BATCH 1

Herrera vs Petro Phil Corp RULING:

146 SCRA 385 • Contract between the parties is one of lease and not of
loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in
FACTS:
the contract is there any showing that the parties intended a loan
rather than a lease. The provision for the payment of rentals in
advance cannot be construed as a repayment of a loan because
On December 5, 1969, Herrera and ESSO Standard, (later there was no grant or forbearance of money as to constitute an
substituted by Petrophil Corp.,) entered into a lease agreement, indebtedness on the part of the lessor. On the contrary, the
whereby the former leased to the latter a portion of his property for defendant-appellee was discharging its obligation in advance by
a period of 20yrs. subject to the condition that monthly rentals paying the eight years rentals, and it was for this advance payment
should be paid and there should be an advance payment of rentals that it was getting a rebate or discount.
for the first eight years of the contract, to which ESSO paid on
December 31, 1969. However, ESSO deducted the amount of 101, • There is no usury in this case because no money was given
010.73 as interest or discount for the eight years advance rental. by the defendant-appellee to the plaintiff-appellant, nor did it allow
him to use its money already in his possession. There was neither
• On August 20, 1970, ESSO informed Herrera that there had loan nor forbearance but a mere discount which the plaintiff-
been a mistake in the computation of the interest and paid an appellant allowed the defendant-appellee to deduct from the total
additional sum of 2,182.70; thus, it was reduced to 98, 828.03. payments because they were being made in advance for eight years.
• As such, Herrera sued ESSO for the sum of 98, 828.03, with The discount was in effect a reduction of the rentals which the
interest, claiming that this had been illegally deducted to him in lessor had the right to determine, and any reduction thereof, by any
violation of the Usury Law. amount, would not contravene the Usury Law.

• ESSO argued that amount deducted was not usurious • The difference between a discount and a loan or
interest but rather a discount given to it for paying the rentals in forbearance is that the former does not have to be repaid. The loan
advance. Judgment on the pleadings was rendered in favor of ESSO. or forbearance is subject to repayment and is therefore governed by
Thus, the matter was elevated to the SC for only questions of law the laws on usury.
was involve. • To constitute usury, "there must be loan or forbearance; the
ISSUE: W/N the contract between the parties is one of loan or loan must be of money or something circulating as money; it must
lease. be repayable absolutely and in all events; and something must be
exacted for the use of the money in excess of and in addition to which consequently impairs its validity and fatally affects its very
interest allowed by law." existence.

• It has been held that the elements of usury are (1) a loan,
express or implied; (2) an understanding between the parties that
Issue: Was there a perfected contract of loan?
the money lent shall or may be returned; that for such loan a
greater rate or interest that is allowed by law shall be paid, or
agreed to be paid, as the case may be; and (4) a corrupt intent to
take more than the legal rate for the use of money loaned. Unless Held: Yes. From the recitals of the mortgage deed itself, it is clearly
these four things concur in every transaction, it is safe to affirm that seen that the mortgage deed was executed for and on condition of
no case of usury can be declared. the loan granted to the Lozano spouses. The fact that the latter did
not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of
loan being a consensual contract, the herein contract of loan was
Bonevie vs CA
perfected at the same time the contract of mortgage was executed.
125 SCRA 122 The promissory note executed on December 12, 1966 is only an
evidence of indebtedness and does not indicate lack of
Facts: Spouses Lozano mortgaged their property to secure the
consideration of the mortgage at the time of its execution.
payment of a loan amounting to 75K with private respondent
Philippine Bank of Communication (PBCom). The deed of mortgage
was executed on 12-6-66, but the loan proceeeds were received
Pajuyo vs CA
only on 12-12-66. Two days after the execution of the deed of
mortgage, the spouses sold the property to the petitioner Bonnevie 430 SCRA 492
for and in consideration of 100k—25K of which payable to the
spouses and 75K as payment to PBCom. Afterwhich, Bonnevie Facts: Pajuyo entrusted a house to Guevara for the latter's use
defaulted payments to PBCom prompting the latter to auction the provided he should return the same upon demand and with the
property after Bonnivie failed to settle despite subsequent condition that Guevara should be responsible of the maintenance of
demands, in order to recover the amount loaned. The latter now the property. Upon demand Guevara refused to return the property
assails the validity of the mortgage between Lozano and Pbcom to Pajuyo. The petitioner then filed an ejectment case against
arguing that on the day the deed was executed there was yet no Guevara with the MTC who ruled in favor of the petitioner. On
principal obligation to secure as the loan of P75,000.00 was not appeal with the CA, the appellate court reversed the judgment of
received by the Lozano spouses, so that in the absence of a principal the lower court on the ground that both parties are illegal settlers
obligation, there is want of consideration in the accessory contract, on the property thus have no legal right so that the Court should
leave the present situation with respect to possession of the would result in the termination of the lease. The tenant’s
property as it is, and ruling further that the contractual relationship withholding of the property would then be unlawful.
of Pajuyo and Guevara was that of a commodatum.

Catholic Vicar Apostolic of the Mt. Province vs CA

Issue: Is the contractual relationship of Pajuyo and Guevara that of a
165 SCRA 511
commodatum?
Doctrine:

The bailees' failure to return the subject matter of commodatum to

Held: No. The Court of Appeals’ theory that the Kasunduan is one of
the bailor does not mean adverse possession on the part of the
commodatum is devoid of merit. In a contract of commodatum, one
borrower. The bailee held in trust the property subject matter of
of the parties delivers to another something not consumable so that
commodatum.
the latter may use the same for a certain time and return it. An
essential feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing belonging to
another is for a certain period. Thus, the bailor cannot demand the Facts:
return of the thing loaned until after expiration of the period Catholic Vicar Apostolic of the Mountain Province (VICAR for
stipulated, or after accomplishment of the use for which the brevity) filed an application for registration of title over Lots 1, 2, 3,
commodatum is constituted. If the bailor should have urgent need and 4, said Lots being the sites of the Catholic Church building,
of the thing, he may demand its return for temporary use. If the use convents, high school building, school gymnasium, school
of the thing is merely tolerated by the bailor, he can demand the dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and
return of the thing at will, in which case the contractual relation is the Heirs of Egmidio Octaviano filed their Answer/Opposition on
called a precarium. Under the Civil Code, precarium is a kind of Lots Nos. 2 and 3, respectively, asserting ownership and title
commodatum. The Kasunduan reveals that the accommodation thereto since their predecessors' house was borrowed by petitioner
accorded by Pajuyo to Guevarra was not essentially gratuitous. Vicar after the church and the convent were destroyed. After trial
While the Kasunduan did not require Guevarra to pay rent, it on the merits, the land registration court promulgated its Decision
obligated him to maintain the property in good condition. The confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
imposition of this obligation makes the Kasunduan a contract
different from a commodatum. The effects of the Kasunduan are
also different from that of a commodatum. Case law on ejectment The Heirs of Juan Valdez appealed the decision of the land
has treated relationship based on tolerance as one that is akin to a registration court to the then Court of Appeals, The Court of
landlord-tenant relationship where the withdrawal of permission
Appeals reversed the decision. Thereupon, the VICAR filed with the they fell due and so she filed a complaint for sum of money and
Supreme Court a petition for review on certiorari of the decision of damages with the RTC. Respondent denied that she contracted the
the Court of Appeals dismissing his application for registration of two loans and countered that it was Marilou Satiago to whom
Lots 2 and 3. petitioner lent the money. She claimed she was merely asked y
petitioner to give the checks to Santiago. She issued the checks for
Issue:
P76,000 and P20,000 not as payment of interest but to
Whether or not the failure to return the subject matter of accommodate petitioner’s request that respondent use her own
commodatum constitutes an adverse possession on the part of the checks instead of Santiago’s.
owner

RTC ruled in favor of petitioner. CA reversed RTC and ruled

Held: that there was no contract of loan between the parties.

No. The bailees' failure to return the subject matter of

commodatum to the bailor did not mean adverse possession on the
ISSUE
part of the borrower. The bailee held in trust the property subject
matter of commodatum. (1) Whether or not there was a contract of loan between petitioner
and respondent.
Petitioner repudiated the trust by declaring the properties in its
name for taxation purposes. Decision:

Petition granted.A loan is a real contract, not consensual, and as

such is perfected only upon the delivery of theobject of the
contract. This is evident in Art. 1934 of the Civil Code which
Garcia vs Theo provides:An accepted promise to deliver something by way of
commodatum or simpleloan is binding upon the parties, but the
518 SCRA 433 commodatum or simple loan itself shall not beperfected until the
FACTS delivery of the object of the contract.Upon delivery of the object of
the contract of loan (in this case the money received by thedebtor
Respondent Thio received from petitioner Garcia two crossed when the checks were encashed) the debtor acquires ownership of
checks which amount to US$100,000 and US$500,000, respectively, such money or loan proceedsand is bound to pay the creditor an
payable to the order of Marilou Santiago. According to petitioner, equal amount.Although respondent did not physically receive the
respondent failed to pay the principal amounts of the loans when proceeds of the checks, these instrumentswere placed in her
control and possession under an arrangement whereby she actually totaled P3,003,617.49, from which DBP withheld P148,102.98 as
re-lent theamounts to Santiago interest.

Guariña Corporation demanded the release of the balance

of the loan, but DBP refused. Instead, DBP directly paid some
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs.
suppliers of Guariña Corporation over the latter’s objection. DBP
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT
found upon inspection of the resort project, its developments and
CORPORATION, Respondent.
improvements that Guariña Corporation had not completed the
G.R. No. 160758 January 15, 2014 construction works. In a letter dated February 27, 1978, and a
telegram dated June 9, 1978, DBP thus demanded that Guariña
FACTS: Corporation expedite the completion of the project, and warned
that it would initiate foreclosure proceedings should Guariña
Corporation not do so.10
In July 1976, Guariña Corporation applied for a loan from
DBP to finance the development of its resort complex. The loan, in Unsatisfied with the non-action and objection of Guariña
the amount of P3,387,000.00, was approved on August 5, 1976. Corporation, DBP initiated extrajudicial foreclosure proceedings
Guariña Corporation executed a promissory note that would be due
on November 3, 1988. On October 5, 1976, Guariña Corporation
executed a real estate mortgage over several real properties in ISSUE:
favor of DBP as security for the repayment of the loan. On May 17,
Whether or not Guarina was in delay in performing its obligation
1977, Guariña Corporation executed a chattel mortgage over the
making DBP’s action to foreclose the mortgage proper.
personal properties existing at the resort complex and those yet to
be acquired out of the proceeds of the loan, also to secure the
performance of the obligation. Prior to the release of the loan, DBP
HELD:
required Guariña Corporation to put up a cash equity of
P1,470,951.00 for the construction of the buildings and other NO. The Court held that the foreclosure of a mortgage prior to the
improvements on the resort complex. mortgagor’s default on the principal obligation is premature, and
should be undone for being void and ineffectual. The mortgagee
who has been meanwhile given possession of the mortgaged
The loan was released in several installments, and Guariña property by virtue of a writ of possession issued to it as the
Corporation used the proceeds to defray the cost of additional purchaser at the foreclosure sale may be required to restore the
improvements in the resort complex. In all, the amount released
possession of the property to the mortgagor and to pay reasonable obligation, the other party cannot be obliged to perform what is
rent for the use of the property during the intervening period. expected of it while the other’s obligation remains unfulfilled. In
other words, the latter party does not incur delay.

Colinares v CA
The agreement between DBP and Guariña Corporation was a loan.
Under the law, a loan requires the delivery of money or any other G.R. No. 90828 September 5, 2000
consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be
paid. Loan is a reciprocal obligation, as it arises from the same cause The ownership of the merchandise continues to be vested in the
where one party is the creditor, and the other the debtor. The person who had advanced payment until he has been paid in full, or
obligation of one party in a reciprocal obligation is dependent upon if the merchandise has already been sold, the proceeds of the sale
the obligation of the other, and the performance should ideally be should be turned over to him by the importer or by his
simultaneous. This means that in a loan, the creditor should release representative or successor in interest.
the full loan amount and the debtor repays it when it becomes due
and demandable.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners)
were contracted for a consideration of P40,000 by the Carmelite
The loan agreement between the parties is a reciprocal Sisters of Cagayan de Oro City to renovate the latter’s convent at
obligation. Appellant in the instant case bound itself to grant Camaman-an, Cagayan de Oro City. Colinares applied for a
appellee the loan amount of P3,387,000.00 condition on appellee’s commercial letter of credit with the Philippine Banking Corporation,
payment of the amount when it falls due. The appellant did not Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders
release the total amount of the approved loan. Appellant therefore Centre. PBC approved the letter of credit for P22,389.80 to cover
could not have made a demand for payment of the loan since it had the full invoice value of the goods. Petitioners signed a pro-forma
yet to fulfil its own obligation. Moreover, the fact that appellee was trust receipt as security.
not yet in default rendered the foreclosure proceedings premature
and improper.
PBC debited P6,720 from Petitioners’ marginal deposit as partial
payment of the loan. After the initial payment, the spouses
By its failure to release the proceeds of the loan in their defaulted. PBC wrote to Petitioners demanding that the amount be
entirety, DBP had no right yet to exact on Guariña Corporation the paid within seven days from notice. Instead of complying with PBC’s
latter’s compliance with its own obligation under the loan. Indeed, if demand, Veloso confessed that they lost P19,195.83 in the
a party in a reciprocal contract like a loan does not perform its
Carmelite Monastery Project and requested for a grace period of Whether or not the transaction of Colinares falls within the ambit of
until 15 June 1980 to settle the account. Colinares proposed that the Law on Trust Receipt
the terms of payment of the loan be modified P2,000 on or before 3
December 1980, and P1,000 per month. Pending approval of the
proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and Held:
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April
1981. Concurrently with the separate demand for attorney’s fees by Colinares received the merchandise from CM Builders Centre on 30
PBC’s legal counsel, PBC continued to demand payment of the October 1979. On that day, ownership over the merchandise was
balance. On 14 January 1983, Petitioners were charged with the already transferred to Petitioners who were to use the materials for
violation of P.D. No. 115 (Trust Receipts Law) in relation to Article their construction project. It was only a day later, 31 October 1979,
315 of the Revised Penal Code that they went to the bank to apply for a loan to pay for the
merchandise. This situation belies what normally obtains in a pure
trust receipt transaction where goods are owned by the bank and
only released to the importer in trust subsequent to the grant of the
During trial, petitioner Veloso insisted that the transaction was a
loan.
“clean loan” as per verbal guarantee of Cayo Garcia Tuiza, PBC’s
former manager. He and petitioner Colinares signed the documents
without reading the fine print, only learning of the trust receipt
implication much later. When he brought this to the attention of The bank acquires a “security interest” in the goods as holder of a
PBC, Mr. Tuiza assured him that the trust receipt was a mere security title for the advances it had made to the entrustee. The
formality. The Trust Receipts Law does not seek to enforce payment ownership of the merchandise continues to be vested in the person
of the loan, rather it punishes the dishonesty and abuse of who had advanced payment until he has been paid in full, or if the
confidence in the handling of money or goods to the prejudice of merchandise has already been sold, the proceeds of the sale should
another regardless of whether the latter is the owner. Here, it is be turned over to him by the importer or by his representative or
crystal clear that on the part of Petitioners there was neither successor in interest. To secure that the bank shall be paid, it takes
dishonesty nor abuse of confidence in the handling of money to the full title to the goods at the very beginning and continues to hold
prejudice of PBC. Petitioners continually endeavored to meet their that title as his indispensable security until the goods are sold and
obligations, as shown by several receipts issued by PBC the vendee is called upon to pay for them; hence, the importer has
acknowledging payment of the loan. never owned the goods and is not able to deliver possession. In a
certain manner, trust receipts partake of the nature of a conditional
sale where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. There are two possible
Issue:
situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation between the respondents and the offended party that would have
involving the duty to deliver it (entregarla) to the owner of the created a high degree of confidence between them which the
merchandise sold. The second is covered by the provision which respondents could have abused.".
refers to merchandise received under the obligation to “return” it
(devolvera) to the owner. Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to Issue:
the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be punishable Whether or not the 112 informations for qualified theft sufficiently
as estafa under Article 315 (1) of the Revised Penal Code, without allege the element of taking without the consent of the owner, and
need of proving intent to defraud. the qualifying circumstance of grave abuse of confidence.

People v. Puig & Porras Held:

Facts: Yes.

Respondents were conspiring, confederating, and helping one The dismissal by the RTC of the criminal cases was allegedly due to
another, with grave abuse of confidence, being the Cashier and insufficiency of the Informations and, therefore, because of this
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, defect, there is no basis for the existence of probable cause which
without the knowledge and/or consent of the management of the will justify the issuance of the warrant of arrest. Petitioner assails
Bank and with intent of gain, did then and there willfully, unlawfully the dismissal contending that the Informations for Qualified Theft
and feloniously take, steal and carry away the sum of P15,000.00, sufficiently state facts which constitute (a) the qualifying
Philippine Currency, to the damage and prejudice of the said bank in circumstance of grave abuse of confidence; and (b) the element of
the aforesaid amount. taking, with intent to gain and without the consent of the owner,
which is the Bank.

However, the trial court did not find the existence of probable cause
because (1) the element of ‘taking without the consent of the The RTC Judge based his conclusion that there was no probable
owners’ was missing on the ground that it is the depositors-clients, cause simply on the insufficiency of the allegations in the
and not the Bank, which filed the complaint in these cases, who are Informations concerning the facts constitutive of the elements of
the owners of the money allegedly taken by respondents and hence, the offense charged.
are the real parties-in-interest; and (2) the Informations are bereft
of the phrase alleging "dependence, guardianship or vigilance
The relationship between banks and depositors has been held to be Equitable induced them to avail of its peso and dollar credit facilities
that of creditor and debtor. Articles 1953 and 1980 of the New Civil by offering low interest rates so they accepted Equitable's proposal
Code, as appropriately pointed out by petitioner, provide as follows: and signed the bank's pre-printed promissory notes on various
dates beginning 1996. They, however, were unaware that the
Article 1953. A person who receives a loan of money or any other
documents contained identical escalation clauses granting Equitable
fungible thing acquires the ownership thereof, and is bound to pay
authority to increase interest rates without their consent.
to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks

and similar institutions shall be governed by the provisions Equitable, in its answer, asserted that respondents knowingly
concerning loan. accepted all the terms and conditions contained in the promissory
notes. In fact, they continuously availed of and benefited from
Equitable's credit facilities for five years.
In a long line of cases involving Qualified Theft, this Court has firmly
RTC upheld the validity of the promissory notes. Equitable and
established the nature of possession by the Bank of the money
respondents filed their respective notices of appeal but both were
deposits therein, and the duties being performed by its employees
denied by the RTC. Equitable moved for the reconsideration but RTC
who have custody of the money or have come into possession of it.
denied due to lack of merit.
The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of A writ of execution was thereafter issued and three real properties
confidence, to the damage and prejudice of the Bank, without of Equitable were levied upon.
particularly referring to it as owner of the money deposits, as
sufficient to make out a case of Qualified Theft.
Equitable filed a petition for relief in the RTC from the March 1,
2004 order. It, however, withdrew that petition on March 30, 2004
Equitable PCI Bank v. Ng Sheung Ngor and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of
Facts:
the March 24, 2004 omnibus order. CA granted Equitable’s
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance application for injunction. A writ of preliminary injunction was
Division, Inc. and Benjamin E. Go filed an action for annulment correspondingly issued.
and/or reformation of documents and contracts against petitioner
Equitable PCI Bank (Equitable) and its employees, Aimee Yu and
Bejan Lionel Apas, in RTC, Branch 16 of Cebu City. They claimed that
Notwithstanding the writ of injunction, the properties of Equitable The RTC upheld the validity of the promissory notes despite
previously levied upon were sold in a public auction on July 1, 2004. respondent’s assertion that those documents were contracts of
Respondents were the highest bidders and certificates of sale were adhesion.
issued to them.

A contract of adhesion is a contract whereby almost all of its

Equitable moved to annul the July 1, 2004 auction sale and to cite provisions are drafted by one party. The participation of the other
the sheriffs who conducted the sale in contempt for proceeding party is limited to affixing his signature or his adhesion to the
with the auction despite the injunction order of the CA. contract. For this reason, contracts of adhesion are strictly
construed against the party who drafted it.

CA dismissed the petition for certiorari. It found Equitable guilty of

forum shopping because the bank filed its petition for certiorari in It is erroneous, however, to conclude that contracts of adhesion are
the CA several hours before withdrawing its petition for relief in the invalid per se. They are, on the contrary, as binding as ordinary
RTC. Moreover, Equitable failed to disclose, both in the statement contracts. A party is in reality free to accept or reject it. A contract
of material dates and certificate of non-forum shopping, that it had of adhesion becomes void only when the dominant party takes
a pending petition for relief in the RTC. advantage of the weakness of the other party, completely depriving
the latter of the opportunity to bargain on equal footing.
Equitable moved for reconsideration but it was denied.

That was not the case here. As the trial court noted, if the terms and
Issue:
conditions offered by Equitable had been truly prejudicial to
Whether or not the promissory notes were valid. respondents, they would have walked out and negotiated with
another bank at the first available instance. But they did not.
Instead, they continuously availed of Equitable's credit facilities for
Held: five long years.

Yes. While the RTC categorically found that respondents had outstanding
dollar- and peso-denominated loans with Equitable, it, however,
failed to ascertain the total amount due (principal, interest and
penalties, if any) as of July 9, 2001. The trial court did not explain
how it arrived at the amounts of US$228,200 and P1,000,000. In
Metro Manila Transit Corporation v. D.M. Consunji, we reiterated cancelled the Suretyship Agreement on May 13, 1975 with due
that this Court is not a trier of facts and it shall pass upon them only notice to the private respondent. Meanwhile, private respondent
for compelling reasons which unfortunately are not present in this filed with the respondent court of Makati a complaint for collection
case. Hence, we ordered the partial remand of the case for the sole of sums of money against herein petitioner and Azcueta, alleging
purpose of determining the amount of actual damages. the foregoing antecedents and praying that said defendants be
ordered to pay jointly and severally unto the plaintiff.

a) The amount of P198,602.41 as its principal obligation, including

G.R. No. 52482. February 23, 1990
interest and damage dues as of April 29, 1975;
SENTINEL INSURANCE CO., INC., petitioner v. THE HONORABLE
COURT OF APPEALS, HON. FLORELIANA CASTRO-BARTOLOME,
Presiding Judge, Court of First Instance of Rizal, Seventh Judicial b) To pay interest at 14% per annum and damage dues at the rate of
District, Branch XV, THE PROVINCIAL SHERIFF OF RIZAL, and ROSE 2% every 45 days commencing from April 30, 1975 up to the time
INDUSTRIES, INC., respondents. the full amount is fully paid;

FACTS: After petitioner filed its answer with counterclaim, the case, upon
agreement of the parties, was submitted for summary judgment
Petitioner Sentinel Insurance Co., Inc., was the surety in a contract
and on December 29, 1975, respondent court rendered its decision
of suretyship entered into on November 15, 1974 with Nemesio
with the following dispositive portion:
Azcueta, Sr., who is doing business under the name and style of
'Malayan Trading’ where both of them bound themselves, jointly
and severally, to fully guarantee the compliance with the terms and
a) To pay interest on the principal obligation at the rate of 14% per
stipulations of the credit line granted by private respondent Rose
annum at the rate of 2% every 45 days commencing from April 30,
Industries, Inc., in favor of Nemesio Azcueta, Sr., in the amount of
1975 until the amount is fully paid.
P180,000. Between November 23 to December 23, 1974, Azcueta
made various purchases of tires, batteries and tire tubes from the
private respondent but failed to pay therefor, prompting the latter
to demand payment but because Azcueta failed to settle his The decision having become final and executory, the prevailing
accounts, the case was referred to the Insurance Commissioner who party moved for its execution which respondent judge granted and
invited the attention of the petitioner on the matter and the latter pursuant thereto, a notice of attachment and levy was served by
respondent Provincial Sheriff upon the petitioner. On the same day, petitioner, the prayer as specifically stated in paragraph (b) was to
however, the petitioner filed a motion for 'clarification of the 'order the latter, to pay interest at 14% per annum and damage
judgment as it would appear that aside from the 14% interest dues at the rate of 2% every 45 days commencing from April 30,
imposed on the principal obligation, an additional 2% every 45 days 1975 up to the time the amount is fully paid.' But this
corresponding to the additional penalty has been imposed against notwithstanding the respondent court in its questioned decision
the petitioner which imposition would be usurious and could not decreed the petitioner to pay the interest on the principal obligation
have been the intention of respondent Judge.' The judge denied the at the rate of 14% per annum and 2% every 45 days commencing
motion on the theory that the judgment, having become final and from April 30, 1975 until the amount is fully paid,' so that, as
executory, it can no longer be amended or corrected. petitioner correctly observes, it would appear that on top of the
14% per annum on the principal obligation, another 2% interest
every 45 days commencing from April 30, 1975 until the amount is
Contending that the order was issued with grave abuse of fully paid has been imposed against the petitioner. In other words,
discretion, petitioner went to respondent court on a petition for 365 days in one year divided by 45 days equals 8-1/9 which,
certiorari and mandamus to compel the court below to clarify its multiplied by 2% as ordered by respondent-judge would amount to
decision, particularly Paragraph (b) of the dispositive portion a little more than 16%. Adding 16% per annum to the 14% interest
thereof. imposed on the principal obligation would be 30% which is veritably
usurious and this cannot be countenanced, much less sanctioned by
Respondent court granted the petition in its decision, the any court of justice.
disquisition and dispositive portion whereof read:

We agree with this observation and what is more, it is likewise a

While it is an elementary rule of procedure that after a decision, settled rule that although a court may grant any relief allowed by
order or ruling has become final, the court loses its jurisdiction over law, such prerogative is delimited by the cardinal principle that it
the same and can no longer be subjected to any modification or cannot grant anything more than what is prayed for, for certainly,
alteration, it is likewise well-settled that courts are empowered the relief to be dispensed cannot rise above its source.
even after such finality, to correct clerical errors or mistakes in the
decisions. A clerical error is one that is visible to the eyes or obvious
to the understanding.
WHEREFORE, the writ of certiorari is hereby granted and the
respondent judge is ordered to clarify its judgment complained of in
the following manner:
That there was a mistake in the dispositive portion of the decision
cannot be denied considering that in the complaint filed against the
a) to pay interest at 14% per annum on the principal obligation and separately, in the same manner that commissions, fines and
damage dues at the rate of 2% every 45 days commencing from penalties are excluded in the computation of interest where the
April 30, 1975 up to the time the full amount is fully paid; loan or forbearance is not secured in whole or in part by real estate
or an interest therein.

While interest forms part of the consideration of the contract itself,

As earlier stated, petitioner filed an ex parte motion seeking to
damage dues or penalties are usually made payable only in case of
amend the above-quoted decretal portion which respondent court
default or non-performance of the contract. Also, although interest
denied, hence the petition at bar.
is subject to the provisions of the Usury Law, there is no policy or
provision in such law preventing the enforcement of damage dues
although the effect may be to increase the sum payable beyond the
ISSUE: prescribed ceiling rates.
WON an amendment of the trial court’s decision is proper Petitioner's assertion that respondent court acted without authority
in appending the award of damage dues to the judgment of the trial
court should be rejected. As correctly pointed out by private
RULING: respondent, the opening sentence of Paragraph (a) of the
Insofar as the findings and the dispositive portion set forth in dispositive portion of the lower court’s decision explicitly ordered
respondent court's decision are concerned, there is really no petitioner to pay private respondent the amount of P198,602.41 as
inconsistency as wittingly or unwittingly asserted by petitioner. principal obligation including interest and damage dues, which is a
clear and unequivocal indication of the lower court's intent to
The findings made by respondent court did not actually nullify the award both interest and damage dues.
judgment of the trial court. More specifically, the statement that
the imposition of 2% interest every 45 days commencing from April Respondent court demonstrably did not err in ordering the
30, 1975 on top of the 14% per annum would be usurious is a sound clarification of the decision of the trial court by amending the
observation. It should, however, be stressed that such observation questioned part of its dispositive portion to include therein the
was on the theoretical assumption that the rate of 2% is being phrase damage dues to modify the stated rate of 2%, and thereby
imposed as interest, not as damage dues which was the intendment obviate any misconception that it is being imposed as interest.
of the trial court. ACCORDINGLY, certiorari is hereby DENIED and the decision of
Certainly, the damage dues in this case do not include and are not respondent Court of Appeals is hereby AFFIRMED.
included in the computation of interest as the two are of different SO, ORDERED.
categories and are distinct claims which may be demanded
BATCH 2 (a) whether or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of the common
G.R. No. 97412 July 12, 1994
carrier, the arrastre operator and the customs broker;
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF
APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents. YES, it is solidary. Since it is the duty of the ARRASTRE to take good
care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon
FACTS: the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in good condition
This is an action against defendants shipping company, arrastre to the consignee.
operator and broker-forwarder for damages sustained by a
shipment while in defendants' custody, filed by the insurer-
subrogee who paid the consignee the value of such losses/damages.
The common carrier's duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered
to or unconditionally placed in the possession of, and received by,
the losses/damages were sustained while in the respective and/or the carrier for transportation until delivered to, or until the lapse of
successive custody and possession of defendant’s carrier (Eastern), a reasonable time for their acceptance by, the person entitled to
arrastre operator (Metro Port) and broker (Allied Brokerage). receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil.
863). When the goods shipped either are lost or arrive in damaged
As a consequence of the losses sustained, plaintiff was compelled to condition, a presumption arises against the carrier of its failure to
pay the consignee P19,032.95 under the aforestated marine observe that diligence, and there need not be an express finding of
insurance policy, so that it became subrogated to all the rights of negligence to hold it liable.
action of said consignee against defendants.

(b) whether the payment of legal interest on an award for loss or

DECISION OF LOWER COURTS: * trial court: ordered payment of damage is to be computed from the time the complaint is filed or
damages, jointly and severally * CA: affirmed trial court. from the date the decision appealed from is rendered; and
ISSUES AND RULING:
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE established with reasonable certainty. Accordingly, where the
SUPREME COURT) demand is established with reasonable certainty, the interest shall
begin to run from the time theclaim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
I. When an obligation, regardless of its source, i.e., law, contracts, be so reasonably established at the time the demand is made, the
quasi-contracts, delicts or quasi-delicts is breached, the contravenor interest shall begin to run only from the date the judgment of the
can be held liable for damages. The provisions under Title XVIII on court is made (at which time the quantification of damages may be
"Damages" of the Civil Code govern in determining the measure of deemed to have been reasonably ascertained). The actual base for
recoverable damages. the computation of legal interest shall, in any case, be on the
amount finally adjudged.

II. With regard particularly to an award of interest in the concept of

actual and compensatory damages, the rate of interest, as well as 3. When the judgment of the court awarding a sum of money
the accrual thereof, is imposed, as follows: becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
1. When the obligation is breached, and it consists in the payment being deemed to be by then an equivalent to a forbearance of
of a sum of money, i.e., a loan or forbearance of money, the interest credit.
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the (c) whether the applicable rate of interest, referred to above, is
rate of interest shall be 12% per annum to be computed from twelve percent (12%) or six percent (6%).
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
SIX PERCENT (6%) on the amount due computed from the decision,
dated 03 February 1988, of the court a quo (Court of Appeals) AND
2. When an obligation, not constituting a loan or forbearance of A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
money, is breached, an interest on the amount of damages awarded be imposed on such amount upon finality of the Supreme Court
may be imposed at the discretion of the court at the rate of 6% per decision until the payment thereof.
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
RATIO: when the judgment awarding a sum of money becomes final Ching is now appealing the civil aspect of the case to the Supreme
and executory, the monetary award shall earn interest at 12% per Court.
annum from the date of such finality until its satisfaction, regardless
of whether the case involves a loan or forbearance of money. The
reason is that this interim period is deemed to be by then Ching vigorously argues that notwithstanding respondent Nicdao’s
equivalent to a forbearance of credit. acquittal by the CA, the Supreme Court has the jurisdiction and
authority to resolve and rule on her civil liability. He anchors his
contention on Rule 111, Sec 1B: The criminal action for violation of
NOTES: the Central Bank Circular imposing the 12% interest per Batas Pambansa Blg. 22 shall be deemed to necessarily include the
annum applies only to loans or forbearance of money, goods or corresponding civil action, and no reservation to file such civil action
credits, as well as to judgments involving such loan or forbearance separately shall be allowed or recognized. Moreover, under the
of money, goods or credits, and that the 6% interest under the Civil above-quoted provision, the criminal action for violation of BP 22
Code governs when the transaction involves the payment of necessarily includes the corresponding civil action, which is the
indemnities in the concept of damage arising from the breach or a recovery of the amount of the dishonored check representing the
delay in the performance of obligations in general. Observe, too, civil obligation of the drawer to the payee.
that in these cases, a common time frame in the computation of the
Nicdao’s defense: Sec 2 of Rule 111 — Except in the cases provided
6% interest per annum has been applied, i.e., from the time the
for in Section 3 hereof, after the criminal action has been
complaint is filed until the adjudged amount is fully paid.
commenced, the civil action which has been reserved cannot be
instituted until final judgment in the criminal action. Accdg to her,
CA’s decision is equivalent to a finding that the facts upon which her
CHING vs. NICDAO
civil liability may arise do not exist. The instant petition, which seeks
G.R. No. 141181 to enforce her civil liability based on the eleven (11) checks, is thus
allegedly already barred by the final and executory decision
acquitting her.
Facts: Nicdao was charged eleven (11) counts of violation of Batas
Pambansa Bilang (BP) 22.
Issue:
MTC found her of guilty of said offenses. RTC affirmed.
1. WON Ching may appeal the civil aspect of the case within the
Nicdao filed an appeal to the Court of Appeals. CA reversed the reglementary period? YES
decision and acquitted accused.
2. WON Nicdao civilly liable? NO.
Held: 2. where the court expressly declares that the liability of the
accused is not criminal but only civil in nature; and
1. Ching is entitled to appeal the civil aspect of the case within the
reglementary period. 3. where the civil liability is not derived from or based on the
criminal act of which the accused is acquitted.
“Every person criminally liable for a felony is also civilly liable.
Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final
2. A painstaking review of the case leads to the conclusion that
judgment that the fact from which the civil might arise did not exist.
respondent Nicdao’s acquittal likewise carried with it the extinction
of the action to enforce her civil liability. There is simply no basis to
hold respondent Nicdao civilly liable to petitioner Ching.
Petitioner Ching correctly argued that he, as the offended party,
may appeal the civil aspect of the case notwithstanding respondent CA’s acquittal of respondent Nicdao is not merely based on
Nicdao’s acquittal by the CA. The civil action was impliedly instituted reasonable doubt. Rather, it is based on the finding that she did not
with the criminal action since he did not reserve his right to institute commit the act penalized under BP 22. In particular, the CA found
it separately nor did he institute the civil action prior to the criminal that the P20,000,000.00 check was a stolen check which was never
action. issued nor delivered by respondent Nicdao to petitioner Ching.

If the accused is acquitted on reasonable doubt but the court CA did not adjudge her to be civilly liable to petitioner Ching. In fact,
renders judgment on the civil aspect of the criminal case, the the CA explicitly stated that she had already fully paid her
prosecution cannot appeal from the judgment of acquittal as it obligations. The finding relative to the P20,000,000.00 check that it
would place the accused in double jeopardy. However, the was a stolen check necessarily absolved respondent Nicdao of any
aggrieved party, the offended party or the accused or both may civil liability thereon as well.
appeal from the judgment on the civil aspect of the case within the
Under the circumstances which have just been discussed lengthily,
period therefor.
such acquittal carried with it the extinction of her civil liability as
well.

GENERAL RULE:

Civil liability is not extinguished by acquittal:

1. where the acquittal is based on reasonable doubt;

Castelo vs Court of Appeals the RTC, had asked for specific performance with damages.CA
reversed the RTC decision. Writ of execution was issued. Private
244 SCRA 180
respondent Dela Rosa was required to pay petitioners a total of
P197,723.68. Petitioners filed a motion for reconsideration and a
separate motion for alias writ of execution contending that the sum
FACTS of P197,723.68 was erroneous. They argued that the obligation of
On 15 October 1982, petitioners Antonio Castelo, Bernabe Banson, private respondent was to pay (a) interest at the rate of twelve
Lourdes Banson and Pompeyo Depante entered into a contract percent (12%) per annum plus (b) one percent (1%) penalty charge
denominated as a "Deed of Conditional Sale" with private per month, from default, i.e., from 1 January 1983; that the amount
respondent Milagros Dela Rosa involving a parcel of land. The to be paid by the Defendant should be P398,814.88 instead and not
agreed price of the land was P269,408.00. Upon signing the P197,723.68 or a difference of P201,091.20.
contract, private respondent paid petitioners P106,000.00 leaving a RTC denied the motion. Further contends that the phrase "to pay
balance of P163,408.00. The Deed of Conditional Sale also interest" found in the dispositive portion of the CA’s November 21,
stipulated that: 1986 decision did not refer to the stipulation in the "Deed of
"xxx xxx xxx Conditional Sale" but rather to the legal rate of interest imposed by
the CA which started to run from 12 February 1987, the date of
b.) The balance of P163,408.00 to be paid on or before December entry of judgment.
31, 1982 without interest and penalty charges;
Petitioner filed on certiorari to CA. CA dismissed it. But stated that
c.)Should the said balance [remain unpaid] by the VENDEE, the the part of the dispositive portion, ordering the "defendant . . . to
VENDORS hereby agree to give the VENDEE a grace period of SIX (6) pay the balance of the conditional sale in the amount of
months or up to June 30, 1983 to pay said balance provided that P163,408.00, to pay interest . . .." Being a "new" judgment or
interest at the rate of 12% per annum shall be charged and 1% decision, the computation of the "interest" on the balance of the
penalty charge a month shall be imposed on the remaining conditional sale should commence from the date of its ENTRY on
diminishing balance. February 12, 1987, when the decision became FINAL and
Private respondent Dela Rosa was unable to pay the remaining EXECUTORY.
balance. Petitioners filed an action for specific performance with
damages. RTC rendered the decision ordering the rescission of the
Deed of Conditional Sale. Petitioners went on Certiorari to CA. They ISSUE
claimed that rescission of the contract was only an alternative relief What is the correct interpretation of the phrase "to pay interest" set
available under the Civil Code, while they in their complaint before out in the dispositive portion of the CA decision?
HELD lesser burdens which permits greater reciprocity between the
parties, is to be adopted (Art. 1378).
The established doctrine is that when the dispositive portion of a
judgment, which has become final and executory, contains a clerical WHEREFORE, the writ of certiorari is hereby GRANTED.
error or an ambiguity arising from an inadvertent omission, such
“xxx xx xx
error or ambiguity may be clarified by reference to the body of the
decision itself. (2)ordering the defendant to comply with her obligation under the
conditional sale to pay the balance of the conditional sale in the
SC believe and so hold that the phrase “to pay interest,” found in
amount of P163,408.00, to pay interest on the amount of the
the dispositive portion of the CA decision must, under applicable
balance remaining unpaid during the period from 1 January 1983 to
law, refer to the interest stipulated by the parties in the Deed of
30 June 1983 at the rate of 12% per annum; and, from 1 July 1983
Conditional Sale which they had entered into on 15 October 1982.
until full payment of the amount due, to pay interest at the rate of
SC note, in the first place, that the phrase “to pay interest” comes
12% per annum plus another 12% per annum (i.e., 1% penalty
close upon the heels of the preceding phrase "to comply with her
charge per month), or a total of 24% per annum, on the balance
obligation under the conditional sale to pay the balance — of
remaining unpaid; and
P163,408.00." A strong inference thus arises that the "interest"
required to be paid is the interest stipulated as part of the (3) in default thereof, the rescission of the "Deed of Conditional
“obligation [of private respondent dela Rosa] under the conditional Sale" is the alternative."
sale [agreement] to pay the balance of [the purchase price of the
land.

In the computation for the amount to be paid, The question is NACAR VS GALLERY FRAMES
whether, during the period of 1 January 1983 up to 30 June 1983, FACTS
12% interest per annum plus 1% penalty charge a month was
payable "on the remaining diminishing balance;" or whether during Dario Nacar filed a labor case against Gallery Frames and its owner
the period from 1 January 1983 to 30 June 1983, only 12% per Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause
annum interest was payable while the 1% per month penalty charge by Gallery Frames on January 24, 1997. On October 15, 1998, the
would in addition begin to accrue on any balance remaining unpaid Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal
as of 1 July 1983. hence the Arbiter awarded Nacar P158,919.92 in damages
consisting of backwages and separation pay.
SC believed the parties intended the latter view. The interpretation
SC adopted is also supported by the principle that in case of
ambiguity in contract language, that interpretation which
establishes a less onerous transmission of rights or imposition of
Gallery Frames appealed all the way to the Supreme Court (SC). The become final. Hence, as a consequence, the liability of the
Supreme Court affirmed the decision of the Labor Arbiter and the employer, if he loses on appeal, will increase – this is just but a risk
decision became final on May 27, 2002. that the employer cannot avoid when it continued to seek recourses
against the Labor Arbiter’s decision. This is also in accordance with
Article 279 of the Labor Code.
After the finality of the SC decision, Nacar filed a motion before the
LA for recomputation as he alleged that his backwages should be
computed from the time of his illegal dismissal (January 24, 1997) Anent the issue of award of interest in the form of actual or
until the finality of the SC decision (May 27, 2002) with interest. The compensatory damages, the Supreme Court ruled that the old case
LA denied the motion as he ruled that the reckoning point of the of Eastern Shipping Lines vs CA is already modified by the
computation should only be from the time Nacar was illegally promulgation of the Bangko Sentral ng Pilipinas Monetary Board
dismissed (January 24, 1997) until the decision of the LA (October Resolution No. 796 which lowered the legal rate of interest from
15, 1998). The LA reasoned that the said date should be the 12% to 6%. Specifically, the rules on interest are now as follows:
reckoning point because Nacar did not appeal hence as to him, that
decision became final and executory.
1. Monetary Obligations ex. Loans:

2. If stipulated in writing:
ISSUE:
a.1. shall run from date of judicial demand (filing of the case)
Whether or not the Labor Arbiter is correct.
a.2. rate of interest shall be that amount stipulated
RULING
1. If not stipulated in writing
No. There are two parts of a decision when it comes to illegal
dismissal cases (referring to cases where the dismissed employee b.1. shall run from date of default (either failure to pay upon extra-
wins, or loses but wins on appeal). The first part is the ruling that judicial demand or upon judicial demand whichever is appropriate
the employee was illegally dismissed. This is immediately final even and subject to the provisions of Article 1169 of the Civil Code)
if the employer appeals – but will be reversed if employer wins on
appeal. The second part is the ruling on the award of back wages b.2. rate of interest shall be 6% per annum
and/or separation pay. For back wages, it will be computed from the
date of illegal dismissal until the date of the decision of the Labor
Arbiter. But if the employer appeals, then the end date shall be 2. Non-Monetary Obligations (such as the case at bar)
extended until the day when the appellate court’s decision shall
3. If already liquidated, rate of interest shall be 6% per annum, Ligutan v Court of Appeals
demandable from date of judicial or extra-judicial demand (Art.
GR No. 138677
1169, Civil Code)
FACTS:
4. If unliquidated, no interest
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a
Except: When later on established with certainty. Interest shall still
loan in the amount of P120,000.00 from Security Bank and Trust Co.
be 6% per annum demandable from the date of judgment because
The obligation matured and the bank granted an extension. Despite
such on such date, it is already deemed that the amount of damages
several demands from the Bank, petitioners failed to settle the debt
is already ascertained.
which then amounted to P114,416.10. The Bank sent a final demand
letter however petitioners still defaulted on their obligation. The
Bank then filed a complaint for recovery of the due amount.
3. Compounded Interest
Petitioners instead of presenting their evidence had the schedule
– This is applicable to both monetary and non-monetary obligations reset for two consecutive occasions. On the third hearing date, the
trial court resolved to consider the case submitted for decision.
– 6% per annum computed against award of damages (interest)
granted by the court. To be computed from the date when the Two years later petitioners filed a motion for reconsideration which
court’s decision becomes final and executory until the award is fully was denied by the trial court. Petitioners then interposed an appeal
satisfied by the losing party. with the Court of Appeals, the appellate court affirmed the
judgement of the trial court except the 2% service charge which was
deleted pursuant to Central Bank Circular No. 763. The two parties
4. The 6% per annum rate of legal interest shall be applied filed their motions for reconsiderations and the Court of Appeals
prospectively: resolved the two motions: that the payment of interest and penalty
commence on the date when the obligation became due and a
– Final and executory judgments awarding damages prior to July 1, penalty of 3% per month would suffice. The petitioners filed an
2013 shall apply the 12% rate; omnibus motion for reconsideration which was then denied by the
– Final and executory judgments awarding damages on or after July Court of Appeals.
1, 2013 shall apply the 12% rate for unpaid obligations until June 30, ISSUE:
2013; unpaid obligations with respect to said judgments on or after
July 1, 2013 shall still incur the 6% rate. Whether or not the 15.189% interest and the penalty of 3% per
month (36% per annum) is exorbitant, iniquitous, and
unconscionable.
RULING: PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS,
REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ,
Petition is DENIED.
respondents.
HELD:
G.R. No. 107569 November 8, 1994
The question of whether a penalty is reasonable or iniquitous can be
DOCTRINE:
partly subjective and partly objective. Its resolution will depend on
such factors as, but not confined to, the type, extent and purpose of It is basic that there can be no contract in the true sense in the
the penalty, the nature of the obligation, the mode of breach and its absence of the element of agreement, or of mutual assent of the
consequences, the supervening realities, the standing and parties. If this assent is wanting on the part of the one who
relationship of the parties, and the like, the application of which, by contracts, his act has no more efficacy than if it had been done
and large, is addressed to the sound discretion of the court. under duress or by a person of unsound mind.

The Court of Appeals, exercising its good judgement has reduced

the penalty interest from 5% a month to 3% a month. Given the
Similarly, contract changes must be made with the consent of the
circumstances and the repeated acts of breach by petitioners of
contracting parties. The minds of all the parties must meet as to the
their contractual obligation, the Court sees no cogent ground to
proposed modification, especially when it affects an important
modify the ruling of the appellate court.
aspect of the agreement. In the case of loan contracts, it cannot be
The stipulated interest of 15.189% per annum, does not appear as gainsaid that the rate of interests always a vital component, for it
being excessive. The essence or rationale for the payment of can make or break a capital venture. Thus, any change must be
interest, quite often referred to as cost of money, is not exactly the mutually agreed upon, otherwise, it is bereft of any binding effect.
same as that as a surcharge or a penalty. A penalty stipulation is not
FACTS:
necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be On April 7, 1982, (private respondents) as owners of a NACIDA-
demanded. The interest prescribed in loan financing arrangements registered enterprise, obtained loan under the Cottage Industry
is a fundamental part of the banking business and the core of a Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB)
bank’s existence. in the amount of Fifty Thousand (P50,000.00) Pesos, as evidenced
by a Credit Agreement. Under the Promissory Note covering the
loan, the loan was to be amortized over a period of three (3) years
to end on March 29, 1985, at twelve (12%) percent interest
annually. To secure the loan, (private respondents) executed a Real
Estate Mortgage and a Chattel Mortgage. The agreement herewith
authorized the PNB to raise the rate of interest, at any time without In order that obligations arising from contracts may have the force
notice, beyond the stipulated rate of 12% but only "within the limits or law between the parties, there must be
allowed by law. “During the term of the agreement, PNB on several
mutuality
occasion-imposed interest rate of 25% per annum to 30% to 42% on
Private Respondents plus a penalty of 6% per annum on past dues. between the parties based on their essential equality. A contract
“Private respondents filed a suit for specific performance against containing a condition which makes its fulfillment dependent
petitioner PNB and the NACIDA. The trial court dismissed private exclusively upon the uncontrolled will of one of the contracting
respondents' complaint. The Court of Appeals reversed the parties, is void. Hence, even assuming that the . . . loan agreement
dismissal with respect to petitioner bank, and disallowed the between the PNB and the private respondent gave the PNB a license
increases in interest rates. Petitioner bank now contends that (although in fact there was none) to increase the interest rate at will
"respondent Court of Appeals committed grave error when it ruled during the term of the loan, that license would have been null and
(1) that the increase in interest rates are unauthorized. void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the
ISSUE:
character of a contract of adhesion, where the parties do not
Can a creditor raise the legal interest based on a certain clause in bargain on equal footing, the weaker party's (the debtor)
the contract and without consent from the debtor? participation being reduced to the alternative "to take it or leave it".
Such a contract is a veritable trap for the weaker party whom the
HELD:
courts of justice must protect against abuse and imposition.
No. We cannot countenance petitioner bank's posturing that the (Citation omitted.)
escalation clause at bench gives it unbridled right to Unilaterally
upwardly adjust the interest on private respondents' loan. That
would completely take away from private respondents the right to Tan vs. Court of Appeals
assent to an important modification in their agreement, and would
G.R. No. 116285
negate the element of mutuality in contracts. In
367 SCRA 571
Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536,
544-545 (1991) we held —. . . The unilateral action of the PNB in
increasing the interest rate on the private respondent’s loan
violated the mutuality of contracts ordained in Article 1308 of the FACTS:
Civil Code: Art. 1308. The contract must bind both contracting On May 14, 1978, petitioner Antonio Tan obtained two (2)
parties; its validity or compliance cannot be left to the will of one of loans in the total principal amount of four (4) million pesos from
them. respondent Cultural Center of the Philippines (CCP), evidenced by 2
promissory notes with maturity dates on May 14, 1979 and July 6, ISSUE:
1979, respectively. Petitioner defaulted but after a few partial
The issue is whether or not interests and penalties may be
payments he had the loans restructured by respondent CCP, and
both awarded in the case at bar.
petitioner accordingly executed a promissory note on August 31,
1979 in the amount of P3,411,421.32 payable in five (5)
installments. Petitioner Tan, however, failed to pay any of the
supposed installments and again offered another mode of paying HELD:
restructured loan which respondent CCP refused to consent. YES. Article 1226 of the New Civil Code provides that in
obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-
On May 30, 1984, respondent, thru counsel, wrote petitioner compliance, if there is no stipulation to the contrary. Nevertheless,
demanding the full payment, within ten (10) days, from receipt of damages shall be paid if the obligor refuses to pay the penalty or is
the letter, of the latter’s restructured loan which as of April 30, 1984 guilty of fraud in the fulfillment of the obligation. The penalty may
amounted to P6, 088,735.03. be enforced only when it is demandable in accordance with the
provisions of this Code. In the case at bar, the promissory note
expressly provides for the imposition of both interest and penalties
On August 29, 1984, respondent CCP filed with the RTC of in case of default on the part of the petitioner in the payment of the
Manila a complaint for a collection of a sum of money. Eventually, subject restructured loan, and since the said stipulation has the
petitioner was ordered to pay said amount, with 25% thereof as force of law between the parties and does not appear to be
attorney’s fees and P500, 000.00 as exemplary damages. The Court inequitable or unjust, the said stipulation must be respected.
of Appeals, on appeal, reduced the attorney’s fees to 5% of the
principal amount to be collected from petitioner and deleted the
exemplary damages. TOLEDO V. HYDEN (G.R. NO. 172139; DECEMBER 8, 2010)

Still unsatisfied with the decision, petitioner comes to this FACTS:

Court seeking for the deletion of the attorney’s fees and the
reduction of the penalties. Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-
President of the College Assurance Plan (CAP) Phils., Inc., obtained
several loans from respondent Marilou M. Hyden (Marilou). From
August 15, 1993 up to December 31, 1997, Jocelyn had been
religiously paying Marilou the stipulated monthly interest by issuing
checks and depositing sums of money in the bank account of the P290,000.00. What is appalling, according to Jocelyn, was that such
latter. However, the total principal amount of P290,000.00 payments covered only the interest because of the excessive,
remained unpaid. iniquitous, unconscionable and exorbitant imposition of the 6% to
7% monthly interest.
Thus, in April 1998, Marilou visited Jocelyn in her office at CAP in
Cebu City and asked Jocelyn and the other employees who were
likewise indebted to her to acknowledge their debts. A document
The CA affirmed the decision. Jocelyn filed a motion for
entitled "Acknowledgment of Debt for the amount of P290,000.00
reconsideration but the same was denied. Hence, the present
was signed by Jocelyn with two of her subordinates as witnesses.
petition.

Also, on said occasion, Jocelyn issued five checks to Marilou

ISSUE: Did the CA gravely err when it held that the imposition of
representing renewal payment of her five previous loans. After
interest at the rate of six percent (6%) to seven percent (7%) is not
honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn
contrary to law, morals, good customs, public order or public policy?
ordered the stop payment on the remaining checks and filed with
the RTC of Cebu City a complaint against Marilou for Declaration of
Nullity and Payment, Annulment, Sum of Money, Injunction and
Damages. HELD: The imposition of an unconscionable rate of interest on a
money debt is immoral and unjust and the court may come to the
Jocelyn averred that Marilou forced, threatened and intimidated aid of the aggrieved party to that contract. However, before doing
her into signing the "Acknowledgment of Debt" and at the same so, courts have to consider the settled principle that the law will not
time forced her to issue the seven postdated checks. Marilou filed relieve a party from the effects of an unwise, foolish or disastrous
an Answer with Special Affirmative Defenses and Counterclaim contract if such party had full awareness of what she was doing.
alleging that Jocelyn voluntarily obtained the said loans knowing
fully well that the interest rate was at 6% to 7% per month. In fact, a
6% to 7% advance interest was already deducted from the loan We cannot consider the disputed 6% to 7% monthly interest rate to
amount given to Jocelyn. be iniquitous or unconscionable vis-vis the principle laid down in
Medel. Noteworthy is the fact that in Medel, the defendant-spouses
were never able to pay their indebtedness from the very beginning
The RTC ruled in favor of Marilou, finding no showing that Jocelyn and when their obligations ballooned into a staggering sum, the
was forced, threatened, or intimidated in signing the document. On creditors filed a collection case against them.
appeal, Jocelyn asserts that she had made payments in the total
amount of P778,000.00 for a principal amount of loan of only
In this case, there was no urgency of the need for money on the A threat to enforce one's claim through competent authority, if the
part of Jocelyn, the debtor, which compelled her to enter into said claim is just or legal, does not vitiate consent.
loan transactions. She used the money from the loans to make
advance payments for prospective clients of educational plans
offered by her employer. In this way, her sales production would As can be seen from the records of the case, Jocelyn has failed to
increase, thereby entitling her to 50% rebate on her sales. This is the prove her claim that she was made to sign the document
reason why she did not mind the 6% to 7% monthly interest. "Acknowledgment of Debt" and draw the seven Bank of Commerce
checks through force, threat and intimidation. As earlier stressed,
said document was signed in the office of Jocelyn, a high-ranking
It was clearly shown that before Jocelyn availed of said loans, she executive of CAP, and it was Jocelyn herself who went to the table
knew fully well that the same carried with it an interest rate of 6% of her two subordinates to procure their signatures as witnesses to
to 7% per month, yet she did not complain. In fact, when she the execution of said document. If indeed, she was forced to sign
availed of said loans, an advance interest of 6% to 7% was already said document, then Jocelyn should have immediately taken the
deducted from the loan amount, yet she never uttered a word of proper legal remedy. But she did not. Furthermore, it must be noted
protest. that after the execution of said document, Jocelyn honored the first
three checks before filing the complaint with the RTC. If indeed she
was forced, she would never have made good on the first three
After years of benefiting from the proceeds of the loans bearing an checks.
interest rate of 6% to 7% per month and paying for the same,
Jocelyn cannot now go to court to have the said interest rate
annulled on the ground that it is excessive, iniquitous, Whenever a party has, by his own declaration, act or omission,
unconscionable, exorbitant, and absolutely revolting to the intentionally and deliberately led another to believe a particular
conscience of man. thing to be true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or omission, be
permitted to falsify it."
We are convinced that Jocelyn did not come to court for equitable
Here, it is uncontested that Jocelyn had in fact signed the
relief with equity or with clean hands. It is patently clear from the
"Acknowledgment of Debt" in April 1998 and two of her
above summary of the facts that the conduct of Jocelyn can by no
subordinates served as witnesses to its execution, knowing fully well
means be characterized as nobly fair, just, and reasonable.
the nature of the contract she was entering into. Next, Jocelyn
issued five checks in favor of Marilou representing renewal payment
of her loans amounting to P290,000.00. In June 1998, she asked to
recall Check No. 0010761 in the amount of P30,000.00 and replaced the appellant the additional sum of P2,182.70, thereby reducing the
the same with six checks, in staggered amounts. All these are indicia deducted amount to only P98,828.03. On October 14, 1974, the
that Jocelyn treated the "Acknowledgment of Debt" as a valid and plaintiff-appellant sued the defendant-appellee for the sum of
binding contract. Clearly, by her own acts, Jocelyn is estopped from P98,828.03, with interest, claiming this had been illegally deducted
impugning the validity of the "Acknowledgment of Debt." DENIED. from him in violation of the Usury Law. Plaintiff-appellant now prays
for a reversal of that judgment, insisting that the lower court erred
in the computation of the interest collected out of the rentals paid
FRANCISCO HERRERA, plaintiff-appellant, vs. PETROPHIL for the first eight years; that such interest was excessive and
CORPORATION, defendant-appellee. No. L-48349 | 1986-12-29 violative of the Usury Law; and that he had neither agreed to nor
accepted the defendant-appellant's computation of the total
DOCTRINE: amount to be deducted for the eight years advance rentals. The
The elements of usury are (1) a loan, express or implied; (2) an defendant maintains that the correct amount of the discount is
understanding between the parties that the money lent shall or may P98,828.03 and that the same is not excessive and above that
be returned; that for such loan a greater rate or interest that is allowed by law.
allowed by law shall be paid, or agreed to be paid, as the case may
be; and (4) a corrupt intent to take more than the legal rate for the
use of money loaned. Unless these four things concur in every ISSUE:
transaction, it is safe to affirm that no case of usury can be declared.
Whether or not the contract is a loan
FACTS:

On December 5, 1969, the plaintiff-appellant and ESSO Standard

HELD:
Eastern. Inc., (PetrophilCorporation) entered into a "Lease
Agreement" whereby the former leased to the latter a portion of his No. As its title plainly indicates, the contract between the parties is
property for a period of twenty (20) years from said date. On one of lease and not of loan. It is clearly denominated a "LEASE
December 31, 1969, pursuant to the said contract, the PETROPHIL AGREEMENT." Nowhere in the contract is there any showing that
CORPORATION paid to the HERRERA the parties intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a repayment
advance rentals for the first eight years, subtracting therefrom the
of a loan because there was no grant or forbearance of money as to
amount of P101,010.73, the amount it computed as constituting the
constitute an indebtedness on the part of the lessor. On the
interest or discount for the first eight years, in the total
contrary, the defendant-appellee was discharging its obligation in
sumP180,288.47. On August 20, 1970, the defendant-appellee,
advance by paying the eight years rentals, and it was for this
explaining that there had been a mistake in computation, paid to
advance payment that it was getting a rebate or discount.
There is no usury in this case because no money was given by the R.A. No. 265, which created the Central Bank (CB) of the Philippines,
defendant-appellee to the plaintiff-appellant, nor did it allow him to empowered the CB-MB to, among others, set the maximum interest
use its money already in his possession. rates which banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.

There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct In its Resolution No. 2224, the CB-MB issued CB Circular No. 905,
from the total payments because they were being made in advance Series of 1982. Section 1 of the Circular, under its General
for eight years. The discount was in effect a reduction of the rentals Provisions, removed the ceilings on interest rates on loans or
which the lessor had the right to determine, and any reduction forbearance of any money, goods or credits.
thereof, by any amount, would not contravene the Usury Law.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No.
Advocates for Truth in Lending, Inc. vs. BSP, et. al. 7653 establishing the Bangko Sentral ng Pilipinas (BSP) to replace
the CB.
G.R. No. 192986

ISSUE/S:
FACTS:
1. Whether the CB-MB exceeded its authority when it issued CB
Advocates for Truth in Lending, Inc. and its President, Eduardo
Circular No. 905, which removed all interest ceilings and thus
Olaguer claim that they are raising issues of transcendental
suspended Act No. 2655 as regards usurious interest rates. NO
importance to the public and so they filed Petition for Certiorari
under Rule 65 ROC seeking to declare that the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), replacing the Central Bank
2. Whether under R.A. No. 7653, the BSP-MB may continue to
Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no
enforce CB Circular No. 905. YES
authority to continue enforcing Central Bank Circular No. 905,
issued by the CB-MB in 1982, which "suspended" the Usury Law of
1916 (Act No. 2655).
RULING:
1. The CB-MB merely suspended the effectivity of the Usury Law subject to any ceiling prescribed under or pursuant to the Usury
when it issued CB Circular No. 905. Law, as amended." It does not purport to suspend the Usury Law
only as it applies to banks, but to all lenders.
The power of the CB to effectively suspend the Usury Law pursuant
to P.D. No. 1684 has long been recognized and upheld in many
cases. As the Court explained in the landmark case of Medel v. CA,
Petitioners contend that, granting that the CB had power to
citing several cases, CB Circular No. 905 "did not repeal nor in
"suspend" the Usury Law, the new BSP-MB did not retain this power
anyway amend the Usury Law but simply suspended the latter’s
of its predecessor, in view of Section 135 of R.A. No. 7653, which
effectivity;" that "a CB Circular cannot repeal a law, [for] only a law
expressly repealed R.A. No. 265. The petitioners point out that R.A.
can repeal another law;" that "by virtue of CB Circular No. 905, the
No. 7653 did not reenact a provision similar to Section 109 of R.A.
Usury Law has been rendered ineffective;" and "Usury has been
No. 265.
legally non-existent in our jurisdiction. Interest can now be charged
as lender and borrower may agree upon."

A closer perusal shows that Section 109 of R.A. No. 265 covered
only loans extended by banks, whereas under Section 1-a of the
By lifting the interest ceiling, CB Circular No. 905 merely upheld the
Usury Law, as amended, the BSP-MB may prescribe the maximum
parties’ freedom of contract to agree freely on the rate of interest.
rate or rates of interest for all loans or renewals thereof or the
It cited Article 1306 of the New Civil Code, under which the
forbearance of any money, goods or credits, including those for
contracting parties may establish such stipulations, clauses, terms
loans of low priority such as consumer loans, as well as such loans
and conditions as they may deem convenient, provided they are not
made by pawnshops, finance companies and similar credit
contrary to law, morals, good customs, public order, or public
institutions. It even authorizes the BSP-MB to prescribe different
policy.
maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial
intermediaries. Act No. 2655, an earlier law, is much broader in
scope, whereas R.A. No. 265, now R.A. No. 7653, merely
2. The BSP-MB has authority to enforce CB Circular No. 905. supplemented it as it concerns loans by banks and other financial
institutions. Had R.A. No. 7653 been intended to repeal Section 1-a
Section 1 of CB Circular No. 905 provides that, "The rate of interest, of Act No. 2655, it would have so stated in unequivocal terms.
including commissions, premiums, fees and other charges, on a loan
or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged
Further, the lifting of the ceilings for interest rates does not
or collected by any person, whether natural or juridical, shall not be
authorize stipulations charging excessive, unconscionable, and
iniquitous interest. It is settled that nothing in CB Circular No. 905
grants lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down for
being contrary to morals, if not against the law.
BATCH 3 return it to Zshornack at a later time. Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months later.
BPI vs. Intermediate Appellate Court

GR No. L-66826, August 19, 1988

The above arrangement is that contract defined under Article 1962,
New Civil Code, which reads:
Facts:
Art. 1962. A deposit is constituted from the moment a person
Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar receives a thing belonging to another, with the obligation of safely
savings account and a peso current account. An application for a keeping it and of returning the same. If the safekeeping of the thing
dollar drafts was accomplished by Virgillo Garcia branch manager of delivered is not the principal purpose of the contract, there is no
COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion, deposit but some other contract.
Garcia indicated that the amount was to be charged to the dolar
savings account of the Zshornacks. There wasa no indication of the
name of the purchaser of the dollar draft. Comtrust issued a check Baron v David
payable to the order of Dizon. When Zshornack noticed the
G.R. Nos. L-26948 and L-26949 October 8, 1927
withdrawal from his account, he demanded an explainaiton from
the bank. In its answer, Comtrust claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy.
When he encashed with COMTRUST a cashier’s check for P8450 FACTS
issued by the manila banking corporation payable to Ernesto. PABLO RUNS A RICE MILL, PLAINTIFF PLACES RICE IN MILL, FIRE
GUTS MILL, PALAY GONE

Issue: Whether the contract between petitioner and respondent Defendant Pablo David has been running a rice mill in Pampanga.
bank is a deposit? One day a fire occurred that destroyed the mill and its contents.
Silvestra Baron, the plaintiff in the first action, is an aunt of the
defendant; while Guillermo Baron, the plaintiff in the other action;
is his uncle. In the months of March, April, and May, 1920, Silvestra
Held: The document which embodies the contract states that the
Baron placed a quantity of palay in the defendant's mill. During the
US$3,000.00 was received by the bank for safekeeping. The
same period Guillermo Baron also placed palay in the mill.
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
PLAINTIFFS CLAIM PALAY WAS SOLD, DEFENDANT ARGUES IT WAS result that he is bound to account for its value, and his liability was
DEPOSIT AND THAT THE FIRE RELIEVED HIM OF LIABILITY not extinguished by the occurrence of the fire.

Both plaintiffs claim that the palay delivered by them to defendant EVEN IF DEPOSIT, USE OF THE THING BINDS DEFENDANT TO
was sold to defendant; while defendant claims that the palay was ACCOUNT FOR ITS VALUE
deposited subject to future withdrawal by the depositors or subject
to some future sale which was never effected. He therefore
supposes himself to be relieved from all responsibility by virtue of Even supposing that the palay may have been delivered in the
the fire, already mentioned. character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that the
defendant might mill the palay and he has in fact appropriated it to
ISSUE: his own use, he is of course bound to account for its value

WON the palay was a deposit or a sale (SALE)

WON defendants are liable to plaintiffs (YES) Under art 1768 of the Civil Code when the depository has
permission to make use of the thing deposited, the contract loses
the character of mere deposit and becomes a loan or a
HELD commodatum; and of course, by appropriating the thing, the bailee
becomes responsible for its value.
PALAY WAS SOLD, LIABILITY NOT EXTINGUISHED BY FIRE. PLAINTIFF
BOUND TO ACCOUNT FOR IT In this connection we wholly reject the defendant's pretense that
the palay delivered by the plaintiffs or any part of it was actually
In view of the nature of the defendant's activities and the way in consumed in the fire of January, 1921. Nor is the liability of the
which the palay was handled in the defendant's mill, it is quite defendant in any wise affected by the circumstance that, by a
certain that all of the plaintiffs' palay, which was put in before June custom prevailing among rice millers in this country, persons placing
1, 1920, been milled and disposed of long prior to the fire of January palay with them without special agreement as to price are at liberty
17, 1921. to withdraw it later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.

Considering the fact that the defendant had thus milled and
doubtless sold the plaintiffs' palay prior to the date of the fire, it
Central Bank of the Phils. V. Judge Morfe enjoy any preference because: a, they were rendered after the
fidelity savings bank was declared insolvent, and (2) under the
G.R. No. L- 38427 March 12, 1975
charter of the central bank and the general banking law, no final
judgment can be validly obtained against an insolvet bank.

Facts: ISSUE

On February 18, 1969 the monetary board found the fidelity savings W/N a final judgement for the payment of a time deposit in a
bank to be insolvent. The board directed the superintendent of savings bank, which judgment was obtained after, the bank was
banks to take charge of its assets and forbade it to do business. On declared insolvent, is a preferred claim against the bank?
December 9, 1969, the board resolved to seek the court’s assistance
and supervision in the liquidation of the bank. The resolution was
implemented only on January 25, 1972 when the central bank of the RULLING:
Philippines filed the corresponding petition for assistance and
NO. it should be noted that fixed savings and current deposits of
supervision in the CFI of Manila.
money in banks and similar institutions are not true deposits. They
are considered simple loans and as such are not preferred credits.
One purpose in prohibiting the insolvent bank from doing business
Prior to the institution of the liquidation proceeding but after the
is to prevent some depositors from having an undue or fraudulent
declaration of insolvency, the spouses’ job elizes and marcela elizes
preference over other creditors and depositors. That purpose would
filed a complaint in the CFI of Manila against the fidelity savings
be nullified if, as in this case, after the bank is declared insolvent,
Bank for the recovery of the balance of their time deposits, which
suits by some depositors could be maintained and judgements
was granted by that court. In another case, the spouses Augusto
would be rendered for the payment of their deposits and then such
Padilla and Adelaida Padilla secured a judgement against security
judgments would be considered preferred credits under Art. 2244
fidelity savings bank for the balance of their time deposits plus
(14) (b) of the Civil Code. We are of the opinion that such
interests.
judgements cannot be considered preferred and that Art. 2244 does
The lower court, upon motion of elizes and padilla spouses and not apply to such judgments for the payment of the deposits in an
over the opposition of the Central bank, directed the latter, as insolvent savings bank which were obtained after the declaration of
liquidator, to pay their time deposits as preferred credits, evidenced insolvency. Considering that the deposits in question, in their
by the final judgements, within the meaning of article 2244, (14) (b) inception were not preferred credits, it does not seem logical and
of the civil code, if there are enough funds in the liquidator’s just that they should be raised to the category of preferred credits
custody in excess of the creditors more preferred. The central bank simply because the depositors taking advantage of the long interval
appealed, contending that the elizes and padilla spouses do not between the declaration of insolvency and the filing of the petition
for judicial assistance and supervision, were able to secure proceed with the preliminary investigation on the ground that the
judgment for the payment of their time deposits. The lower court’s petitioners’ obligation is civil in nature.
orders are reversed and set aside.
Facts: David invested several deposits with the Nation Savings and
Loan Association [NSLA]. He said that he was induced into making
said investments by an Australian national who was a close
G.R. No. L-60033 April 4, 1984
associate of the petitioners [NSLA officials]. On March 1981, NSLA
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA was placed under receivership by the Central Bank, so David filed
SANTOS, petitioners, claims for his and his sister’s investments.

THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. On June 1981, Guingona and Martin, upon David’s request,
CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, assumed the bank’s obligation to David by executing a joint
respondents. promissory note. On July 1981, David received a report that only a
portion of his investments was entered in the NSLA records.
Nature: Petition for prohibition and injunction with a prayer for the
immediate issuance of restraining order and/or writ of preliminary On December 1981, David filed I.S. No. 81-31938 in the Office of the
injunction seeking to prohibit the public respondent which is the City Fiscal, which case was assigned to Asst. City Fiscal Lota for
City Fiscal of Manila from proceeding with the preliminary preliminary investigation. David charged petitioners with estafa and
investigation, in which they were charged by private respondent violation of Central Bank Circular No. 364 and related regulations on
Clement David foreign exchange transactions.

Summary: From March 1979 to March 1981, Clement David made

several investments with the National Savings and Loan Association
Petitioners moved to dismiss the charges against them for lack of
(NSLA). On March 21, 1981, the Bangko Sentral placed the bank
jurisdiction because David's claims allegedly comprised a purely civil
under receivership. Upon David’s request, petitioners Guingona and
obligation, but the motion was denied. After the presentation of
Martin issued a joint promissory note, absorbing the obligations of
David's principal witness, petitioners filed this petition for
the bank. On July 17, 1981, they divided the indebtedness. David
prohibition and injunction because:
filed a complaint for estafa and violation of Central Bank Circular
No. 364 and related regulations regarding foreign exchange a. The production of various documents showed that the
transactions before the Office of the City Fiscal of Manila. transactions between David and NSLA were simple loans (civil
Petitioners filed the herein petition for prohibition and injunction obligations which were novated when Guingona and Martin
with a prayer for immediate issuance of restraining order and/or assumed them)
writ of preliminary injunction to enjoin the public respondents to
b. David's principal witness testified that the duplicate originals of While the Bank has the obligation to return the amount deposited,
the instruments of indebtedness were all on file with NSLA. it has no obligation to return or deliver the same money that was
deposited. NSLA’s failure to return the amount deposited will not
constitute estafa through misappropriation punishable under Article
A TRO was issued ordering the respondents to refrain from 315, par. L (b) of the Revised Penal Code, but it will only give rise to
proceeding with the preliminary investigation in I.S. No. 81-31938. civil liability over which the public respondents have no jurisdiction.

Petitioners’ liability is civil in nature, so respondents have no Considering that petitioners’ liability is purely civil in nature and that
jurisdiction over the estafa charge. TRO CORRECTLY ISSUED. there is no clear showing that they engaged in foreign exchange
transactions, public respondents acted without jurisdiction when
they investigated the charges against the petitioners. Public
Issue: respondents should be restrained from further proceeding with the
criminal case for to allow the case to continue would work great
1. Whether the contract between NSLA and David is a contract of injustice to petitioners and would render meaningless the proper
depositor or a contract of loan, which answer determines whether administration of justice.
the City Fiscal has the jurisdiction to file a case for estafa

Even granting that NSLA’s failure to pay the time and savings
2. Whether there was a violation of Central Bank Circular No. 364 deposits would constitute a violation of RPC 315, paragraph 1(b),
any incipient criminal liability was deemed avoided. When NSLA was
placed under receivership, Guingona and Martin assumed the
Held: obligation to David, thereby resulting in the novation of the original
contractual obligation. The original trust relation between NSLA and
1. When David invested his money on time and savings deposits
David was converted into an ordinary debtor-creditor relation
with NSLA, the contract that was perfected was a contract of simple
between the petitioners and David. While it is true that novation
loan or mutuum and not a contract of deposit. Hence, the
does not extinguish criminal liability, it may prevent the rise of
relationship between David and NSLA is that of creditor and debtor,
criminal liability as long as it occurs prior to the filing of the criminal
consequently, the ownership of the amount deposited was
information in court.
transmitted to the Bank upon the perfection of the contract and it
can make use of the amount deposited for its banking operations,
such as to pay interests on deposits and to pay withdrawals..
2. Petitioner Guingona merely accommodated the request of the Overseas Bank of Manila vs. Cordero
Nation Savings and loan Association in order to clear the bank draft
G.R. No. L-33582. March 30, 1982
through his dollar account because the bank did not have a dollar
account. Immediately after the bank draft was cleared, petitioner Facts:
Guingona authorized Nation Savings and Loan Association to
withdraw the same in order to be utilized by the bank for its Private respondent opened a 1-year time deposit with petitioner
operations. It is safe to assume that the U.S. dollars were converted bank amounting to P80,000, with interest of 6% p.a. Due to its
first into Philippine pesos before they were accepted and deposited distressed financial condition, the bank was unable to pay. Cordero
in Nation Savings and Loan Association, because the bank is instituted an action before the CFI Manila. Petitioner raised the
presumed to have followed the ordinary course of the business defenses of insolvency and prejudice to other depositors. The lower
which is to accept deposits in Philippine currency only, and that the court, and the Court of Appeals, ruled in favor of Cordero. Hence,
transaction was regular and fair, in the absence of a clear and the instant petition for review on certiorari.
convincing evidence to the contrary. Certain supervening events rendered the issue moot and academic.
In conclusion, considering that the liability of the petitioners is Respondent’s brother and attorney-in-fact sent a letter to the
purely civil in nature and that there is no clear showing that they Commercial Bank of Manila (petitioner’s successor-in-interest),
engaged in foreign exchange transactions, we hold that the public acknowledging receipt of P10,000, and another manifestation for
respondents acted without jurisdiction when they investigated the P73,840, with waiver of damages. Upon further examination, it was
charges against the petitioners. Consequently, public respondents found that the respondent’s brother has no SPA. Respondent’s
should be restrained from further proceeding with the criminal case brother submitted the SPA, with explanatory comment that the
for to allow the case to continue, even if the petitioners could have waiver applies only to third party claims, suits and damages, not to
appealed to the Ministry of Justice, would work great injustice to interest and attorney’s fees.
petitioners and would render meaningless the proper
administration of justice
Issue:

Whether respondent is entitled to interest and attorney’s fees

Ruling: WHEREFORE, THE PETITION IS HEREBY GRANTED; THE
TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE
PERMANENT. Held:

The obligation to pay interest on the deposit ceases the moment

the operation of the bank is completely suspended by the Central
Bank. Neither can respondent Cordero recover attorney’s fees. court approved the recommendation and entered judgment in the
Petitioner’s refusal to pay was not due to a willful and dishonest accordance therewith. The claimant took an appeal.
refusal to comply with its obligation but to restrictions imposed by
Central Bank.
ISSUES:

TAN TIONG TICK, claimant-appellant, vs. AMERICAN

APOTHECARIES CO., ET AL., claimants-appellees. 1.Whether or not the current account and savings deposits are
preferred credits in cases involving insolvency and liquidation of the
G.R. No. L-43682 March 31, 1938
bank.

Facts:
2.Whether or not the deposits could be offset with the debt of the
In the proceedings for the liquidation of the Mercantile Bank of depositor with the bank.
China, the appellant presented a written claim alleging: that when
this bank ceased to operate on September 19, 1931, his current
account in said bank showed a balance of P9,657.50 in his favor; 3.Whether or not the deposits should earn interest from the time
that on the same date his savings account in the said bank also the bank ceased to operate.
showed a balance in his favor of P20,000 plus interest then due
amounting to P194.78; that on the other hand, he owed the bank in
the amount of P13,262.58, the amount of the trust receipts which RULING:
he signed because of his withdrawal from the bank of certain
merchandise consigned to him without paying the drafts drawn
upon him by the remitters thereof; that the credits thus described 1.The SC ruled that, these deposits are essentially mercantile
should be set off against each other according to law, and on such contracts and should, therefore, be governed by the provisions of
set off being made it appeared that he was still the creditor of the the Code of Commerce. In accordance with article 309, the so-called
bank in the sum of P16,589.70. And he asked that the court order current account and savings deposits have lost the character of
the Bank Commissioner to pay him the aforesaid balance and that deposits properly so-called, and are converted into simple
the same be declared as preferred credit. The claim was referred to commercial loans, because the bank disposed of the funds
the commissioner appointed by the court, who at the same time deposited by the claimant for its ordinary transactions and for the
acted as referee, and this officer recommended that the balance banking business in which it was engaged. That the bank had the
claimed be paid without interest and as an ordinary credit. The
authority of the claimant to make use of the money deposited on 48, 49 and 50 of the Insolvency Law in the sense that they are made
current and savings account is deducible from the fact that the bank applicable to cases of insolvency or bankruptcy and liquidation of
has been paying interest on both deposits, and the claimant himself banks. No other deduction can be made from the phrase “in the
asks that he be allowed interest up to the time when the bank order of their legal priority” employed by the law, for there being no
ceased its operations. Moreover, according to section 125 of the law establishing any priority in the order of payment of credits, the
Corporation Law and 9 of Act No. 3154, said bank is authorized to legislature could not reasonably refer to any legislation upon the
make use of the current account, savings, and fixed deposits subject, unless the interpretation above stated is accepted.
provided it retains in its treasury a certain percentage of the
Examining now the claims of the appellant, it appears that none of
amounts of said deposits.
them falls under any of the cases specified by section 48, 49 and 50
of the Insolvency Law; wherefore, we conclude that the appellant’s
claims, consisting of his current and savings account, are not
2.It appears that even after the enactment of the Insolvency Law
preferred credits.
there was no law in this jurisdiction governing the order or
preference of credits in case of insolvency and liquidation of a bank.
But the Philippine Legislature subsequently enacted Act No. 3519,
3. “It may be stated as a general rule that when a depositor is
amended various sections of the Revised Administrative Code,
indebted to a bank, and the debts are mutual — that is, between
which took effect on February 20, 1929, and section 1641 of this
the same parties and in the same right — the bank may apply the
latter Code. as amended by said Act provides:
deposit, or such portion thereof as may be necessary, to the
payment of the debt due it by the depositor, provided there is no
express agreement to the contrary and the deposit is not specially
SEC. 1641. Distribution of assets. — In the case of the liquidation of
applicable to some other particular purposes.” (7 Am. Jur., par. 629,
a bank or banking institution, after payment of the costs of the
p.455; United States vs. Butterworth-Judson Corp., 267 U.S., 387;
proceeding, including reasonable expenses, commissions and fees
National Bank vs. Morgan, 207 Ala.., 65; Bank of Guntersville vs.
of the Bank Commissioner, to be allowed by the court, the Bank
Crayter, 199 Ala., 699; Tatum vs. Commercial Bank & T. Co., 193
Commissioner shall pay the debts of the institution, under of the
Ala., 120; Desha Bank & T. Co. vs. Quilling, 118 Ark., 114; Holloway
court in the order of their legal priority.
vs. First Nat. Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank,
181 Ill., 279; Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat Bank
vs. Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.)
From this section 1641 we deduce that the intention of the The situation referred to by the appellees is inevitable because
Philippine Legislature, in providing that the Bank Commissioner shall section 1639 of the Revised Administrative Code, as amended by
pay the debts of the company by virtue of an order of the court in Act No. 3519, provides that the Bank Commissioner shall reduce the
the order of their priority, was to enforce the provisions of section
assets of the bank into cash and this cannot be done without first all the creditors as they are insufficient to pay all the obligations of
liquidating individually the accounts of the debtors of said bank, and the bank.
in making this individual liquidation the debtors are entitled to set
off, by way of compensation, their claims against the bank.
In view of all the foregoing considerations, SC affirmed the part of
4. Upon this point a distinction must be made between the interest
the appealed decision for the reasons stated herein, and it is
which the deposits should earn from their existence until the bank
ordered that the net claim of the appellant, amounting to
ceased to operate, and that which they may earn from the time the
P13,611.21, is an ordinary and not a preferred credit, and that he is
bank’s operations were stopped until the date of payment of the
entitled to charge interest on said amount up to September 19,
deposits. As to the first class, it should be paid because such interest
1931.
has been earned in the ordinary course of the bank’s business and
before the latter has been declared in a state or liquidation. Tan vs. CA
Moreover, the bank being authorized by law to make us of the
deposits, with the limitation stated, to invest the same in its GR 108555, 20 December 1994
business and other operations, it may be presumed that it bound
itself to pay interest to the depositors as in fact it paid interest prior
to the date of the said claims. Facts:

As to the interest which may be charged from the date the bank Ramon Tan, a businessman from Puerto Princesa, secured a
ceased to do business because it was declared in a state of Cashier’s Check from Philippine Commercial Industrial Bank
liquidation, SC held that the said interest should not be paid. Under (PCIBank) to P30,000 payable to his order to avoid carrying cash
articles 1101 and 1108 of the Civil Code, interest is allowed by way while enroute to Manila. He deposited the check in his account in
of indemnity for damages suffered, in the cases wherein the Rizal Commercial Banking Corporation (RCBC) in its Binondo Branch.
obligation consists in the payment of money. In view of this, SC held RCBC sent the check for clearing to the Central Bank which was
that in the absence of any express law or any applicable provision of returned for having been “missent” or “misrouted.” RCBC debited
the Code of Commerce, it is not proper to pay this last kind of Tan’s account without informing him. Relying on common
interest to the appellant upon his deposits in the bank, for this knowledge that a cashier’s check was as good as cash, and a month
would be anomalous and unjustified in a liquidation or insolvency of after depositing the check, he issued two personal checks in the
a bank. This rule should be strictly observed in the instant case name of Go Lak and MS Development Trading Corporation. Both
because it is understood that the assets should be prorated among checks bounced due to “insufficiency of funds.” Tan filed a suit for
damages against RCBC.
Issue: Whether a cashier’s check is as good as cash, so as to have produce documents relating to Trust Account No. 858 and Savings
funded the two checks subsequently drawn. Account of President Estrada. The SB granted the request.

Held: An ordinary check is not a mere undertaking to pay an amount Estrada filed a Motion to Quash the subpoenas claiming that his
of money. There is an element of certainty or assurance that it will bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank
be paid upon presentation; that is why it is perceived as a Deposits Law) and do not fall under any of the exceptions stated
convenient substitute for currency in commercial and financial therein. He further claimed that the specific identification of
transactions. Herein, what is involved is more than an ordinary documents in the questioned subpoenas, including details on dates
check, but a cashier’s check. A cashier’s check is a primary obligation and amounts, could only have been made possible by an earlier
of the issuing bank and accepted in advance by its mere issuance. By illegal disclosure thereof by the EIB and the Philippine Deposit
its very nature, a cashier’s check is a bank’s order to pay what is Insurance Corporation (PDIC) in its capacity as receiver of the then
drawn upon itself, committing in effect its total resources, integrity Urban Bank. The disclosure being illegal, petitioner concluded, the
and honor beyond the check. Herein, PCIB by issuing the check prosecution in the case may not be allowed to make use of the
created an unconditional credit in favor any collecting bank. information. The SB denied the motion.
Reliance on the layman’s perception that a cashier’s check is as
good as cash is not entirely misplaced, as it is rooted in practice,
tradition and principle. ISSUE/S:

1. Is the Trust Account covered by the term “deposit “under the

Bank Secrecy Law?
EJERCITO V. SANDIGANBAYAN G.R. NO. 157294-95
2. Are the Trust and Savings Accounts of Estrada excepted from the
G.R. NO. 157294-95 November 30, 2006
protection of the Bank Secrecy Law?

FACTS:
RULING:
The Special Prosecution Panel filed before the Sandiganbayan a
1. YES. The contention that trust accounts are not covered by the
Request for Issuance of Subpoena Duces Tecum for the issuance of
term “deposits, “as used in R.A. 1405, by the mere fact that they do
a subpoena directing the President of Export and Industry Bank (EIB,
not entail a creditor-debtor relationship between the trustor and
formerly Urban Bank) or his/her authorized representative to
the bank, does not lie. An examination of the law shows that the
term “deposits “used therein is to be understood broadly and not
limited only to accounts which give rise to a creditor-debtor 2. YES. The protection afforded by the law is, however, not absolute,
relationship between the depositor and the bank. If the money there being recognized exceptions thereto, as above quoted Section
deposited under an account may be used by banks for authorized 2 provides. In the present case, two exceptions apply, to wit: (1) the
loans to third persons, then such account, regardless of whether it examination of bank accounts is upon order of a competent court in
creates a creditor-debtor relationship between the depositor and cases of bribery or dereliction of duty of public officials, and (2) the
the bank, falls under the category of accounts which the law money deposited or invested is the subject matter of the litigation.
precisely seeks to protect for the purpose of boosting the economic
development of the country.
Estrada contends that since plunder is neither bribery nor
dereliction of duty, his accounts are not excepted from the
Trust Account No. 858 is, without doubt, one such account. The protection of R.A. 1405. He is wrong. Cases of unexplained wealth
Trust Agreement between Estrada and Urban Bank provides that are similar to cases of bribery or dereliction of duty and no reason is
the trust account covers “deposit, placement or investment of funds seen why these two classes of cases cannot be excepted from the
“by Urban Bank for and in behalf of Estrada. The money deposited rule making bank deposits confidential. The policy as to one cannot
under Trust Account No. 858, was, therefore, intended not merely be different from the policy as to the other. This policy expresses
to remain with the bank but to be invested by it elsewhere. To hold the notion that a public office is a public trust and any person who
that this type of account is not protected by R.A. 1405 would enters upon its discharge does so with the full knowledge that his
encourage private hoarding of funds that could otherwise be life, so far as relevant to his duty, is open to public scrutiny. An
invested by banks in other ventures, contrary to the policy behind examination of the “overt or criminal acts as described in Section
the law. 1(d)”of R.A. No. 7080 would make the similarity between plunder
and bribery even more pronounced since bribery is essentially
included among these criminal acts. Plunder being thus analogous
The phrase “of whatever nature “proscribes any restrictive to bribery, the exception to R.A. 1405 applicable in cases of bribery
interpretation of “deposits. “Moreover, it is clear from the must also apply to cases of plunder.
immediately quoted provision that, generally, the law applies not
only to money which is deposited but also to those which are
invested. This further shows that the law was not intended to apply The plunder case now pending with the SB necessarily involves an
only to “deposits “in the strict sense of the word. Otherwise, there inquiry into the whereabouts of the amount purportedly acquired
would have been no need to add the phrase “or invested.” Clearly, illegally by former President Joseph Estrada. In light then of this
therefore, R.A. 1405 is broad enough to cover Trust Account No. Court’s pronouncement in Union Bank, the subject matter of the
858. litigation cannot be limited to bank accounts under the name of
President Estrada alone, but must include those accounts to which
the money purportedly acquired illegally or a portion thereof was
alleged to have been transferred. Trust Account No. 858 and Savings
Account No. 0116-17345-9 in the name of petitioner fall under this
description and must thus be part of the subject matter of the
litigation.

In sum, exception (1) applies since the plunder case pending against
former President Estrada is analogous to bribery or dereliction of
duty, while exception (2) applies because the money deposited in
petitioner’s bank accounts is said to form part of the subject matter
of the same plunder case.
BATCH 4 Subsequently it was found that the work had not been carried out in
accordance with the specifications which formed part of the contract.
Castellvi de Higgins & Higgins vs. Sellner
Hospicio therefore refused to pay the balance of the contract price.
Facts: Sellner (defendant) wrote a letter to Mcleod (Castellvi’s agent)
Machetti thereupon brought an action to which Hospicio presented
saying that he would bound himself to pay the promissory note of
a counterclaim. After the issue was joined, Machetti, on petition of
Mining, Clarke and Maye amounting 10K + % if not fully paid at
his creditors declared insolvency. An order was then entered
maturity, upon the surrender 8k worth of MCM’s stock which is held
suspending the proceeding in the case.
by Castellvi.
Hospicio filed a motion asking that the Fidelity be made cross-
defendant which was granted. Hospicio then filed a complaint against
Issue: WON Sellner is a guarantor or surety? the Fidelity asking for a judgment against the company upon its
guaranty.

CFI rendered judgment against the Fidelity. The case is now before
Held: Sellner is a GUARANTOR. Sellner was not bound with Castellvi this court upon appeal by the Fidelity from said judgment.
by the same instrument executed at the time and the same
consideration, but his responsibility was secondary, one founded on ISSUE: WON the contract is one of guaranty or surety.
an independent collateral agreement. Neither was he jointly and
JUDGMENT: The judgment appealed from is reversed.
severally liable with Castellvi.
HOLDING: The circumstances in the contract are distinguishing
features of contracts of guaranty. The contract is the guarantor's
ROMULO MACHETTI Vs . HOSPICIO DE SAN JOSE and FIDELITY & separate undertaking in which the principal does not join. It rests on
SURETY COMPANY OF THE PHILIPPINE ISLANDS a separate consideration moving from the principal and that although
it is written in continuation of the contract for the construction of the
FACTS: building, it is a collateral undertaking separate and distinct from the
Machetti undertook to construct a building for Hospicio. One of the latter.
agreement’s condition was for the contractor to obtain the While a surety undertakes to pay if the principal does not pay, the
"guarantee" of the Fidelity and Surety Company. The guarantee was guarantor only binds himself to pay if the principal cannot pay. The
for the compliance of Machetti to the contract’s terms and one is the insurer of the debt, the other an insurer of the solvency of
conditions. the debtor.
The Fidelity having bound itself to pay only in the event its principal, of the two corporations being in Catbalogan, Samar, for which I
Machetti, cannot pay it follows that it cannot be compelled to pay undertake, bind and agree to use the loans surety cash deposit for
until it is shown that Machetti is unable to pay. Such inability to pay registration with the Securities and Exchange Commission of the
is not determined until the final liquidation of his estate and is not incorporation papers relative to the "Sosing-Lobosand Co., Inc.," and
sufficiently established by the mere fact that he has been declared to return or pay the same amount with Twelve Per Cent (12%)
insolvent in insolvency proceedings. interest perineum, commencing from the date of execution hereof,
to the "Piczon and Co., Inc., as soon as the said incorporation papers
are duly registered and the Certificate of Incorporation issued by the
PICZON VS. PICZON aforesaid Commission.

G.R. No. L-29139, November 15, 1974

IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan,
Samar, Philippines, this 28th
FACTS:
day of September, 1956. (signed) Esteban Piczon
This an appeal from the decision of the Court of First Instance of
Samar in its Civil Case No. 5156, entitled Consuelo P. Piczon, et al. vs.
Esteban Piczon, et al., sentencing defendants-appellees, Sosing Lobos
ISSUE:
and Co., Inc., as principal, and Esteban Piczon, as guarantor, to pay
plaintiffs-appellants "the sum of P12,500.00 with 12% interest from Was the trial court correct in its decision that defendant will only
August 6, 1964 until said principal amount of P12,500.00 shall have have to pay the interest from August 6,
been duly paid, and the costs." Annex "A", the actionable document
1964 instead of September 28, 1956?
of appellants reads thus:

AGREEMENT OF LOAN KNOW YE ALL MEN BY THESE PRESENTS: That

I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of and RULING:
with postal address in the municipality of Catbalogan, Province of
Samar, Philippines, in my capacity as the President of the corporation No. Instead of requiring appellees to pay interest at 12% only from
known as the "SOSING-LOBOS ado., INC.," as controlling stockholder, August 6, 1964, the trial court should have adhered to the terms of
and at the same time as guarantor for the same, do by these presents the agreement which plainly provides that Esteban Piczon had
contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00), obligated Sosing-Lobos and Co., Inc. and himself to "return or pay (to
Philippine Currency, the receipt of which is hereby acknowledged, Piczon and Co., Inc.) the same amount (P12,500.00) with Twelve Per
from the "Piczon and Co., Inc. “another corporation, the main offices Cent (12%) interest per annum commencing from the date of the
execution hereof", Annex A, which was on September 28, 1956. Severino v Severino
Under Article 2209 of the Civil Code "(i)f the obligation consists in the
[G.R. No. 34642, September 24, 1931]
payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, FACTS:
shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum." In Melecio Severino upon his death, left considerable properties. To end
the case at bar, the "interest agreed upon" by the parties in Annex A litigation among heirs, a compromise was effected where defendant
was to commence from the execution of said document. Appellees' Guillermo (son of MS) took over the property of deceased and agreed
contention that the reference in Article 2209 to delay incurred by the to pay installment of 100K to plaintiff (wife of MS) payable first in 40K
debtor which can serve as the basis for liability for interest is to that cash upon execution of document in 3 equal installments. Enrique
defined in Article 1169 of the Civil Code is untenable. In Quiroz vs Tan Echauz became guarantor.
Guinlay, 5 Phil. 675, it was held that the article cited by appellees Upon failure to pay the balance, plaintiff filed and action against the
(which was Article 1100 of the Old Civil Code read in relation to Art. defendant and Echauz. Enchauz contends that he received nothing
1101) is applicable only when the obligation is to do something other from affixing his signature in the document and the contract lacked
than the payment of money. And in Firestone Tire & Rubber Co. (P.I.) the consideration as to him.
vs. Delgado, 104 Phil. 920, the Court squarely ruled that if the
contract stipulates from what time interest will be counted, said
stipulated time controls, and, therefore interest is payable from such ISSUE: WON there is a consideration for the guaranty?
time, and not from the date of the filing of the complaint (at p. 925).
Were that not the law, there would be no basis for the provision of
Article 2212 of the Civil Code providing that "(I)nterest due shall earn
HELD:
legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point." Incidentally, appellants The proof shows that the money claimed in this action has never
would have been entitled to the benefit of this article, had they not been paid and is still owing to the plaintiff; and the only defense
failed to plead the same in their complaint. Their prayer for it in their worth noting in this decision is the assertion on the part of Enrique
brief is much too late. Appellees had no opportunity to meet the issue Echaus that he received nothing for affixing his signature as
squarely at the pre-trial. guarantor to the contract which is the subject of suit and that in effect
the contract was lacking in consideration as to him.

The guarantor or surety is bound by the same consideration that

makes the contract effective between the principal parties thereto.
The compromise and dismissal of a lawsuit is recognized in law as a valid when it was cancelled. And this being so, neither Marsigan,
valuable consideration; and the dismissal of the action which Felicitas Sevilla or Luna were bound to comply with the terms of their
Villanueva and Fabiola Severino had instituted against Guillermo respective contracts of fishing privilege and guaranty. A suretyship
Severino was an adequate consideration to support the promise on cannot exist without a valid obligation.
the part of Guillermo Severino to pay the sum of money stipulated in
the contract which is the subject of this action. The promise of the
appellant Echaus as guarantor therefore binding. RCBC v Arro
It is neither necessary that guarantor or surety should receive any
part of the benefit, if such there be accruing to his principal.
• Residoro Chua and Enrique Go, Sr. executed a
Thus, judgment affirmed. comprehensive surety agreement to guaranty among others, any
existing indebtedness of Davao Agricultural Industries Corporation
(the latter is referred to as Daicor).
Municipality of Gasan vs Marasigan
• A promissory note in the amount of P100,000 was issued in
favor of petitioner RCBC payable on June 13, 1977.

Facts: Municipality of Gasan granted Marasigan fishing privileges • The note note was signed by Enrique Go, Sr. in his personal
within the jurisdictional waters. To secure payment of license fees, capacity and in behalf of Daicor.
Marasigan filed a bond subscribed Angel R. Sevilla and Gonzalo L.
• The promissory note was not fully paid despite repeated
Luna who bound themselves to pay if Marasigan failed to comply with
demands; hence, petitioner filed a complaint for a sum of money
the terms of the contract. Contract was declared illegal by the
against Daicor, Enrique Go, Sr. and Residoro Chua.
Executive Bureau therefore the Municipality awarded the privilege to
another person who failed to pay the deposit and yielded the • Respondent Residoro Chua on the ground that the complaint
privilege to Marasigan. The municipality told Marasigan that the states no cause of action as against him.
contract was to be effective so the municipality sought to recover
from Marasigan and Angel R. Sevilla and Gonzalo L. Luna, the amount • He alleged that he cannot be held liable under the promissory
representing the license. note because it was only Enrique Go, Sr. who signed the same in
behalf of Daicor and in his own personal capacity.
Issue: Whether or not the respondents are liable?
• Petitioner alleged that by virtue of the execution of the
Held: No. The contract being invalid and unenforceable because not comprehensive surety agreement, respondent is liable because said
only was it not consummated; it was also cancelled. It ceased to be agreement is continuing; and it encompasses every other
indebtedness the Daicor may, from time to time incur with petitioner • The surety agreement which was earlier signed by Enrique
bank. Go, Sr. and private respondent, is an accessory obligation, it being
dependent upon a principal one which, in this case is the loan
obtained by Daicor as evidenced by a promissory note.
WON Respondent Chua is liable.
• What obviously induced petitioner bank to grant the loan
was the surety agreement whereby Go and Chua bound themselves
solidarily to guaranty the punctual payment of the loan at maturity.
• YES.
• It can be clearly seen that the surety agreement was
• The comprehensive surety agreement was jointly executed executed to guarantee future debts which Daicor may incur with
by respondent Residoro Chua and Enrique Go, Sr., President and petitioner, as is legally allowable under the Civil Code.
General Manager respectively, of Daicor, to cover existing as well as
future obligations which Daicor may incur with the petitioner bank, • Thus —Article 2053. — A guaranty may also be given as
subject only to the proviso that their liability shall not exceed security for future debts, the amount of which is not yet known; there
P100,000.00. can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured.
• The guaranty is a continuing one which shall remain in full
force and effect until the bank is notified of its termination.

• At the time the loan of P100,000.00 was obtained from PNB vs. CA, Luzon Surety Co.
petitioner by Daicor, for the purpose of having an additional capital
Facts: Estanislao Depusoy, and the Republic of the Philippines,
for buying and selling coco-shell charcoal and importation of
represented by the Director of Public Works, entered into a building
activated carbon, the comprehensive surety agreement was
contract, for the construction of the GSTS building at Arroceros
admittedly in full force and effect.
Street, Manila, Depusoy to furnish all materials, labor, plans, and
• The loan was, therefore, covered by the said agreement, and supplies needed in the construction. Depusoy applied for credit
private respondent, even if he did not sign the promissory note, is accommodation with the plaintiff. This was approved by the Board of
liable by virtue of the surety agreement. Directors in various resolutions subject to the conditions that he
would assign all payments to be received from the Bureau of Public
• The only condition that would make him liable thereunder is Works of the GSIS to the bank, furnish a surety bond, and the surety
that the Daicor "is or may become liable as maker, endorser, acceptor to deposit P10,000.00 to the plaintiff. The total accommodation
or otherwise". There is no doubt that Daicor is liable on the granted to Depusoy was P100,000.00. This was later extended by
promissory note evidencing the indebtedness. another P10,000.00 and P25,000.00, but in no case should the loan
exceed P100,000.00. In compliance with these conditions, Depusoy
executed a Deed of Assignment of all money to be received by him products. Lorenzana and PTC entered into an agreement whereby
from the GSIS to PNB. Depusoy defaulted in his building contract with Lorenzana will act as Distributor of PTC. Lorenzana put up a bond in
the Bureau of Public Works, and sometime in September, 1957, the the amount of 3K with Visayan Surety & Insurance Corporation, as
Bureau of Public Works rescinded its contract with Dernisoy. No surety, to guarantee the faithful fulfillment of Lorenzana’s part in the
furher amounts were thereafter paid by the GSIS to lie plaintiff bank. contract to sell and distribute PTC’s cigarettes.
The amount of the loan of Depusoy which remains unpaid, including
interest, is over P100,000.00. Demands for payment were made upon
Depusoy and Luzon, and as no payment was made, therefore herein Issue: WON the delivery of merchandise to Lorenzana at a place other
petitioner filed with the trial court a complaint against Estanislao than that appearing in the contract constitutes a material alteration
Depusoy and private respondent Luzon Surety Co. Inc. (LSCI). of the same that would release Lorenzana from liability?

Issue: WON Luzon Surety is liable Held: No. The mention of Manila and Rizal in said agreement was
designed more as a declaration or identification of the places wherein
Lorenzana was expressly authorized and assigned to sell PTC’s
Held: the bonds executed by private respondent LSCI were to products which is no obstacle to his acceptance of additional
guarantee the faithful performance of Depusoy of his obligation territories in order to fulfill his obligation. A departure from the terms
under the Deed of Assignment and not to guarantee payment of the of contract will not have the effect of discharging a compensated
loans or the debt of Depusoy to petitioner to the extent of surety unless it appears that such departure has resulted in injury,
P100,000.00. Besides, even if there had been any doubt on the terms loss or prejudice to the surety.
and conditions of the surety agreement, the doubt should be
resolved in favor of the surety. As concretely put in Article 2056 of
the Civil Code, "A guaranty is not presumed, it must be ex-pressed SOUTHERN MOTORS VS ELISEO BARBOSA
and cannot extend to more than what is stipulated therein." LSCI is
liable to the full extent thereof, such liability is strictly limited to that GR No. L-9306
assumed by its terms." FACTS: Plaintiff Southern Motors brought an action against
defendant Barbosa to foreclose a real estate mortgage constituted by
the latter in favor of the former, as security for the payment of a sum
Pacific Tobacco Corp. vs. Lorenzana extended by plaintiff to one Alfredo Brillantes, because the latter
failed to settle his obligation in accordance with the terms and
Facts: The Pacific Tobacco Corp. is engaged in the business of
conditions corresponding with the deed of mortgage.
manufacturing and distributing cigarettes cigars and other tobacco
 Defendant filed an answer admitting the allegations of the On July 8, 1950, the defendant Batu Construction & Company, as
complaint and alleging by way of special and affirmative defense that principal, and the plaintiff Manila Surety & Fidelity Co. Inc., as surety,
he executed the deed of mortgage for the sole purpose of executed a surety bond for the sum of P8,812.00 to insure faithful
guaranteeing the above-mentioned debt of Brillantes and that performance of the former's obligation as contractor for the
therefore plaintiff cannot foreclose the mortgage property without a construction of the Bacarra Bridge, Project PR-72 (No. 3) Ilocos Norte
prior exhaustion of the principal’s properties. Province. On the same date, July 8,1950, the Batu Construction &
Company and the defendants Carlos N. Baquiran and Gonzales P.
After the case transferred from one judge to another, the
Amboy executed an indemnity agreement to protect the Manila
trial court rendered judgment on the pleadings in favor of plaintiff
Surety & Fidelity Co. Inc.., against damage, loss or expenses which it
that prompted respondent to appeal before the CA who certified the
may sustain as a consequence of the surety bond executed by it
case to the SC in view of the fact that the appeal raises purely
jointly with Batu Construction & Company.
questions of law.
On or about May 30, 1951, the plaintiff received a notice from the
ISSUE: WON plaintiff is required to exhaust debtor-principal’s
Director of Public Works (Exhibit B) annulling its contract with the
property before he can proceed to foreclose the mortgage.
Government for the construction of the Bacarra Bridge because of its
HELD: No. Defendant’s invocation of article 2058 of the Civil Code is failure to make satisfactory progress in the execution of the works,
misplaced because the right of the guarantors to demand exhaustion with the warning that ,any amount spent by the Government in the
of the property of the principal debtor under said provision exists continuation of the work, in excess of the contract price, will be
only when a pledge or mortgage has not been given as special charged against the surety bond furnished by the plaintiff. It also
security for the payment of the principal obligation. appears that a complaint by the laborers in said project of the Batu
Construction & Company was filed against it and the Manila Surety
Under the given facts of the case, a mortgage was executed and Fidelity Co., Inc., for unpaid wages amounting to P5,960.10.
as security for brillantes’ debt, hence, defendant’s reliance upon the
aforementioned provision cannot be sustained, for what governs in Trial Court dismissed the case holding that provisions of article 2071
this case are the provisions under title XVI of the Civil Code of the new Civil Code may be availed of by a guarantor only and not
concerning pledge and mortgages. by a surety the complaint, with costs against the plaintiff.

ISSUE: The main question to determine is whether the last paragraph

of article 2071 of the new Civil Code taken from article 1843 of the
MANILA SURETY v BATU CONSTRUCTION old Civil Code may be availed of by a surety.
FACTS: HELD:
A guarantor is the insurer of the solvency of the debtor; a surety is an renewable until the bond be completely cancelled by the person or
insurer of the debt. A guarantor binds himself to pay if the principal entity in whose behalf the bond was executed or by a Court of
is unable to pay; a surety undertakes to pay if the principal does not competent jurisdiction. It does not come under paragraph 4, because
pay.1 The reason which could be invoked for the non-availability to a the debt has not become demandable by reason of the expiration of
surety of the provisions of the last paragraph of article 2071 of the the period for payment. It does not come under paragraph 5 because
new Civil Code would be the fact that guaranty like commodatum2 is of the lapse of 10 years, when the principal obligation has no period
gratuitous. But guaranty could also be for a price or consideration as for its maturity, etc., for 10 years have not yet elapsed. It does not fall
provided for in article 2048. So, even if there should be a under paragraph 6, because there is no proof that "there are
consideration or price paid to a guarantor for him to insure the reasonable grounds to fear that the principal debtor intends to
performance of an obligation by the principal debtor, the provisions abscond." It does not come under paragraph 7, because the
of article 2071 would still be available to the guarantor. In suretyship defendants, as principal debtors, are not in imminent danger of
the surety becomes liable to the creditor without the benefit of the becoming insolvent, there being no proof to that effect.
principal debtor's exclusion of his properties, for he (the surety)
But the plaintiff's cause of action comes under paragraph 1 of article
maybe sued independently. So, he is an insurer of the debt and as
2071 of the new Civil Code, because the action brought by Ricardo
such he has assumed or undertaken a responsibility or obligation
Fernandez and 105 persons in the Justice of the Peace Court of Laoag,
greater or more onerous than that of guarantor. Such being the case,
province of Ilocos Norte, for the collection of unpaid wages
the provisions of article 2071, under guaranty, are applicable and
amounting to P5,960.10, is in connection with the construction of the
available to a surety. The reference in article 2047 to, the provisions
Bacarra Bridge, Project PR-72 (3), undertaken by the Batu
of Section 4, Chapter 3, Title 1, Book IV of the new Civil Code, on
Construction & Company, and one of the defendants therein is the
solidary or several obligations, does not mean that suretyship which
herein plaintiff, the Manila Surety and Fidelity Co., Inc., and
is a solidary obligation is withdrawn from the applicable provisions
paragraph 1 of article 2071 of the new Civil Code provides that the
governing guaranty.
guarantor, even before having paid, may proceed against the
The plaintiff's cause of action does not fall under paragraph 2 of principal debtor "to obtain release from the guaranty, or to demand
article 2071 of the new Civil Code, because there is no proof of the a security that shall protect him from any proceedings by the creditor
defendants' insolvency. The fact that the contract was annulled or from the danger of insolvency of the debtor, when he (the
because of lack of progress in the construction of the bridge is no guarantor) is sued for payment. It does not provide that the
proof of such insolvency. It does not fall under paragraph 3, because guarantor be sued by the creditor for the payment of the debt. It
the defendants have not bound themselves to relieve the plaintiff simply provides that the guarantor of surety be sued for the payment
from the guaranty within a specified period which already has of an amount for which the surety bond was put up to secure the
expired, because the surety bond does not fix any period of time and fulfillment of the obligation undertaken by the principal debtor. So,
the indemnity agreement stipulates one year extendible or the suit filed by Ricardo Fernandez and 105 persons in the Justice of
the Peace Court of Laoag, province of Ilocos Norte, for the collection Rivera, armed with the agreement, approached Mr. Modesto
of unpaid wages earned in connection with the work done by them Cervantes, President of defendant Bormaheco, and proposed to
in the construction of the Bacarra Bridge, Project PR-72(3), is a suit purchase from Bormaheco tractors.
for the payment of an amount for which the surety bond was put up
Slobec, through Rivera, executed in favor of Bormaheco a Chattel
or posted to secure the faithful performance of the obligation
Mortgage over the said equipment as security. As further security of
undertaken by the principal debtors (the defendants) in favor of the
the aforementioned unpaid balance, Slobec obtained from Insurance
creditor, the Government of the Philippines.
Corporation of the Phil. a Surety Bond, with ICP (Insurance
The order appealed from dismissing the complaint is reversed and set Corporation of the Phil.) as surety and Slobec as principal, in favor of
aside. Bormaheco. The aforesaid surety bond was in turn secured by an
Agreement of Counter-Guaranty with Real Estate Mortgage executed
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA
by Rivera as president of Slobec and Castillo family, as mortgagors
M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C.
and ICP as mortgagee. In giving the bond, ICP required that the
JALBUENA and SANTIAGO M. RIVERA vs. COURT OF APPEALS,
Castillos mortgage to them the four parcels of land.
BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC. For violation of the terms and conditions of the Counter-Guaranty
Agreement, the properties of the Castillos were foreclosed by ICP -
G.R. No. 89561 September 13, 1990
the highest bidder. The mortgagors had one year to redeem the
Facts: property, but they failed to do so. Consequently, ICP consolidated its
ownership. ICP sold to PM Parts the four parcels of land. Thereafter,
The Castillo family are the owners of a parcel of lands which was given PM Parts, through its President, Mr. Modesto Cervantes, sent a letter
as security for a loan from the DBP. Mauricia Castillo was the addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and
administratrix in charge over a parcel of land left by Felipe Castillo. her children to vacate the subject property.
For their failure to pay the amortization, foreclosure of the said
property was about to be foreclosed. This problem was made known The heirs of the late Felipe Castillo filed an action for annulment of
to Rivera, (Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia title.
Meer Vda. de Castillo.) who proposed to them the conversion into
CFI: Judgment is hereby rendered in favor of the plaintiffs –
subdivision of the four parcels of land adjacent to the mortgaged
agreements etc - null and void for being fictitious, spurious and
property to raise the necessary fund. The Idea was accepted by the
without consideration.
Castillo family and to carry out the project, a Memorandum of
Agreement was executed by and between Slobec Realty and CA: reversed
Development, Inc., represented by its President Rivera and the
Hence this petition.
Castillo family.
 declared a nullity under the circumstances obtaining in the legal case
at bar.
Issue:
In the first place, the legal corporate entity is disregarded only if it is
Whether or not there is necessity to pierce the veil of
sought to hold the officers and stockholder directly liable for a
corporate entity of Bormaheco, ICP and PM Parts, to determine
corporate debt or obligation. In the instant case, petitioners do not
whether they employed fraud in causing the foreclosure and
seek to impose a claim against the individual members of the three
subsequent sale of the real properties belonging to petitioners
corporations involved; on the contrary, it is these corporations which
desire to enforce an alleged right against petitioners. Assuming that
petitioners were indeed defrauded by private respondents in the
Ruling: foreclosure of the mortgaged properties, this fact alone is not, under
Under the doctrine of piercing the veil of corporate entity, when valid the circumstances, sufficient to justify the piercing of the corporate
grounds therefore exist, the legal fiction that a corporation is an fiction, since petitioners do not intend to hold the officers and/or
entity with a juridical personality separate and distinct from its members of respondent corporations personally liable therefor.
members or stockholders may be disregarded. In such cases, the Petitioners are merely seeking the declaration of the nullity of the
corporation will be considered as a mere association of persons. The foreclosure sale, which relief may be obtained without having to
members or stockholders of the corporation will be considered as the disregard the aforesaid corporate fiction attaching to respondent
corporation, that is, liability will attach directly to the officers and corporations.
stockholders. 12 The doctrine applies when the corporate fiction is Secondly, petitioners failed to establish by clear and convincing
used to defeat public convenience, justify wrong, protect fraud, or evidence that private respondents were purposely formed and
defend crime, 13 or when it is made as a shield to confuse the operated, and thereafter transacted with petitioners, with the sole
legitimate issues 14 or where a corporation is the mere alter ego or intention of defrauding the latter.
business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make The mere fact, therefore, that the businesses of two or more
it merely an instrumentality, agency, conduit or adjunct of another corporations are interrelated is not a justification for disregarding
corporation. their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors
While we do not discount the possibility of the existence of fraud in and third persons of their rights.
the foreclosure proceeding, neither are we inclined to apply the
doctrine invoked by petitioners in granting the relief sought. It is our
considered opinion that piercing the veil of corporate entity is not the
proper remedy in order that the foreclosure proceeding may be
Macondray & Company, Inc. vs Perfecto Piñon, et al., G.R. No. L- appealed. During the time this appeal was pending in this Court the
13817, August 31,1961 appellant died. His heirs or their legal representative were directed
to appear in substitution for the deceased appellant.
(2 SCRA 1110)

Issue: Whether a subsidiary contract of guarantee must be phrased

Facts:
in a certain formal manner. Whether acceptance is necessary for the
Upon representation and undertaking made by Ruperto K. Kangleon, perfection of a contract of guarantee.
then a member of the Senate, in a letter addressed to the plaintiff
dated 30 January 1954, that he would guarantee payment of his co-
defendants' obligation, should they fail to pay on the due date, the Held: No. Affirmed.
plaintiff sold on credit and delivered to the defendants Perfecto
Piñon and Conrado Piring, known in the theater and
entertainment business as "Tugak" and "Pugak," respectively, and Ratio:
transacting business under a common name known as "All Stars
Productions," 127 rolls of cinematographic films, F. G. release The appellant contends that although in the stipulation of facts
positive type. The guarantee is phrased as follows: “for which by entered into by and between him and the appellee, he had admitted
their guaranty I pledge payment”. The principal debtors failed to pay the liability of his co-defendants, who were declared in default, under
the amount owed by them on the due date. Upon extensive the principle of res inter alios acta, that an admission by a third
investigations made by the plaintiff as to whether the principal person cannot bind another, his admission cannot bind the
debtors have any property, real or personal, which may be levied defendants in default, and no judgment against them may be
upon for the satisfaction of their obligation, it has found that they rendered on the basis of the stipulation of facts referred to. Since the
have none. Kangleon could not point to the plaintiff any property of appellee had not established a case against the defendants in default,
the principal debtors leviable for execution sufficient to satisfy the the principal debtors, it cannot directly hold liable the appellant, the
obligation. The creditors filed a case to hold the debtor and Kangleon guarantor, whose obligation is only subsidiary to that of the former.
jointly and severally liable. Kangleon answered the plaintiff's The appellant proceeds from the wrong premise that the case was
complaint setting up the defense that the letter he had written to the submitted to the Court solely on the stipulation of facts entered into
plaintiff was only to introduce his co-defendants. Assuming that by and between him and the appellee. The records show that when
there was an intent on his part to guarantee payment of his co- the case was called for trial on 30 August 1956, after the appellant’s
defendant's obligation, the said letter was but an offer to act as co-defendants had been declared in default, the appellee presented
guarantor of his co-defendants which was not accepted. The court
ruled against the debtors and the guarantor. The guarantor
its evidence, testimonial and documentary, against them, and 27th of the same month and informed it that the principal debtors
thereby established their primary liability. were "being contacted to invite their attention to your letter." Had
the appellant meant otherwise, he would have immediately denied
The appellant claims that the letter is merely a letter of introduction
that he ever guaranteed payment of the principal debtors' obligation.
and does not constitute an offer of guaranty. A cursory reading of the
This he did not do.
letter belies his assertion. While in his opening sentence he says that
"This will introduce to you the bearers, Messrs. Conrado Piring and The appellant's very letter constitutes his undertaking of guaranty.
Perfecto Piñon," who "wish to place an order for" cinematographic "Contracts shall be obligatory in whatever form they may have been
films, yet in the later part he says that "for which by their guaranty I entered into, provided all the essential requisites for their validity are
pledge payment." This can only mean that he undertakes to present." A contract of guaranty is not a formal contract and shall be
guarantee payment of the principal debtors' obligation should they valid in whatever form it may be, provided that it complies with the
fail to pay. The appellant is a responsible man and may be presumed statute of frauds.
to mean what he says. At that time, he was occupying the exalted
The appellant insists that he should have been notified by the
position of member of the Senate and his plighted word given to
appellee of the acceptance of his offer of guaranty. In the first place,
another would immediately be accepted. It is not, therefore, odd that
his letter already constitutes his
upon receipt of the appellant's letter, the appellee readily sold on
credit to the principal debtors, the defendants in default, the
cinematographic films in question.
undertaking of guaranty. In the second place, the contract entered
That the appellant really meant to guarantee payment of the into by and between the appellee and the defendants in default is the
principal debtors' obligation should they default, is patent in his principal contract and the contract entered into by and between the
answer to the appellee's letter dated 27 appellant and the appellee is subsidiary to the principal contract.
Since the principal contract had already been perfected, the
May 1954, reminding him that on 30 January he requested it "to give
subsidiary contract of guaranty became binding upon effectivity of
Messrs. Conrado Piring and Perfecto Piñon, of "All Stars
the principal contract. Hence no notice of acceptance by the appellee
Productions', certain rolls of negative and positive films, the cost
to the appellant is necessary for its validity.
of which was payable in three months’ time and payment of which
you guaranteed; that the ''films were delivered and billed at
P6,985.00 on Feb. 9th, last;" and that "the amount has not been paid
(and) we have difficulty locating the above gentlemen as they cannot
be found in their offices," and requesting the appellant to send a
check for the amount. In his answer to the foregoing letter, dated 31
May 1954, he acknowledged receipt of the appellee's letter of the