ALEJANDRA TORRES AND SABINA VERGARA Vda. DE TORRES, et., Al. vs. FRANCISCO LIMJAPG.R. Nos. 34385- 34386 September 21, 1931

FACTS:

In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a chattel mortgage on his drug store at Calle Rosario, known as Farmacia Henson, to secure a loan and in the second case the plaintiffs alleged that they were the heirs of the late Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in favor of Don Florentino Torres a chattel mortgage on his three drug stores known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to secure a loan.

In both cases the plaintiffs alleged that the defendant violated the terms of the mortgage and that, in consequence thereof they became entitled to the possession of the chattels and to foreclose their mortgages thereon.

Subsequently, the court issued in each case an order directing the sheriff of the City of Manila to take immediate possession of said drug stores. The defendant filed practically the same answer to both complaints. He denied generally and specifically the plaintiffs' allegations, and set up the following special defenses that the chattel mortgages are null and void for lack of sufficient particularity in the description of the property mortgaged; and that the chattels which the plaintiffs sought to recover were not the same property described in the mortgage.

The trial court ruled in favor of the plaintiffs. Hence this appeal.

ISSUE:

Whether or not the The lower court erred in failing to make a finding on the question of the sufficiency of the description of the chattels mortgaged and in failing to hold that the chattel mortgages were null and void for lack of particularity in the description of the chattels mortgaged?

HELD:

No. The court held that it unnecessary to discuss the question raised, in Their words: “With reference to the first assignment of error, we deem it unnecessary to discuss the question therein raised, inasmuch as according to our view on the question of estoppel, as we shall hereinafter set forth in our discussion of the third assignment of error, the defendant is estopped from questioning the validity of these chattel mortgages.”

A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and binding. . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. (11 C.J., p. 436.)

Cobbey, a well-known authority on Chattel Mortgages, recognizes the validity of stipulations relating to after-acquired and substituted chattels. His views are based on the decisions of the supreme courts of several states of the Union. He says: "A mortgage may, by express stipulations, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage may be made to include future acquisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly provide that such future acquisitions shall be held as included in the mortgage. ... Where a mortgage

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covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.)DEVELOPMENT BANK OF THE PHILIPPINES VS COURT OF APPEALS AND PHILIPPINE UNITED FOUNDRY AND MACHINERY CORP. and PHILIPPINE IRON MANUFACTURING CO., INC.,G.R.No. 138703June 30, 2006

FACTS:

 In March 1968, DBP granted to private respondents Philippine United Foundry and Machinery Corp. and Philippine Iron Manufacturing co., Inc., an industrial loan in the amount of P2,500,000 – P500,000 n cash and P2,000,000 in DBP Progress Bank. It was evidenced by a promissory note and secured by a mortgage executed by respondents over their present and future properties. Another loan was granted by DBP in the for of a 5-year revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth DBP was restructured in view of failure to pay. Amounting to P4,655,992.35 were consolidated into a single account. On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were denominated as “ Notes Taken for Interests” and evidenced by a separate promissory note. For failure to comply with its obligation, DBP initiated foreclosure proceedings upon its computation that respondent’s loans were arrears by P62,954,473.68. Respondents contended that the collection was unconscionable if not unlawful or usurious . RTC, as affirmed by the CA, ruled in favor of the respondents. 

ISSUE: 

Whether or not the prestation to collect by the DBP is unconscionable or usurious?

HELD:

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the interest is void. The debt is then considered to be without stipulation as to the interest. In the absence of an express stipulation as to the rate of interest, the legal rate of 12% per annum shall be imposed.

 It cannot be determined whether DBP in fact applied an interest rate higher than what is prescribed under the law. Assuming it did exceed 12% in addition to the other penalties stipulated in the note, this should be stricken out for being usurious. 

The petition is partly granted. Decision of the court of Appeals is reversed and set aside. The case is remanded o the trial court for the determination of the total amount of the respondent’s obligation based on the promissory notes, according to the interest rate agreed upon by the parties on the interest rate of 12% per annum, whichever is lower.

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VICENTE ONGKEKO vs. BPI EXPRESS CARD CORPORATIONG.R. NO. 147275March 31, 2006                          

FACTS:

On September 13, 1990, Lina Lodovica (Lodovica) applied for a credit card with respondent, with Vicente Ongkeko (petitioner) acting as surety.  Her application was approved and she was originally given a P3,000.00 credit limit.  When Lodovica’s card expired in 1991, it was renewed and her credit limit was increased to P10,000.00.  As of May 12, 1996, Lodovica had an outstanding balance of P22,476.61.           On May 28, 1996, respondent brought an action for sum of money against Lodovica and petitioner.  Petitioner filed his Answer admitting his undertaking, but he maintained that he can only be liable for the original credit limit of P3,000.00, and that the renewal of the credit card without his consent extinguished his undertaking.The Metropolitan Trial Court ordered Ongkeko to pay the respondent for the outstanding balance of Lodovica plus damages. The RTC and CA affirmed the decision. Hence this petition.

ISSUE:

Whether or not the petitioner is not liable for the purchases made by Lodovica after the expiration of the original term of the credit card because he was not notified of the renewal of the credit and the increase of the credit limit?

HELD:

Yes. The court held that the petitioner’s undertaking is clear and consice. He solidarily obliged himself to pay respondent all the liabilities incurred under the credit card account, wheter under the principal, renewal, or extension card issued, regardless of the canges or novation in the terms and conditions in the issuance and use of the credit card. Petitioner’s liability shall be extinguished only when the obligations are fully paid and satisfied. By citing the Molino case, the court also held that the novation did not serve to release petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of novation in the agreement governing the use of the first credit card.

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SPOUSES ALFREDO and SUSANA ONG, vs.PHILIPPINE COMMERCIAL INTERNATIONAL BANKG.R. No. 160466             January 17, 2005

FACTS:Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the

manufacture and export of finished wood products. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively. The respondent Philippine Commercial International Bank (now Equitable-Philippine Commercial International Bank or E-PCIB) filed a case for collection of a sum of money against petitioners-spouses. Respondent bank sought to hold petitioners-spouses liable as sureties on the three (3) promissory notes they issued to secure some of BMC’s loans. Then, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitioners-spouses as sureties..nét

A Memorandum of Agreement (MOA) was executed by debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). The MOA took effect upon its approval by the SEC on November 27, 1992. Thereafter, petitioners-spouses moved to dismiss the complaint. They argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMC’s sureties in their contracts of loan with respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them. The trial court denied the motion to dismiss. Hence this appeal.

ISSUE: Whether or not the spouses Ong are liable as sureties?

HELD:

Yes. The court held that under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to Under Article 1216 of the Civil Code, respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Respondent bank’s right to collect payment from the surety

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exists independently of its right to proceed directly against the principal debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment on the principal debtor.

Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMC’s debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning.

MILA SALES LLANTO, YOLANDA SALES CABILLO, OSCAR SALES, ACQUILINA

SALES, FRANCISCO SALES, ALBERTO SALES, GLORIA SALES ALIPIO, EDUARDO SALES, EMERCIA-NA SALES ALGIRE, ELENITA SALES SERRANO, and CONRADO SALES, vs.ERNESTO ALZONA, DOMINADOR ALZONA, ESTELA SALES PELONGCO,and the REGISTER OF DEEDS OF CALAMBA, LAGUNA, G.R. No. 150730           January 31, 2005

FACTS:

Bernardo Sales and Maria Sales were husband and wife. They have twelve children, eleven of whom are the present petitioners while the remaining child, Estela Sales Pelongco, is one of herein respondents. Maria was the registered owner of a certain parcel of land, which she acquired under a free patent. Until they died, Maria and Bernardo, together with some of their children, lived on said land and in the house which they constructed thereon. Maria died on August 27, 1986 while Bernardo died on January 1, 1997.

On January 29, 1990, a real estate mortgage contract was purportedly executed by Maria, who was already deceased at that time, and Bernardo in favor of herein respondent Dominador Alzona. Respondent Estela Sales Pelongco signed as an instrumental witness to the mortgage contract. Respondent Ernesto Alzona admitted that while he was a co-mortgagee of his brother, Dominador, his name does not appear in the mortgage contract. The mortgage was subsequently foreclosed for alleged failure of Bernardo and Maria to settle their obligation secured by the said mortgage. The property was thereafter sold in a mortgage sale conducted on December 20, 1990 wherein Ernesto Alzona was the highest bidder. Consequently, a certificate of sale was awarded to Ernesto and a Transfer certificate of title was issued in his name and the name of Maria Sales was cancelled.

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Then, the petitioners caused the inscription of an adverse claim on the title to the property. After trial, the RTC dismissed the complaint and confirmed by the CA. In the present case, since it is no longer disputed that the mortgagors were not the owners of the property subject of the petition the question that remains is whether Ernesto and Dominador are mortgagees in good faith. Petitioners contend that the principle regarding innocent purchasers for value enunciated by the CA in its decision is not applicable to the present case because in the cases cited by the CA there was no question that the mortgagors were the real owners of the property that was mortgaged, while in the instant case, the mortgagors were impostors who pretended as the real owners of the property.

ISSUE: Whether or not the principle of “innocent purchasers for value is applicable in the

present case?

HELD:

YES. In fine, we hold that respondents Ernesto and Dominador Alzona are mortgagees in good faith and, as such, they are entitled to the protection of the law

The principle of "innocent purchasers for value" is applicable to the present case. Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the mortgagor should be the absolute owner of the property to be mortgaged; otherwise, the mortgage is considered null and void. However, an exception to this rule is the doctrine of "mortgagee in good faith." Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.  This is the same rule that underlies the principle of "innocent purchasers for value" cited by the CA in its decision. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation.  Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to protection

For persons, more particularly those who are engaged in real estate or financing business like herein respondents Ernesto and Dominador Alzona, to be considered as mortgagees in good faith, jurisprudence requires that they should take the necessary precaution expected of a prudent man to ascertain the status and condition of the properties offered as collateral and to verify the identity of the persons they transact business with, particularly those who claim to be the registered property owners.

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BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATIONG.R. No. 133632February 15, 2002

FACTS:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa.  Said house and lot were mortgaged to AIDC to secure the loan.  Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly

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amortization ofP9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of P190,601.35. This reduced Roa’s principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of   private respondents’ loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of Roa’s loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriff’s sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984.  They maintained that they should not be made to pay amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the balance ofP35,648.23 should be applied to the initial monthly amortization for the loan.

ISSUE:

Whether or a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of Appeals?

HELD:

A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. Petitioner misapplied Bonnevie.  The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.

A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower.

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan.  Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents’ obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract.

We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan.  It is a

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basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract.  Therefore, in computing the amount due as of the date when BPIIC extra-judicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE vs.THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, G.R. No. L-49101 October 24, 1983

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FACTS:

The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of equity said justice.

On, December 8, 1966 the spouses Lozano executed Deed of Sale with Mortgage to Honesto Bonnevie where P75K is payable to Philippine Bank of Commerce and P25,000 is payable to Spouses Lanzano. Then, on April 28, 1967 to July 12, 1968, Honesto Bonnevie paid a total of P18,944.22 to Philippine Bank of Commerce. Then, Honesto Bonnevie assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie. PBC applied for the foreclosure of the mortgage, and notice of sale was published. Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well as the extrajudicial foreclosure made on September 4, 1968. The Court of First Instance dismissed the complaint with costs against the Spouses Bonnevie. Court of Appeals affirmed the decision. Hence this petition.

ISSUE:

Whether or not the forclosure on the mortgage is validly executed.

HELD:

YES. A contract of loan being a consensual contract is perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. 

Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that Honesto Bonnevie first wrote respondent and offered to redeem the property. Loan matured on December 26, 1967 so when respondent Bank applied for foreclosure, the loan was already six months overdue. Payment of interest on July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank. 

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REPUBLIC OF THE PHILIPPINES,  vs.JOSE V. BAGTAS,  FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, G.R. No. L-17474            October 25, 1962

FACTS:

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls for breeding purposes. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year and requested the return of the other two. Jose V. Balagtas wrote the Director of Animal Industry of his intent to pay the value of the three bulls and asked for the reduction. But, Jose V. Balagtas failed to pay for the bulls loaned to him. So, the Court of First Instance of Manila commenced and action praying to return the said bulls.

Felicidad Bagtas, the surviving spouse and administratrix of the decedent’s estate, said that in1952, the two bulls have have already been returned but the remaining one died of gun-shot during a Huk raid. The return of the two bulls were admitted as a fact by the court. As for the third bull, Felicidad contends that because the contract involving the bulls is a commodatum, the obligation is extinguished since the contract is the loss through fortuitous event should be borne by the owner:ISSUE:

Whether or not Bagtas is liable for the death of the bull and should pay the value thereof?

HELD:Yes, the estate of Bagtas is liable for the value of the bull as it was not returned to

the Bureau after the termination of the contract of the renewed lease. A contract of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under Article 1671 of the Civil Code, the lease would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even f the contract be commodatum, the Bagtas would still be liable. It is because under Article 1942 of the Civil Code provides that a bailee is a contract of commodatum is liable for the loss of things, even if it should be through fortuitous event.

(2) If he keeps it longer than the period stipulated . . .(3) If the thing loaned has been delivered with appraisal of its value, unless

there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant tthe bulls had each an appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment endered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

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CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZG.R. No. 80294-95 September 21, 1988

FACTS:

The Catholic Vicar of the Mountain Province (Vicar for brevity) filed with the Court of First Instance of Baguio, Benguet an application for registration of title for Lots 1,2,3 and 4 of Psu-194357 situated at Poblacion Central, La Trinidad, Benguet. Said lots being the sites of the Catholic Church building, convents, school, etc., Upon knowledge of such the undertaking, the Heirs of Juan Valdez and the Heirs of Emigdio Octaviano filed an Answer/Opposition thereto on Lots 2 and 3,respectively, asserting ownership and title thereto. The land registration court promulgated its decision confirming the registered title to Vicar. Both heirs of Valdez and Octaviano appealed to the Court of Appeals.

The Court of Appeals modified the decision of the land registration court and found that Lots 2 and 3 were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that Vicar has been in possession of the same lots as bailee in commodatum up to 1951, when Vicar repudiated the trust and when it applied for registration in1962; that Vicar had just been in possession as owner for 11years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years possession without. 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. Petitioner contends that the principle is not applicable because the dispositive portion of the judgment merely dismissed the application for registration.

ISSUE:

Whether or not the failure of Vicar to return the property would be subject to acquisitive prescription?

HELD:

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The 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. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

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The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

SECURITY BANK AND TRUST COMPANY,  vs.REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURAG.R. No. 113926 October 23, 1996

 FACTS:

Private respondent Magtanggol Eusebio executed three Promissory Notes No. in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos payable in six monthly installments with a stipulated interest of 23% per annum up to the fifth installment. On all the promissory notes, private respondent Leila Ventura had signed as co-maker.  Upon the failure and refusal of respondent Eusebio to pay the balance payable, a collection case was filed in court by petitioner SBTC.  With this, the court a quo rendered a judgment in favor of petitioner SBTC to pay the sum on the promissory notes but only 12% per annum as the interest rates.

ISSUE:

Whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law.

HELD:

Yes. From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is 23% per annum.  The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between them. Respondent Eusebio, likewise, did not question any of the stipulations therein. In fact, in the Comment filed by respondent Eusebio to this court, he chose not to question the decision and instead expressed his desire to negotiate with the petitioner bank for "terms within which to settle his obligation." The rate of interest was agreed upon by the parties freely.

Significantly, respondent did not question that rate. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on the principal

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balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.  Thus, only in the absence of a stipulation can the court impose the 12% rate of interest.

REPUBLIC OF THE PHILIPPINES vs. JOSE GRIJALDOG.R. No. L-20240      December 31, 1965

FACTS:

Jose Grijaldo obtained five loans from the Bank of Taiwan, LTD., in Bacolod City, in the total sum of 1281.97, with interest at 6% per annum, compounded quarterly. The said loans were evidenced by promissory notes executed by Grijaldo in favor of Bank of Taiwan. To secure payment of the loans, Grijaldo executed a chattel mortgage on the standing crops on his land, known as Haciend Campugas in Hinigiran, Negros Occidental. By virtue of Vesting Order P-4, and under the authority providing for in the Trading with the Enemy Act, the assets in the Phils., of Bank of Taiwan were vested in the Government of the United States. Pursuant to the Phil. Property Act of 1946 of the United States, these assets, including the loans in question were subsequently transferred to the Republic of the Phils. The Republic of the Phils,filed a complaint in the Justice of the Peace to collect the unpaid account in question. The Justice of the Peace, after hearing, dismissed the case on the ground that the action had prescribed. On appeal, the Court of First Instance, ordered Grijaldo to pay the Republic the total amount of the loans plus interests. Grijaldo appealed directly of the Supreme Court.

ISSUE:

Whether or not the obligation of Grijaldo to pay the loan was extinguished upon the destruction of the mortgaged crops?

HELD:

No. The Supreme Court held that the destruction of the crops did not extinguish Grijaldo’s obligation to pay. The appellant maintains, in support of his contention that the appellee has no cause of of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to

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deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing — the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money — a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.

RADIOWEALTH FINANCE COMPANY vs. Spouses VICENTE and MA. SUMILANG DEL ROSARIO

G.R. No. 138739.  July 6, 2000

FACTS:

On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed, signed and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory Note[5] for P138,948. It is hereby agreed that if default be made in the payment of any of the installments or late payment charges thereon as and when the same becomes due and payable as specified above, the total principal sum then remaining unpaid, together with the agreed late payment charges thereon, shall at once become due and payable without need of notice or demand.

Defendants defaulted on the monthly installments. Despite repeated demands, they failed to pay their obligations under their PN. On June 7, 1993, plaintiff filed a Complaint for the collection of a sum of money before the RTC Manila. During the trial, Jasmer Famatico, the credit and collection officer of plaintiff, presented in evidence the defendants' check payments, the demand letter, the customer’s ledger card, another demand letter and Metropolitan Bank dishonor slips. Famatico admitted that he did not have personal knowledge of the transaction or the execution of any of these pieces of documentary evidence, which had merely been endorsed to him.

ISSUE: Whether or not the obligation became due and demandable?

HELD:

Yes. The court held that the act of leaving blank the due date of the first installment did not necessarily mean that the debtors were allowed to pay as and when they could. If this was the intention of the parties, they should have so indicated in the PN. However, it

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did not reflect any such intention. The Note expressly stipulated that the debt should be amortized monthly in installments of P11,579 for twelve consecutive months. While the specific date on which each installment would be due was left blank, the Note clearly provided that each installment should be payable each month. Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed the intention of the parties that the installments should be paid at a definite date. Had they intended that the debtors could pay as and when they could, there would have been no need for these two clauses.

Verily, the contemporaneous and subsequent acts of the parties manifest their intention and knowledge that the monthly installments would be due and demandable each month. In this case, the conclusion that the installments had already became due and demandable is bolstered by the fact that respondents started paying installments on the PN, even if the checks were dishonored by their drawee bank. Neither by their avowals that the obligation had not yet matured nor by their claim that a period for payment should be fixed by a court.

Petitioner has established not only a cause of action against the respondents, but also a due and demandable obligation. The obligation of the respondents had matured and they clearly defaulted when their checks bounced. Per the acceleration clause, the whole debt became due one month after the date of the PN because the check representing their first installment bounced.

The Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each unpaid installment until fully paid. Payment of interest was not expressly stipulated in the Note. Thus, it should be deemed included in such penalty.

In addition, the Note also provided that the debtors would be liable for attorney’s fees equivalent to 25 percent of the amount due in case a legal action was instituted and 10 percent of the same amount as liquidated damages. Liquidated damages, however, should no longer be imposed for being unconscionable. Such damages should also be deemed included in the 2.5 percent monthly penalty. Petitioner is entitled to attorney’s fees, but only in a sum equal to 10 percent of the amount due which we deem reasonable under the proven facts.PILIPINAS BANK, vs. THE HONORABLE COURT OF APPEALS, and LILIA R. ECHAUSG.R. No. 97873 August 12, 1993

FACTS:

Lilia R. Echaus filed a complaint against Pilipinas Bank and its president, Constantino Bautista, for collection of a sum of money. Echuas alleged that Greatland realty conveyed to Pilipinas Bank by virtue of a contract of Dacion en Pago parcels of land for a consideration of P7,776,335.69; that Greatland assigned P2,300,000.00 out of the total consideration of the Dacion en Pago, in her favor; and that despite demand Pilipinas Bank refused to give her amount.

The RTC and the CA, when appealed, ruled in favor of Echaus and ordered Pilipinas Bank to pay her the P2, 300, 000.00 with legal interest and other monetary awards amounting to P5,517.707.00 but pending appeal Echaus filed a motion for execution which was granted by the court. Although the CA ruled in favor of Echaus it decreased the award of damages and ordered Pilipinas Bank to pay a total of P2,655,000.00, excess of P1,898,623.67.

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The petitioner contended that the interest rate due on the mount of P2, 300, 000.00 should be 6% and the excess amount paid must be refunded to it with interest of 6% per annum. On the other hand, the respondent contended that the interest rate due on the amount of P2,300.000.00 should be 12% per annum and the amount to be refunded to Pilipinas bank at 6% per annum.

ISSUE: What interest rate applicable?

HELD: Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and (3) judgments.

(1) the amount of P2,300,000.00 adjudged to be paid by petitioner to private respondent shall earn interest of 6% per annum - The said obligation arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416.

(2) the amount of P1,898,623.67 to be refunded by private respondent to petitioner shall earn interest of 12% per annum. - where money is transferred from one person to another and the obligation to return the same or a portion thereof is subsequently adjudged. 

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