Credit Transactions Doctrines:

BPI Investment Corp V. CA (2002)

Obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract.
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. Consequently, petitioner could only demand for the payment of the monthlyamortization after September
13, 1982 for it was only then when it complied with its obligation under the loan contract.

LOAN ART. 1934
Saura Import
BPI IC vs CA
(1) Application for Joan approved by corporation. -Where an application for a loan of money was
approved by resolution of the corporation (lender) and the corresponding mortgage was executed and
registered, there arises a perfected consensu al contract of loan. While a perfect contract of loan can
give rise to an action for damages, said contract does not constitute the real contract of loan. (Saura
Import and Export Co, Inc. vs. Development Bank of the Phils., 44 SCRA 445 *1972+; set BPI Investment
Corp. vs. Court of Appeals, 377 SCRA 11712002].)

PRECARIUM
Precarium defined.
Precarium iS a kind of commodatum where the bailor may demand the thing at will. It has been defined
as a "contract by which the owner of a thing, at the request of another person, gives the latter the thing
for use as long as the owner shall please." (Cyc. Law Dictionary; see Pajuyo vs. Court of Appeals, 430
SCRA 492 (2004].)

COMMODATUM IS ESSENTIALLY GRATUITOUS
Loan of a bull for breeding purposes was subject to payme11t of breeding fee by borrower who used tile
bull after the period stipulated until its death due to force majeure.
Facts: B borrowed from L (Bureau of Animal Industry) three bulls for breeding purposes for a period of
one year, later on renewed for another year as regards one bull. The loan was subject to the payment by
the borrower of breeding fee of 10% of the book value of the bulls. B kept and used the bull (the loan of
which was renewed) for four years after the period stipulated in the contract until it was killed during a
Huk raid by stray bullets.
B contends that the contract was commodatum, and that, for that reason, as L retained ownership or
title to the bull, it should suffer the loss.
Issue: As the death of the bull was due to force majeure, is B relieved from the duty of paying its v.1luc?

Held: No. A contract of commodatum is essentially gratuitous. If the breeding fee be considered
compensation, then the contract would be a lease of the bull. Under Article 1671 of the Civil Code, the
lessee would be subject to the responsibilities of a possessor in bad faith because she had continued
possession of the bull after the expiration of the contract. And even if the contract be commodatum,
still B is liable under Article 1942(2, 3). (Republic vs. Bagtas, 6 SCRA 262 (1962].)
LIABILITY FOR LOSS OF THING LOANED.
The bailee must exercise proper diligence with regard to the care and preservation of the thing loaned
(see Art. 1163.) for he must return the thing after its use.
As a general rule, the bailee is not liable for loss or damage due to a fortuitous event. (see Art. 1174.)
the reason is that the bailor retains the ownership of the thing loaned. Art. 1942 specifies the instances
when the bailee is liable even for a loss due to a fortuitous event. It would seem that the purpose of the
Jaw is to punish the bailee for his improper acts although they may not be the proximate cause of the
loss.
The reason under No. 1is that the bailee acts in bad faith {see Art. 1170.); under No. 2, he incurs in delay
(see Art. 1169, par. 2{1].); under No. 3, the law presumes that the parties intended that the borrower
shall be liable for the loss of the thing even if it is due to a fortuitous event for otherwise they would not
have appraised the thing (see 11 Manresa 613; Republic vs. Bagtas, 6 SCRA 262 [1962], supra.)

USURY LAW, INTEREST
Concepcion vs. Court of Appeals
(b) To give the lender unbridled right to unilaterally upwardly adjust the interest on a loan, would
completely take away from the borrower the right to assent to an important modification in their
agreement and would negate the element of mutuality in contracts" ordained in Article 1308 of the Civil
Code. (Phil. National Bank vs. Court of Appeals, 238 SCRA 20 [1994]; Concepcion vs. Court of Appeals,
274 SCRA 614 [1997]; Mendoza vs. Court of Appeals, 359 SCRA
438 (2001]; Florendo, Jr. vs. Metropolitan Bank & Trust Co.,
532 SCRA 43 [2007]; Equitable PCI Bank vs. Ng Sheung Ngor, 541 SCRA 223 [2007].)
INTEREST
Carpo vs Chua
The mortgage derives its vitality from the validity of principal obligation; hence, the invalidity of the
stipulation on interest does not render void the ancillary mortgage contract (Carpo vs.Chua, 471 SCRA
471 [2005].)
DEPOSIT ART. 1962
(3)Dollars deposited with bank sold by bank which credited peso proceeds to depositors current
account. Where the document which embodies the contract states that U.S. dollars in cash were
received by the bank for safekeeping, and the subsequent acts of the parties also show that the intent
''as really for the bank to safely keep the dollars and return it to the plaintiff who demanded the return
of the money about five months later, the above arrangement is the contract of deposit defined under
Article 1962. The bank violates its obligation if it sells the dollars and it caru1ot defeat the plaintiff's
claim by asserting that the peso proceeds of the sale were properly credited to the latter's current
account. (Bank of the Phil. Islands vs. Intermediate Appellate Court, 164 SCRA 630 [1988].)
CONTRACT FOR RENT OF SAFETY DEPOSIT BOXES.
A contract for the rent of safety deposit boxes (second paragraph) is not an ordinary contract of lease of
things but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit.
(CA Agro-Industrial Dev. Corp. vs. Court of Appeals, 219 SCRA 426 [1993]; see Sia vs. Court of Appeals,
222 SCRA 24 [1993].) The prevailing rule in the United States 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 bailor and
bailee.
Obligations of the depositary
ART. 1972
ILLUSTRATIVE CASE: Roman Catholic Bishop of faro vs. De La Pena
Trust fund which trustee mixed with his own and deposited in a bank to his personal account was lost
through force majeure.
Facts: A had in his possession as trustee or agent, the sum of P6,000.00 belonging to B as head of the
church. A mixed this trust fund with his own and deposited the whole in a bank to his personal account
or credit. Shortly thereafter and during the war of the revolution, A was arrested by the military
authorities as a political prisoner and the entire deposit was confiscated by the government.
Issue: Should A be made responsible for the loss of the money?
Held: No. By placing the money in the bank and mixing it with his personal funds, A 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. If the money had been
forcibly taken from his pocket or from his house by the military forces of one of the combatants during a
state of war, he would have been exempt from responsibility. The fact that he placed the trust funds in
the bank in his personal account did not add to his responsibility.
Dissenting opinions (Trent, J.) "When A mixed the trust fund with his own and deposited the 'whole in
the bank to his personal account, he stan1ped on the said fund his own private marks and unclothed it
of all the protection it had. If this money had been deposited in the name of A as trustee or agent of B,
the military authorities would not have confiscated it for the reason that they were looking for insurgent
funds only." (Roman Catholic Bishop of faro vs. De La Pefia, 26 Phil. 144 (1913].)
RIGHT OF CREDITOR TO SECURE JUDGMENT AGAINST GUARANTOR PRIOR TO EXHAUSTION.

As a rule, an ordinary mortgagor, may demand personal guarantor, not a pledgor or exhaustion of all the
property of the debtor before he can be compelled to pay. (Art. 2058.) It has been held, however, that
the creditor may, prior thereto, secure a judgment against the guarantor, who shall be entitled,
however, to a deferment of the execution of said judgment against him, until after the properties of the
principal debtor shall have been exhausted, to satisfy the latter's obligation. (Southern
Motors, Inc. vs. Barbosa, 99 Phil. 263 [1956]; Tupaz vs. Court of Appeals, 475 SCRA 398 [2005].)




Material alteration of principal contract.
Security Bank and Trust Co., Inc. vs. Cuenca

(1) Effect of material alteration. It is fundamental in the law of suretyship that any agreement between
the creditor and the principal debtor which essentially varies the terms of the principal contract without
the consent of the surety, will release the surety from liability. (Security Bank and Trust Co., Inc. vs.
Cuenca, 341 SCRA 781 [2000].) It is based on the rule that such material alteration would constitute a
novation or change of the principal contract which is consequently extinguished. Upon such
extinguishment, the accessory contract to guaranty is also terminated and the guarantor cannot be held
liable on the new contract to whid1 he has not given his consent.

GUARANTY DISTINGUISHED FROM SURETYSHIP. ART. 2047
PALMARES VS. COURT OF APPEALS

(3) The guarantor is secondarily or subsidiarily liable, i.e., he contracts to pay if, by the use of due
diligence, the debt cannot be paid by the principal, while a surety is primarily liable, i.e., he undertakes
directly for the payment without reference to the solvency of the principal (regardless of whether or
not the principal is financially capable to fulfill his obligation), and is so responsible at once if the latter
makes default, without any demand by the creditor upon the principal whatsoever or any notice of
default ([1919]; see Palmares vs. Court of Appeals, 258 SCRA 422 [1998].);

TERMINOLOGY USED BY PARTIES NOT CONTROLLING.

The use of the term "guarantee" or "guarantor however, is not conclusive that the contract is one of
guaranty. The word "guarantee" is frequently employed in business transactions to describe not the
securing of the debt but an intention to be bound by a primary or independent obligation. (38 Am. Jur.
2d 1000-1002.)

Thus, if the promisor says "I guarantee payment," "I will see you paid " or "I will pay if he does not pay,"
or uses equivalent words, the promise standing alone is collateral or subsidiary, yet under all
circumstances of the case, it may be adjudged original or an independent one, as where a corporation is
referred to as guarantor but at the same time the agreement specifically states that it is "jointly and
severally liable" with the principal obligor. (International Finance Corp. vs. Imperial Textile Mills, Inc.,
475 SCRA 149 (2005].) But If from: the language used and the circumstances, the intention to be liable
as a surety cannot be inferred, the promisor must be deemed to have bound himself only as guarantor
under the rule of reasonable construction applicable to all contracts.