CREDIT TRANSACTIONS
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Professor: Atty. Mark Julius Valiente Dosil
I. Credit Transactions
A. Credit, defined
Ability of an individual to borrow money or things by
virtue of the confidence or trust reposed by a lender that
he will pay what he may promise within a specified
period.
B. Credit Transactions, defined
Include all transactions involving the purchase or loan
of goods, services, or money in the present with a
promise to pay or deliver in the future.
C. Distinguished from Bailments, Secured
Transactions
Bailments
- French word “bailler” meaning “to deliver”
- Delivery of a property of one person to
another in trust, for a specific purpose, with a
contract, express or implied, that the trust shall
be faithfully executed and the property returned
or duly accounted for when the specific purpose
is accomplished or kept until the bailor reclaims
it.
KMD: Delivery of a property of one person to
another in trust, with a contract, either for the
property to be returned or duly accounted for,
until the purpose is accomplished or until the
bailor reclaims the same.
-
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In general, bailment may be said to be a
contractual relation. To be legally enforceable, it
must contain all the elements of a valid
contract. (see Art. 1318.)
In every bailment, there is an obligation on the
part of the bailee to restore the subject of the
bailment in the same or in altered form or to
account therefor.
Secured Transactions
- Security is something given, deposited, or
serving as a means to ensure the fulfillment or
enforcement of an obligation or of protecting
some interest in property.
- Personal security - when an individual
becomes a surety or a guarantor.
Property or real security - when a mortgage,
pledge, antichresis, charge or lien or other
device used to have property held, out of
which the person to be made secure can be
compensated for loss.
KMD: Something that is used for property held,
the person in possession of such can be
compensated for the loss of the same.
D. Scope of Credit Transactions (Arts. 2236 - 2251)
1.
2.
3.
4.
5.
6.
Bailment contracts
Guaranty and suretyship
Pledge
Mortgage
Antichresis
Concurrence and preference of credits
II. Loan
Arts. 1933-1961, 765, 1175, 1980, 1413 NCC
ARTICLE 1933. 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 ownerships
of the thing loaned, while in simple loan,
ownership passes to the borrower. (1740a)
ART. 1934. 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. (n)
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Katherine M. Dizon
1
ART. 1935. The bailee in commodatum acquires
the use of the thing loaned but not its fruits; if any
compensation is to be paid by him who acquires
the use, the contract ceases to be a
commodatum. (1941a)
ART. 1936. 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. (n)
ART. 1937. Movable or immovable property may be
the object of commodatum.
consumable thing
Cause/Gratuitous
Essentially gratuitous
May be gratuitous or with
stipulation to pay interest
Ownership
Retained by the lender
Obligation of the borrower
Borrower must return the
same thing loaned
Borrower should pay the
same amount of the
same kind and quality
Kind of property
Act No. 2655, Usury Law
Real or personal property
CB Circulars 416 and 905
A. Definition
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.
Personal property only
Purpose
Art. 1249-1250 NCC, RA 529, RA 8183
Temporary use or
possession
Loan for consumption
When lender may demand
Before the expiration of
the term in case of urgent
need
May not demand the
return of the thing before
the lapse of the term
agreed upon
Loss of the thing
B. Kinds of Loan
Commodatum
Where the bailor (lender) delivers to the bailee (borrower)
a non-consumable thing so that the latter may use it for
a certain time and return the identical thing;
Mutuum or Simple Loan
Where the lender (bailor) delivers to the borrower (bailee)
money or other consumable thing upon the condition
that the latter shall pay the same amount of the same
kind and quality.
Commodatum
Simple Loan
Subject matter
Not consumable
Passes to the borrower
Suffered by the lender
Suffered by the borrower
even if through fortuitous
event
Punishment (Does not return the thing)
Estafa
Civil liability for breach of
the obligation to pay.
WHEN IS A THING CONSUMABLE
A thing is consumable when it is consumed when used
in a manner appropriate to its purpose or nature, like
rice, gasoline, money, fruit, firewood, etc. (Art. 418).
Credit
Loan
Money or other
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Katherine M. Dizon
2
The credit of an individual
means his ability to to
borrow money or things
by virtue of the
confidence or trust
reposed by a lender
(bailee) that he will pay
what he may promise
within a specified period.
Delivery by one party
(lender/creditor), and the
receipt by the other party
(borrower/debtor) who
become the owner, of a
given sum of money or
other consumable thing
upon an agreement,
express, or implied, to
repay the same amount
of the same kind and
quality, with or without
interest.
C. Nature/Characteristics
Characteristics of the contract
The contract of loan is:
(1) A real contract because the delivery of the
thing loaned is necessary for the perfection of
the contract (Art. 1934); see also Art. 1316)
(2) A unilateral contract because once the subject
matter has been delivered, it creates obligations
on the part of only one of the parties, i.e., the
borrower.
Nature of commodatum
1. The bailee acquires the use of the thing but
not its fruits, unless there is a stipulation to the
contrary. (Art. 1935).
2. It is essentially gratuitous
3. The purpose of the contract is the temporary
use of the thing loaned
4. The subject matter is generally
non-consumable real or personal property
5. The lender need not be the owner of the thing
loaned
6. It is purely personal in character:
a. The death of either party extinguishes
the contract unless there is a
stipulation for commodatum to subsist
until the purpose is accomplished.
b. The borrower cannot lend or lease
the thing to a third person. However,
members of the borrower’s household
may make use of the thing loaned
except:
i.
If there is a stipulation to the
contrary; and
ii.
If the nature of the thing
forbids its use.
Catholic Vicar Apostolic v. CA, 165 SCRA 515 (1988)
FACTS:
1. Catholic Vicar Apostolic of the Mountain
Province (VICAR for brevity) filed an application
for registration of title over Lots 1, 2, 3, and 4
located in La Trinidad, Benguet.
2. Said Lots being the sites of the Catholic Church
building, convents, high school building, school
gymnasium, school dormitories, social hall,
stonewalls, etc.
3. 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.
4. 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.
5. 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.
6. 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.
7. Respondents argue that the petitioner is barred
from setting up the defense of ownership or
long and continuous possession by the prior
judgment of the Court of Appeals under the
principle of res judicata.
8. Petitioner contends that the principle is not
applicable because the dispositive portion of the
judgment merely dismissed the application for
registration.
9. Petitioner questions as allegedly erroneous the
Decision dated August 31, 1987 of the Ninth
Division of Respondent Court of Appeals 1 in
CA-G.R. No. 05148 [Civil Case No. 3607 (419)]
and CA-G.R. No. 05149 [Civil Case No. 3655
(429)], both for Recovery of Possession, which
affirmed the Decision of the Honorable
Nicodemo T. Ferrer, Judge of the Regional Trial
Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429).
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Katherine M. Dizon
3
ISSUE:
Whether or not the failure to return the subject
matter of commodatum constitutes an adverse
possession on the part of the owner.
RULING:
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.
Petitioner repudiated the trust by declaring the
properties in its name for taxation purposes.
Who is entitled to the possession and ownership of
the land?
Pursuant to the said decision in CA-G.R. No. 38830-R,
the two lots in question remained part of the public
lands. This is the only logical conclusion when the
appellate court found that neither the petitioner nor
private respondents are entitled to confirmation of
imperfect title over said lots. Hence, the Court finds the
contention of petitioner to be well taken in that the trial
court and the appellate court have no lawful basis in
ordering petitioner to return and surrender possession
of said lots to private respondents. Said property being
a public land its disposition is subject to the provision of
the Public Land Act, as amended.
Article 555 of the Civil Code provides as follows:
Art. 555. A possessor may lose his possession:
(4) By the possession of another, subject to the
provisions of Article 537, if the new possession
has lasted longer than one year. But the real
right of possession is not lost till after the lapse
of ten years.
It is clear that the real right of possession of private
respondents over the property was lost or no longer
exists after the lapse of 10 years that petitioner had
been in adverse possession thereof. Thus, the action for
recovery of possession of said property filed by private
respondents against petitioner must fail. The Court,
therefore, finds that the trial court and the Court of
Appeals erred in declaring the private respondents to be
entitled to the possession thereof. Much less can they
pretend to be owners thereof. Said lots are part of the
public domain.
WHEREFORE AND BY REASON OF THE
FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R.
Nos. 05148 and 05149, by respondent Court of
Appeals is AFFIRMED, with costs against petitioner.
Republic v. Bagtas, 6 SCRA 262 (1962)
FACTS:
1. On 8 May 1948, Jose borrowed from the
Republic, through the Bureau of Animal
Industry, three bulls for a period of one year.
2. This was for breeding purposes subject to a
government charge, which was the breeding fee
of 10% of the book value of the bulls.
3. The three bulls and their book values are as
follows:
a. Red Sindhi – PhP 1,176.46;
b. Bhagnari – PhP 1,320.56; and
c. Sahiniwal – PhP 744.46
4. Upon the expiration of the contract on 7 May
1949, Jose asked Republic for a renewal of the
same for another year.
5. The Republic, through the Secretary of
Agriculture and Natural Resources, however,
only approved the renewal of only one bull for
another year. It also requested the return of the
other two bulls.
6. On 25 March 1950, Jose wrote to the Director of
Animal Industry that he would pay the value of
the three bulls.
7. Moreover, he expressed his desire to buy them
at lower value.
8. On 19 October 1950, the Director advised him
that the books value of the bulls cannot be
reduced and they either be returned or their
book value paid not later than 31 October 1950.
Subsequently, Jose failed to either return or pay
them.
9. On 20 December 1950, the Republic
commenced an action against Jose in the CFI
of Manila ordering the return of the bulls and the
payment of their book value.
10. On 5 July 1951, however, Jose replied that he
could neither return the bulls nor pay their book
value due to the bad peace and order situation
in Cagayan Valley.
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Katherine M. Dizon
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11. Later on, it was found out that the Sahiniwal
died from a gunshot wound inflicted during a
Huk raid sometime in November 1953.
3.
ISSUE:
Whether or not Jose is liable for the death of
Sahiniwal.
RULING:
Yes. Jose is liable for the death of the Sahiniwal. This
liability is based on Article 1942 of the New Civil Code
(NCC) regarding the obligations of the bailee in
commodatum.
4.
5.
(1) The bailee in commodatum is liable for the
loss of the things, even if it should be through a
fortuitous event if:
(a) he keeps it longer than the period stipulated
(Article 1942(2), NCC); and
(b) 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.
6.
7.
8.
The original period of loan was from 8 May 1948 to 7
May 1949. The loan of one bull was renewed for another
period of one year to end on 8 May 1950. Nevertheless,
Jose kept and used the bull until November 1953 when
it was killed by stray bullets during a Huk raid.
Furthermore, when Jose borrowed the three bulls, each
of them had an appraised value, to wit: (a) Red Sindhi –
PhP 1,176.46; (b) Bhagnari – PhP 1,320.56; and (c)
Sahiniwal – PhP 744.46.
Likewise, the contract between the Republic and Jose
did not stipulate that he would be exempt from liability
in case of loss of the bull due to fortuitous event.
9.
10.
Saura Import & Export v. DBP (1972)
FACTS:
1. Saura Inc., is engaged in manufacturing jute
sacks.
2. It purchased jute mill machinery on the strength
of a letter of credit extended by the Prudential
Bank and Trust Co.; and that to secure its
release without first paying the draft, Saura, Inc.
11.
executed a trust receipt in favor of the said
bank.
In order to support its business, Saura, Inc.
applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into
DBP, for an industrial loan of P500,000.00 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.
However, when one of the guarantors withdrew
from such contract of loan, RFC decided to
reduce the amount of P500,000.00 to
P300,000.00.
Saura Inc. did not agree to it, thus it exerted
efforts to regain the signature of the withdrawal
guarantor which was successfully made.
RFC passed Resolution No. 9083, restoring the
loan to the original amount of P500,000.00, but
with the following proviso: That in view of
observations made of the shortage and high
cost of imported raw materials, the Department
of Agriculture and Natural Resources shall
certify to the following: 1. That the raw materials
needed by the borrower corporation to carry out
its operation are available in the immediate
vicinity; and 2. That there is prospect of
increased production thereof to provide
adequately for the requirements of the factory."
With the foregoing letter, Saura, Inc. did not
pursue the matter further. Instead, it requested
RFC to cancel the mortgage, and so, RFC
executed the corresponding deed of
cancellation.
It appears that the cancellation was requested
to make way for the registration of a mortgage
contract over the same property in favor of the
Prudential Bank and Trust Co., under which
contract Saura, Inc. had up to December 31 of
the same year within which to pay its obligation
on the trust receipt heretofore mentioned.
9 years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter
commenced the present suit for damages,
alleging failure of RFC (as predecessor of the
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defendant DBP) to comply with its obligation to
release the proceeds of the loan applied for and
approved, thereby preventing it from completing
or paying contractual commitments it had
entered into, in connection with its jute mill
project. (Ibig sabihin kinasuhan sya ng
Prudential Bank for failing to pay its obligation)
ISSUE:
Whether or not there was a perfected contract of
loan between the parties.
RULING:
YES. 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 this
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. 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.
The imposition of those conditions was by no means a
deviation from the terms of the agreement, but rather a
step in its implementation. When RFC turned down the
request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously
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, which was done on June 15,
1955. The action thus taken by both parties was in the
nature of mutual desistance — what Manresa terms
"mutuo disenso" 1 — 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.
Herrera v. Petrophil Corp., 146 SCRA 385
FACTS:
1. On December 5, 1969, Herrera and Petrophil
Corp. entered into a "Lease Agreement" where
Herrera leased to Petrophil a portion of his
property, subject inter alia to the following
conditions:
a. The LESSEE shall pay the LESSOR a
rental of a total of P2,930.20 per month
on 2,093 sqm more or less, and that the
Lessor should be paid 8 years advance
rental based on P2,930.70 per month
discounted at 12% interest per annum
before registration of lease.
2. On Dec. 31, 1969, Petrophil paid the advance
rentals for the first 8 years, subtracting the
amount of P101,010.73, the amount it
computed as constituting the interest or
discount for the first 8 years, in the total sum
P180,288.47.
3. On Aug. 20, 1970, Petrophil explained that there
had been a mistake in computation, and thereby
reducing the amount to only P98,828.03.
4. On Oct. 14, 1974, Herrera sued Petrophil for the
sum of P98,828.03, claiming this had been
illegally deducted from him in violation of the
Usury Law.
5. Petrophil argued that the amount deducted was
not usurious interest but was given for paying
the rentals in advance for 8 years. Judgment
favoured Petrophil.
6. Herrera appealed to the SC, insisting that such
interest is violative of the Usury Law; and that
he had neither agreed to nor accepted
Petrophil’s computation of the total amount to
be deducted for the eight years advance rentals.
ISSUE:
Whether or not the contract is a loan or lease.
RULING:
Lease. As its title plainly indicates, the 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 taken as a repayment of a loan because there
was no grant of money as to constitute an indebtedness
on the part of the lessor. On the contrary, Petrophil was
clearing its obligation by paying the 8 years rentals, and
it was for this advance payment that it was getting a
discount.
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There is no usury in this case because no money was
given by Petrophil to Herrera. There was neither loan but
a mere discount which Herrera allowed Petrophil to
deduct. 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."
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;
3. 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 v. PNB, 174 SCRA 295 (1989)
FACTS:
1. Santos made two time deposits with defendant
Overseas Bank of Manila (OBM) in the amount
of P500k and P200k (P700k total)
2. Defendant IRC, through its president Santos
applied for a loan and/or credit line in the
amount of P700k with PNB.
3. To secure the loan, Santos executed a Deed of
Assignment of the two time deposits in favor of
PNB. OBM gave its conformity to the
assignment.
4. OBM, after the due dates of the time deposit
certificates, failed to pay PNB. Thus, PNB
demanded payment from IRC and Santos and
also from OBM.
5. IRC and Santos, however, denied liability and
alleged that the obligation was deemed paid
with the irrevocable assignment of the time
deposit certificates.
6. Therefore, PNB filed a complaint to collect from
IRC and Santos the loan of P700k with interest
as well as attorney’s fees. It also impleaded
OBM as a defendant to compel it to redeem and
pay the time deposit certificates with interest.
7. OBM initially denied knowledge of the time
deposit certificates alleging that those do not
appear in their books of account.
8. It eventually acknowledged the time deposits
and admitted that their failure to pay was due to
its distressed financial situation.
9. As a defense, it alleged that it does not have the
capacity to pay by reason of its insolvency.
10. Trial court – ruled in favor of PNB and ordered
IRC and Santos to pay the P700k loan plus
interest.
11. It also ordered OBM to pay IRC and Santos
“whatever amounts the latter will pay to the
plaintiff with interest from the date of payment”
12. CA – modified the decision and deleted the
portion of the judgment ordering OBM to pay
IRC and Santos.
ISSUE/S:
1. Whether the liability of IRC and Santos with
PNB should be deemed to have been paid by
virtue of the deed of assignment by the
former in favor of PNB.
2. Whether OBM should be held liable for
interests on the time deposits of IRC and
Santos from the time it ceased operations
until it resumed its business.
3. Whether OBM should reimburse them for
whatever amounts they may be adjudged to
pay PNB by way of compensation for
damages incurred, pursuant to Art 1170 and
2201 of the Civil Code.
RULING:
Issue 1:
No. The court agrees with the CA that the deed of
assignment does not constitute “payment” of their
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obligation. It will only be considered a payment if there
was an express agreement on the part of the creditor to
receive it as such. Hence, IRC and Santos are still liable
to pay the amount.
It would not have been necessary on the part of IRC
and Santos to execute promissory notes in favor of PNB
if the assignment of the time deposits was intended as
an absolute conveyance. In this case, the deed of
assignment is actually pledge.
The elements of a contract of pledge are:
A. That it be constituted to secure the fulfillment of
a principal obligation
B. That the pledgor be the absolute owner of the
thing pledged
C. That the persons constituting the pledge
have the free disposal of the property and in
the absence thereof, that they be legally
authorized for the purpose.
In this case, the requirements have been satisfied. The
additional requirement that the thing pledged must be
placed in the possession of the creditor was also
complied with by the execution of the deed of
assignment in favor of PNB.
Yes. At the time the PNB demanded from OBM payment
of the amounts due on the time deposits which matured
in January 11, 1968 and February 6, 1968, there was no
obstacle yet which would prevent OBM’s faithful
compliance. It was only on July 31, 1968 when OBM
was excluded from clearing with the CB. In addition,
OBM’s operations were suspended only on August 2,
1968 (few months after the demand was made)
For having incurred in delay, OBM should be liable for
damages. When Santos invested his money in time
deposits, it should be considered a simple loan or
mutuum, not a contract of deposit.
While it is true that under Art 1956 of the Civil Code 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 interests paid as
damages.
The applicable rule is that legal interest, in the nature of
damages for non-compliance with an obligation to pay a
sum of money, is recoverable from the date of judicial or
extrajudicial demand. In this case, the measure of such
damages shall be the interest agreed upon in the
certificates of deposit (6.5%).
It must also be noted that Santos, as assignor, made an
express undertaking that he would remain liable for any
outstanding balance of his obligation should PNB fail to
collect the assigned sums. The term “for any cause
whatsoever” is broad enough to include the present
situation.
Issue 2:
No. It should be deemed read into every contract of
deposit that the obligation to pay interest on the deposit
ceases at the moment the operation of the bank is
completely suspended by the duly constituted authority,
the Central Bank.
Thus, the bank is exempted from paying the interests
during the whole period of factual stoppage of its
operations by orders of the CB. In addition, this
exemption should also be applicable to all other
obligations of the bank which could not be paid during
the period of its actual complete closure.
Issue 3:
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D. Subject Matter
ART. 1936. 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. (n)
ART. 1937. Movable or immovable property may be
the object of commodatum.
Subject matter of the contract
General rule: Non-consumable goods, whether
movable or immovable property (Arts. 1936-1937).
Exception: 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 (Art. 1936).
Republic v. CA, 146 SCRA 15 (1986)
Quintos v. Beck, 69 Phil 108 (1939)
Republic v. Grijaldo, 15 SCRA 638 (L-20240, Dec. 31,
1965)
E. Rights & Obligations of Bailor & Bailee (Lender &
Borrower)
Obligations of the Bailee (Borrower)
Principal Obligations: (TUP-R)
1. Take care of the thing with diligence of a good
father of a family (Art. 1163);
Reason: The bailee is supposed to return the
identical thing (Art. 1933).
2. Use the thing loaned only for the purpose for
which it was loaned and for no other purpose
(Arts. 1935, 1939, 1940).
Note: Otherwise, he will commit a breach of
contract.
3. Pay ordinary expenses for the use and
preservation of the thing and a portion of
extraordinary expenses arising from the actual
use of the thing (Art. 1941, 1943, 145, 1949,
1940).
Reason: He acquires the use of the thing, and is
supposed to return the identical thing.
Liability of Extraordinary Expenses
If extraordinary expenses arise on the occasion
of the actual use of the thing by the bailee, even
though he acted without fault, they shall be
borne equally by both the bailor and bailee,
unless there is a stipulation to the contrary (Art.
1949, par. 2).
Exception: If there is a stipulation for different
apportionment.
4. Return and not to retain the identical thing
loaned except under certain circumstances
(Arts. 1933, 1944, 1946).
Right of Retention
General rule: Bailee (borrower) has no right to
retain the thing loaned as security on the ground
that the bailor (lender) owes him something,
even though it may be by reason of expenses
(Art. 1944).
Reasons:
a. Ownership remains in the bailor (lender);
and
b. Only temporary use is given to the
bailee (borrower).
Exception: The bailor (lender) who, knowing the
flaws of the thing loaned, does not advise the
bailee (borrower) of the same, shall be liable to
the latter for the damages which he may suffer
by reason thereof (Art. 1951).
Other obligations: (LDE)
1. Liability for loss due to a fortuitous event (Art.
1942).
General rule: He is not liable because
ownership remains with the bailor.
Exceptions: He is liable for loss even if it should
be through a fortuitous event in the following
cases:
a. When he keeps it longer than the period
stipulated, or after the accomplishment
of his use;
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b. When he lends or leases it to third
persons who are not members of his
household;
c. When the thing loaned has been
delivered with appraisal of its value
unless there is a stipulation exempting
the bailee from responsibility in case of
fortuitous event.
d. When, being able to save either the
thing borrowed or his own things, he
chose to save the latter.
e. When the bailee devoted the thing for a
different use from that agreed upon.
2. Liability for deterioration due to the use of the
thing (Art. 1943).
General rule: Bailee (borrower) is not liable.
Exceptions:
a. If expressly stipulated;
b. If guilty of fault or negligence (Art.
1170);
c. If he devotes the thing to any purpose
different from that for which it has been
loaned (Art. 1942, par. 1); and
d. If he uses the thing beyond the period
stipulated (Art. 1942, par. 2).
3. Liability for expenses other than those under
Arts. 1941 and 1949 for the purpose of making
use of the thing (Art. 1950).
Reason: To effectively safeguard the rights of
the bailor.
Obligations of the Bailor (Lender) (RRL)
1. Respect the duration of the loan (Art. 1946).
General rule: He cannot demand return before
expiration of the period or accomplishment of
the use (Art. 1946).
Exceptions:
a. In case of urgent need of the thing, he
may demand its return or temporary use
(Art. 1946).
b. If the bailee (borrower) commits any act
of ingratitude specified in Art. 765 of the
Civil Code:
i.
ii.
iii.
Bailee should commit some
offenses against the person,
honor or property of the bailor
(lender), or of his wife or
children under his parental
authority;
Bailee imputes to the bailor any
criminal offense, or any act
involving moral turpitude, even
though he should prove it,
unless the crime or the act has
been committed against the
bailee (borrower) himself, his
wife or children under his
authority; and
Bailee unduly refuses the bailor
support when the bailee is
legally or morally bound to give
support to the bailor (Art. 1948).
Reason: Like donation, commodatum is
essentially gratuitous.
Precarium is a kind of commodatum
where the bailor (lender) may demand
the thing at will.
In the case of precarium, the bailor can
always demand the thing at will. There
is no need for the existence of an act of
ingratitude.
2. The bailor (lender) shall refund the extraordinary
expenses during the contract for the
preservation of the thing loaned, provided the
bailee (borrower) brings the same to the
knowledge of the bailor before incurring them,
except when they are so urgent that the reply to
the notification cannot be awaited without
danger (Art. 1949, par. 1).
Reason: It is the bailor (lender) who profits by
said expenses.
Exception: If the extraordinary expenses arise
on the occasion of the actual use of the thing
by the bailee, even though he acted without
fault, they shall be borne equally by both the
bailor and the bailee, unless there is a
stipulation to the contrary (Art. 1949, par. 2).
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Exception to the exception: Stipulation
providing for a different apportionment of
expenses, or those expenses shall be borne by
the bailee or bailor only.
3. Be liable to the bailee (borrower) for damages
for known hidden flaws (Art. 1951).
Requisites: (FHANS)
a. Existence of flaw or defect;
b. The flaw or defect is hidden;
c. The bailor (lender) is aware thereof;
d. Bailor does not advise the bailee of the
same; and
e. The bailee (borrower) suffers damages
by reason of said flaw or defect.
If the above requisites concur, the bailee (borrower) has
the right of retention for damages (Art. 1944).
The bailor (lender) is made liable for his bad faith.
If the defect is not known to the bailor, he is not liable
because commodatum is gratuitous.
No Right of Abandonment
The bailor (lender) cannot exempt himself from the
payment of expenses or damages by abandoning the
thing to the bailee (Art. 1952).
Reason: The expenses or damages may exceed the
value of the thing loaned, and it would, therefore, be
unfair to allow the bailor to just abandon the thing
instead of paying for said expenses and/or damages.
De los Santos v. Jarra, 15 Phil 147 (1910)
Mina v. Pascual, 25 Phil 540 (1913)
Briones v. Cammayo, 41 SCRA 404 (1971)
Lopez v. del Rosario, 44 Phil 98 (1922)
FACTS:
1. Mrs. Del Rosario, one of the defendants herein,
was the owner of a bonded warehouse situated
in the City of Manila. She was engaged in the
business of a warehouse keeper, and stored
copra and other merchandise in the said
building.
2. Froilan Lopez was one of the persons who
deposited in the Del Rosario warehouse. He
holds 14 warehouse receipts in his own name
and the name of Elias T. Zamora.
3. The warehouse receipts, or negotiable warrants,
or quedans (as they are variously termed) of
Lopez named a declared value of P107,990.40.
4. The warehouse receipts provided:
a. (1) For insurance at the rate of 1 per
cent per month on the declared value;
b. (2) the company reserves to itself the
right to raise and /or lower the rates of
storage and /or of insurance on giving
one calendar month's notice in writing;
c. (3) this warrant carries no insurance
unless so noted on the face hereof, cost
of which is in addition to storage;
d. (4) the time for which storage and /or
insurance is charged is thirty (30) days;
e. (5) payment for storage and /or
insurance, etc., shall be made in
advance, and /or within five (5) days
after presentation of bill.
5. Mrs. Del Rosario secured insurance on the
warehouse and its contents with the National
Insurance Co., Inc., the Commercial Union
Insurance Company, the Alliance Insurance
Company, the South British Insurance Co., Ltd.,
and the British Traders Insurance Co., Ltd., in
the amount of P404,800.
6. The warehouse and its contents were destroyed
by fire on June 6, 1920 and was at a total loss.
The only salvaged copra stored in the
warehouse amounts to P49,985.
7. A settlement between the insurance companies
and Mrs. Del Rosario was attempted but to no
avail. As a result, an agreement to submit the
matter to arbitration was made.
8. Eventually, Mrs. Del Rosario satisfied all of the
persons who had copra stored in her
warehouse, except Froilan Lopez, the petitioner
herein.
9. Lopez claims that he is entitled to P88,595.43 in
lieu of P88,495.21 allowed by the trial court. The
slight difference of P100.22 is asked for so that
Lopez can participate in the interest money
which accrued on the amount received for the
salvaged copra.
10. Mrs. Del Rosario denied and attempts to avoid
all liability.
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ISSUE:
Whether or not Mrs. Del Rosario acted as an agent
of Lopez, in taking out insurance on the contents of
the bodega and is liable for the amount claimed by
Lopez.
RULING:
Yes. The agency can be deduced from the warehouse
receipts, the insurance policies, and the circumstances
surrounding the transaction.
The law is that a policy effected by a bailee and
covering by its terms his own property and property
held in trust, inures, in the event of a loss, equally and
proportionately to the benefit of all the owners of the
property insured. Even if one secured insurance
covering his own goods and goods stored with him, and
even if the owner of the stored goods did not request or
know of the insurance, and did not ratify it before the
payment of the loss, yet it has been held by a reputable
court that the warehouseman is liable to the owner of
such stored goods for his share.
Further, the Court noticed that in two documents, one
the agreement for arbitration, and the other the
statement of claim of Mrs. Del Rosario, against the
insurance companies, she acknowledged her
responsibility to the owners of the stored merchandise,
against risk of loss by fire. The award of the arbitrators
covered not alone Mrs. Del Rosario's warehouse but the
products stored in the warehouse by Lopez and others.
Zobel v. City of Manila, 47 Phil 169 (1925)
Reformina v. Tomol, 139 SCRA 260 (1985)
Liam Law v. Olympic Sawmill Co., 129 SCRA 439
(1984)
Banco Filipino v. Navarro, 152 SCRA 346 (1987)
PNB v. IAC and Maglasang, 183 SCRA 133 (1990)
PNB v. CA and Padilla, 196b SCRA 536 (1991)
PNB v. CA and Fernandez, 238 SCRA 80 (1994)
Florendo v. CA, 265 SCRA 678 (1996)
FACTS:
1. Petitioner Gilda Florendo was an employee of
Land Bank of the Philippines (LBP), respondent
herein from May 17, 1976 until August 16, 1984
when she voluntarily resigned.
2. Before her resignation, she applied for a
housing loan of P148,000, payable within 25
years from LBP’s Provident Fund on July 20,
1983.
3. The parties executed a Housing Loan
Agreement, Real Estate Mortgage, and
Promissory Note.
4. On March 19, 1985, LBP increased the interest
rate on Florendo’s loan from 9% per annum to
17%, the said increase to take effect on March
19, 1985.
5. The details of the increase are embodied in
LBP’s ManCom Resolution and in a Provident
Fund Memo Circular.
6. LBP informed Florendo of the increase in June
1985 with a copy of the Memo and a Statement
of Account.
7. Petitioners protested the increase in a letter, to
which respondent replied through a letter by
their legal counsel.
8. LBP kept on demanding Florendo to pay the
increased interest but she vehemently
maintained that the said increase is unlawful
and unjustifiable.
9. LBP’s repeated demands led petitioners to file
an instant suit for Injunction and Damages.
10. Despite LBP’s demands to pay the interest,
petitioners faithfully paid and discharged their
loan obligations with the original stipulated
installment of P1,248.72. Disregarding the
repeated demands.
11. The trial court ruled in favor of LBP and held
that the bank was vested with authority to
increase the interest rate pursuant to the
escalation provisions in the Housing Loan
Agreement (HLA) and the mortgage contract.
12. Petitioners appealed that the increased interest
rate is onerous and was imposed unilaterally
without the consent of the petitioners.
13. Hence this appeal.
ISSUE:
Did the respondent bank have a valid and legal basis
to impose an increased interest rate on the
petitioner’s housing loan?
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RULING:
No. The imposed increased rate is not valid.
In the case of Banco Filipino, the Court xxx disallowed
the bank from increasing the interest rate on the subject
loan from 12% to 17% despite an escalation clause in
the loan agreement authorizing the bank to
"correspondingly increase the interest rate stipulated in
this contract without advance notice to me/us in the
event a law should be enacted increasing the lawful
rates of interest that may be charged on this particular
kind of loan.”
In the case at bar, the loan was perfected on July 20,
1983. PD No. 116 became effective on January 29,
1973. xxx
In light of the CB issuances in force at that time,
respondent bank was fully aware that it could have
imposed an interest rate higher than 9% per annum rate
for the housing loans of its employees, but it did not. In
the subject loan, the respondent bank knowingly
agreed that the interest rate on petitioners' loan
shall remain at 9% p.a. unless a CB issuance is passed
authorizing an increase (or decrease) in the rate on such
employee loans and the Provident Fund Board of
Trustees acts accordingly. Thus, as far as the parties
were concerned, all other onerous factors, such as
employee resignations, which could have been used to
trigger an application of the escalation clause were
considered barred or waived. If the intention were
otherwise, they, especially respondent bank, should
have included such factors in their loan agreement.
Further, the Court stated that it will not be amiss to point
out that the unilateral determination and imposition of
increased interest rates by the herein respondent bank
is obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code.
The Court held that respondent bank's position that the
concessional interest rate was really intended as a
means to remunerate its employees and thus an
escalation due to resignation would have been a valid
stipulation. But no such stipulation was in fact made,
and thus the escalation provision could not be legally
applied and enforced as against petitioners.
F. Modes of Extinguishment
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