Credit law 1 cases Nature and character of loan

1. catholic vicar apostolic vs CA 165 scra 515.

2. Republic vs bagtas 6 scra 262
3. Saura import and export vs dbp,
4. Herrera vs Petrofil corp 146 scra 385.
5. 5. Integrated realty corp vs PNB 174 scra 295

Commodatum mutuum
Republic vs CA 146 scra 15
2. Quintos vs beck 69 phil 108
3. Republic vs grejaldo 15 scra 638.

Rights and obligations of bailor and bailee

Delos santos vs jara 15 phil 147

2. Mina vs pascual 25 phil 540
3. Briones vs cammayo 41 scra 404
4. Lopez vs del rosario 44 phil 98
5. Zobel vs city of manila 47 phil 169
6. Reformina vs tomol 149 scra 260
7. Liam law vs Olympic sawmill corp 129 scra 439
8. Banco pilipino vs navarro 152 scra 426
9. PNB VS CAN Padilla 196 B scra 536
10. PNB VS CA & Fernandez 238 scra 80 11. Florendo vs CA 265 scra 678

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN

PROVINCE, petitioner,
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents
G.R. No. 80294-95 September 21, 1988
Nature: Review on certiorari
Keywords: Recovery of possession, commodatum, adverse possession
Summary: Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity)
filed an application for registration of title over Lots 1, 2, 3, and 4, said Lots being the
sites of the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez
and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and
3, respectively, asserting ownership and title thereto since their predecessors’ house
was borrowed by petitioner Vicar after the church and the convent were destroyed..
After trial on the merits, the land registration court promulgated its Decision
confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. The Heirs of Juan
Valdez appealed the decision of the land registration court to the then Court of
Appeals, The Court of Appeals reversed the decision. Thereupon, the VICAR filed
with the Supreme Court a petition for review on certiorari of the decision of the Court
of Appeals dismissing his application for registration of Lots 2 and 3.

GANCAYCO, J.

Facts:

- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed
with the court an application for the registration of title over lots 1, 2, 3 and 4 situated
in Poblacion Central, Benguet, said lots being used as sites of the Catholic Church,
building, convents, high school building, school gymnasium, dormitories, social hall
and stonewalls.

- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have
ownership over lots 1, 2 and 3. (2 separate civil cases)

- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2,
3 and 4. Upon appeal by the private respondents (heirs), the decision of the lower
court was reversed. Title for lots 2 and 3 were cancelled.

- VICAR filed with the Supreme Court a petition for review on certiorari of the
decision of the Court of Appeals dismissing his application for registration of Lots 2
and 3.

- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-interest,
Egmidio Octaviano; his written demand to Vicar for the return of the land to them;
and the reasonable rentals for the use of the land at P10,000 per month. On the other
hand, Vicar presented the Register of Deeds for the Province of Benguet, Atty. Sison,
who testified that the land in question is not covered by any title in the name of
Egmidio Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons.
Brasseur when the heirs admitted that the witness if called to the witness stand, would
testify that Vicar has been in possession of Lot 3, for 75 years continuously and
peacefully and has constructed permanent structures thereon.

Issue:

1. WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in
commodatum, a gratuitous loan for use.

2. Whether or not the failure to return the subject matter of commodatum constitutes
an adverse possession on the part of the owner

Held:
1. YES. Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed. They
never asked for the return of the house, but when they allowed its free use, they
became bailors in commodatum and the petitioner the bailee.

2. No. The bailees’ failure to return the subject matter of commodatum to the bailor
did not mean adverse possession on the part of the borrower. The bailee held in trust
the property subject matter of commodatum.

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late
Jose V. Bagtas, petitioner-appellant.

Facts: Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for a
period of one year for breeding purposes subject to a government charge of breeding
fee of 10% of the book value of the books. Upon the expiration of the contract, Bagtas
asked for a renewal for another one year, however, the Secretary of Agriculture and
Natural Resources approved only the renewal for one bull and other two bulls be
returned. Bagtas then wrote a letter to the Director of Animal Industry that he would
pay the value of the three bulls with a deduction of yearly depreciation. The Director
advised him that the value cannot be depreciated and asked Bagtas to either return the
bulls or pay their book value. Bagtas neither paid nor returned the bulls. The Republic
then commenced an action against Bagtas ordering him to return the bulls or pay their
book value.

LC: *Trial court: After hearing, the trial Court ruled in favor of the Republic, as such,
the Republic moved ex parte for a writ of execution which the court granted.

INTERVENING FACT: Felicidad Bagtas, the surviving spouse and administrator of

Bagtas' estate, returned the two bulls and filed a motion to quash the writ of execution
 since one bull cannot be returned for it was killed by gunshot during a Huk raid. The
Court denied her motion hence, this appeal certified by the Court of Appeals because
only questions of law are raised.

Issue:
1. WON the contract was commodatum?
Held : NO, the contract is not commodatum.

Ratio: A contract of commodatum is essentially gratuitous. Supreme Court held

that Bagtas was liable for the loss of the bull even though it was caused by a
fortuitous event. If the contract was one of lease, then the 10% breeding charge is
compensation (rent) for the use of the bull and Bagtas, as lessee, is subject to the
responsibilities of a possessor. He is also in bad faith because he continued to
possess the bull even though the term of the contract has already expired.

If the contract was one of commodatum, he is still liable because: (1) he kept the
bull longer than the period stipulated; and (2) the thing loaned has been
delivered with appraisal of its value (10%). No stipulation that in case of loss of
the bull due to fortuitous event the late husband of the appellant would be
exempt from liability.

Saura Import vs DBP Credit Digest

Saura Import & Export Co., Inc.
-vs-
DBP
GR No. L-24968, 27 April 972
44 SCRA 445

FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan to be used for construction of factory
building, for payment of the balance of the purchase price of the jute machinery and
equipment and as additional working capital. In Resolution No.145, the loan
application was approved to be secured first by mortgage on the factory buildings, the
land site, and machinery and equipment to be installed.

The mortgage was registered and documents for the promissory note were executed.
The cancellation of the mortgage was requested to make way for the registration of a
mortgage contract over the same property in favor of Prudential Bank and Trust Co.,
the latter having issued Saura letter of credit for the release of the jute machinery. As
security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura
to pay said obligation, Prudential sued Saura.

After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to
comply with tits obligations to release the loan proceeds, thereby prevented it from
paying the obligation to Prudential Bank.

The trial court ruled in favor of Saura, ruling that there was a perfected contract
between the parties ad that the RFC was guilty of breach thereof.

ISSUE
Whether or not there was a perfected contract between the parties.

HELD
The Court held in the affirmative. Article 1934 provides: An accepted promise to
deliver something by way of commodatum or simple loan is binding upon the parties,
but the commodatum or simple loan itself shall not be perfected until delivery of the
object of the contract.

There was undoubtedly offer and acceptance in the case. When an application for a
loan of money was approved by resolution of the respondent corporation and the
responding mortgage was executed and registered, there arises a perfected consensual
contract.

Herrera vs Petrofil corp

Facts:
On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil
Corp.,) entered into a lease agreement, whereby the former leased to the latter a
portion of his property for a period of 20yrs. subject to the condition that monthly
rentals should be paid and there should be an advance payment of rentals for the first
eight years of the contract, to which ESSO paid on December 31, 1969. However,
ESSO deducted the amount of 101, 010.73 as interest or discount for the eight years
advance rental.

On August 20, 1970, ESSO informed Herrera that there had been a mistake in the
computation of the interest and paid an additional sum of 2,182.70; thus, it was
reduced to 98, 828.03.

As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that
this had been illegally deducted to him in violation of the Usury Law.

ESSO argued that amount deducted was not usurious interest but rather a discount
given to it for paying the rentals in advance. Judgment on the pleadings was rendered
in favor of ESSO. Thus, the matter was elevated to the SC for only questions of law
was involve.

Issue:
W/N the contract between the parties is one of loan or lease.

Ruling:
Contract between the parties is one of lease and not of loan. It is clearly denominated
a "LEASE AGREEMENT." The provision for the payment of rentals in advance
cannot be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness on the part of the lessor.

Contract between the parties is one of lease and not of loan. It is clearly denominated
a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the
parties intended a loan rather than a lease. The provision for the payment of rentals in
advance cannot be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying
the eight years rentals, and it was for this advance payment that it was getting a rebate
or discount.

Issue:
W/N the defendant violated the usury law?

There is no usury in this case because no money was given by the defendant-appellee
to the plaintiff-appellant, nor did it allow him to use its money already in his
possession. There was neither loan nor forbearance but a mere discount which the
plaintiff-appellant allowed the defendant-appellee to deduct from the total payments
because they were being made in advance for eight years. The discount was in effect a
reduction of the rentals which the lessor had the right to determine, and any reduction
thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does
not have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury.
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to
interest allowed by law."
It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; that
for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate
for the use of money loaned. Unless these four things concur in every transaction, it is
safe to affirm that no case of usury can be declared.

Integrated Realty Corp vs PNB

GR No. 60705, 28 June 1989
174 SCRA 295

FACTS
Raul Santos made a time deposit with OBM in the amount of P500H and he
was issued a certificate of time deposits. On another date, Santos again made a time
deposit with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its
president Raul Santos, applied for a loan and/or credit line (P700H) with PNB. To
secure such, Santos executed a Deed of Assignment of the 2 time deposits. After due
dates of the time deposit certificates, OBM did not pay PNB. PNB then demanded
payment from IRC and Santos, but they replied that the loan was deemed paid with
the irrevocable assignment of the time deposit certificates.

PB then filed with RTC to collect from IRC and Santos with interest. The trial
court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of
P700H plus interest of 9% PA, 2% additional interest and 1& PA penalty interest. On
appeal, the CA ordered OBM to pay IRC and Santos whatever amts they will to PNB
with interest.

IRC and Santos now claim that OBM should reimburse them for whatever
amts they may be adjudged to pay PNB by way of compensation for damages
incurred.

ISSUE
Whether or not the claim of IRC and Santos will prosper.
HELD
The Court held in the affirmative. The 2 time deposits matured on 11 January
1968 and 6 February 1968, respectively. However, OBM was not allowed and
suspended to operate only on 31 July 1968 and resolved on 2 August 1968. There was
a yet no obstacle to the faithful compliance by OBM of its liabilities. For having
incurred in delay in the performance of its obligation, OBM should be held for
damages. OBM contends that it had agreed to pay interest only up to the dates of
maturity of the CTD and that Santos is not entitled to interest after maturity dates had
expired.

While it is true that under Article 1956 of the CC, no interest shall be due
unless it has been expressly stipulated in writing, this applies only to interest for the
use of money. It does not comprehend interest paid as damages. OBM is being
required to pay such interest, not as interest income stipulated in the CTD, but as
damages fro failure and delay in the payment of its obligations which thereby
compelled IRC and Santos to resort to the courts.

The applicable rule is that LI, in the nature of damages for non-compliance
with an obligation to puy sum of money, is recoverable from the date judicially or
extra-judicially demand is made.

Commodatum mutuum

Republic vs CA 146 scra 15

Republic vs CA 146 scra 15

FACTS: The Heirs of Domingo Baloy, (private respondents), applied for a
registration of title for their land. Their claim is based on their possessory information
title acquired by Domingo Baloy through the Spanish Mortgage Law, coupled with
their continuous, adverse and public possession of the land in question. The Director
of Lands opposed the registration alleging that such land became public land through
the operation of Act 627 of the Philippine Commission. On Nov 26, 1902, pursuant to
the executive order of the President of U.S., the area was declared within the US
Naval Reservation.
The CFI denied respondents' application for registration. CA, reversed the decision.
Petitioners herein filed their Motion for Reconsideration, said MR was denied, hence
this petition for review on certiorari.
ISSUE: Whether or not private respondents' rights by virtue of their possessory
information title was lost by prescription.
RULING: No. A communication which contains an official statement of the position
of the Republic of the Philippines with regard to the status of the land in question
recognizes the fact that Domingo Baloy and/or his heirs have been in continuous
possession of said land since 1894 as attested by an "Informacion Possessoria" Title,
which was granted by the Spanish Government. Hence, the disputed property is
private land and this possession was interrupted only by the occupation of the land by
the U.S. Navy in 1945. The heirs of the late Domingo P. Baloy, are now in actual
possession, and this has been so since the abandonment by the U.S. Navy.
The occupancy of the U.S. Navy was not in the concept of owner. It holds of the
character of a commodatum. It cannot affect the title of Domingo Baloy. One's
ownership of a thing may be lost by prescription by reason of another's possession if
such possession be under claim of ownership, not where the possession is only
intended to be temporary, as in the case of the U.S. Navy's occupation of the land
concerned, in which case the owner is not divested of his title, although it cannot be
exercised in the meantime.

MARGARITA QUINTOS v. BECK, GR No. 46240, 1939-11-03

Facts:
plaintiff brought this action to compel the defendant to return to her certain furniture
which she lent him for his use.
defendant was a tenant of the plaintiff and as such occupied the latter's house... upon
the novation of the contract of lease between the plaintiff and the defendant, the
former gratuitously granted to the latter the... use of the furniture
, subject to the condition that the defendant would return them to the plaintiff upon the
latter's demand.
The plaintiff sold the property to Maria Lopez and Rosario Lopez
,... these three notified the defendant of the conveyance, giving him sixty days to
vacate the premises under one of the clauses of the contract of lease.
There after the plaintiff required the defendant to return all the furniture transferred to
him for his use.
The defendant... answered that she may call for them in the house where they are
found.
the defendant,... wrote... letter to the plaintiff informing her that he could not give up
the three gas heaters and the four electric lamps because he would use them until... the
lease is due to expire.
The plaintiff refused to get the furniture in... view of the fact that the defendant had
declined to make delivery of all of them.
before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse
Issues:
whether the defendant complied with his obligation to return the furniture upon... the
plaintiff's demand... whether the latter is bound to bear the deposit fees thereof...
whether she is entitled to the costs of litigation.
Ruling:
The contract entered into between the parties is one of commodatum, because under it
the plaintiff gratuitously granted the use of the furniture to the defendant, reserving
for herself the ownership thereof; by this contract the defendant bound himself to
return the... furniture to the plaintiff, upon the latter's demand
The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should... return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his benefit the three
gas heaters and the four electric lamps.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as
bailee, was not... entitled to place the furniture on deposit; nor was the plaintiff under
a duty to accept the offer to return the furniture, because the defendant wanted to
retain the three gas heaters and the four electric lamps.
The costs in both instances should be borne by the defendant
The defendant was the one who breached the contract of commodatum, and without
any reason he refused to return... and deliver all the furniture upon the plaintiff's
demand. In these circumstances, it is just and equitable that he pay the legal expenses
and other judicial costs which the plaintiff would not have otherwise defrayed.

Republic v Grijaldo
[G.R. No. L-20240. December 31, 1965.]
Art 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.

FACTS: Jose Grijaldo obtained five crop loans from the branch office of the Bank of
Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of
6% per annum, compounded quarterly. These loans are evidenced by five promissory
notes executed by the appellant in favor of the Bank. All notes without due dates, but
because the loans were crop loans it was considered that the loans were due one year
after they were incurred. To secure the payment of the loans the appellant executed a
chattel mortgage on the standing crops on his land known as Hacienda Campugas. By
virtue of “Trading with the Enemy Act” the assets in the Philippines of the Bank of
Taiwan, Ltd. were vested in the Government of the United States which were
subsequently transferred to the Republic of the Philippines.
Grijaldo failed to pay the crop loans despite the extra-judicial demand of the
Government of the Philippines. He argued that the Government has no cause of action,
that because the loans were secured by a chattel mortgage on the standing crops on a
land owned by him and those crops were lost or destroyed through enemy action his
obligation to pay the loans was thereby extinguished.

ISSUE: Whether or not Grijaldo’s obligation to pay the crop loans had extinguished
due to the crops that were lost or destroyed through enemy action.

HELD/RATIO: NO.
The obligation of the Grijaldo under the five promissory notes was not to deliver a
determinate thing; namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with interest.
The chattel mortgage on the crops growing on appellant's land simply stood as a
security for the fulfillment of appellant's obligation covered by the five promissory
notes, and the loss of the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the mortgaged crops.

Felix De los Santos, plaintiff appellee. V Agustina Jarra, administratrix of the Estate of
Magdaleno Jimenea.

Facts: (this is a case of appeal from a judgment of the CFI of Occidental negros)
1) Felix de los Santos brought suit against Agusitina Jarra (the administratrix of the
estate of Magdaleno Jimenea, he alleges that Jimenea borrowed and obtained from
the plaintiff 10 first class carabos, to be used at the animal power mill of JImenea’s
hacienda, without recompense or remuneration for the use of it and under the sole
condition that they should be returned to the owner as soon as the work at the mill was
terminated. Jimenea however, did not return the carabaos even though de los Santos
claimed their return after the work at the mill was finished.
2) Jimenea died in 1904 (before the suit)and Jarra was appointed by the CFI as
administratrix of his estate.
3) De los Santos presented his claim to the commissioners of the estate of Jimenea for
return of the carabaos. (for the carabaos to be exluded from the estate of Jimenea).
the commissioners rejected his claim, and thus a lawsuit ensued.
4) Jarra answered and said that it was true that the late Jimenea asked the plaintiff to
loan him ten carabaos, but that he only obtained THREE (3) second-class carabaos,
which were afterwards sold by the Delos Santos to Jimenea. (basically Jarra denied
all the allegations in the complaint)
5) The case came up for trial and the court rendered judgment against Jarra and ordering
her to return to de los Santos 6 second-class and third class carabaos. The value of
which was 120 each so 720 pesos.
6) Jarra moved for a new trial on the ground that the findings of fact were openly and
manifestly contrary to the weight of the evidence.
7) Jarra needs to prove that Jimenea only received 3 second class carabaos to
substantiate her claim.
 8) The record however, discloses that it has been fully proven from the testimonies of a
number of witnesses that Santos, sent in charge of various persons, the 10 carabaos
requiested by Jiminea (it was revealed that Jimenea is the father in law of de los
Santos). Also, de los Santos produced 2 letters proving that jimenea received them in
the presence of said persons (brother of Jimenea) who saw the animals arrive at the
hacienda. FOUR of the carabaos died of rinderpest and thus the judgment appealed
from only deals with 6 carabaos.
9) THE ALLEGED PURCHASE of 3 carabaos by Jimenea from his son-in-law Santos is
not evidenced by any trustworthy evidence. Therefore, it is not true.
10) From the foregoing, it may be logically inferred that the carabaos loaned or given on
commodatum to the deceased Jimenea were ten in number, that 6 survived and that
these carabaos have not been returned to the owner delos Santos, and lastly, that the
6 carabaos were not the property of the deceased nor any of his descendants, it is the
duty of the administratrix to return them or indemnify the owner for the value.

Issue: (NOT STATED EXPLICITLY) WON the carabaos belonged to the estate of Jimenea.

Held: NO. it was not part of Jimenea’s estate. Therefore Agustina Jarra should exclude it or
indemnify De los Santos… “for the reasons above set forth, by which the erros assigned to the
judgment appealed from have been refuted, and considering that the same is in accordance
with the law and the merits of the case, it is our opinion that it should be affirmed and we do
hereby affirm it with the costs against appellant.
Ratio: The ratio differentiates a loan from a commodatum.
Art 1740. (old civil code) By the contract of loan , one of the parties delivers to the other,
either anything not perishable (in the new civil code it’s consumable), in order that the
latter may use it during a certain period and return it to the former, in which case it is
called commodatum, or money or any other perishable thing, under the condition to return an
equal amount of the same kind and quality, in which case it is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
Art 1741. The bailor retains ownership of the thing loaned the bailee acquires the use
thereof, but not its fruits; if any compensation is involved, to be paid by the person requiring
the use, the agreement ceases to be a commodatum.
Art 1742. The obligations and rights which arise from the commodatum pass to the heirs of
both contracting parties, unless the loan has been made in consideration for the person of the
bailee, in which case his heirs shall not have the right to continue using the thing loaned.
The carabaos delivered to be used were not returned by Jiminea upon demand. There is no
doubt that Jarra is under the obligation to indemnify delos Santos.
Article 101. those who in fulfilling their obligations are guilty of fraud, negligence or delay….
The obligation of the bailee or of his successors to return either the thing loaned or its value is
sustained by the tribunal of Spain which said in its decision. (mentioned jurisprudence): legal
doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the ownership of
thing loaned at the expiration of the period, or after the use for which it was loaned has
been accomplished, it is the imperative duty of the bailee to return the thing itself to its
owner, or to pay him damages if through the fault of the bailee the thing should have
been lost or injured…