CREDIT TRANSACTIONS - FINANCIAL MARKETS/ACCEPTED PROMISE TO LOAN

Banco De Oro v. Rizal Commercial Banking Corp.
G.R. No. 198756, January 13, 2015
Leonen, J.

 

DOCTRINE: From the point of view of the financial market, the phrase "at any one
time" for purposes of determining the 20-lender rule would mean every
transaction executed in the primary or secondary market in connection with the
purchase or sale of
securities.

FACTS:

    A notice by the Bureau of Treasury (BTr) denominated as the Poverty Eradication and
Alleviation Certificates (PEACe Bonds) announced that 10-year Zero-Coupon Bonds
will be auctioned on Oct. 16, 2011. Prior to the auction, the Bureau of Internal
Revenue (BIR) issued a Ruling confirming that the PEACe Bonds would not be
classified as deposit substitutes, defined as the borrowing of funds obtained from
twenty (20) or more individuals or corporate lenders at any one time, and would not
be subject to 20% final withholding tax (FWT) since the issue will be limited to
nineteen (19) lenders in the primary market. Moreover, the determination of the
phrase "at any one time" for purposes of determining the 20-lender rule is to be
determined at the time of the original issuance. After winning the bid, RCBC,
appointed issue manager and lead underwriter of CODE-NGO, sold and distributed
the government bonds to petitioner-banks. Prior to the maturity of the bonds, the BIR
issued the assailed 2011 BIR Ruling, declaring that being deposit substitutes, the
PEACe Bonds are subject to the 20% FWT, and such should be imposed and withheld
not only on RCBC and CODE-NGO, but also on all subsequent holders of the bonds.
BDO et al. assailed the 2011 BIR Ruling which was in clear disregard of the 20-lender
rule mandated under the NIRC. The Commissioner of the Internal Revenue countered
that the word “any” indicates that the period contemplated is the entire term of the
bond and not merely the point of origination or issuance.

ISSUE:

    Does the reckoning of the existence of 20 or more individual or corporate lenders
include trading of the bonds in the secondary market?

HELD:

    Yes. The financial market is an agglomeration of financial transactions in securities
performed by market participants that works to transfer the funds from the surplus
units to those who need them. From the point of view of the financial market, the
phrase "at any one time" for purposes of determining the 20-lender rule would mean
every transaction executed in the primary or secondary market in connection with
the purchase or sale of securities. Where the financial assets involved are
government securities like PEACe Bonds in this case, the reckoning of "20 or more
lenders/investors" is made at any transaction in connection with the purchase or sale
of the Government Bonds. When funds are simultaneously obtained from 20 or more
lenders or investors, there is deemed to be a public borrowing and the bonds at that
point in time are deemed deposit substitutes. Consequently, the seller is required to
withhold the 20% final withholding tax on the imputed interest income from the
bonds.





Naguiat v. Court of Appeals
G.R. No. 118375, October 3, 2003
Tinga, J.


DOCTRINE: A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract


FACTS:

    Queaño applied with Naguiat for a loan in the amount of P200,000.00, which
Naguiat granted. Naguiat indorsed to Queaño Associated Bank Check for the amount
of P95,000.00. She also issued her own Filmanbank Check to the order of Queaño for
the amount of P95,000.00. The proceeds of these checks were to constitute the loan
granted by Naguiat to Queaño. To secure the loan, Queaño executed a Deed of Real
Estate Mortgage in favor of Naguiat. The deed was notarized and Queaño issued to
Naguiat a promissory note for the amount of P200,000. Queaño also issued a
Security Bank and Trust Company post-dated check amounting to P200,000 payable
to the order of Naguait. The said checks were dishonored due to insufficiency of
funds.

    Queaño then received a letter from Naguiat's lawyer, demanding settlement of the
loan. Queaño told Naguiat that she did not receive the proceeds of the loan, adding
that the checks were retained by Ruebenfeldt, who purportedly was Naguiat's agent.
Naguiat applied for the extrajudicial foreclosure of the mortgage. Three days before
the scheduled sale, Queaño filed the case to annul the mortgage deed. RTC and the
CA rendered judgment, declaring the Deed of Real Estate Mortgage null and void.

ISSUE:

    Does the mere issuance of a check result in the perfection of the contract of loan?

HELD:

    No. The Civil Code provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only when they have
been cashed. It is only after the checks have been produced the effect of payment
that the contract of loan may have been perfected. Article 1934 of the Civil Code
provides: “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.” A loan contract is a real
contract, not consensual, and as such, is perfected only upon the delivery of the
objects of the contract

    In this case, the objects of the contract are the loan proceeds which Queaño would
enjoy only upon the encashment of the checks signed or indorsed by Naguiat. No
evidence was submitted by Naguiat that the checks she issued or endorsed were
actually encashed or deposited. If indeed the checks were encashed or
deposited,Naguiat would have certainly presented the corresponding documentary
evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to
Queaño's account. Since no encashment of the check took place there was no
perfected contract of loan it also follows that the mortgage which is supposed to
secure the loan is null and void.
Therefore, the mere issuance of a check did not result in the perfection of a loan
contract.







Spouses Palada v. Solidbank Corporation
G.R. No. 172227, June 29, 2011
Del Castillo, J.

DOCTRINE: A loan contract is perfected only upon the delivery of the object of the
contract

FACTS:

    Spouses Palada (petitioners) applied for a P3 million loan broken down as follows: P1
million as additional working capital under the bills discounting line; P500,000.00
under the bills purchase line; and P1.5 million under the time loan from Solidbank
Corporation (respondent). On March 17, 1997, petitioners received from the bank the
amount of P1 million as additional working capital evidenced by a promissory note
and secured by a real estate mortgage in favor of the bank. Due to the failure of
petitioners to pay the obligation, the bank foreclosed the mortgage and sold the
properties at public auction. Later on, the petitioners filed a complaint for nullity of
real estate mortgage and sheriff's certificate of sale. The RTC rendered a Decision
declaring the real estate mortgage void for lack of sufficient consideration because
the loan contract was not perfected due to the failure of the bank to deliver the full
P3 million to petitioners. The CA reversed the ruling of the RTC. Hence, this petition.

ISSUE:

    Was the loan contract perfected when petitioners received the P1 million loan
although it was less than the amount that they applied?

HELD:

    Yes. Article 1934 of the Civil Code provides, “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, although petitioners applied for a P3 million loan, only the amount of
P1 million was approved by the bank because petitioners became collaterally
deficient. Hence, on March 17, 1997, only the amount of P1 million was released by
the bank to petitioners. Upon receipt of the approved loan on March 17, 1997,
petitioners executed a promissory note for the amount of P1 million. As security for
the P1 million loan, petitioners on the same day executed in favor of the bank a real
estate mortgage over the four properties. Clearly, the loan contract was perfected on
March 17, 1997 when petitioners received the P1 million loan, which was the object
of both the promissory note and the real estate mortgage executed by petitioners in
favor of the bank.

    Therefore, the loan contract was perfected when petitioners received the P1 million
loan although it was less than the amount that they applied.







DBP v. Guarina Agricultural & Realty
G.R. No. 160758, January 15, 2014
Bersamin, J.

DOCTRINE: A loan requires the delivery of money or any other consumable object by one
party to another who acquires ownership thereof, on the condition that the same
amount or quality shall be paid. In a loan, the creditor should release the full loan
amount and the debtor repays it when it becomes due and demandable.

FACTS:

    Guariña Corporation applied for a loan from DBP to finance the development of its
resort complex in Iloilo. Upon approval, Guariña Corporation executed a promissory
note, a real estate mortgage over several real properties in favor of DBP and a
chattel mortgage over the personal properties existing at the resort complex and
those yet to be acquired out of the proceeds of the loan, to secure the performance
of the obligation. The loan was released in several installments, and Guariña
Corporation used the proceeds to defray the cost of additional improvements in the
resort complex. Guariña Corporation demanded the release of the balance of the
loan, but DBP refused. Instead, DBP directly paid some suppliers of Guariña
Corporation over the latter's objection. DBP found upon inspection of the resort
project, its developments and improvements that Guariña Corporation had not
completed the construction works. In a letter, DBP thus demanded that Guariña
Corporation expedite the completion of the project, and warned that it would initiate
foreclosure proceedings should Guariña Corporation not do so. Unsatisfied with the
non-action and objection of Guariña Corporation, DBP initiated extrajudicial
foreclosure proceedings which was eventually published, leading the clients and
patrons of Guariña Corporation to think that its business operation had slowed down,
and that its resort had already closed.

    Guariña Corporation sued DBP in the RTC to demand specific performance of the
latter's obligations under the loan agreement, and to stop the foreclosure of the
mortgages. However, DBP moved for the dismissal of the complaint, stating that the
mortgaged properties had already been sold to satisfy the obligation of Guariña
Corporation at a public auction. In the meantime, DBP applied for the issuance of a
writ of possession by the RTC. RTC denied the application but later granted it upon
DBP's motion for reconsideration. Aggrieved, Guariña Corporation assailed the
granting of the application before the CA however was dismissed. DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guariña
Corporation's opposition, the RTC issued the writ of possession.

    DBP submits that the loan had been granted under its supervised credit financing
scheme for the development of a beach resort, and the releases of the proceeds
would be subject to conditions thatincluded the verification of the progress of works
in the project to forestall diversion of the loan proceeds; and that under Stipulation
No. 26 of the mortgage contract, further loan releases would be terminated and the
account would be considered due and demandable in the event of a deviation from
the purpose of the loan, including the failure to put up the required equity and the
diversion of the loan proceeds to other purposes. Guariña Corporation counters that
it did not violate the terms of the promissory note and the mortgage contracts
because DBP had fully collected the interest notwithstanding that the principal
obligation did not yet fall due and become demandable.

ISSUE:

    Was the respondent in default when it failed to perform the terms of the mortgage
contract securing the promissory note?

HELD:

    No. Article 1953 in relation to Article 1933 of the Civil Code provides that a loan
requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount or
quality shall be paid.
In the case at bar, the agreement between DBP and Guariña Corporation was a loan.
This means that in a loan, the creditor should release the full loan amount and the
debtor repays it when it becomes due and demandable. By DBP’s failure to release
the proceeds of the loan in their entirety, it had no right yet to exact on Guariña
Corporation the latter's compliance with its own obligation under the loan. Indeed, if
a party in a reciprocal contract like a loan does not perform its obligation, the other
party cannot be obliged to perform what is expected of it while the other's
obligation remains unfulfilled.

    Therefore, the latter party does not incur delay.






Saura Import & Export, Co. v. DBP
G.R. No. L-24968, 27 April 1972
Makalintal, J.

DOCTRINE: 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.

FACTS:

    Saura, Inc. applied for an industrial loan of ₱500,000.00 with the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP. The money to be loaned
was to fund the construction of a factory building for jute sacks, the purchase of
jute mill machinery and equipment, as well as form additional working capital.
Meanwhile, the machinery and equipment had already been purchased on the
strength of a letter of credit extended by the Prudential Bank and Trust Co.

    RFC approved the loan application, secured by a mortgage on the land and factory
building to be constructed, and the machinery and equipment to be installed. The
day before Saura, Inc. was officially notified of the approval, Saura, Inc. wrote a
letter to RFC requesting a modification of the terms of the loan. In response, RFC
designated members of its Board of Governors to reexamine the approved loan,
with special reference as to the advisability of financing Saura, Inc.’s project.
The loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding
deed of mortgage, duly registered. However, despite formal execution of the loan
agreement, the reexamination proceeded. The loan was thus reduced to
₱300,000.00. China Engineers, Ltd. also informed RFC that it no longer wished to
avail of the loan and therefore considered the same cancelled as far as it was
concerned.

    Saura, Inc. requested RFC to grant the ₱500,000.00 loan. However, in view of China
Engineers, Ltd.’s notification expressing their desire to cancel the loan, RFC also
considered the loan cancelled.

    Later, RFC restored the loan to the amount of ₱500,000.00, because, apparently,
China Engineers, Ltd. was again willing to co-sign the promissory notes, but required
that the Department of Agriculture and Natural Resources certify the availability of
raw materials and the prospect of increased production as a condition. Unfortunately,
the Department of Agriculture and Natural Resources issued a certification stating
that the raw material, kenaf, will not be available for thenext two years. Thus,
negotiations between Saura, Inc. and RFC reached an impasse. Saura, Inc. then
requested RFC to cancel the mortgage, to which RFC complied. None of the parties
pursued the matter further, until nine years later, when Saura, Inc. sued DBP, as
RFC’s successor, for damages with the CFI of Manila.

    Saura, Inc. contended that RFC had failed to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing it from complying
with contractual commitments it had entered in connection with its jute mill.
On the contrary, DBP argued that Saura, Inc. 's cause of action had prescribed, or had
been waived or abandoned; that there was no perfected contract; and that assuming
there was a perfected contract, Saura, Inc. itself did not comply with its obligations
under the contract.

    The CFI of Manila rendered judgment for Saura, Inc., ruling that there was a
perfected contract that RFC, as DBP’s predecessor, had breached and is liable for.
Thus, DBP appealed to the Supreme Court.

ISSUE:

    1. Was there a perfected contract between Saura, Inc. and RFC?
    2. If there was a perfected contract, is RFC, and by consequence of the
conversion, DBP, liable to Saura, Inc. for damages?

HELD:

    1. Yes. Art. 1954 of the Civil Code provides: “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 by Saura, Inc. in the form of an application for a
loan of ₱500,000.00. There was likewise acceptance of the offer by RFC’s
approval by resolution of the application. A mortgage was also executed and
registered to secure the loan.
Therefore, a consensual contract of loan had been perfected between Saura, Inc.
and RFC.

    2. No. Manresa comments that mutual desistance – “mutuo disenso” – is a mode
of extinguishing obligations. It is a concept that derives from the principle that
since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment.

    Here, the parties, Saura, Inc. and RFC, had mutually desisted from the contract.
RFC turned down Saura, Inc.’s request to release the proceeds of the loan, to
which Saura, Inc. had responded by requesting that the mortgage to secure the
loan be cancelled, which RFC did.
Therefore, the contract having been extinguished, there is no basis for Saura, Inc.
to hold DBP liable for damages.








BPI Investment Corp. v. Court of Appeals
G.R No. 133632, February 15, 2002
Quisumbing, J.

DOCTRINE: A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract.

FACTS:

    Frank Roa obtained a loan from the Ayala Investment and Development Corporation
(AIDC), now BPIIC, in which he mortgaged his house and lot to serve as security. He
then sold the house and lot to private respondents ALS Management and
Development Corporation and Antonio Litonjua. Respondents thereafter assumed
the P500,000 balance of Roa’s indebtedness to the AIDC.

    In June 1984, BPIIC instituted foreclosure proceedings against private respondents
on the ground that they failed to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984. Petitioner argues that while the documents showed that the
loan was released only in August 1982, the loan was actually released on March 31,
1981, when BPIIC issued a cancellation of mortgage of Roa’s loan. On the other
hand, respondents counter 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.

    The trial court had held that private respondents were not in default in the
payment of their monthly amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad faith. Upon appeal, the Court of
Appeals meanwhile reasoned that the contract of loan between BPIIC and ALS &
Litonjua was perfected only on September 13, 1982, the date when BPIIC released
the purported balance of the P500,000 loan after deducting therefrom the value of
Roa’s indebtedness. Thus, payment of the monthly amortization should commence
only a month after the said date, as can be inferred from the stipulations in the
contract.

ISSUE:

    Was the CA correct in ruling that the contract of loan was perfected only on
September 13, 1982?

HELD:

    Yes. A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract. A perfected
consensual contract can give rise to an action fordamages. However, said contract
does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only
on the part of the borrower
In the present case, the loan contract between BPI, on the one hand, and ALS and
Litonjua, on the other, was perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals,
private respondents’ obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.
Therefore, the CA held correctly that the contract of loan entered into by the
parties was perfected only on September 13, 1982.






Spouses Pio Dato v. BPI
G.R. No. 181873, November 27, 2013
Reyes, J.

DOCTRINE: A credit line is defined as "that amount of money or merchandise which a
banker, merchant, or supplier agrees to supply to a person on credit and generally
agreed to in advance." It is the fixed limit of credit granted by a bank, retailer, or credit
card issuer to a customer, to the full extent of which the latter may avail himself of his
dealings with the former but which he must not exceed and is usually intended to cover
a series of transactions in which case, when the customer's line of credit is nearly
exhausted, he is expected to reduce his indebtedness by payments before making any
further drawings.

FACTS:

    Spouses Pio Dato (Pio) and Sonia Y. Sia (Spouses Sia) applied for a P240,000.00 loan
which was granted by the Bank of the Philippine Islands (BPI) secured by a real
estate mortgage over a parcel of land in Cebu and a 4M loan. Before the P240,000.00
and P4 Million loans matured, Spouses Sia approached BPI for additional loans. After
some discussion, Spouses Sia agreed to obtain a Credit Facility of P5.7 Million using
the same collaterals offered in their previous loans. Spouses Sia obtained P800,000
after executing a promissory note for the same amount from their Credit Facility of
P5.7M. While the spouses paid some of the interest on their loans, the amount was
insufficient to cover the principal amount of said loans. The spouses failed to pay the
principal amount of P4,240,000. Thus, BPI cancelled the 5.7M credit facility. To
facilitate and assist the spouses in paying off their loans, the lots which secured the
loan were released. The Spouses Sia agreed to sell the lots and use the proceeds to
make payments of their loans. Spouses Sia failed to make good of the promise to sell
the lots and pay off their loans. BPI sent a demand letter stating that BPI is seriously
considering selling some of their “choiced” real estate property to service their debt
to BPI. Spouses Sia argued that they did not execute any P5.7M promissory note nor
did they receive P5.7M from BPI. Thus, there is no existing P5.7M Credit Line Facility
Agreement as far as they are concerned.

ISSUE:

    Do Spouses Sia need to execute a promissory note in the amount of P5.7M and
receive from BPI the same amount for a credit line facility agreement to exist?

HELD:
    
    No. A credit line is defined as "that amount of money or merchandise which a
banker, merchant, or supplier agrees to supply to a person on credit and generally
agreed to in advance." It is the fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extentof which the latter may avail
himself of his dealings with the former but which he must not exceed and is
usually intended to cover a series of transactions in which case, when the
customer's line of credit is nearly exhausted, he is expected to reduce his
indebtedness by payments before making any further drawings.

    In this case, BPI does not have to require the execution of a promissory note of
the entire P5.7 Million since a credit line is merely a fixed limit of credit.
Furthermore, still applying the above quoted definition, a credit line usually
presupposes a series of transactions until the credit line is nearly exhausted.
Thus, BPI is not obliged to release the amount of P5.7 Million to Spouses Sia all
at once, in a single transaction.

    Therefore, there exists a P5.7M credit line facility agreement between Spouses
Sia and BPI even though no promissory note for the same amount was executed
by Spouses Sia and despite the fact that they did not receive the entire P5.7M
from BPI.








Philippine National Bank v. Spouses Tajonera
G.R. No. 195889, September 24, 2014
Mendoza, J.

DOCTRINE: A loan, being a reciprocal obligation, requires the delivery of money or any
other consumable object by one party to another who acquires ownership thereof, on
the condition that the same amount or quality shall be paid.

FACTS:

    Eduarosa Realty Development, Inc. (ERDI), through its Vice-President Respondent
Ma. Rosario Tajonera, obtained loans from petitioner Philippine National Bank
(PNB). The same loans were evidenced by a Credit Agreement and secured by a Real
Estate Mortgage over the respondent’s properties in Parañaque. The same Credit
Agreement was subsequently amended three times, which allowed ERDI to obtain
additional loans. The parties likewise executed Supplement to REM, providing for
the mortgage of respondent’s Greenhills property.

    When ERDI failed to settle its obligation, PNB filed an application for foreclosure of
the Greenhills property, brought the same through the execution sale and caused
the issuance of a new Transfer Certificate of Title under their name over the same
property.

    This prompted the respondents to file a complaint against PNB for annulment of
sale, cancellation of title, cancellation of mortgage, and damages before the RTC,
alleging, among others, PNB’s delay in the release of loan proceeds under the credit
agreements caused the non-completion of the condominium project.
PNB claims that its refusal to release the balance of the last loan was due to the
respondents’ failure to comply with the undertaking of bringing new investors with
additional collaterals to secure the additional loan as such requirement was not
categorically stated in the terms of the credit agreement.

    PNB claims that its refusal to release the balance of the last loan was due to the
respondents’ failure to comply with the undertaking of bringing new investors with
additional collaterals to secure the additional loan as such requirement was not
categorically stated in the terms of the credit agreement.
Both the CA and the RTC decided to grant the petition of ERDI, ruling that
inasmuch as PNB did not release the remaining balance of the approved loan
amounting to P39,503,088.84 under the Third Amendment, there was no
sufficient valuable consideration in the execution of the Supplement to REM that
secured the said credit agreement. There was, according to the CA, breach of
contract on the part of PNB that warranted the annulment and cancellation of the
Supplement to REM covering the Greenhills property.

ISSUE:

    Did PNB breach the contract of loan?

HELD:

    Yes. Citing Development Bank of the Philippines v. Guarina Agricultural and
Realty Development Corporation, the obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should
release the full loan amount and the debtor repays it when it becomes due and
demandable. By its nature, a mortgage remains an accessory contract dependent
on the principal obligation, such that enforcement of the mortgage contract
depends on whether or not there has been a violation of the principal obligation.

    Here, PNB did not fulfill its principal obligation under the Third Amendment by
failing to release the amount of the last additional loan in full. Consequently, the
Supplement to REM covering the Greenhills property became unenforceable, as
the said property could not be entirely foreclosed to satisfy the respondents’ total
debts to PNB. Moreover, the Supplement to REM was no longer necessary because
PNB’s interest was amply protected as the loans had been sufficiently secured by
the Parañaque properties.

    Therefore, PNB was indeed guilty of breach of contract of its reciprocal obligation
under the credit agreements.








Spouses Ramon Sy and Anita Ng v. Westmont Bank
G.R. No. 201074, October 19, 2016
Mendoza, J.

DOCTRINE: A simple loan or mutuum is a contract where one of the parties delivers to
another, either money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid. A simple loan is a real contract and
it shall not be perfected until the delivery of the object of the contract. Necessarily, the
delivery of the proceeds of the loan by the lender to the borrower is indispensable to
perfect the contract of loan. Once the proceeds have been delivered, the unilateral
characteristic of the contract arises and the borrower is bound to pay the lender an
amount equal to that received.

FACTS:

    The case stemmed from when Westmont Bank (respondent) filed a complaint for sum
of money against Spouses Ramon Sy and Anita Ng, Richard Sy, Josie Ong, William Sy,
and Jackeline de Lucia (petitioners) before the RTC. Westmont Bank (respondent)
alleged that petitioners, doing business under the trade name “Moondrops General
Merchandising,” obtained two loans from Westmont Bank. Both loans were evidenced
by a Promissory Note. To secure any future indebtedness of Moondrops, Westmont
and petitioners executed a Continuing Suretyship Agreement, dated February 4,
1997. Westmont further alleged that petitioners defaulted in the payment of their
loans. Westmont sent a demand letter to petitioners but it was unheeded. Hence,
Westmont filed the aforementioned complaint. On the other hand, petitioners
contended that Westmont Bank, through its bank manager William Chu Lao required
them to sign blank forms of promissory notes and disclosure statements and
promised that he would notify them immediately regarding the status of their loan
application. Later on, Lao informed Ramon Sy and Richard Sy that their application
was disapproved. He, however, offered to help them secure a loan through Amado
Chua who would lend them the amounts of P2,500,000.00 and P4,000,000.00, both
payable within three (3) months. Ramon Sy and Richard Sy accepted Lao's offer and
received the amounts of P2,429,500.00 and P3,994,000.00, respectively, as loans
from Chua. Petitioners claimed that they paid Chua the total amount of their loans.
Both the RTC and CA ruled in favor of the respondents. Hence, this petition.

ISSUE:

    Is there a perfected contract of loan between Westmont Bank and petitioners in
the total amount of P6,429,500?

HELD:

    No. A simple loan or mutuum is a contract where one of the parties delivers to
another, either money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid. (Article 1933 of the New
Civil Code) A simple loan is a real contract and it shall not be perfected until the
delivery of the object of the contract. (Article 1934 of the New Civil Code)
Necessarily, the delivery of the proceeds of the loan by the lender to the
borrower is indispensable to perfect the contract of loan. Once the proceeds have
been delivered, the unilateral characteristic of the contract arises and the
borrower is bound to pay the lender an amount equal to that received. (Article
1953 of the New Civil Code) In civil cases, the burden of proof rests upon the
plaintiff who is required to establish his case by a preponderance of evidence. (De
Leon v. Bank of the Philippines)

    In the case at bar, Westmont miserably failed to establish that it released and
delivered the proceeds of the loans in the total amount of P6,429,500.00 to
petitioners. Westmont could have easily presented a receipt, a ledger, a loan
release manifold, or a statement of loan release to indubitably prove that the
proceeds were actually released and received by petitioners.
Therefore, there was no perfected contract of loan between Westmont Bank and
petitioners in the total amount of P6,429,500.









Vicente L. Luntao v. BAP Credit Guaranty
G.R 204412, September 20, 2017.
Leonen, J.

Doctrine: As an accessory contract, a mortgage contract's validity depends on the loan
contract's validity.

FACTS:

    This case involves the validity of the real estate mortgage of petitioner Vicente
Luntao’s property in favor of respondent BAP Credit Guaranty Corporation. The
mortgage was executed by petitioner Nanette Luntao by virtue of a Special Power of
Attorney that Vicente issued in her favor.

    Vicente was the owner of a real property in Davao City. He executed a Special Power
of Attorney in favor of his sister Nannette. As his attorney-in-fact: (1) she was
authorized to mortgage his real property; (2) to apply for any commercial loan with
any bank in the Philippines or any agency either private or government using the
aforesaid property as collateral for the loan; (3) to receive the proceeds of the loan
to be used in the improvement of her business; and (4) to sign, execute and deliver
any document to effect the purposes aforestated.

    Using the authorization given to her, Nanette applied for a loan with BAP and used
Vicente’s property as collateral. The loan was for the improvement of the facilities of
her business, the Holy Infant Medical Clinic.

    Upon approval of the loan, P900,000 was ordered to be released to the clinic through
Security Bank. When the loan obligation became due, BAP sent demand letters.
Nanette and his brother Jesus Luntao wrote a letter to BAP, asking them for
additional time to settle his sisters’ accounts. However, Nanette’s loan was still left
unpaid. As a result, BAP applied for Extra-Judicial Foreclosure of Vicente’s property.
The RTC issued a Notice of Foreclosure and a Notice of Extra-Judicial Sale.
Subsequently, Vicente and Nanette filed a Complaint for Declaration of Nullity of
Real Estate Mortgage and Writ of Preliminary Injunction against BAP. They also
prayed for the award of damages and attorney’s fees in their favor. According to
Nanette, upon filing her loan application, BAP appraised the collateral to
determine the loanable amount and told her that she could borrow P900,000.
Thereafter, a BAP personnel visited her to get her signature. The documents
brought to her were all blank forms and she alleged that she signed these
documents on the understanding that it was part of the bank’s standard operating
procedure. She was surprised to receive the notice of foreclosure since she did
not receive the proceeds of the loan. She also noticed that the documents
attached to the notice of foreclosure were the blank documents she signed
earlier. Upon checking, Eleanor’s name was included in the loan documents.
Vicente and Nanette claimed that Eleanor’s alleged debt with BAP was separate
from Nanette’s debt and wasnot secured by Vicente’s property, which should not
be foreclosed if Eleanor failed to pay her alleged debt.

    The RTC dismissed the complaint for lack of merit. It held that Jesus admitted the
existence of the debt and that Vicente and Nanette failed to present evidence
that Eleanor used the loan proceeds for her personal use or that the foreclosure
was because of Eleanor's non-payment of her separate debt.
Vicente and Nanette elevated the case to the Court of Appeals. However, it was
denied. The court found that the elements of a valid contract are present in the
case. Hence, this present petition.

ISSUE:

    Should the Real Estate Mortgage executed by Vicente Luntao and Nanette Luntao
be nullified?

HELD:

    No. As an accessory contract, a mortgage contract's validity depends on the loan
contract's validity. It is, thus, imperative for this Court to determine if the
contract of loan between petitioners and private respondent is valid. This Court
held in Pentacapital Investment Corporation v. Mahinay, that "like any other
contract, a contract of loan is subject to the rules governing the requisites and
validity of contracts in general." The elements of a valid contract are enumerated
in Article 1318 of the Civil Code: “There is no contract unless the following
requisites concur: (1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; (3) Cause of the obligation which is established.”
All elements should be present in a contract; otherwise, it cannot be perfected.

    In this case, petitioners insist that they did not receive the loan proceeds, which
is the object of the loan contract. Despite having the opportunity to prove that
the admission of Jesus is false, petitioners failed to present rebuttal evidence.
They also failed to present evidence to support their allegation that Eleanor
received the loan proceeds or that Eleanor's non-payment of her alleged personal
loan with BAP caused the foreclosure of the mortgage. What petitioners
presented were mere denials.
Therefore, the Real Estate Mortgage executed by Vicente Luntao and Nanette
Luntao should not be nullified.






























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