PRELIMINARY EXAMS IN CREDIT TRANSACTIONS

I.
Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with Tito, with the
understanding that the latter could use it for one year for his personal or family use while Pedro works in
Riyadh. He told Tito that the brakes of the van were faulty. Tito had the van tuned up and the brakes
repaired. He spent a total amount of P15,000.00. After using the vehicle for two weeks, Tito discovered
that it consumed too much fuel. To make up for the expenses, he leased it to Annabelle. Two months later,
Pedro returned to the Philippines and asked Tito to return the van. Unfortunately, while being driven by
Tito, the van was accidentally damaged by a cargo truck without his fault.
a) Who shall bear the P15,000.00 spent for the repair of the van? Explain.
b) Who shall bear the costs for the van's fuel, oil and other materials while it was with Tito? Explain.
c) Does Pedro have the right to retrieve the van even before the lapse of one year? Explain.
d) Who shall bear the expenses for the accidental damage caused by the cargo truck, granting that the
truck driver and truck owner are insolvent? Explain.
SUGGESTED ANSWER:
a) Pedro must bear the P15,000.00 expenses for the van. Generally, extraordinary expenses for the
preservation of the thing loaned are paid by the bailor, he being the owner of the thing loaned. Under
Article 1949 of the Civil Code, bailor generally bears the extraordinary expenses for the preservation of
the thing and should refund the said expenses if made by the bailee; Provided, The bailee brings the same
to the attention of the bailor before incurring them, except only if the repair is urgent that reply cannot be
awaited. In this case, Tito does not need to inform Pedro about the repair since he knows beforehand that
the brakes of the van were faulty.
b) Tito must also pay for the ordinary expenses for the use and preservation of the thing loaned. He must
pay for the gasoline, oil, greasing and spraying. He cannot ask for reimbursement because he has the
obligation to return the identical thing to the bailor. Under Article 1941 of the Civil Code, the bailee is
obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
c) No, Pedro does not have the right to retrieve the van before the lapse of one year. The parties are
mutually bound by the terms of the contract. Under the Civil Code, there are only 3 instances when the
bailor could validly ask for the return of the thing loaned even before the expiration of the period. These
are when: (1) a precarium contract was entered (Article 1947); (2) if the bailor urgently needs the thing
(Article 1946); and (3) if the bailee commits acts of ingratitude (Article 1948). Not one of the situations is
present in this case. The fact that Tito had leased the thing loaned to Annabelle would not justify the
demand for the return of the thing loaned before expiration of the period. Under Article 1942 of the Civil
Code, leasing of the thing loaned to a third person not member of the household of the bailee, will only
entitle bailor to hold bailee liable for the loss of the thing loaned.
d) Generally, extraordinary expenses arising on the occasion of the actual use of the thing loaned by the
bailee, even if incurred without fault of the bailee, shall be shouldered equally by the bailor and the
bailee. (Art. 1949 of the Civil Code). However, if Pedro had an urgent need for the vehicle, Tito would be
in delay for failure to immediately return the same, then Tito would be held liable for the extraordinary
expenses.

II.
A, upon request, loaned his passenger jeepney to B to enable B to bring his sick wife from Paniqui, Tarlac
to the Philippine General Hospital in Manila for treatment. On the way back to Paniqui, after leaving his
wife at the hospital, people stopped the passenger jeepney. B stopped for them and allowed them to ride
on board, accepting payment from them just as in the case of ordinary passenger jeepneys plying their
route. As B was crossing Bamban, there was an onrush of Lahar from Mt Pinatubo, the jeep that was
loaned to him was wrecked.
a) What do you call the contract that was entered into by A and B with respect to the passenger jeepney
that was loaned by A to B to transport the latter's sick wife to Manila?
b) Is B obliged to pay A for the use of the passenger jeepney under the said contract?
c) Is B liable to A for the loss of the jeepney?

PRELIMINARY EXAMS IN CREDIT TRANSACTIONS

SUGGESTED ANSWER:
a) The contract is called "commodatum". [Art. 1933. Civil Code). COMMODATUM is a contract by
which one of the parties (bailor) delivers to another (bailee) something not consumable so that the latter
may use it for a certain time and return it.
b) No, B is not obliged to pay A for the use of the passenger jeepney because commodatum is essentially
gratuitous. (Art. 1933. Civil Code]
c) Yes, because B devoted the thing to a purpose different from that for which it has been loaned (Art.
1942, par. 2, Civil Code)

III.
The Court found that the loan by C to D of P20,000.00 was usurious, because it provided for the payment
P5,000.00 as interest in 1 year.
a) If the principal and the interest were paid, what can D recover from C?
b) If no payment whatsoever was made, can D resist an action to collect by C on the ground that the
transaction is illegal and void?
SUGGESTED ANSWER:
a) D can recover from C the entire interest paid by him to the latter with interest thereon from the date of
payment. This is expressly directed by the Civil Code (Article 1413). True, the Usury Law (Section 6)
merely states that he can recover only the whole interest paid, but the Civil Code (Article 1413) adds that
the same can be recovered with interest thereon from the date of payment. (Angel Jose Warehousing Co.
vs. Chelda Enterprises, 23 SCRA 119)
b) No, D cannot. According to the Civil Code (Article 1420), in case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter may be enforced. In simple contract of loan with
usurious interest, the prestation of the debtor to pay the principal debt is not illegal; what is illegal is to
pay the stipulated interest. Hence, being separable, the latter only should be deemed void. (Angel Jose vs.
Chelda, supra; Briones vs. Cammayo, 41 SCRA 404)

IV.
A deposited P10,000.00 in his current account with X Bank. Subsequently, the Bank was declared
insolvent. During the insolvency proceeding, A intervened claiming that the P10,000.00 deposited does
not constitute a part of the assets of the Bank that will be placed in the possession of the receiver or
assignee because he still the owner thereof.
a) Shall As claim prosper? Reasons.
b) Suppose that in the above problem, the P10,000.00 had been placed in a box, properly sealed, marked
and identified as As property, and such box was found in the vaults of the Bank, would that make any
difference in your answer? Reasons.
SUGGESTED ANSWER:
a) No, As claim shall not prosper. This is so, because when A deposited the P10,000.00 in his current
account with the Bank the contract that was perfected was a contract of simple loan and not a contract of
depositum (Article 1980 of the Civil Code; Gullas vs. National Bank, 62 Phil 519). Hence, the
relationship between A and X Bank is that of creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the contract.
b) Yes, it would make a difference in my answer. The contract that was perfected in such a case is a
contract of depositum (Article 1981 of the Civil Code). Hence, the relationship that was established
between A and the Bank is the of depositor and depositary; consequently, the ownership of the amount
placed in the box was not transmitted to the Bank when the deposit was constituted. Therefore, A can
properly claim that the amount cannot constitute a part of the assets of the Bank that will be placed in the
possession of the receiver or assignee, because he is still the owner thereof.

PRELIMINARY EXAMS IN CREDIT TRANSACTIONS

V.
A deposited P50,000,00 at the Land Bank in Manila at 10:30 in the morning. X and Y staged a daring
bank robbery in the same bank at 11:30, and escaped with their loot of two (2) bags, each bag containing
P50,000,00. During their flight to elude the police, X and Y entered the nearby locked house of A, then
working in his office at the City Hall. From A's house, X and Y stole a box containing cash totalling
P50,000.00 which box A had been keeping in deposit for his friend B. In their hurry, X and Y left in A's
bedroom one (1) of the bags which they had taken from the bank. With X and Y now at large and nowhere
to be found, the bag containing P50.000.00 is now claimed by B, by the Mayor of Manila, and by the
bank and A. B claims that the depository A, by force majeure had obtained the bag of money in place of
the box of money deposited by B. The Mayor of Manila, on the other hand, claims that the bag of money
should be deposited with the Office of the Mayor as required of the finder by the provisions of the Civil
Code. A claims that it is his money since he deposited the amount at the bank. The Land Bank resists the
claims of A, B and the Mayor of Manila. Who has the better right to the bag of money? Write the letter of
the correct answer.
a. A
b. B
c. Mayor of Manila
d. Land Bank
e. X and Y
SUGGESTED ANSWER:
d. Land Bank
Note: No explanation required.
Basis of answer: A has no right to claim the money. Article 1980 provides that fixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning simple
loan. Since the contract is simple loan, ownership of the money deposited passes to the bank (Art 1933).
B likewise would have no right to claim the money. Article 1990 of the Civil Code is not applicable. The
law refers to another thing received in substitution of the object deposited and is predicated upon
something exchanged. The Mayor of Manila cannot invoke Article 719 of the Civil Code which requires
the finder to deposit the thing with the Mayor only when the previous possessor is unknown. In this case,
a must return the bag of money to the bank as the previous possessor and known owner (Arts. 719 and
1990, Civil Code.)