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Case Table Credit

Case Table Credit

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CASE TABLE ± CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) Page 1 of 19karichi santos 0410862 | UPlaw2012 
CREDIT TRANSACTIONS
 CASE TITLE FACTS/ISSUE DOCTRINES
LOAN
 
1
 
Commission onInternal Revenue v Burroughs Limited 
(1986; Paras, J.)
Handled by Sycip
Bu
rro
ugh
s wants to remit to its parent company abroad,for w
h
ic
h
it paid 15% branc
h
profit remittance tax,p
u
rs
u
ant to Sec 24(b)(2)(ii) of NIRC.
Bu
rro
ugh
s
h
oweverasked for
tax reimbursement
claimin
g
t
h
at t
h
e basis fort
h
e profit remittance tax s
h
o
u
ld be amo
u
nt act
u
allyremitted and NOT t
h
e amo
u
nt before remittance taxIss
u
e: Is
Bu
rro
ugh
s entitled to reimb
u
rsement? Yes.
Bu
rro
ugh
s was entitled to reimb
u
rsement. T
h
e tax base
u
ponw
h
ic
h
t
h
e 15% branc
h
profit remittance tax s
h
all be imposed ist
h
e profit
actually remitted 
and not on t
h
e total branc
h
profitso
u
t of w
h
ic
h
t
h
e remittance is to be made.
Rocky
sa
y
s:
T
h
e law was amended beca
u
se of t
h
is case, it nowreads profit applied for. Solve t
h
e problem by t
h
e lan
gu
a
g
e of t
h
e law, dont indiscriminately cite cases. CC is more importantt
h
an cases ka
h
it cross-eyed sila.2
 
Pp
v Conce
 p
cion
(1922; Malcolm, J.)
 Venancio Concepcion, t
h
en President of PN
B
,
g
ranted
spe
c
ial auth
o
rit
y
to t
h
e mana
g
er of Aparri branc
h
 [beca
u
se t
h
e latter
h
ad limited discretion in
g
rantin
g
 loans exceedin
g
P5,000] to
extend
c
redit
in favor of t
h
epartners
h
ip of P
u
no y Concepcion [in w
h
ic
h
Venancioswife owns
h
alf of t
h
e capital s
h
are]. T
h
e only sec
u
rity
g
iven t
h
erefor were six demand notes. Concepcion wasadj
u
d
g
ed
gu
ilty of violatin
g
Sec 35 of Act No 2747 w
h
ic
h
 pro
h
ibited direct or indirect loans to members of t
h
eboard of directors of banks nor to a
g
ents of branc
h
banks.
 
Rocky
sa
y
s:
-
 
W
h
at is S en C?-
 
W
h
at is a do
u
ble name paper?-
 
W
h
at part of t
h
e law s
h
o
u
ld yo
u
not to
u
c
h
?-
 
Loans were act
u
ally
g
ranted.
W
h
y do yo
u
 
h
ave to raisesomet
h
in
g
abo
u
t concession of credit?-
 
All ar
gu
ments
h
ere were obvio
u
sly pal
u
sot. Silence isbetter. As
B
alane
u
sed to say, keep yo
u
r mo
u
t
h
s
hu
trat
h
er t
h
an confirm
h
is s
u
spicions of t
h
e st
u
dentsidiocy.
I
ssue N
o.
1:
I
s the grant
of 
 
c
redit t
o
the
co
partnership a l
o
anwithin the meaning
of 
Se
c.
35?
[Concepcions ar
gu
ment: It wasonly a concession of a credit]- Credit means ability to borrow money by virt
u
e of t
h
econfidence or tr
u
st reposed by a lender t
h
at
h
e will pay w
h
at
h
emay promise- Loan means delivery by one party and t
h
e receipt by t
h
eot
h
er party of a
g
iven s
u
m of money,
u
pon an a
g
reement,express or implied, to repay t
h
e s
u
m loaned wit
h
or wit
h
o
u
t aninterest.- Concession of credit necessarily involves t
h
e
g
rantin
g
of loans
u
p to limit of t
h
e amo
u
nt fixed in t
h
e credit
I
ssue N
o.
2: Was the granting
of 
 
c
redit t
o
 
co
partnership a l
o
an
o
r a dis
co
unt?
[Concepcions ar
gu
ment: T
h
e pro
h
ibition appliesonly to loans, not on disco
u
nts]- Disco
u
nts are favored by bankers beca
u
se of t
h
eir liq
u
id nat
u
re,as t
h
ey
g
row o
u
t of an act
u
al, live transaction. However,disco
u
nt is only a
m
o
de
of 
l
o
aning
money.
Bu
t it
h
as severaldistinctions:
D
I
SCOUNT LOAN
Interest is ded
u
cted inadvanceInterest is taken at t
h
eexpiration of t
h
e creditAlways on do
u
ble-name paperGenerally on sin
g
le-name paper- T
h
e demand notes were mere evidences of indebtednessbeca
u
se: 1) interest was not ded
u
cted from t
h
e face of t
h
e notesb
u
t was paid w
h
en t
h
e notes fell d
u
e, 2) t
h
ey were sin
g
le-name,not do
u
ble name.
I
ssue N
o.
3: Was the granting
of 
 
c
redit an indire
c
t l
o
an?
- T
h
e p
u
rpose of t
h
e law is to erect a wall of safety a
g
ainsttemptation for a director of t
h
e bank.
W
h
ere personal interestclas
h
es wit
h
fidelity to d
u
ty t
h
e latter almost always s
u
ffers. Aloan to a partners
h
ip of w
h
ic
h
t
h
e wife of a director is a memberfalls wit
h
in t
h
e pro
h
ibition.3
 
Re
 p
ublic v Bagtas
(1962; Padilla, J.)
 
B
a
g
tas
b
o
rr
o
wed 3 bulls
from
Bu
rea
u
of Animal Ind
u
stry.Upon expiration of t
h
e contract,
h
e
did n
o
t return
b
u
tasked for extension, w
h
ic
h
was
g
ranted b
u
t only as to oneb
u
ll.
B
a
g
tas expressed
h
is willin
g
ness to pay t
h
e b
u
llsbook val
u
e b
u
t s
u
bject to red
u
ction for yearlydepreciation. T
h
e
Bu
rea
u
ref 
u
sed t
h
is req
u
est and asked
h
im to eit
h
er ret
u
rn or pay t
h
e entire book val
u
e.
B
a
g
tas was
u
nable to ret
u
rn t
h
e b
u
lls beca
u
se of badpeace and order sit
u
ation and t
h
e pendin
g
appeal of t
h
ecase.
B
a
g
tas died d
u
rin
g
pendency of case. His adminitratrixret
u
rn two b
u
lls beca
u
se t
h
e t
h
ird one
h
ad been
B
a
g
tas contends t
h
at t
h
e contract was a commodat
u
m and sot
h
e fact t
h
at Rep
u
blic retained owners
h
ip or title to t
h
e b
u
ll its
h
o
u
ld s
u
ffer its loss d
u
e to force maje
u
re.A contract of commodat
u
m is essentially
g
rat
u
ito
u
s. If t
h
ebreedin
g
fee be considered a compensation, t
h
en t
h
e contractwo
u
ld be a lease. Under 1671,
B
a
g
tas wo
u
ld be s
u
bject to t
h
eresponsibilities of a possessor in
BF
beca
u
se
h
e
h
ad
co
ntinuedp
o
ssessi
o
n a
ter the expir
y
 
of 
the
co
ntra
c
t
. And if t
h
e contractbe commodat
u
m,
h
e is still liable beca
u
se of 1942 w
h
ic
h
 provides t
h
at bailee is liable even in case of fort
u
ito
u
s event if:2.
h
e keeps it lon
g
er t
h
an t
h
e period stip
u
lated
 
CASE TABLE ± CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) Page 2 of 19karichi santos 0410862 | UPlaw2012 
a
cc
identall
y
sh
o
t during a raid b
y
the Hu
k
s
.
B
a
g
tas t
h
enclaims t
h
at
h
e is not liable for t
h
e loss of t
h
e b
u
ll as it wasca
u
sed by a force maje
u
re.Iss
u
e: Is
B
a
g
tas liable to pay for t
h
e dead b
u
ll? Yes!3. t
h
in
g
loaned
h
as been delivered wit
h
appraisal of its val
u
e,
u
nless t
h
ere is a stip
u
lation exemptin
g
t
h
e bailee fromresponsibility in case of fort
u
ito
u
s event.
 
Chi as
k
s:
It appears t
h
at t
h
e GR in case of 
u
nstip
u
lated liabilityfor fort
u
ito
u
s event, t
h
e bailee is liable. M
u
st t
h
e exemption beexpress?4
 
Q
uintos v Beck 
(1939; Imperial)
 
B
eck is a tenant of Q 
u
intos. Q 
u
intos
g
ranted
B
eck t
h
e
u
seof t
h
e f 
u
rnit
u
re fo
u
nd in t
h
e leased
h
o
u
se, amon
g
t
h
esewere 3
g
as
h
eaters and 4 electric lamps. Q 
u
intos sold t
h
epieces of f 
u
rnit
u
re to Lopez and t
h
ereafter notified
B
eckof t
h
e conveyance.
B
eck informed Q 
u
intos t
h
at t
h
e lattercan
g
et t
h
e f 
u
rnit
u
re at t
h
e
g
ro
u
nd floor of t
h
e
h
o
u
se.However, at a later date,
B
eck told Q 
u
intos t
h
at
h
e willnot ret
u
rn t
h
e f 
u
rnit
u
re
u
ntil after t
h
e expiration of leasecontract.
W
h
en t
h
e lease contract expired,
B
eckdeposited t
h
e f 
u
rnit
u
re to S
h
eriffs ware
h
o
u
se.-
Chi sa
y
s:
T
h
eres express pro
h
ibition in CC on t
h
e
dep
o
sit with third pers
o
ns
of t
h
in
g
 
g
iven by way of commmodat
u
m. T
h
e closest wo
u
ld be 1942 as to liabilityfor loss of t
h
in
g
d
u
e if t
h
e bailee lends to t
h
ird person notmember of 
h
is
h
o
u
se
h
old.
I
ssue N
o.
1: Did Be
ck
 
co
mpl
y
with his
o
bligati
o
n t
o
return the
urniture up
o
n Quint
o
s demand?
No.- T
h
e K entered into between t
h
e parties is one of commodat
u
m,beca
u
se
u
nder it t
h
e plaintiff 
g
rat
u
ito
u
sly
g
ranted t
h
e
u
se of t
h
e
u
rnit
u
re to t
h
e defendant, reservin
g
for
h
erself t
h
e owners
h
ipt
h
ereof, by t
h
is K, t
h
e defendant bo
u
nd
h
imself to ret
u
rn t
h
e
u
rnit
u
re to t
h
e plaintiff,
u
pon t
h
e latters demand.- T
h
e obli
g
ation vol
u
ntarily ass
u
med by
B
eck to ret
u
rn t
h
e
u
rnit
u
re
u
pon t
h
e plaintiffs demand means t
h
at
h
e s
h
o
u
ld
return ALL
of 
them t
o
plainti
ff 
AT THE BA
I
LO
R
SS
R
ES
I
DENCE O
R
 HOUSE
.
B
eck did not comply wit
h
t
h
is obli
g
ation w
h
en
h
e merelyplaced t
h
em at t
h
e disposal of t
h
e plaintiff, retainin
g
for
h
isbenefit t
h
e 3
g
as
h
eaters and 4 electric lamps.
I
ssue N
o.
2: Where Quint
o
s is b
o
und t
o
bear the dep
o
sit
eesdue t
o
Sheri
ff 
?
No.- T
h
e co
u
rt co
u
ld not le
g
ally compel
h
er to bear t
h
e expensesoccasioned by t
h
e deposit of t
h
e f 
u
rnit
u
re aT t
h
e defendantsbe
h
est. T
h
e bailee was
n
o
t entitled t
o
pla
c
e the
urniture
o
ndep
o
sit
; nor was t
h
e bailor
u
nder a d
u
ty to accept t
h
e offer toret
u
rn beca
u
se it was incomplete.5
 
S
aura Im
 p
ort &Ex 
 p
ort Co v DB
 
(1972; Makalintal, J.)
 Sa
u
ra applied for P500,000 loan wit
h
D
B
P (t
h
en R
F
C) fort
h
e constr
u
ction of factory b
u
ildin
g
and payment of balance price of t
h
e j
u
te mill mac
h
inery and eq
u
ipment.Sa
u
ra intended to prod
u
ce ba
g
s
u
sin
g
locally
g
rown rawmaterials (t
h
e first serio
u
s attempt in
h
istory, as t
h
eywo
u
ld call it). T
h
ere was reexamination of t
h
e loan
g
rantd
u
e to t
h
e
atras-abante
attit
u
de of C
h
ina En
g
ineers w
h
owere to si
g
n as co-makers, w
h
ic
h
even led to t
h
ered
u
ction of loan price to P300,000.
Bu
t at t
h
e end of t
h
eday, R
F
C
granted the l
o
an subje
c
t t
o
tw
o
 
co
nditi
o
ns
: 1)raw materials needed by t
h
e Sa
u
ra to carry o
u
t itsoperation are available in t
h
e immediate vicinity 2) t
h
ereis prospect of increased prod
u
ction of raw materials toprovide adeq
u
ately for t
h
e req
u
irements of t
h
e factory.However, in view of Sa
u
ras statement t
h
at t
h
ey will
h
aveto import j
u
te to prod
u
ce t
h
e ba
g
s (read:
in
co
nsistentwith the
co
nditi
o
ns
), D
B
P ref 
u
sed to approve t
h
e loan.Sa
u
ra t
h
en asked for cancellation of t
h
e mort
g
a
g
e.9 years later, Sa
u
ra filed t
h
is s
u
it for dama
g
es a
g
ainst D
B
Pclaimin
g
t
h
at for t
h
e latters fail
u
re to release t
h
eproceeds of loan applied for and approved, it wasprevented from completin
g
or payin
g
its contract
u
alcommitments in connection wit
h
t
h
e j
u
te mill project.
I
ssue:
I
s there a per
e
c
ted
co
ntra
c
t
of 
l
o
an?
I
 
y
es, did DBPbrea
c
h it?
Yes, t
h
eres a perfected contract of loan. T
h
ere was nobreac
h
t
h
o
ugh
, b
u
t m
u
t
u
al desistance by t
h
e parties.- T
h
ere was indeed a perfected consens
u
al contract asreco
g
nized in 1934. T
h
ere was
u
ndo
u
btedly offer andacceptance, Sa
u
ra applied for a loan w
h
ic
h
D
B
P approved byresol
u
tion.- Realizin
g
t
h
at it will not meet t
h
e two conditions, Sa
u
ra askedfor cancellation of mort
g
a
g
e. T
h
e action t
hu
s taken was in t
h
enat
u
re of m
u
t
u
al desistance (
mutuo disenso
, if yo
u
feel likeinvokin
g
Manresa). M
u
t
u
al disa
g
reement by t
h
e parties canca
u
se t
h
e contracts extin
gu
is
h
ment.
 
Rocky
sa
y
s:
W
h
at is a j
u
te sack?6
 
GS
S
v CA
(1986; Paras, J.)
 
T
h
e Medinas were
g
ranted a loan of P350,000 by GSIS forw
h
ic
h
t
h
ey constit
u
ted a Real Estate Mort
g
a
g
e.T
h
ereafter, t
h
ey a
g
ain obtained an additional loan of P230,000. Medinas defa
u
lted and nat
u
rally GSISforeclosed.Medinas demands ref 
u
nd for overpayment alle
g
in
g
t
h
att
h
e Amendment of t
h
e Real Estate Mort
g
a
g
e s
u
persededt
h
e ori
g
inal contract and failed to stip
u
late t
h
ecompo
u
nded interest disc
h
ar
g
ed t
h
em from t
h
epayment of t
h
e same.
I
ssue N
o.
1: Was there an
ov
erpa
y
ment?
No!- T
h
e Amendment of t
h
e Real Estate Mort
g
a
g
e never intended tocompletely s
u
persede t
h
e ori
g
inal mort
g
a
g
e contract.- T
h
is is s
h
own by1. prior, contemporaneo
u
s and s
u
bseq
u
ent acts of t
h
e parties2. t
h
e contract itself, w
h
ic
h
:- reco
g
nized t
h
e existence of t
h
e previo
u
s mort
g
a
g
e K- clearly stated in t
h
e last provision t
h
at
 
all other terms and condition of previous real estate mortgage continue to be in full force and effect. 
- it j
u
st bein
g
amended as to
am
o
unt and am
o
rtizati
o
n
 
 
CASE TABLE ± CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) Page 3 of 19karichi santos 0410862 | UPlaw2012 
- As a matter of policy, GSIS imposes
u
niform terms andconditions for all its real estate loans, partic
u
larly wit
h
respect tocompo
u
ndin
g
of interest.- It wo
u
ld be contrary to
hu
man experience and to ordinarypractice for mort
g
a
g
ee to
imp
o
se less
o
ner
o
us
co
nditi
o
ns
o
n anin
c
reased l
o
an
by t
h
e deletion of compo
u
nded interest exactedon a lesser loan.
I
ssue N
o.
2: WON the interest rates
o
n the l
o
an a
cco
unts wereusuri
o
us?
No!- Interest by way of dama
g
es is
g
overned by 2209. If obli
g
ationconsists in payment of s
u
m of money, and debtor inc
u
rs in delay,t
h
e
indemnit
y
 
fo
r damages
t
h
ere bein
g
no stip
u
lation tocontrary, s
h
all be t
h
e payment of t
h
e interest a
g
reed
u
pon.- CC permits a
g
reement
u
pon a
penalt
y
apart
r
o
m the interest
.- Stip
u
lation abo
u
t payment of s
u
c
h
additional rate partakes of t
h
e nat
u
re of a
penalt
y
 
c
lause
 
, w
h
ic
h
is sanctioned by law.
Ligutan v CA
(2002; Vit
ug
, J.)
 
Spo
u
ses Li
gu
tan obtained a loan of P120,000 fromSec
u
rity
B
ank and Tr
u
st Company. It contained t
h
efollowin
g
stip
u
lations as to interest:-
 
15.189% per ann
u
m
u
pon mat
u
rity-
 
Penalty cla
u
se (in case of defa
u
lt): 5% every mont
h
 on t
h
e o
u
tstandin
g
principal and interest-
 
Attorneys fees: 10% of total amo
u
nt d
u
e I
F
:-
 
Matters endorsed to a lawyer for collection-
 
S
u
it instit
u
ted to enforce paymentUpon defa
u
lt, bank filed a collection s
u
it.
F
or spo
u
sesfail
u
re to answer, j
u
d
g
ment was rendered on defa
u
lt.Upon MR and new evidence, it was revealed t
h
at 3 yearsafter t
h
e loan, spo
u
ses exec
u
ted a real estate mort
g
a
g
ew
h
ic
h
t
h
ey claim to be a
n
ov
ati
o
n
of 
the
co
ntra
c
t
. It waseven foreclosed wit
h
o
u
t notification of spo
u
ses and t
h
att
h
e bank did not even credit t
h
em wit
h
proceeds of t
h
esale. (MR was denied bec its already t
h
eir second! Andt
h
e evidence was not really new beca
u
se it was knownsince t
h
e commencement of t
h
e case)Li
gu
tan also appeals as to t
h
e
am
o
unts
of 
interestsimp
o
sable
.C
h
i recited t
h
is b
u
t only appreciated its val
u
e d
u
rin
g
t
h
efinals review w
h
en s
h
e
actually 
read it. SAYANG!
 
I
ssue N
o.
1: WON penalt
y
interest un
co
ns
c
i
o
nable?
Yes.
 
- CA correctly red
u
ced t
h
e penalty interest from 5% to 3%- 
Penalt
y
 
c
lause
 
, expressly reco
g
nized by CC1226, is an
a
cc
ess
o
r
y
underta
k
ing
to
assume greater liabilit
y
on t
h
e part of an obli
g
or in case of breac
h
of an obli
g
ation.- It f 
u
nctions [1] to stren
g
t
h
en t
h
e coercive force of t
h
eobli
g
ation AND [2] to provide for w
h
at co
u
ld be t
h
e liq
u
idateddama
g
es res
u
ltin
g
from s
u
c
h
a breac
h
.- T
h
e obli
g
or wo
u
ld t
h
en be bo
u
nd to pay t
h
e stip
u
latedindemnity wit
h
o
u
t t
h
e necessity of proof on t
h
e existence andon t
h
e meas
u
re of dama
g
es ca
u
sed by t
h
e breac
h
.- Alt
h
o co
u
rt may not at liberty i
g
nore freedom of parties toa
g
ree on s
u
c
h
terms and conditions as t
h
ey see fit, a
stipulatedpenalt
y
ma
y
be equitabl
y
redu
c
ed b
y
 
co
urt
if:- it is iniq
u
ito
u
s or
u
nconscionable OR- t
h
e principal obli
g
ation
h
as been partly or irre
gu
larlycomplied wit
h
.- If may even be
deleted
if/w
h
en:- t
h
ere
h
as been s
u
bstantial performance in
g
ood fait
h
 - penalty cla
u
se itself s
u
ffers from fatal infirmity- exceptional circ
u
mstances so exist as to warrant it-
W
h
et
h
er penalty is reasonable or iniq
u
ito
u
s can be partlys
u
bjective and partly objective. Its resol
u
tion depend on s
u
c
h
 factors as, b
u
t not necessarily confined to, t
h
e:1. type, extent and p
u
rpose of t
h
e penalty2. nat
u
re of t
h
e obli
g
ation3. mode of breac
h
and its conseq
u
ences4. s
u
pervenin
g
realities5. standin
g
and relations
h
ip of t
h
e parties
I
ssue N
o.
2: WON stipulated interest un
co
ns
c
i
o
nable?
No.- T
h
e essence/rationale for t
h
e payment of interest, q
u
ite oftenreferred to as 
co
st
of 
m
o
ne
y
,
is not exactly t
h
e same as t
h
at of a s
u
rc
h
ar
g
e/penalty.- A penalty stip
u
lation is not necessarily precl
u
sive of interest, if t
h
ere is an a
g
reement to t
h
at effect, t
h
e two bein
g
 
distin
c
t
co
n
c
epts
w
h
ic
h
may be
separatel
y
demanded
. J
u
dicial
g
ro
u
ndsfor disallowin
g
imposition of f 
u
ll s
u
rc
h
ar
g
es/penalties, despiteexpress stip
u
lation t
h
erefor in a valid a
g
reement, may noteq
u
ally apply in non-payment or red
u
ction of interest.- Indeed, interest prescribed in loan financin
g
a
g
reement is a
u
ndamental part of t
h
e bankin
g
b
u
siness and t
h
e core of abanks existence.
I
ssue N
o.
2: Did the subsequent exe
c
uti
o
n
of 
the real estatem
o
rtgage
fo
r the existing l
o
an resulted in the extinguishment
of 
 
o
riginal
co
ntra
c
t be
c
ause
of 
n
ov
ati
o
n?
No.

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