Credit Case Digests SN

CREDIT TRANSACTIONS
CASE DIGESTS
PROFESSOR: ATTY. MARION P. ALLAM, CPA, MBA
PREPARED BY: SAMANTHA MAKAYAN
CREDIT TRANSACTIONS CASE DIGESTS
Table of Contents
LOAN .................................................................................................................................................................................................................2
CATHOLIC VICAR APOSTOLIC V. CA ........................................................................................................................................................................2
REPUBLIC V. BAGTAS .....................................................................................................................................................................................................5
SAURA IMPORT & EXPORT V. DBP ...........................................................................................................................................................................8
1
LOAN
CATHOLIC VICAR APOSTOLIC v. CA
CATHOLIC VICAR PROVINCE, Petitioner,

v. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, Respondents.
165 SCRA 515 | 1988 | Gancayco, J.
SYLLABUS:
Bailment. A situation in which on holds personal property the ownership of which belongs to another; the delivery of
property of one person to another in trust for a specific purpose; returned when special purpose is accomplished.
By contract or by operation of law. With a contract, express or implied, that the trust shall be faithfully executed, and
the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims
it. May also occur by operation of law
Bailor. The giver: the party who delivers the possession or custody of the thing bailed. Bailee. The recipient: the party
who receives the possession or custody of the thing bailed In bailment, there is also involved a substantial measure of
control over the property, rather than just mere custody.
Commodatum. The bailor will deliver to the bailee a non-consumable thing so that the bailee may use it for a certain
time and return the identical thing. It is a loan of use.
FACTS:
In 1962, petitioner VICAR filed with the CFI of Baguio Benguet an application for registration of title over 4 lots, the said
lots being the sites of the Catholic Church building, convents, high school building, school gym, school dorms, social hall,
stonewalls, etc. A year after, the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their answer/opposition
asserting ownership and title thereto. After trial, the land registration court decided and confirmed the registrable title
of VICAR to the 4 lots. The Heirs of Valdez and the Heirs of Octaviano appealed the decision. The CA reversed the decision
of the land registration court and dismissed the VICAR’s application as to Lots 2 and 3.
The Heirs of Octaviano filed a motion with the CFI praying that the Heirs of Octaviano be placed in possession of Lot 3.
The CFI denied the motion on the ground that the CA decision did not grant the Heirs of Octaviano any affirmative relief.
The Heirs of Octaviano then filed for recovery of possession of Lot 3, and the Heirs of Valdez filed for recovery of
possession of Lot 2.
2
Heirs of Octaviano and the Heirs of Valdez: In both civil cases filed, the parties both argue that the petitioner Vicar is
barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question
since this is barred by prior judgment of the CA under the principle of res judicata. Both parties contend that the
question of possession and ownership have already been determined by the CA and affirmed by the SC.
VICAR: Petitioner maintains that the principle of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior judgment merely dismissed their application for
registration of Lots 2 and 3. Moreover, petitioner questions the ruling of respondent CA, on the question of ownership
of Lots 2 and 3, when it did not positively declare private respondents as owners of the land, neither was it declared
that they were not owners of the land, but it held that the predecessors of private respondents were possessors of Lots
2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes.
ISSUE:
Whether or not respondent CA committed an error in finding that petitioner VICAR had been in possession of Lots 2
and 3 merely as bailee (borrower) in commodatum, a gratuitous loan for use. (NO)
RULING:
Petition is denied for lack of merit.
Respondent CA correctly found that petitioner did not meet the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. There was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration. By the very admission of petitioner
Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free Patent Application for
those lots since 1906. It was the predecessors of private respondents, and not petitioner Vicar, who were in possession
of the questioned lots since 1906. There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951.
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. The bailee held in trust the property subject
matter of commodatum. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary
acquisitive prescription because of the absence of just title.
3
Respondent CA correctly found that the predecessors-in-interest and private respondents were possessors under claim
of ownership in good faith from 1906, that petitioner Vicar was only a bailee in commodatum, and that the adverse
claim and repudiation of trust came only in 1951. Hence, respondent CA did not commit any reversible error, much
less grave abuse of discretion.
4
LOAN
REPUBLIC v. BAGTAS
REPUBLIC OF THE PHILIPPINES, Platinff-Appellee,

v. JOSE V. BAGTAS, Defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, Petitioner-
Appellant.
6 SCRA 262 | 1962 | Padilla, J.
SYLLABUS:
Article 1942 of the Civil Code: A bailee in a contract of commodatum is liable for loss of the things, even if it should be
through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous event;
FACTS:
5
Jose Bagtas borrowed from the Republic of the Philippines, through the Bureau of Animal Industry, 3 bulls for a period
of 1 year for breading purposes subject to a government charge of breeding fee of 10% of the book value of the bulls.
Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of 1 year.
However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only 1 bull for another year
and requested the return of the other 2. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that
he would pay the value of the 3 bulls. The Director of Animal Industry advised him that the book value of the 3 bulls
could not be reduced and that they either be returned, or their book value paid. Jose V. Bagtas failed to pay the book
value of the 3 bulls or to return them.
So, in the CFI of Manila, the Republic of the Philippines commenced an action against him praying that he be ordered to
return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding
fee in the sum of P199.62. Bagtas, through his counsel, answered that because of the bad peace and order situation in
Cagayan Valley, and of the pending appeal, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint. The CFI decided and sentenced Bagtas to pay the sum of P3,635.09 the total value of the 3
bulls plus the breeding fees in the amount of P626.17 with interest. Plaintiff moved ex parte for a writ of execution
which the court granted.
Felicidad Bagtas, the surviving spouse of the late Jose Bagtas and the administratrix of his estate, filed a motion alleging
that the 2 bulls were returned to the Bureau Animal of Industry and that the 3rd bull died from a gunshot wound inflicted
during a Huk raid on Hacienda Falicidad Intal. She prayed that the writ of execution be quashed but court denied her
motion. It was Bagtas, Jr. who returned the 2 bulls as evidenced by a memorandum receipt signed. Hence, she cannot
be held liable for the 2 bulls which already had been returned to and received by the appellee.
Appellant Felicidad Bagtas: Contends that since the 3rd bull was accidentally killed during a raid by the Huk, and that
such death was due to force majure, she is relieved from the duty of returning the bull or paying its value to the appellee.
She further contends that the contract was commodatum and that, for that reason, as the appellee retained ownership
or title to the bull, it should suffer its loss due to force majure.
ISSUE:
Whether or not appellant Bagtas is obliged to return the 3rd bull or pay its value. (YES)
RULING:
Appellant Felicidad’s contention is without merit.
The loan by the appellee to the late defendant Jose Bagtas of the 3 bulls for breeding purposes for a period of 1 year was
subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. Moreover, a contract of
6
commodatum is essentially gratuitous (Art. 1933[2], Civil Code). If the breeding fee be considered a compensation,
then the contract would be a lease of the bull. Under Article 1671 of the Civil Code, the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable, because Article 1942 of the Civil Code
provides that a bailee in a contract of commodatum is liable for loss of the things, even if it should be through a fortuitous
event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of 1 bull was renewed for another period
of 1 year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid
it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant, the bulls
had each an appraised book value, to wit: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable
for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed
while in the custody of the administratrix of his estate. The money judgment rendered in favor of the appellee cannot
be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant,
the administratrix appointed by the court.
7
LOAN
SAURA IMPORT & EXPORT v. DBP
SAURA IMPORT & EXPORT CO., INC., Platinff-Appellee,

v. DEVELOPMENT BANK OF THE PHILIPPINES, Defendant-Appellant,
GR No. L-24968 | April 27, 1972 | Makalintal, J.
SYLLABUS:
Art. 1954 of the Civil Code: 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 the delivery of the object of the
contract.
Mutual Desistance. A mode of extinguishing obligations. Since mutual agreement can create a contract, a mutual
disagreement by the parties can cause its extinguishment (Manresa).
FACTS:
In 1953, plaintiff Saura, Inc., applied to Rehabilitation Finance Corp. (RFC), now appellant DBP, for an industrial loan of
P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill machinery and
equipment and as additional working capital. In Resolution No. 145 by the RFC, 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. But then, later on, was cancelled to
8
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 plaintiff Saura, Inc. a letter of credit for the release of the jute machinery. As security, plaintiff
Saura, Inc. executed a trust receipt in favor of the Prudential Bank and Trust Co. For failure of Saura to pay said
obligation, Prudential Bank and Trust Co. sued Saura, Inc.
After almost 9 years, plaintiff Saura Inc. commenced an action against RFC, alleging failure on the part of the latter to
comply with its obligations to release the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its jute mill project.
The trial court ruled in favor of Saura, Inc., ruling that there was a perfected contract between the parties and that the
RFC was guilty of breach thereof.
ISSUE:
Whether or not there was a perfected consensual contract between the parties. (YES)
RULING:
There was undoubtedly offer and acceptance in the case. The application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage was executed and registered. The defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. 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.
However, it should be noted that RFC imposed two conditions (availability of raw materials and increased production)
when it restored the loan to the original amount of P500,000. Saura, Inc. was in no position to comply with RFC’s
conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the
mortgage be cancelled. The action thus taken by both parties was in the nature of mutual desistance which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its extinguishment. Since Saura, Inc. did not protest against
any alleged breach of contract by RFC, its request for cancellation of the mortgage carried no reservation of
whatever rights it believed it might have against RFC for the latter’s noncompliance. Also, it was only in 1964,
nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for
damages.
All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance — and that on the initiative of the plaintiff-appellee itself.

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CREDIT TRANSACTIONS

CATHOLIC VICAR PROVINCE, Petitioner,

165 SCRA 515 | 1988 | Gancayco, J.

Petition is denied for lack of merit.

REPUBLIC OF THE PHILIPPINES, Platinff-Appellee,

6 SCRA 262 | 1962 | Padilla, J.

(2) If he keeps it longer than the period stipulated . . .

Appellant Felicidad’s contention is without merit.

(2) If he keeps it longer than the period stipulated . . .

SAURA IMPORT & EXPORT CO., INC., Platinff-Appellee,

GR No. L-24968 | April 27, 1972 | Makalintal, J.

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