FIRST DIVISION
G.R. No. 103576 August 22, 1996
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY,respondents.
VITUG, J.
FACTS:
27 June 1978 - Chua Pac (general manager) of Acme Shoe, Rubber & Plastic Corporation
executed in behalf of Acme, a chattel mortgage in favour of Producers Bank of the Philippines.
This is to secure a corporate loan of P3M.
Chattel mortgage had a provision
(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly
perform the full obligation or obligations above-stated according to the terms thereof,
then this mortgage shall be null and void. . . .
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.
Loan of P3M paid. Obtained another loan in 1981 P2.7M and was also paid.
10 and 11 January 1984, bank again obtained loan of P1M in 4 promissory notes of 250K each.
Due to financial constraints, the loan was not settled at maturity.
Bank applied for extrajudicial foreclosure of chattel mortgage. Acme filed action for injunction
however RTC ultimately dismissed complaint and ordered foreclosure saying Acme was bound
by stipulations.
CA dismissed appeal and affirmed RTC.
ISSUE: WON it is valid and effective to have a clause in a chattel mortgage that extends its coverage to
obligations yet to be contracted or incurred
HELD: No. RTC and CA decisions set aside.
Ratio:
Chattel mortgage can cover only obligations existing at the time mortgage is constituted [Act 1508 Chattel
Mortgage Law]
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
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.
Affidavit of Good Faith requirement makes it obvious that the obligation is current
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form
prescribed by the Chattel Mortgage Law itself. Sec 5 thereof requires an affidavit of good
faith. If this is not appended to the agreement chattel mortgage would still be valid between
the parties (not against third persons acting in good faith ), The fact, however, that the statute
has provided that the parties to the contract must execute an oath that
. . . (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of fraud.
makes it obvious that the debt referred to in the law is a current, not an obligation that
is yet merely contemplated. In the chattel mortgage here involved, the only obligation
specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid.
Sec 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered
the chattel mortgage void or terminated. A mortgage that contains a stipulation in regard to
future advances in the credit will take effect only from the date the same are made and not
from the date of the mortgage. [Belgian Catholic Missionaries, Inc., vs. Magallanes Press,
Inc., et al.] Payment of the P3M loan caused the extinguishment of chattel mortgage.
Other notes:
Damages: Acme cannot claim moral damages. Artifical person. No feelings
LegProf: Lawyers have to observe and maintain the respect due to the courts of justice and judicial
officers. Lawyer for Acme admonished by the court for calling magistrates of CA incompetent and
dishonest.
Pajuyo vs CA
G.R. No. 146364 June 3, 2004
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
CARPIO, J.:
FACTS:
Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights over a lot, where Pajuyo subsequently
built a house. In 1985, Pajuyo and private respondent Guevarra executed a Kasunduan wherein Pajuyo
allowed Guevarra to live in the house for free, on the condition that Guevarra would maintain the
cleanliness and orderliness of the house. Guevarra promised that he would vacate the premises upon
Pajuyos demand.
In 1994, Pajuyo informed Guevarra of his need of the house and demanded that the latter vacate the
house. Guevarra refused. Pajuyo filed an ejectment case against Guevarra before the MTC.
Guevarra claimed that Pajuyo had no valid title over the lot since it is within the area set aside for
socialized housing. MTC rendered its decision in favor of Pajuyo, which was affirmed by RTC. (MTC and
RTC basically ruled that the Kasunduan created a legal tie akin to that of a landlord and tenant
relationship).
CA reversed the RTC decision, stating that the ejectment case is without legal basis since both Pajuyo
and Guevarra illegally occupied the said lot. CA further stated that both parties are in pari delicto; thus,
the court will leave them where they are. CA ruled that the Kasunduan is not a lease contract, but a
commodatum because the agreement is not for a price certain.
ISSUE: W/N the contractual relationship between Pajuyo and Guevarra was that of a commodatum NO
HELD:
In a contract of commodatum, one of the parties delivers to another something not consumable
so that 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 return of the thing loaned
until after expiration of the period stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return
for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code,
precarium is a kind of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The 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 has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease. The tenants
withholding of the property would then be unlawful.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation
to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.70 These contracts certainly involve the obligation to deliver or return
the thing received.
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The
Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith.
The absence of a contract would not yield a different result, as there would still be an implied promise to
vacate.
CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD YAM, petitioners,
vs. HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch 1), THE PEOPLE OF THE
PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO, and LT. COL. AGOSTO SAJOR, respondents.
G.R. Nos. L-50550-52. October 31, 1979.
FACTS:
This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged
that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of
jurisdiction and with grave abuse of discretion when:
(a)he held in the preliminary investigation of the charges of estafa filed by respondents
Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima
facie case against the latter;
(b)he issued warrants of arrest against petitioners after making the above determination; and
(c)he undertook to conduct trial on the merits of the charges which were docketed in his court
as Criminal Cases No. M-111, M-183 and M-208.
Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and with grave abuse
of discretion because the facts recited in the complaints did not constitute the crime of estafa, and
assuming they did, they were not within the jurisdiction of the respondent judge.
Comments by the respondent judge and the private respondents pray for the dismissal of the petition but
the Solicitor General has manifested that the People of the Philippines have no objection to the grant of
the reliefs prayed for, except the damages.
We have to grant the petition in order to prevent manifest injustice and the exercise of palpable excess
of authority.
In three different criminal cases filed against petitioners Yam Chee Kiong and Yam Yap Kieng with estafa
through misappropriation; to wit: 50 k for the first; 30 k for the second and the third does not state the
amount. But the complaint states on its face that said petitioners received the amount from respondent
Rosalinda M. Amin "as a loan. "
Moreover, the complaint in Civil Cases, an independent action for the collection of the same amount filed
by respondent Rosalinda M. Amin with the Court of First Instance of Sulu, likewise states that the amounts
were "simple business loan" which earned interest and was originally demandables.
ISSUE: WON the acts of petitioner constitute estafa and consequently respondent judge act in excess of
its jurisdiction.
HELD: NO, IT IS NOT ESTAFA.
We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute
estafa through misappropriation.
Estafa through misappropriation is committed according to Article 315, paragraph 1, subparagraph (b),
of the Revised Penal Code as follows:
"Art. 315.Swindling (Estafa). Any person who shall defraud another by any of the means mentioned
herein below shall be punished by:
"1.With unfaithfulness or abuse of confidence, namely:
"b)By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property."
In order that a person can be convicted under the abovequoted provision, it must be proven that he has
the obligation to deliver or return the same money, goods or personal property that he received.
Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received
from private respondents. This is so because as clearly stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
"Art. 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."
"Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum, the borrower acquires ownership of the money, goods or personal property borrowed.
Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will
not be considered misappropriation thereof.
In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to
pay his debt or to deny its existence.
"We are of the opinion and so decide that when the relation is purely that of debtor and creditor,
the debtor can not be held liable for the crime of estafa, under said article, by merely refusing
to pay or by denying the indebtedness."
It appears that respondent judge failed to appreciate the distinction between the two types of loan,
mutuum and commodatum, when he performed the questioned acts. He mistook the transaction between
petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be commodatum
wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the
same thing to the lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the Municipal Court
of Jolo is, has jurisdiction over criminal cases where the penalty provided by law does not exceed prision
correccional or imprisonment for not more than six (6) years, or fine not exceeding P6,000.00 or both.
The amounts allegedly misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty
for misappropriation of this magnitude exceeds prision correccional or 6-year imprisonment. (Article 315,
Revised Penal Code). Assuming then that the acts recited in the complaints constitute the crime of estafa,
the Municipal Court of Jolo has no jurisdiction to try them on the merits. The alleged offenses are under
the jurisdiction of the Court of First Instance.
Respondents People of the Philippines being the sovereign authority can not be sued for damages. They
are immune from such type of suit.
With respect to the other respondents, this Court is not the proper forum for the consideration of the claim
for damages against them.
WHEREFORE, the petition is hereby granted; the temporary restraining order previously issued is hereby
made permanent; the criminal complaints against petitioners are hereby declared null and void;
respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest he
had issued in connection therewith. Moreover, respondent judge is hereby rebuked for manifest
ignorance of elementary law. Let a copy of this decision be included in his personal life. Costs against
private respondents.
G.R. No. 183360 September 8, 2014
ROLANDO C. DE LA PAZ,* Petitioner, vs.L & J DEVELOPMENT COMPANY, Respondent.
DEL CASTILLO, J.:
FACTS:
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with
Atty. Esteban Salonga (Atty. Salonga) as its President and General Manager. The loan, with no specified
maturity date, carried a 6% monthly interest, i.e., P21,000.00. From December 2000 to August 2003, L&J
paid Rolando a total of P576,000.007 representing interest charges.
As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of Sum of
Money with Damages against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed
as Civil Case No. 05-7755. Rolando alleged, among others, that L&Js debt as of January 2005, inclusive
of the monthly interest, stood at P772,000.00; that the 6% monthly interest was upon Atty. Salongas
suggestion; and, that the latter tricked him into parting with his money without the loan transaction being
reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolandos allegations. While they acknowledged the loan
as a corporate debt, they claimed that the failure to pay the same was due to a fortuitous event, that is,
the financial difficulties brought about by the economic crisis. They further argued that Rolando cannot
enforce the 6% monthly interest for being unconscionable and shocking to the morals. Hence, the
payments already made should be applied to the P350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan
transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J which developed
Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo) lives. When Nilo told him that
Atty. Salonga and L&J needed money to finish their projects, he agreed to lend them money. He
personally met with Atty. Salonga and their meeting was cordial.
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it was Arlene San
Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and conditions thereof. She said
that the money was to finance L&Js housing project. Rolando claimed that it was not he who demanded
for the 6% monthly interest. It was L&J and Atty. Salonga, through Arlene, who insisted on paying the
said interest as they asserted that the loan was only a short-term one.
Court categorically stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or
one thatis against public policy."
Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is
unconscionable, regardless of who between the parties proposed the rate.
While the Court recognizes the right of the parties to enter into contracts and who are expected to comply
with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are
unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this
vested power to determine what is iniquitous and unconscionable, the Court must consider the
circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in
another.

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it ratiocinated
that since L&J agreed thereto and voluntarily paid the interest at such rate from 2000 to 2003, it is already
estopped from impugning the same. L&J appealed to the RTC. L&J insisted that the 6% monthly interest
rate is unconscionable and immoral. Hence, the 12% per annum legal interest should have been applied
from the time of the constitution of the obligation. Undaunted, L&J went to the CA and echoed its
arguments and proposed computation as proffered before the RTC.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094
is hereby AFFIRMED with modification that petitioner Rolando C. De La Paz is ordered to pay respondent
L&J Development Company the amount of P226, 000.00, plus interest of 6o/o per annum from the finality
of this Decision until fully paid.
SO ORDERED.

In a Decision16 dated February 27, 2008, the CA reversed and set aside the RTC Decision. The CA
stressed that the parties failed to stipulate in writing the imposition of interest on the loan. Hence, no
interest shall be due thereon pursuant to Article 1956 of the Civil Code.17 And even if payment of interest
has been stipulated in writing, the 6% monthly interest is still outrightly illegal and unconscionable
because it is contrary to morals, if not against the law. Being void, this cannot be ratified and may be set
up by the debtor as defense. For these reasons, Rolando cannot collect any interest even if L&J offered
to pay interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.

Issue

The Courts determination of whether to uphold the judgment of the CA that the principal loan is deemed
paid is dependent on the validity of the monthly interest rate imposed. And in determining such validity,
the Court must necessarily delve into matters regarding a) the form of the agreement of interest under
the law and b) the alleged unconscionability of the interest rate.

Our Ruling

The Petition is devoid of merit.

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging
monetary interest.

Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly stipulated in
writing. Jurisprudence on the matter also holds that for interest to be due and payable, two conditions
must concur: a) express stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.

Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is due.
The collection of interest without any stipulation in writing is prohibited by law.

It may be raised that L&J is estopped from questioning the interest rate considering that it has been
paying Rolando interest at such ratefor more than two and a half years. In fact, in its pleadings before the
MeTCand the RTC, L&J merely prayed for the reduction of interest from 6% monthly to 1% monthly or
12% per annum. However, in Ching v. Nicdao,24 the daily payments of the debtor to the lender were
considered as payment of the principal amount of the loan because Article 1956 was not complied with.
This was notwithstanding the debtors admission that the payments made were for the interests due. The