CREDIT TRANSACTIONS DOCTRINES

2nd Semester S.Y. 2016-2017 Atty. Rowell Ilagan

SECOND ASSIGNMENT: MUTUUM TO SEQUESTRATION

I. Articles 1953-2009
II. Cases:
MUTUUM / Money Market Transaction
1. Cebu International vs. CA In a money market transaction, the investor is a lender who loans his money to a
borrower through a middleman or dealer.

USURY (1961)
2. Mambulao Lumber v. PNB - When there is an express stipulation made by the parties to wit: that the interest due
an unpaid shall be added to the principal obligation and the resulting total amount shall earn interest.
- This practice is called compounding interest and it is allowed by the Usury Law if there is express stipulation.
3. Liam Law v. Olympic Sawmill Usury is now legally non-existent. The interest legally chargeable depends upon
the agreement between the lender and the borrower.
4. Florante [Bautista] v. Pilar Devt. Central Bank Circular No. 905 (Dec. 10, 1982, effective Jan. 1, 1983) removed
the Usury Law ceiling on interest rates for secured and unsecured loans, regardless of maturity.
- Notwithstanding the suspension of the effectivity of the Usury Law, courts are empowered to reduce the
stipulated rate of interest, although it can no longer be considered usurious, if it is inequitous or
unconscionable. (Art. 1229.)
5. Tolentino v. Gonzales - Usury may be defined as contracting for or receiving something in excess of the amount
allowed by law for the loan or for

LOAN v. RENT
5. Tolentino v. Gonzales A contract of loan differs materially from a contract of rent or lease, as follows:
(1) A contract of loan signifies the delivery of money or some other consumable thing to another with a promise
to repay an equivalent amount of the same kind and quality, but not a promise to return the same thing loaned
which becomes the property of the obligor.
The contract of rent is a contract by which one of the parties delivers to another some non-consumable thing
in order that the latter may use it during a certain period and return it to the former. In a contract of rent, the
owner or lessor of the property does not lose his ownership. He simply loses his control over the property
rented during the period of the contract;
(2) In a contract of loan, the relation between the parties is that of obligor and obligee, while in a contract of
rent, the relation is that of landlord and tenant; and
(3) In a contract of loan, the creditor receives payment for his loan, while in a contract of rent, the owner of
the property rented receives compensation or price either in money, provisions, chattels, or labor from
the occupant thereof in return for its use.

LOAN v. TRUST RECEIPT

6. Consolidated Bank v. CA The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner.
- The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them
under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their
loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and
is prone to misinterpretation.
- While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to
stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market
conditions, there should always be a reference rate upon which to peg such variable interest rates. *A
stipulation ostensibly signifying an agreement to any increase or decrease in the interest rate, without more,
cannot be accepted as valid for it leaves solely to the creditor the determination of what interest rate to charge
against an outstanding loan.
7. Colinares v. CA same with Conso^
CREDIT TRANSACTIONS DOCTRINES
2nd Semester S.Y. 2016-2017 Atty. Rowell Ilagan

FUNGIBLE THINGS
8. Republic v. Grijaldo The loss of the mortgaged crops did not extinguish his obligation to pay, because it could
still be paid from other sources aside from the crops. The chattel mortgage simply stood as a security for the
fulfillment of his obligation.
Note: The obligation of the appellant under the promissory note was not to deliver a determinate thing, namely the
crops to be harvested from his land, but to pay a generic thing the amount of money representing the total sum
of his loans, with interest.

INTEREST (Art. 1956)

9. Tan v. Valdehueza The payment of interest must be expressly stipulated.
10. Jardenil v. Solas The payment of interest must be expressly stipulated.
11. Radiowealth Finance v. Del Rosario Where the promissory note stipulated a late payment penalty to be added
to each unpaid installment until fully paid but the payment of interest was not expressly stipulated in the note, the
interest should be deemed included in such penalty.
12. Casa Filipina v. Deputy Executive Secretary If a particular rate of interest has been expressly stipulated by the
parties, that interest, not the legal rate of interest, shall be applied.
13. Security Bank v. RTC of Makati If the exact rate of the interest is not mentioned, the legal rate of 12% shall
be payable.
14. PNB v. CA (1991) No increase in interest shall be due unless such increase has also been expressly stipulated.
15. Royal Shirt v. Co Bon Tic Sales invoices or slips issued by a store to its customers, stating interests and
attorneys fees in the usual printed forms as terms and conditions, without the signature of the obligor, do not
constitute the express stipulation required by Article 1956. Therefore, the obligor is not liable for the interest except
only the legal interest (6%) under Article 2209 on the amount due in case he incurs in delay.
16. Soncuya v. Azarraga It is only in contracts of loan, with or without security, that interest may be stipulated and
demanded.
17. Relucio v. Brillante Vendor and vendee are legally free to stipulate for the payment of either the cash price of a
subdivision lot or its installment price. Should the vendee opt to purchase a subdivision lot via the installment
payment system, he is, in effect, paying interest on the cash price, whether the fact and rate of such interest payment
are disclosed in the contract or not. The contract for the purchase and sale of a piece of land on the installment plan
is not only lawful; it also reflects a very widespread usage or custom in our present day commercial life.

DAMAGES FOR DELAY (Art. 2209 vs. CB Circ. No. 416)

18. State Investment (SIHI) v. CA Under Article 2209, the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum or money, is the payment of the penalty interest at
the rate agreed upon; and in the absence of a stipulation of a particular rate of penalty interest, then the payment of
additional interest at a rate equal to the regular monetary interest, and if no regular interest had been agreed upon,
then payment of legal interest which is 6% annually or, in the case of loans or forbearances of money, 12% per
annum as provided for in Central Bank Circular No. 416.
19. Eastern Shipping Lines v. CA 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 [loan or forbearance of money] or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
20. Castelo v. CA The obligation consisting of the payment of a sum of money referred to in Article 2209 is not
confined to a loan or forbearance of money. It has also been applied by the Supreme Court in cases involving
default in the payment of price or consideration under a contract of sale and an action for damages for injury to
persons and loss of property and an action for damages arising from unpaid insurance claims.
21. Atlantic Gulf v. CA same with Eastern^
22. Cristina Garments v. CA Because the amount due arose from a contract for a piece of work, not from a loan
or forbearance of money, the legal interest of 6% per annum should be applied. Furthermore, since the amount of
the demand could be established with certainty when the complaint was filed, the 6% interest should be computed
from the fi ling of said complaint. But after the judgment becomes final and executory until the obligation is
satisfied, interest should be reckoned at 12% per year.
23. Pilipinas Bank v. CA If the obligation arises from other sources (e.g., sale) or by way of damages arising from
injury to persons and loss of property which does not involve a loan, what is applicable is the rate of 6% annually
as provided in Article 2209 and not the rate of 12% per annum provided by Central Bank Circular No. 416.
CREDIT TRANSACTIONS DOCTRINES
2nd Semester S.Y. 2016-2017 Atty. Rowell Ilagan

24. Tio Keh Chio v. CA same with Pilipinas Bank^

25. AC Enterprise v. Construction Industry same with Pilipinas Bank^
26. PNB v. CA (1996) same with Pilipinas Bank^
27. Sentinel Insurance v. CA While the interest agreed upon forms part of the consideration of the contract itself,
interest as indemnity for damages is payable only in case of default or non-performance of the contract. As they
are distinct claims, they may be demanded separately.
28. Philam v. Flores Interest due shall earn interest from the time it is judicially demanded although the obligation
may be silent upon this point. (Art. 2212; see Sec.5, Usury Law.) Both Article 2212 of the Civil Code and Section
5 of the Usury Law are applicable only where interest has been stipulated by the parties. Article 1212 contemplates
the presence of stipulated or conventional interest which has accrued when demand was judicially made. In cases
where no interest had been stipulated by the parties, no accrued conventional interest could further earn interest
upon judicial demand.
29. Santulan v. Fule Where the courts judgment which did not provide for the payment of interest has already
become final, no interest may be awarded.
30. Ruiz v. Caneba same with Santulan^
31. Joven v. Ventura [Illustrative case in p. 43 of De Leon] The interest at 6% per annum from January 1, 1959 to
December 12, 1962 is P136,482.13. This is to be added to the principal amount, thus making a total of P713,056.03
which shall earn legal interest at 6% (now 12%) per annum from December 12, 1962 until fully paid. Such interest
is not due by stipulation but by the mandate of the law, i.e., Article 2212.
32. RCBC v. CA The charging of interest for loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a
bank to grant loans for which it will not charge any interest at all.

CIRCUMVENTION OF USURY LAW (Art. 1957)

33. Briones v. Cammayo The Civil Code yields to the Usury Law when it comes to the question of how much of
the loans and interests paid by the borrower may be recovered.
- It is only the stipulation on usurious interest which should be treated as void so that the loan becomes without
stipulation to pay interest.
34. Jose v. Chelda In a simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt which is the cause of the contract (Art. 1350.) is not illegal.
- The Supreme Court ruled that the person paying usurious interest can recover not only the interest in excess
of 12% or 14%,11 as the case may be, but the entire interest paid. Since a stipulation for the payment of
usurious interest is void. (Arts. 1957, 1409[7], Civil Code.), the effect is the same as if there is no stipulation
as to interest. (Art. 1956.)
35. Private Devt v. CA same with Chelda^
36. Sanchez v. Buenviaje With respect to the debtor, the amount paid as interest under a usurious agreement is
recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily. In a
case, however, the Supreme Court affirmed the judgment of the lower court ordering the debtor to pay the creditor
the principal loaned plus interest thereon at the legal rate from the filing of the complaint. (NOTE: Ruling of SC
in this case Chelda)

DEPOSIT
37. CA Agro-Industrial v. CA A contract for the rent of safety deposit boxes is not an ordinary contract of lease of
things but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit.
- With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties,
since the relation is a contractual one, may by special contract define their respective duties or provide for
increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or
public policy.
- The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed
as an attempt to do so, it will be held ineffective for the purpose.
- Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some
extent by agreement or stipulation.