Doctrines-credit.docx

LOAN GARCIA vs. THIO Thio received from Garcia two crossed checks which amount to US$100K and US$500K respectively, payable to the order of Marilou Santiago. Garcia failed to pay the principal amounts of the loans when they fell due and so Thio filed a complaint for sum of money and damages with the RTC. Garcia said it was Marilou Satiago to whom Thio lent the money. Garcia claimed was merely asked by Thio to give the checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate Thio’s request that Garcia use her own checks instead of Santiago’s. 

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.

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Art. 1934. 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.

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Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.

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Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

SAURA IMPORT and EXPERT CO., INC., vs DBP Saura entered into a loan agreement with Rehabilitation Finance Corp (Now DBP) for the jute mill project. Loan was approved secured by land and machinery to be installed. Mortgage and Promisory notes were executed. Registration of mortgaged was cancelled in favor of Prudential Bank for having issued credit line to release the jute machinery. Trust receipt was executed in favor of Prudential. After 9 yrs Saura commenced an action against RFC for not releasing the loan which in turn Saura failed to pay its obligation. RTC ruled there was a perfected contract to loan.    

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Article 1934 provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until delivery of the object of the contract. There was undoubtedly offer and acceptance in the case. The application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. The defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. When an application for a loan of money was approved by resolution of the respondent corporation and the responding mortgage was executed and registered, there arises a perfected consensual contract. However, it should be noted that RFC imposed two conditions (availability of raw materials and increased production) when it restored the loan to the original amount of P500,000.00. Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled.The action thus taken by both parties was in the nature of mutual desistance which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

BPI INVESTMENT VS CA Frank Roa obtained a loan at 16 1/4% per annum from Ayala Investment and Development Corporation for the construction of his house. To secure the loan, the said house and lot were mortgaged to AIDC. In 1980, Roa sold the house and lot to ALS and Antonio Litonjua. AIDC, however, refused to extend the old interest rate to ALS and proposed to grant them an additional loan at a rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance and penalty interest at 21% per annum per day from the date the amortization became due and payable. Consequently, in 1984, BPIIC instituted foreclosure proceedings against ALS for failure of payment of mortgage.   

A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contract. Although a perfected consensual contract can give rise to an action for damages, it does not constitute a real contract which requires delivery for perfection. A perfected real contract gives rise only to obligations on the part of the borrower. In the present case, the loan contract was only perfected on the date of the second release of the loan. A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in.

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

PANTALEON VS AMERICAN EXPRESS After the Amsterdam incident that happened involving the delay of American Express Card to approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint for moral and exemplary damages against AmEx. As he and his family experienced inconvenience and humiliation due to the delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the award of damages, AmEx had not breached its obligations to Pantaleon, as the purchase at Coster deviated from Pantaleon's established charge purchase pattern. 

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every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the merchant or business establishment. Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the cardholder in signing the back of the credit card), we have to distinguish this contractual relationship from the creditordebtor relationship which only arises after the credit card issuer has approved the cardholder’s purchase request. The first relates merely to an agreement providing for credit facility to the cardholder. The latter involves the actual credit on loan agreement involving three contracts, namely: the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; the loan agreement between the credit card issuer and the credit card holder; and the promise to pay between the credit card issuer and the merchant or business establishment. From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code.

COMMODATUM PRODUCERS BANK V CA To help incorporate Sterela (Doronilla’s company), Sanchez, neighbor of Vives and Friend of Doronilla caused Vives’ to issue a check of 200k which was then deposited in Doronilla’s savings account. It was agreed that Vives can withdraw his money in a month’s time. However, what Doronilla did was to open a current account and instructed the bank to debit from the savings account and deposit it in his current account. So when Vives checked the savings account, the money left was only 90k. 

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

PAJUYO V CA Pajuyo entrusted a house to Guevara for the latter's use provided he should return the same upon demand and with the condition that Guevara should be responsible of the maintenance of the property. Upon demand Guevara refused to return the property to Pajuyo. The petitioner then filed an ejectment case against Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the appellate court reversed the judgment of the lower court on the ground that both parties are illegal settlers on the property thus have no legal right so that the Court should leave the present situation with respect to possession of the property as it is, and ruling further that the contractual relationship of Pajuyo and Guevara was that of a commodatum. 

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In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have 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 contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum. Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void. Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

REPUBLIC v BAGTAS Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for breeding purposes subject to payment of breeding fee of 10% of book value of the bull. Upon expiration, Bagtas asked for renewal. The renewal was granted only to one bull. Bagtas offered to buy the bulls at its book value less depreciation but the Bureau refused. The Bureau said that Bagtas should either return or buy it at book value. Bagtas proved that he already returned two of the bulls, and the other bull died during a Huk raid, hence, obligation already extinguished. He claims that the contract is a commodatum hence, loss through fortuitous event should be borne by the owner. 

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The loan by the Bureau of Animal Industry to the defendant of three bulls for breeding purposes for a period of one year, later on renewed for another as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. If the breeding fee be considered a compensation, the contract would be a lease of the bulls; it could not be a contract of commodatum, because that contract is essentially gratuitous. Even if this is a commodatum, Bagtas is still liable because the fortuitous event happened when he held the bull and the period stipulated already expired and he is liable because the thing loaned was delivered with appraisal of value and there was no contrary stipulation regarding his liability in case there is a fortuitous event.

QUINTOS v BECK The defendant was a tenant of the plaintiff. The latter gratuitously granted to the former the use of the furniture subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property. There after the plaintiff required the defendant to return all the furniture transferred to him for the new owners in the house where they were found. On November 5, 1936, the defendant wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the custody of the sheriff. 

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The contract entered into between the parties is one of commodatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latter's demand (Clause 7 of the contract, Exhibit "A"; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four electric lamps. As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

SIMPLE LOAN OR MUTUUM Chee Kiong Yam v. Malik Petitioners filed a petition for certiorari, prohibition and mandamus with preliminary injunction against the respondent Judge Malik who ruled that several cases of estafa filed against the petitioners should be admitted for trial in his sala. It must be noted that all complainants admitted that the money which the petitioners did not return were obtained from them by the latter in a form of loans. 

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In order that a person can be convicted x x x it must be proven that he 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., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. It can be readily noted x x x that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof. x x x In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to pay his debt or to deny its existence. “We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the justify indebtedness.

People vs Puig and Porras

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

Puig and Porras were cashier and bookkeeper, respectively, was charged of the crime of qualified thief by Rural Bank of Potoan. The bank alleged that they stole P15k without the consent of the Bank. The RTC dismissed the case because the Bank is not a real party in interest because they did not acquire ownership over the moneys deposited to them. 

Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows: “Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan.”

BPI Family vs Franco and CA 

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In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a movable, is generic and fungible. The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties, being substituted by others of the same kind, not having a distinct individuality. There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.

Frias vs Diego-sison Frias owned a house and lot. Frias and Diego-sison entered into a Memorandum Agreement which agreed that the latter will gave P3M, P1M in check, became stale, and in P2m in cash, and has six months to think whether to purchase the property or not. If the latter did not purchase the property the P2M will be considered as a loan and interest will accrued. 

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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. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor. Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer assailed.

Siga-an vs Villanueva Villanueva obtained a loan from Siga-an on the amount of P540K, the said loan was not in writing. The former paid P700K the excess was a formed of interest. Siga-an still pestering her until Villanueva paid P1.2M. 

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Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law. There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest. The case at bar involves petitioner’s claim for monetary interest. Sps. Juico vs China Bank Corportaion Sps Juico obtained a loan from China Bank it was secured by a Real estate mortgage. The amount due to P19K, and the property was foreclosed. China Bank said that the interest is changing every month based on the prevailing market value. 

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Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties. This Court has long recognized that there is nothing inherently wrong with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. Hence, such stipulations are not void per se. Nevertheless, an escalation clause “which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement” is void. A stipulation of such nature violates the principle of mutuality of contracts. Thus, this Court has previously nullified the unilateral determination and imposition by creditor banks of increases in the rate of interest provided in loan contracts. Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an agreement between the parties. Unless such important change in the contract terms is mutually agreed upon, it has no binding effect. In the absence of consent on the part of the petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality.

Sps.Silos vs PNB Spouses Silos obtained a credit line from PNB which was secured by a Real Estate Mortgage. The initial interest was 19%. The interest was increased and decreased raging from 16%-32%. Spouses Silos failed to pay their obligation. 

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It appears that respondent’s practice, more than once proscribed by the Court, has been carried over once more to the petitioners. In a number of decided cases, the Court struck down provisions in credit documents issued by PNB to, or required of, its borrowers which allow the bank to increase or decrease interest rates “within the limits allowed by law at any time depending on whatever policy it may adopt in the future.” Such stipulation and similar ones were declared in violation of Article 1308 of the Civil Code. The very same stipulations found in the credit agreement and the promissory notes prepared and issued by the respondent were again invalidated. A borrower’s current financial state, his feedback or opinions, the nature and purpose of his borrowings, the effect of foreign currency values or fluctuations on his business or borrowing, etc. — these are not factors which influence the fixing of interest rates to be imposed on him. Clearly, respondent’s method of fixing interest rates based on one- sided, indeterminate, and subjective criteria such as profitability, cost of money, bank costs, etc. is arbitrary for there is no fixed standard or margin above or below these considerations. Any modification in the contract, such as the interest rates, must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan agreements, the rate of interest is a principal condition, if not the most important component. Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect.

Sps. Salvador and Alma Abella vs Sps. Romeo and Annie Abella Respondent obtained a loan from petitioner. The former partially paid their obligation to the former. The parties intended to have an interest but there no specific amount about the interest. 

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Article 1956 of the Civil Code spells out the basic rule that “[n]o interest shall be due unless it has been expressly stipulated in writing.” On the matter of interest, the text of the acknowledgment receipt is simple, plain, and unequivocal. It attests to the contracting parties’ intent to subject to interest the loan extended by petitioners to respondents. The controversy, however, stems from the acknowledgment receipt’s failure to state the exact rate of interest. The recognized that the legal rate of interest has been reduced to 6% per annum: Recently, however, the Bangko Sentral ng Pilipinas-Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads: The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982: Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum. Section 2. In view of the above, Subsection

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

Ligutan vs CA and Security Bank & Trust Company Ligutan obtained a loan from Security Bank with an interest of 15.189% per annum upon maturity, 5% as penalty and 10% attorney fees if the matter were indorsed to a lawyer for collection. Ligutan failed to pay his obligation despite of the extension given by the Security Bank. 

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A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with. The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals, just an example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor. The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded. What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank’s existence.

Eastern Shipping Lines Inc. vs CA Two fiber drums were shipped, owned by the petitioner, from Japan. When it arrived in Manila, one drum was in a bad condition and it was damage. The other drum was opened and without seal. The Insurance paid the consignee. The Insurance company sued petitioner. RTC and CA ruled that the interest is 12%. 

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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 Article 1169 of the Civil Code. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 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.

NACAR V GALLERY FRAMES, GR NO 189871

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

This case arose from an illegal dismissal case filed by Nacar against Gallery Frames. Upon finding of illegal dismissal and monetary claims was awarded, Nacar asked for the recomputation of the money claims with due consideration with the legal interest to be imposed DOCTRINE: Old rule: 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 Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 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. New Rule: Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013 In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.

ESTORES V SPS SUPANGAN, 670 SCRA 95 The case involves a Conditional Deed of Sale of a parcel of land, Sps Estores failed to comply with their obligation to transfer the property to Sps. Supangan. Sps. Supangan demanded the return of the payments they made in favor of the Estoreses. They asked and additional 120 days, when the Supangans agreed they imposed 12% interest annually. DOCTRINE: Interest may be imposed even in the absence of stipulation in the contract. 

Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.”  Estores failed on her obligations despite demand. o She admitted that the conditions were not fulfilled and was willing to return the full amount of P3.5M but hasn’t done so o She is now in default The interest at the rate of 12% is applicable in the instant case.      

Gen Rule: the applicable interest rate shall be computed in accordance with the stipulation of the parties Exc: if no stipulation, applicable rate of interest shall be 12% per annum o When obligation arises out of a loan or forbearance of money, goods or credits In other cases, it shall be 6% In this case, no stipulation was made Contract involved in this case is not a loan but a Conditional Deed of Sale. o No question that the obligations were not met and the return of money not made Even if transaction was a Conditional Deed of Sale, the stipulation governing the return of the money can be considered as a forbearance of money which requires 12% interest

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

UCPB V SPS BELUSO, 530 SCRA 567 UCPB granted a promissory note line under a Credit Agreement in favor of Sps. Beluso for max amount of 1.2M which was later increased to 2.3M wherein the executed REM. UCPB applied interest ranging from 18% to 34% DOCTRINE: Validity of interest rates: The provision: “interest shall be at the rate indicative of DBD retail rate OR as determined by the Branch Head” means the interest rates are solely on the will of UCPB. Under the provision, UCPB has 2 choices: 1. Rate indicative of the DBD rate 2. Rate as determined by the branch head Because UCPB has the choice, the rate should be determinable in BOTH choices. If either gives UCPB to determine the rate at will, then the bank can just do that, thus making the entire int rate provision violative of the principle of mutuality. 

In this case, BOTH are dependent solely on the will of UCPB. In the case of the “rate indicative of the DBD rate” it is not akin to a “prevailing/prime rate” in Polotan. In Polotan, the interest rate was “interest per annum at 3% interest plus the prime rate of Security Bank and Trust Company”

Error in computation: o o o



Default commences on demand. The excess amt in such demand does not nullify the demand wrt the proper amt Belusos are considered in default wrt the proper amt, therefore the interests and penalties bagen to run at that point As there was no valid stipulation to interest, legal interest shall be charged (the Belusos even originally asked the RTC to impose the legal interest rate. This shows that they acknowledge their obligation to pay 12% legal interest)  This is proper bec what was voided was the stipulated interest and not the stipulation that the loan shall earn interest o Also, uphold the compounding of interest

Penalty = iniquitous (bec this 30-36% is already over and above the compounded in rate

Truth and Lending Act: Banks should disclose everything that the clients are expected to pay. 

“Unilaterally imposed an increased interest rate by relying on the provision in the promissory note that granted it the power to unilaterally fix the interest rate. Such interest rate was not determined in the promissory note but was left solely to the will of the branch head.” o this means the promisorry notes did not contain a clear statement in writing of the finance charge expressed in terms of pesos and centavos/the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation

ADVOCATES OF TRUTH IN LENDING v BSP. ,G.R. No. 192986 Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) having replaced Central Bank Monetary Board has no authority to continue enforcing Central Bank Circular No. 905 DOCTRINE: The authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries." Section 1 of CB Circular No. 905 provides that, "The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as it applies to banks, but to all lenders.

CARPO v CHUA, G.R. Nos. 150773 & 153599 CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

Sps. Carpo borrowed from respondents the amount of P175,000.00, payable within six (6) months with an interest rate of six percent (6%) per month. To secure the payment of the loan, petitioners mortgaged their residential house and lot. DOCTRINE: Validity of Interest In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid.From that perspective, it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. Interest rate invalidity & Mortgage The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages Hence, it is clear and settled that the principal loan obligation still stands and remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract. DEPOSIT BPI V IAC  

Rizaldy maintained dollar savings account and peso current with COMTRUST. An application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant Branch Manager of COMTRUST payable to Dizon for $1,000 – The said amount was to be charged to the Sps. Dollar savings account. RIzaldy noticed the withdrawal of US$1,000.00 from his account, he demanded an explanation from the bank.

DOCTRINE: Bank has not shown how the transaction involving the cashier's check is related to the transaction involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The record reveals that the amount withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the current account of the Zshornacks. Bank now argues that the contract that was entered into by the parties is a contract of depositum which banks do not enter into 

It now claims that Garcia exceeded his powers and the bank cannot be held liable as the contract/obligation is purely personal to Garcia

Court finds that Garcia act of entering the contract binds the corporation – as there was no sworn answer denying such. The intention of the parties was for the bank to safekeep the money and return it to Rizaldy at a later time.  

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions

 

The parties did not intended to sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

The mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. 

Pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law.

Being in pari delicto they shall not have a cause of action against each other

TRIPLE-V V FILIPINO MERCHANTS, GR NO. 160544

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

De Asis availed of valet parking service of petitioner entrusted her car key to petitioner's valet counter. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. – the car was never recovered DOCTRINE: When De Asis entrusted the car in question to petitioner’s valet attendant she expected her car to be safe.  

Petitioner was constituted as a depositary of the same car Petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service. o Deposit may be constituted even without any consideration o It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor.

The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion 

This Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances.

Petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility.  

De Asis deposited the car in question with the petitioner as part of the latter's enticement for customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's restaurant business.

CA AGRO-INDUSTRIAL V CA, 219 SCRA 426 CA-Agro purchased from Sps. Pugao 2 parcels of land. The titles shall be transferred to petitioner upon full payment and that the owner's copies of TCT shall be deposited in a safety deposit box of any bank. The spouses rented a Safety Deposit Box of private respondent Security Bank. After they signed such, both parties were given keys and one guard key was left with the bank. It has 2 key holes one for the renter’s key, one for the guard key and the box can be opened only with the two keys. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. DOCTRINE: The contract in this case is SPECIAL KIND DEPOSIT It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos.  

Having a guard key and without this key, neither of the renters could open the box. The respondent Bank could not likewise open the box without the renter's key.

It is clear that the depositary cannot open the box without the renter being present. The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. In renting put safety deposit boxes ,he prevailing rule in the United States has been adopted. Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . . (emphasis supplied)  

The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. The depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

In the present case, the stipulations under paragraph 13 and 14 are void  

Said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. o It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control

ROMAN CATHOLIC v DELA PENA, 26 PHIL 144 The plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital. 1898 the books Father De la Peña, as trustee, showed that he had on hand as trustee a sum P6,641 collected by him for the charitable purposes. He deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. During the war of the revolution, Father De la Peña was arrested by the military authorities as a political prisoner. The funds were turned over to the Government. DOCTRINE: Said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States. By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. As to the question whether he is negligent in depositing the money in the bank or whether he was more or less negligent by depositing the money in his personal account than he would have been if he had deposited it in a separate account as trustee. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility be reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other. DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden Hotel V PIONEER INSURANCE AND SURETY CORPORATION 

See as a hotel guest gave the keys to his car to Justimbe (doorman/parking attendant). The latter parked the car at the adjacent lot the parking area of Equitable PCI. The car was carnapped which is the 2nd incident that happened.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit existed between the insured See and petitioner. On this score, we find no error in the following disquisition of the appellate court: [The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking hours. Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latters employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of Sees vehicle. CHAN V MACEDA CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ



Maceda entered into a construction contract with Moreman in which the latter had the construction materials and equipment deposited with Chan’s warehouse without any consideration. The contract between Maceda and Moreman failed. Maceda asked for recission of contract plus damages and he ordered for the return of the said construction materials and equipment to be withdrew from Chan. He was adviced that Moreman withdrew the same.

Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract. Respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners warehouse at the time of respondents demand to return the same Petitioners have no corresponding obligation or liability to respondent with respect to those construction materials. No contract of deposit between petitioners and respondent or Moreman and that actually there were no more construction materials or equipment in petitioners warehouse when respondent made a demand for their return, we hold that he has no right whatsoever to claim for damages.

YHT REALTY CORPORATION V. CA (Necessary Deposit - Hotel or Inns, Art. 1998 to 2004) 

McLoughlin stayed at the Tropicana hotel for various occasion due to business trips. He would the leave money and valuables inside the safety deposit box. He learned that some money and jewelries are missing. He learned that it was his friend who took it with the help of the employees of the hotel as they have assumed the friend is the wife. He sued the hotel.

Issue: Whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers. NO. Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. To hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn. With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guest’s knowledge and consent from a safety deposit box provided by the hotel itself. Rule: The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure. It is the loss through force majeure that may spare the hotel-keeper from liability.

TUPAZ V CA 

Jose and Petronila, officers of El Oro, signed trust receipts in behalf of the company, and in favor of BPI. This is to finance the survival bolos they contracted with the PH Army. They were not able to comply with the obligation as stated in the trust receipt. Jose signed the 1st trust receipt in his personal capacity while him and Tupaz signed the 2nd trust receipt as officers of El Oro.

Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporations debts. Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for El Oro Corporations obligation.

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt. Respondent banks suit against Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted. Second, the benefit of excussion may be waived. Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx. The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorneys fees equivalent to 10% of the total amount due and an interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid xxx. n the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum. Security Bank v Cuenca 

President and Chairman of the Board of Directors Rodolfo Cuenca, executed an Indemnity agreement in favor of Security Bank whereby he bound himself jointly and severally with Sta. Ines for the credit line the latter acquired from SB. When Cuenca was already resigned, Sta Ines entered into a new agreement with SB creating new payment scheme for the former. Is Cuenca still liable as guarantor?

NOVATION EXTINGUISHES GUARANTY The 1989 Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement, which had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that [a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. x x x. In an earlier case, the Court explained the rationale of this provision in this wise: The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the suretys consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditors remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. CONTINUING SURETY the Indemnity Agreement was subject to the two limitations of the credit accommodation: (1) that the obligation should not exceed P8 million, and (2) that the accommodation should expire not later than November 30, 1981. Hence, it was a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the total of P8 million. Accordingly, the surety of Cuenca secured only the first loan of P6.1 million obtained on November 26, 1991. It did not secure the subsequent loans, purportedly under the 1980 credit accommodation, that were obtained in 1986. Certainly, he could not have guaranteed the 1989 Loan Agreement, which was executed after November 30, 1981 and which exceeded the stipulated P8 million ceiling. Petitioner, however, cites the Dino ruling in which the Court found the surety liable for the loan obtained after the payment of the original one, which was covered by a continuing surety agreement. At the risk of being repetitious, we hold that in Dino, the surety Agreement specifically provided that each suretyship is a continuing one which shall remain in full force and effect until this bank is notified of its revocation. Since the bank had not been notified of such revocation, the surety was held liable even for the subsequent obligations of the principal borrower. No similar provision is found in the present case. On the contrary, respondents liability was confined to the 1980 credit accommodation, the amount and the expiry date of which were set down in the Credit Approval Memorandum. SPECIAL NATURE OF JSS It is a common banking practice to require the JSS (joint and solidary signature) of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this. First, in case of default, the creditors recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the personal assets of the surety. Second, such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation. Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was granted. There was no reason or logic, however, CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

for the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation. Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a surety for the new loan.

PALMARES v CA 

Palmares is a co-maker of Promissory Notes with Sps. Azarraga for an extension of loan of MB Lending to the said spouses. MB lending sued her as a lone defendant because the Sps. Are insolvent. She countered that she offered to pay the obligation but was said that MB will try to collect from the Sps first. She also contends that paragraph 2 and 3 of the PNs are conflicting as 2nd paragraph shows solidary liability while the 3rd shows that she is a guarantee in case of non-payment of principal.

Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Several attendant factors in that genre lend support to our finding that petitioner is a surety. For one, when petitioner was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses. This can only be construed to mean that the payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant and simultaneous compliance of petitioner’s obligation with that of her principals only goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers. In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the beginning. This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. In essence, the contract of a surety starts with the agreement, which is precisely the situation obtaining in this case before the Court. Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the suit is a sufficient demand. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principal’s default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal’s default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. The alleged failure of respondent corporation to prove the fact of demand on the principal debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the absence of a statutory or contractual requirement, it is not necessary that payment or performance of his obligation be first demanded of the principal, especially where demand would have been useless; nor is it a requisite, before proceeding against the sureties, that the principal be called on to account. The underlying principle therefor is that a suretyship is a direct contract to pay the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made, without any demand upon the principal whatsoever or any notice of default. As an original promisor and debtor from the beginning, he is held ordinarily to know every default of his principal. A creditor’s right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. Since, generally, it is not necessary for a creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then as soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. Perforce, in accordance

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ

with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. ZOBEL V SOLIDBANK 

Zobel entered into a continuing guarantee with Solidbank as a condition for a Loan entered into by Agro Brokers. AB failed to pay the entire obligation upon maturity. Solidbank filed a case for collection of money against Zobel and the Sps. Zobel argues that his obligation extinguished when Solidbank failed to register the chattel mortgage over the equipments bought by AB.

A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor’s own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. The use of the term “guarantee” does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word “guarantee” is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. As aptly observed by the trial court, the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties. Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor. A creditor’s failure to register the chattel mortgage did not release a guarantor from his obligation where in the Continuing Guaranty the latter bound itself to the contract irrespective of the existence of any collateral.—But even assuming that Article 2080 is applicable, SOLIDBANK’s failure to register the chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence that may impair the contract. PHILIPPINE BLOOMING MILLS V CA 

Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship for trust receipts and bound himself as a co-maker of a promissory note to cover a trust loan. All of which were loaned from TRB. PBM failed to pay obligation. PBM and Ching filed a case with SEC for suspension of payment of obligation was sued as a surety. TRB filed a case against the two for the collection of money. PBM and Ching filed a Motion to Dismiss. Court granted MTD for PBM, denied for Ching.

In Traders Royal Bank v. Court of Appeals,2this Court upheld TRB and ruled that Ching was merely a nominal party in SEC Case No. 2250. Creditors may sue individual sureties of debtor corporations, like Ching, in a separate proceeding before regular courts despite the pendency of a case before the SEC involving the debtor corporation. The law expressly allows a suretyship for “future debts”. Article 2053 of the Civil Code provides: A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. (Emphasis supplied) Furthermore, this Court has ruled in Diño v. Court of Appeals that: Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. ESCANO v ORTIGAS

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ



Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals, Inc. 1 Assumption of Solidary liability was executed in farov of the loan (Ortigas and friends). While 2 guarantees were executed to gurantee payment of the same loan by other stockholders. (1 group – Escano & friends). There was a change of management. Ortigas sold his stocks to Escano. In return Escano entered into an undertaking of Suretyship and became SURETIES of Ortigas. The latter was forced to pay the previous loan by Falcon. As “SURETIES” are Escano & Friends solidarily liable to pay Ortigas?

In case there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, “[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.” Article 1210 supplies further caution against the broad interpretation of solidarity by providing: “The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.” These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigas’s argument rests solely on the solidary nature of the obligation of the surety under Article 2047. In tandem with the nomenclature “SURETIES” accorded to petitioners and Matti in the Undertaking, however, this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case here, notwithstanding the use of the nomenclature “SURETIES” in the Undertaking. Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. At the same time, there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. The moment the surety fully answers to the creditor for the obligation created by the principal debtor, such obligation is extinguished. At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for the surety does in fact “become subrogated to all the rights and remedies of the creditor.” Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations to suretyship contracts. Article 1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid (i.e., the surety). However, a significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor. In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who effected the payment to the creditor “may claim from his codebtors only the share which corresponds to each, with the interest for the payment already made.” Such solidary debtor will not be able to recover from the co-debtors the full amount already paid to the creditor, because the right to recovery extends only to the proportional share of the other co-debtors, and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full amount paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement falls within the other rights, actions and surety by reason of the subsidiary obligation assumed by the surety. Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on joint and several obligations should apply to sureties. We reject that argument, and instead adopt Dr. Tolentino’s observation that “[t]he reference in the second paragraph of [Article 2047] to the provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations, however, does not mean that suretyship is withdrawn from the applicable provisions governing guaranty.” For if that were not the implication, there would be no material difference between the surety as defined under Article 2047 and the joint and several debtors, for both classes of obligors would be governed by exactly the same rules and limitations. Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. These rights granted to the surety who pays materially differ from those granted under Article 1217 to the solidary debtor who pays, since the “indemnification” that pertains to the latter extends “only [to] the share which corresponds to each [co-debtor].” It is for this reason that the Court cannot accord the conclusion that because petitioners are identified in the Undertaking as “SURETIES,” they are consequently joint and severally liable to Ortigas.

CREDIT TRANSACTION DOCTRINES (MIDTERMS)

BRUCELO, DEL ROSARIO, ORTIZ