Credit Transactions Case Doctrines
Credit Transactions Case Doctrines
Warehouse Receipts
CREDIT TRANSACTIONS
Olive Cachapero
Case Doctrines Reviewer
(Loan to Warehouse Receipts)
Atty. Anthony Peralta
Article 1980 of the Civil Code: Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired
ownership of Francos deposits, but such ownership is coupled with a corresponding obligation to pay him
an equal amount on demand. Although BPI-FB owns the deposits in Francos accounts, it cannot prevent
him from demanding payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against
his current account, he had every right as creditor to expect that those checks would be honored by BPIFB as debtor.
Depositors who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as belonging to
the bank.
The relationship between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:
Article 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.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the
Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements
constituting the crime of Qualified Theft.
Parties: Petitioner Frias as the property owner and Respondent Dra. Flora San Diego-Sison, entered
into a Memorandum of Agreementover the subject property.
MOA: Petitioner received P3M from respondent with the following agreement:
That respondent has a period 6 months from the date of the execution of this contract within which to
notify petitioner of her intention to purchase the land at the price of P6.4M. Upon notice to the petitioner
of respondents intention to purchase the same, the latter has a period of another 6 months within which
to pay the remaining balance of P3.4 million.
In the event that on the sixth month the respondent would decide NOT to purchase the property, the
petitioner has a period of another 6 months within which to pay the sum of P3 million pesos provided that
the said amount shall earn compounded bank interest for the last 6 months only. Under this
circumstance, the amount of P3 million given by the respondent shall be treated as a loan.
Respondent decided not to purchase the property and demanded the return of her money with 36%
interest.
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and
per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32%
per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which
petitioner no longer assailed.
Monetary Interest: The payment of regular interest constitutes the price or cost of the use of money
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.
SC: Affirmed the ruling of the CA as to the 25% interest rate. Thus, the interest rate of 25% per annum
awarded by the CA to a P2 million loan is fair and reasonable.
a)
b)
right given to creditors to adjust the interest independently and upwardly would completely take away
from the debtors the right to assent to an important modification in their agreement and would also
negate the element of mutuality in their contracts.34 While a ceiling on interest rates under the Usury Law
was already lifted under Central Bank Circular No. 905, nothing therein "grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."
Ecalation clause in this case: I/We hereby authorize the CHINA BANKING CORPORATION to increase or
decrease as the case may be, the interest rate/service charge presently stipulated in this note without any
advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the
Central Bank of the Philippines or appropriate government entities, increasing or decreasing such interest
rate or service charge.
RULING: At no time did petitioners protest the new rates imposed on their loan even when their property
was foreclosed by respondent. This notwithstanding, we hold that the escalation clause is still VOID
because it grants respondent the power to impose an increased rate of interest without a written notice to
petitioners and their written consent. Respondents monthly telephone calls to petitioners advising them
of the prevailing interest rates would not suffice. A detailed billing statement based on the new imposed
interest with corresponding computation of the total debt should have been provided by the respondent to
enable petitioners to make an informed decision. An appropriate form must also be signed by the
petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to
preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties essential equality.
Effect: Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of
an agreement between the parties. Unless such important change in the contract terms is mutually agreed
upon, it has no binding effect. In the absence of consent on the part of the petitioners to the modifications
in the interest rates, the adjusted rates cannot bind them.
NOTE: The lender and the borrower should agree on the imposed rate, and such imposed rate should be
in writing. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds.
Concurring Opinion:
Points to consider in drafting a valid escalation clause: (DAP)
1) Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired with
a de-escalation clause.
2) Secondly, so as not to violate the principle of mutuality, the escalation must be pegged to the prevailing
market rates, and not merely make a generalized reference to "any increase or decrease in the interest
rate" in the event a law or a Central Bank regulation is passed.
3) Thirdly, consistent with the nature of contracts, the proposed modification must be the result of an
agreement between the parties.
Art. 2209, CC. 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
interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.
Rules of thumb (on the award of interests):
*NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799 (amending Circular No. 905) effective July 1, 2013, and the case of NACAR V. GALLERY FRAMES
AND/OR BORDEY (2013). Therefore, there is no need to distinguish now the obligations breached as the legal interest applicable is 6%.
1)
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages.
2)
With regard particularly to an award of interest in the concept of ACTUAL AND COMPENSATORY
DAMAGES, the rate of interest, as well as the accrual thereof, is imposed, as follows:
Obligation breached: consists in the payment of a sum of money, i.e., a loan or forbearance of money
Interest Due:
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 rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code. (amended to 6%)
Obligation breached: not constituting a loan or forbearance of money,
Interest due: may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
When such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money 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 being deemed to be by then an equivalent to a
forbearance of credit. (amended to 6%)
a)
i)
ii)
b)
o
o
c)
Art. 2209. 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,...
In the Bachrach case the Supreme Court ruled that 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. Reiterating the same
principle in the later case of Equitable Banking Corp., where this Court held that the stipulation about
payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP-MB Circular No. 799, as follows:
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.
With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
I.
II.
Application in this case: The interest of 12% per annum of the total monetary awards, computed from May
27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013 until their full satisfaction, is awarded.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor
in connection with such transaction, whichever is greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such
person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction.
Rationale: to protect the public from hidden or undisclosed charges on their loan obligations, requiring
a full disclosure thereof by the lender.
1)
2)
3)
4)
5)
6)
7)
Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished
prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:
the cash price or delivered price of the property or service to be acquired;
the amounts, if any, to be credited as down payment and/or trade-in;
the difference between the amounts set forth under clauses (1) and (2)
the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;
the total amount to be financed;
the finance charge expressed in terms of pesos and centavos; and
the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate
on the outstanding unpaid balance of the obligation.
Rationale: to protect users of credit from a lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest
rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect
debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full
consent to the contract, and to properly evaluate their options in arriving at business decisions.
The promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the loan covered by said
promissory notes.
CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the
latters effectivity. By virtue of CB Circular No. 905, the Usury Law has been rendered ineffective and
legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree
upon.
1)
2)
Effect of PD 1684 and CB 905 suspending the effectivity of the Usury Law
Lifted interest ceiling.
Upheld the parties freedom of contract to agree freely on the rate of interest.
The BSP-MB has authority to enforce CB Circular No. 905
Under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.
The lifting of the ceilings for interest rates does not 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 (void) contrary to morals, if not against the law.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right to recover
the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the
right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the
debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a
legal interest of 12% (now 6%) per annum will be added in place of the excessive interest formerly
imposed.
necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
HELD:
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is NOT an
ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe
to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil
Code on deposit. The contract in the case at bar is a special kind of deposit.
Not lease: It cannot be characterized as an ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box was not given to the joint renters the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key,
neither of the renters could open the box. On the other hand, the respondent Bank could not likewise
open the box without the renter's key. In this case, the said key had a duplicate which was made so that
both renters could have access to the box.
Not deposit under 1975: the first paragraph of such provision cannot apply to a depositary of
certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented
safety deposit box. It is clear that the depositary cannot open the box without the renter being present.
Prevailing view: Bailment
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer
with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and
mutual benefit. In our jurisdiction, the prevailing rule in the US has been adopted. Section 72 of the
General Banking Act pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as
depositories or as agents. . . .
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function.
A contract of deposit may be entered into orally or in writing. The depositary's responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil
Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of
fraud, negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation
prescribing the degree of diligence required, that of a good father of a family is to be observed. Hence, any
stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy.
It is not correct to assert that the Bank has neither the possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open
their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to
the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has
been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by special contract define their respective duties or
provide for increasing or limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that
the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own
negligence, the view has been taken that such a lessor may limits its liability to some extent by agreement
or stipulation.
Thus, we reach the same conclusion which the CA arrived at, that is, that the petition should be dismissed,
but on grounds quite different from those relied upon by the CA. In the instant case, the respondent
Bank's exoneration cannot, contrary to the holding of the CA, be based on or proceed from a
characterization of the impugned contract as a contract of lease, but rather on the fact that no competent
proof was presented to show that respondent Bank was aware of the agreement between the petitioner
and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box
only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this
Court's determination that the contract involved was one of deposit. Since both the petitioner and the
Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the
Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key,
could open the said box, without the other renter being present.
Petitioner is in estoppel in disclaiming liability for the payment of storage fees due the private
respondents as warehouseman while claiming to be entitled to the sugar stocks covered by the subject
Warehouse Receipts on the basis of which it anchors its claim for payment or delivery of the sugar stocks.
The unconditional presentment of the receipts by the petitioner for payment against private respondents
on the strength of the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission
of the existence and validity of the terms, conditions and stipulations written on the face of the Warehouse
Receipts, including the unqualified recognition of the payment of warehousemans lien for storage fees
and preservation expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.
Rule: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in
accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods
by surrendering possession thereof. In other words, the lien may be lost where the warehouseman
surrenders the possession of the goods without requiring payment of his lien, because a warehousemans
lien is possessory in nature.