Civ - Zuniga Notes - Credit

7/28/2019 Civ - Zuniga Notes - Credit

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cf;

I.A. Dcfinitiolr of Crcdit or Sccurlty 'I'ronrrctionc

Credit trsnsactions include all lransactions) involving thc purchaseservices or money in the present with e promise to pay or deliver in thepromise to pay or deliver in the future, there cin be no security lransaction.B. Kinds of Bailmeut ContractB. I Those lor lhe sole benefit of the bailorl.l gratuitous depositI .2 mandatqrnBtz 'l'hosc tirr tlrc sole bencfir ofthc bailec2.1 commodalum2.2 gratuitous mutuumB.3 Those tbr the benefit of borh panies

3. t tlclxrsit lbr u cornl)crrsntion; involuntary deposit3.2 plcdgc. 3 :l boilnrcnts frrr hire

or loan of Eoods,firture. Witliout a

bcen delivered, it creates

i

C, Loan in Gcneral i.rilC,l Chsrlctcristic! of ahe Conlroct i I . .:, ---,^ i.i ; r.l ; ;l. Real Contract because the delivery of the thing loancd is rEccas[ri ior.thc perfcction ofthc conltrct (Aniblc 1934; sec ilso Aniclc t316 of the-Civil Code). i 'i . , ', i:

i-. .A loan contrad ii not a conisnsual contract but 8 rral contrscl is'Frerfected only upon the delivery of the objecr of the contrait Thc ,Eal contractof lobn reguircs the delivery of the objeci of thc contracttfor it, perfcation andgives risc rrr obligotions only on thc pait ofthe borrower.2... .tjnilateral Coniract becouse once the subject motter hasobligatiorrs on tlrc pnrt ol'only one olthe pani,es, i.e.l thd borrower.IttCO Samole Protrlem

Examples of real bailment contracts sr:. g onrichrcsis and guaranty+ b. commodatum and ple{gec. chalrelmortla3oand.iurotyshipo. rcat estotc mortgage and dcposit.Lceal Basis: Artictcs 1934 and 2o93.ofthe Civil Codc

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MCO Samole PloblemAn exunrple of6 tailnent contract which is alrvays gr0tuitous is:a. depositb. ant ichresisc. B,uirntnty.:. d. commo&tumothcrwise, il bccomes a contract of:

.a. saleb. usuttuct::. c- leased. rnortg,agel,euul !]g$s: Artislcs 1933 und 1935 of ths Ciyil Codc

loss is shouldered by beitor since he is' g. borrowelsuffc5 tlrg loss even if 3tre loss .the owner i"-;;r;; iv a fortuitous evcnt :Distinctions betweer Commodatum (Elram) and r -gro (Upr) l l , " : 'Commodatum is o rcol contract. whcreas tease is g conscncual controctThe objeqt of commoaatri* is a nonconsumable (nonfirngiblc) thing; whircss the objectof lease may eved be work or service. i' i .Conr;rodatum is essentially gratuitous, whereas lease is not gratuitorrs. .J

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C.3 Dlsalrction$ bctwcn Commodatuur 8rd Mutuum i I I ,

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L subjecr matter is non-consumable things l. subject ;*i ,l money or other2. owrrcrship rcttirrcd hy lenrJcr 2. owncrship tronsfe*c{ to borrowcr3. cssentially gratuirous 3. may6e grot,ritotr. J, orr.ro*4. borrower must return tlie same thing - 4. borrower lrroa ooly pay tha . samcloancd arnount of rla sa,mo rJna'aia qual;ty-5. may involvc rcal or pcrsonal property 5. involves only perlon"l piropgrty6. loan for use or temporary possession . 6. loan for consumption7. righl to demand ihe re$rn of the thing 7. no riEht to acmana the return of the'loaned before the expiration of term in thing Toancd bcfore the lapse of the termcase ofurgent need ,g.id upon8.

c,4t.


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3.4.5.

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C.S Dislinctionc bciwecn Com modaium nnd UsufructI1998 Bnr Exan Ouestion'lCom rnode tum

conslitured by law or by conract

crcatqs a purely personal right toltsc irnot hcr's propertyolrvays or css!:ttt i.r lly gratuitousreal cr'rnlntctbrilcu rrrrly ucquires usc ol' thething l0aned but nol its frrritsconsurnable . goods may be thesubjecr only \yhcn the purpose ofthe contract is merely forexhibitionCOMIVIODA'IUM

. Irrufructconstitutcd by law or by coirtradt,by testamentary successiori or biprescriptioncreates q real righl to the fruits ofanother's propertymay be onerous.'lconsensual contnict

Iusufrudtuary abquiies lhe righr lothe usa and lfruits of proPenysubjecr of usufiuirmay . be- :con3titutcd. overconsumables like moneY

2.

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6.

Chlr[ctclistics ii,Grltuirr'rus, othcrwise it is a lease (Aflible 1935). i i

tenant's -withholding of the propertyrwould then be unlawful. This is setdcd- . Even assuning that the relationship bctwecn Pajuyo and Gudnerra is oncof commodatum, Gucvarra as bailc r,raould still havc thc duty to turn'ovcr

r)us. othcrwise it is a lease (Aflible 1935). I t ,ii iPaiuvo vr. CourLofApneals I I.. (43O SCRA.492) I r iThe Kasunduan reveals thet tbt eccommodation accordcd L. ".i*o ,iGuevarra was not essentia[y gratuitous. While thd Kasundusn di{ not requireGuevarra to pay rent, it obliptcd him to mainrain thc propc.hy in goodcondition. 'l'he imposilion of.this obtigation makcs thc Kasurduan . contrdGtdi fferent from a commo&tuin. Thi efGcts, of thc Kasunduan arc 4so diffrrcntfrom that ot' a commo&tum. Case law o4 ejectment has Eat?d rclationshipbased on tolerance as one thot is akin to s tandlord-tenant retationship wherc thewithdrawsl of pennission would result in the termination of thc lcase. The

l.

possession ofl the to Pajuyo, the bailor,commissir>n. odnrinistration and

2. Purposc is thc rcmporary usc of the thing loaned (Anicle 1935).


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(-:r.

Catholic \licar Andstolic of the MountelnW.,i .:i.Privatc rgsrDndents werc able to provc that their prcdcccssors' housewas borrowed by petitioncr Vicar aftcr thc church ; aod thc @Dvcnt were3.

pctitioner. canre only in 195.1 rvhen it declored the lots.for taxation purposes.'l'lrc action of lxtitioner Vicar by such adverse claim could not ripen into title byrvayofordinaryacquisitive.prescriptionbecauseofthe'absenceofjusttitl;.. ...Bailcc's righr ro use is limired to the thing loaned and not to iqrfru;ts (ert;cte t93j)urrless thc-re is a stipulation ro the cootrary (Anicle l94O). ; ,.,1 r;sut)jccr nxlttcr is gcnerally non-consunrable things but may covi:r; cor.sumabls ir thepuryDse ol'llre contract is for exhibition.

destroyed.

t.

..1.

Producers B$nk ofthc Philippines vs. Courtof Arrpeals(397 SCRA 6sr)Foct$: Sonrcaimc in 1979, private respondent Franklin Vives wps:astced Uy tllsneighbor and tiiend Angeles Sanchez to help her friend and iorvnmate -iol.Arturo Doronilla in incorporating his, businlss, thc Stcrcla M;kdng airdServiccs ("Stcrela", for brcvity). Sanchez asked Vives to depqsil a Clrt"inamounr of moncy in the bank accouat of Ster_cie f


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the arnount shall be retumed within thirty (10) i days.- Vives merely"accommodated" Doronilla by lending his moncy witlout considcretiorl as athvor to bis good fricnd Sanchez. It wag horrcvcr clcar to th. perties to thetransaction that the money would not be rcsoovcd frtim Stcrcla's savingsaccount snd would bc rctumed to Vives aftcr thify day.i. i3. Doronilla's attcmpts to rctum to viveg tlrc amoLt of pOOpo[.oo o,fri.f,the laner depositcd in Stercla's account together wilh ad ad4itioual PI2,OOO.Oo, _allegedly representing intcrest on the mutuum, did ngt coDvcrt tbo tranCaction' ,frorn a commodaturn into a mutuum becriusc tho.additisDal PI2,O0O.0Ocorrcsponrls to the fruirs of thc lending of the B2O0,O0O.O0. . Articlq t 935 of theCivil Code expressli states that thc bailec in commodatum acarldrds the use ofthe thinq loaned but not its fruits. Hencc, it was only prope.r for Dorodlla torenrir ro Vives the interest accruing to the latter's m6ney deposited with,Producr:rs Bank. .5. Bailor need noi be the owrrer; it is suflicient thst he has posscssory interesi over subjectmatter (Article 1938). i . :6. Conrmodaturn is purely personal in character hence dcath ofcithd tha bailor or the bailecextinguishes the contract (Article 1939).

MCO Samnle ProblemThe death of either the bailor or the bailee extinguishcs the. contract of commodatumbecause commodatum ts a:- a. consensual contractb. . bilateral contract j+ c. purely personal contractd. ieal contractLegal Basis: Anicle lg3g of the Civil cod" i'i. i'

7. ., General Rule: Bailec can neither lend nor legsc .thc' ' Exceprion: Member of bsilc"'s ho*.notd .' 'lException ro the exccption:

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a) there iS a contrary stipulationb) naturc ofthing forbids such use.Obligations of the B.itec

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l.)i,Bailee is liable for ordinary e>.penses for the use and prcsc ation ofthe thing loaned.

General Rule: Bailee is not liab'ie for loss o, d"|r,ig. due to a fortuiious evcnt(because t ,rc bailor retains owncrship,over lhe ttring loaned).Exceptions: a)b)c)d).e)


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t993 Bar Exam OuestionA, upon requcsr, loaned his passcngcr jccpnoy to B to cnablo B ro bring hie sick wifo .from Paniqui, Tarlsc to thc. Philippine Gocral Hospital ia ldaaila.for trcatqnqtt" On the wayback to Paniqui, aftcr lcoving his wifo 8t the hospitsl, pooplo 3toppcd tho passcnger Jcopncy, B . ,stoppcd for rhcm and allowpd thcm to ri& on boand, acccpting paymcnt froE them just.as in tlrc

cese of ordinary posscnger jccpncys plying tbcir.rouio. .As B was orossing Birmbaq thcre $,asonrush of lahar from Mt. Pinatubo. Tlrc jecp that was toaned to him was wH . . ,l. What do you call thc contract that was eirtred into by A and B witlr .respect to thePsssen8erjeepney thsl was loaned by A to B to transport the lattcr's sick wife to Manila?2. ls li ohlilrcrl t() l)uy A for thc use ofthe prssehger jcepney?.f. Is l] liable ro A lbr rhc loss of thc jeepney?Answer:I . Commodatum (Art. 1993, Civil Code)2. B is not obliged to p8y,l foll!: u:: oflhe. passenger jegfney because comrnodaturn iscssL'ntr:rll\ Brirtuit()us. (n rt. I933, Civil Code)-). lt is liablc lrcc$usc.lru dovotcd thc thing to o purposc dill'crcnl lrom that for which.it husbeerr hxrncd (/\rr. 1942, par. 2, Civil Codc)Allernalivc Anslvcr:

B is not liBble because an obiigation which consists in the delivery ofa determinate thingshall be extinguished if it should be lost or destroyed without the fsutr;i the debtor, and befo[he has incurred in delay. (Art. 1252, Civil Codc) i L

Answer:ii )A is liable for ihe loss of B's truck. The bailec in commodatum is liable for the loss ofthe thing looned even if the loss. is due to a fortuitous cvcnt wherc, being fble to gave it or-hisown thing, he chos to save the lutcr. I:,f. Bailies orc solidarily lioblc whcn thc thing is loancd to two or'morc bailccg in the samocontract :-Note:l. Bailee is not liable for ord.inagr wear and.tear due to use of Ote thing loaned-Exceptions: :a. if he is guilty offsult or ncgigencc i :b. if he devotcs thing ti any purpgsc diffcrent from that for which it'

has becn loancd2 Bailee cannot rcrain dr! thiog loancd as sccurity for claims be may havg Egpinst thbailcr, even though by reason of extrsordinary expcnscs.l. To nllorv ihc builee.the usc of the thing loaned for the duration of per;oa stipulatcd oruntiltheaccon:plishrnentoll'hcpurposeforwh[hcommodatunrwasconstitu.tcd.,,'

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Exception:

MCO Samnle.ProblemPrccarium arises:

g.b. b.lb.2b.3

,urgcnt nccd during whictr timC the commodatum is suspcndcdprccarium- if dtEation of thc conrect has not bccn stiPulatedif use or purpose ofthc tlung hds not bccn stiPulatedif usc of thing is merely toleratcd bylhe bailor

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'',a. ifthe use ofthe thing pledged hBs not been stipulsted by'the pattisb. ifthe druation ofthe contract of mutuun has not been stlpirlated by the particaa. ifthe purpose of the thing subject ofdgposit hss not bccn slipulated by the pafiies{. d. ifthe use ofthe thing subject ofcornmodatum is merely tolerated by lhe bailor. - -Le,zal Basis: Article 1974 of the Civil Code

?. To refund extraordinary expcnsis for thc preservation ofthe thing loqned provided bailoris notified beforc the expens.s were incuned. ,Excrption: urgent nced hence no :notice is necessaDif3. To rcfrurd 5ooZ of the extraordinary .*perrs"e" arising from actual use of'thc thing toaned(i.e. caused by fortuitous cvent). .Exception: contraD, stipulation 1 .. I

i4. 'I'o pay damagcs to bailee for known hidden flaws jn the thing,k onedl. Bailor has the right to dcmand return of, th thing if bailec commits any oct of ingrati:tude:: ,:

III.A. Definition

Ml-tuum is a contract whcreby bne of thc parties delivers tb another Frrty, nroney or oaherconsumable things wirh thc underctanding rhar rhe same amouirt of.lhe same hind and qualityshall be paid.B. Cbarscteristical. Borrower acquires owncrship tif the thing and can. thcrcfore dispose of theborrowed. There is no iriminal liability for failurc to pay one's debt.

Gercie vs. Thio(sl8 scRA 433)A loan is a real contract, not consnsual, and as such is pcrfccted onlyupon the delivery of thc object of thc contract. Upgn delivcry of thc object ofthe contract of lonn (in thig caso thc moricy reccivod by tho .dobtor whcn thochecks werc cnc8hcd), thc dcbtor acquircs owncrship of such mony or Ioanproce,eds and is bound to pay the creditor an equal rmount.

Delivery is the act by wtiich thc /er or substance thereof is placed withinactual or donstruitive possessiorr or control of another..

thing

ii


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,i i . i gcampo III vs. People:: (543SCRA487)i.rl

The relationship between the Province of Tarlac and the LTFI is that of acreditor and debtor. Failure to pay the indebtedness would give rise to acollection suit- !W, i (422 SC?A 459),II I Tho DBP aontcnds that thc Spccial Loan. progrgm (SLp) is ..mercly' anoimgl loan trimsactioa, akin to thc lo6n granted by thc GSIS, SSS snd tha DBpPr


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C. Dbtinctions between Mutuuo (Utang) snd Lease (Upt)Il. In mutuum, thc objccl is money or ony consumablc (fungible) thing, whereos in leasc, theob.iect may be any thing, whether movable or immovable, fungiblc. or nonfrrngible.

2. In mirtuum, thc thing loaned becomes the property of the debtor, whercas in leasc, the

it:Facts: . The heirs of Leonor Rosalca authorizcd. Liwavwav AbasolL to selt thJpropcrties of the deceased in Sta- Cruz, Laguna.'Coirron Mirasigan, an

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Lilvanrq v.s. Court of Apperli281 SCRA 225,(1997). Neithcr can the Eansaction be considered a loarl sincd in a Contract ofloan once thc money is received by the debtor, ownership ,over. the sri(ne isransfcrred. : Being the ownei, thc borrowei can disposc of it for.whatevar 'purpcise hc may dccm propcr. In thc instant petition, howwer, it ii cvidenr thatLiwanag could not dispose of thc moncy as she .pteascd.bccause it l^/as onlydelivered to her for a single purpose, namely, tbr the. purchase of cigatittes; sndif this was not possible then io retum thc money to Rosalcs. Since irithis cosithere was no transfer ofownership ofthc moncy delivered. Liwonag is liable bconversion underArt.315, par. l(b) ofthe Rcvised Penol Code. -3. In mutuum, the relationship which is created is that ol creditor and debtor, whe'reas inlcase, thc relationship thot is crcotcd is that of tsndlord snd tenant or.lcssoi unrl lcssuc (folcntinovs. Gonzaresj 50 Phil. 558). . ,

Prudential Bank and Trusi Comoanv (noif, BankI

of the Philiooine Islonds) vs: Abaiolo(611 SCRA36At'! ,an

interEsted buyer, prgposcd to Liwa) ray to mortgagc tlrc aubject pipelitiorrer Prudcntial Bank and Trust Company (enfC; tir wnic[ 'elitioner Prudcntial Bank and Trist Company subject pioperties topeuuoner Prudcntiat Bank and Trust company (pBTc) tb which rcspondent ^agreed on the conditiori.that the procceds wqutd bc paid dirccrly io hci. in rheproccss, PBTC employee Noiberto Mcndiola adviscd Liwayway to trorrstbr tirstthe prgperties to Corazon for the immcdiEte proccssing 6f tic toan wirh theassurancc that the proceeds would be dirEctly paid to her. Withour requestingfor a bank guuranlcc, rcspondent acceded to tlre profDsst. tJpon Crirrrz.on'scxr:culi


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ln thc absr'ncc ol a luntlgr-borrorvcr rclationship b!:lrvccn l^-titl()ncr iltr(lthc scllcr l.irvoyrvay. I--titi()nsr ltas trrr ittlrcrcnl r,rtrligation t() rclcasc rlrc' pr0cccds of thc lotrn to hcr, lo u banking institrrti()n, rvoll-(lslinc(l lcndillg. policics anrt sounrarrchcs ol'Citibank should be treated as odc unit wirh its bcad ollice. il c:rDrrot [)cpcrsuaded lo declcre thnl thcsc l,hilippinc ['rrirrrclr!:s urc likcrvisc u silrglc unit .'rvith ths Genevu brlnsh - thc ollicttints ,(rr c()rnpcnliltiorl ol'o boirowcr's loartswith Ciribsnk-Mlnila using hcr dolllr uca()unts with Cititxurk-(ir:rrsva currrrot tr:effected. 1'he panies carnot tc considsrcd prirrcipul qrodiaor ol'rlrc olhcr. As lorthe dollar accounts, respondcnt. was the creditor und Ciribank-Ceneva was the.,' .debtor; and as for the outstanding loans,. petitioncr Citibank, panicularli : ,Citibank-Manila, was ahe crcditor and respondent rVas the debtorr Since legal :compensation was not possible, petitioner Citibank aould only use rcspondcnt'sdollar accounts with Ciiibank-Ceneva to liquidare hir loans ilshc tiad expresslyauthorized it to do so by contract. :Citibsnk. N,A. vs, Crlbrlmonsnn.. (48r SCRA 517).

The timc dcposit subject matter of hcrcin pctirion is o sirnplc loan. 'Ihcprovisions of thc New Civil Cgdc on simple loan govcrn the contracl betwecn abank and its dcpositor. Spccifically, Art. 1980 ihercof catsgonoarly providsslhal "... savings . . . deposits of money in banks and similar institutions 5hall bcgoverned by thc provisions concerning simple lorn." Thus, the relationshipbetrveen a bank and.its depositor is that. ofa debtor-crcditor, thc depositor beingthe creditor as it lends thc bank money, and the bank'is the debtor which agreesto pay the dcpositor on demand.t 996 Brr Exam OuetlonIn the provinoc, a farmcr couplc borrowed money lrom the tocal lnerchant. Tb guaranteepsymint, they lcft thc Torrcns titlc oftheir lana with the merchant, for hinr to hold uniil thcy poythe loan. Is there a -

contract of plcdge,contract of mortgage,contracl of antichresis, ornone 9f the Above?a,b.c.d.


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Explain.Answer; There is no pleclge. because only movahlc propeny may. he plcdged (Ari. 209-1,NCC). If at all; therc was a pledgc ol'thc papcr or docunrcir! cortstiruliilg thc:'l'orrcns rirlu, as amovable by itself, but not of the land which rhe tirlc rcprescnts. There is nd mong:rgc hccausc nodced ot conlract was executcd in the mannBr requirbd by low lbr D mortg0gc.(Aniclcs 2085 to .2092, 7121. to 2 l l l ). 'l'hcrc is tr() c()ntract ol' onaichrcsis bccuusc no righa to tlrc litrits ot' tlrcpropnywasgiventothecrcdilor(Art.2l32)_l'hcrclirrc,tlrcanslvcrisnoneol'.hcub()i,c.

[Jnite(l Coconrlt I,lB ntcrsllrn k vs. llclrrso(530 S(.)lrA s67)OpcninB a crcdit line docs not crc.arc a cfedit transaition ol'Ioan or,nutuutn, since rhe lbrmer is mcrely a prcparatory contrhct tg the iontract of laail. .er nrutt.tr,n - under such crcdit line. thc bunk is nr'erely gbliged,.lbr thuponsiderations specilied therefor, to lend ro the oafief party amounts not

D. Rutes on lntcrc$t-l

-',-'l. In order that intercst may be charged, it. rnust bc cxprcssly stipulatcd in rvriting lAniclct 956).o) (iarcia vs. 'l'hio, 5l ll S('ltA 4-13 (2(x)8,. b) Ching vs. Nicdao, 522 Si('l{A I t6 (l(X)l{)c) I'hilrpprnc l,lrosplratu licrlilizcr ( ()tlx)r:rtr(,,r Is K;ltrirlig l{csorrtccs. ltre.5.1{)sctt^ 139 (2008)d) Ilcpublic ur. Uni,r'r"* lvlrcro-l.llcclrorrics (irrrl)l l, S.llt SL'ltA l9 (20O'Z)U\c('ptiot]s: l. l)ctrtol in dclay is liablc to lxly lcgal intcrurit us indcrrrnity lirr thrrragcscvcrr in thc abscncc ol'sripulation lbr thc payrhcnr ()l'intcrcsi (n rliclc2?O9).Eusebio-Calderon vs. People,44l SCRA 137 (2OO5lDiio vs. Jardines, 481 SCRA 226 (2006)' Ongson vs. Peopte,466 SCRA 656 (2006)Citibank N.A. vs. Cabamongan, 488 SCttA 5l? (2OO7) .JL lnvestnrent and' Developmcnl,. lnc. vs. 'l'cntlonPhilippincs, Inc., 5 l2 SCRA 84 (2OO7)Development Barrk of thc Philippincs vs. Coun ofUnited Coconui Pllnlcrs lhnk vs. Bcluso, 530 SCIiA 567(20os)

2. lnterest tiue shall eam intcrest unterest is compounde


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liil.t, j.l.til |:iii'iloring vs. Ganzon-Olrn(568 SqRA 37Oi'In a loan or forbcarancc of moncy, thc intcrcst duo ,]sbould.b lhst'

stipulated in writing, and in the abscnce thcrcof, thc ratc sholl be 12o/o per.E.E-l

(2o2 SC.RA r19) ;I:xxx The legal rate of intercst is six (67o) pcrcent per aru:um, and nottlvelve ( l2oz) percent,. where a judgment award is based


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,P*ot. rr. lutu"it., : . ,l' ,lt''. (365SCRA ls6) , .r : .. ,,,:

WhBn the judgment of lhe Court award.ing a suri? of money becomesllnal and executory, thc ratc ol'legal intcrst sholl be l27o per annum liont suchlinality rrntil irs sntisfaction. The intcrcsr ihould this be iompurcd liorn rhi,ime ol'lhc [inolity ol'thc dccision, ond not'liorn thc liling ot'thc crirnpluintagainst accused-appcllant.

Sclrmilz'fransoort & Itrokcrtsc (loinorgtidn ' . .i:As for rhe court a quo's award of interest on the amount claimerd, thesamc calls for nrodificntion following the rul.ing in Eastern Shipping. L.incs,...lnc. vs. Court of Apprrls that when the demsnd cannot bc reasonablycstablishcd a! the time the demand is mgde, the interiit shall'bcgin to ryn not rtiom the timc thc claim is made judicially or extraj,.rdicially br,t fror4 the.dalc .the judgmenr of the court is made (at which timc thc quaniification oi damage 'may be dcemed to have becn reasonably ascertained). ']

I

Legat interest of 60/o p.a. on rhe inroutit of damages. in litior ot:r liiigantshould commcncc frorn rendition ofjudgr)lcrrt ol'thc trial court:instead of thedare of filing of rhe complainr.lio{r(l 'J'crminsl. lnc. vs. (:(}u.rl ir0At)t)clrls(262 SCRA 339) i

(4ro scRA 97)When 8n obligetion not. constitutinL " t(run. .;, tbrbcarancc oI nroncy isbreached, then an. intercst on the amounl of durnagcs awordcd may tic inr;x>scdat the discretion of the coun at the rate of 6910 yxr arrnum in accor&nCe rvith Art.2209 of the Civil Code. lndeed. the monbtory judgmenr in favor of private.rcspondent does not involve i loon or forbeorsnce ilf, money, hencc thc properimposable rate of intercst is six (60lo) percnt. Howcver, as declorcd in the caserofEastem Shipping Lines, Inc. vs. CA (234 SCRA 78), the interim pedod from.he finality of the judgment awarding a monetaqi blaim'and until paymcntthereof, is deemed to be equivalent to a lbrbearancc of credit. 'Ihus, from thctime the judgmenl becomes final until ils full satisfaction, the applicablc rate ofIegal inlerest shall be twclve percent ( l2olo).Peiitioncr ltood 'l'crminal was ortlcrcd to pay thc privatu rcspondcnlactual damages, ulrcarncd profits and alaomcy's l'ccs. 'l'hesc amounts shall eurninterest at the rate of StX PERCENT (6010) pcr annirm liom May I J. . 1984 untillutly sstiJficd. but bcforc judgmcnt becomes final. [:rom rhc dare of rinalily ofthc judgment until thc obligarion is totslly paid by pctltioner; a TWELVEPERCENT (127o) interesr, in lieu of rhc SIX PI]RCENT (60Z) intcrest, shall beimposed.

,t 'l,i ,l l,I

I

rndeirs of lenscie Apuilar-Reves vs. Miieres

r3


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Philiunine Airtlncs. Inc, vs. Court ofAoneals(27s SCRA'621)andLim vr- Court of Apocals' (37lSc.RA394)

:

We agree, however, with the dntention rhat the intcresl oi6Z imposedbv respondcni court should be computg{ from the date ofrendition ofjudgin;ntand not tionr {hc tiling of the complaint. The rule has bech laid dbwn in EasterriShipping Lines, lne. vs. Court ofAppeals, et al. (234 SCRA 78) that: :"When an obligation, not constituting a loan or forbeerance ofnioney, is .breaclrud, an interest on the amount of damagc's .msy bc imposet! at the'discretion of the court al lhe rate of 6%o pt annum. No intcrcst, hbwever, shallbe adjudged on unliquidated claims or damages'exacpl when or until ,thcidemand can b establishcd with ressonable ccrrii;ty.. Acpordingly.. w,here thi'dcmand is qroblishcd with reasonable;aerhinty, thc intcrcst shall bigin to run Ifrom the timc the claim is made judicia[y or extrajudicially .(Art. I169, Civil iCode) but when such certainty cannot be so reasonably estabtished at Oie time Ithe demand is made, the interest shall begin to run only frorn the date thejudgment of the court is made (at which time the quantification of damages may.be deemed to havc ben reasonably irlccrtained).. The octrid basb for thlcomputation of legal intcrst shall, i{ any case, be on tha ahount fin&tly'l'his ir bas.ousc Bt tlrc tirno of tho filing ol'rlis complnint, tho omoun't ofdamagcs to which plaintiffmay be cngirled remains unliquidated and not known, .'until it is delinitcly osccrtaincd, ossegsed and dbtermined by thc cour! an


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Mxtqrrco. lnc. vs. Firrt l,Bndlink Asi:tDevelopment Cortroration(539 SCRA 226)The trial coun is vested rvith discretion ro award the legal inreresrdespite the fact th&t it was not prayed ltrr in thc C()tnploint.

Sumnrurion:Ihu Sttprcllrc ('orrrl rulc(l thlt thc lirllt,rrrrtg inlcrust rittqs arc uxccssive. ,,,,a,,,,t.,,,,,,4,,.ond inor.dinatc and thc courts rvill tcnrrri inlcrcst ratcs rvl]c|r nccessary .i\) 4o/o lrr month or 4.8olo fxrr annunl ( []ulos, Jr. vs. Yasun'ra, .527 SCftA 727[?008])bt i Oo/o p.r monih and cvcn rhs reduccd rare of 6910 pcr nronth (Macalalag vs.Pcople, 5l I SCRA 40o [2oo8])c) lOo/o intcrest per monrh (Svendsn vs. l)coplc, 546 SCRA 659 J2O08l)d) 36yo per annum (l'oltan vs. 8Pl Family Savings Elank, lnc.. 517'SCliA 430[2o0E])c) I Eo/o pr annum (lrade and lnvcslment Dcvelopmenf Cofp(rnrtion ' vs.Roblett Induslrial Construction Corporarion,490 SCRA I [20071,l) 9Yo per month or 108% per annum or loYo pcr imonth or 1207o pcr annum(Diflo vs. Jardines, 481 SCRA 226 [2006])g) A combined intcrcst and penahy ralc at lOVo per month or 1207o ;rcr annunr(Dio vs. Japor,463 SCRA t70 [2006J)' h) 160/o per month and a penalty chrrgc ol'57o pl:r month in a.-klition to regularinterest and attorney's fecs (lmpcrial vs. Jaucian, a27 SCRA;5 l 7 120051)i) loo/o and 87o interest rates per month on a one-million-peso i


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Imnerlal vs. Jruclsn '(427 SCRA srDl. An intcrcst rstc of 16 perccnt per month is iniquitouc. urrconscignoblg2 A pcnalty charge ofs prcent per month, in addition tb rcgular interesti.dnd attomey's fccs, is iniquitous and [nconscionable,

Cuaton yE-Salud(42r SCRA 278)lntcrcsi r.rles &l loo/o and 87o per month on a one-niillion.peso loan isexcessive, iniquitous, snconscionable andexorbitant a4d their redugtion b l2cy'o .pr'annum is fair and rcasonablc. Stipulatlons lulhorizing iniquitirirs' or'unconscionable interests are contrary td morals, ifnot against thc law.

:I

tffii ITh Court of Appeals ordered Quiio a p4y' Zo/cintcrist pcr month onthe pl5,O00 loan from Rcnato, compurcd from t i April 199O. Thrs amoimts to84olo intercsl pcr A.nnum, which is u,nconscionobie. This . Court .dccms jtequitable to rcduce this iiterest rate to lSoZ per annum. i

t-c,u:'

Usury Law

(s.r4scRA608) i^- . - Tle-Usury Law had bectr rendered tggalty ineffectiie by Rcsolution No.224 dated 3 Dcccmbcr 1982 of the Monetary tioard of tte Clntnil fiant- analater by Central Bank Circular No. 905 whichtook iftect on I JanJary tggi andremoved the ceiling on interest rates for sbcured an - unsecured loens regardlesi.ol maturity. The effect of these circulars is to allow'the parrics to agree*on anyinteresr rhrit may b,e chargcd on a loah. The virtuat repeil oi the Usury f,a," i'"within the range ofjudicial notioe whioh.courts are bound.to takc into-account.Atlerall, the fundamental tent.is that the lcw is deeined pan of th oontract

Medcl yg._Cgu4.oflloocais ' I(zgaEcRA4sl-.r'. Thc sripulared ratE of interest at S.Syo;lor month,on the pS0O,rrOO.OOloan is excessive, iniquitous, unconscionable lurd exg.rbirdnt, Howcvcl ihc ratecannot be considcred 'uswious" becauie the Suprime qiurl has consistcntlyhefd that Circular No. 9O5 of the Central Bank, aA'opiea on Dec ernber 22, lgBZ,i


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hrs csprcssly rern('vcd thc intr.:r'cst ecilirrg prcscritrcd by thc t,sury l.arv und thutrlre trsury [,arv is norv "lcg:rlly inr:xistcnt".ln Security lla[k and 'l rust Conrpany ,s. I


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I.!.money, goods or crcdits. ln ii,re, they can agree to a6just. upwbrd or downrvard,

. thc interest prcviously stipulated-2. All thc promissory noas wcr signcd in 1983. artd . rhrerbrc, .:!l,ercelrcady covcrcd by CB Circular No. 9o5. Conuary to thc cl6im of rcspondotcourt, this circular did not rcpcal n6r in any woy arr|.nd tfrc Uiury Law butsimply suspcndcd thc lancr's cffectivity.3. The rate ofintercst was agreed upon'by the p6rties frcely. Significantly,respondent did not question that rale. It is not for respondcnl court a quo tochange the stipulation in th6 controct where it is not illegal. . Frrthirmore, 'Article 1306 of thc Ncw Civil Code provides that contracting. parties mayestablish such stipulations, ilauses, terms 'and condirions as ihey may deemconvenient, providcd they ari not contrary to lew, morals, gdod customs, publicorder, or public,policy. Wc find no valid reason for the respondent cburt.a.guoto impose a 129lc rata of intercst on the principal balEnce oiving to the.ptitioner.by resFpndent in tho prcscnbc ofa valid stipulotion. In a.loan pr forbeamnic ofmoney, the intcrcst duc should be t]hai stipulated in w?itin& snd in the absencethercof, the ntc shsll bc 12?6 por annum. Hencc, only iil rhc sbsenci of astipulation can the court imposc the 129lo ratc of intcrcat.

Dovctopnrcpt llpnk of thc ihllinplncr vr. ien:z. (442 SCRA 238). In usurious loans, thc entire obligation does not become void becnuse ofan agreement for usurious interstt thc iDpaid principal debt still stands andrcmains valid, bui thc stiputotion as to the usurious intcrcsr ie void,. '

Caroo vs, Chua(47r SCrtA {7r)A usurious loan trans&ction is not a completc, nullity but deiective onlywith rcspct to the agreed interest.Since the mortgage contract derives its vitality ftom the validity of theprincipal obligation, tlic invalid stipulatioqr on iotercst rate is similarlyinsufficient to ren&r void lhe ancillary morlgage contrsct.

PNB vs. CA(238 SCRA 20)

i

iIIi., li:.,,ii

:, i litl.rit.ill,,.1 ilrlijil :iilitiilii d,. I!![-ifttl{.}r!lr.{ I!,1 :

,l,tPresidcntial Decree No. I684 and CB Circular No. 905 did not authorizeeitlrer party to unilaterally raise the intcrest rate without the other's consent.

Escalation ClsuEG

tl ii.tho rulo thet cscalatlon clauscs sre vclid stipulalions in comrnorcialcontracts to msiittain fiscal Etlblltty Bnd to retaln tho valuo of monoy in longterm contrictr. However; the cnforcement of such siipularions oI! subjcct loccrtain condiiions.irt,.,- l,l I8


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Banco Flllpino vs. NrYario(ls2 scRA 346)rndPNB vs. Intcrmedlrtc ADncllrte Coura(183 SCRA r33)An escalstion clause con bc valid only if it 6lsb inclraites a dc'cscatati-onclause or I stipulstion that thc ratc of interest agrecd upon rhall'bc teduaed i 'the eveni thai the merimum rate of interest is r;ducod by law or by.thcMonetury Board.

l,lorin vs. Court of ADDeals(2r8 SCRA 436)An escalation clause must be bilateial hencc lt must provide forreduction or de-.scalation of interest for said olausi tO b v8lid.

:PNB vt 999{l pf4Ppcqh .l(196 SCRA s3Oln order that obligations ariging from contracB 'may-havc thi: force oflaw betwceir the parties, there must bc mutuality bctwBcil thc parties based ontheir essential equatity. A contract containing a condition vyhich makes itsfulfillment dependent exclusively upori thc uncontrollcd will'df thc conttactingparties, is void. Hehce, even assuming tliat thc loan agregniint betwccn thePNB and the private rcspondent gave the PNB a liccnsc (although in fact thcrewi1,s rtorrc) to increose the interest rate ht will durinE the term.of ths loan, tha!liccrrsc rvotrld huvc bccn rrull and void tbr being vlolotlvo.of thc principlc ofrnutuality essential in contracts. It would havc invcsted. tho.lon hgrecment withthe clraracter ofa contract ofadhcsion, whefc thc Frttie3. do nol batSlin on cqualli.x)tin6,, rlrc rvcukcr purty':r (thc dobto.) porticlpolion balng furucod to thcaltenrative "to take it or leave it". Such a contract is a'vcritabfc traP for theweaker party whom the courts of justice must protict agpifut a6usc and

IAlmedr. w.,Court of .Arrpcels(256SCRA 292) .Morcovcr. rcsFrndcn! bonk's rcliance on C:R Circuler No. 9O5. Seticrol' 1982 ditl not outhorize the bank, or any lending institution for thal mettcr, toprogressively increase interest rates on borrowings. to. an cxtcnt rirhich wouldhave rnrdc it virtunlly impossible for debtors. t6 oomply with rhcir own .obligations. True, escalation clsuses ih credit agreemenB arc pcrfcctly validand do not contravene public policy. Such clauses,,however, (as arc stipulatioiGin other contracts) are nonetheless stilt subjeci to laws and provisions goVerning

agreements between parties, u/hich agrcementg while thcy may be thc lawbetween the contracting parties - implicitty incorporatc irovisions ofcxistinglaw. Consequently, while the Usury L,aw ceiling on intcrcst ratcs was lifted byC,B. Circular No. 905, nothing ia the said circular could possibly bc rczrd asgranting rcspondent bank carac blanchc authority to raisa intcrcst rstcs to lcvlswhich would eirhei enslqlre its borrowqrs or lcad. to a hcmonhaging of their[scalation clauses are not basically wrong .or legitly objectionabtci sdlong as they are nol solely potestative but based on reasonable and validgrouncls. Here, as clearly demonstrated above, not only (are) the increases ofri


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the interest rates on thc basis of thc escala(ion clause patenlly unrcosorrcblc arxjunconscionable; but also lhere sre no valid and reasonable shndards uPorr r|hic-hthe increases arc a[chored.!'loirendo. .lr. vs. l\letrorrolitln lhnkanrt 't'rusl ('0m rr,lnv(5f,2 S(:RA 4J) " :1Pelitioncr conlends thot the "escalotion ctausc:' in the promiss,rry notcimposing 15.4460/o interest on ihe loan "for the firsl 30 doys r'ulrjc.'t .t()upward jtktv,nl.rnl udjrtstuenl avcry 30 du.y's ttrcrcu/iir" is illcgal, cxcussivd andarbitrary. The dclcrmination to increase or decrease sudh interest rate isprimarily left to the discretion of rcspondcni banh. We agrce. we hold thot thcincrcascs of inlerest rate unilotcnrlly irnposcd .by rcspondcnt Lrank withoulprjtitioocr's asscna arc violotivc ol' thc principlc ol: mutuality ol' contri.lc(sordained in Anicle I 308 of the Civil Codc- .

It would be cgnverting lhe ioan agreement'into u,"ont.o"t of adhesionrvhere thc panics do not bargain on equal lboring, thc wcaker pany's.(pctitioner's) panicipatior being reduccd lo thc altcrnqlive "lo takc:ii or lccvcit." Whilc rhe Usury Law cciling on intcrcsl rate was lifted by Ccnrral BankCircular No. 905, nothing thcrcin could possibly bc rcad as grdnting respbndcntbank crrrrs bltt cht' tlr )toriay to ralise int!.rcst ratc to lsvels r.i,hich would cithcr'enslave its borrower (prtitioner herein) or lead to hcmorrhoging of his assets.

E.4 Peoslty Chrrgca ''l.itrutan vs. Court of A Dncrls---iffiffi^ -i6,Dl. A pcnalty clause, expressly irccognized 'iry lurr, i* u,l u"""r"u.yundertaking to assutne greater liability on thc pah of the obligor in olasc of.breach ofan oblig&tion. lt functions to srrcngthcn thc coercivcl forbc of thcobligation and to providc, in cfFcct, for what could be the tiqui&ted damagcsresulting from such a breach. The obligoi would,then be boundr to pay lhe'stipulated indcmnity \i,ilhour the nqcessity of proof on thc eiistence and on themeasure of dsmages caused by fhc breach. A slipuloled pcnally, neverlheless;nray be equitably reduccd by the couns it'it is irritluitousor unconsoionublc or il'the princ;pal obligarion has bccn ponly or irrqgularly iomplied wirh.2. The siipulsted interest of ls.t\yo l)|lt annum i$ not cxccssive. 'fheessence or rationale for the paymcnt of intercst, quite oflclr referrdd to as cost ofmoney, is. not exactly the same as that of a surcharge or a penalty. A rreqahYstir:ulqtion is no( neces@n agreernen( lothat effegt..thi two beinq disiinct cqnceots which mav seglratelv be demanded.

:

Issues: l. Can a dcbror bc made liable for both the stipulated nlonthly interesrand thc sripulalcd penalty charge?2. Is crlmpounding oflhe penalty or cornpcnsatory inlcrest sanctioncdhy larv?

?o


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c_J

lleld; l. The promissory note exprcssly provides for the imposition of bothintcrest end lrnaltics in case of default on thc port of thc pctitioncr.in thcpaymeni of the subjcct restructured loan. Penalty on delinqucnt loins may lakedifferent forms. In GSIS vs. CA. this Court has ruled that thc Ncw Civil Codcpermits an agrecment upon a penalty ap6n from the monclary intcrBt also callcdpflalty or compcnsatory intcrcst. Such a stipulition about paymcnt.of anadditional interst rate panakes of thc nature of a pcoalty clausc which: issanctioned by law, more particularly under Article 2209 of the Ncw Civil Code.

2. The contracting parties may by stipulation capitatize the interestclrre ond unpaicl. rvhich as adde


22/175

i/ -^.1*{:i!..:'d r.ltr!: -Irr an &ssigrrrtrcnt.)l'crcdit, llrc conscr)t ()l'thc dcbt()r is troi csscrrtial liriits perlbotion - thc krrowlcdgc thursol' or lask of it al'lccting orrly thcefTicaciousness or inel'licaciousness of any paymcnt ihat might have bccn rrrade.

p.,ffit#Hii,,n(s26 St:RA 379) .. .Although it rnoy bc said that.tlrc sll'cct olf ths assi'gnrnsrtl ol'crcdit is tosubrogstc lhe assigncc in thc rights o{'tlrc original cicditor, thc C()urt still cairn(rtrlcfinitivcly rule thilt assiBnmctrt ol'cfcdit aird sonvcntional sut)r()gutton ais orr(:.and the samc. Whal the larv rcquires in an assignrnent'of cicdit i:; not lhcconscnt of thc debtor, but mcrely notice to lrim as ihe assignment takcs clllctonly.ltom lhc tinrc hc has krrorvlcdgs thcrcol'rvlrils.conventional sut)roBotion, roqurres an agrsctlent among thc partics conccrnq_U - iho original creilitor, thc.dcbtor, and thc ncw crcditor

The Supreme Coun hos alrcady noted previously fhat thcrc docs Dolappar to bc anything in lrhilippinc slalures or juiisprudcncc whictr. pr.ohitrits acrcdilor, without thc crinscna.ol'rhe dcbbr, liom moking sn sssignhrcnl o,'hiscredit and rhc righs sccessory therelo. Even if the consent of qhe dcbtor isunnecessaq/ for the validity and entbrceability of the assignrnent ol'crcdii,nonelheless, he must have knotvledge, acquired eithcr by forrnal no(icc or.sonrcorlrer- megns, olthe assignmenr so that he rnay pay the rjebt to the proF r parly;rvhich shall nory be the assignee. i

Rossrio rs. PCL J,gr.S!.rrrr q$d l.'intncc. Inc(474 SCRA sOO)There is ne lacrual basis for thc pctitioncrs' claim that CarMcrchants.lnc. had assigned its rights to collecl thc balancc of the purchaqc pricc to thc.respondcnt end thal rs assigncc, rcslx)ndcnt rvui proscribctl frirrn collccting .;iom pclitioners the bal&ncc of thc purchose pricc,of thc vehiclc alicr hirving

taken posscssion. oi thc. chartel tbr purposes ol' lbrcclosure. 't-hi: t:rcr ol' ttr,imatter is that petitioners admitted in their pctition ihot they werc dcclared in .default snd failed to'provc such cloim. 'fhc uvidcncc.on rccord clcarly showsthat thc ptitionrs securcd o loan from ihc rcspondent lrCl l:casing andFinance, lnc. to psy the Pf9O,O0O.0O balonce lo CarMerchonrs, lnc., ancl cvenexccuted a pmmissory nole evidcncing their loan in l'avor ol the respondenl.Petitioncrs fonhwith eiccuted a chattel mortgage in fovor of rhe respondcnrover the vchiClc as security tbr the payment of thcir loon arrd the intcreststhereon. lt bears stressing that under Article 1625 of the Ncw Civil (todc, anassignmenl af credit, right or action must appcar in a public docurnent to bindthird prscins. Therg is no evidence on record to prove thel C:rrMcrchants, tnc.executed stch a deed, assigning its right to collect thc bilance of thc purchascprice of tha vehicle from the. ptitioners, in favor ol'rdsponilenr.Payment by Third Pcrsons

Cnfnndrne vs, JJSir-+gf-gujLiFo rte Guznrnn(soa s(:tr^ {69)Arricles 1236 and 1237 of the Civil Code are clear that, even in cases'where ihe dcblor has no knowledge ol paymenr by a third pers rL and even incase where the third ;.rcrson paid against thc will of the dobror- such paynrcntrryould produce a debt in l'avor ol'the payints third pcrson. ln J'act. rhs only

8.7

')',


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i.lconsequence for failure to inform or get the consent of the' debtor 'are the.folldwing: ( I ) lhe third p.*". "un-i6"'"r onty insofar as rhi payqrcnt has'been 'beneficia-l to the debtori and (2) the third person ii not subtogarcd to rhc rightsofthe creditor, such as those arising from a mortgage, guarantcb or penalty'

8.8 Credir Cards .lAznrr v!. Citib.nid N.A. (Philippln6l(s19 SCRA 284

A stipulation in a credit card agreemeht which limits the card companylsliability to l)1,000 or the actual damage Provcn, whichever is lcssrir' canno! beconsiderecl as valid for being .-"o*"ilonibl" osit precludes paymcnt ofa largerE.9

amount even though damag; may be ciearly proven-

Under the doctrine of p:omi"Jry ..topp"i, 11 est9@-Py 4"" A9tMendoze vs. Court of ADDeaIS(3s9 SCRA 438) .1.

PNBpfan, he.mtist li5st' pr.ovc .that

rhe making of a promise, everit though t"itto"i ir"*ia"ti tio; if it ias intendedthat the promisc-should bc relied upon and in fact it was re[cd. upon',Bnd if arefusal to enforcb it rvould be virtually 1o sanction the perpgtration of &aud or'arould resulr in othcr injusrice. In oider to make out a claim of promissoryestoppel, a parry bears tlie burden of egtabtishing the followinS'elements: (l) ipro*i." r"utonably expected to inducd action or forbearancc; (]) such Promisedid in fact induce such.action or forbeapnce; and (3) thc' party sulleriddetriment as a resiilt,..., ,i . itt is clear t'rom the foregoing that the doctfinc.ot ppu{gplv 9"toPP"lt is clcer tiom the foregoing that the doglrinc.of'ppuligp.ry BtoPPelpresupposes thc existence.ofa promise on the pgitjdf onc agdins.*ihorn cstoppetis clairrred. Thc promise must be plain and pnamQiguous apd- iuflicientlytlre promise according to its terms. '1Iis cstoppcd to deny the five-yeor rt

so tlut rc'liunce upon it wos not reqgonablc. tt does not opcroto to crcatc liabililyrvhere it does not otben^,ise exist.E,,f O Gross or lntermedirtion Sprad

r."pond"r,t .PNB lisd promiJed to approvc -tt e piao in cxcbangc for thcsubmission of the proposal. As discr"rciscd barlicr;'no strch prombc was iroven,therefore- the docirinc dos not aDDtv to thc casc at bar- .A. cbusc.of sction forherefore, the doctrinc dos not apply to thc casc 8t bar. .A cougc,of action .&rpromissory g'stoppel dos not lie where an allegcd oral promise s,as conditionsl,

Nctd SamnaEuita Builderu Constructlon. Inc.. (43s SCRA s65)

The diffcrcnce betwen thc intcrest and other servicc fbcs chargcd by abank to its borrowers and clients and the intercst it pays to its depositors.andother suppliers'of t'unds is the "gross or intermdiation sprcad." . :INo penslty chargi6 or incr.eases thercof appear cithcr in thc DisclosurcStatements or in any of thc clauscs in ihe credit agrccorcnB. Wbilc a spadardtatements or in any of thc clauscs in ihe credit agrcomcnB. Wbilc a stan&rdpenalty charge of 6.percent per annum,has been imposed on th amounts statd,ii

I., 23


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lt

in all three Promissory Notes still remaining unpaid or unrenewed when they felldue, thcre is no stiputation thcrein that would justiry ariy increasc in -thatchaiges. The effcct, ihercfore, when thc borrower is nol ctearly informcd of the .DisJlosurc Ststomcnts -- prior to thc consummatl6n of thc availment ordrawdown --- is that tltr lcn&r wilt havo no riglrt to collect uPon such ehsige-or .incrcascs thercof, vcn if stipulatcd in thc Noies- The timc is now ripc to giw "..itf, t" if," "n ti igrrc.rcd forty-one-ycar old "Truth in Lending Acf' and thus : 'transform it ftom isnivelling paper tiger to a Srowling financisl rvatchtlog of 'hapless bolTowcrs,

IMCO SamDle Problem .lThe difference.betw.t'en thd interest and other service fees charged by. a bank to 'itsborrowcrs and clients ind the interest it pays to its deposiiors and other.suppliers of'fundsis t}le:b. Sross credit diffe,rential+ ;. i'ntermcdiciot sp.ead .d. gross refinancing diflerentialte.gal-Elasls: New Sampaguita Buildbrs Construction, Inc. vs. Philippine NaJional Bank(435 SCI{A 56s)

ihe national economy.':B. Definition of Terma . . .

As uscd in thc Truth in Lending Att,'thc following tcrms arc defined as follorvs:B. I "Credit" mcans any:

a. loarL mortgpgc, deed oftrusl, advance or discount;b. conditional salcs contract;c. contract to sell, or sale or contract of sale.of property or services, either'for Present orfuture delivdry;d. rental - purchase contractle. contract or airangcment for ihe hire, bailment' or leasing or property;f. option; demand,Iicn, pledge, or other claim against' or for the delivery ot-' ProPerty ormoney;g. p*oirlsc or aoquisition of sny credit upon the security of sny obligiotion arising out of. any oftlrc forogoing traruactions; andt . . ."i, tr-.actioi- or ioics of trarBaltions having a simil8r Purpose or effiect.. [Section3(2) ofR.A" 376s18.2 "Finance charge" includes intlrest" feeg service chargeg discounts' and-such othercharges incide;a to the extension of ore&ias the Monetaiy B_oarrt ^ofthe Central Bank ofthe PihiliPpines rrray by regulation prescribe. [Section 3(3) ofR'A' 3765]

"Creditoi' refers to any person enlaged in the business of extending credit (lvhichincludes any prson ,utto'* o t"gulibu"ine"s Practice ftakes loans orsells or rents.3


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propcrty or services on a tin)s, crcdit or irlstallmsnl basis, either as princigrt (x as :r8'eni)itho .eiuir"s as an incidcnt lo thc extension of crodit' the payment ol'a finaltce chargcIsection 3(a) o[R.l\. 3765 ]('. Obligrlion of ('rcditor lo llorrower unrler lhc 't'rulh in t,cndinS Ac'

- prior to thL. consumlrrali()n ol'thc transacti(rr, thc crcditor is oblipc'r'l to l'urllish rr, cac;'pcrson lo rvhom crcdit is e\tcndcd e clcar stolcmcnt. in wrilihg sellinU fonh th.: follorvinginfornration:

I1

:

Cash or delivered Price olthe scryicc t>r propcny ro.be scquiredAmounVs to hc cr;ditcd as dou'nPoyrnr-nl and/or trade-in' il'thqre bc anyThe difference betlveen the cash'delivered price and downgraymenr'trade--in',:,i:li*-ztiy ir:ii,tzz3 ci'=;3=s rrtrith are ro bc pid in cfi&sctisr r'irh $c rarrsrnist'/,''t.ct) 'a:a |sz irr:;'z::'-;' *e visirrns ol' lhe. Civil Crxtc on rrrulttitlily or'conlracls. rbul lrlslr hccurrsclhcy violate thc 'l rutlr irr l.cirdirrg Acl. N.)l tlisclosing thc lrrrc linilnc(: chirrgcs incrrnnscti(rn ',vith tlrc cNlcusi()ns ol'crcdit is. l'trrthcrrrnrre , rr lirrrrt ol n.'l'hc allcg|iir.rn tl'rot lhc pr(,lrriss()ry n()lcs gr.lt]t tr('lrll the powcr t(,unilaterally lix the intcrcst rates certuinly alsa) means that thc pr{)tnissory n()tusdo not conlain a "clcai sutement in writing" ot"'(6) thc finunce chargcexpressed in terms of pcsos and cen_tavos; ahd (7) the percentag,e that the

finanie charge be-a.rs to the arnourir to be financed. expressed ss a simple annualrare on the ouBranding unpaid balance of the obligation." tsurthcrmore. lhespouses Beluso's prayer "for suih othcr relicfs just lnd cquitablc in.thepremises'' should he decmcd to includc the civil F:nslty lrrcvidcd for in Scction6(a) ot'the 'fruth in Lending Act.D. Consequences of Non-Compliance with the 'f ruth in Lcnding Act

. l. Any creditor rvho in cdnnection rvith any credit transaction fails to disclose to any personlo whon) credit is cxtended the required informatiorr urder the Truth in t.cnding Act shall be

? tr,zt.rr- ciarg: ,n ltrrt arl csltazr,os. zfd'lhe fr-tcamaBe that rhc financc chargc bcari iocxprc::.:d as an annual rate on thc out$andinglsection J of R.A. i7651

l5


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liablc to such person in tlre amount of Onc Hundred Pesos (F100.0O) or ip an arnount eqtr3l tot\ icc thc finrncc chargc requircd by such oreditor, whichcvcr is highcr but shsll not exceed Twol-housand Pesos (F2,OOO.Oo), plus anorney's fces and cburt cosls, pruvided thc action to recoversuch pnslty is brought within onc (l) year from thc dato of occuircnce of thp stid violatioir, butthc validity or enforccabitity ofthc contract is Dot alfcctcd [Scotions 6(a) and 6@) ofRA 3765]2. Willful violutors of the Truth in Lending Act shall be flncd not lcss thsn One ThousandPesos (Pl,O0O.0O) nor more than Five Thousand Pcsos (P5,000.00) or imprisonmcnt of not less2. Willful violutors of the Truth in Lending Act shall b.flttcd not lcss :

New Samunsuitr Builder3 Constructlon. foc'.vs. Philiooipe National Donk(435 SCRA 56s)No penalty gharges or increases thereof apflar Wbils *ririaarcilatements or in any of the clauses in thc crcdit agpp

charge- The effecl thercfore, when the borrowcr is not clearly infoirmed of thedrarvdo',m --- is thet the lender will have no right to collect upon such charge orincreascs thereot even if stipulated in the Notcs. The tirne is now ri;re to givetceth lo the b{len ignored forty-one-yesr old "Truth in Lending Acti'aod t}rushlrnsform it from a sniveling papcr tiier to a growling finaniial watchdog of,tirv. pEPosrr , i llt,A. Definition i :!l ,

Disclosure Statcments -- prior to the consummation of lhe avdilment ordrarvdo,,m --- is thet the lenier will have no right ro collect upon suci, ch'arge orincreascs thereot even if stipulated in the Notcs. The tirne is now rirr. to givetceth lo the b{len ignored forty-one-yesr old "Truth in Lending Acti'aod r}rushlrnsform it from a sniveling papcr tiier to a growling finaniial watchdog of

A degrosit iE constitutcd frorh thc rromcnt s porson rcccivcs c thirig tiloitging io anothcqwith thi obliAation of safely keeping it and of rrtuminS thb sam. ii,|:

i'IrltrDurlirn.Aprrtnrcntt Corooratlon vr. Plonecr

The contrEct of dcposit was pcrfcclcd whn thc hotto the hotet's parking attcndant the tccys to his vchicla, whicli rhwith the obligation of safely keeping and returning it.

B.l.2_

:ili

.;-l!

,li'r.26


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,

:4.

C. Distinctions t etween Deposit and MutuumDcnosit Muturtnr

D.

3.

l.

'tl.

2.E.t. .2.

PrincipalPrrrlrcseNature

Principal Safekeeping or dlcre . Consumption ol' thccustody subject rharterRsrunr [)cB)sitor ciln dcrnand. . : 'Lcnde r must. wait lbrrctum at will the cxpimtiorr ol' thr;. .siipulatciJ. pcriodObjcct Movablc (cxtir-judicial ) , V,rn.y-l or rrngiblcand immovable propcrly thrrrg, I(udiciul)

Distinctions betwcen Dcposit and CommodaaumDeposit r

Safekeeping:May be gratuitous

Cqnimodn aumTronsfer of usc 'Always gratuilous

3.

Kinds of Dep6sir ' .JudiciaIExrraJudiciata. Voluntaryb. NeccssaryDistinctions berwecn Exrrajudicial ohd Judici.rl .Dctx)sitsL An extrajudicial dcposit is constituted by lhe will of the iontracring panies while ajudicial dcposit is constitutcd by virtuc ofa coun ordcr.2. In the fir5r, the object musr bc movable proprty, whcreas in the second, thc objectmay be cither movablc or immovable prot*-rty.

4.5.

Tlre purpose of arr extrajudicial deposit is thc salbkccping ol'thc thing derx)sitcdwhereas the main purposc of a judicial defDsit is to sccurc or protcct thc owncr'sright.The first is, as a generol rule, grotuitous, whereas lhe second is always onerous.ln an extrejudicial dcposir, ihc dcp:sitary is obligcd lo rcturn the thing deposite


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,i!it....i:1.':.

'I . : .l ri

.t.,. .:2. Although generally the owner, the depositor need not be the owner ofthe thing:dcposi!!*! ", , ,'.;',3. May be oral or in witing.IG. Obligatloar of thc Depoait ryl. Dcpositsry is obligcd to t'ccp th ihing safcly and return it wten requircd cven though a' ,specified tcrm may havc bccn stipulatcd in tho eoDtract.

Chnn vs. Maceda. Jr. ' :iaoz scna rszl' ln un actirrn againsa ahe depositary, lhe brrden is on the ptointiffto provethe btlilmcnt or deposit and the performance ofconditions piecedent to the rightof actron. A depositary is obliged td return the thing to the depositor, or to his.hoirs or succcssors,. or to the person who may bs,ve been desigaated in theIn the prcsent case, thc record is bereft oi'any.orrr*"t of defbsit, oral orrvritlen, bct$aoen 'pctitioncrs and rcspotrdcnt. If at 8ll, it was ori,ly between

ptitioners and Moreman. And granting arguendo that ther rvas indeed acontract of deposit between petitioners and Moreman, it is still incumbiht uponrespondent to prove its existenge and that it was cxecuted iri his favor.Howcver, respondBnt miserably failed to do so. Tbe only pieces of evidencerespondenl presented to irove the contrbcr ofdeposit ivcra thi: dclivery receipts.Significantly, they are unsigned and not duly received or authcnticatad by either. Moreman, pctitioners or rcspondent or any of thcir authorizcrt reprcsentativcs,Hence, those dclivery reccidts have no p,iobative value at all. ,.

2.. .. . Depositary is liable if the loss occurs through his fault or Degligenpe. Loss of the thingwhile in the depositary's possession raises i presumption jof fault. Required degrei of care iigreater if the defosit is for comperrsation tha:i when it is gratuitous. i -- CA Asro-Industriat Dcvetopment Corporrtion Ivs. Court of ADDesls


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contents thereof through its orvn negligcncc, tlrc view his bcr:n rakcn thai such alessor may limit its liabilily to some extent by agrcement or stipulalion.Sia vs. (:ourt of Auucals(222 SCRA 24)

A controct for the use ofa safety deposit box is a sSrciul tlind rif dcgrsirand the relationship bctrveen the panies thcrclo, tvith rgspect lo thc contcnls (),'thc box, is that ol'a bailor ancl bailcc, thu l)ailrncnt bcing lirr hirc and mutualbcnelit.Conditions in a l,ease ngrcement covcring a safery ileposit box rvhichcxenrpt thc bank liorn any liability lirr danrugc, loss or rlcstruction ol' thccontents thereof ari5ing liom. its own or its tgedt'S.fraud, ncgligcncc r2r dclayar considercd null and void, lbr beinB contrary to latv,:i1d public policy.ln the instant casc, Sccurity Llank urrd 'l'rust CoDipany (SB'I'C) rvasguilty of negligence. SBTC's negligence sggravated the injury or damnge rq rhclxtitioner which resultcd from the loss or dcstnrction of thc stanrpi collcction.SB-I'C was aware of the floods of 1985 and l9p6; ir olso kneiv that rhL.

floodwaters inundatcd the room where Sal'e Dcposir ilox No. 5.1 rvas locatcd.. lnvicw thereof, it shoukl havc lost no tims in notifyihg rhc l^;riti{)ncr iri onli:r thatthc box could hqvc [reqn oprcncd to rctricvs tlrc stantps, thus stving thc sanrc.from funher deterioration and loss.t987 Bar Exanr Ouestion , 'Ana rented a sat'cty deposir'box ar rhe Alto llan(, paid lhe renral ,'cc and rvas given the!."y. Ana put hcr jewdlry and gold coins in the.box. Days afler, lhree anned rncn gained entryinto the Alto Bank, opcning its vault and scvcral salcty:dcposit boxcs, inclurJing Ana's anclemptied them of their contents. i r

Could Ana hold the Alto Bank liahte for the tosi of rhe conteirs oi^ her dcoosit .box?.Explain.Answer:

.\lto Bank is not liable for thc loss ol'the conlents.of Ana's deposir box because underAnicle I99O of lhe Civil Code, if the depository by force majcure toses ttie rhing ond receivesmoney- or another thing in is place, treitatl a-etiver rh! suri or other thing to-thc depositor..There-being. no showing thar there -rvas lriything received in place .of the thirigi deposirei, AltoBank is nor liable for the contents ofthe saiety b6x. : _Allernative Ansrver:

Alro Bank is nor lirible bccause ihe contracr bclwccn Ana and Alto Llank is not a dcpo-sitbut a rental of the safety deposit boi. I'lence, Alto tlank is not liablc lirr thc loss of rhc conrcntsofthe box in the absence of fault, clelay or ncgligencc on ats part.3. Deposirary is not allowed to deposit the rhing rvith i thirct;rcrsc;t.4. Depositaqr is liable for rhe loss ofthe thing deposired i t':. 4.1 he transfcrs the deposit \A.ith a third person. without authority alihough rheic is noncgligence on his parl and rhe rhird person;' 4.2 he deposits the thing rvith a third person wlro is mani(bsily careless or unlir'. although {uthorizerl, even.in the absence ofnegligence: orle


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{.1 thc thing is lost through thc ncgligcncc ol'his crnployccs rvhcthcr rhc laircr arctlrarri fesrly corcless or nolNoac: l)cpositary is not rcsponsiblc lor loss ol'thc thing \yirhour ncgligcncc of tlic tlrir


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a Ycs, b6catrse an obligation which consist in thc dclivCry oia dctcrnrinlle thing shallbe extinguished if it shall be lost or dcstroyed rvithOur the fault of thc debroi andbclbrc. hc hus incurrr:d in dcluy.'r b. Ycs, trccause Y allorvcd anotlrcr pcrs()n to use it cvcn though lhe dcpositary nrayhave bccn authorized to usc thc sam!..c. No, because bailee (Y) lent lhe car to Z rvho is a memhr of the former's houschold.d. No, because thc loss ofthc object ofdeposit wris baused by fortuitous event.

l.csal Basis: Depositary is liable lbr losS through fonuitous event even withoul his t'ault.il'thc dcfnsilary allows othcrs to usc the thin! ut his'faultNote: Depositary is authorized to open rhe rhing.dcpositcd rvhich is closcd and scaled $,hdnrhere is:(a) presumcd authority (keys having been dclivercd to depositary), orrb) in the case ol'nccussity.

I5. Dcpositsry has lhc obligation to return not orrly thc thing brit also its product, acccssionsand accessories rvhich are a consccluence of ownership.lt. Persons to whom Relurn of ThingDeposited Must Be Msde

2. lf thc dcpositor rvos incapacitatcd ut thc time olrnaking thc dclxrsit. thc propcny rnust bsrclumed io his guardian or odministralor or lhe pcrs(rn ryho rnadc tho dcp(rsil or to thc dcprisitorhimsclf should he acquire capaciry larricte teZO1.3. Even if the depositor had capaciry at thc rirne of'nraking the dci'rosit but he subscquentlyloses his capaciry during the dcposit, the thing must be. returned lo his legal rcprcsentativc(Article I 986).l. Place of Return ofThing Depositedl. . ar thc placc agrced up()n hy thc ptnics, and2. irt thc sbscncc ol' stipul:rti()n. sl thc pltrcc rvlrcrc tlrc thing


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(ieneral Rulc: t lpon dcmand or irt rvill, whcthcr ()r not t pcri()d hus bccrr stipulatsd.fixceplions: o) thing isjudicially aitachcd rvhilc in rhe degrsitary's posscssionb) dcpositary rvas notificd of the opposition of o rhird pcrson to the rclutn.or rhc rcrnoval ot'rhc thing dcfx)sitcd (Aniclc 1988)

K. RiBht of Dcposilrry lo Rcturn l'hing l)elxrsilcdl. it'dsposii is gratuitotrs, antl2. justifiable rcosons exist for its rcturnNotes Otherwise, deposirary may hvail ol'consignarionbeFore expiration ol the tcrm dcsignarcd il' the(Anicle 1989).L. Alteration by Deposihry's llcir

a. unlavl'ul because the.bank is only a deposirary of thc CTI)b. unlawfirl bccauso it amounts lo psctum commissorium.l. c. lawful under the prlnciple of compensation . ,d. lawful becatrsd it amounls to dabiou cn pago' l.cual Uasis: Arriclc 1980. ('iril ('rr


33/175

Reesons: l. Tltere is no pactuln gotrr tn issoriutrt in this case. l)cPosits of Inotlcy in banks and-T similar insritutions are governe


34/175

o.l

Exceptions: a) trrrlcss dcPositor was nol aware thcrcof' b) deposiror was nol expccted to know thc dan8,crous charactcr ttl ihcrhingc) unloss hc notilied thc dcfrosit&ry ttf lhe satic, ord) dcpositary wos arvarc of it without dcPositor's advicc ( Articlg l 9t)-3 1 'Notc: Dspositary has thc rilht to rcrain the rhing dcpoSircd in plcdgc until full paymi;-rit- ol'shatmay be due him by reason (rfthc deposit (Article 1994). : .

Necessury DeposilNccessary dcposit in conrpliancc rvirlr a lcgal obligationI I 'Ihc judicial dsp(rsit ol'a thing, thc posscssion of ivhich islitig,ation by two or morc pcrsons (nrticlti 538): :1.2 'fhe dcposil with a bank or public institution ol' public lxrnds or itlstrurncnls ot'"riair poyaUt; io order or bearer givin in usuliuct whcn'dhc usuliudru:rry docs nol givcproper sccurity for ibeir conservalion (Arliclc ,86): . i1.3 The deposit ol'o thing plctlgcd rvhen llK' crudit()r ttscs Ihc sittns with()ut lhcauihority of thB owner or misuscs it in any othcr way (Artiqlc 2 tCt4 ):1.4 Those required in suits as provided in lhc ltulcs ofCour.; and!1.5 Those constitulctt lo guaranrcc contracts wilh lhe g,ovcrnttrcnl. In this l sl ( sc,rhe deposit arises fiom an obllgation ofpublic or administrative character.I2. Ngcessary deposit made on the occasion ofa calamity.

3. Dcposit by travelers in.hotels and inns3. I They have becn prcviously informed abourtlre elli:cts lrrought by lhe guaYitsi aDd-3.3 The lotter hnvc tnkcr) thc prgcauli(rns ptcscril)cd rcgt:rdirtg lht:ir strti:kccpingNotc:

l. tlotelkeepcr is liqblc ir:gardlcss of thc orn(ruDt ol'carc uxcrciscd in thc tirllorving sulies: . . .a) Thc loss oi.iniury is csused by his servonri br employees os wcll as by srangers(Anicle 2@O) provided ihat notice hss becn given and propr precautipns uken (Article1998): andb) The loss is caused by the act of a thicf or robber done wilhout the use of arms and.irresistible force (Ahicle 200'l ) for in rhis case, the lotelkeepcr is apparently negligent.

2. Hotelkccpcr is not liable in the following cases: . ,a) Thc loss or injury is caused by force majeurc tikc flirod,. fire (Anicle 2000), thenor robbbry by a stranger (not hy horelkecper's servant or employee) with the usc of armsor irresislible forcc (Articlb 20Ol ), etc., unless he is guilty of fault or negligcncc in failingto providc against thc loss or injury liorn said cousc (sce.Aniclca I l7O, I174)',b) 't'hc loss is duc ro thc Bcts of tho gut:sls, his. lirrrrilyr scrvilrls ()r visitors (Articlc2002 ).c) 'l'hcj loss aris,J5 lirrttl ll)c cllarircte r trl llrc tltittgs lrrouEllt trtto llru h()lcl (Articl!:?O{ )l 1


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"ti!

a..:. b.

c.d.

3.4.

Leeal Basis: Anicle 2ool, civil codeHotclkeegrr has a right to the thingsexpenses and supplies..Jurlici:rl Deposit or Sequetration :

JudiclatP.

l.

CausePurpose

Subject MatterRemuneratiolrBeneficiary

Delinition

B, Cha rncteristicsaccessory

by will of couitto secure the rigtrt ofaparty to recovbr incase, of a favorablej udgmentmovableimmovableoncrouspcrson withjudgmcnt.

, andp-roperty

favorable

v.A.

Guaranty is a conr:ract whereby a prson binds himself to theobligation of the principal tlebtor in case the latter should fail to.do so. cieditor to tuIfill the

Prpde!l!iE!-!G!rarsntec nitd Assurrnce I[c.vs. ,\nscor Land. Inc.(630 SCRA 36E)'l'hc Pcrfrrnnrrr t. iitin.i issued by thc pelitioncr Wilg nrcant to guarantccthe supply of labor, r: raierials, tools, equipment, and nccessa5/ supcrvision.tocomplete the cor.Btruction projer:t. A guarantee or a surety contract under Article

35


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':5204? of the Civil Code ofthe Philippines is an accessory contract because it isdependent for its existence upon thc principal obligation Suaranteed by it. Infact; the primary and only reason behind the acquisition of tlre performancebond by Kraft Realty and Development CorPoration (KRDC) was td guaranteeto Ansaor Land, fi;. (ALI) thai the consdruction project would proccbd inaccordancc with thc co ract trms and conditions. ID cfraat, thc pcftbrrnanccbond bcomca liablc for the complction bf the construction projcct in thc cventKRDC fails in its contractual undertalting. . :. :..Becausc of tbe performance boud, the co[struction. contract betweenALt and KRDC is guaranteed to be performed even if KRDC fails in itsobligation. In practice, :r perfomrance bond is usually a condilion or a rrbcissarycomponent of construction contracts. In the case at bar, the perforrnance bond\vas so connected with the construction contract that the former was agreed byrhe parties to b a condition for the latter to push through and at lhe same time, .tlre lbrmer is relianl on the latter for its existence as an socessory co[trrct. . . .'subsidiary and conditionalrrnilaterol . : l.requires thot lhc guarantor must be a pcrson distinct from the dcbtor:I)isti ncllr,ns bcl\r'ccn G'urrrlrnty und ,surctysltil)

2.3.4

G ul rnn tvC;ul(rnlor is secondarily liable. I l.

Suretvship

2. Guarsntor binds himself to. payonly when the princiial cannot pay.

Guarantor is ad insurer of ihedebtor's insolvency. 1 Surety.is an insurer of the debt.

2.

3.

(s33 SCRA 257)Arlicle 2o,t7 of the Civil Code provides that sureryship arises upon thesolidary binding ola person deemed the surety with the principal-deboifor the.purpose of fultill ing an obligation. . In Castellvi de Higgins and Higgtns v,s^a-linen 4t Phil. 142 (1920), we held that while a surety and a guarantor arcalike in that each promises to answei for the debt or dafault of another, thelsurety assumes. liAbility as a regular party to the underbking and hend its iobligation is primaly. ' I

Pnlmrres ve ('ourt of ADpegls.., (288 trcRA 422) .. A surety is ar insurer of the debt, whereas a gusnnlgr ie an insurer ofthe solvency ofthe dc )tor.' A suretysiJp is an undertaling that ttre debt sha[ bepaid; a guaranty, an ul 'dertaking that the debtor shall pay. Statcd diffeiently, a

vs. Eauinox Lrnd Corooratidn

36


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C!t

,isurety promises td pay the princiPal's debt if tbe principal will notgr-o.tior agrees thaithe cieaitoi, afle: prooecding- against thc p.ifroceed against thc guarantor if thi principal is unablc to Ptyi- .4irimself tJpcrform if thc principal d&s not without teSara to hlsso. A guaramor, on the othcr bind, docs not cootraqt th.tl, pliobut simFly thal he is ablc to do so. In othcr words'

C.i .furispru{tence on Distinctions betwecn Guaran$r aad

. x** xxx i,.iblvjn il'it were otherwise, demand on the sureties is not necLssary beforetrrirrging suir against tlrem, since the commencement o-f the suit is a isuflicient

irirrr in the abseirce of a special agrcetr".,t to that effect in tlid cdntract of 'interest or the s*rety. r'i. *"L^i"ii,i'3 ; ;;i;;;fA;; i"rffi',igt' i"l tr'"surcrv c,f thc clelauli ol the principal cannot have ihe effect of (tiiclargiFg. thesurery. Ihe surcty is bound to takc notice pf the priacipal's idifat+t qnd- teperlirrrrr thc oblrgation. He cannot complain that the crcditor hqi noi notified-

Thc alleged failure of respgndent corporation ito'ptor"l th,J f."t of.lcnrlrrrl l'rr tlrs l)rirrsipcl debtors, by Dot attaching copies thcrcto !o {ts pleodings,is likcrvise inrnruterial. lrr thc absence ofa statutory or contrdctualIr is llol ncccss r !- rhur p yment or performance of' $is bblibrJcnraudcd rrl' thu principal, cspecially where deirand woirld havp

(.!.,rr,,,.I On this Poinl, it may be-worth mentioning^that o s!..!l+11:rn?t:;t:Yflg!l-!ftl!!L rrs a tnulter ol'right, to be uivcn notice ot the Dnnc.lpal-q dpr4ull'l,,,-"*tl as the credilor owes no duly of active diligence ro. takp care o{ the

nor is it a requisite, before proceedingi against the sutetiis, ihatcal led on to account. The underly-ing principte thercfore is that,

of lhem simultaneously. T?re rulc, thercfore, is that if tho oblig!.tion is joiBt andseverol, the crcditor hai the right to procecd even against thc surety alone.Since, genemlly, it is not necessa4/ for a Creditor to proced against a principal

otherlvise, u suiety is primarily liable, and with the rrile that his proper remedyis to pay ihe debt and pursue the principal for reimburscment, lLc aurew cannotat larv, unless pcrmitted by statute and in the absencc of any agroemcnt limitingthe application of the security, bcforc procecdingolloirrst lhc surcly.

irr ortlcr t(, hold tlre surcty liable, where, by thc tcrmg of thc dontracl, thcolrlrgar.ir.rn ol'the surety is the samb as that of th9 principal, then as soon as thePerforce, in accordance wirh the rule that, in the absenc of statute er agreement

psy, while aincipel, r.nayswcty bindsability to do

ond is tbercfore not entitled to the betrefit of excussion or exhaustiotrof the propertics of the principal debtor. .. irll ,i37 1::'\

Fi.'st Distinctiou - A guartnior is secobdorily llable wblle a is plimarily liable


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iN l)cryelorment Corporrtion vs- Plrilipoilc.Eroort enrl Forciqn Lo{rn Guerartcc Corborition(468SCRAsss) .Under a contract ofgrrarantcc. t}e 8uarnntor binds himsclfro rbc crEditork, t'ultilt rhc obl,gtlion of r* prircipl ttc6tor irr casc -thc hllcr slrorlu fail to doso, though it c griranor carr""t bc ;-mfillcd to poy thc crcditor r11lc.ss tp-"ilgcrcditor-has cx-iraustod stl Ulc property of rhc dcbror and rcsortcd tb atl lcgst

remedies against Ore Ocbror. excussion may onty E ilvokcd aftcr lcgalrcmedies ag[inst the principal debtor have becn exharstod- . i i. ,,,'fhe rcquirement that tt e gnatantor should' conscnt t9 Ty 9le":9"gnmtut by thc creditor to rhs debb; under Articte 2O79 -is for the bcnefit of the[""*"i"t' trt " con waive it. The taw docs not pro-hibir dlc psyment by 8'[uar:rntor on his own volition, hecdless of &e bencfit o-f excussion 'I]re law7..-e"irrr th. ;ght of s gua;tor to rEtover Yrbsr it has pa!$ evcn if trcp.1"i""r was ma& before ttre dcbt becomes due' oi if oadc lvirhou noticer lothe debtor, subjcct to some conditiotls. . .: 'j IPbitirrrinc Netionrt Benk vs. Court of inbceb ]i ' I

be direcl primary and abaolule. In orhcr words, 'hc is dirccrly, primarily and@ as original promllsor attilgug[ ir" pos".s."i "odircct or pcrsonal intcrssl over ahc lritter's obligatiom n


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L1,

Since the liability of an accommoddtion party rcmains not onlyprimarybut also uncbnditienal io a holder for value, cvcn if the accommodated partyreceives an extension of the period for payment without thc consent of'ttre.ut.ornrnoaatlon party, the latter is still tiaflj for ttre wholc cibtigation and suchextension does not rilease him becausc as far as a holdcr for valuc is concemc4he is a solidary co-dcbtor. Ir is a recogpizid doctrinc in thc maucr of surctyshipthat with rcspct to the surety, the creditor is rmdci no obllladon to displsy anydiiigence in thc enforcemcnt of his rights &e a crcdito-r. - His EGIE 'iDactio,\pasiir.ness or dclay in proceeding against thc princitnl dc$tor, constitute nodefense at all for thc surety.MCO Samnlc Problem

+ .r.b Il is entitled to lhe benefit ofexcussion,B di(l not pcrsonally benefit fronr A's loan.A is rrot insolvcnt.13 is not a.judicial bondsmun.c.rl.

llq,tse!: (iuarantor has the benefit ofexcussion.,Secoirr! l)istinction - A gusraDtor binrlslhimself io psy onty when the principat crnnot. psy. On the contrary, a surety rseumei lif,bility as a regular party' to the undertaki[g sqd undertakes lo pay if the pritrcipal does DotP8y. ' ,

A$c@,I nsu rtnce Comoanv. Incorooratcd ;@t,,As provided in Article 2047, the sucty undcnakqslto bc bdund soti&rilywith the principal obligor. That undertaking makes a: sirrcly agrceFreDt anancillary contracl ai' it prcsuppos6 thc cxistcncc .of a pdncipel colrtract.Although the contract of surety is in essence secorflaqr oaty o a valid principalobligation, the surety becomes liable ficr the debt or duty,of a0other although it' poss(:sscs no dircct or pcrsonal interest ovsr the obligrtio nor docs it rcc,civearry bcnctit thurclir.rqr. Notwithstanding .thc faot thst. thc aurcty contract issccondi.rry to (hc prirrcipfll < bligatiorr, the surcty assumcs liability as a regularpany to the undr:nalcing.Srrretyship, in essence, contains two types of relationship - the principalrelationship between the obligee Qtititioner) and the obligor (Lucky Star), arrdthc accessory surety relatio. rship between the principal (Lucky Star) and lhe

surety (respontlenl). In thir arrangement, the obligee accepts i the surety'ssolidary undertaking to pay if the obligor does not p6y Suoh acocptatrce,' holever, does not chahge in any material way the obligcc's relationship. withthe principal olligor. Neitho does.it makc thc surety rn ectivo party to theprincipal obligec-obllgor, rcla ionship, Thus. thc acooptqoo doot not glvr thcsurety the right to intcrvenc I n the principal contract Tltc surctv'3 role arisesonl], uoon the oblieor's dcfau39


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e' o'Philionine Bank of Communications vs. Lim(4ssscRA714) .

Suretyship ariscs upon thc solidary binding of a perscn - deemed thesurety - with the principal debtor, for the purposc of fulfilling an obligatio-n.t he prcstation is not an oriilinal and dirccr obligation for tho pcrformaircc ofihesurety's own sct, but merely acccssory or collatcral to fh obligstion contractidby.rhe principal. Although lhe surcty contract is sccondary to thc princifilobligation, the surety assumes liability as a regular party to thB undertaking.. -,

In enforcing a surcty conirBct, the "complementarj.-co tracts-construed-togerher" doctrine finds application According to this ppinciple, an accbssorycontract nlust be rcad in its enrirety and together with iho priicipal agieemeni.'l'his principle is used in construing contractual stipulations in oider to. arrive,attheir true meaning; certain stipulations oannot be segrbgatpd and then inade toc on I r(rl,

ljnder the suretyship conlract entered into by petitioners-spouss. wilh:rcspondent bank, the former obligated ttremsclves to be soridariry bound with ,rhe principal debror Baliwag Mahogany Corporation CBMC) for the payment ofrrs clcl)rs to rcspondent bank amounting to F5,O0O,OOO.OO. Undcr aniclJ l216 ofth: C-lvil Code, respondenr,bank as crcditor may procce.d agajnst p.titiofrerS_spouses as sureues despite the execution of the Memorandum of Agreement

The provisions of the-MOA regarding the snspcnsion of paymcnts bylY9:"j 9" no^n-fiting of cbllection srliq Uv-trr, "r"ai-t"" uu"*" pJrtii" ""ry t611: .p."ryfy_.of. rbq- principat debtor BMC. . Firsrln in the- rehabititaionIec.e-lvershlp tiled_by BMC, only the propertics of BMd nrcrc mentioned in thepctltron- witi the $ccurities and Exchange Comrnission (SEC). Socondlv- thercrs norhrng in lhc lv{OA rhat involvca thc li8biliti6 if *t surti""' ,r}ro""propcrti* arc separBtc 8nd distinct from that or tnc'acutoiErrrc.-i";dr;-d;ll91 -"J:-"-re.!XBYc."l9 signed by the creditoi-Uautrs'ur"s approrea 6y d,c)cu whose Jurisdiction is limited only to corporotions and corporate assas. Ithasnojurisdictionoverthep'op.'ties6fBMc,;fii;;;;;;;il."

(MOA) which provided for rhe suspension of pa).mcnt and filing .of colleciionsuits againsl BMC. Resoondent bank's rieht to-c; eit oavmeni fo; ir,.-Ji.*J'for pavment on the orinciojl-dibtoT

l::i::li:" "_f ,hq.Th*jTpli-"" proceeaings. -Ir, ,r"drr",; jil;"ffi ;i

Bancqde Oro.EPCL Inc. vs. JApRLDeveloDmentCorporatlon .(ssr scRA 342) .Under the. Interim Rules of procedurc on Cor;nrate Rchsbilitatiorl a .stay order defers all actions or ctaims againsi tfi'corp"ratio" s.eti"!fI?:l:I':1I^g- q" .qp of its issuancc-unittiii-a.iii*sat of the petition or

40


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ffi.rril?it"bt*t sopc"t imd is aSlc to paytr no priqr demard. is ma{i on thc'principal debtor.Although a surety contract is sccondary to thc ptinciPal- oUtiSallol tltlliabiliry of the-surety is iirect, primary and absolute; -or equivalcnt to that of ai"g"l"i p""v to the ;dertaking. a trltity is considered in law !o b on the sarned;ii"g;" ihe principal debtoi in relati6n to whatdver is adjudged against thela t rL'r.

G*tcwnv Elcctronic-!r Co4ograiion vs' ,AsiabaBk CorDorirtlon(s74 SCRA 698). A srrety undertBkes directty for,t" poy-.rrt ind is so. r+,ponsibic gionce il'tlrc principal debtor makcs dcfault If thc obligation ls joint imcl scveral,the crcditor has the riSht ro procecd even againsl the surcty atonc. ' . -

. E. Zobcl. Inc. vs. Couft of AnDesls ., .

-(zgoscner) i

The surety obtigates himsclf to pay tbe debt if thc priirciqal dc-tior.villnot PaY,;it;;i;@qinsl th: sur{Y, {!T:t 1l-c

surety is distinguished from a guaranty in thst I sualgtltor i! lh: iltiurer.?g qe

A surety is usually bound wirh his principel by the sa+p' itstrugtcnt'executed at th; samc ti-i, iiJo]'' ti. *-J "o*iJ.t*on: -Helis-an originslpromissor ahd debtor.ftom thc beginning; and'is hld, orditrarily, to k ow cvcrydefault of his principal. Usually, he will aot bc dischargpq cittc( !f th9 gere-indulgence ofihe creditor to rto pniooipot, or by want of notico o{thc ddault ofthe p;incipal, no matter how much hc may bc injurcd thcrc.by. ;On thc. othcrhand, the conlract ofguaranty is the Susrantor's cwn scPa.?to ulldcrtaxrng, lnwlricir thc principul ttis not join. lt ii tisuully entcrcd lnto boforo or aftcr thot 'of the principal,'and is ollen supportcd on a- sePaiatc considcradon lioT qIsupponing thL contract ofthe prin;ipal. The originat contraa of his prinoipal-i!notiis "o-rrtruct, and he is not'bound to take noti-ce of its non:performarqe. His often discharged by the mere indulgence ofthe creditor to the principal' and isusually riot 'liable un'less notifred of the default ofttrc principol- Simply pu!- athc nrincioal does not pav.

4lti


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Secu rltv?acilic Assurance Cornoratlon vs. TrIi-Infente(468 SCRA 526)

rf,.,.0

liabilitics rrc intcrwovn and inseparablc.

(52O SCRA 317)

D. Coosrrucaloo of Guaranty/Suretyship Contract i

Ouiamco vs. Csnitat Insurance & SurdtV Co.. fnc.(s6s scRA 146)-fhe parties entered into a contraci of suretyship wherein respondent as .suret), bound itself solidarily with ptitioners (the principal debtors).to fulfiil ar,otrligation, The obligation was to pay the mongiqD/ eward in'ihe labor cascshould thc decision.become final and executory agoinst petitioners. ,From the moment the contract is perfected, the parties "r" Uorna',ocornplv with wh-qt is.exprcssly stipularcd as wett as wittr w-nst is requlrea Uy ttrenarure ofthe obligation in kceping with good faith, usage and the taw.' a surptyis cdnsidered in law to be on the same footing as the principal debtor in rclationto rvhatever is adjudged against the latter. - Accordingly, as iurety of petitioners;respondent was obliged to pay on the bOnd when a wril of cxebuiion was scrve


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vs. Y.P. Euseblo Constructlon. Jtrc. '(434 SCRA 2O2) ,Thot thc guarantec: issucd by the petitioner is uirconditional gnd'irrcvrxublc docs n'ot makc the pctitioner a iurety, As a guaranty, it i$ still'charactcrized by its subsidiary ard oonditional qudity bccrusc it docs not t8ke

effect until thc fulfillmcnt oi the condition" nalbcly,- that. thc'principal obligorshould fail in his obligation 8t tbe time .anA in thc form he bound himsIf. Inother worJs, an unconlitional 'd;i"; iJ "cii ""u:.ct to trtc ioidition. oei'the .principal deblor shou.ld default in his obligation first befgrel resort to the'gt,,],runtor could be had. A conditional gusranty, as opposed toian unconditionalBesides,

' the contruct becomes one ofsuretvshiD,Otbes vs. China Bonkins Cdr'rror;tlon(484 SCRA 33O)

No liability aftaches under a contracoof suretyship forbLrli)rc il is cntercd itrlo unless an intcnt to be so liable isstrll very much applicable case oFBank of the PhilippinePhil 843), it rvas ruled that althollqh n confrast ofslllet}

estate can set up to wifre out the obligstions under'asurely cannot use such party's death to escape its ynonetarSr

;d. In an old butts-- Foeister (49

bv the evidence is controllins.

A surcty's involvement is marginal to principal adrecmcntthe defendsnt and the pla.intiff; hencc,

Stronshold Insurance Comr'snv. Inc. vs.. Rdpublic Asahi-Glass Coiporrtlon .(4e2 SCRA r79)extinguish the obligation. Obligations are transmissiblc to lhc heirs, pxccptwhen the transmissior is orevented bv the law- ihc stioulstions'of the oarties- orhen the. trayrsmissio;r ii. prevented by the law, thc .stipulationsl of the parties, 6rthe nature of the obligation. Since death is ri6t i dcfcnsc ihatia parqr or his

I

43

(s71 SCRA 5r2)


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Thereforc, a surct,,r companv's liabilitv under thb pcrfomrJnce bond itlssues is solitlury. 'I'he dcath of thc nrincioal obliqor does irot. as ii rulq.extinguish rhc oblicalion snd the sotiCerv nsture of qhat liabilityDe los Sqntos Ys. Vibar(5ss scRA 437)

Ilggg: Wherher lhcrc cxisrs a contract of guarsnly to hold pctitioncr 'liablc forthe loan ofrhc princiPal dcbtor. i -. iCecilia's conduct in the course of the negotiations aEd contact signingsho$s that she consented to b a guBrantor ofthe loan as witnessed by everyoneprescnt. l'ler acl of "nodding her head," and at th same time even smiling,expressed her voluntary assent to the insertion ofthe word "guarqntbr" after her . 'sigoarurc. Il is the same as saying the,t she agreed !o thc inge4ion Also,Ceciliq's octs ol'nraking the partial payrnent oiDl5,00O and writing the letter tothe Register of Deeds sBstain thc nrling tMt Cecilia afffrmed her obligalion irs'de [,eon's guarantor to the loan. Thus,,Cecilia is now. estopped fronr denyingthst sllc is o guarantor.

. Contracts are perfected by niere conscnt. This is m'anifested by therncctirrs oir ihe oll'cr and tbe acccptance upon the object and causb which are tocorrsritute the contract. Here, the objegt of the contract was the ispuance of the .bond. 'I hc cause or consideration consisted of the premiums paid. The bondrvas.issued after petitioners oornplied \ ritit the requiremenE. At this point, thePetitioners cannot insist that the contract .ur* *U.y".t J j ,.rr**i"" .condition, rhat is, the stay of the judgmeni.of the fabor arbircr. This wis nota,condition for the perfcction of thc contract but merrly a stdiement of thcpurpos of tbe bond in its .Vherdas,; clauses. Aside fr6m this! thcre was aomentioh of the condition that beforc the contract could . beco'me valid andbinding, perfection of thc appeal.was nccessaq/. If the intention *as to make ita susJ:ensive condition, then the parties shoutd havs madc it clear in certaia and'rnarDbiguous terms.

E. Zobel. Iqc' y+ =Court of Aoocrlr(290 SCRA r) ,The use of the term "guarantee" does not ipso facto meah that thecontracl js one of lguaranty. Authorities recognize that thc word ..guaranlee', islic(lucnlly umplol,url in husincss trsnsoctions to dcscribc not fhc seiurity of thedebt but an intenrron to be.bound by a primary or indepcndcnt obligati6n. Asaptly observed by the trial court, the interpretation ofa iontract is n6t limited tothe title dlone but J,o ths e6nlgnts and inteation ofthe parties.

ln en forcinl J a surbty c()ntract, the ..complemntaBrconlracts-construed_toSelher" docrrinr: finds applicarion. According ro this principle, an Bccessoryconlract must be njad in its entircty and togeth-r with the principal ugr"e*.rri.

(s6s scRA 146)

(4ss scRA 714)

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This principle is used irr construing conractual stipulations ln ory{ to arriyc atth.it t.u" mbaning; certain stiputations cannot be segrcgatcd and theri made tocontrol.E. Rutes Covernins thc Nraur ,nd Ertent of Guf,mntv .l. Guaranty is generally gratuitousException: conttarystiPulation

Garcia. Jr. vi. Court of Aooe al,s.(r91 SCRA 493)'Ihe pcculiar nature ofa guaranty or sur$ty' agrdement is that it isregirrde(l as valid despilc the absence ofany diiect considiration received by thegualantor or sulety cither from the principal debtor. or Fom thc.clditor. Whilea conlract of ouaraDlv. or surety.. like. any oltle,r gontrBcJ;. mu4 AenerFlly- te

wilL stuUise. The guarantor or surety, therefore, beconies liable the debt orduly of irnother olthough he possesses no diregt oB pcrconal over theohligations nor does he redeive any benetit therefrom.W

In surety is one rvho is rolidarily liable with the princi.pal, Petitionerscannot clainr that they did not persoirally receivc any oorsideration fo1. theconlract lor well-entrenched is the rirle that thb considerotion necessary. tosuppoit .r surcty ubligntion nccd not pass directly to thc awoty, a coniidcrationmoving to the principa.l aloni being sufficient,!hgs!.:.

\Yillex Plastic Ipdurtries Corporstlonvs. Coura of Appcrll-lrs6 scRA 4tq=Put in another way, the corsideration ncccssary to ,arpdoa a suretyobligation nced not pass directly to thc surety, & eol.lderation boving to thcprincipal alone being sufficient. For a "guarantoi or sutEtla is bound by the;same consideration that makes the conti.act effeclive bctw@n the principalparties thereto...:.. It is never necessarv that a euaftnto[ or sirretv should. Iegejyg-anv part or br:hefit. if such there be. accruins to his pri|rcilEl." xrc(2. Guaranty is an accessory contract therefore there must be a valid principal obligation forguaranty to be valid. Cuaro rtor may secure the performance of voi&ble, rmenforceable, natural,

conditional and t'uture obligr tions (Article 2052).Eserflo Ys. Ortiisg{.s26 SCRA 26)

A srrretyship. r.:quiies a principal debtor to whom the snrety is.solidarilybound b:/ way of e.n ancillary obligation of segregate idcntity from theoblig.rtion hsnveen th,: principal debtor and the creditor, In the case ofjoint and45


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several debtors, Articte l2l T makes Plain that thc solidsry debtor wh


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Visavan Su retv & Ingursnce Cornorrtion!i

vs. Court of Anneals(3s scRA 63r) ..Il4gEi Spouses Danilo and Mila lbajan tiled with the Rcgional Trial Court a"oorptuini agairrst spouses Jun and.Susan Bartolomc for rcplcvin lo recoverFrom them the possession of an Isuzu jccPney, with damalcs. Plaintiff lbajanulleged that they were the owncrs ofan Isuzu jccPney which was forcibly takenby defbndents while parked at thcir rcsidncc. Pliintiflb frlcd a rcplevin bondthru petitioncr Visayan Surcty & lqsurance Corporation and tt trial cdunissued lhe writ. Consequently,theshcriffseizedsubject.vehicleandtuincdov,el'the same to plaintiff spouses Ibajan. Spouses Bartolome filcl a motion to quashthe.B,rit of replcvin. Meanwhile, Dominador Ibajan, father.of.plaintiff Danilo,lilccl a nrotion lirr lcavc oIcourt to intbrvene, stating that he has a riglrt puperiorr(, lhu l)Lrin(ill:s (,vcr llte owncrslrip uid posscssion of tbe subjcct vchiclc'iThctricl court granted the [rotion to iniervene. The trial court issucd an Qrder 'Branting the nr(r(ion to aluash the writ ofreplevin and directing plaintitT to returnthe srrl>jcdt jeepney to thc intervenor Dominador. .The trial cgurt ordcrcd theis.,r,,,rc-c ol'a ri,rit .rl'r'cplevin diiecririg the sheriff to tirke into'his citstodi thesubjeci rrotor vehicle and to deliver the same to thc iritcrvcoor rlvho was theregistered orvner. The trial court issuid a writ of rcplwin in favor-gf inteniOnorDominador but it was retumed unsatisfied. Intcrvcoor Domiiador filed drrrbtion/lpplicatiorr for j udgment agairut plaintiffs" bond which was ganted.-

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