Producers Bank of the Philippines v.
CA No error was committed by the Court of Appeals when it ruled that the transaction between
Facts: Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating
his business, the Sterela Marketing and Services. Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of
its incorporation. She assured private respondent that he could withdraw his money from said
account within a month’s time. Private respondent asked Sanchez to bring Doronilla to their
house so that they could discuss Sanchezs request.
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances
and representations of Sanchez and Doronilla, private respondent issued a check in the amount
of P200,000.00 in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives,
to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the
Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization
letter from Doronilla authorizing Sanchez and her companions, in coordination with Mr. Rufo
Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00. In
opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez.
A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.
Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was
still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who
informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by
Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives
could not withdraw said remaining amount because it had to answer for some postdated checks
issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings
Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and
authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, through
Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla
issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla
could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned
to him. On August 13, 1979, Doronilla issued a postdated check for P212,000.00 in favor of
private respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the same
check on September 15, 1979 but when the latter presented the check, it was again dishonored.
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the RTC Pasig against
Doronilla, Sanchez, Dumagpi and petitioner. RTC ruled against defendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the Philippines.
Petitioner appealed to the CA. The CA affirmed the decision of the RTC. It likewise denied with
finality petitioners motion for reconsideration.
Issue: Whether or not CA erred in upholding that the transaction between the defendant
Doronilla and respondent Vives was one of simple loan and not accommodation
Held: No.
private respondent and Doronilla was a commodatum and not a mutuum.A circumspect
examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
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.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides:
Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract. In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows
that private respondent agreed to deposit his money in the savings account of Sterela specifically
for the purpose of making it appear that said firm had sufficient capitalization for incorporation,
with the promise that the amount shall be returned within thirty (30) days. Private respondent
merely accommodated Doronilla by lending his money without consideration, as a favor to his
good friend Sanchez.It was however clear to the parties to the transaction that the money would
not be removed from Sterelas savings account and would be returned to private respondent after
thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representing
interest on the mutuum, did not convert the transaction from a commodatum into a mutuum
because such was not the intent of the parties and because the additional P12,000.00 corresponds
to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states
that [t]he bailee in commodatum acquires the use of the thing loaned but not its fruits. Hence, it
was only proper for Doronilla to remit to private respondent the interest accruing to the latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between
Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum
or a commodatum, has no bearing on the question of petitioners liability for the return of private
respondents money because the factual circumstances of the case clearly show that petitioner,
through its employee Mr. Atienza, was partly responsible for the loss of private respondents
money and is liable for its restitution.
People v. Puig & Porras
Facts: Respondents were conspiring, confederating, and helping one another, with grave abuse
of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan,
Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of
gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum
of P15,000.00, Philippine Currency, to the damage and prejudice of the said bank in the
aforesaid amount.
However, the trial court did not find the existence of probable cause because (1) the element of
‘taking without the consent of the owners’ was missing on the ground that it is the depositors-
clients, and not the Bank, which filed the complaint in these cases, who are the owners of the
money allegedly taken by respondents and hence, are the real parties-in-interest; and (2) the
Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between
the respondents and the offended party that would have created a high degree of confidence
between them which the respondents could have abused.".
Issue: Whether or not the 112 informations for qualified theft sufficiently allege the element of
taking without the consent of the owner, and the qualifying circumstance of grave abuse of
confidence.
Held: Yes.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the
Informations and, therefore, because of this defect, there is no basis for the existence of probable
cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal
contending that the Informations for Qualified Theft sufficiently state facts which constitute (a)
the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with
intent to gain and without the consent of the owner, which is the Bank.
The RTC Judge based his conclusion that there was no probable cause simply on the
insufficiency of the allegations in the Informations concerning the facts constitutive of the
elements of the offense charged.
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.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to
it as owner of the money deposits, as sufficient to make out a case of Qualified Theft.
BPI Family Bank v. Franco
Facts: An ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly
by respondent Amado Franco in conspiracy with other individuals, some of whom opened and
maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series
of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. opened a savings and current
account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with
a deposit of P100,000,000.00, to mature one year thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current, savings,
and time deposit, with BPI-FB. The current and savings accounts were respectively funded with
an initial deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with
a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these
accounts is traceable to a check issued by Tevesteco allegedly in consideration of Franco's
introduction of Eladio Teves, who was looking for a conduit bank to facilitate Tevesteco's
business transactions, to Jaime Sebastian, who was then BPI-FB SFDM's Branch Manager. In
turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-
FB from FMIC's time deposit account and credited to Tevesteco's current account pursuant to
an Authority to Debit purportedly signed by FMIC's officers.
It appears, however, that the signatures of FMIC's officers on the Authority to Debit were
forged. On September 4, 1989, Antonio Ong, upon being shown the Authority to Debit,
personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had already
effected several withdrawals from its current account (to which had been credited the
P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54,
including the P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMIC's forgery
claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin
to debit Franco's savings and current accounts for the amounts remaining therein. However,
Franco's time deposit account could not be debited due to the capacity limitations of BPI-FB's
computer.
In the meantime, two checks drawn by Franco against his BPI-FB current account were
dishonored upon presentment for payment, and stamped with a notation "account under
garnishment." Apparently, Franco's current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-
4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,[14] to recover the
P37,455,410.54 representing Tevesteco's total withdrawals from its account.
Issue: Whether or not Franco had a better right in the deposits in the subject accounts which are
part of the proceeds of a forged Authority to Debit
Held: BPI-FB cannot unilaterally freeze Franco's accounts and preclude him from withdrawing
his deposits. However, contrary to the appellate court's ruling, the Court held that Franco is not
entitled to unearned interest on the time deposit as well as to moral and exemplary damages.
BPI-FB urges the Court that the legal consequence of FMIC's forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover
possession of the same when the money was redeposited by Franco, it had the right to set up its
ownership thereon and freeze Franco's accounts.
To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent
to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor.
BPI-FB's argument is unsound. To begin with, the movable property mentioned in Article 559
of the Civil Code pertains to a specific or determinate thing. A determinate or specific thing is
one that is individualized and can be identified or distinguished from others of the same kind.
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.
Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived
of a movable to recover the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly
debited from FMIC's account and credited to Tevesteco's, and subsequently traced to Franco's
account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked
its claim on the money itself which passed from one account to another, commencing with the
forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership, and this characteristic
is all the more manifest in the instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a medium of exchange, without other
evidence of its title. Money, which had passed through various transactions in the general course
of banking business, even if of traceable origin, is no exception.
Cebu international Finance Corp. v. CA
Facts: On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred
thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May
27, 1991. The note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-
seven centavos (P516,238.67) covered private respondents placement plus interest at twenty and
a half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five
hundred fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94)
in favor of the private respondent as proceeds of his matured investment plus interest. The
CHECK was drawn from petitioners current account number 0011-0803-59, maintained with
the Bank of the Philippine Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondents wife deposited the CHECK with Rizal Commercial
Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the
annotation, that the Check (is) Subject of an Investigation. BPI took custody of the CHECK
pending an investigation of several counterfeit checks drawn against CIFCs aforestated
checking account. BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on
several occasions, that he be paid in cash. CIFC refused the request, and instead instructed
private respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private
respondent, through counsel, made a formal demand for the payment of his money market
placement. In turn, CIFC promised to replace the CHECK but required an impossible condition
that the original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint for recovery of a sum of
money against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch
132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate
civil action for collection of a sum of money with the RTC-Makati, Branch 147. The collection
suit alleged that BPI unlawfully deducted from CIFCs checking account, counterfeit checks
amounting to one million, seven hundred twenty-four thousand, three hundred sixty-four pesos
and fifty-eight centavos (P1,724,364.58). The action included the prayer to collect the amount
of the CHECK paid to Vicente Alegre but dishonored by BPI.
Meanwhile, in response to Alegres complaint with RTC-Makati, Branch 132, CIFC filed a
motion for leave of court to file a third-party complaint against BPI. BPI was impleaded by
CIFC to enforce a right, for contribution and indemnity, with respect to Alegres claim. CIFC
asserted that the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFCs motion. However, BPI moved to dismiss the
third-party complaint on the ground of pendency of another action with RTC-Makati, Branch
147. Acting on the motion, the trial court dismissed the third-party complaint on November 4,
1992, after finding that the third party complaint filed by CIFC against BPI is similar to its
ancillary claim against the bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993,
Vito Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK,
retained the original copy and forwarded only a certified true copy to RCBC. When Arieta was
recalled on July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said
amount from the account of CIFC, but the proceeds, as well as the CHECK remained in BPIs
custody. The banks move was in accordance with the Compromise Agreement it entered with
CIFC to end the litigation in RTC-Makati, Branch 147.
Issue: Whether of not the Article 1249 of the New Civil Code applies in the present case
Held: Petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the
pertinent laws to govern its money market transaction with private respondent, and not
paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been
discharged from the liability of paying the value of the CHECK due to the following
circumstances:
1) There was ACCEPTANCE of the subject check by BPI, the drawee bank, as
defined under the Negotiable Instruments Law, and therefore, BPI, the drawee bank,
became primarily liable for the payment of the check, and consequently, the drawer,
herein petitioner, was discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject check;
and,
3) The act of BPI, the drawee bank of debiting/deducting the value of the check from
petitioners account amounted to and/or constituted a discharge of the drawers
(petitioners) liability under the instrument/subject check.
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
Liability of drawee retaining or destroying bill - Where a drawee to whom a bill is
delivered for acceptance destroys the same, or refuses within twenty-four hours after
such delivery or such other period as the holder may allow, to return the bill accepted
or non-accepted to the Holder, he will be deemed to have accepted the same.
Article 1249 of the New Civil Code deals with a mode of extinction of an obligation and
expressly provides for the medium in the payment of debts. It provides that:
The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency, which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
As held in Perez vs. Court of Appeals,a money market is a market dealing in standardized short-
term credit instruments (involving large amounts) where lenders and borrowers do not deal
directly with each other but through a middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a borrower through a middleman or
dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan. In a loan transaction, the obligation to pay a sum certain in
money may be paid in money, which is the legal tender or, by the use of a check. A check is not
a legal tender, and therefore cannot constitute valid tender of payment. In the case of Philippine
Airlines, Inc. vs. Court of Appeals, this Court held: Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an instrument does not, by itself,
operate as payment. A check, whether a managers check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment and may be refused
receipt by the obligee or creditor.
Commissioner of Public Highways v. Burgos
Facts: Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of
6,167 square meters. Sometime in 1924, the Government took this land for road-right-of-way
purpose. The land had since become streets known as Mango Avenue and Gorordo Avenue in
Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint,
to recover ownership and possession of the land.
The Republic alleged that the land was either donated or sold by its owners to the province of
Cebu to enhance its value, and that in any case, the right of the owner, if any, to recover the
value of said property was already barred by estoppel and the statute of limitations, defendants
also invoking the non-suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's complaint
was dismissed on the grounds relied upon by the defendants therein. 3 The plaintiff appealed
the decision to the Supreme Court where it was reversed, and the case was remanded to the court
of origin for the determination of the compensation to be paid the plaintiff-appellant as owner
of the land, including attorney's fees. The Supreme Court decision also directed that to determine
just compensation for the land, the basis should be the price or value thereof at the time of the
taking.
In the hearing held pursuant to the decision of the Supreme Court, the Government proved the
value of the property at the time of the taking thereof in 1924 with certified copies, issued by
the Bureau of Records Management, of deeds of conveyance executed in 1924 or thereabouts,
of several parcels of land in the Banilad Friar Lands in which the property in question is located,
showing the price to be at P2.37 per square meter. For her part, Victoria Amigable presented
newspaper clippings of the Manila Times showing the value of the peso to the dollar obtaining
about the middle of 1972, which was P6.775 to a dollar.
Issue: Whether or not the provision of Article 1250 of the New Civil Code is applicable in
determining the amount of compensation to be paid to respondent Victoria Amigable for the
property taken.
Held: Respondent judge did consider the value of the property at the time of the taking, which
as proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250
of the New Civil Code, and considering that the value of the peso to the dollar during the hearing
in 1972 was P6.775 to a dollar, as proven by the evidence of the private respondent Victoria
Amigable the Court fixed the value of the property at the deflated value of the peso in relation,
to the dollar, and came up with the sum of P49,459.34 as the just compensation to be paid by
the Government. To this action of the respondent judge, the Solicitor General has taken
exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides
for payment of an obligation in an amount different from what has been agreed upon by the
parties because of the supervention of extra-ordinary inflation or deflation. Thus, the Article
provides:
ART. 1250. In case extra-ordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law, independent of contract.
The taking of private property by the Government in the exercise of its power of eminent domain
does not give rise to a contractual obligation.
In the present case, the unusually long delay of private respondent in bringing the present action-
period of almost 25 years which a stricter application of the law on estoppel and the statute of
limitations and prescription may have divested her of the rights she seeks on this action over the
property in question, is an added circumstance militating against payment to her of an amount
bigger-may three-fold more than the value of the property as should have been paid at the time
of the taking. For conformably to the rule that one should take good care of his own concern,
private respondent should have commenced proper action soon after she had been deprived of
her right of ownership and possession over the land, a deprivation she knew was permanent in
character, for the land was intended for, and had become, avenues in the City of Cebu. A penalty
is always visited upon one for his inaction, neglect or laches in the assertion of his rights
allegedly withheld from him, or otherwise transgressed upon by another.
Telengtan Brothers & Sons, Inc. v. United States Lines, Inc.
Facts: Petitioner Telengtan is a domestic corporation doing business under the name and style
La Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign corporation
engaged in the business of overseas shipping. During the period material, the provisions of the
Far East Conference Tariff No. 12 were specifically made applicable to Philippine containerized
cargo from the U.S. and Gulf Ports, effective with vessels arriving at Philippine ports on and
after December 15, 1978. After that date, consignees who fail to take delivery of their
containerized cargo within the 10-day free period are liable to pay demurrage charges.
On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking
payment of demurrage charges plus interest and damages. Docketed as Civil Case No. R-81-
1196 of the Regional Trial Court of Manila and raffled to Branch 38 thereof, the complaint
alleged that between the years 1979 and 1980, goods belonging to petitioner loaded on
containers aboard its (respondent’s) vessels arrived in Manila from U.S. ports. After the 10-day
free period, petitioner still failed to withdraw its goods from the containers wherein the goods
had been shipped. Continuing, respondent U.S. Lines alleged that petitioner incurred on all those
shipments a demurrage in the total amount of ₱94,000.00 which the latter refused to pay despite
repeated demands.
Telengtan disclaims liability for the demanded demurrage, alleging that it has never entered into
a contract nor signed an agreement to be bound by any rule on demurrage. It likewise maintains
that, absent an obligation to pay respondent who made no proper or legal demands in the first
place, there is justifiable reason to refuse payment of the latter’s unwarranted claims. By way
of counterclaim, petitioner states that, upon arrival of the conveying vessels, it presented the
Bills of Lading (B/Ls) and all other pertinent documents covering seven (7) shipments and
demanded from respondent delivery of all the goods covered by the aforesaid B/Ls, only to be
informed that respondent had already unloaded the goods from the container vans, stripped them
of their contents which contents were then stored in warehouses. Petitioner further states that
respondent had refused to deliver the goods covered by the B/Ls and required petitioner to pay
the amount of ₱123,738.04 before the goods can be released.
The Trial Court found that [petitioner] liable to [respondent] for demurrage incurred in the
amount of P99,408.00 which sum will bear interest at the legal rate from the date of the filing
of the complaint till full payment thereof plus attorney’s fees in the amount of 20% of the total
sum due, all of which shall be recomputed as of the date of payment in accordance with the
provisions of Article 1250 of the Civil Code. Exemplary damages in the amount of P80,000.00
are also granted. The counterclaim is dismissed. Costs against [petitioner].
Contrary to [petitioner’s] contentions, both the provisions of the contract between the parties, in
this case the bill of lading, and the interpretation given by the higher courts to these provisions
are to the effect that demurrage may be lawfully collected.
On the other hand, [petitioner] claims that [respondent] company owes them the far larger sum
of P123,738.04 by way of damages allegedly suffered by their goods when [respondent]
company removed these goods from its cargo vans and deposited them in bonded warehouses
without its consent. It is not disputed that [respondent] company did not [sic] in fact remove
these goods belonging to [petitioner] from its vans and deposited them in warehouses. However,
this was done by authority of the Bureau of Customs and for that purpose, [respondent]
addressed a letter-request to the Collector of Customs, for permission to remove the goods of
defendant from its vans.
The Court finds that the charges for warehousing were necessary expenses covered by the terms
of the bill of lading which the consignee was responsible for. There is therefore now no necessity
of discussing whether or not the counterclaim of [petitioner] had prescribed or not. Neither is
there any question of bad faith on the part of [respondent]. When it requested for authority to
remove [petitioner’s] consigned goods from its vans and deposited them in warehouses,
[respondent] had already given consignee sufficient time to take delivery of the shipment. This,
[petitioner] chose not to do. Instead, it sat pat by the telephone calling without making any
positive effort to check up on the shipment or arrange for its delivery to its factory. Once arrived
at the port, the shipment was available to consignee for its proper delivery and receipt and the
carrier discharged of its responsibility therefor. Rather, by its inaction, [petitioner] was guilty of
bad faith. Once it had received the notice of arrival of the carrier in port, it was incumbent on
consignee to put wheels in motion in order that the shipment could be delivered to it. The
inaction of [petitioner] would only indicate that it had no intention of taking delivery except at
its own convenience thus preventing carrier from taking on other shipments and from leaving
port. Such unexplained and unbusiness-like delay smacks highly of bad faith on the part of
[petitioner] rather than of the [respondent].
Issues: Whether or not the CA erred in concluding that it [petitioner] was the one at fault in not
withdrawing its cargo from the container vans in which the goods were originally shipped
despite documentary evidence and written admissions of private respondent to the contrary; and
in affirming the trial court’s order for the recomputation of the judgment award in accordance
with Article 1250 of the Civil Code contrary to existing jurisprudence and without any evidence
at all to support it.
Held: It is undisputed that the goods subject of petitioner’s counterclaim and covered by seven
B/Ls were loaded for shipment to Manila on respondent’s vessels in container vans on a
"House/House Containers-Shippers Load, Stowage and Count" basis. This shipping
arrangement means that the shipping company’s container vans are to be brought to the shipper
for loading of its goods; that from the shipper’s warehouse, the goods in container vans are
brought to the shipping company for shipment; that the shipping company, upon arrival of its
ship at the port of destination, is to deliver the container vans to the consignee’s compound or
warehouse; and that the shipper (consignee) is supposed to load, stow and count the goods from
the container van. Likewise undisputed is the fact that the container vans containing the goods
covered by 3 of the aforesaid B/Ls, particularly were delivered to a warehouse, stripped of their
contents and the contents deposited thereat.
The Court sustain the CA’s stance faulting the petitioner for not taking delivery of its cargo
from the container vans within the 10-day free period, an inaction which led respondent to
deposit the same in warehouse/s.
It may be that, when the relevant facts are undisputed, the question of whether or not the
conclusion deduced therefrom by the CA is correct is a question of law properly cognizable by
this Court. However, it has also been held that all doubts as to the correctness of such
conclusions will be resolved in favor of the disposing court. So it must be in this case.
As it were, however, the conclusion of the CA on who contextually is the erring party was not
exactly drawn from a vacuum, supported as such conclusion is by the records of the case. What
the CA wrote with some measure of logic commends itself for concurrence:
However, ... We find that [petitioner] was the one at fault in not withdrawing its cargo
from the containers wherein the goods were shipped within the ten (10)-day free
period. Had it done so, then there would not have been any need of depositing the
cargo in a warehouse.
It is incumbent upon the carrier to immediately advise the consignee of the arrival of
the goods for if it does not, it continues to be liable for the same until the consignee
has had reasonable opportunity to remove them.
Sound business practice dictates that the consignee, upon notification of the arrival of
the goods, should immediately get the cargo from the carrier especially since it has
need of it. xxx.
It is agreed that when possession of the goods is received or taken by the customs or other
authorities or by any operator of any lighter, craft, ... or other facilities whether selected by the
carrier or master, shipper of consignee, whether public or private, such authority or person shall
be considered as having received possession and delivery of the goods solely as agent of and on
behalf of the shipper and consignee, .... Also if the consignee does not take possession or
delivery of the goods as soon as the goods are at the disposal of the consignee for removal, the
goods shall be at their own risk and expense, delivery shall be considered complete and the
carrier may, subject to carrier's liens, send the goods to store, warehouse, put them on lighters
or other craft, put them in possession of authorities, dump, permit to lie where landed or
otherwise dispose of them, always at the risk and expense of the goods, and the shipper and
consignee shall pay and indemnify the carrier for any loss, damage, fine, charge or expense
whatsoever suffered or incurred in so dealing with or disposing of the goods, or by reason of the
consignee's failure or delay in taking possession and delivery as provided herein.
On the second issue raised, the Court finds as erroneous the trial court’s decision, as affirmed
by the CA, for the recomputation of the judgment award as of the date of payment in accordance
with Article 1250 of the Civil Code.
In calling for the application of the aforementioned provision, respondent urged that judicial
notice be taken of the succeeding devaluations of the peso vis-à-vis the US dollar since the time
the proceedings began in 1981. According to respondent, the computation of the amount thus
due from the petitioner should factor in such peso devaluations.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Extraordinary inflation or deflation, as the case may be, exists when there is an unusual increase
or decrease in the purchasing power of the Philippine peso which is beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.Extraordinary inflation can never be assumed; he who alleges
the existence of such phenomenon must prove the same.
The Court holds that there has been no extraordinary inflation within the meaning of Article
1250 of the Civil Code. Accordingly, there is no plausible reason for ordering the payment of
an obligation in an amount different from what has been agreed upon because of the purported
supervention of extraordinary inflation.
As it were, respondent was unable to prove the occurrence of extraordinary inflation since it
filed its complaint in 1981. Indeed, the record is bereft of any evidence, documentary or
testimonial, that inflation, nay, an extraordinary one, existed. Even if the price index of goods
and services may have risen during the intervening period, this increase, without more, cannot
be considered as resulting to "extraordinary inflation" as to justify the application of Article
1250.
Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the value of
the peso at the time of the establishment of the obligation shall control and be the basis of
payment of the contractual obligation, unless there is "agreement to the contrary." It is only
when there is a contrary agreement that extraordinary inflation will make the value of the
currency at the time of payment, not at the time of the establishment of obligation, the basis for
payment.23 The Court, in Mobil Oil Philippines, Inc. vs. Court of Appeals and Fernando A.
Pedrosa formulated the same rule in the following wise:
In other words, an agreement is needed for the effects of an extraordinary inflation to be taken
into account to alter the value of the currency at the time of the establishment of the obligation
which, as a rule, is always the determinative element, to be varied by agreement that would find
reason only in the supervention of extraordinary inflation or deflation.
To be sure, neither the trial court, the CA nor respondent has pointed to any provision of the
covering B/Ls whence respondent sourced its contractual right under the premises where the
defining "agreement to the contrary" is set forth. Needless to stress, the Court sees no need to
speculate as to the existence of such agreement, the burden of proof on this regard being on
respondent.
Equitable PCI Bank v. Ng Sheung Ngor
Facts: On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and
Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts
against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan
Lionel Apas, in RTC, Branch 16 of Cebu City. They claimed that Equitable induced them to
avail of its peso and dollar credit facilities by offering low interest rates so they accepted
Equitable's proposal and signed the bank's pre-printed promissory notes on various dates
beginning 1996. They, however, were unaware that the documents contained identical
escalation clauses granting Equitable authority to increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes. In fact, they continuously availed of and benefited
from Equitable's credit facilities for five years.
RTC upheld the validity of the promissory notes. Equitable and respondents filed their
respective notices of appeal but both were denied by the RTC. Equitable moved for the
reconsideration but RTC denied due to lack of merit.
A writ of execution was thereafter issued and three real properties of Equitable were levied
upon.
Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It, however,
withdrew that petition on March 30, 2004 and instead filed a petition for certiorari with an
application for an injunction in the CA to enjoin the implementation and execution of the March
24, 2004 omnibus order. CA granted Equitable’s application for injunction. A writ of
preliminary injunction was correspondingly issued.
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were
sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates
of sale were issued to them.
Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted
the sale in contempt for proceeding with the auction despite the injunction order of the CA.
CA dismissed the petition for certiorari. It found Equitable guilty of forum shopping because
the bank filed its petition for certiorari in the CA several hours before withdrawing its petition
for relief in the RTC. Moreover, Equitable failed to disclose, both in the statement of material
dates and certificate of non-forum shopping, that it had a pending petition for relief in the RTC.
Equitable moved for reconsideration but it was denied.
Issue: Whether or not the promissory notes were valid.
Held: Yes.
The RTC upheld the validity of the promissory notes despite respondents assertion that those
documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party.
The participation of the other party is limited to affixing his signature or his adhesion to the
contract. For this reason, contracts of adhesion are strictly construed against the party who
drafted it.
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on
the contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A
contract of adhesion becomes void only when the dominant party takes advantage of the
weakness of the other party, completely depriving the latter of the opportunity to bargain on
equal footing.
That was not the case here. As the trial court noted, if the terms and conditions offered by
Equitable had been truly prejudicial to respondents, they would have walked out and negotiated
with another bank at the first available instance. But they did not. Instead, they continuously
availed of Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar- and peso-
denominated loans with Equitable, it, however, failed to ascertain the total amount due
(principal, interest and penalties, if any) as of July 9, 2001. The trial court did not explain how
it arrived at the amounts of US$228,200 and P1,000,000. In Metro Manila Transit Corporation
v. D.M. Consunji, we reiterated that this Court is not a trier of facts and it shall pass upon them
only for compelling reasons which unfortunately are not present in this case. Hence, we ordered
the partial remand of the case for the sole purpose of determining the amount of actual damages.
Almeda v. Bathala Markeeting Industries Inc.
Facts: Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee,
represented by its president Ramon H. Garcia, renewed its Contract of Lease with Ponciano L.
Almeda (Ponciano), as lessor, husband of petitioner Eufemia and father of petitioner Romel
Almeda. Under the said contract, Ponciano agreed to lease a portion of the Almeda Compound,
located at 2208 Pasong Tamo Street, Makati City, consisting of 7,348.25 square meters, for a
monthly rental of P1,107,348.69, for a term of four years from May 1, 1997 unless sooner
terminated as provided in the contract. The contract of lease contained the following pertinent
provisions which gave rise to the instant case:
SIXTH It is expressly understood by the parties hereto that the rental rate stipulated
is based on the present rate of assessment on the property, and that in case the
assessment should hereafter be increased or any new tax, charge or burden be imposed
by authorities on the lot and building where the leased premises are located, LESSEE
shall pay, when the rental herein provided becomes due, the additional rental or charge
corresponding to the portion hereby leased; provided, however, that in the event that
the present assessment or tax on said property should be reduced, LESSEE shall be
entitled to reduction in the stipulated rental, likewise in proportion to the portion
leased by him;
SEVENTH In case an extraordinary inflation or devaluation of Philippine Currency
should supervene, the value of Philippine peso at the time of the establishment of the
obligation shall be the basis of payment;
During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with
petitioners. In a letter dated December 29, 1997, petitioners advised respondent that the former
shall assess and collect Value Added Tax (VAT) on its monthly rentals. In response, respondent
contended that VAT may not be imposed as the rentals fixed in the contract of lease were
supposed to include the VAT therein, considering that their contract was executed on May 1,
1997 when the VAT law had long been in effect.
On January 26, 1998, respondent received another letter from petitioners informing the former
that its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract
and Article 1250 of the Civil Code. Respondent opposed petitioners demand and insisted that
there was no extraordinary inflation to warrant the application of Article 1250 in light of the
pronouncement of this Court in various cases.
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but
continued to pay the stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for purposes of
determining the correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent
damage and prejudice.
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages
against respondent for failure of the latter to vacate the premises after the demand made by the
former. Before respondent could file an answer, petitioners filed a Notice of Dismissal. They
subsequently refiled the complaint before the MTC of Makati.
Petitioners later moved for the dismissal of the declaratory relief case for being an improper
remedy considering that respondent was already in breach of the obligation and that the case
would not end the litigation and settle the rights of the parties. The trial court, however, was not
persuaded, and consequently, denied the motion. RTC ruled in favor of respondent.
Petitioners elevated the case the the CA which affirmed RTC.
Issue: Whether or not the amount of rentals due the petitioners should be adjusted by reason of
extraordinary inflation or devaluation.
Held: Petitioners repeatedly made a demand on respondent for the payment of VAT and for
rental adjustment allegedly brought about by extraordinary inflation or devaluation. Both the
trial court and the appellate court found no merit in petitioners claim. The Court saw no reason
to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination
of the appellate court, viz.:
Clearly, the person primarily liable for the payment of VAT is the lessor who may
choose to pass it on to the lessee or absorb the same. Beginning January 1, 1996, the
lease of real property in the ordinary course of business, whether for commercial or
residential use, when the gross annual receipts exceed P500,000.00, is subject to 10%
VAT. Notwithstanding the mandatory payment of the 10% VAT by the lessor, the
actual shifting of the said tax burden upon the lessee is clearly optional on the part of
the lessor, under the terms of the statute. The word may in the statute, generally
speaking, denotes that it is directory in nature. It is generally permissive only and
operates to confer discretion. In this case, despite the applicability of the rule under
Sec. 99 of the NIRC, as amended by R.A. 7716, granting the lessor the option to pass
on to the lessee the 10% VAT, to existing contracts of lease as of January 1, 1996, the
original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10% VAT
nor provided for its additional imposition when they renewed the contract of lease in
May 1997. More significantly, said lessor did not actually collect a 10% VAT on the
monthly rental due from the lessee-appellee after the execution of the May 1997
contract of lease. The inevitable implication is that the lessor intended not to avail of
the option granted him by law to shift the 10% VAT upon the lessee- appellee. x x x.
In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.
Petitioners reliance on the sixth condition of the contract is, likewise, unavailing. This provision
clearly states that respondent can only be held liable for new taxes imposed after the effectivity
of the contract of lease, that is, after May 1997, and only if they pertain to the lot and the building
where the leased premises are located. Considering that RA 7716 took effect in 1994, the VAT
cannot be considered as a new tax in May 1997, as to fall within the coverage of the sixth
stipulation.
Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation
or devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the
contract stipulation speaks of extraordinary inflation or devaluation while the Code speaks of
extraordinary inflation or deflation. They insist that the doctrine pronounced in Del Rosario v.
The Shell Company, Phils. Limited should apply.
Essential to contract construction is the ascertainment of the intention of the contracting parties,
and such determination must take into account the contemporaneous and subsequent acts of the
parties. This intention, once ascertained, is deemed an integral part of the contract.
While, indeed, condition No. 7 of the contract speaks of extraordinary inflation or devaluation
as compared to Article 1250s extraordinary inflation or deflation, we find that when the parties
used the term devaluation, they really did not intend to depart from Article 1250 of the Civil
Code. Condition No. 7 of the contract should, thus, be read in harmony with the Civil Code
provision.
That this is the intention of the parties is evident from petitioners letter dated January 26, 1998,
where, in demanding rental adjustment ostensibly based on condition No. 7, petitioners made
explicit reference to Article 1250 of the Civil Code, even quoting the law verbatim. Thus, the
application of Del Rosario is not warranted. Rather, jurisprudential rules on the application of
Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or both, without a
corresponding increase in business transaction. There is inflation when there is an increase in
the volume of money and credit relative to available goods, resulting in a substantial and
continuing rise in the general price level. In a number of cases, this Court had provided a
discourse on what constitutes extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power of
the Philippine currency which is unusual or beyond the common fluctuation in the value of said
currency, and such increase or decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.
The factual circumstances obtaining in the present case do not make out a case of extraordinary
inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We
would like to stress that the erosion of the value of the Philippine peso in the past three or four
decades, starting in the mid-sixties, is characteristic of most currencies. And while the Court
may take judicial notice of the decline in the purchasing power of the Philippine currency in that
span of time, such downward trend of the peso cannot be considered as the extraordinary
phenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of extraordinary
inflation during a given period, the effects of extraordinary inflation are not to be applied.
Siga-an v. Villanueva
GSIS v. CA
Advocates for Truth in Lending, Inc. & Olaguer v. Bangko Sentral Monetary Board
Tan v. CA
RCBC v. CA
First Fil-Sin Lending Corp. v. Padillo

Integrated Realty Corp. v. PNB
Bataan Seeding Association v. Republic
Catungal v. Hao
Banco Filipino v. CA
Consolidated Bank and Trust Co v. CA
Mendoza v. CA
Facts:
Petitioner Danilo D. Mendoza, the sole proprietor of Atlantic Exchange Philippines (Atlantic),
is engaged in the domestic and international trading of raw materials and chemicals. Sometime
in 1978 he was granted by respondent PNB a P500,000.00 credit line and a P1,000,000.00 Letter
of Credit/Trust Receipt (LC/TR) line.
Petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land with
improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3)
several pieces of machinery and equipment in his Pasig coco-chemical plant as security for
credit accommodations.
Petitioner executed in favor of respondent PNB 3 promissory notes covering the P500,000.00
credit line. He used his LC/TR line to purchase raw materials from foreign importers.
Respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank raised
its interest rates to 14% per annum, in line with Central Bank's Monetary Board Resolution No.
2126 dated November 29, 1979.
Petitioner failed to pay to respondent bank his LC/TR accounts as they became due and
demandable. He wrote a letter to respondent PNB requesting for the restructuring of his past
due accounts.
According to the petitioner, PNB Mandaluyong Branch found his proposal favorable and
recommended the implementation of the agreement. However, Fernando Maramag, PNB
Executive Vice- President, disapproved the proposed release of the mortgaged properties and
reduced the proposed new LC/TR line to P1,000,000.00 which the petitioner claimed that he
was forced to agree to these changes and that he was required to submit a new formal proposal
and to sign two (2) blank promissory notes.
Petitioner offered revised proposals to respondent bank. According to petitioner, respondent
PNB approved his proposal.
Petitioner testified that respondent PNB allegedly contravened their verbal agreement.
Pursuant to the escalation clauses of the subject two 2 promissory notes, the interest rate on the
principal amount in the first Promissory Note was increased from 21% to 29% to 32% while the
second Promissory Note was increased from 18% to 29% to 32%.
Petitioner failed to pay the subject 2 Promissory Notes. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public
auction to respondent PNB, as highest bidder.
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance,
nullification of the extra- judicial foreclosure and damages against respondents PNB.
The trial court rendered judgment in favor of the petitioner.
Respondent PNB appealed this decision of the trial court to the Court of Appeals. The Court of
Appeals reversed the decision of the trial court and dismissed the complaint.
Issue: Whether or not the increased interest rates on the 2 promissory notes are valid
Held: No.
Respondent bank increased the interest rates on the 2 Promissory Notes without the prior
consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest
rate of 21% per annum on Promissory Note No. 127/82 and 18% per annum on Promissory Note
No. 128/82. As held in several cases, the unilateral determination and imposition of increased
interest rates by respondent bank is violative of the principle of mutuality of contracts in Article
1308 of the Civil Code.
Contract changes 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 contracts, it cannot be gainsaid that the rate of interest is
always a vital component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to change a contract to which he is a party is
obliged to answer the proposal, and his silence per se cannot be construed as an acceptance.
Estoppel will not lie against the petitioner regarding the increase in the stipulated interest on the
subject Promissory Notes inasmuch as he was not even informed beforehand by respondent
bank of the change in the stipulated interest rates. However, the said two 2 subject Promissory
Notes Nos. 127/82 and 128/82 expressly provide for a penalty charge of 3% per annum to be
imposed on any unpaid amount when due.
First Metro Investment Corp. v. Este del Sol Mountain
Facts: In January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of
P7,385,500.00 to finance the construction and development of the Este del Sol Mountain
Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.
Respondent Este del Sol also executed an Underwriting Agreement on January 31, 1978.
Respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised
Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98
dated June 23, 1980,
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage
on June 23, 1980. At the public auction, petitioner FMIC was the highest bidder of the
mortgaged properties for P9,000,000.00.
Petitioner instituted on November 11, 1980 the instant collection suit against the respondents to
collect the alleged deficiency balance of P6,863,297.73 plus interest thereon at twenty-one
(21%) percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent
thereof as and for attorneys fees and costs.
The trial court rendered its decision in favor of petitioner FMIC
Defendants counterclaims are dismissed, for lack of merit.
Petitioner moved for reconsideration of the appellate courts adverse decision. However, this was
denied in a Resolution dated February 9, 2000 of the appellate court.
Issue:
Whether or not the underwriting and consultancy agreements are mere subterfuges to
camouflage the usurious interest charged by the petitioner.
Held:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, retroactive
application of a Central Bank Circular cannot, and should not, be presumed.
The form of the contract is not conclusive for the law will not permit a usurious loan to hide
itself behind a legal form. Parol evidence is admissible to show that a written document though
legal in form was in fact a device to cover usury. If from a construction of the whole transaction
it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts
should and will permit no scheme, however ingenious, to becloud the crime of usury.
An apparently lawful loan is usurious when it is intended that additional compensation for the
loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for
the lenders services which are of little value or which are not in fact to be rendered, such as in
the instant case.
In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as
to the usurious interest is void, consequently, the debt is to be considered without stipulation as
to the interest. The reason for this rule was adequately explained in the case of Angel Jose
Warehousing Co., Inc. v. Child Enterprises where this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract, is not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to
receive back the principal amount of the loan. With respect to the debtor, the amount paid as
interest under a usurious agreement is recoverable by him, since the payment is deemed to have
been made under restraint, rather than voluntarily.
Frias v. San Diego-Sison
Facts: On December 7, 1990, petitioner and Dra. Flora San Diego-Sison entered into a
Memorandum of Agreement over petitioner’s property, No. 589 Batangas East, Ayala Alabang,
Muntinlupa, Metro Manila.
Petitioner received from respondent two million pesos in cash and one million pesos in a post-
dated check dated February 28, 1990, instead of 1991, which rendered said check stale.
Petitioner then gave respondent TCT No. 168173 in the name of IMRDC and the Deed of
Absolute Sale over the property between petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter dated
March 20, 1991, which petitioner received only on June 11, 1991, reminding petitioner of their
agreement that the amount of two million pesos which petitioner received from respondent
should be considered as a loan payable within six months. Petitioner subsequently failed to pay
respondent the amount of two million pesos.
On April 1, 1993, respondent filed with the RTC of Manila, a complaint for sum of money with
preliminary attachment against petitioner.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of
preliminary attachment upon the filing of a bond in the amount of two million pesos.
The RTC found that petitioner was under obligation to pay respondent the amount of two million
pesos with compounded interest pursuant to their Memorandum of Agreement; that the
fraudulent scheme employed by petitioner to deprive respondent of her only security to her
loaned money when petitioner executed an affidavit of loss and instituted a petition for the
issuance of an owner’s duplicate title knowing the same was in respondent’s possession, entitled
respondent to moral damages; and that petitioner’s bare denial cannot be accorded credence
because her testimony and that of her witness did not appear to be credible.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the
RTC decision with modification
Issue: Whether or not the compounded bank interest should be limited to six (6) months as
contained in the MOA.
Held: The Memorandum of Agreement executed between the petitioner and respondent is the
law between the parties. The general rule is that if the terms of an agreement are clear and leave
no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall
prevail.
The agreement that the amount given shall bear compounded bank interest for the last six
months only, i.e., referring to the second six-month period, does not mean that interest will no
longer be charged after the second six-month period since such stipulation was made on the
logical and reasonable expectation that such amount would be paid within the date stipulated.
Considering that petitioner failed to pay the amount given which under the Memorandum of
Agreement shall be considered as a loan, the monetary interest for the last six months continued
to accrue until actual payment of the loaned 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.
The Memorandum of Agreement provides that in the event that respondent opts not to buy the
property, the money given by respondent to petitioner shall be treated as a loan and the property
shall be considered as the security for the mortgage. It was testified to by respondent that after
they executed the agreement on December 7, 1990, petitioner gave her the owner’s copy of the
title to the property, the Deed of Sale between petitioner and IMRDC, the certificate of
occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale.
However, notwithstanding that all those documents were in respondent’s possession, petitioner
executed an affidavit of loss that the owner’s copy of the title and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to the fact that
she was of the belief that since she had demanded from Atty. Lozada the return of the title, she
thought that the brown envelope with markings which Atty. Lozada gave her on May 5, 1991
already contained the title and the Deed of Sale as those documents were in the same brown
envelope which she gave to Atty. Lozada prior to the transaction with respondent.35 Such
statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken
the stand to corroborate her claim.
Carpo v. Chua
Ligutan v. CA
Eastern Shipping Lines v. CA
Nacar v. Gallery Frames
Estores v. Spouses Supangan
BPI v. IAC
Roman Catholic Bishop of Jaro v. de la Peña
CA Agro-Industrial Dev. Corp. v. CA
YHT Realty Corp v. CA
PNB v. Noah’s Ark Sugar Refinery
PNB v. Benito Se, Jr., et al.

Castellvi v. Sellner

Machetti v. Hospicio de San Jose

Severino v. Severino

Gateway Electronics Corp. v. Asianbank Corp.

E. Zobel, Inc. v. CA

Philippine Export and Foreign Loan Guarantee Corp. v. VP Eusebio Construction, Inc.

Ong v. PCIB

International Finance Corporation v. Imperial Textile Mills, Inc.

Escaño v. Ortigas, Jr.

RCBC v. Arro

Diño v. CA

Willex Plastic Industries, Corp. v. CA

Fortune Motos (Phils.) Corp. v. CA