LOAN - GENERAL PROVISIONS

1 Banco De Oro v. Rizal 20-lender rule. When funds are simultaneously obtained from 20 or more
Commercial Banking lenders/investors, there is deemed to be a public borrowing and the bonds at that
Corp., G.R. No. 198756, point in time are deemed deposit substitutes.
January 13, 2015
Meaning of "at any one time"

Thus, from the point of view of the financial market, the phrase "at any one time" for
purposes of determining the "20 or more lenders" would mean every transaction
executed in the primary or secondary market in connection with the purchase or
sale of securities.

2 Naguiat v. Court of A loan contract is a real contract, not consensual, and, as such, is perfected only
Appeals, G.R. No. upon the delivery of the object of the contract.
118375, October 3, 2003

3 Spouses Palada v. Under Article 1934 of the Civil Code, a loan contract is perfected only upon the
Solidbank Corporation, delivery of the object of the contract.
G.R. No. 172227, June
29, 2011 A lender is not expected to release the entire loan if the debtor subsequently proves
to be collaterally deficient.

4 DBP vs. Guarina Loan is a reciprocal obligation, as it arises from the same cause where one party is
Agricultural & Realty Dev. the creditor, and the other the debtor. The obligation of one party in a reciprocal
Corp. obligation is dependent upon the obligation of the other, and the performance should
ideally be simultaneous. This means that in a loan, the creditor should release the full
loan amount and the debtor repays it when it becomes due and demandable.

5 Saura Import & Export, A mere promise to deliver a loan does not perfect a loan contract.
Co. v. DBP, 44 SCRA
445, April 27, 1972 ART. 1934, NCC. An accepted promise to deliver something, by way of commodatum
or simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.

6 BPI Investment Corp. v. A loan contract is not a consensual contract but a real contract. It is perfected only
Court of Appeals, G.R. upon the delivery of the object of the contract. A perfected consensual contract can
No. 133632, February 15, give rise to an action for damages. However, said contract does not constitute the
2002 real contract of loan which requires the delivery of the object of the contract for
its perfection and which gives rise to obligations only on the part of the
borrower

7 Spouses Pio Dato v. BPI, A credit line is "that amount of money or merchandise which a banker,
G.R. No. 181873, merchant, or supplier agrees to supply to a person on credit and generally
November 27, 2013 agreed to in advance." It is the fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extent of which the latter may avail himself
of his dealings with the former but which he must not exceed and is usually intended
to cover a series of transactions in which case, when the customer’s line of credit is
nearly exhausted, he is expected to reduce his indebtedness by payments before
making any further drawings.

8 Philippine National Bank Under the law, a loan requires the delivery of money or any other consumable object
v. Spouses Tajonera, by one party to another who acquires ownership thereof, on the condition that the
G.R. No. 195889, same amount or quality shall be paid.
September 24, 2014
Loan is a reciprocal obligation, as it arises from the same cause where one party is
the creditor, and the other the debtor. The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the performance should
ideally be simultaneous.
 This means that in a loan, the creditor should release the full loan amount and the
debtor repays it when it becomes due and demandable.

9 Spouses Ramon Sy and In civil cases, the burden of proof rests upon the plaintiff who is required to
Anita Ng v. Westmont establish his case by a preponderance of evidence.
Bank, G.R. 201074,
October 19, 2016. The Court finds that Westmont miserably failed to establish that it released and
delivered the proceeds of the loans in the total amount of P6,429,500.00 to
petitioners. Westmont could have easily presented a receipt, a ledger, a loan
release manifold, or a statement of loan release to indubitably prove that the
proceeds were actually released and received by petitioners x x x x but these
purported documents were never presented, identified or offered.

10 Vicente L. Luntao v. BAP The validity of accessory contracts mainly flows from the validity of the principal
Credit Guaranty contracts. A real estate mortgage is in the nature of an accessory contract. Thus,
Corporation, G.R. No. the validity of a mortgage contract that was constituted to secure a loan obligation
204412, September 20, is affected by the validity of the loan contract.
2017

VALIDITY OF CONTRACTS IS DETERMINED BY THE ELEMENTS:

ARTICLE 1318, NCC. There is no contract unless the following requisites

concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

All elements should be present in a contract; otherwise, it cannot be

perfected

SUMMARY RULING:
According to petitioners, the contract was not consummated since they did not
receive the loan proceeds, and therefore, null and void. The principal contract being
void, the accessory contract of mortgage was also null and void.

Petitioners Luntao lost this case because it was proven that they actually received the
Loan proceeds as proven by a letter acknowledging receipt of the loan.

COMMODATUM

11 Manzano v. Perez, Jr., ART 1935, NCC. The bailee in commodatum acquires the use of the thing loaned but
G.R. No. 112485, August not its fruits; if any compensation is to be paid by him who acquires the use, the
9, 2001 contract ceases to be a commodatum.

Commodatum converted to contract of Sale

SC holds that in light of the evidence presented, the agreement is an absolute

sale, NOT a commodatum. petitioner has failed to come up with even a
preponderance of evidence to prove her claim of commodatum. Oral testimony and
payment of tax declaration alone cannot, as a rule, prevail over a written agreement
of the parties.

On the other hand, respondents presented two Deeds of Sale, which petitioner
executed in favor of the former's predecessor-in-interest. Both Deeds - for the
residential lot and for the house erected thereon - were each in consideration of
P1.00 "plus other valuables." Having been notarized, they are presumed to have
 been duly executed. Also, issued in favor of respondents' predecessor-in-interest
the day after the sale was Tax Declaration

12 Felix de los Santos v. NEW CIVIL CODE:

Jarra, G.R. No. L-4150,
February 10, 1910 RULES ON LOSS OF THE THING LOANED (PK - ALS)

ART 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:

1. If he devotes the thing to any purpose different from that for which it has
been loaned;
2. If he keeps it longer than the period stipulated, or after the accomplishment
of the use for which the commodatum has been constituted;
3. If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
4. If he lends or leases the thing to a third person, who is not a member of
his household;
5. If, being able to save either the thing borrowed or his own thing, he chose to
save the latter. (1744a and 1745)

Carabaos dying of Rinderpest

13 Republic v. Court of The occupancy of the U.S. Navy was not in the concept of owner. It partakes of
Appeals, G.R. No. L- the character of a commodatum. It cannot therefore militate against the title of
46145, November 26, Domingo Baloy and his successors-in-interest. One's ownership of a thing may be
1986 lost by prescription by reason of another's possession if such possession be under
claim of ownership, not where the possession is only intended to be transient

SEE ALSO: CONCEPT OF A HOLDER VS. CONCEPT OF AN OWNER

Possession in the concept of a holder cannot acquire ownership by
prescription.

One cannot recognize the right of another (concept of a holder) and at the same time
claim adverse possession (concept of an owner) which can ripen to ownership
through acquisitive prescription.

For prescription to set in, the possession must be adverse, public and to the
exclusion of all.

Corpus vs. Padilla, L-18099 and L-18136, July 31, 1962

To be considered as adverse, physical (material) possession must be coupled with

intent to possess as an owner.

14 Producers Bank of the If consumable goods are loaned only for purposes of exhibition, or when the
Phils. v. CA, G.R. No. intention of the parties is to lend consumable goods and to have the very same
115324, February 19, goods returned at the end of the period agreed upon, the loan is a commodatum
2003 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.

15 Pajuyo v. Court of An essential feature of commodatum is that it is gratuitous.

Appeals, G.R. No.
146364, June 3, 2004 Another feature of commodatum is that the use of the thing belonging to
 another is for a certain period. Thus, the bailor cannot demand the return of the
thing loaned until after expiration of the period stipulated, or after accomplishment of
the use for which the commodatum is constituted.

ART 1938, NCC. The bailor in commodatum need not be the owner of the thing
loaned. (n)

A squatter lending a house in commodatum to another squatter. (the bailor did not
have ownership)

16 Catholic Vicar Apostolic of The bailees' failure to return the subject matter of commodatum to the bailor
the Mt. Province v. Court did not mean adverse possession on the part of the borrower. The bailee held in
of Appeals, 165 SCRA trust the property subject matter of commodatum.
515 (1988) IF WITH ADVERSE POSSESSION, PRESCRIPTION WILL RUN:

Ordinary acquisitive prescription requires possession for 10 years, but always with
just title.

Extraordinary acquisitive prescription requires 30 years.

See, Article 1117, 1134, 1137, NCC

17 Quintos v. Beck, G.R. No. Commodatum is a type of contract where the owner grants the use of an item to
L-46240, November 3, another person while retaining ownership.
1939
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 latters demand

SIMPLE LOAN

18 Georgia Osmena- The existence of a contract of loan cannot be denied merely because it was not
Jalandoni v. Encomienda, reduced in writing. Surely, there can be a verbal loan. Contracts are binding
G.R. No. 205578, March between the parties, whether oral or written.
1, 2017

19 Philippine National Bank Promissory note is the best evidence to prove the existence of the loan and
v. James T. Cua, G.R. there was no need for the respondent to submit a separate receipt to prove that the
No. 199161, April 18, petitioners received the proceeds thereof.
2018

20 Chee Kiong Yam v. Malik, In simple loan (mutuum) the borrower acquires ownership of the money, goods
G.R. No. L-50550, or personal property borrowed. Being the owner, the borrower can dispose of the
October 31, 1979 thing borrowed (Article 248, Civil Code) and his act will not be considered
misappropriation thereof.

21 Patrimonio v. Gutierrez, Article 1878 paragraph 7 of the Civil Code expressly requires a special power of
G.R. No. 187769, June authority before an agent can loan or borrow money in behalf of the principal
04, 2014

SIMPLE LOAN - BANK DEPOSITS

22 The Metropolitan Bank Bank deposits, which are in the nature of a simple loan or mutuum, must be paid
and Trust Co. v. Rosales, upon demand by the depositor.
G.R. No. 183204, January
13, 2014 The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to
 wit: law, contracts, quasi-contracts, delict, and quasi-delict.

SUMMARY RULING:
SC holds that petitioner Metropolitan is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. The
Court finds that there is no basis for petitioner Metropolitan Bank to issue "Hold Out"
order. In this case, petitioner failed to show that respondents have an obligation to it
under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason
for petitioner to issue a "Hold Out" order as the case is still pending and no
final judgment of conviction has been rendered against respondent Rosales.

23 Guingona v. City Fiscal of Article 1980. Fixed, savings, and current deposits of-money in banks and similar
Manila, G.R. No. L-60033, institutions shall be governed by the provisions concerning simple loan.
April 4, 1984, 128 SCRA
577 In simple loan (mutuum), as contrasted to commodatum the borrower acquires
ownership of the money, goods or personal property borrowed Being the owner, the
borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will
not be considered misappropriation thereof'

Bank deposits are in the nature of irregular deposits. They are really 'loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to
be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code
Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans
to a bank because it can use the same.

While the Bank has the obligation to return the amount deposited, it has,
however, no obligation to return or deliver the same money that was deposited.
And, the failure of the Bank to return the amount deposited will not constitute
estafa through misappropriation punishable under Article 315, par. l(b) of the
Revised Penal Code, but it will only give rise to civil liability over which the public
respondents have no- jurisdiction.

24 People v. Jose C. Go, et. The contract between the bank and its depositor is governed by the provisions
al., G.R. No. 191015, of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides
August 6, 2014 that "x x x savings x x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. x x x

In Soriano v. People, it was held that the President of a bank is a fiduciary with
respect to the bank’s funds, and he holds the same in trust or for administration for
the bank’s benefit. From this, it may be inferred that when such bank president
makes it appear through falsification that an individual or entity applied for a loan
when in fact such individual or entity did not, and the bank president obtains the loan
proceeds and converts the same, estafa is committed.

25 Bank of Philippine Islands A bank generally has a right of set-off (legal compensation) over the deposits
v. CA, G.R. No. 136202, therein for the payment of any withdrawals on the part of a depositor.
January 25, 2007
The right of a collecting bank to debit a client's account for the value of a
dishonored check that has previously been credited has fairly been established by
jurisprudence.

To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan." Hence, the relationship between banks and
depositors has been held to be that of creditor and debtor.
 Requisite of Legal Compensation (Art. 1279, Civil Code): (EP-M-DLD-C)
1. Parties must be creditors and debtors of each other in their own right.
2. The parties must be bound principally.
3. Both debts consist in sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality, if the latter has been
stated.
4. Both debts must be due, liquidated, and demandable.
5. Over neither of them there be any retention or controversy, commenced by
third persons, and communicated in due time to the debtor.

SIMPLE LOAN - CREDIT CARD

26 Pantaleon v. American Tripartite relationship. Every credit card transaction involves three contracts,
Express International, namely:
Inc., G.R. No. 174269,
May 8, 2009 and August ● (a) the sales contract between the credit card holder and the merchant or
26, 2010. 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.

The use of a credit card to pay for a purchase is only an offer to the credit card
company to enter a loan agreement with the credit card holder. Before the credit
card issuer accepts this offer, no obligation relating to the loan agreement exists
between them.

CREDIT CARD CONTRACT is an example of stipulation pour autrui

27 Far East Bank and Trust A bank is not held liable for moral and exemplary damages in a case involving a
Company v. The Hon. lost credit card when the bank did not act in bad faith, but is ordered to pay
Court of Appeals, G.R. nominal damages and attorney's fees for failing to honor the card and thus violating
No. 108164, February 23, defendant’s rights although there is no substantial damage.
1995
Nominal Damages: Awarded when a right has been violated, but no substantial
injury or loss has been inflicted.

ISSUE:
Whether FEBTC should be held liable for moral and exemplary damages.

RULING:
NO, because FEBTC was not shown to have acted in bad faith. It was only trying to
protect respondent due to his wife’s lost credit card. In culpa contractual, moral
damages may be recovered if the defendant acted in bad faith or with malice in
breaching the contract. The Court found no deliberate intent on the part of FEBTC to
cause harm to the respondents. FEBTC's negligence in failing to personally inform
Luis of the card's cancellation was not considered gross enough to amount to malice
or bad faith.

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit
card issued to private respondent Luis should entitle him to recover a measure of
damages sanctioned under Article 2221 of the Civil Code providing thusly:

Art. 2221. Nominal damages are adjudicated 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.

28 Equitable Banking Corp. Credit Card Agreement is a contract of adhesion which is binding as ordinary
 v. Caldron, G.R. No. contracts, the reason being that the party who adheres to the contract is free to reject
156168, December 14, it entirely.
2004

29 Aznar v. Citibank, G.R. Contract of adhesion. It is settled that contracts between cardholders and the credit
No. 164273, March 28, card companies are contracts of adhesion, so-called, because their terms are
2007 prepared by only one party while the other merely affixes his signature signifying his
adhesion thereto.

Any ambiguity in its provisions must be construed against the party who prepared the
contract

ISSUE:
Whether or not the agreement between the parties is a contract of adhesion;

RULING:
YES. It is settled that contracts between cardholders and the credit card companies
are contracts of adhesion, so-called, because their terms are prepared by only one
party while the other merely affixes his signature signifying his adhesion thereto.

Citibank also invokes paragraph 15 of its terms and conditions which limits its liability
to ₱1,000.00 or the actual damage proven, whichever is lesser.

Again, such stipulation cannot be considered as valid for being

unconscionable as it precludes payment of a larger amount even though damage
may be clearly proven. This Court is not precluded from ruling out blind adherence to
the terms of a contract if the attendant facts and circumstances show that they should
be ignored for being obviously too one-sided.

30 Bankard, Inc. v. Feliciano, Considering the widespread use of access devices in commercial and other
G.R. No. 141761, July 28, transactions, petitioner and other issuers of credit cards should not only guard
2006 against fraudulent uses of credit cards but should also be protective of genuine
uses thereof by the true cardholders.

SUMMARY RULING:
Petitioner claims that it suspended respondent's card to protect him from fraudulent
transactions. However, while petitioner's motive has to be lauded, we find it
lamentable that petitioner was NOT equally zealous in protecting respondent
from potentially embarrassing and humiliating situations that may arise from the
unsuspecting use of his suspended PCIBank Mastercard.

In the case at bar, the duty is much more demanding for the evidence shows that
respondent is a credit cardholder for more than ten (10) years in good standing, and
has not been shown to have violated any of the provisions of his credit card
agreement with petitioner.

Considering the attendant circumstances, we find petitioner to have been

GROSSLY NEGLIGENT in suspending respondent's credit card.

“Malice or bad faith” implies moral obliquity or a conscious and intentional design to
do a wrongful act for a dishonest purpose. However, a conscious or intentional
design need not always be present since negligence may occasionally be so
gross as to amount to malice or bad faith. Bad faith, in the context of Art. 2220 of
the Civil Code, includes gross negligence.

31 Acol v. Philippine To require the cardholder to still pay for the unauthorized purchases after he
Commercial Credit Card, has given prompt notice of the loss or theft of his card to the credit card
Inc., G.R. No. 135149, company would simply be unfair and unjust. The Court cannot give its assent to
 July 25, 2006 such a stipulation which could clearly run against public policy.

32 Louh, Jr. v. Bank of Stipulated interest rates of 3% per month and higher are excessive, iniquitous,
Philippine Islands, G.R. unconscionable and exorbitant. Such stipulations are void for being contrary to
No. 225562, March 8, morals, if not against the law. Since the stipulation on the interest rate is void, it is as
2017 if there was no express contract thereon. Hence, courts may reduce the interest rate
as reason and equity demand.

33 Bankard, Inc. v. Alarte, Credit card arrangements are simple loan arrangements between the card
G.R. No. 202573, April issuer and the card holder.
19, 2017
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.

INTEREST

34 Siga-an v. Villanueva, Article 1956 of the Civil Code, which refers to monetary interest, specifically
G.R. No. 173227, January mandates that no interest shall be due unless it has been expressly stipulated in
30, 2009 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.

35 Mendoza v. Spouses Interest by way of damages has been defined as interest allowed in actions for
Gomez, G.R. No. 160110, breach of contract or tort for the unlawful detention of money already due. This type
June 18, 2014 of interest is frequently called "moratory interest". Interest, as a part of damage, is
allowed, not by application of arbitrary rules, but as a result of the justice of the
individual case and as compensation to the injured party.

36 Silos v. Philippine In loan agreements, it cannot be denied that the rate of interest is a principal
National Bank, G.R. No. condition, if not the most important component. Thus, any modification thereof
181045, July 2, 2014 must be mutually agreed upon; otherwise, it has no binding effect. Moreover, the
Court cannot consider a stipulation granting a party the option to prepay the loan if
said party is not agreeable to the arbitrary interest rates imposed.

Premium may not be placed upon a stipulation in a contract which grants one party
the right to choose whether to continue with or withdraw from the agreement if it
discovers that what the other party has been doing all along is improper or illegal.

37 Buenaventura v. The Monetary Board of the Bangko Sentral ng Pilipinas, in the exercise of its
Metropolitan Bank and statutory authority to review and fix interest rates, issued CIRCULAR NO. 799,
Trust Co., G.R. No. SERIES OF 2013 to lower to 6% per annum the rate of interest for loan or
167082, August 3, 2016 forbearance of any money, goods or credits, and the rate allowed in judgement.
The revised rate applies only in the absence of stipulation in loan contracts.

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.

38 Spouses Limso v. When there is no mutuality between the parties to a contract, it means that the
Philippine National Bank, parties were not on equal footing when the terms of the contract were negotiated.
G.R. Nos. 158622, Thus, the principle of mutuality of contracts dictates that a contract must be
169441, 172958, 173194, rendered void when the execution of its terms is skewed in favor of one party.
196958, 197120, 205463,
January 27, 2016 This court has held that escalation clauses are not always void since they serve
"to maintain fiscal stability and to retain the value of money in long term
contracts. x x x x however, 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.

Nacar v. Gallery Frames. The interest due on conventional interest shall be at the
rate of 12% per annum from [date of judicial demand] to June 30, 2013. Thereafter,
or starting July 1, 2013, this shall be at the rate of 6% per annum.

39 Spouses Jonsay v. An escalation clause in a loan agreement granting the lending bank authority to
Solidbank Corporation, unilaterally increase the interest rate without prior notice to and consent of the
G.R. No. 206459, April 6, borrower is void.
2016

40 Security Bank Corporation Stipulations as to the payment of interest are subject to the principle of
v. Spouses Rodrigo and mutuality of contracts. As a principal condition and an important component in
Erlinda Mercado, G.R. contracts of loan, interest rates are only allowed if agreed upon by express stipulation
Nos. 192934 and 197010, of the parties, and only when reduced into writing.
June 27, 2018
In MCMP Construction Corp. v. Monark Equipment Corp., we declared the rate of
36% per annum unconscionable and reduced it to 6% per annum.

41 Spouses Pen v. Spouses Pursuant to Article 1956 of the Civil Code, no interest shall be due unless it has been
Julian, G.R. No. 160408, expressly stipulated in writing. In order for monetary interest to be imposed,
January 11, 2016 therefore, two requirements must be present, specifically:
● (a) that there has been an express stipulation for the payment of interest;
and
● (b) that the agreement for the payment of interest has been reduced in
writing.

Considering that the promissory notes contained no stipulation on the payment of

monetary interest, monetary interest cannot be validly imposed.

Interest may be imposed even in the absence of stipulation in the contract.

Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion
of the court, be allowed upon damages awarded for breach of contract.” (Estores v.
Spouses Supangan, G.R. No. 175139, April 18, 2012)

SUMMARY RULING:
SC holds that CA correctly deleted the monetary interest from the judgment
because the promissory notes contained no stipulation on the payment of
monetary interest.

The CA properly imposed compensatory interest to offset the delay in the

respondents' performance of their obligation. Nonetheless, the imposition of the legal
rate of interest should be modified to conform to the prevailing jurisprudence (12%
and 6%).
 Accordingly, the legal rate of interest on the outstanding obligation of
P43,492.15 as of June 28, 1990, as the CA found, should be as follows:
(a) from the time of demand on October 13, 1994 until June 30, 2013, the legal rate
of interest was 12% per annum conformably with Eastern Shipping lines; and
(b) following Nacar, from July 1, 2013 until full payment, the legal interest is 6% per
annum.

42 Lara’s Gifts and Decors,

Inc. v. Midtown Industrial The court upheld the validity of the 24% interest rate on the amount of
Sales, Inc., G.R. No. ₱1,263,104.22 on a sixty (60)-day credit term, stating that the petitioner, an
225433, August 28, 2019 established company, could have negotiated for more favorable terms if it felt the
interest rate was unconscionable

To summarize, the guidelines on the imposition of interest as provided in

Eastern Shipping Lines and Nacar are further modified for clarity and
uniformity, as follows:

With regard 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, goods, credits or
judgments, the interest due shall be that which is stipulated by the
parties in writing, provided it is not excessive and unconscionable,
which, in the absence of a stipulated reckoning date, shall be
computed from default, i.e., from extrajudicial or judicial demand in
accordance with Article 1169 of the Civil Code, UNTIL FULL
PAYMENT, without compounding any interest unless compounded
interest is expressly stipulated by the parties, by law or regulation.
Interest due on the principal amount accruing as of judicial demand
shall SEPARATELY earn legal interest at the prevailing rate prescribed
by the Bangko Sentral ng Pilipinas, from the time of judicial demand
UNTIL FULL PAYMENT.

2. In the absence of stipulated interest, in a loan or forbearance of

money, goods, credits or judgments, the rate of interest on the principal
amount shall be the prevailing legal interest prescribed by the
Bangko Sentral ng Pilipinas, which shall be computed from default,
i.e., from extrajudicial or judicial demand in accordance with Article
1169 of the Civil Code, UNTIL FULL PAYMENT, without compounding
any interest unless compounded interest is expressly stipulated by law
or regulation. Interest due on the principal amount accruing as of
judicial demand shall SEPARATELY earn legal interest at the prevailing
rate prescribed by the Bangko Sentral ng Pilipinas, from the time of
judicial demand UNTIL FULL PAYMENT.

3. When the obligation, not constituting a loan or forbearance of

money, goods, credits or judgments, is breached, an interest on the
amount of damages awarded may be imposed in the discretion of the
court at the prevailing legal interest prescribed by the Bangko
Sentral ng Pilipinas, pursuant to Articles 2210 and 2211 of the Civil
Code. No interest, however, shall be adjudged on unliquidated
claims or damages until the demand can be established with
reasonable certainty. Accordingly, where the amount of the claim or
damages is established with reasonable certainty, the prevailing legal
interest shall begin to run from the time the claim is made extrajudicially
or judicially (Art. 1169, Civil Code) UNTIL FULL PAYMENT, 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
 of the judgment of the trial court (at which time the quantification of
damages may be deemed to have been reasonably ascertained) UNTIL
FULL PAYMENT. The actual base for the computation of the interest
shall, in any case, be on the principal amount finally adjudged, without
compounding any interest unless compounded interest is expressly
stipulated by law or regulation.

DEFINITION OF FORBEARANCE OF MONEY GOODS OR CREDIT

43 Estores v. Spouses Forbearance of money, goods or credits should therefore refer to arrangements
Supangan, G.R. No. other than loan agreements, where a person acquiesces to the temporary use of his
175139, April 18, 2012 money, goods or credits pending happening of certain events or fulfillment of certain
conditions.

Unwarranted withholding of the money which rightfully pertains to respondent-

spouses amounts to forbearance of money which can be considered as an
INVOLUNTARY LOAN.

Interest may be imposed even in the absence of stipulation in the contract.

Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion
of the court, be allowed upon damages awarded for breach of contract.”

44 Land Bank of the The unilateral OFFSETTING of funds without legal justification and the
Philippines v. Onate, G.R. undocumented withdrawals are tantamount to forbearance of money. In the
No. 192371, January 15, analogous case of Estores v. Supangan, the Court held that "[the] unwarranted
2014 withholding of the money which rightfully pertains to [another] amounts to
forbearance of money which can be considered as an involuntary loan."

INTEREST - USURY LAW

45 Metropolitan Bank and With respect to the penalty charge, this Court has held that the surcharge or penalty
Trust Company v. Chuy stipulated in a loan agreement in case of default partakes of the nature of liquidated
Lu Tan, G.R. No. 202176, damages under Article 2226 of the Civil Code, and is separate and distinct from
August 1, 2016 interest payment. Also referred to as a penalty clause, it is expressly recognized by
law. It is an accessory undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation

Example:

Under a written contract of loan, B obliged himself to pay A the sum of

P20,000 at the end of the year. If no payment of interest was mentioned, then
no interest is due.

If B incurs in delay, he is liable to pay interest at the legal interest rate

prescribed by the BSP from the date of delay.

Suppose that A and B stipulated in their contract an interest of 18% a year

which is lawful. In this case, all the requirements to entitle A to recover
interest are present. If B incurs in delay, he is liable to pay the interest agreed
upon as damages and not for the use of the money.

B incurred in delay for one year. The if!demnity for damages shall also be the
stipulated inte,restof 18%· so that B shall be liable to pay a totafof_ Pl,200:
P3,600 as compensatory interest for the ijrst year and another P3,600 as
indemnitf for the damages for the one-year delay. · ·

If the interest was judicially demantjed six months after B incurred in del,ay,
 the interesf.due (P3,600 + P1 ,800 = PS,400) shall earn a legal inferes.t of
6% or as may be fixed by the Monetary B:oard of the Bangko Sentral ng
Pilipinas from the time of judicial demand until payment is made..

Nonetheless, under Article 2227 of the Civil Code, liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

In the instant case, the Court finds the eighteen percent (18%) penalty charge
imposed by petitioner on the deficiency claim, computed from the time of default, as
excessive and, accordingly, reduces it considering that petitioner was already able to
recover a large portion of respondents' principal obligation. In consonance with
prevailing jurisprudence, the Court finds it proper to reduce the rate of penalty
charge imposed on the deficiency claim from eighteen percent (18%) per
annum to twelve percent (12%) per annum.

46 The United States v Whether or not the trial court committed an error in admitting evidence relating
Chua, G.R. No. L-13708, to facts which occurred prior to the going into effect of the Usury Law?
January 29, 1919
Usury laws, ordinarily, are to be construed prospectively and not retrospectively.
Nevertheless, the courts may look into prior occurrence in order to understand the
particular fact which it claimed to be a violation of the law, and in order to ascertain
the criminal intent.

The gist of the offense of usury for this jurisdiction is in actually taking
unlawful interest. A corrupt intent is likewise of the essence of usurious
transactions. Usury laws, ordinarily, are to be construed prospectively and not
retrospectively. The form of the contract is not conclusive.

Parol evidence is admissible to show that a written document though legal in form
was in fact a device to cover usury. If from a construction of the whole transaction, it
becomes apparent that there exists a corrupt intent to violate the Usury Law, the
court should, and will, permit no scheme, however ingenious, to becloud the crime of
usury.

When operating on the contract or the security taken, the statute is not, strictly
speaking, punitive in its character, and we should so construe it as to repress the
great evil the legislature has in view in its enactment.

But when the punishment of the person who has committed usury is sought,
according to the benignant principle which pervades our jurisprudence, it should be
construed in all cases of doubt and uncertainty in favor of the accused.

47 Versoza v. Bucag, G.R. Interest above the legal interest of 6% is not usurious.
No. L-8031, October 29,
1955 Under the Usury Law, the amount allowable as interest when the property
conveyed as security is not registered land is 14% (Sec. 3, Act No. 2655, as
amended by C.A. 399).

A creditor's return need not be limited to the statutory rate when it is affected
by a contingency putting whole of it at hazard, a contract is ordinarily not usurious
under which the creditor is to receive, consideration of his loan or forbearance,
property or services of uncertain value, even though probable value is greater than
lawful interest unless the excess is so palpable as to show a corrupt intent to
violate and evade the usury laws, or unless the contract is made for the purpose of
such violation or evasion.

48 Tolentino v. Sy Chiam, Usury may be defined as contracting for or receiving something in excess of
G.R. No. 26085, August the amount allowed by law for the loan or forbearance of money, goods or chattels.
12, 1927 It is the taking of more interest for the use of money, goods or chattels or credits than
 the law allows. Usury has been regarded with abhorrence from the earliest times.

A contract for the lease of property is not a "loan." Under the Usury Law the
defense of usury cannot be based thereon. The Usury Law in this jurisdiction
prohibits a certain rate of interest on "loans."

ISSUE:
May a tenant charge his landlord with a violation of the Usury Law upon the ground
that the amount of rent he pays, based upon the real value of the property, amounts
to a usurious rate of interest?

SUMMARY RULING:
NO. A contract for the lease of property is not a "loan." Under the Usury Law the
defense of usury cannot be based thereon. The Usury Law in this jurisdiction
prohibits a certain rate of interest on "loans." A contract of "loan" is a very different
contract from that of "rent." A "loan," as that term is used in the statute, signifies the
giving of a sum of money, goods or credit to another, with a promise to repay, but not
a promise to return the same thing. In a contract of "rent ' the owner of the property
does not lose his ownership. He simply loses his control over the property rented
during the period of the contract. In a contract of rent the relation between the
contractors is that of landlord and tenant. In a contract of loan of money, goods,
chattels or credits, the relation between the parties is that of obligor and obligee.

In the case at bar, the property in question was sold. It was an absolute sale with the
right only to repurchase. During the period of redemption the purchaser was the
absolute owner of the property. During the period of redemption the vendor was not
the owner of the property. During the period of redemption the vendor was a tenant of
the purchaser. During the period of redemption the relation which existed between
the vendor and the vendee was that of landlord and tenant. That relation can only be
terminated by a repurchase of the property by the vendor in accordance with the
terms of the said contract. The contract was one of rent. The contract was not a loan,
as that word is used in Act No. 2655.

Pacto de retro sale - the title or ownership of the property sold is immediately vested
in the vendee a retro, subject only to the resolutory condition of repurchase by the
vendor a retro within the stipulated period.

NOTE here that during the period of redemption of a pacto de retro sale, the
ownership is already transferred to the purchaser-vendee, therefore, a contract of
lease was correct. This is different from period of redemption for foreclosures where
ownership is transferred only at the end of the redemption period or upon failure to
redeem.

49 Manila Trading and The increase of the price of the thing sold on credit over its cash sale price is
Supply Company v. no interest within the purview of the Usury Law, if the sale is made in good faith
Tamaraw Plantation and not as mere pretext to cover a usurious loan.
Company, G.R. No.
L22995, February 28,
1925

50 The Bachrach Motor ISSUE: Whether or not the 25% penalty upon the debt in addition to the 12% per
Company, Inc. v. Faustino annum makes the contract usurious. – NO.
Espiritu, G.R. Nos. L-
28497 and L-28498,
November 6, 1928 RULING:

Article 1152 of the Civil Code permits the agreement upon a penalty apart from
the interest. As held in Lopez v. Hernaez, the penalty does not include the interest
and the two are different, distinct, and demandable separately. The penalty is not to
be added to the interest in the determination of whether or not the interest exceeds
 the rate fixed by law, which was fixed only for the interest. However, in light of the
partial performance, the Court reduced the penalty to 10% of the unpaid debt.

51 First Metro Investment Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended
Corporation v. Este Del to circumvent the laws against usury shall be void. The borrower may recover in
Sol Mountain Reserve, accordance with the laws on usury.
Inc., G.R. No. 141811,
November 15, 2001 1) Whether or not the Underwriting and Consultancy Agreements was
utilized to camouflage usurious interest in this case

Yes. In the instant case, several facts and circumstances taken altogether show that
the Underwriting and Consultancy Agreements were simply cloaks or devices to
cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest.

An apparently lawful loan is usurious when it is intended that additional

compensation for the loan be disguised by an ostensibly unrelated contract
providing for payment by the borrower for the lenders services which are of little value
or which are not in fact to be rendered, such as in the instant case.

However, in usurious loans, the entire obligation does not become void because
of an agreement for usurious interest; the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious interest is void, consequently, the
debt is to be considered without stipulation as to the interest

2) Whether or not Central Bank Circular No. 905 has a retroactive effect

No. There is no merit to petitioner FMICs contention that Central Bank Circular No.
905 which took effect on January 1, 1983 and removed the ceiling on interest rates
for secured and unsecured loans, regardless of maturity, should be applied
retroactively to a contract executed on January 31, 1978, as in the case at bar, that
is, while the Usury Law was in full force and effect. It is an elementary rule of
contracts that the laws, in force at the time the contract was made and entered into,
govern it. More significantly, Central Bank Circular No. 905 did not repeal nor in any
way amend the Usury Law but simply suspended the latter’s effectivity. The illegality
of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a
law. Only a law can repeal another law. Thus, retroactive application of a Central
Bank Circular cannot, and should not, be presumed.

DEPOSIT

52 RCG Bus Lines, Inc. v. Art. 1292 of the Civil Code, in a novation, it is imperative that it be so declared in
Master Tours and Travel unequivocal terms, or that the old and the new obligations be on every point
Corp., G.R. No. 177232, incompatible with each other.
October 11, 2012
Obligations are incompatible if they cannot stand together, and so the subsequent
obligation supersedes or novates the first.

The cause in a contract of lease is the enjoyment of the thing, while in a

contract of deposit, it is the safekeeping of a thing.

ISSUE:
Was there a novation of the contract from one of lease to one of deposit such that
RCJ is not liable to pay the rental fee for the buses?

RULING:
 SC holds that there is NO novation. RCJ failed to present proof that it agreed with
Master to abandon the lease and mere constitute RCJ as depositary of the same,
and provide storage service to Master for a fee. RCJ presented the demand letter
Master sent to them demanding for the return of the buses which are placed in RCJ’s
garage for safekeeping, but this letter does not constitute an agreement and merely
states that the buses were brought to RCJ’s garage. The idea of RCJ keeping the
buses safe is consistent with the lease agreement, as the lessee of a movable
property has an obligation to return the thing leased upon its termination just
as he received it.

53 CA Agro-Industrial Dev. [Special type of Deposit] The relation between a bank renting out safe-deposit
Corp. v. Court of Appeals, boxes and its customer with respect to the contents of the box is that of a bailor
G.R. No. 90027, March 3, and bailee, the bailment being for hire and mutual benefit.
1993
SEE ALSO. General Banking Act, Sec. 72

54 Triple V Food Services, In a contract of deposit, a person receives an object belonging to another with
Inc. v. Filipino Merchants the obligation of safely keeping it and returning the same. A deposit may be
Insurance, G.R. No. constituted even without any consideration. It is not necessary that the depositary
160544, February 21, receives a fee before it becomes obligated to keep the item entrusted for safekeeping
2005 and to return it later to the depositor.

ISSUE:
Whether or not the petitioner was constituted as a depositary of the car.

RULING:
SC holds that petitioner Triple V was a depositary. 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.

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.

55 Sia v. Court of Appeals, The depositary's responsibility for the safekeeping of the objects deposited is
G.R. No. 102970, May 13, governed by Title I, Book IV of the Civil Code [OBLIGATIONS].
1993
Accordingly, the depositary would be liable if, in performing its obligation, it is found
guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art.
1170, id.].

In the absence of any stipulation prescribing the degree of diligence required, that
of good father of a family is to be observed [Art. 1173, id.].

56 Baron v. David, G.R. No. Under article 1768 of the Civil Code, when the depository has permission to make
L-26948, October 8, 1927 use of the thing deposited, the contract loses the character of mere deposit and
becomes a loan or a commodatum; and of course by appropriating the thing, the
bailee becomes responsible for its value.

57 Durban Apartments Corp. A deposit is constituted from the moment a person receives a thing belonging to
v. Pioneer Insurance and another, with the obligation of safely keeping it and returning the same.
Surety Corp., G.R. No.
179419, January 12, 2011 Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit
and a necessary deposit made by persons in hotels or inns:

58 YHT Realty Corp. v. Court Article 2003 was incorporated in the New Civil Code as an expression of public
of Appeals, G.R. No. policy precisely to apply to situations such as that presented in this case. The
126780, February 17, hotel business like the common carrier’s business is imbued with public interest.
2005
 Catering to the public, hotelkeepers are bound to provide not only lodging for hotel
guests and security to their persons and belongings. The twin duty constitutes the
essence of the business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called “undertakings” that
ordinarily appear in prepared forms

WAREHOUSE RECEIPTS LAW

59 Gonzales v. Gotiong, G.R. Warehouse Receipts Law (Act No. 3893) as amended is a special law regulating
No. L-11776, August 30, the business of receiving commodities for storage and defining the rights and
1958 obligations of a bonded warehouseman and those transacting business with him.
Consequently, any deposit made with him as a bonded warehouseman must
necessarily be governed by the provisions of Act No. 3893.

WAREHOUSE RECEIPTS LAW:

https://batasnatin.com/law-library/civil-law/obligations-and-contracts/875-the-warehouse-receipts-
law.html#google_vignette

Bank of Philippine Islands v. CA, G.R. No. 136202, January 25, 2007
Requisite of Legal Compensation (Art. 1279, Civil Code): (EP-M-DLD-C)
6. Parties must be creditors and debtors of each other in their own right.
7. The parties must be bound principally.
8. Both debts consist in sum of money, or if the things due are consumable, they be of the same kind, and also of
the same quality, if the latter has been stated.
9. Both debts must be due, liquidated, and demandable.
10. Over neither of them there be any retention or controversy, commenced by third persons, and communicated in
due time to the debtor.

NATURE OF COMMODATUM

Article 1935. The bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is to
be paid by him who acquires the use, the contract ceases to be a commodatum. (1941a)

Reason: Because commodatum is essentially gratuitous

Article 1936. 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. (n)

Article 1937. Movable or immovable property may be the object of commodatum. (n)

Article 1938. The bailor in commodatum need not be the owner of the thing loaned. (n)

Article 1939. Commodatum is purely personal in character. Consequently:

1. The death of either the bailor or the bailee extinguishes the contract;
2. The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the
bailee's household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the
nature of the thing forbids such use. (n)

(NOTE: If there are two or more borrowers, the death of one does not extinguish the commodatum as to
the other, unless there is stipulation to the contrary.)
 Batas Kasambahay, REPUBLIC ACT NO. 10361, SEC. 4(f) Household refers to the immediate members
of the family or the occupants of the house that are directly provided services by the domestic worker.

Article 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid. (n)

GR: Commodatum acquires use of the thing, but NOT its Fruits

XP: A stipulation to make use of the fruits is valid

The use of the fruits must be incidental; if it is the principal consideration, then, it is a USUFRUCT

Example: A is the bailee in commodatum of B’s land. Incidentally, they may stipulate that A can
get some lanzones from a lanzones tree on the land. Unless there is such a stipulation, A would not be
entitled to the lanzones.

XP: If A is allowed to use both the land and acquire the fruits as the principal consideration, then
A is a usufructuary instead.

OBLIGATIONS OF BAILEE

Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
(1743a)
Example: A borrowed an automatic Rolls Royce automobile. He repay for the gasoline, motor oil,
and expenses of greasing and spraying. He cannot ask reimbursement for these. (Art. 1941)

RULES ON LOSS OF THE THING LOANED (PK - ALS)

ART 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

1. If he devotes the thing to any purpose different from that for which it has been loaned;
2. If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the
commodatum has been constituted;
3. If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event;
4. If he lends or leases the thing to a third person, who is not a member of his household;
5. If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745)

Article 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated, or
after the accomplishment of the use for which the commodatum has been constituted. However, if in the meantime, he
should have urgent need of the thing, he may demand its return or temporary use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession of
the bailor. (1749a)

Article 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following
cases:

1. If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been
stipulated; or
2. If the use of the thing is merely tolerated by the owner. (1750a)

Article 1948. The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude
specified in article 765. (n)