CREDIT TRANSACTIONS

PEOPLE vs. CONCEPCION, 44 Phil. 126FACTS:

Venancio Concepcion, President of the Philippine National Bank and a
member of theBoard thereof, authorized an extension of credit in favor of
"Puno y Concepcion, S. en C. to themanager of the Aparri branch of the
Philippine National Bank. "Puno y Concepcion, S. en C." was a copartnership where Concepcion is a partner. Subsequently, Concepcion was
charged andfound guilty in the Court of First Instance of Cagayan with
violation of section 35 of Act No.2 7 4 7 . S e c t i o n 3 5 o f A c t N o .
2747 provides that the National Bank shall not, directly
o r indirectly, grant loans to any of the members of the board of directors of
the bank nor to agentsof the branch banks. Counsel for the defense
argue that the documents of record do not prove that authority to make
a loan was given, but only show the concession of a credit. They averredthat
the granting of a credit to the co-partnership "Puno y Concepcion, S.
en C." by VenancioConcepcion, President of the Philippine National
Bank, is not a "loan" within the meaning of section 35 of Act No. 2747.
ISSUE:
W h e t h e r o r n o t t h e g r a n t i n g o f a c re d i t o f P 3 0 0 , 0 0 0 t o t h e c o p a r t n e r s h i p " P u n o y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, a "loan" within the meaning of
section 35 of Act No. 2747.
HELD:
The Supreme Court ruled in the affi rmative. The "credit" of an
individual means hisability to borrow money by virtue of the confidence or
trust reposed by a lender that he will paywhat he may promise. A "loan"
means the delivery by one party and the receipt by the other party
of a given sum of money, upon an agreement, express or implied, to repay
the sum loaned,with or without interest. The concession of a "credit"
necessarily involves the granting of "loans"up to the limit of the amount fixed
in the "credit,"
Bonnevie v. CA
GR No. L-49101 October 24, 1983
Facts: Spouses Lozano mortgaged their property to secure the payment of a
loan amounting to 75K with private respondent Philippine Bank of
Communication (PBCom). The deed of mortgage was executed on 12-6-66,
but the loan proceeeds were received only on 12-12-66. Two days after the
execution of the deed of mortgage, the spouses sold the property to the
petitioner Bonnevie for and in consideration of 100k25K of which payable
to the spouses and 75K as payment to PBCom. Afterwhich, Bonnevie

defaulted payments to PBCom prompting the latter to auction the property

after Bonnivie failed to settle despite subsequent demands, in order to
recover the amount loaned. The latter now assails the validity of the
mortgage between Lozano and Pbcom arguing that on the day the deed was
executed there was yet no principal obligation to secure as the loan of
P75,000.00 was not received by the Lozano spouses, so that in the absence
of a principal obligation, there is want of consideration in the accessory
contract, which consequently impairs its validity and fatally affects its very
existence.
Issue: Was there a perfected contract of loan?
Held: Yes. From the recitals of the mortgage deed itself, it is clearly seen that
the mortgage deed was executed for and on condition of the loan granted to
the Lozano spouses. The fact that the latter did not collect from the
respondent Bank the consideration of the mortgage on the date it was
executed is immaterial. A contract of loan being a consensual contract, the
herein contract of loan was perfected at the same time the contract of
mortgage was executed. The promissory note executed on December 12,
1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.

BPI vs CA, GR GR No. 133632, 15 February 2002, 377 SCRA 117

23Feb
FACTS
Frank Roa obtained a loan from Ayala Investment and Development
Corporation (AIDC), for the construction of his house. Said house and lot
were mortgaged to AIDC to secure the loan. Roa sold the properties to ALS
and Litonjua, the latter paid in cash and assumed the balance of Roas
indebtedness wit AIDC. AIDC was not willing to extend the old interest to
private respondents and proposed a grant of new loan of P500,000 with
higher interest to be applied to Roas debt, secured by the same property.
Private respondents executed a mortgage deed containing the stipulation.
The loan contract was signed on 31 March 1981 and was perfected on 13
September 1982, when the full loan was released to private respondents.
BPIIC, AIDCs predecessor, released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
BPIIC filed for foreclosure proceedings on the ground that private
respondents failed to pay the mortgage indebtedness. Private respondents

maintained that they should not be made to pay amortization before the
actual release of the P500,000 loan. The suit was dismissed and affirmed by
the CA.
ISSUE
Whether or not a contract of loan is a consensual contract.
HELD
The Court held in the negative. A loan contract is not a consensual contract
but a real contract. It is perfected only upon delivery of the object of the
contract. A contract o 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 is a proper
manner with what is incumbent upon him.
Pajuyo v. CA
GR No. 146364 June 3, 2004
Facts: 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.
Issue: Is the contractual relationship of Pajuyo and Guevara that of a
commodatum?
Held: No. The Court of Appeals theory that the Kasunduan is one of
commodatum is devoid of merit. 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. The Kasunduan reveals that the
accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of
this obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from that of a
commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the
withdrawal of permission would result in the termination of the lease. The
tenants withholding of the property would then be unlawful.

Producers Bank of the Philippines v. CA, 397 SCRA 651

Doronilla is in the process of incorporating his business and to comply with
one of the requirements of incorporation, he caused Vives to issue a check
which was then deposited in Doronillas savings account. It was agreed that
Vives can withdraw his money in a months 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 was gone. Is the contract a mutuum or
commodatum?
Supreme Court held that the contract is a commodatum. Although in a
commodatum, the object is a non-consumable thing, there are instances
where a consumable thing may be the object of a commodatum, such as
when the purpose is not for consumption of the object but merely for
exhibition (Art. 1936). Thus, if consumable goods are loaned only for

purposes of exhibition, or when the intention of the parties is to lend

consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is a commodatum and not a mutuum.

o CONSIDERATION
Art. 1933: xxx Commodatum is essentially gratuitous.
Art. 1935: xxx if any compensation is to be paid by him who acquires the
use, the contract ceases to be a commodatum.
o DELIVERY
- perfects the contract

LIAM LAW VS. OLYMPIC SAWMILL

FACTS:
Liam Law loaned 10k to Olympic Sawmill Corporation and Ellino Lee Chi. The
loan became due but the debtors failed to pay and asked for an extension of
3 months instead. Law agreed but added an additional obligation of 6k to the
principal amount.
The debtors failed to pay again. Because of this, Law instituted a collection
case against the debtors. The trial court ruled in favor of Law.
ISSUE:
WON the additional obligation of 6k constituted usurious interest???
RULING:
NO.
Usury has been legally non-existent. Interest can now be charged as lender
and borrower may agree upon. The Rules of Court in regards to allegations of
usury, procedural in nature, should be considered repealed with retroactive
effect.

Medel vs Court of Appeals, 299 SCRA 481; GR No. 131622, November

27, 1998, digested
(Credit Transactions Loans, Usury Law, Interest Rates)
Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00,
payable in 2 months and executed a promissory note. Plaintiff gave only the
amount of P47, 000.00 to the borrowers and retained P3, 000.00 as advance
interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the amount of P90,
000.00, payable in 2 months, at 6% interest per month. They executed a
promissory note to evidence the loan and received only P84, 000.00 out of
the proceeds of the loan.
For the third time, Defendants secured from Plaintiff another loan in the
amount of P300, 000.00, maturing in 1 month, and secured by a real estate
mortgage. They executed a promissory note in favor of the Plaintiff.
However, only the sum of P275, 000.00, was given to them out of the
proceeds of the loan.
Upon maturity of the three promissory notes, Defendants failed to pay the
indebtedness.
Defendants consolidated all their previous unpaid loans totalling P440,
000.00, and sought from Plaintiff another loan in the amount of P60, 000.00,
bringing their indebtedness to a total of P50,000.00. They executed another
promissory note in favor of Plaintiff to pay the sum of P500, 000.00 with a
5.5% interest per month plus 2% service charge per annum, with an
additional amount of 1% per month as penalty charges.
On maturity of the loan, the Defendants failed to pay the indebtedness which
prompt the Plaintiffs to file with the RTC a complaint for collection of the full
amount of the loan including interests and other charges.
Declaring that the due execution and genuineness of the four promissory
notes has been duly proved, the RTC ruled that although the Usury Law had
been repealed, the interest charged on the loans was unconscionable and
revolting to the conscience and ordered the payment of the amount of the
first 3 loans with a 12% interest per annum and 1% per month as penalty.
On appeal, Plaintiff-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs
the parties.

The Court of Appeals ruled in favor of the Plaintiff-appellants on the ground

that the Usury Law has become legally inexistent with the promulgation by
the Central Bank in 1982 of Circular No. 905, the lender and the borrower
could agree on any interest that may be charged on the loan, and ordered
the Defendants to pay the Plaintiffs the sum of P500,000, plus 5.5% per
month interest and 2& service charge per annum , and 1% per month as
penalty charges.
Defendants filed the present case via petition for review on certiorari.
Issue: WON the stipulated 5.5% interest rate per month on the loan in the
sum of P500, 000.00 is usurious.
Held: No.
A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is
excessive, iniquitous, unconscionable and exorbitant, but it cannot be
considered usurious because Central Bank Circular No. 905 has expressly
removed the interest ceilings prescribed by the Usury Law and that the Usury
Law is now legally inexistent.
Doctrine: A CB Circular cannot repeal a law. Only a law can repeal
another law.
Jurisprudence provides that CB Circular did not repeal nor in a way amend
the Usury Law but simply suspended the latters effectivity (Security Bank
and Trust Co vs RTC). Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages, whether intended as
an indemnity or a penalty if they are iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was lifted by the CB
Circular 905, nothing in the said circular could possibly be read as granting
carte blanche authority to lenders to raise interest rates to levels which
would either enslave their borrowers or lead to a haemorrhaging of their
assets (Almeda vs. CA, 256 SCRA 292 [1996]).
Eastern Shipping Lines v. CA
GR No. 97412 July 12, 1994

Facts: Petitioner-defendant was consigned to deliver a cargo. Upon

embarkment, the cargo was found to be damaged while on transit. Private
respondent-plaintiff, Mercantile Insurance, paid the consignee the amount of
damage based on a marine insurance policy. Mercantile consquently sued
the petitioner for recovery of damages it paid to the consignee. The court a
quo decided in favor of the plaintiff and further stressing the amount paid by
the insurance company to the consignee be paid and with the present legal
interest of 12% per annum commencing on the date of filing of the
complaint, until fully paid. The petitioner now constests the ruling
particularly on the issue of interest.
Issue: When should the reckoning period be for the computation of the
payment of legal interest on an award for loss or damage? What is the
applicable rate of interest?
Held: The Court laid down the following rules of thumb for guidance in cases
like that of the above:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of 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.

Consolidated Bank vs CA
GR No. 114286, 19 April 2001
356 SCRA 671
FACTS
Continental Cement Corp obtained from Consolidated Bank letter of
credit used to purchased 500,000 liters of bunker fuel oil. Respondent
Corporation made a marginal deposit to petitioner. A trust receipt was
executed by respondent corporation, with respondent Gregory Lim as
signatory. Claiming that respondents failed to turn over the goods or
proceeds, petitioner filed a complaint for sum of money before the RTC of
Manila. In their answer, respondents aver that the transaction was a simple
loan and not a trust receipt one, and tht the amount claimed by petitioner
did not take into account payments already made by them. The court
dismissed the complaint, CA affirmed the same.
ISSUE
Whether or not the marginal deposit should not be deducted outright
from the amount of the letter of credit.
HELD
No. petitioner argues that the marginal deposit should be considered
only after computing the principal plus accrued interest and other charges. It
could be onerous to compute interest and other charges on the face value of
the letter of credit which a bank issued, without first crediting or setting off
the marginal deposit which the borrower paid to it-compensation is proper
and should take effect by operation of law because the requisited in Art.
1279 are present and should extinguish both debts to the concurrent
amount. Unjust enrichment.

NACAR VS GALLERY FRAME

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe
Bordey, Jr. Nacar alleged that he was dismissed without cause by Gallery
Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA)
found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded
Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The
Supreme Court affirmed the decision of the Labor Arbiter and the decision
became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from
the time of his illegal dismissal (January 24, 1997) until the finality of the SC
decision (May 27, 2002) with interest. The LA denied the motion as he ruled
that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA
(October 15, 1998). The LA reasoned that the said date should be the
reckoning point because Nacar did not appeal hence as to him, that decision
became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal
dismissal cases (referring to cases where the dismissed employee wins, or
loses but wins on appeal). The first part is the ruling that the employee was
illegally dismissed. This is immediately final even if the employer appeals
but will be reversed if employer wins on appeal. The second part is the ruling
on the award of backwages and/or separation pay. For backwages, it will be
computed from the date of illegal dismissal until the date of the decision of
the Labor Arbiter. But if the employer appeals, then the end date shall be
extended until the day when the appellate courts decision shall become
final. Hence, as a consequence, the liability of the employer, if he loses on
appeal, will increase this is just but a risk that the employer cannot avoid

when it continued to seek recourses against the Labor Arbiters decision. This
is also in accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory
damages, the Supreme Court ruled that the old case of Eastern Shipping
Lines vs CA is already modified by the promulgation of the Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of
interest from 12% to 6%. Specifically, the rules on interest are now as
follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial
demand or upon judicial demand whichever is appropriate and subject to the
provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2.

Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable

from date of judicial or extra-judicial

demand (Art. 1169, Civil Code)

b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per
annum demandable from the date of judgment because such on such date, it
is already deemed that the amount of damages is already ascertained.
3. Compounded Interest
This is applicable to both monetary and non-monetary obligations

 6% per annum computed against award of damages (interest) granted by

the court. To be computed from the date when the courts decision becomes
final and executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
Final and executory judgments awarding damages prior to July 1, 2013 shall
apply the 12% rate;
Final and executory judgments awarding damages on or after July 1, 2013
shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid
obligations with respect to said judgments on or after July 1, 2013 shall still
incur the 6% rate.