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Credit Transaction (Notes)1. General ProvisionsArticle 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other con...

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Credit Transaction (Notes) 1. General Provisions Article 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. (1740a) Kinds of loan a. Commodatum- where the bailor (lender) delivers to the bailee(borrower) a non- consumable thing so that the latter may use if for a certain time and return the identical thing and; b. Simple loan or mutuum. — where the lender delivers to the borrower money or other consumable thing upon the condition that the latter shall pay the same amount of the same kind and quality. Commodatum Muttum(simple loan)  Involves something not consumable  The subject matter is money or other consumable thing 

Ownership of the thing loaned is retained by the lender(owner)

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Essentially

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The borrower must return the same thing loaned

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May involve real or personal property

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The bailor may demand the return of the thing loaned before the expiration of the term in case of urgent need

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The loss of the subject matter is suffered by the bailor since he is the owner

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gratuitous

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The ownership the borrower

is transferred to

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May be gratuitous or it may be onerous, that is, with stipulation to pay interest

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The borrower need only pay the same amount of the same kind and quality

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Refers only to personal property

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The lender may not demand its return before the lapse of the term agreed upon

The borrower suffers the loss even if caused exclusively by a fortuitous event and he is not discharged from his duty to pay ART. 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.(n)

Rule: Commodatum and mutuum are real contracts which require the delivery of the subject matter thereof for their perfection. Effect of accepted promise to lend. An accepted promise to make a future loan is a consensual contract5 and, therefore, binding upon the parties but it is only after delivery, will the real contract of loan arise. a. Application for loan approved by corporation- Where an application for a loan of money was approved by resolution of the corporation (lender) and the corresponding mortgage was executed and registered, there arises a perfected consensual contract of loan. While a perfect contract of loan can give rise to an action for damages, said contractdoes not constitute the real contract of loan. b. Mortgage executed by virtue of loan granted- A contract of loan being consensual, it was perfected at the same time that the contract of mortgage was executed, the promissory note being only an evidence of an indebtedness and did not indicate lack of consideration of the mortgage at the time of its execution. c. Only partial amount released under a loan agreement secured by mortgage.- In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other, and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay. b. Cases Catholic Vicar Apostolic of the Mt. Province v. CA, 165 SCRA 515 FACTS: Documents and records reveal that controversy started when the Catholic Vicar Apostolic of the Mountain Province - VICAR filed with the CFI of Baguio Benguet an application for registration of title over several lots (Lots 1 to 4), situated at Poblacion Central, La Trinidad, Benguet. The said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. In 1963 the Heirs of Valdez and the Heirs of Octaviano filed their Answer / Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto since their predecessors’ house was borrowed by petitioner Vicar after the church and the convent were destroyed. After trial, the land registration court confirmed the registrable title of VICAR to Lots 1, 2, 3, and 4. The Heirs of Valdez and the Heirs of Octaviano appealed the decision of the land registration court and CA reversed the decision of the land registration court and dismissed VICAR's application as to Lots 2 and 3. VICAR then filed with the SC a petition for review on certiorari of the decision of the CA dismissing its application for registration of Lots 2 and 3. In 1978, VICARS petition was denied by SC. The plaintiffs argue that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the CA. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals and affirmed by the Supreme Court. ISSUE: Whether the ownership of a property may be transferred to the bailee for failure of the bailor to demand for the return if it

RULING: No, In the instant case Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes. When the petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in the concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years. Petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. Acme Shoe Rubber vs. CA, 260 SCRA 714(Real Security Contract) FACTS:Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed a chattel mortgage in favor of private respondent Producers Bank as a security for a loan of P3,000,000. A provision in the chattel mortgage agreement was to this effect: "In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage." In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional loan totalling P2,700,000.00 which was also duly paid. Another loan was again extended (P1,000,000.00) covered by four promissory notes for P250,000.00 each, but went unsettled prompting the bank to apply for an extrajudicial foreclosure with the Sheriff. ISSUE: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? HELD: No. While a pledge, real estate mortgage, or antichresis may exceptionally secure afterincurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. BPI Investment Corporation vs. CA, GR 133632, February 15, 2002 FACTS:Frank Roa obtained a loan at an interest rate of 16 ¼% per annum from Ayala Investment and Development Corporation (AIDC), predecessor of BPIIC, for the construction of a house on his lot.

The house and lot were mortgaged to AIDC to secure the loan. In 1980, Roa sold the house and lot to the ALS Management & Development Corporation for P850,000,. ALS paid P 350,000 in cash and assumed the P 500,000 balance of Roa’s indebtedness with AIDC. AIDC proposed to ALS that it will grant them a new loan of P 500,000 to be applied to Roa’s debt and secured by the same property, with an increased interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years. AIDC also added a penalty interest at the rate of 21% per annum per day from the date the amortization (P 9,996.58 monthly) became due and payable. On March 31 1981, the private respondents executed a mortgage deed containing the above stipulations and the monthly amortization commenced on May 1, 1981. ALS paid Roa’s loan and arrearages by paying P190, 601.35 on August13, 1982 and applying the loan proceeds of P500,000 to the principal balance of Roa’s loan amounting to P 457,204.90. On September 13, 1982, BPIIC released to ALS P 7,146.87 purporting to be what was left of their loan after full payment of Roa’s loan. BPIIC instituted foreclosure proceedings against ALS on the ground that they failed to pay the mortgage indebtedness from May 1, 1981 to June 30, 1984 amounting to P 475,585.31. ALS argued that they were not in arrears in their payment but in fact made an overpayment as of June 30, 1984. They maintained that they should not be made to pay amortization before the actual release of the loan in August and September 1982. ISSUE: Whether or not the contract of simple loan in this case was perfected on September 13, 1982, when BPIIC delivered the purported net proceeds of the loan to ALS. RULING: YES. A loan contract is not a consensual contract but a real contract. only upon the delivery of the object of the contract.

It

is perfected

The private respondents were correct when they said that based on Article 1934 of the Civil Code, a simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In this case, even though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982, when the full loan was released to private respondents. Novoa vs CA, 251 SCRA 545(Secured/unsecured Creditor) Facts: On December 1977 Teresita and Eduardo Domdoma filed a case with the RTC for collection of various sums of money based on loans given by them to Olivia Navoa. The case was dismissed on the ground that there was no cause of action and that the Domdoma’s have no capacity to sue. They appealed to the C.A. and was granted a favourable decision. There were 6 instances in which the Domdoma’s gave Olivia Navoa a loan. The first instance is when Teresita gave Olivia a diamond ring valued at 15,000.00 which was secured by a PCIB check under the condition that if the ring was not returned within 15 days from August 15, 1977 the ring is considered sold. Teresita attempted to deposit the check on November 1977 but the check was not honoured for lack of funds. After this instance, there were other loans of various amounts that were extended by Teresita to Olivia, loans which were secured by PCIB checks, which were all dated to 1 month after the loan. All these checks were not honoured under the same reason as the first loan. Issue:Was the decision of the RTC to dismiss the case due to having no cause of action valid? Held: NO. The Petition is Denied. A cause of action is the fact or combination of facts which affords a party a right to judicial interference in his behalf. All the loans granted to petitioners are secured by corresponding checks dated a month after each loan was obtained. In this regard, the term security is defined as a means of ensuring the enforcement of an obligation or of protecting some interest in property.

It may be personal, as when an individual becomes a surety or a guarantor; or a property security, as when a mortgage, pledge, charge, lien, or other device is used to have property held, out of which the person to be made secure can be compensated for loss. Security is something to answer for as a promissory note. That is why a secured creditor is one who holds a security from his debtor for payment of a debt. From the allegations in the complaint there is no other fair inference than that the loans were payable one month after they were contracted and the checks issued by petitioners were drawn to answer for their debts to private respondents.

Saura Import and Export Co. vs. DBP, 44 SCRA 445(Perfected Consensual Contract of Loan) Facts: Saura Inc. applied to the Rehabilitation Finance Corporation (now DBP) for an industrial loan of P500, 000 which was approved by RFC and was to be secured by a mortgage. Loan documents were executed: a. promissory note and the corresponding deed of mortgage which was duly registered. In a meeting of RFC board the loan was reduced to P300,000. Saura Inc. however insisted the loan of P500,000 be approved. RFC accepted and approved the loan subject to the conditions which Saura Inc admitted it could not comply with. Correspondence and negotiations stopped and Saura Inc. did not pursue further but instead requested the cancellation of mortgage that was delivered to the President of Saura Inc. Almost 9 years after the mortgage in favor of RFC was cancelled. Saura inc. commenced a suit for damages alleging the failure of Rehabilitation Finance Corporation to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into in connection with its jute mill project. Issue: Whether there was a perfected consensual contract Ruling: Yes, there was a perfected consensual contract as recognized under Article 1934 of the Civil Code. Article 1934 states that an accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. In this case there was an offer and acceptance, the application of Saura Inc. for a loan of P500,000 was approved by resolution of the defendant and the corresponding mortgage was executed and registered there arises a perfected consensual contract. Bonnevie vs CA, 125 SCRA 122 FACTS: Honesto Bonnevie filed a complaint against, mortgagee, Philippine Bank of Commerce for the annulment of the mortgage dated 06 December 1966 executed by Spouses Jose and Josefa Lozano and to declare null and void the extrajudicial foreclosure made on 04 September 1968. Bonnevie alleged that (a) the Deed of Mortgage lacks consideration for failure of the mortgagor spouses to get the mortgage consideration on the date the mortgage was executed and (b) the mortgage was executed by one who was not the owner of the mortgaged property because at the time of the renewal of the loan contract, Spouses Lozano already sold it to Bonnevie. On the other hand, the answer of defendant Bank, raised the following affirmative defenses: (a) that the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that the

property in question remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking practice that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan. ISSUE: Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed. HELD: Yes. The terms of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of 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 perfected at the same time the contract of mortgage was executed. The promissory note executed on 12 December 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution. Central Bank vs CA, 139 SCRA 46 Facts: Island Savings Bank approved a loan amounting to P80,000 in favor of Sulpicio Tolentino; and as security, he mortgaged his 100-hectare property on April 28, 1965.On May 22, 1965, only P17,000 was released to Tolentino. Yet, Tolentino issued a promissory note in favor of the bank with 12% interest per annum. An advanced interest of P4,800 was deducted from the P17,000 given to Tolentino. The ISB was not able to issue the remaining P63,000 loan even demands concurred. The Central Bank issued a resolution not allowing the ISB to issue new loans and investments upon knowing that the ISB was already suffering from liquidity problems. Thereafter, Island Savings Bank filed for an extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Tolentino. To counter the extra-judicial foreclosure, Tolentino filed a petition with the CFI for specific performance for the ISB to provide the remaining P63,000 plus 12% per annum interest...