CASE DIGEST

TOPIC: LOAN (COMMODATUM VS MUTUUM; OBLIGATIONS OF BAILOR

AND BAILEE; INTEREST AND THE SUSPENSION OF USURY LAW

Reported By: Valentine Mercy S. Morales

 QUINTOS VS. BECK, 69 PHIL 108

Plaintiffs-appellants: MARGARITA QUINTOS and ANGEL A. ANSALDO

Defendant-Appellee: BECK
Ponente: Imperial, J.:

FACTS:

Beck is a tenant of defendant Margarita Quintos. As such, Beck occupied

Quintos’ house. Quintos granted Beck the use of the furniture found on
the leased house, among these were three gas heaters and 4 electric
lamps, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. Quintos sold the pieces of furniture
to Maria Lopez and Rosario Lopez and thereafter notified Beck of the
conveyance. Beck informed Quintos that the latter can get the furniture
at the ground floor of the house, however, at a later date, Beck told
Quintos that he will return only the other furniture but not the gas heaters
and the electric lamps as he is to return them only after the expiration of
the lease contract.
When the lease contract expires, Beck deposited the furniture to the
sheriff’s warehouse. Quintos refused to get the furniture in view of the
fact that the defendant had declined to make delivery of all of them.
Consequently, Quintos brought an action to compel Beck to return her
certain furniture which she lent him for his use. The trial court ruled in
favour of Beck holding that Quintos failed to comply with her
obligation to get the furniture when they were offered to her. On
appeal of the case, the Court of First Instance of Manila affirmed the
lower court’s decision. Hence, this petition.

ISSUE:

Did the trial court erred in ruling that Quintos failed to comply with her
obligation to get the furniture when they were offered to her?

HELD:

YES. The trial court erred in ruling that Quintos failed to comply with her
obligation to get the furniture when they were offered to her.
The Supreme Court held that the contract entered into between the
parties is one of commadatum. Under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the
ownership thereof. By this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latter’s demand. The
obligation voluntarily assumed by the defendant to return the furniture
upon the plaintiff's demand, means that he should return all of them to
the plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the disposal
of the plaintiff, retaining for his benefit the three gas heaters and the four
electric lamps.

Therefore, the trial court erred when it came to the legal conclusion that
the plaintiff failed to comply with her obligation to get the furniture when
they were offered to her.
 FRIAS VS. SAN DIEGO-SISON,
GR. NO. 155223, APRIL 4, 2007
Petitioner: BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact,
MARIE F. FUJITA
Respondent: FLORA SAN DIEGO-SISON
Ponente: MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

FACTS:

Petitioner Bobie Rose V. Frias owned a house and lot which she acquired
from Island Masters Realty and Development Corporation (IMRDC) by
virtue of a Deed of Sale. She entered into a MOA with respondent Flora
San Diego-Sison. In the MOA, they had agreed among others that in the
event that on the 6thmonth of the 6-month period to purchase land,
respondent would decide not to purchase, the petitioner has a period of
another 6 months to pay P3M provided that the said amount shall earn
compounded bank interest for the last six months only.
Respondent decided not to purchase the property so what happened
was that the P3M would be considered as a loan payable within six
months. Petitioner failed to pay the P2M. Consequently, respondent
filed with the RTC a complaint for sum of money. RTC rules in favor of
respondent and orders the payment of P2M plus compounded interest
at 32% interest per annum pursuant to the MOA.

Petitioner appeals to CA. The CA affirms RTC decision with modification

with regard to the interest from 32% to 25%. Petitioner opposed to the
said decision contending that the interest is contrary to the parties’
Memorandum of Agreement; that the agreement provides that if
respondent would decide not to purchase the property, petitioner has
the period of another six months to pay the loan with compounded
bank interest for the last six months only; that the CA’s ruling that a
loan always bears interest otherwise it is not a loan is contrary to Art.
1956 of the New Civil Code which provides that no interest shall be
due unless it has been expressly stipulated in writing.

ISSUE:
Whether or not the compounded bank interest should be limited to six months
as contained in the MOA.
HELD:
The Supreme Court held that while the CA’s conclusion, that a loan always bears
interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous
or with a stipulation to pay interest, there was no error committed by the CA in
awarding a 25% interest per annum on the two-million peso loan even beyond the
second six months stipulated period.

The general rule is that if the terms of an agreement are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of its stipulations
shall prevail. It is further required that the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
In the case at bar, the phrase "for the last six months only" should be taken in the
context of the entire agreement.

The agreement stipulated in the MOA that the amount given shall bear
compounded bank interest for the last six months only (referring to the second six-
month period), does not mean that interest will no longer be charged after the
second six-month period since such stipulation was made on the logical and
reasonable expectation that such amount would be paid within the date
stipulated.
HELD:
Considering that the petitioner failed to pay the amount given which under the
MOA shall be considered as a loan, the monetary interest for the last six months
continued to accrue until the actual payment of the loaned amount. The
payment of regular interest constitutes the price or cost of the money use and
thus, until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount.

It has been held that for a debtor to continue in possession of the principal of the
loan and to continue to use the same after maturity of the loan without payment
of the monetary interest, would constitute unjust enrichment on the part of the
debtor at the expense of the creditor.
 LIGUTAN VS. COURT OF APPEALS,
GR. NO. 138677, FEBRUARY 12, 2002
Petitioners: TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA
Respondents: HON. COURT OF APPEALS & SECURITY BANK & TRUST
COMPANY
Ponente: VITUG, J.:

FACTS:

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan

from private respondent Security Bank and Trust Company. Petitioners
executed a promissory note to pay the sum loaned with an interest of
15.189% per annum upon maturity and to pay a penalty of 5% every
month on the outstanding principal and interest in case of default. On
maturity of the obligation, petitioners failed to settle the debt despite
several demands from the bank. Consequently, the bank filed a
complaint for recovery of the due amount.
After trial of the case, the Trial court ruled in favour of the Bank, ordering
petitioners to pay the respondent the sum of P114,416.00 with interest
thereon at the rate of 15.189% per annum and 5% per month penalty
charge among others. On appeal of the case, petitioners prayed for the
reduction of the 5% stipulated penalty for being unconscionable. The
Court of Appeals ruled that in the interest of justice and public policy, a
penalty of 3% per month or 36% per annum would suffice. But still,
petitioners dispute the said decision.

ISSUE:
Did the respondent Court of Appeals seriously erred in not holding that the
15.189% interest and the penalty of three (3%) percent per month or thirty-six
(36%) percent per annum imposed by private respondent bank on petitioners
loan obligation are still manifestly exorbitant, iniquitous and unconscionable?
HELD:
No. The Court of Appeals, exercising its good judgment in the instant case, has
rightly reduced the penalty interest from 5% a month to 3% a month.
The Supreme Court held that the question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective. Its resolution would
depend on such factors as, but not necessarily confined to, the type, extent and
purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the
parties, and the like, the application of which, by and large, is addressed to the
sound discretion of the court.
The essence or rationale for the payment of interest is not exactly the same as
that of a surcharge or a penalty. A penalty stipulation is not necessarily
preclusive of interest. What may justify a court in not allowing the creditor to
impose full surcharges and penalties, despite an express stipulation therefor in
a valid agreement, may not equally justify the non-payment or reduction of
interest. Indeed, the interest prescribed in loan financing arrangements is a
fundamental part of the banking business and the core of a bank's existence.
Therefore, the Court sees no cogent ground to modify the ruling of the appellate
court.
 GSIS VS. COURT OF APPEALS,
GR. NO. L-52478, OCTOBER 20, 1986
Petitioners: THE GOVERNMENT SERVICE INSURANCE SYSTEM
Respondents: HONORABLE COURT OF APPEALS, NEMENCIO R. MEDINA
and JOSEFINA G. MEDINA
Ponente: PARAS, J.:

FACTS:

In 1961, herein private respondents spouses Nemencio R. Medina and

Josefina G. Medina applied with the herein petitioner Government
Service Insurance System for a loan of P600,000.00. The approved loan
amount was only P350,000.00 at the rate of interest of 9% per annum
compounded monthly and the rate of 9%/12% per month for any
installment or amortization that remains due and unpaid. The approved
loan amount was further reduced to P295,000.00.
The Medinas accepted the reduced amount and executed a promissory note
and a real estate mortgage in favor of GSIS. Subsequently, upon application by
the Medinas, the GSIS approved an additional loan of P230,000.00 on the
security of the same mortgaged properties to bear interest at 9% per annum
compounded monthly and repayable in ten years.
However, in 1965, the Medinas defaulted in the payment of the monthly
amortization on their loan despite several demands from petitioner. Hence, the
GSIS imposed 9%/12% interest on instalments that are due and unpaid. The
Medinas opposed to this contending that the interest rates on the loan accounts
are usurious. After trial of the case, the trial court ordered the Medinas full
payment of their obligation to the GSIS plus interest at 9% per annum.
Aggrieved, the Medinas appealed before the Court of Appeals but the latter
affirmed the lower court’s decision.
ISSUE:
Whether or not the interest rates on the loan accounts of respondent-appellee
Medina spouses are usurious.
HELD:
It has already been settled that the Usury Law applies only to interest by way of
compensation for the use or forbearance of money. Interest by way of damages
is governed by Article 2209 of the Civil Code of the Philippines which provides
that “if the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon.” The Civil Code
permits the agreement upon a penalty apart from the interest. Should there be
such an agreement, the penalty does not include the interest, and as such the
two are different and distinct things which may be demanded separately.
Therefore the Supreme Court held that the stipulation about payment of such
additional rate partakes of the nature of a penalty clause, which is sanctioned
by law.