COMMON PROVISIONS UNDER LOAN:

SAURA IMPORT & EXPORT CO INC V. DEVELOPMENT BANK OF THE PHILIPPINES, 44 SCRA 445 (1972)EN BANC; J. MAKALINTAL

FACTS: In July 1953, plaintiff Saura Imports applied with Rehabilitation Finance Corp (RFC), now DBP, for an industrial loan of P500,000, to be used for the construction of a factory building (manufacture of jute sacks) and payment of the jute mill machinery and equipment

1. RFC passed a resolution approving the loan application for P500,000 to be secured by a first mortgage on the factory building to be constructed and the machinery and equipment to be installed. The resolution also provided that the proceeds of the loan shall be used exclusively for construction of the factory and the purchase of the machinery and equipment

2. Saura requested a modification of the terms of the loan, i.e. that in lieu of having China Engineers Ltd sign as co-maker on the promissory notes issued by Saura, Saura will put a bond for P123,500. RFC will re-examine all aspects of the loan

3. Saura notified RFC that China Engineers again agreed to sign as co-maker for the loan

4. In April 1954, the loan documents were executed and the promissory note was signed by FR Halling as representative of China Engineers, and the corresponding deed of mortgage

5. Despite the formal execution of the loan agreement, RFC reduced the loan from P500,000 to P300,000.

6. Subsequently, China Engineers informed RFC that it no longer wished to avail of the loan and that the loan shall be considered as cancelled.

7. Saura, on the other hand, had written RFC requesting that the loan of P500K be granted. However, RFC notified Saura that China Engineers had already informed them that they are cancelling the loan

8. On Saura’s assurance that China Engineers will co-sign the loan upon the approval of the loan, RFC passed a resolution restoring the loan to the original amount of P500K on the following conditions: that the Department of Agriculture (DA) shall certify that the materials needed by Saura are available in the immediate vicinity; and there is an prospect of increased production to sufficient for the requirements of the Saura’s factory.

9. Petitioner Saura later informed RFC that the local materials are not sufficient for the operation of the factory and instead, requested that it be allowed to import jute materials. RFC reiterated its conditions and as a result, the negotiations were deadlocked.

10. Instead of pursuing the loan, Saura requested that the loan be cancelled. NOTE: Saura mortgaged its property to Prudential Bank in August 1954, under which it had until December of the same year to pay its obligation. Saura failed to comply with its obligation so Prudential Bank sued Saura

11.9 years later, Saura filed the present suit for damages against RFC, alleging that it failed to comply with its obligation in releasing the amount of the loan after it had been approved

12.The trial court held in favor of Saura, citing that there was a perfected contract between RFC and Saura and that the former was guilty of breach thereof

ISSUES:1. WON there was a perfected contract in this case2. WON Saura is entitled to damages

HELD:FIRST ISSUE: Yes, there is a perfected consensual contract as provided in 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 perfected until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura for a loan of P500k was approved by RFC and the corresponding mortgage was executed and registered. However, this alone does not resolve the claim that RFC did not comply with its obligation.

SECOND ISSUE: No. RFC entertained the loan application on the assumption that the factory to be constructed will utilize locally grown raw materials. This imposition was by no means a deviation from the terms of the contract, but a step in its implementation; the condition did not contradict RFC’s resolution approving the loan.

The action taken by both parties (Saura’s request to cancel the mortgage) was in the nature of a mutual desistance (“mutuo disenso), which is a mode of extinguishing obligations. It is derived from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

CAB: Saura did not protest any alleged breach of contract by RFC when it insisted on using locally sourced raw materials. Its request for cancellation did not carry any reservation of whatever rights it believed to have against RFC for the latter’s non-compliance. It was only after 9 years that Saura initiated the action for damages. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiate of the petitioner itself.

BONNEVIE V. COURT OF APPEALS, 125 SCRA 122 (1983)2ND DIVISION; J. GUERRERO

FACTS: Spouses Lozano obtained a loan from private respondent Philippine Bank of Commerce (PBCOM) for the amount of P75,000, which was secured by a mortgage executed by the spouses.

1. Spouses Lozano executed a Deed of Sale with Assumption of Mortgage in favor of plaintiff Honesto Bonnevie for the amount of P100,000 (P20K payable to spouses Lozano and the balance is payable to respondent Bank)NOTE: When Lozano sold the property to Bonnevie, the loan amount was not yet released

2. From April 1967 to July 1968, Honesto made payments to PBCOM amounting to a total of P18,944.22

3. In May 1968, Honesto assigned all his rights under the Deed of Sale to his brother Raoul (intervenor)

4. PBCOM subsequently applied for the foreclosure of the subject property and a notice of sale was published in the Luzon Weekly Courier. Respondent bank purchased on the property during the auction sale

5. Honesto tried to redeem the property but the same failed. 6. As such, Honesto filed an action to annul the Deed of Mortgage as well as the

extrajudicial foreclosure. He alleged that:a. The Deed of Mortgage lacks considerationb. The mortgage was executed by one who was not the owner of the mortgaged

property c. The property was foreclosed without complying with the requirements of a

valid foreclosure7. The bank denied Honesto’s allegations and averred that:

a. The bank did not consent to the (no written consent) sale of the mortgage property to plaintiff Bonnevie as well as the assumption of the loan

b. It was only informed of the alleged sale to Bonnevie after it had foreclosed the Lozano mortgage

c. The law on contracts requires that the bank’s consent, being a party to the agreement, before Lozano can be released from his bilateral agreement and before Bonnevie may substitute for Lozano

d. The mortgage did not lack consideration because the execution and registration of the securing mortgage, signing of the promissory note and disbursement of loan proceeds are mere implementation of the basic consensual contract of loan

8. The trial court held in favor of the bank and dismissed the complaint. CA affirmed the same

ISSUE: WON the mortgage was valid and assuming it is, is the subsequent foreclosure on the property valid?

HELD: Yes. From the provisions of the Deed of Mortgage itself, it is clear that the deed was executed for and on condition of the loan granted to the spouses Lozano. The fact

that Lozano did not collect from the respondent bank on the date it was executed is immaterial. A contract to loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note is only an evidence of indebtedness and does not indicate lack of consideration.

Petitioner’s argument that the mortgage was void for being executed by one who is not owner of the property is likewise untenable. Petitioners failed to consider the provisions of the Deed of Mortgage which prohibits the sale, disposition or mortgage of the property without the written consent of the mortgagee and in spite of said provision if the mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions under which it was constituted. These were expressly stipulated in the Deed of Sale with Assumption of Mortgage.

In the case at bar, petitioners did not secure the consent of the bank to the sale with assumption of mortgage. Since the sale/assignment was not registered, the title remained in the name of the spouses Lozano insofar as the respondent bank was concerned.

The bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor’s title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. Moreover, a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was constituted. It can also be said that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. As such, they are stopped from impugning its validity.

ON THE FORECLOSURE1. Respondent bank, not being a party to the Deed of Sale, can validly claim that it

was not aware of the same and as such, it may not be obliged to notify petitioners.

2. Honesto was not entitled to any notice since he had assigned all his rights and interests over the property in favor of Raoul and that PBCOM was also not informed of the same

3. Raoul is not entitled to notice for the same reason 4. Act no 3135 does not require personal notice on the mortgagor. The requirement

is that the notice shall be published once a week for at least 3 consecutive weeks a in newspaper of general circulation in the city/municipality

NOTE: To be a news paper of general circulation, it is enough that it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers, and that it is published at regular intervals.

Petitioners had no right to redeem the property since they were not validly substituted as debtors since the consent of PBCOM was not secured to the sale with assumption of

mortgage. Even assuming arguendo, petitioners failed to exercise the right of redemption within the period granted by law. In the case at bar, the sale was registered on September 2, 1968 and the one year redemption expired on September 3, 1969. Honesto only offered to redeem the property on September 29, 1969 and during that time Honesto had already transferred his rights to Raoul.

ROSE PACKING CO V. COURT OF APPEALS, 167 SCRA 309 (1988)2ND DIVISION; J. PARASFACTS: In December 1962, respondent bank PCIB approved petitioner’s request to reactivate its overdraft line of P50,000, discounting line of P100,000 and letter of credit-trust receipt line of P550,000, as well as loan of P300,000 on fully secured real estate and chattel mortgage

1. In November 1965, National Investment and Devt Corp (NIDC), the subsidiary of PNB, approved petitioner’s loan for P2.6 million. Pursuant to such, NIDC released the amount of P100,000. Petitioner subsequently purchased 5 parcels of land in Pasig

2. In January 1966, NIDC released another P100,000 to petitioner Rose Packing, the total amount was applied to the payment of preferred stock which NIDC subscribed in Rose Packing to partially implement its investment scheme. However, NIDC refused to make further releases on the loan amount

3. In August and October 1966, respondent PCIB approved the petitioner’s additional accommodations consisting of: P710,000 loan for the payment of the Pasig properties; P500,000 loan for operating capital; P200,000 loan to be paid directly to petitioner’s creditors—all amounting to P1,597,000 secured by real estate and chattel mortgages. However, of the total amount, PCIB only released P300,000 of the P710,000 approved loan and P300,000 for operating capital

4. In June 1967, DBP approved petitioner’s loan application for P1.84 million and guarantee of $652,6882 for the purchase of canning equipment. Upon notice of the approval of the loan, petitioner informed PCIB of the availability of P800,000 to partially payoff its account and requested the release of the titles to the Pasig lots for delivery to DBP.

5. However, PCIB advised refused, stating that all obligations should be liquidated before the release of the titles. As such, petitioner purchased a parcel of land at Valenzuela with the P800,000 DBP loan

6. Subsequently, PCIB filed a complaint against Rose Packing and its president for the collection of petitioner’s indebtedness. PCIB gave notice that it would cause the real estate mortgage to be foreclosed at an auction sale

7. Consequently, petitioner filed a complaint to enjoin PCIB and the sheriff from proceeding with the foreclosure sale and asked the court to fix a new period of payment of petitioner’s obligation to PCIB

8. The lower court denied the application of preliminary injunction and dissolved its restraining order.

9. The properties were sold at a public auction with PCIB as the purchaser.

ISSUE: WON private respondents have the right to the extrajudicial foreclosure sale of petitioner’s mortgaged properties before trial on the merits

HELD: No. the foreclosure sale was premature as there were matters that needed the resolved.

A. WON the petitioner corporation was already in default.

The loan of petitioner corporation from PCIB were supposed to become due only at the time that it receives from NIDC and PDCP the proceeds of the approved financing scheme but this did not happen. NIDC refused to release the balance of the loan after it had made two release amounting to P200,000. The efficacy or obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.

Moreover, there was no demand on the part of PCIB prior to filing the present complaint for the collection of petitioner’s indebtedness. For an obligation to become due, there must generally be a demand. Default generally begins from the moment the creditor demands the performance of the obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise. This issue had not been properly determined by the lower court.

B. Reciprocal ObligationsThe loan agreements between Rose Packing and PCI are reciprocal obligations, i.e. the obligation or promise of each party is the consideration for that of the other. A contract of loan is not a unilateral contract as PCIB thinks it is. The promise of petitioner to pay is the consideration for the obligation of PCIB to furnish the loan

PCIB’s designation of its own choice of people holding key positions in petitioner corporation tied the hands of petitioner’s board of directors to make decisions for the interest of the corporation, in fact, undermined the corporation’s financial stability. During the 18 months of Ledesma’s management, Rose Packing produced only P200,000 worth of canned goods which is only equivalent to its normal production in 3 weeks.

C. Elements of a contract: ConsiderationIt is apparent that it is respondent bank practically managing petitioner corporation through its representatives occupying key positions therein. Thus, if ever petitioner corporation was in financial straits, it was because of the mismanagement of the PCIB through its representatives in petitioner corporation.

In a similar case, it was held that where the lending institution took over the management of the borrowing corporation and led the corporation to bankruptcy through mismanagement or misappropriation of the funds, it is as if the loan was never delivered to it. Thus, there was failure on the part of PCIB to deliver the consideration for which the mortgage and assignment of deed were executed.

D. Foreclosure of the Pasig propertiesAs a consequence, the real estate mortgage of petitioner cannot be entirely foreclosed to satisfy its total debt to PCIB. The rule of indivisibility of a real estate mortgage under Art 2089 provides:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor.

Therefore the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as the debt is not completely satisfied.

Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid.

From these provisions is excepted the case in which, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit.

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied.

This rule, however, is not applicable to the instant case as it presupposes several heirs of the debtor or creditor which does not obtain in this case. Furthermore, granting that there was consolidation of the entire loan, the rule of indivisibility of mortgage cannot apply where there was failure on the part of respondent bank for the mismanagement of the affairs of petitioner corporation and where said bank is in default in complying with its obligation to release the amount of P710,000. In fact, the real estate mortgage becomes unenforceable. And as already stated, the exact amount of petitioner’s total debt is still unknown.

BPI INVESTMENT CORP V. COURT OF APPEALS, 377 SCRA 117 (2002)2ND DIVISION; J. QUISUMBING

FACTS: Frank Roa obtained a loan at an interest rate of 16.25% from Ayala Investment and Devt Corp (now BPI Investment Corp) for the construction of his house. To secure the loan, Roa executed a Deed of Mortgage over the house and lot in favor of BPIIC.

1. Sometime in 1980, Roa sold his house and lot to private respondents ALS Management and Antonio Litonjua for P850,000. Private respondents paid P350,000 and assumed the P500,000 balance of Roa’s indebtedness with BPIIC.

2. However, BPIIC was not willing to extend the old interest rate to private respondents. Instead, it proposed to grant a new loan to be applied at Roa’s debt and secured by the same property at the rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within 10 years and penalty interest rate of 21% per annum per day from the date the amortization became due and demandable

3. Consequently, in March 1981, private respondents executed a mortgage deed stipulating that the amortization shall start on May 1, 1981

4. On August 13, 1982, ALS and Litonjua updated Roa’s loan by paying BPIIC the sum of P190,601.35; this reduced the loan to P457,204.90

5. On September 13, 1982, BPIIC released the balance of the loan after full payment of Roa’s loan

6. In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness from May 1, 1981 to June 30, 1984

7. Subsequently, ALS and Litonjua filed an action against BPIIC alleging that:a. They were not in arrears in their payment but in fact made an overpayment in

June 1984b. They should not be made to pay amortization before the actual release of the

P500,000 loan in August and September 1982c. Out of the P500,000 loan, only the total amount of P464,351.71 was released

to private respondents. Applying the effects of legal compensation, the balance of P35,648.23 should be applied to the initial monthly amortization of the loan

8. The trial court ruled in favor ALS and Litonjua and held that the amount of loan was only P464,351.77

9. On appeal, CA affirmed the same. CA cited that a simple loan is perfected only upon the delivery of the object of the contract. In the present case, the loan contact was only perfected on September 13, 1982 when BPIIC released the balance of the loan. Thus the payment of the monthly amortization should commence only a month after the said date, despite the express agreement of the parties that payment shall commence on May 1, 1981. Evidence also showed that private respondents had an overpayment as of June 1984; as such there is no cause for extrajudicial foreclosure

10.On the other hand, BPIIC averred that:a. A contact of loan is consensual and a loan contract is perfected at the time

the contract of mortgage is executed following the ruling in Bonnevie v. CA

b. The loan was actually released on March 31, 1871 when BPIIC issued a cancellation of the mortgage of Roa’s loan

9. Private respondents maintained that following Art 1934 NCC, a simple loan is perfected upon the delivery of the object of the contract, hence a real contract. The ruling in Bonnevie should be construed to mean that while the contract to extend the loan was perfected on March 1981, the loan itself was only perfected upon the delivery of the full loan on September 13, 1982.a. Even if the loan contract was perfected on March 31, 1981, their payment did

not start a month thereafter, so no default took place.b. Private respondents contended that a perfected loan agreement imposes

reciprocal obligations. In reciprocal obligations, neither party incurs a delay if the other does not comply or is not ready to comply with his obligation. Applying this, private respondents did not incur delay since it was only on September 13 that BPIIC fully complied with its obligation under the loan contract

ISSUE: WON a contract of loan is a consensual contact in the light of the rule laid down in Bonnevie v. CA

HELD: No, a loan contract is not a consensual contract but a real contract. It is perfected only but the delivery of the object of the contract. Petitioner misapplied the ruling in Bonnevie. The contract in Bonnevie falls under the first clause of Art 1934, it is an accepted promise to deliver something by way of simple loan.

As held in the case of Saura Import v. DBP, a perfected consensual contract can give rise to an action for damages. However, said contract does not constitute the 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.

CAB: The loan contract between BPIIC and ALS and Litonjua, was only perfected on September 13, 1982, the date the full loan was released. As such, the obligation of the private respondents to pay commenced only on October 13, 1982, a month after the perfection of the contract.

Moreover, a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other . Here, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua will pay the monthly amortization beginning May 1, 1981. 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 fulfill his obligation. As such, BPIIC can only demand payment after September 13, 1982 and the starting date for foreclosure is October 13, 1982.

ON MORAL DAMAGES

Following the ruling in SSS, BPIIC cannot be declared to have acted in bad faith as such, the award of moral and exemplary damages is improper.

However, BPIIC was negligent in merely relying on the entries found in the Deed of Mortgage, without checking and adjusting its records on the amount actually released to respondents. Such negligence resulted in damage to private respondents, for which an award of nominal damages is proper.

PANTALEON V. AMERICAN EXPRESS INTL, 629 SCRA 276 (2009)2ND DIVISION; J. TINGA

FACTS: Spouses Pantaleon and their children joined an escorted tour of Western Europe. While visiting Amsterdam, Mrs. Pantaleon wanted to purchase a 2.5 karat diamond at Coster Diamond House. Said jewelry amounted to $13,826

1. Pantaleon used his American Express credit card to pay for his purchase. 10 minutes later, his Amex Card had not yet been approved. Worried that he was already inconveniencing the tour group, Pantaleon asked the store clerk to cancel the transaction. The store manager asked Pantaleon to wait a few more minutes but after 15 minutes, the manager informed Pantaleon that respondent bank demanded bank references to which Pantaleon acceded.

2. 45 Minutes after first presenting his card and 30 minutes after the group was supposed to leave the store, Coster decided to release the items without respondent’s approval of the purchase

3. It appears that the approval code was transmitted to Amex Amsterdam 78 minutes after the purchases were electronically transmitted by the jewelry store to respondent’s Amsterdam office

4. The delay occurred two more times while plaintiff was in the US purchasing golf equipment and children’s shoes

5. Upon returning in Manila, Pantaleon sent a letter to respondent bank demanding an apology for the delay in providing credit authorization for the purchases he made. Amex explained that Pantaleon’s purchase of $13,826 was out of the usual charge pattern established.

6. As such, Pantaleon filed an action for damages. The trial court held in favor of Pantaleon. The trial court ruled that respondent failed to exercise diligent efforts to effect the approval of the purchases

7. On appeal, CA reversed the trial court decision citing that respondent bank did not breach its obligations to petitioner

8. Petitioner argues that respondent’s failure to timely approve or disapprove the purchase constituted mora solvendi on the part of the respondent in the performance of its obligation. CA erred in applying the principle of mora accipiendi, which relates to delay on the part of the obligee in accepting the performance of the obligation by the obligor.

NOTE:1. Mora solvendi – delay on the part of the debtor to fulfill his obligation by reason of

a cause imputable to himRequisites:a. Obligation is demandable and liquidatedb. Debtor delays performance c. Creditor judicially or extra-judicially requires the debtor’s performance Effects:a. Debtor is guilty of breachb. Debtor is liable for interest in case of obligations to pay money or damages in

other obligations

c. Debtor is liable even for a fortuitous event when the obligation is to deliver a determinate thing

2. Mora accipiendi – delay on the part of the creditor without justifiable reason to accept the performance of the obligationRequisites:a. An offer of performance by the debtor who has the required capacityb. The offer must be to comply with the prestation as it should be performed;

andc. The creditor refuses the performance without just cause

ISSUE: WON respondent bank committed a breach of its obligations to Pantaleon as cardholder

HELD: Yes.

Usually the relationship between a credit card provider and its cardholders is understood to be that of creditor-debtor, with the card company as creditor extending loans and credit to the cardholder, who as debtor is obliged to repay the creditor. However, it is more sensible to regard the card company as debtor/obligor insofar as the obligation to the customer as creditor/obligee to act promptly on its purchases on credit.

If there was delay on the part of the card company in its normal role as creditor to the cardholder, such delay would not have been in the acceptance of the performance of the debtor’s obligation (i.e., repayment of the debt), but it would delay in the extension of credit. Such delay would not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases on credit, has already been constituted. Here, the establishment of the debt itself had not yet been perfected, as it remained pending the approval of the respondent card company.

CAB: A total time lapse of 1 hour and 18 minutes occurred and even then, the approval was conditional as it directed the store to ask for positive identification of cardholder. One hour appears to be awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase.

Thus, the failure of the respondent is not the failure to timely approve the petitioner’s purchase, but the failure to timely act on the same, whether favorably or unfavorably.

MORAL DAMAGESMoral damages are due in cases of breach of contract where the defendant acted fraudulently or in bad faith. The respondent bank acted in bad faith when it failed to timely act on the authorization of the purchase. This amounts to a wanton and deliberate refusal to comply with is contractual obligations, or at least abuse of its rights, under the contract.

It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred delay, but because the delay, for which culpability lies under Art 1170, led to particular injuries under Art 2217 for which moral damages are remunerative.

What is involved here is a loan of transaction. On the sale was perfected. But the contract of loan was not perfected because there was no delivery of money to the credit card holder.

COMMODATUM

REPUBLIC V. BAGTAS, 6 SCRA 262 (1962)EN BANC; J. PADILLA

FACTS: In May 1948, Jose Bagtas borrowed from the Republic, through the Bureau of Animal Industry, 3 bulls for a period of 1 year from May 1948 to May 1949 for breeding purposes subject to a breeding fee of 10% of the book value of the bulls. The three bulls were valued as:

a. Sindhi – P1,176.46b. Bhagnari – P1,320.56c. Sahiniwal – P744.46 (died during a Huk raid)

1. Upon the expiration of the contract, Bagtas asked for a renewal of another 1 year. However, the Secretary of Agriculture approved the renewal thereof of only 1 bull and requested the return of the other 2.

2. As such, Bagtas notified the Director of the Animal Industry of his intention to purchase the bulls subject to depreciation. The Director, however, advised him that the value of the 3 bulls could not be reduced and they either be returned or pay the book value not later than October 1950.

3. Bagtas failed to pay the book value or to return the bulls. As such, the Republic filed an action against Bagtas for the return of the 3 bulls loaned to him or the payment of their book value amounting to P3,241.45 and unpaid breeding fee, both with interests and cost.

4. Bagtas averred that he could not return the bulls nor pay their value because of the bad peace and order situation in Cagayan Valley, and pending the appeal he filed before the Secretary of Agriculture to deduct depreciation costs from the book value of the bulls

5. The trial court held in favor of the Republic and ordered Bagtas to pay the total value of the 3 bulls plus breeding fees with interests on both sums at the legal rate from the filing of the complaint

6. As the surviving spouse of Bagtas, Felicidad filed a motion alleging that the two bulls were returned to the Bureau of Animal Industry sometime in November 1958 and the third bull, died from a gunshot wound during a Huk raid

7. Respondent alleged that she could not be held liable for the two bulls as they had already been returned. Respondent alleged that the contract was a commodatum and as such, the Republic retained ownership or title to the bull should it suffer loss due to force majeure

ISSUE: WON the respondent is liable for the loss of the bull even if due to a fortuitous event

HELD: Yes.

A contract of commodatum is essentially gratuitous. If the breeding is considered a compensation, then the contract would be a lease of the bull. Under Art 1671 NCC,

the lessee would be subject to the responsibilities of a possessor in bad faith because she had continued possession of the bull after the expiry of the contract.

Even if the contract is a commodatum, the respondent is still liable under Art 1942 which provides that a bailee in a contract of commodatum:

1. Is liable for the loss of things, even if it should be through a fortuitous event2. If he keeps it longer than the period stipulated3. If the thing loaned has been delivered with the appraisal of its value, unless there

is a stipulation exempting the bailee from responsibility in case of the fortuitous event

CAB: The original period of the loan was from May 1948 to May 1949. The loan of one bull was renewed for another one year to end on May 1950. But Bagtas kept and used the bull until November 1953 when it was killed during a Huk raid. Furthermore, when it was delivered and loaned to Bagtas, the bulls each had an appraised value and there was no stipulation in the loan agreement that respondent is exempt from liability in case of the loss of the bull due to fortuitous event.

Since Bagtas had already returned two bulls, the estate of the decedent is only liable for the sum of P859.63, the value of the bull which has not been returned.

REPUBLIC V. COURT OF APPEALS AND HEIRS OF DOMINGO BALOY, 146 SCRA 15 (1986)2ND DIVISION; J. PARAS

FACTS: This case originated from the decision of CFI Zambales, denying the application for registration of private respondents Baloy.

1. On appeal, CA reversed the CFI decision and approved the registration 2. Republic, through the Bureau of Lands, filed a motion for reconsideration alleging

that the applicants’ possessory information title can no longer be invoked and that they were not able to prove a registerable title over the land

3. Applicant’s claim is anchored on their possessory information title coupled with their continuous, adverse and public possession of the subject property. It appears, however, that the possessory information title shows the said title had been acquired by applicants’ predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law.

4. The director of lands, on the other hand, averred that the subject property had become public land through the operation of Act 627 of the Philippine Commission. (NOTE: In 1902, the area was declared within the US Naval reservation). Under Act 627, a period was fixed within which persons affected thereby could file their application (6 months from July 8, 1905) otherwise said lands or interest will be conclusively adjudged to be public lands and all claims on the par of private individuals will be forever barred. Since Domingo Baloy failed to file his claim within the prescribe period, the land had become irrevocably public and could not be subject of a valid registration for private ownership.

5. In arriving at its decision, CA noted that there was no formal order or decision of the court of Land Registration declaring the subject property to be public land, and as such there can be no judicial declaration to that effect. So during the interim the title of applicants was suspended.

ISSUE: WON the occupancy of the US Navy over the subject property is in the concept of an owner, hence, such possession can be acquired by prescription

HELD: No. The occupancy of the US Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors in interest. One’s ownership of a thing may be lost by prescription by reason of another’s possession if such possession is under the claim of ownership, not where the possession is only intended to be transient, as in the case of the US Navy’s occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

JUDICIAL DECLARATION OF FORFEITURE REUQUIRES NOTICE AND HEARINGUnder Act 627, private land could be deemed to have become public land only by virtue of judicial declaration after due notice and hearing. It runs contrary therefore to the contention of the petitioner that failure to present claims made the land ipso facto public

without any need of judicial pronouncement. Act 627 by its terms is not self-executory and requires the implementation by the Court of Land Registration. Since its effect is forfeiture, Act 627 must be strictly construed so as to safeguard private respondents’ rights.

Since there is no order rendered by the Land Registration Court, it necessarily follows that it never become public land through the operation of Act 627. To assume otherwise is to deprive private respondents of their property without due process of law.

COURT JUDGMENTS CANNOT BE PRESUMEDCourt judgments are not to be presumed. If it could be contended that such a judgment may be presumed, it could equally be contended that Domingo Baloy presumably seasonably filed a claim, in accordance with the presumption that a person takes ordinary care of his concerns.

CATHOLIC VICAR APOSTOLIC V. COURT OF APPEALS, 165 SCRA 515 (1988)1ST DIVISION; J. GANCAYCO

FACTS: Plaintiff Catholic Vicar of the Mountain Province (Vicar) filed with CFI Baguio, an application for registration of several parcels (Lots 1-4) of land in La Trinidad, Benguet. Said lots are the sites of the Catholic Church building, convents, high school building and other structures.

1. Upon learning of the application, the heirs of Juan Valdez and heirs of Egmidio Octaviano filed their opposition on Lots 2 and 3, respectively, asserting ownership and title thereto.

2. The land registration court held in favor of the Vicar and confirmed the registration of the said properties. Both heirs of Valdez and Octaviano appealed to CA

3. CA modified the decision of the land registration court and found that:a. Lots 2 and 3 were possessed by private respondents under claim of

ownership in good faith from 1906 to 1951b. Petitioner had been possession of the same lots as bailee in commodatum up

to 1951, when petitioner repudiated the trust and when it applied for registration in 1962

c. Petitioner had just been possession as owner for 11 years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without

d. The principle of res judicata is a bar to the reopening of these questions of fact

ISSUE: WON petitioner Vicar’s failure to return the subject property to private respondents constitutes an adverse possession which would entitle the Vicar to have just title over the subject properties

HELD: No.

Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by the declaring the properties in its name for taxation purposes. When Vicar applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for 11 years. Ordinary acquisitive prescription requires possession for ten years but always with just title. Extraordinary prescription requires 30 years.

As found by CA, petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years of ordinary acquisitive prescription because of the absence of just title. CA gave no credence to the evidenced adduced by petitioner since there was absolutely no documentary evidence to support its claim that it purchased the lots from Valdez and Octaviano.

On the other hand, private respondents were able to prove that their predecessors’ house was borrowed by petitioner Vicar after the church and convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailee’s failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

RES JUDICATACA did not err in ruling that said findings are res judicata between the parties. They can no longer be altered by presentation of evidence because those issues were resolved with finality a long time ago. To ignore the principle of res judicata would be to open the door to endless litigations by continuous determination of issues without end.

PRODUCERS BANK OF THE PHILIPPINES V. COURT OF APPEALS, 397 SCRA 651 (2003)2ND DIVISION; J. CALLEJO SR.

FACTS: Sometime in 1979, private respondent Vives was asked by his friend Angeles Sanchez to help Arturo Doronilla in incorporating his business, Sterela Marketing and Services (Sterela). Sanchez asked Vives to deposit in a bank a certain amount of money in the name of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account within one month

1. Relying on the assurances and representation of Sanchez and Doronilla, private respondent issued a check for P200,000 in favor of Sterela.

2. Subsequently, Sanchez, Mrs. Vives and Dumagpi (Doronilla’s secretary) opened an account with petitioner Producers Bank under the name of Sterela. The passbook was thereafter issued to Mrs. Vives

3. Later private respondent learned that Sterela was no longer holding office in the address given to him. As such, he verified with the petitioner bank if their money was still intact. Private respondent was informed that only P90,000 remained therein, after being withdrawn by Doronilla. Atienza, the assistant manager, also informed Vives that she could not withdraw amount because it had to answer for the postdated checks issued by Doronilla

4. It appears that Doronilla opened a current account for Sterela and authorized the bank to debit the savings account for the amounts necessary to cover overdrawn checks. Doronilla also obtained a loan for P175,000 and to cover payments thereof, he issued 3 postdated checks, all of which were dishonored.

5. In August 1979, Doronilla issued a postdated check for P212,0000 in favor of Vives but the same was dishonored by the bank. Upon demand, Doronilla issued another check for the same amount but the check was against dishonored for insufficiency of funds

6. As such, private respondent filed an action for recovery of sum of money against Doronilla, Sanchez, Dumagpi and petitioner. He also filed criminal actions against Doronilla, Sanchez and Dumagpi

7. The trial court ruled in favor of Vives and held Doronilla, Dumagpi and Producers Bank solidarily liable for the P200,000 and moral damages. CA affirmed the same

8. Petitioner contends that the transaction between Doronilla and Vives is a simple loan since all the requirements of a mutuum are present: a. What was delivered to Doronilla was consumable thing (money)b. The transaction was onerous as Doronilla was obliged to pay interestAs such, petitioner argues that it cannot be held liable for the return of Vives’ money because it is not privy to the transaction between the latter and Doronilla

9. On the other hand, private respondent contends that the transaction between him and Doronilla is not a mutuum but an accommodation, since he did not actually part with the ownership of his P200,000 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for its incorporation but at the same time, he retained some degree of control over his money through his wife who was made

a signatory to the savings account and in whose possession the account passbook was given.

ISSUE: WON the transaction between defendant Doronilla and private respondent Vives was one of simple loan (mutuum)

HELD: No.

CA did not err when it ruled that the transaction was a commodatum and not a mutuum as provided under Art 1933 NCC. Art 1933 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 instances where a commodatum may have for its object a consumable thing. Art 1936 provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the subject, 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 on, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties 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.

CAB: Vives 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 30 days.” Private respondent merely “accommodated” Doronilla by lending his money without consideration, as a favor to Sanchez. It was however clear that the money would not be removed from Sterela’s savings account and would be returned to private respondent within 30 days.

Doronilla’s attempt to return the amount of P212,000 does not convert the transaction from a commodatum to a mutuum because such was not the intent of the parties and because the additional P12,000 corresponds to the fruits of the lending of the P200,000. Art 1935 expressly states that the “bailee in a commodatum acquires the use of the thing loaned but not its fruits.” Hence, it was only proper for Doronilla to remit the interest accruing to the latter’s money deposited within petitioner.

PRODUCER’S BANK SOLIDARY LIABILITY Petitioner bank cannot argue that it is not solidarily liable for the return of Vives’ money because it was not privy to the transaction.

Under Art 2180 NCC, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when the act complained of was committed.

CAB: There is no dispute that Atienza was an employee of petitioner. Petitioner also did not deny that Atienza was acting within the scope of his authority was assistant branch manager when he assisted Doronilla in withdrawing the funds from Sterela’s savings account and in transfer the funds to Sterela’s current. His acts of helping Doronilla were obviously done in furtherance of petitioner’s interests, even though in the process, Atienza violated some petitioner’s rules.

PAJUYO V. COURT OF APPEALS, 430 SCRA 492 (2004)1ST DIVISION; J. CARPIO

FACTS: Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a parcel of land in Payatas, Quezon City. Pajuyo then constructed a shanty where he lived from 1979 to December 1985

1. In December 1985, Pajuyo and private respondent Guevarra executed an agreement allowing Guevarra to live in the house for free on the condition that he would maintain the property in good condition and that he would voluntarily vacate the premises on demand

2. In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. However, he refused.

3. As such, Pajuyo filed an ejectment case against Guevarra. In his answer, Guevarra claimed that Pajuyo had no valid title or right of possession as the property is within the land set aside for socialized housing under Proclamation no 137.

4. MTC held in favor of Pajuyo, citing that the subject of the agreement is the the house and not the lot. Pajuyo is the owner of the house and he allowed Guevarra to use the house on tolerance. Thus, his refusal to vacate the premises on Pajuyo’s demand made Guevarra’s continued possession of the house illegal

5. On appeal, RTC affirmed the MTC decision. RTC upheld the agreement, which established a landlord-tenant relationship between Pajuyo and Guevarra. Under the terms of the agreement, Guevarra is bound to return possession of the house on demand. Moreover, in an ejectment case, the only issue for resolution is material or physical possession and not ownership

6. Guevarra filed an appeal before CA. CA reversed the RTC decision. According to CA, the agreement is not a lease contract but a commodatum because the agreement was not for a price certain. Since Pajuyo only resurface in 1994 to claim the property, Guevarra who was in physical possession of the property, had first priority as beneficiary under the Code of Policies Beneficiary Selection and Disposition of Home lots of NHA

7.

ISSUE: WON the agreement is in the nature of a commodatum

HELD: No. The agreement in the instant case is not one of commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for certain time and return it. An essential feature of commodatum is that it is gratuitous and that the use of a thing belonging to another is for a certain period. Thus the bailor cannot demand the return of the thing loaned until after the expiration of the period stipulated, or after the accomplishment of the use for which the commodatum is constituted. If the bailor should have an urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the

thing at will, in which case the contract is considered a precarium (a kind of commodatum).

The agreement reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. It obligated Guevarra to maintain the property in good condition. The imposition of this obligation makes the instant agreement different from commodatum. Case law on ejectment has treated relationship based on tolerance as akin to landlord-tenant relationship where the withdrawal of the permission would result in the termination of the lease.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee has the duty to return the property to Pajuyo, the bailor. The obligation to deliver or return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.

ABSENCE OF TITLE OVER THE DISPUTED PROPERTY DOES NOT DIVEST THE COURTS OF JURISDICTION TO RESOLVE THE ISSUE OF POSSESSION It is well-settled that the defendant’s claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the ejectment case. the court may pass on such issue to determine only the issue of possession, especially if the ownership is inseparably linked with possession. The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land.

Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession. The same is true when the defendant asserts the absence of title over the property.

Regardless of the actual condition of the title to the property, the party in peacable quiet possession shall not be thrown out by a strong hand, violence or terror. Neither is the unlawful withholding of property allowed. Thus, a party who can prove prior possession can recover such possession against the owner himself.

PARI DELICTO IS NOT APPLICABLE TO EJECTMENT CASESThe application of pari delicto is not absolute, as there are exceptions to its application. One of these is that where the application of the pari delicto rule would violate well-established public policy.

In Drilon v. Guevarra, the SC held that the purpose of an action of forcible entry and detainer is that regardless of the actual condition of the title to the property, the party in peacable quiet possession shall not be turned out a strong hand, violence or terror.

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters would openly invite mayhem and lawlessness.

POSSESSION IS THE ONLY ISSUE FOR RESOLUTON IN AN EJECTMENT CASECA erred in holding that Guevarra had preferential right as beneficiary under Proclamation no 137.

1. Guevarra did not present evidence to prove that the contested lot is part of a relocation site under Proclamation 137

2. There is no proof that Guevarra actually availed of the benefits of Proclamation 137

3. Even assuming it was covered under Proc 137, the courts could still assume jurisdiction and resolve the issue of possession

PAJUYO IS ENTITLED TO PHYSICAL POSSESSIONThe facts clearly make out a case for unlawful detainer. Unlawful detainer involves the withholding of a person from another of the possession of real property to which the latter is entitled after the expiration or termination of the former’s right to hold possession under a contract, express or implied.

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.

SIMPLE LOAN OR MUTUUM

CHEE KIONG YAM V. MALIK, 94 SCRA 30 (1979)2ND DIVISION; J. ABAD SANTOS

FACTS: Petitioners Chee Kiong Yam filed a petition for certiorari, prohibition and mandamus with preliminary injunction alleging that respondent judge without or in excess of jurisdiction.

1. Petitioners alleged that the facts in the complaint did not constitute the crime of estafa and even if they did, they were not within the jurisdiction of the respondent judge

2. It appears that Amin filed three criminal complaints against Chee Kiong Yam for estafa through misappropriation of funds. But the complaint states that said petitioners received the amount from Amin as a loan

3. Amin also filed an action of sum of money against petitioners in September 1975, alleging that the P50,000 was a simple business loan with interest and was originally demandable within six months

ISSUE: WON facts alleged in the three criminal complaints constitute estafa through misappropriation

HELD: No. Under Art 315 RPC, esfafa through misappropriation is committed by any of the following:

a. With unfaithfulness or abuse of confidenceb. By misappropriating or converting, to the prejudice of another, money, goods or

any other personal property received by the offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods or other property

To be convicted, it must be shown that the person has the obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e. bills and coins, which they received from private respondents. This is because as clearly stated in the complaints, the sums of money that petitioners received were loans.

NATURE OF SIMPLE LOANThe nature of simple loan is defined in Art 1933 and 1953 NCC:

Art. 1933. — 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 loam ownership passes to the borrower.

Art. 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.

In a simple loan or 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 and his act will not be considered misappropriation thereof.

As held in US v. Ibanez, the debtor cannot be held liable for the crime of estafa under said article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between mutuum and commodatum, when he performed the questioned acts. He mistook the transaction between petitioners and private respondents to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender.

JURISDICTION OF THE COURT Under Sec 87 of the Judiciary Act, the Municipal court has jurisdiction over criminal cases where the penalty provided by law does not exceed prision correccional or imprisonment for more than 6 years of a fine not exceeding P6,000 or both.

CAB: the amounts allegedly misappropriated by petitioners ranged from P20,000 to P50,000. The penalty for misappropriation of such magnitude exceeds prision correccional or 6 years of imprisonment. As such, even if we are to assume that the complaints constitute the crime of estafa, the Municipal court had no jurisdiction to try them on the merits.

EQUITABLE PCI BANK V. NG SHEUNG NGOR, 541 SCRA 223 (2007)

FACTS: Respondent Ng Sheung Ngor, Ken Appliance Division, Inc and Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas.

1. Respondents claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates so they accepted the proposal and signed the bank’s printed promissory notes on various dates beginning 1996. But they were unaware that the documents contain identical escalation clause granting Equitable authority to increase interest rates without their consent

2. Equitable asserted that respondents knowingly accepted all the terms and conditions contained in the promissory notes, also they continuously availed of and benefited from Equitable’s credit facilities for five years.

3. The trial court upheld the validity of the promissory notes however it invalidated the escalation clause for it violated the principle of mutuality of contracts. It also took judicial notice of the steep depreciation of the peso during the intervening period and declared the existence of extraordinary deflation

4. RTC ordered the use of the 1996 dollar exchange rate in computing respondent’s dollar denominated loans and awarded moral and exemplary damages.

5. Equitable filed an MR, while respondents prayed for the issuance of a writ of execution.

6. RTC issued an omnibus order denying MR and ordered the issuance of the motion of a writ of execution in favor of respondents.

7. Three real properties of Equitable were levied upon and were sold in a public auction. Respondents were the highest bidder and certificates of sale were issued.

8. Equitable filed a petition for certiorari with an application for an injunction in the CA to enjoin the implementation and execution of the omnibus order. CA granted Equitable’s application for injunction was granted.

9. Despite the injunction, Equitable’s properties previously levied were sold in a public auction to respondent. Equitable moved to annul the auction sale. CA dismissed the petition for certiorari, hence this petition.

ISSUE: What is the relationship between the bank and its depositor?

HELD: The relationship between the bank and its depositor is that of creditor and debtor. For this reason, a bank has the right to set off the deposit in its hands for the payment of a depositor’s indebtedness. Respondent indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable acted “fraudulently or in bad faith or in wanton disregard” of its contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage respondents sustained was purely the consequence of their failure to pay their loans. There was therefore absolutely no basis for the award of moral damages to them.

ALMEDA V. BATHALA MARKETING, 542 SCRA 470 (2008)3RD DIVISION; J. NACHURA

FACTS: Sometime in May 1997, respondent Bathala Marketing, as lessee, renewed its lease contract with Ponciano Almeda, as lessor (petitioner’s husband). Under the contract, Ponciano agreed to lease a portion of the Almeda compound consisting of 7,348.25 sqm for a monthly rental of P1,107,348.69 for a term of years unless terminated. The contract also provides that:

a. The rental rate is based on the present rate of assessment on the property. In case the assessment is increase or any new tax or charge is imposed by authorized, the lesee shall pay the additional rental or charge. If the assessment or tax should be reduced, the lessee shall be entitled to reduction in the stipulated rental (condition 6)

b. In case of an extraordinary inflation or devaluation of Philippine peso, the value of the peso at the time of the establishment of the obligation shall be the basis of payment (condition 7)

1. During the effectivity of the contract, Ponciano died. Thereafter, petitioners advised respondent that the former shall be charged VAT on its monthly rentals. Respondent argued that VAT may not be imposed on the rental since the VAT law is not a new tax imposed, but is already in effect prior to the execution of the lease contract

2. Petitioner subsequently informed respondents that the monthly rental shall be increased by 73% pursuant to condition 7 and Art 1250 NCC. Respondent opposed the demand, contending that there was no extraordinary inflation to warrant the application of the Art 1250

3. Respondent refused to pay the VAT and adjusted rentals but continued to pay the stipulated amount based on the contract

4. As such, respondent filed an action for declaratory relief to determine the correct interpretation of the lease contract

5. Petitioners, in turn, filed an ejectment suit with damages for failure of the respondent to vacate the premises after demand has been made.

6. Petitioners later moved for the dismissal of the declaratory relief for being an improper remedy since the respondent was already in breach of the obligation

7. The trial court held in favor of respondent and ruled that respondent was liable liable to pay VAT and rental adjustment. The trial court cited that the imposition of VAT is not proper since it was not a new tax that would call for the application of the clause in the contract. Moreover, there was no extraordinary inflation or devaluation. However the trial court ordered the restitution of the amounts paid despite the rule that in an action for declaratory relief, other than a declaration of rights and obligations, affirmative reliefs are not awarded to parties

8. CA affirmed the same but deleted the return of the balance of the rental deposits and of amounts representing the VAT and rental adjustment

ISSUE: WON the amount of rentals due respondents should be adjusted by reason of extraordinary inflation or devaluation

HELD: No.

When the parties speak of devaluation as stipulated in the lease contract, they really did not intend to depart from Art 1250. Thus, the clause should be read in harmony with Art 1250.

Art 1250 reads: In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary.

Inflation has been defined as the sharp increase of money, or credit or both, without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods, resulting in a substantial and continuing rise in the general price level. The SC explained extraordinary inflation as: “There is extraordinary inflation when there exists a decrease or increase in the purchasing power of the Peso which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could have been reasonably foreseen or manifestly beyond the contemplation of the parties at the time of the obligation.

Based on the facts presented, there is no extraordinary inflation or devaluation that would justify the application of Art 1250. Absent an official pronouncement or declaration by competent authorities of the existence of extraordinary inflation during a given period, the effects of extraordinary inflation are not to be applied

NATURE OF DECLARATORY RELIEFDeclaratory relief is defined as an action by any person interested in a deed, will, contract or nay other instrument, to determine any question of construction or validity arising from the instrument, and for a declaration of his rights and duties thereunder. The only issue to be resolved in such a petition is the question of construction or validity of the provisions of an instrument

REQUISITES OF DECLARATORY RELIEF1. The subject matter of the controversy must be a deed, will, or other written

instrument 2. The terms of the documents or instruments and the validity thereof are doubtful

and require judicial construction3. There must have been no breach of the documents4. There must be an actual justiciable controversy and that the issue is ripe for

determination5. Adequate relief is not available through other means or forms of action or

proceeding

CAB: Respondent religiously fulfilled its obligation even during pendency of the suit. There is no showing breach on the part of respondent

APPLICATION OF PANGANIBAN V. PILIPINAS SHELLIn Panganiban, the unlawful detainer case had already been resolved by the trial court before the dismissal of the declaratory relief case and it was the petitioner in that case who insisted that the declaratory relief be preferred over the unlawful detainer. This is not the case her because here, the trial court had not yet resolved the ejectment case during the pendency of the declaratory relief petition.

PAYMENT OF VATNotwithstanding the mandatory payment of VAT by the lessor, the actual shifting of said tax burden upon the lessee is optional on the party of the lessor based on the use of the word “may” in the provision.

CAB: Ponciano did not charge the respondent-lessee the 10% VAT nor provided for its additional imposition when they renewed the lease contract in May 1997. He also did not collect 10% VAT from the rentals due after the execution of the contract. This shows that the lessor did not intend to avail of the option granted by the law to shift the VAT to the lessee. Petitioners are now stopped from shifting the burden of paying the VAT to respondents.

More importantly, the condition in the lease contract states that respondent can only be held liable for NEW TAXES imposed after the effectivity of the contract of lease. Since RA 7716 took effect in 1994, the VAT cannot be considered a new tax to fall within the coverage of the sixth stipulation.

PEOPLE V. PUIG, 535 SCRA 564 (2008)

FACTS: In November 2005, the Iloilo Prosecutor’s office filed before RTC Dumangas 12 cases of Qualified Theft against respondents Teresita Puig and Romeo Porras who were the cashier and bookkeeper, respectively, of private complainant Rural Bank of Pototan

1. The informations filed against respondents alleged that respondents, with grave abuse of confidence, as cashier and bookkeeper of Rural Bank of Pototan, without the knowledge and/or consent of the management of the bank and with intent to gain, did then and there willfully, unlawfully and feloniously take, steal, and carry way the sum of P15,000

2. The trial court did not find the existence of probable cause, citing that:a. The element of “taking without the consent of the owners” was missing on

the ground that the depositor-clients and not the bank, which filed the instant cases, are the owners of the money allegedly taken by the respondents and hence, are the real parties-in-interest

b. The informations were bereft of the phrase alleging “dependence, guardianship or vigilance between respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused

3. The trial court further noted that allowing the cases to push through would violate the respondents’ constituted right of respondents to be informed of the nature and cause of the accusation against them. As such, RTC dismissed the cases and refused to issue a warrant of arrest against Puig and Porras. (MR denied)

4. Petitioner filed a petition for review on certiorari under Rule 45 raising the issue: WON the 112 informations for qualified theft sufficiently alleged the element of taking without the consent of the owner, and the qualifying circumstance of grave abuse of confidence

5. Petitioner argued that under Art 1980 NCC “fixed savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans.” Corollary thereto, Art 1953 provides that “a person who receives a loan of money or any other fungible thing acquires ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality.” Thus, it argues that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its clients, taking the money taken by respondents as belonging to the bank

6. Petitioner also contends that the informations sufficiently alleged all the elements of qualified theft, citing that a perusal of the informations will show that they specifically allege that the respondents were the cashier and bookkeeper of the bank, and that they took various amounts of money with grave abuse of confidence and without the knowledge and consent of the bank

7. On the other hand, respondents contend that the instant petition is the wrong mode of appeal because a finding of a probable cause for the issuance of a warrant of arrest presupposes an evaluation of facts and circumstances.

Moreover, it is the DOJ Secretary who should file the petition for review considering that the incident was endorsed by the DOJ

ISSUE: WON the bank is the real-party-interest to file the complaint for qualified theft against Puig and Porras

HELD: Yes.

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 the monies are deposited, are considered the owners thereof. This is clearly not only from the express provisions of law but from established jurisprudence. The relationship between banks and depositors has been held to be that of a creditor and debtor as provided in Art 1953 and Art 1980.

In a long line of cases involving qualified theft, the SC 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 who have come into possession of it. The SC 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.

In Roque v. People, the SC held: since the teller occupies a position of confidence, and the bank places money in the teller’s possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.

Similarly, in the case of People v. Sison, the SC held: (appellant) could not committed the crime had he not been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault. The management of the bank reposed its trust and confidence in the appellant as its branch operation officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of the bank.

In People v. Locson, the SC held: When the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the bank, there was taking as contemplated in the crime of qualified theft.

In all cases, it is clear that the crime was committed with grave abuse of confidence and without knowledge or consent of the bank, without necessarily stating the phrase, “of a relation by reason of dependence, guardianship, or vigilance, between respondents and the offended party that has created a high degree of confidence between them, which respondents abused,” and without using the word “owner” in lieu of the bank were considered to have satisfied the test of sufficiency of allegations.

In fine, 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 essential elements constituting qualified theft.

ELEMENTS OF THEFTAs defined in Art 308 RPC, there is theft when the following elements concur:

(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

ELEMENTS OF QUALIFIED THEFT (1) Taking of personal property (2) That said property belongs to another(3) That said taking be done with intent to gain (4) That it be done without the owner’s consent (5) That it be accomplished without the use of violence or intimidation against

persons, nor force upon things(6) That it be done with grave abuse of confidence

SUFFICIENCY OF INFORMATIONSec 6, Rule 110 ROC provides that the information must state the acts or omissions complained of as constitutive of the offense. Sec 9 also provides that the circumstances must 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 as being charged, as well as its qualifying and aggravating circumstances.

DOJ AS PRINCIPAL PARTY As held in Mobilia Products v. Hajime Umezawa: In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only through OSG.

RULE 45 AS MODE OF APPEALIt Is well settled that in appeals by certiorari under Rule 45 ROC, only errors of law may be raised. Petitioner certainly raised a question of law.

ISSUANCE OF WARRANT OF ARRESTPursuant to Sec 6, Rule 112 ROC, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor

and its supporting evidence. In Soliven v. Makasiar, the SC explained that the probable cause for the issuance of a warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent man to believe that an offense has been committed by the person sought to be arrested. The records reasonably indicate that the respondents may have, indeed, committed the offense charged.

INTEREST

TAN V. VALDEHUEZA, 66 SCRA 61 (1975)EN BANC; J. CASTRO

FACTS: In May 1955, a parcel of land was the subject matter of a public auction sale in which plaintiff Tan was the highest bidder. Due to the failure of respondent Valdehueza to redeem the said property, the provincial sheriff executed a Deed of Absolute Sale in favor of Tan

1. Subsequently, Valdehueza executed two documents of Deed of Pacto de Recto Sale in favor of plaintiff, over 2 portions of a parcel of land for the amount of P1,500

2. However, from the execution of the pacto de recto sale, Valdehueza remained in possession of the land

3. As such, plaintiff Tan filed an action against Valdehueza for the declaration of ownership and recovery of possession of the parcel of land (one bought at auction); and consolidation of ownership of two portions of another parcel (unregistered) of land (subject of pacto de recto)

4. The trial court held in favor of plaintiff and ordered defendant to pay P1,200 with legal interest of 6% as of August 1966 within 90 days (first action) and; P300 with legal interest of 6% as guaranty of the said amount of payment (second action)

ISSUE: WON the unregistered deed of pacto de recto is a simple loan

HELD: No. The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered the unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered mortgage. It would appear that the trial judge had not updated himself on law and jurisprudence; he cited, in support of his ruling, Art 1875 of the old Civil Code and decisions of this Court circa 1910 and 1912.

Under Art 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a mortgage even as between the parties, but under Art2125 of the new Civil Code (in effect since August 30,1950), this is no longer so. 

If the instrument is not recorded, the mortgage is nonetheless binding between the parties. (Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes having been paid by them, the contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, whether registered or not, there being no third parties involved.

INTERESTThe imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest shall be due unless it has been expressly stipulated in writing." (Art 1956 NCC) Furthermore, the

plaintiff did not pray for such interest; her thesis was a consolidation of ownership, which was properly rejected, the contracts being equitable mortgages.

INTEGRATED REALTY CORP V. PHIIPPINE NATIONAL BANK, 198 SCRA 390 (1989)2ND DIVISION; J. REGALADO

FACTS: In January 1967, petitioner Raul Santos made a deposit with Overseas Bank of Manila (OBM) in the amount of P500,000 and was issued a Certificate of Time deposit. The following month, Santos against made a deposit with OBM in the amount of P200,000

1. Integrated Realty Corp, through its president Raul Santos, applied for a loan and credit line in the amount of P700,000 with respondent bank PNB To secure the loan, Santos executed a Deed of Assignment of the two time deposits. OMB gave conformity to the assignment through a letter

2. However, when the time deposit became due, OMB did not pay PNB. PNB demanded payment from IRC and Santos; both argued that the obligation (loan) of IRC was deemed paid with the irrevocable assignment of the time deposit.

3. PNB filed a collection suit against IRC and Santos for the payment of the loan with interests. It impleaded OBM as defendant to compel it to redeem and pay to it Santos’ time deposit certificate with interests

4. In their answer, IRC and Santos alleged that PNB has no cause of action since their obligation is already extinguished upon the irrevocable assignment of the time deposit certificates, and that they are not answerable for the insolvency of OBM. IRC filed a counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay the time deposit certificates thus exposing them to suit

5. OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos does not appear in their books. OBM later amended its answer acknowledging the receipt of the time deposit it issued to Santos and admitted its failure to pay the same. However, it alleged that its operations have been suspended by the Central Bank in August 1968 by reason of insolvency and that the time deposits ceased to earn interest from that time

6. The trial court ruled in favor of PNB holding IRC and Santos solidarily liable for the payment of the loan with interests at the rate of 9% per annum from the maturity dates of the two promissory notes on January 11 and February 6, 1968. The court also ordered OBM to pay IRC and Santos whatever amounts the latter will pay to PNB with interest from date of payment

7. On appeal, CA affirmed the trial court decision but deleted the judgment ordering OBM to pay IRC and Santos whatever amount they will pay to PNB

ISSUES: WON OBM should be held liable for interests on the deposit of IRC and Santos from the time in ceased operations until it resumed business

HELD: No.

It should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is

completely suspended by the Central Bank. This is because what enables a bank to pay stipulated interest on money deposited with it is that its ability to generate funds.

A distinction must be made between the interest which the deposits should earn from their existence until the bank ceased to operate, and that which they may earn from the time the bank’s operations were stopped until the date of payment of the deposits. As to the first, it should be paid because such interest has been earned in the ordinary course of the bank’s businesses and before the latter has been declared in a state of liquidation. Moreover, the bank being authorized by law to make use of the deposits within the limitation stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the claims. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation, said interests should not be paid. It is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that the bank was not allowed by the Central Bank to operate.

INTEREST PAID AS DAMAGESWhile it is true that under Art 1956 no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money under Art 1108 he has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts.

The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial demand is made. In the case at bar, the demand was made by PNB after the maturity of the time deposit. The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificate of deposit which is 6.5%. such interest due or accrued shall further earn legal interest from the time of judicial demand.

OBM IS NOT LIABLE TO REIMBURSE IRC AND SANTOSIt must be noted that their liability to pay the various interests of 9% on the principal obligation, 1.5% additional interest and 1% penalty interest is an offshoot of their failure to pay under the terms of the two promissory executed in favor of PNB. OBM was not a party to the promissory notes. There is no privity of contract between OBM and PNB which will justify the imposition of said interests upon OBM.

TRANSACTION BETWEEN PNB AND IRC IS A PLEDGEThe facts and circumstances leading to the execution of the deed of assignment yield the conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge:

1. It is constituted to secure the fulfillment of a principal obligation

2. The pledgor is the absolute owner of the thing pledged 3. The persons constituting the pledge have the free disposal of their property and

in the absence thereof, they may be legally authorized for the purpose The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement, was complied with by the execution of deed of assignment to PNB.

STATE INVESTMENT HOUSE V. COURT OF APPEALS, 198 SCRA 390 (1993)3rd DIVISION; J. FELICIANO

FACTS: Respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State Investment House Inc. in order to secure a loan of P120,000.

1. Prior to the execution of pledge, respondent spouses together with the spouses Jose and Marcelina Aquino, signed an agreement with petitioner State for the latter’s purchase of receivables amounting to P375,000.

2. When the loan fell due, respondent spouses paid the same partly with their own funds and partly from the proceeds of another loan which they obtained also from petitioner State designated as Account no. IF-82-0904-AA.

3. This new loan was secured by the same pledge agreement executed in first loan.4. When the new loan matured, State demanded payment. Respondent expressed

willingness to pay, requesting that upon payment, the shares of stock pledged be released.

5. Petitioner denied the request on the ground that the loan which it had extended to the spouses Jose and Marcelina Aquino had remained unpaid.

6. Atty. Salonga sent to respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of stock pledge to State.

7. Respondent spouses filed a case before RTC, QC alleging that the intended foreclosure sale was illegal because from the time the obligation under Account NO. IF-82-0904-AA became due, they had been able and willing to pay the same, but petitioner had insisted that respondents pay even the loan account of sps. Jose and Marcelina Aquino which had not been secured by the pledge. It was further alleged that their failure to pay their loan (Account No. IF-82-0904-AA) was excused because the petitioner State itself prevented the satisfaction of the obligation.

8. TC: Judge Fortun dismissed the complaint. Respondents filed MR praying for a new decision ordering petitioner State to release the shares upon payment of respondents’ loan without interest as the latter had not been in delay in the performance of their obligation. State countered that the pledge executed by respondent spouses also covered the loan extended to Jose and Marcelina Aquino, which too should be paid before the shares may be released.

9. Judge Fortun set aside his original decision and rendered a new judgment ordering State to immediately release the pledge and to deliver to respondents the share of stock “upon payment of the loan.”

10. CA affirmed the new decision of the TC, holding that the loan extended to Jose and Marcelina Aquino, having been executed prior to the pledge was not covered by the pledge which secured only loans executed subsequently. Thus, upon payment of the loan, the shares of stock shall be released.

11. Upon remand of the records of the case to the TC for execution, there developed disagreement over the amount which respondent spouses Aquino should pay to secure the release of the shares of stock – petitioner State contending that respondents should also pay interest and respondents arguing they should not. Respondent spouses then filed a motion with the TC to clarify the Fortun decision

praying that an order issue clarifying the phrase “upon payment of plaintiff’s loan”” to mean upon payment ofo plaintiff’s loan in the principal amount of P110,000 alone, without interest, penalties and other charges.

12. The trial court through Judge Tirona ruled that petitioner State shall release respondent’s shares of stock upon payment by respondents of the principal of the loan, without interest, penalties and other charges.

13. Petitioner State appealed to the CA but was dismissed. The CA agreed with Judge Tirona that no interest need be paid. MR filed by petitioner was accordingly denied. Hence, this petition for review.

ISSUE: If respondent spouses Aquino were not in delay, what should they have been held liable for in accordance with law?

HELD: To pay theprincipal and the regular or monetary interest. Since respondents were held not to have been in delay, they were properly liable only for:

a) The principal of the loan; andb) Regular or monetary interest in the amount of 17% per annum.

They were not liable for penalty or compensatory interest, fixed by the promissory note in Account No. IF-82-0904-AA at 2% per month or 24% per annum.

ART. 2209 of CC provides that the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum or money, is the

a) payment of penalty interest at the rate agreed upon; and b) 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

c) if no regular interest had been agreed upon then payment of legal interest or 6% per annum

The fact that respondents were not in default did not mean that they were relieved from the payment not only of penalty or compensatory interest at the rate f 24% per annum but also of regular or monetary interest of 17% per annum.

The regular or monetary interest continued to accrue under the terms of the relevant Promissory note until actual payment is effected. The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.

Art. 1256 provides that where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with 2 conditions:

a) tender payment; andb) consignation of the sum due.

Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. A written tender of payment without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest.

In the instant case, respondent, while they are properly regarded as having made a written tender of payment to petitioner State, failed to consign in court the amount due at the time of the maturity of their loan. It follows that their obligation to pay principal loan, regular or monetary interest under the terms and conditions of the loan contract was not extinguished by such tender of payment alone.

For the respondents 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 regular or monetary interest, would constitute unjust enrichment on the part of the respondents at the expense of petitioner State even though the spouses had not been guilty of delay.

Petition for review is granted. The decision of the CA and the RTC are reversed and set aside. Ordering the petitioner to immediately release the pledge and to deliver to the respondent spouses the shares fof stock upon full payment of the principal amount of loan plus 17% per annum regular interest computed from the time of maturity of the respondents loan and until full payment of such principal and interest to petitioner.

CASA FILIPINO DEVT CORP V. DEPUTY EXECUTIVE SECRETARY, G.R. NO 96494 (1992)1st DIVISION; J. MEDIALDEA

FACTS: In June 1986, private respondent Jose Valenzuela filed a complaint against petitioner Casa Filipina Devt Corp before the Office of Appeals, Adjudication and Legal Affairs (OAALA) of the then Human Settlements Regulatory Commission (now HLURB) for failure to execute and deliver the deed of sale and transfer of certificate title.

1. Valenzuela alleged that he entered into a contract to sell with petitioner on May 2, 1984 to purchase a parcel of land in Paranaque for the amount of P68,400 with the following conditions:

a. Private respondent will pay P16,416 as down paymentb. The balance of P51,984 shall be paid in 12 equal monthly installments

of P4,915.16 with 24% interest per annum starting September 3, 19842. Valenzuela made his final payment on October 7, 1985 (as evidenced by OR no

6266) but despite full payment of the lot, petitioner refused to execute the necessary deed of absolute sale and deliver the corresponding TCT

3. Private respondent also averred that he has offered to pay for or reimburse petitioner for the transfer of the title but the latter refused to accept the same

4. In its defense, Casa Filipina contended that Valenzuela’s action is premature because of his failure to comply with other conditional requirements of their contract, i.e. payment of transfer expenses

5. OAALA held in favor of Valenzuela. It held that under Sec 25 of PD 957 (Regulating the Sale of Subdivision Lots and Condominiums), the owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee except those required for the registration of the deed of sale in the RD shall be collected for the issuance of such title. As such, it ordered Casa Filipina to reimburse to complaint total payments amounting to P76,180.82 plus 24% interest per annum from June 30, 1986 (date of filing the complaint) until fully paid

6. Petitioner filed an appeal and raised the following:a. Its original mortgagee bank Royal Savings bank was absorbed by

Comsavings Bak due to bankruptcy b. Comsavings Bank is not amenable to petitioner’s earlier arrangement with

Royal Savings Bank on individual redemption of title, thus it demanded that petitioner’s obligation be paid prior to release of any individual title

c. Petitioner cannot seasonably meet such demand due to the inability of the past administration to put up a viable and progressive economic program

7. HLURB dismissed the petitioner’s appeal for lack of merit and affirmed the decision of OAALA

8. Petitioner contends that:a. the amount of 24% interest imposed by OAALA in case of refund is

high and without basis since HLURB Resolution R-421 (series of 1988) states that the maximum interest to be awarded in case of refund is 12%;

b. Although the contract to sell provides for said rate of interest, it merely applies on installment payments but not with respect to refund; and

c. since the contract between both parties is not a forbearance of money or loan the doctrine in the case of Reformina v. Tomol is applicable, i.e. except where the action involves forbearance of money or loan, interest which courts may award is only up to 12%

ISSUE: WON the ruling in Reformina v. Tomol is applicable

HELD: No. The ruling in Reformina v. Tomol deals exclusively with cases where damages in the form of interest is due but no specific rate has been previously set by the parties. In such cases the legal interest of 12% per annum must be applied. In the present case, however, the interest rate of 24% per annum was mutually agreed upon by petitioner and private respondent in their contract to sell—this was the interest rate imposed on the private respondent for the payment of the installments on the contract price and there is no reason why the same interest rate should be equally applied to petitioner who is guilty of violating the reciprocal obligation.

In Solid Homes Inc v. CA, the SC held that the proper rate of interest is 12% expressly agreed upon in writing by the parties, as appearing in the invoices and sanctioned by Art 2209 is applicable.

It is, thus, evident that if a particular rate of interest has been expressly stipulated by the parties, that interest, not the legal rate of interest, shall be applied.

PERIOD OF REDEMPTION IS 6 MONTHS FROM ISSUANCE OF TITLESec 25 of PD 957 imposes an obligation on the part of the owner or developer, in the event the mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, to redeem the mortgage or the corresponding portion thereof within 6 months from such issuance. The argument that the issuance of the title is a prerequisite to the running of the 6-month period of redemption is untenable. Otherwise, the owner or developer can readily concoct various reasons to justify its failure to issue the title and in the process, prolong the period within which to deliver the title to the buyer free from any liens or encumbrances. Additionally, by not issuing or delivering the title to the private respondent upon full payment thereof, Casa Filipina had already violated the explicit mandate of the first sentence of Sec 25 of PD 957.

REMEDY AVAILABLE TO PRIVATE RESPONDENTIt is clear in the OAALA decision that rescission is being ordered only in the event that specific performance is not feasible. Moreover, petitioner is already stopped from raising this issue because when it filed an appeal to HLURB, it prayed that: (a) it be given period/time to redeem the title; or the demand for issuance of title be suspended from Comsavings Bank before any deed of absolute sale be executed so that the TCT can be issued and/or refund be ordered.

It should be noted that OAALA found as a fact that private respondent was ready, willing and able to pay for the expenses for the transfer of title as stipulated in the contract to sell.

CASTELLO V. COURT OF APPEALS AND MILAGROS DELA ROSA, 224 SCRA 180 (1995)3RD DIVISION; J. FELICIANO

FACTS: In October 1982, petitioners Castello, Banson and Depante entered into a Contract of Conditional Sale with private respondent Dela Rosa over a parcel of land. The agreed price was P269,408. Upon signing the contract, Dela Rosa paid petitioners P106,000 leaving a balance of P163,408

1. the Deed of Conditional Sale stipulated that:a. The balance (P163,408) shall be paid on or before December 31, 1982

without interest and penalty charges b. Should the balance remain unpaid, the vendee (Dela Rosa) shall be

given a grace period of 6 months (up to June 30, 1983) to pay the balance provided that the interest rate of 12% per annum shall be charged and 1% penalty charge a month shall be imposed on the remaining diminishing balance

2. Dela Rosa was unable to pay the remaining balance on or before June 30, 1983. As such, petitioners filed an action for specific performance with damages against private respondent

3. The RTC ordered the rescission of the Deed of Conditional sale4. On appeal, petitioners question the trial court’s decision in rescinding the deed of

conditional sale. They claimed that rescission of the contract was only an alternative relief available under NCC, while they prayed for specific performance with damages

5. CA set aside the trial court decision and ordered Dela Rosa to pay the balance of the conditional sale with interest and in default thereof, rescission

6. Accordingly, a Sheriff’s Notice to Pay Judgment was served on Dela Rosa requiring her to pay petitioners P197,723.68 based on:

Principal P 163,408Plus interest 12% (per contract)From Nov 21, 1986 to Sept 2, 1988 P 34,315.68

7. Petitioners filed an MR contending that the sum of P197,723.68 was erroneous because the obligation of the private respondent was to pay (a) interest at the rate of 12% per annum PLUS (b) 1% penalty charge per month, from default, i.e. from January 1, 1983

8. The trial court denied the MR, citing that the CA, in its dispositive portion, did not refer to the stipulaton in the Deed fo Conditional Sale but rather to the legal interest rate which commenced from February 12, 1987, the date of entry of judgment. Had it intended otherwise, the CA would have declared so

ISSUE: What is the correct interpretation of the phrase “to pay interest” set out in the dispositive portion of the CA decision in the instant case

HELD: The established doctrine is that when the dispositive portion of a judgment, which has become final and executory, contains a clerical error or an ambiguity arising from an inadvertent omission, such error or ambiguity may be clarified by reference to the body of the decision itself. It appears that the CA decision was ambiguous in the sense that it was too cryptic. Examination of the body of the decision, however, sheds no light on the reference intended by the ponente (J. Castro-Bartolome) in direct private respondent to pay interest.

The SC interpreted the phrase “to pay interest” found in the dispositive of the CA decision must, under applicable law, refer to the interest stipulated by the parties in the Deed of Conditional Sale, which they had entered into on October 15, 1982. In the first place, the phrase comes to the preceding phrase “to comply with the obligation under the conditional sale to pay the balance of P163,408. As strong inference thus arises that the “interest” required to be paid is the interest stipulated as part of the “obligation of Dela Rosa under the conditional sale to pay the balance of the purchase price.

In the second place, there is no question that Dela Rosa failed to pay the balance of P163,408 on or before December 31, 1982. Under Art 2209 NCC, the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest, at a rate equal to the regular monetary interest, becomes due and payable. If no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6% or in the case of loans or forbearance of money, 12% per annum. Applying Art 2209 to the instant case, the SC referred to the Deed of Conditional Sale which specifically provided for “interest at the rate of 12% per annum” and a “1% penalty charge a month to be imposed on the remaining diminishing balance.”

The contention of the private respondent that Art 2209 NCC is not applicable in this case because the interest referred to therein is given as compensation for the use of money, not for the incurring of delay as in the instant case, is untenable. Art 2209 governs transactions involving the payment of indemnity in the concept of damages arising from delay in the discharge of obligations consisting of the payment of a sum of money referred to in Art 2209 is not confined to a loan or forbearance of money. The SC has, for instance, consistently applied Art 2209 in the determination of interest properly payable where there was default in the payment of price or consideration under a contract of sale, as in the case at bar.

The stipulation in the Deed of Conditional Sale requiring the payment of interest is not unlawful. The validity of the contract of conditional sale itself has not been put to question by private respondent and there is nothing in the record to suggest that the same may be contrary to law, morals, good custom and public order or public policy. Accordingly, the contractual stipulation must be regarded as binding and enforceable as the law between the parties.

Therefore:(1) During the period from January 1, 1983 up to June 30, 1983, private respondent

Dela Rosa was bound to pay interest at the rate of 12% per annum on the unpaid balance of P163,408

(2) Starting July 1, 1983 and until full payment, Dela Rosa was bound to pay interest at the rate of 12% per annum plus another 12% per annum (or 1% penalty charge per month), or a total of 24% per annum to be computed on the remaining diminishing balance.

EASTERN SHIPPING LINES V. COURT OF APPEALS, 234 SCRA 78 (1994)EN BANC; J. VITUG

FACTS: This is an action against petitioner shipping company, arrastre operator, and broker-forwarder for damages sustained by a shipment while in petitioner’s custody, filed by the respondent who paid the consignee the value of such losses/damages.

1. 2 fiber drums of riboflavin were shipped from Yokohama Japan for delivery vessel “SS Eastern Comet” owned by defendant Eastern Shipping company under bill of lading. The shipment was insured under respondent’s Marine Insurance company.

2. Upon arrival of the shipment in Manila, it was discharged unto the custody of Metro Port Service, Inc. (arrastre operator) The latter excluded one drum, said to be in bad order, which damage was unknown to respondent.

3. Allied Brokerage Corp. (broker) received the shipment from Metro Port, one drum opened and without seal (per request for Bad Order Survey)

4. Allied Brokerage Corp made deliveries of the shipment to the consignee’s warehouse. The latter excluded one drum which contained spillages, while the rest of the contents was fake.

5. Respondent contended that due to losses/damage sustained by said drum, the consignee suffered losses totaling P19,000 due to the fault and negligence of petitioner. Claims were presented against the petitioner but the latter refused to pay the same.

6. As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,000 under the marine insurance policy, so that it became subrogated to all the rights of action of said consignee against the petitioner herein.

7. Eastern shipping alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was turned over to the latter, is no longer its liability.

8. Metro port contended that although subject shipment was discharged unto its custody, portion of the same was already in bad order

9. Allied brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order when received by it, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.

10. Issue found by the trial court are:a) WON the shipment sustained losses/damages;b) WON these losses/damages were sustained while in the custody of

defendantsc) WON Eastern shipping, Metro Port and Allied Brokerage should be held

liable for the losses/damages 11. The trial court held that as to the first issue, that the shipment sustained

losses/damages. The two drums were shipped in good order and condition, as shown in Bill of Lading and commercial invoices which do not indicate any

damages drum that was shipped but when the shipment was delivered to Metro Port it excepted to one drum in bad order.

12. As to the second issue, losses/damage were sustained while in respective custody and possession of Eastern shipping , Metro Port and Allied Brokerage. Under the Marine Cargo Survey Report, it stated that when the shipment was landed on vessel to dock in South Harbor, it was observed that one fiber drum was in damaged condition. That when Allied Brokerage withdrew the shipment from Metro Port custody, one drum was found opened without seal. Net unrecovered spillage was 15kgs. That when the drum reached the consignee, one drum was found with fake contents. It is obvious that the damages occurred before the shipment reached the consignee while under the successive custodies of Eastern, Metro Port and Allied Brokerage.

13. The trial court ordered that Eastern Shipping, Metro Port and Allied Brokerage pay respondent, jointly and severally the amount of P19,000, with the present legal interest of 12% per annum from the date of the filing of the complaint until fully paid.

14. Eastern Shipping etc. appealed but the CA affirmed the judgment of the court a quo. Hence this petition.

ISSUES:1. WON the Eastern Shipping etc. are jointly and severally liable for the claim of

respondent2. WON the grant of interest on the claim of respondent should commence from the

date of the filing of the complaint at the rate of 12% per annum instead of from the date of the decision of the trial court and only at the rate of 6% per annum, respondent claim being indisputably unliquidated

HELD:FIRST ISSUE: Yes. A factual finding of both the court a quo and the appellate court is that there is sufficient evidence that the shipment sustained damage while in the successive possession of petitioner.

SECOND ISSUE: The SC cited several cases classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court.

The first group consists:1. Reformina vs. Tomol2. Philippine Rabbit Bus Lines vs. Cruz3. Florendo vs. Ruiz4. National Power Corp vs. Angas

The second group consists:1. Malayan Insurance vs. Manila Port Service2. Nakpil and Sons vs. CA3. American Express International vs. IAC

In the first group, the basic issue focuses on the application of either the 6% or 12% interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the CC governs 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. Also a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

The second group did not alter the pronounced rule on the application of the 6% or 12% interest per annum, depending on WON the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the first group which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the second group varied on the commencement of the running of the legal interest.

I. when an obligation, regardless of its source , i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the CC 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 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 CC.

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 be begin to run from the time the claim is made judicially or extrajudicially but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only form 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 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 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.

Petition granted. Appealed decision is affirmed with modification that the legal interest to be paid is 6% on the amount due computed from the decision of the court a quo. 12% interest, in lieu of 6% shall be imposed on such amount upon finality of this decision until the payment thereof.