered Frias to pay Sison: 2M + 32% annual interest beginning December 7, 1991 until fully paid 70k representing premiums paid by Sison on the attachment bond with legal interest counted from the date of this decision until fully paid 100k moral, corrective, exemplary damages *liable for moral damages because of Frias’ fraudulent scheme] 100k attorney’s fees + cost of litigation CA affirmed RTC with modification—32% reduced to 25%. CA said that there was no basis for Frias to say that the interest should be charged for 6 months only. It said that a loan always bears interest; otherwise, it is not a loan. The interest should commence on June 7, 1991 until fully paid, with compounded bank interest prevailing at the time [June 1991] the 2M was considered as a loan (as certified by the bank).

Issue/s: WON compounded bank interest should be limited to 6 months as contained in the MOA. NO WON Sison is entitled to moral damages. YES WON the grant of attorney’s fees is proper, even if not mentioned in the body of the decision. NO Held: ●

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CA committed no error in awarding an annual 25% interest on the 2M even beyond the 6-month stipulated period. In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. SC notes that the agreement speaks of two (2) periods of 6 months each (see FACTS—words in bold & underline). No interest will be charged for the 1st 6-month period [while Sison was making up her mind], but only for the 2nd 6-month period after Sison decided not to buy the property. There is nothing in the MOA that suggests that interest will be charged for 6 months only even if it takes forever for Frias to pay the loan. The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. For a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense of the creditor.

Dispositive: WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the

Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorney’s fees is DELETED. Sps. Juico v. China Banking Corp, G. R. No. 187678, April 10, 2013. (Include Concurring Opinion) - Gab SPS Juico vs CHINA BANK DOCTRINE : the escalation clause is void if it grants respondent the power to impose an increased rate of interest without a written notice to petitioners and their written consent. Concurring doctrine by CJ Sereno these points must be considered by creditors and debtors in the drafting of valid escalation clauses. Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired with a de-escalation clause.9 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. Thirdly, consistent with the nature of contracts, the proposed modification must be the result of an agreement between the parties. In this way, our credit system would be facilitated by firm loan provisions that not only aid fiscal stability, but also avoid numerous disputes and litigations between creditors and debtors. Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation (respondent) as evidenced by two Promissory Notes both dated October 6, 1998 and numbered 507-001051-34and 507-001052-0,5 for the sums of !!6,216,000 and P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’ property located at 49 Greensville St., White Plains, Quezon City respondent demanded the full payment of the outstanding balance with accrued monthly interests. As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776. On the same day, the mortgaged property was sold at public auction, with respondent China bank as highest bidder for the amount of P10,300,000. petitioners received 8a demand letter9 dated May 2, 2001 from respondent for the payment ofP8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale respondent prayed that judgment be rendered ordering the petitioners to pay jointly and severally: (1)P8,901,776.63 representing the amount of deficiency, plus interests at the legal rate, from February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit. Ms. Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the outstanding balance of petitioners was P15,190,961.48. Yu reiterated that the interest rate changes every month based on the prevailing market rate. she notified petitioners of the prevailing rate by calling them monthly .It was increased unilaterally RTC: ordered Spouses to pay bank 9M plus the interest which amounted to 15M.CA AFFIRMED PETITIONER: They insist that the increase in interest rates were unilaterally imposed by the bank and thus violate the principle of mutuality of contracts. Issue: whether the increase in interest rates is void for violating the mutuality of contracts HELD:Yes RATIO: Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left

to the will of one of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due unless it has been expressly stipulated in writing." The binding effect of any agreement between parties to a contract is premised on xxx (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid 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 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. In a case,SC said that petitioner’s assent to the modifications in the interest rates cannot be implied from their lack of response to the memos sent by respondent 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. More recently in Solidbank Corporation v. Permanent Homes, Incorporated, 39 we upheld as valid an escalation clause which required a written notice to and conformity by the borrower to the increased interest rate In Polotan, Sr. v. CA ,On petitioner’s contention that the interest rate was unilaterally imposed and based on the standards and rate formulated solely by respondent credit card company, we held: Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x" is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market rates. Thus, it was valid because it wasnt solely potestative as it was based on the market rates(something outside the control of respondent) Here, the interest rates would vary as determined by prevailing market rates. Evidently, the parties intended the interest on petitioners’ loan, including any upward or downward adjustment, to be determined by the prevailing market rates and not dictated by respondent’s policy. HOWEVER, SC hold that the escalation clause here 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. Respondent’s 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. In the absence of consent on the part of the petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%, the rate charged for the first year. Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under the two promissory notes which they failed to settle is P10,355,000. However, due to China Bank’s

unilateral increases in the interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to February 23, 2001, petitioners’ balance ballooned to P19,201,776.63. Note that the original amount of principal loan almost doubled in only 16 months. The Court also finds the penalty charges imposed excessive and arbitrary, hence the same is hereby reduced to 1% per month or 12% per annum. Concurring by CJ Sereno: not all escalation clauses in loan agreements are void per se .it is to maintain fiscal stability and to retain the value of money in long term contracts.however, a contract containing a provision that makes its fulfillment exclusively dependent upon the uncontrolled will of one of the contracting parties is void. Hence the provision on the promissory note: 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. Is void. The floating rate of interest in the trust receipt agreement is also void. It reads: I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of I% per month until the amount/s or installments/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid. It is ok, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions as long as there should always be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.10 In that case, the contractual provision stating that "if there occurs any change in the prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served to the Cardholder" was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing market rates dictate its reduction. Here, the use of the phrase "any increase or decrease in the interest rate" is without reference to the prevailing market rate actually imposed by the regulations of the Central Bank. 8 It is thus not enough to state, as akin to China Bank's provision, that the bank may increase or decrease the interest rate in the event a law or a Central Bank regulation is passed. To adopt that stance will necessarily involve a determination of the interest rate by the creditor since the provision spells a vague condition - it only requires that any change in the imposable interest must conform to the upward or downward movement of borrowing rates. And if that determination is not subjected to the mutual agreement of the contracting parties, then the resulting interest rates to be imposed by the creditor would be unilaterally determined. Consequently, the escalation clause violates the principle of mutuality of contracts. Based on jurisprudence, therefore, these points must be considered by creditors and debtors in the drafting of valid escalation clauses. Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired with a de-escalation clause.9 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. Thirdly, consistent with the nature of contracts, the proposed modification

must be the result of an agreement between the parties. In this way, our credit system would be facilitated by firm loan provisions that not only aid fiscal stability, but also avoid numerous disputes and litigations between creditors and debtors.

Eastern Shipping Lines, Inc. v. CA , 234 SCRA 78 (1994) (Ration Decidendi only) - Eunice This case summarizes the ruled on compensatory interest 1. When an obligation regardless of its source is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the NCC govern in determining the measure of recoverable damages. 2. With regular particularity to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof is imposed as follows. a. When the obligation is breached, and it consists in the payment of a sum of money, the interest due should be that which may have been stipulated in writing. Furthermore,, the interest due shall itself earn legal interest from the time it is JUDICIALLY DEMANDED. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default i.e. from judicial or extrajudicial demand under and subject to the provisions of Art. 1169 of the Civil Code. b. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 65 per annum.. no interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly when the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra judicially but when there is no such certainty, the interest shall begin to run only from the date the judgment of the court is made. c. When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest whether the case falls under par.a or par. b above shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to forbearance of credit. SEE PAGE 136 To reconcile the rule stated in the above cited case with Art. 2209, the rule now are as follows a. If there is a penal clause that stipulates the penalty or indemnity, the stipulated penalty or indemnity shall be applicable. b. If there is no penal clause, but there is a stipulation on conventional or monetary interest, then the latter shall be applicable. c. If there is no stipulation on penalty or on conventional interest, then the legal interest rate shall be applied. In contracts of simple loan of money, the legal interest rate of 12%.

Ligutan v. CA, 376 SCRA 560 (2002) - Jerome 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. 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.

Siga-an v. Villanueva, 576 SCRA 696 (2009) - Em DOCTRINES: ● If the borrower of loan pays interest when there has been no stipulation therefore, the provisions of the Civil Code concerning Solution indebiti shall be applied. ● The principle of solutio indebiti applies where: (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. FACTS: ● On March 3, 1998, respondent Alicia Villanueva filed a complaint for a sum of money against petitioner Sebastian Siga-an. Respondent alleged that she was a business woman engaged in supplying office materials and equipments to the PNO; while petitioner was a military officer and comptroller of the PNO from 1991-1996.

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Sometime in 1992, respondent claimed that the petitioner approached her inside the PNO office and offered to loan her the amount of P540,000. She accepted the offer since she needed capital for her business. The loan agreement was not reduced in writing and there was no stipulation as to the payment of interest for the loan. On August 31, 1993, respondent issued a check worth P500,000 to petitioner as partial payment of the loan. Two months later she issued another check in the amount of P200,000 as payment of the remaining balance. Petitioner told her that she since she paid a total amount of P700,000 for the P540,000 worth of loan, the excess amount of P160,000 would be applied as interest for the loan. Not satisfied with the amount applied as interest, the petitioner pestered her to pay additional interest. He threatened to block her transactions with the PNO if she won't comply. The respondent conceded since all her transactions with the PNO need the approval of the petitioner. Thus, she paid additional amounts in cash and checks as interest for the loan. She asked the petitioner to give her receipts but he told her that there's no need for a receipt because there's mutual trust and understanding between them. Thereafter, the respondent consulted a lawyer regarding propriety of paying interest on the loan despite the absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was no agreement between her and petitioner. Upon being advised by her lawyer that she made an over payment, she sent a demand letter to petitioner asking for the return of the excess amount. But the petitioner just ignored the demand letter. Respondent prayed that the RTC render judgment ordering petitioner to pay respondent(1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as attorney’s fees. In his answer to the complaint, the petitioner denied that he offered a loan to respondent and mentioned the mistakes committed by the respondent regarding the payment of the loan and that there was no overpayment. After the trial, the RTC rendered a decision holding that respondent made an over payment of her loan obligation to petitioner and that the latter should refund the excess amount to the former. The alleged interest should not be included because there was no agreement between them regarding the payment of interest. It concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solution indebiti. Petitioner appealed to the CA but the CA affirmed the ruling of the RTC. Petitioner filed a motion for reconsideration to the appellate court, hence this petition.

ISSUES: (1) Whether or not no interest was due to petitioner. (2) Whether or not applying the principle of solution indebiti is proper. HELD: (1) No interest was due to the petitioner. In this case, the parties did not agree for the payment of interest. As explained by Villanueva, the presented promissory note was in her hand writing because Sigaan told her to copy it and she did

because she feared the threats of Sigaan to block her deals with the Philippine Navy. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1)there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefore in writing is prohibited by law. Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefore, the provisions of the Civil Code concerning Solution indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. (2) YES. The principle of solutio indebiti applies where: (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be computed from the time of the extra-judicial demand on 3 March1998, up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction

Estores v. Spouses Supangan , 670 SCRA 95 (2012) - Jez Doctrine: Interest may be imposed even in the absence of stipulation in the contract. Petitioner’s unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be considered as involuntary loan.

an

Facts: Petitioner Estores entered into a Conditional Deed of sale with the respondents Arturo and Laura Supangan where petitioner offered to sell and respondents to buy a parcel of land located in Naic Cavite for the price of 4.7 million pesos. 4.

Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the

documents. xxxx 6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee. 7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to complete necessary documents within thirty days without any sufficient reason, or without informing the vendee of its status, vendee has the right to demand return of full amount of down payment. xxxx 9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of its approval by the LRC. 10. The vendor assures the vendee of a peaceful transfer of ownership.

After almost seven years from the contracts execution including the 3.5 million down payment made by the respondents, petitioner still failed to to comply with her obligation as expressly provided in the above paragraphs 4, 6, 7, 9 and 10. Hence respondent-spouses in a letter, demanded the down payment to be returned within 15 days from receipt. Petitioner promised to return said amount within 120 days. Petitioner still failed to do so despite demand which prompted respondents to file a complaint for sum of money before the RTC praying that petitioner be ordered to pay the principal amount of 3.5 million plus interest starting from October 1, 1993 estimated to be 8.5 million plus damages. Petitioners answered with counterclaim that they are willing to pay the principal amount but without the interest as the same was not agreed upon arguing that since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cannot be held liable to pay legal interest as well. RTC ruled in favor of respondent granting them 6% interest instead of the 12% they prayed for. The CA affirmed the RTC's decision of imposing the 6% interest but shall start to run only from September 27, 2000 when respondent-spouses formally demanded the return of their money and not from October 1993 when the contract was executed as held by the RTC.

Hence the case Issue: Whether petitioner is not bound to pay interest because though there is no stipulation of such in the conditional deed of sale Whether the 6% interest is proper Held: First issue: No, Petition lacks merit Interest may be imposed even in the absence of stipulation in the contract. Decision of CA to impose interest is sustained. Article 2210 of the Civil Code expressly provides that “Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.” There is no question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She even admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not done so. Petitioner enjoyed the use of the money from the time it was given to her until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September 27, 2000. Second Issue: No, the 12% interest prayed for by the respondents are deemed proper for this case. Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.”Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).” There is no stipulation and admittedly the contract involved is not a loan but a conditional deed of sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. The conditions were not fulfilled and the money was not returned notwithstanding demand. Petitioner’s unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be considered as an involuntary loan. As such it is the 12% interest reserved for loans that shall apply. Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied. Dispositive: Petition Denied

Nacar v. Gallery Frames and/or Bordey, G. R. No. 189871, August 13, 2013 - DJ Doctrine BOLD Facts: in brief: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Nicar is an employee of Gallery frames Nicar was illegally dismissed Labor arbiter to SC - granted ang 95K na backwages Gallery Appealed - Dismissed and reverted back to NLRC for execution NLRC recompute - naging 471K Gallery Frames Appealed pagka recompute 147K 147K paid and accepted by Nicar Appealed for recomputation Granted ng NLRC pero hanggang interest na lang daw

Issue: Magkano interest. Kasi dati 12% kaso nagrelease ang bangko Sentral na 6% na lang daw. Ruling: Interest; legal rate beginning July 1, 2013. The guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

UCPB v. Samuel and Beluso , 530 SCRA 567 (2007) - Rikki (case digest obtained from: xa.yimg.com/kq/.../LAW%20107_CREDIT_REVIEWER_Digests.pdf) FACTS On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34% which interest rate shall be determined by petitioner’s head office. ISSUE WON the stipulation as to interest by the parties is valid. HELD NO. The interest rate provisions in th e case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act: SEC. 2. Declaration of Policy. – It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options – (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.

Advocates for Truth in Lending, Inc. and Olaguer v. Bangko Sentral Moneraty Board, G.R. No. 192986,

January 15, 2013 - Kikoy G.R. No. 192986 : January 15, 2013 ADVOCATES FOR TRUTH IN LENDING, INC. AND EDUARDO B. OLAGUER, Petitioners, v. BANGKO SENTRAL MONETARY BOARD, REPRESENTED BY ITS CHAIRMAN, GOVERNOR ARMANDO M. TETANGCO, JR., AND ITS INCUMBENT MEMBERS: JUANITA D. AMATONG, ALFREDO C. ANTONIO, PETER FAVILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE AND CESAR V. PURISIMA, RESPONDENTS. Doctrine: Facts: Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non- profit, non-stock corporation organized to engage in pro bono concerns and activities relating to money lending issues. It was incorporated on July 9, 2010, and a month later, it filed this petition, joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen. Petitioners seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority to continue enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982, which "suspended" Act No. 2655, or the Usury Law of 1916. RA 265- Empowered CB to set maximum interest rates which banks may charge for all types of loans/creit transactions. P.D. 1684 - Giving the CB-MB authority to prescribe different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or credits, provided that the changes are effected gradually and announced in advance. CB Circular No. 905 - Removed the ceilings on interest rates on loans or forbearance of any money, goods or credits. R.A. No. 7653 - created the Bangko Sentral ng Pilipinas (BSP) to replace CB Issue/s: Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of credit transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury Law; If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest ceilings and thus suspended Act No. 2655 as regards usurious interest rates; Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905. Held: 1. CB-MB has the statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of credit transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury Law both under RA 265 and PD 1684 Under RA 265 Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may fix the maximum rates of interest which banks may pay on deposits and on other obligations. The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of interest which banks may charge for different types of loans and for any other credit operations, or may fix the maximum differences which may exist between the interest or rediscount rates of the Central Bank and the rates which the banks may charge their customers if the respective credit documents are not to lose their eligibility for rediscount or advances in the Central Bank. Any modifications in the maximum interest rates permitted for the borrowing or lending operations of the banks shall apply only to future operations and not to those made prior to the date on which the modification becomes effective. In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board may also fix the maximum rates that banks may pay to or collect from their customers in the form of commissions, discounts, charges, fees or payments of any sort. Under PD 1684 Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That changes in such rate or rates may be effected gradually on scheduled dates announced in advance. In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum rates for loans of low

priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. 2. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905. The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;" and "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon." Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. 3. The BSP-MB has authority to enforce CB Circular No. 905. Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as it applies to banks, but to all lenders. Usury law or Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms. Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the subject. An implied repeal is predicated upon the condition that a substantial conflict or repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws. We find no such conflict between the provisions of Act 2655 and R.A. No. 7653. N.B. The lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable, and iniquitous interest. It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their illegality as a defense be waived. N.B. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: (Following the ruling in the landmark case of Eastern Shipping Lines v. CA) The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general," with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on the award of interest."

Dispositive: Petition for certiorari is DISMISSED.

BPI v. IAC and Zshornack, [MSOffice1] 164 SCRA 630 (1988)

BPI vs IAC and Zshornack Doctrine: The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus, It was a deposit. Facts: the complaint filed with the trial court alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash forsafekeeping, and that the agreement was embodied in a document and that despite demands, the bank refused to return the money. In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates. During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976, COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also accomplished by Garcia. The bank now argues that the contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia. Issue: Whether the agreement was a deposit Whether the plaintiff should be accorded relief 1. The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later. It was a deposit. The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

2. Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the time the parties entered into the transaction involved in this case. The circular provides: 4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those authorized to deal in foreign exchange. All receipts of foreign exchange(foreign currency ata) by any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation shall be sold to the authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange. Any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation, residing or located within the Philippines, who acquires on and after the date of this Circular foreign exchange shall not, unless licensed by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary; Provided, further, That within one day upon taking ownership, or receiving payment, of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to designated agents of the Central Bank. If the above isn’t followed, violators will be penalized. Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine residents only. Section 6 provides: SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all. Since the mere safekeeping of the $, without selling them to the Central Bank within one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for violating the law.

Triple-V Food Services, Inc. v. Filipino Merchants Insurance Company, Inc] ., DOCTRINE: In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the same. A deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor. FACTS On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with plate number UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car. The car was then parked by petitioner's valet attendant, a certain Madridano, at the designated parking area. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI) Having indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for damages against petitioner Triple-V Food Services, Inc. PETITIONER’S DEFENSE: petitioner argued that the complaint failed to aver facts to support the allegations of recklessness and negligence committed in the safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of the car and in informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking service, De Asis received a parking ticket whereunder it is so provided that "[Management and staff will not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein", a provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet parking service did not include extending a contract of insurance or warranty for the loss of the vehicle. RTC: ruled in favour of FMICI despite petitioner contesting the subrogation of FMICI to Crispa’s right. petitioner appealed to the Court of Appeals reiterating its argument that it was not a depositary of the subject car and that it exercised due diligence and prudence in the safe keeping of the vehicle, in handling the car-napping incident and in the supervision of its employees. It further argued that there was no valid subrogation of rights between Crispa and respondent FMICI. CA: dismissed the appeal Ø court agreed with the findings and conclusions of the trial court that: (a) petitioner was a depositary of the subject vehicle; (b) petitioner was negligent in its duties as a depositary thereof and as an employer of

the valet attendant; and (c) there was a valid subrogation of rights between Crispa and respondent FMICI. ISSUE: WON petitioner acted as a depositary of De Asis? YES. HELD: When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service. The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances it is evident that De Asis deposited the car in question with the petitioner as part of the latter's enticement for customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at petitioner's premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant. WHEREFORE, petition is hereby DENIED DUE COURSE.

The Roman Catholic Bishop of Jaro v. De La Pena, ROMAN CATHOLIC BISHOP OF JARO VS DE LA PENA THE ROMAN CATHOLIC BISHOP OF JARO vs. GREGORIO DE LA PEÑA FACTS : The plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Peña. In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la Peña was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the United States Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the Government. While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included

in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to the conclusion that said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States. ISSUE : Whether or not Father de la Peña is liable for the loss of the money under his trust? RULINGS : The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not responsible for its loss. Father De la Peña's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.) Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.) By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly taken from his pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards. DISSENT: When plaintiff had in his possession as trustee or agent the sum of 6.641k belonging to the plaintiff as the head of the church, this money was then clothed with all the immunities. But when delapena mixed this trust fund with his own and deposited the whole in the bank to his personal account, he unclothed it of all the protection it had. It may be presumed that the military authorities would not have confiscated it for the reason that they were looking for insurgent funds only.

CA Agro-Industrial Development Corp. v. CA and Security Bank, 219 SCRA 426 DOCTRINE: Contract for rent of a Safety Deposit Box is not a Contract of Lease, but a Contract of Deposit FACTS: · The Petitioner (through its President, Serio Aguirre) entered into an agreement with the Pugao spouses to purchase their two (2) parcels of land for the price of P350,625. In the agreement, it was stipulated that the transfer of title was only upon full payment. · It was also stipulated that the owner’s certificate of title was to be deposited in a safety deposit box, of any bank, and can only be withdrawn upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment · In adherence to the stipulation, the Pugaos rented Respondent’s (Security Bank and Trust Company) safety deposit box. The rent of the safety deposit box was through a contract of lease, which stipulated the following: o The bank is not a depositary of the contents of the safe, and it has neither the possession nor control of the same o The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith · The owner’s certificates of title were allegedly placed in the safety deposit box. The safety deposit box can

only be opened using both the Renter’s key (of which Petitioner and the Pugao spouses each have a copy, and only one of the renter’s key is needed) and the Bank’s key. · (Note: the Bank was not informed that the certificates can only be withdrawn upon the joint signatures of petitioner and Pugao spouses. Thus, using their renter’s key, each of the co-renters (Pugao or Petitioner) could withdraw at any time) · A certain Mrs. Ramos wished to purchase the parcels of land from Petitioner, which would result in a P280,500 profit. Mrs. Ramos demanded the execution of a deed of sale, which necessarily requires a certificate of title · Aguirre, accompanied by the Pugaos, went to the respondent Bank to withdraw the certificates of title; but the certificates were not inside the safety deposit box. This led to the a need for reconstitution of title. Due to the long period of reconstitution, Mrs. Ramos lost interest and withdrew her offer. Petitioners now claim that it lost an expected profit and filed a complaint for damages against Respondent. · Respondent argues that it cannot be held liable, based on the stipulations (stated above) in the contract of lease · Trial Court held in favor of Respondents, stating that Respondent cannot be held liable based on the stipulations of the contract. · Upon appeal, CA upheld the trial court’s decision. It stated that by virtue of a contract of lease, the petitioner and the co-renter had control of the safety deposit box and its contents and the Bank had retained no right to open the safety deposit box because it had neither possession nor control over it and its contents · As such, Art. 1643 of the Civil Code applies, which states: “In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.” · Art. 1975 is also applicable, wherein it stipulates that “The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. The above provision shall not apply to contracts for the rent of safety deposit boxes. · Thus, it is clear that Respondent cannot be held liable for the loss of the contents Safety Deposit Box, UNLESS proof of unauthorized persons forcibly open the safety deposit box · Petitioner filed for review of decision under Rule 45 ISSUE: W/N THE CONTRACT ENTERED INTO IS A CONTRACT OF DEPOSIT, AND NOT A CONTRACT OF LEASE HELD: YES, THE CONTRACT IS A CONTRACT OF DEPOSIT · The contract in this case is not necessarily a contract of lease because the renters were not given full and absolute control and possession of the safety deposit box. Thus, Art. 1643, does not apply since the contract is not a contract of lease · The contract in this case is a special kind of deposit. Art. 1975 cannot be used to argue against the contract being a special kind of deposit, and not a contract of lease, since the first paragraph of Art. 1975 does not apply to items kept in a rented safety deposit box. · In addition, Sec. 72 of the General Banking Act states that: “banking institutions other than building and loan associations may xxx (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents · The contract entered into in this case is clearly one of contract of deposit. As such, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. · Thus, the stipulations of the contract exempting respondent Bank’s liability is void for being contrary to law

and public policy, since it is inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. · Although the stipulations are of no effect, it does not necessarily mean the Bank is liable · The Petitioners failed to prove that there was fraud or negligence in the part of the bank that would hold them liable. · In addition, both parties did not inform the bank of the agreement that the certificates of title can only be withdrawn upon joint signature. Thus, either the Petitioner or the Pugao spouses could have withdrawn the certificates of title at any time using their copy of the renter’s key with the Bank’s key.

YHT Realty Corporation v. CA DOCTRINE: General Rule: Hotel-keepers cannot escape liability from the loss of its guests UNLESS the loss was caused by force majeure Exception: Loss was caused by his guest, his family, or visitors Exception to exception: the loss was caused with the concurrent negligence of the hotel-keeper or his employees FACTS: · Private Respondent, McLoughlin, an Australian businessman-philantropist, was convinced by Brunhilda Tan to stay at the Tropicana instead of his usual hotel when he visits the Philippines. · The Tropicana employed Lopez as manager, and Lainez and Payam as the persons having custody of the keys to the safety deposit boxes of guests · On one of McLoughlin’s trips to the Philippines, he stayed in Tropicana and rented a safety deposit box. McLoughlin was aware that the only way to open the safety deposit box was through the use of two keys, one given to the guest and the other kept by the hotel. In addition, only the guest could personally ask for the opening of the safety deposit box. · McLoughlin allegedly placed in the safety deposit box certain sums of money inside envelopes, along with credit cards. McLoughlin then went on a brief trip to Hong Kong without checking out of Tropicana, and only brought one envelope supposedly containing $5,000. In Hong Kong, McLoughlin noticed that the envelope only contained $3,000, but blamed it on bad accounting, knowing he did not spend any of it. · Coming back to the Philippines, McLoughlin placed some jewelry which he bought in HK inside the Safety Deposit box. When he left for Australia, it was then that McLoughlin noticed that an envelope supposedly containing $10,000 was short by half, and that the jewelry was also missing. · McLoughlin returned to Manila and asked regarding the loss but the Hotel did not state such items were found. McLoughlin again rented a safety deposit box and placed therein money and travelling documents · After some time, McLoughlin discovered again that some of the money he placed in the safety deposit box was stolen. He then confronted Lainez and Payam who admitted they opened the Safety Deposit Box after being asked to do so by Tan, using the key assigned to McLoughlin · McLoughlin then filed a complaint against Petitioner which owned Tropicana. Tan and Lopez were not served summons and were not made parties to the case. · Petitioners argue that McLoughlin agreed to the “Undertaking for the use of Safety Deposit Box” of the hotel, which stated that the hotel will not be liable for any loss and that upon return of the key, the hotel is released from any responsibility regarding the contents of the safety deposit box. · The RTC of Manila rendered judgment in favor of McLoughlin, finding Petitioners YHT, Lainez, and Payam acted in gross negligence in their duties as innkeepers. The Court also found that the stipulations regarding the

escape of liability in the “Undertaking” were against public policy, and were therefore of no effect · CA affirmed ISSUE: W/N THE HOTEL SHOULD BE LIABLE FOR THE LOSS OF THE CONTENTS OF A SAFETY DEPOSIT BOX WHEN THE LOSS WAS CAUSED BY A THIRD PERSON HELD: YES · It was understood only the guest could ask for the help of the custodians of the other key to his safety deposit box. Lainez and Payam, by allowing Tan to open the Safety Deposit Box of McLoughlin with their help, was partly at fault in the consummation of the loss of the items inside of the Safety Deposit Box · Lainez and Payam even admitted to opening the safety deposit box with Tan on other occasions,, showing they have had prior knowledge of a person other than the guest in opening the safety deposit box; yet, failed to notify McLoughlin regarding such. · Therefore, Tropicana should be held liable for the loss of McLoughlin due to the negligence of its employees. As article 2180 paragraph (4) states: the owners and managers of an establishment or enterprise are

likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions · It has also been ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer · Thus, given the fact that the loss of McLoughlin's money was consummated through the negligence of Tropicana's employees in allowing Tan to open the safety deposit box without the guest's consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193 · The stipulations under the “Undertaking” are also of no effect under Art. 2003 of the Civil Code which states: The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. · Art. 2002, which exempts the hotel-keeper from liability in cases where the loss was caused by the acts of his guest, his family, or visitors is not applicable. In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. · Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key.

Transfield Philippines, Inc. v. Luzon Hydro Corporation Australia, et. al DOCTRINE: Under the independence principle, a Letter of Credit accommodation is entirely distinct and separate, independent agreement. It is not supposed to be affected by the main contract upon which it rests. The court stressed that a LC accommodation is intended to benefit not only the beneficiary therein but the applicant thereon. FACTS: On 26 March 1997, petitioner and respondent Luzon Hydro Corporation entered into a Turnkey Contract whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur .

Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project. To secure performance of petitioner's obligation, petitioner opened in favor of LHC two (2) standby letters of credit. During the completion of the project, petitioner is always asking for extensions but respondents failed to grant it. For this reason the petitioner filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against the respondents Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. ISSUE : Whether or not writ for preliminary injunction should be granted. HELD: It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits. There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract. A letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage. Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation. In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities which would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract. Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default Tupaz IV & Tupaz v. CA & BPI Doctrine: The benefit of excussion is not a pre-requisite to secure judgement against guarantor and may be waived through stipulation (see nakabold) Facts: Petitioners Jose C. Tupas IV and Petronilla Tupas, vice president for operations and vice president/treaurer respectively of El Oro Engraver Corporaiton had a contract with the Philippine army to supply the latter with "survival bolos". Petitioners, in behalf of the corporation, applied with respondent bank of the Philippine Islands for two commercial letters of credit to finance the purchase of raw materials for the said bolos. The letters of credit were in favor of El Oro's suppliers, Tanchoaco Incorporated and Maresco Corporation. Said application were granted by respondent bank and issued a letter of credit in favor of the suppliers. On September 30 and October 9, 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit issued to Tanchoaco and Maresco Corporation respectiviely where they bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively. Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. Respondent bank's counsel and representatives sent final deman letters to El Oro Corporation whosreply is that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (“Section 13”)*7+ or Trust Receipts Law (“PD 115”). RTC ruled for the acquittal of the petitioners of estafa on reasonable doubt but likewise found them solidarily liable with El Oro for the balance of the latter's debt under the trust receipts. Petitioners appealed to the CA which affirmed the trial court's ruling stating that: The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated *in+ the following words: “In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof.” Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accusedappellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. Hence the Petition Issues: Whether petitioners are bound to be personally liable for El Oro Corporation's debts under the trust receipts Held: Partially meritorious, Petitioner Jose Tupaz is liable but as guarantor A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. As an exception, directors or officers are personally liable for the corporation’s debts only if they so contractually agree or stipulate. In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro

Corporation. Thus, under petitioner Petronila Tupaz’s signature are the words “Vice-Pres–Treasurer” and under petitioner Jose Tupaz’s signature are the words “Vice-Pres–Operations.” By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporation’s obligation. The same cannot be said for the trust receipt made on September 30 where Tupaz IV signed alone. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. However, respondent bank’s suit against petitioner Jose Tupaz stands despite the Court’s finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted. Second, the benefit of excussion may be waived.[20] Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his “liability in *the+ guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx.” The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. Dispositive: Decision affirmed with modification, holding Jose Tupaz solely liable for the September 30 trust receipt but as a guarantor. Both petitioners, not liable for October 9 trust receipt. Security Bank v. Cuenca, 341 SCRA 781 (2000) Doctrine: An extension granted to the debtor by the creditor without the consent of the

guarantor (ni surety) extinguishes the guaranty. Facts: 1. 10 November 1980Security Bank and Trust Co. granted Sta. Ines Melale Corporation a loan of 8M. Stipulated on the agreement that the credit line will only last up to Nov 30 1981 - so hanggang sa panahon lang na ito sila pwede umutang 2. Sta Ines issued a Chattel Mortgage ove their machines. Cuenca as the president by that time executed an indemnity agreement in favor of Sta Ines. This includes any amendment, extension to the loan agreement. (ito na yung surety) 3. On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant Sta Ines made a first draw down from its credit line with SBTC in the amount of 6.1M 4. Sometime in 1985, Cuenca resigned as president and all his shares was sold in a public auction. Adolfo Angala bought the said shares. 5. Tapos umutang ulit sila worth 6.1M, note that the period this time is expired 6. Because Sta Ines had difficulty in paying their loan the bank accommodated appellant Sta Ines‟ request and signified its approval in a letter dated 18 February 1988 wherein SBTC

and defendant-appellant Sta. Ines, without notice to or the prior consent of [Respondent] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. [Petitioner] Security Bank agreed to extend to defendant-appellant Sta. Ines the following loans: a. a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied to liquidate the principal portion of defendant-appellant Sta. Ines[„] total outstanding indebtedness to [Petitioner] Security Bank and b. b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos (P3,400,000.00), to be applied to liquidate the past due interest and penalty portion of the indebtedness of defendant-appellant Sta. Ines to [Petitioner] Security Bank 7. Tapos naconsolidate na tong utang sa 12M and they, Sta. Ines issued a promissory note 8. From 08 April 1988 to 02 December 1988 Sta Ines paid around 1.757M, after that they defaulted in payinng. 9. Cuenca was released from such obligation - CA Issue: WON CA is correct in releasing Cuenca from the obligation (kasi sabi ng Sta. Ines surety cia at yung may promissory note shit extended the loan agreement) Ruling: Yes. CA is correct. 1989 Loan Agreement expressly stipulated that its purpose was to “liquidate,” not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreeement, which had alledgedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that “[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. An essential alteration in the terms of a Loan Agreement without the consent of the surety extinguishes the latter‟s obligation. The submission that only the borrower, not the surety, is entitled to be notified of any modification in the original loan accommodation is untenablesuch theory is contrary to the to the principle that a surety cannot assume an obligation more onerous than that of the principal. That the Indemnity Agreement is a continuing surety does not authorize the lender to extend the scope of the principal obligation inordinately; A continuing guaranty is one which covers all transaction, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. (Isa pa) Novation is mode of extinguishing an obligation. Such as the case at bar when the original stipulation was substituted by the one including the promissory note.

Palmares v. CA & M. B. Lending Corporation, 288 SCRA 422 (1998) (digest by this afternoon)

E. Zobel, Inc. v. CA, 290 SCRA 1 (1998) E. ZOBEL, INC.,

petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.  Doctrine: Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. Facts: Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2,875,000.00) to finance the purchase of two (2) maritime barges and one tugboat 3 which would be used in their molasses business secured by a chattel mortgage over the three (3) vessels to be acquired and a Continuing Guaranty by Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc., in favor of SOLIDBANK. Respondent spouses defaulted in the payment upon maturity. SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety. The document referred to as "Continuing Guaranty" dated August 21, 1985 (Exh. 7) states as follows: For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any other manner, to, or at the request or for the account of the borrower, . . . ISSUE: We shall first resolve the issue of whether or not petitioner under the "Continuing Guaranty"obligated itself to SOLIDBANK as a guarantor or a surety. HELD: A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. 7 A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. 8 Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. 9 Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. 10 Based on the aforementioned definitions Clearly therefore, defendant E. Zobel, Inc. signed as surety. Even though the title of the document is "Continuing Guaranty", the Court's interpretation is not limited to the title alone but to the contents and

intention of the parties more specifically if the language is clear and positive. The obligation of the defendant Zobel being that of a surety, Art. 2080 New Civil Code will not apply as it is only for those acting as guarantor. In fact, in the letter of January 31, 1986 of the defendants (spouses and Zobel) to the plaintiff it is requesting that the chattel mortgage on the vessels and tugboat be waived and/or rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by Zobel in favor of the plaintiff thus thwarting the claim of the defendant now that the chattel mortgage is an essential condition of the guaranty. In its letter, it said that because of the Continuing Guaranty in favor of the plaintiff the chattel mortgage is rendered unnecessary and redundant. One need not look too deeply at the contract to determine the nature of the undertaking and the intention of the parties. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the obligation. This can be gleaned from a reading of the stipulations in the contract

Philippine Blooming Mills, Inc. & Ching v. CA, 413 SCRA 445 (2003) IFC v. Imperial Textile Mills, Inc., 475 SCRA 445 (2005)

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International Finance Corporation(IFC) v. International Textile Mills Inc.(IT) Doctrine: The creditor in the present Petition was able to show convincingly that, although denominated as a “Guarantee Agreement,” the Contract was actually a surety. Notwithstanding the use of the words “guarantee” and “guarantor,” the subject Contract was indeed a surety, because its terms were clear and left no doubt as to the intention of the parties. Facts: IFC and Philippine Polyamide Industrial Corporation(PPIC) entered into a loan agreement. Details of the said agreement: *loan is for 7M USD. *Payable in 16 semi-annual installments of 437,500 USD. *10% interest rate per annum. A “guarantee agreement” was entered in to with respondent IT, Grand Textile Manufacturing Corporation(GT) and IFC as parties thereto to guarantee the said loan agreement. PPIC defaulted in paying installments. IFC issued a demand, despite the said demand PPIC still failed to pay. Consequently, IFC demanded IT and GT, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid. IFC filed a case at the RTC of Manila to compel PPIC and IT to pay. The trial court held PPIC liable for the payment of the outstanding loan plus interests. It also ordered PPIC to pay IFC its claimed attorney’s fees. However, the trial court relieved IT of its obligation as guarantor. Hence, the trial court dismissed IFC’s complaint against IT. The Court of Appeals reversed the RTC decision stating that in the event that PPIC fails to pay, IT is liable. The CA, however, held that IT’s liability as a guarantor would arise only if and when PPIC could not pay. Since PPIC’s inability to comply with its obligation was not sufficiently established, IT could not immediately be made to assume the liability. Hence this petition.

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Issue/s: Should IT be solidarily liable with GT? Is the “guarantee agreement” a guarantee or a surety? Held: Yes. Surety. - IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC‟s obligations proceeding from the Loan Agreement. For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor and not a surety. Moreover, any ambiguity in the Agreement should be construed against IFC -- the party that drafted it. - The Agreement uses “guarantee” and “guarantors,” prompting ITM to base its argument on those words. This Court is not convinced that the use of the two words limits the Contract to a mere guaranty. The specific stipulations in the Contract show otherwise. While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was “jointly and severally” liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a surety. - Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter‟s obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. - Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM‟s liability commenced only when it guaranteed PPIC‟s obligation. It became a surety when it bound itself solidarily with the principal obligor. Thus, the applicable law is Art 2047 CC. Pursuant to

this provision, petitioner (as creditor) was justified in taking action directly against respondent. - The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by the term “jointly and severally,” the use of the word “guarantor” to refer to a “surety” does not violate the law. As Art 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the Agreement -- “as primary obligor and not merely as surety” -- stresses that ITM is being placed on the same level as PPIC. Those words emphasize the nature of their liability, which the law characterizes as a suretyship. - The use of the word “guarantee” does not ipso facto make the contract one of guaranty. This Court has recognized that the word is frequently employed in business transactions to describe the intention to be bound by a primary or an independent obligation. The very terms of a contract govern the obligations of the parties or the extent of the obligor‟s liability. Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a “Guarantor‟s Undertaking” or a “Continuing Guaranty.” - Indeed, the finding of solidary liability is in line with the premise provided in the “Whereas” clause of the Guarantee Agreement. The execution of the Agreement was a condition precedent for the approval of PPIC‟s loan from IFC. Consistent with the position of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning ignorance of its solidary liability. The literal meaning of the stipulations control when the terms of the contract are clear and there is no doubt as to the intention of the parties. - We note that the CA denied solidary liability, on the theory that the parties would not have executed a Guarantee Agreement if they had intended to name ITM as a primary obligor. The appellate court opined that ITM‟s undertaking was collateral to and distinct from the Loan Agreement. On this point, the Court stresses that a suretyship is merely an accessory or a collateral to a principal obligation. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations constituted by the latter. - With the present finding that ITM is a surety, it is clear that the CA erred in declaring the former secondarily liable. A surety is considered in law to be on the same footing as the principal debtor in relation to whatever is adjudged against the latter. Evidently, the dispositive portion of the assailed Decision should be modified to require ITM to pay the amount adjudged in favor of IFC. Dispositive: - WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and Resolution MODIFIED in the sense that Imperial Textile Mills, Inc. is declared a surety to Philippine Polyamide Industrial Corporation. ITM is ORDERED to pay International Finance Corporation the same amounts adjudged against PPIC in the assailed Decision. No costs.

DOCTRINE: a suretyship is created when a guarantor binds itself solidarily with the principal obligor Facts: Dec 17, 1974, International Finance Corp. (IFC) extended to Phil. Polyamide Industrial Corp.(PPIC) loan of US$7,000,000.00, payable in 16 semi-annual installments of US$437,500.00.

a

Also on Dec 17, 1974 a Guarantee Agreement was executed, with Imperial Textile Mills (ITM)and Grandex agreeing to guarantee PPIC's obligation. PPIC made 3 payments but defaulted on the rest. Hence, on April 1, 1985 IFC served a written notice of default and demanding the outstanding principal loan and accrued interests but still PPIC failed to pay. IFC extra judicially foreclosed the mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC, located at Calamba, Laguna. The auction sale amounted to US$ 8,083,967. There remained a balance of US$ 2,833,967 which PPIC failed to pay. IFC demanded payment from ITM and Grandex by virtue of their guarantee agreement, yet the balance remained unpaid. Hence, IFC filed a suit against PPIC and ITM for the payment of the outstanding

balance, interests, and atty. Fees. RTC held PPIC liable but relieved ITM of its obligation as guarantor. dismissed.

IFC's complaint against ITM was

On appeal , CA held that ITM is not absolved, but its liability would arise only if and when PPIC could not pay. Since PPIC's inability to pay was not sufficiently established, ITM could not immediately be made to assume liability. IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's obligations proceeding from the Loan Agreement. For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor and not a surety. ISSUE: WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan? YES. HELD: 1.

Language of the contract:

"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as primary obligors and not as sureties merely,… jointly and severally- The terms of the contract govern the rights and obligations of the contracting parties. When the obligor undertakes to be "jointly and severally liable" it means that the obligation is solidary. If solidary liability was intended to "guarantee" a principal obligation, the law deems the contract to be of SURETYSHIP. Article 2047 provides, “By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the obligation of the principal in case the latter should fail to do so. “If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract shall be called suretyship.” Hence, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. primary obligors and not as sureties merely- SC reasoned that these words meant only one thing, at the bottom and to all legal intents and purposes, it was a surety. Here ITM is being placed on the same level as PPIC. 2. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary, and absolute, or regular to that of a regular party to the undertaking. WHEREFORE, the Petition is hereby GRANTED, Imperial Textile Mills, Inc. is declared a surety to Philippine Polyamide Industrial Corporation. ITM is ORDERED to pay International Finance Corporation the same amounts adjudged against PPIC in the assailed Decision. No costs

Escano & Silos v. Ortigas, Jr.,

ESCANO and SILOS vs. ORTIGAS, Jr., GR. No. 151953, June 29, 2007 DOCTRINE: PRESUMPTION OF OBLIGATIONS BEING JOINT. indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. FACTS: Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals, Inc. whereby PDCP agreed to make available and lend to Falcon a sum certain. Respondent Rafael Ortigas, Jr., et al., stockholder officers of Falcon, executed an Assumption of Solidary Liability whereby they agreed to assume in their individual capacity, solidary liability with Falcon for the due and punctual payment of the loan contracted by Falcon with PDCP. Two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One Guaranty was executed by petitioner Salvador Escaño, while the other by petitioners Mario M. Silos, Ricardo C. Silverio, et al. Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Joseph M. Matti. Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to Escaño, Silos and Matti. Part of the consideration that induced the sale of stock was a desire by Ortigas, et al., to relieve themselves of all liability arising from their previous joint and several undertakings with Falcon, including those related to the loan with PDCP. Thus, an Undertaking was executed by the concerned parties with Escaño, Silos and Matti identified in the document as “sureties,” on one hand, and Ortigas, Inductivo and the Scholeys as “obligors,” on the other. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency of P5,000,000, which Falcon did not satisfy despite demand. In order to recover the indebtedness, PDCP filed a complaint for sum of money against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo. Ortigas filed together with his answer a cross-claim against his co-defendants Falcon, Escaño and Silos, and also manifested his intent to file a third-party complaint against the Scholeys and Matti. The cross-claim

lodged against Escaño and Silos was predicated on the 1982 Undertaking, wherein they agreed to assume the liabilities of Ortigas with respect to the PDCP loan. Escaño, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with PDCP was Escaño, who entered into a compromise agreement. In exchange, PDCP waived or assigned in favor of Escaño 1/3 of its entire claim in the complaint against all of the other defendants in the case. Then Ortigas entered into his own compromise agreement with PDCP, allegedly without the knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed to pay PDCP P1.3M as full satisfaction of the PDCP’s claim against Ortigas. Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay P500k in exchange for PDCP’s waiver of its claims against him. In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silos and Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against Matti and Silos, while he maintained his cross-claim against Escaño. RTC issued the Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas, jointly and severally, the amount of P1.3M, as well as P20K in attorney’s fees. The trial court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking. ISSUE: Whether or not petitioners are solidarily liable to respondent Ortigas. Held: Petitioners are not solidarily liable to respondent Ortigas. In case there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.” Article 1210 supplies further that the indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. Thus, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. The Undertaking does not contain any express stipulation that the petitioners agreed “to bind themselves jointly and severally” in their obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas, as the party

alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. He has failed to discharge such burden. The term “surety” has a specific meaning under our Civil Code. As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigas’ argument rests solely on the solidary nature of the obligation of the surety under Article2047. In tandem with the nomenclature “sureties” accorded to petitioners and Matti in the Undertaking, however, this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case here, notwithstanding the use of the nomenclature “sureties” in the Undertaking.

DBP VS. CA DOCTRINE: Pactum Commissorium renders the pledge or mortgage void. The elements of Pactum Commissorium are: (1) There should be a property mortgaged by way of security for the payment of the principal obligation, and (2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period NATURE: Consolidated petition for review of the decision of the Court of Appeals FACTS: · Plaintiff Cuba is a grantee of a Fishpond Lease Agreement from the Government. She obtained loans from Defendant Development Bank of the Philippines (DBP) under terms stated in Promissory Notes. As security for the loans, Cuba executed two Deeds of Assignment of her Leasehold Rights; ·

The Deeds of Assignment includes condition no. 12 which states:

o That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property abovedescribed, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs,

improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. · Cuba failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes. Without foreclosure proceedings, defendant DBP appropriated the Leasehold Rights of Cuba over the fishpond in question; · After Defendant DBP has appropriated the Leasehold Rights of Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Cuba over the same fishpond in question; · In the negotiation for repurchase, Cuba addressed two letters to the Manager of DBP, Dagupan City. DBP thereafter accepted the offer to repurchase. After the Deed of Conditional Sale was executed in favor of Cuba, a new Fishpond Lease Agreement was issued by the Ministry of Agriculture and Food in favor of plaintiff Cuba only, excluding her husband; · Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale. After Cuba failed to pay the amortization, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Cuba promised to make certain payments as stated in temporary Arrangement · Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act which was received by plaintiff Lydia Cuba. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question. DBP then advertised in the “SUNDAY PUNCH” a public bidding to dispose of the property; · The DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal. Thereafter, defendant Caperal was awarded a Fishpond Lease Agreement by the Ministry of Agriculture and Food. Cuba then filed a complaint against DBP and Caperal · The RTC held in favor of Cuba, stating that DBP taking possession of the property without foreclosure proceedings was violative of Art. 2088 of the Civil Code, which states: The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. In

addition, although the “fishpond land” was still public land, the leasehold rights of Cuba are alienable rights and can be the proper subject of mortgage. It was clear that the intention for the Assignment was to act as a mortgage, thus, DBP’s only right was to foreclose. · The trial court declared that Condition 12 is clearly pactum commissorium and is therefore void. Thus, DBP never acquired lawful ownership of the property, and therefore, all acts of ownership of DBP were also void. · CA reversed, declaring the Deed of Assignment valid, including Condition 12. Making the other acts of DBP valid. However, CA still awarded damages in favor of Cuba. DBP questions the grant of damages, and Cuba questions the validity of the Deed of Assignment as not being held pactum commissorium ISSUE: W/N THE DEED OF ASSIGNMENT IS CONSIDERED PACTUM COMMISSORIUM HELD: NO · First, the trial court was correct in holding that the deed of assignment was essentially a mortgage. Due to the fact that the assignment was to guarantee an obligation.

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Second, Condition 12 does not constitute pactum commissorium. The elements of which are as follows:

o There should be a property mortgaged by way of security for the payment of the principal obligation, and o There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period · Condition 12 merely provided for the appointment of DBP as Attorney-in-Fact with authority to sell or dispose of the real rights in case of default by Cuba, and to apply the proceeds to the payment of the loan. There is no stipulation as to automatic appropriation. · Since it is clear that the Deed of Assignment works as a Contract of Mortgage, it was wrong of DBP to have appropriated the leasehold rights without foreclosure proceedings, as it is violative of Art. 2088.

Bustamante v. Rosel, 319 SCRA 413 (1999) Ong. V. Roban Lending Corporation, 557 SCRA 516 Estate of Litton v. Mendoza & CA,