medel vs ca

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS,
SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a
loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months.
Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00,
to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to
evidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of
the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel,
authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of
Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of
P275,000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid
loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00,
bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed a
promissory note.
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties. A complaint for collection of the full amount of the loan including interests and other charges
was filed.

Issue: WON the stipulated rates of interest at 5.5% per month on the loan in the sum of P500,00 that
plaintiffs extended to the defendant is usurious?

Held:

The SC agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00
loan is excessive, iniquitous, unconscionable and exorbitant. However, SC cannot consider the rate
"usurious" because it has consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that
the Usury Law is now "legally inexistent".

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's
effectivity." Indeed, we have held that "a Central Bank Circular cannot repeal a law. Only a law can repeal
another law." In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that "by
virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."

Nevertheless, SC find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos
mores"), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree
with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.

SUMMARY:

Vives created a savings account named under Sterella (the name of Doronilla’s business). It will be used
as show money for Sterella’s incorporation. Vives is in possession of the passbook so that Doronilla will
not be able to withdraw. However, Doronilla was able to with to transfer the money to his other account.
The SC ruled that the contract between Vives and Doronilla is a commodatum. The evidence shows that
Vives 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 30 days.

DOCTRINES:

Art. 1936 provides that 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.

FACTS:

Sanchez asked his friend Mr. Vives to help her another friend Doronilla. Mr. Vives agreed and deposited
Php 200,000 to a Producer’s Bank savings account named under Sterella (business owned by Doronilla).

Such deposit will be used as a show money for Sterella’s incorporation. The authorized signatories of the
account were Mrs. Vives and Sanchez. The passboook was held by Mrs. Vives. Despite this, Doronilla was
able to transfer Php 110,000 to his own account.

Doronilla issued checks as payments to Vives, however, they were all dishonored upon presentment.
Hence, Vives filed a case against Doronilla, Sanchez and Producer’s Bank for the recovery of his money.

RTC – ruled in favor of Vives. The contract between Vives and Doronilla is commodatum. Also, the bank
is liable as the employer of its branch manager which is found to be in collusion with Doronilla.

CA – Affirmed.
ISSUES:

(1) WON the contract between Vives and Doronilla is a mutuum and not a commodatum. (NO, its a
commodatum)

(2) WON Producer’s Bank is liable to Vives. (Yes)

RATIO:

(1)

Petitioner bank contends that the transaction between Vives and Doronilla is a simple loan (mutuum)
since all the elements of a mutuum are present: (1) What was delivered by Vives to Doronilla was
money, a consumable thing; and (2) the transaction was onerous as Doronilla was obliged to pay
interest. Since the contract is a loan, the bank is not liable as it was not a party thereto.

The SC held otherwise. Art. 1933 provides 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.

Art. 1936 provides that 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.

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.”
Vives 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 Sterela’s savings account and would be returned to private respondent after thirty (30)
days.

Doronilla’s attempts to return to Vives the amount of P200,000.00 which the latter deposited in Sterela’s
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 the 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 latter’s money deposited with petitioner.

(2)

Neither does the Court agree with petitioner’s contention that it is not solidarily liable for the return of
private respondent’s money because it was not privy to the transaction between Doronilla and Vives.

The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the
question of petitioner’s liability for the return of private respondent’s 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 respondent’s money and is liable for its restitution.

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages
caused by their employees acting within the scope of their assigned tasks.